Untitled Texas Attorney General Opinion

OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN

~onortblt Jno. Q. Litldua, Commisdonu
State Dejwtl;snt of buikbg
Austin, rexas

apon thhr above
subject-Eattar t to the bet
th8t it sets S particular trrns-
action under r

tfon to Artiolt 1X24*, and
bb o? nection 12 fhereoi,

8 “bondE, ‘notefl, ‘Otrti~~t-
and 'other ebli~~tions~,
8 Aet, ahall nbt bb aonstrabd
luds nottS errouted by eorpom-
and other fintntit1 tnstita-
uy borrowed by sueb eorpOrstlOn8
tht utatl tourtt of itr badattr.*

lPtrttotort this Dqmrtotnt
has prmumed tbbt cor-
porations org8nlseui pursuaat to thb
prori0lons st Arti
l.524a rbl~b hart sold ~a i8SuS of bdnG8, nSt.8, SSrtifiostts,
debeaturss and otbr oblig8tlons to a finbnoial institution
tar the purpose of obtaining worw capital to be used by
said corpomtion in the ususl ooursb tt its Budntss mss tx-
sludsd from Obetlon 2 oi the Sb.orS lea tlo ned
Artisle which
ha8 to do with the bXSminStiOS of W& SOrpOmtioaS ml~!tlly
or ofttntr b7 ths Bei~k.ingComndssioner of Texas.
~snocrble Jao. U* LiCAdsms - pagO 2

‘it it rboald bb held tb8t the only sxsluslon
ffrOD tbt prOViSiOn Of tb8 tit %I3 it8 SIBthat iS ill
sonnsatloa with laoto* ebligationm th8t uo OxeoutsU
by oorporst~oas to banks end OtbOP ~Inswial institu-
tions, ChSS it Sould aem ImpOrtWIt iOr tbls Deputmcmt
to be rdVi.Sbd 88 CO &iStil#uiShing ebuaoteristies bs-
trosn OOLOS ud Ihb 8tbSr type 9i obllgstloas rbhb uw
rsiarrtd to in the 18S. CO-TIC, beads, of!Ftiila~tbs, de-
bbDtWS0~ bt0. the ?mJs of thb roasoalng on the put
sf this DepsrtsMnt la rbspSot to tbs prooadure which it
haa rolloral h88 bbon to the tifebt that the exsminstion
of amb aorporulons tmbrsot a publio latrrest in tbb
ssnse of lndlrldusl cltistas orning tbb obli~8tlons sf
suok CorpOrStions and th8t the 69mb pub110 intbrost did
BOt present itseir in the oass of l flnanaial lnnitu-
tiona auetr 8s ua lkmur8no~ cornpony emlag the bonds,
mrtUiobtta, debentures and other type ot ob\ig~tions
issued by oorpontloas orgrnised pur8u8nt to lrtltlo
is240 g
*se therefore solisit your sdrlca as to whether
or not this Ceputo?cnt roust give Iltersl InteFprctstion
LO the lant senttaet of Saatior 12 et the Act rbiah roultl
swsi to ueludt only notes eseCutsd by oorporstlo~s and
held by GthCr iinancl~st1tutions and, thus requlrc
ttA8 Litpartaent to sxarAac wmmll~ or oftentr those cor-
porations which bare lssuod any other typb of obtlfrtion
won though &he as&e is bald by a financial institution.
10 this OOMS@tiOIB Sb 8Fb PlbSSSd t0 SnSlOSb 8 StT'ibS Of
letters, ldtntitled as Ibrblbit .A', to and frwm Er. Dsx-
tu lisailton, Ro8ldmt of the Southwestern Inestors Cor-
yorstloo or Usllss, Dsilss, texss, thlcb 1s a direct aasc
in point. 28 bbre nob in rbOat 7b8rs bmmla~ this tar-
pOFStiOn, .SltbOUgb their COUDStl SOn8SdsS tbSt thb CorpOrr-
tlun ia subiset to exssAnat1oa by this Dcputmeqt.

thou are further drlsbd that 7ou.r vioss on this
subjeot ssy hats f8r-rtuchin:: tfte8t8, sines it is tntlrt-
17 11~x17 Chat 8 nutbbr of oorpor8tlons organirtd pursuant
t0 ANdOlt lb248 bSlS iSSUbd 8 trpS Of Obli~StiOn, other
than notes, ~hlctr 18 held in its tntirbtf by SODS subdd-
larf corgoratlon propbrly olsssiii8blo 8s 8 iiaraoi8l in-
stitution*

'AS &Wt tS0 Of this inqUil'7, tb sbsuld like 8d-
rice bs to tbc rbspOnslbilit7 of this Depsrttmt whioh ew-
braces k&e msaniog of tbb term (other obli~stians.~ As s
 270

VOnOrublb Jao. Q. LeAd~us - )rgc q

S8SS la pOiS8 SS h t.
lttSabin~ hOtbt0 8 bS18lMS ShoSt
at the &tiOM ciOnOt&l h+OstBsnt Cotpbtatian, Uoust0n,
FOX&*, aa ot OlOW Of busln.88,
Daesmhsr 31, 1919. Turn
bsl8.MO Sb@bt PbflbSts, SmSIk& other tblngs, 8 trust fund
l~&blLit~ ia the Up Sf DO ,oa4 .?l l This p ut1 0u1 u

SOtyOt8tiOO r a a organis $ JSWWbBt to th 8 ptWib.iOM of

fit10 32, r;h8p, 2, APti810 1303b. WI' SbnQbptiOn of the
ttUSt tUti lSOOUDt, bS Shm in the b818DOO &Obt, is
that the WBO l’O@‘tSSlltS L)bmblltS subb by individuals la
CQMWtiOn with 8 trsl OStrtt lora Ubeutbd by certain in-
dl+idUsls 8nd held br subj~t ootpotetloa on 8aaoUm ot
ta% Uod iOtUt8Mb bCOPW1 l

.zO be Lot@ ~p~oltio, TOU We 8dvlmd that r?sny
coryetrilous bbSn Otgnirbd
brvo for the pUtpOSb of band-
ling Sbbt &sy be tbrmsd
Ir. Me A. 1081)x, ths pl8n of opcr-
8tioa SsibtscLng 8n ogreaent on the part at the debtor or
the rypllesnt, Sbo dtslres to finmoe tba putah8sb of 8
hama through subject oorpor8tlon, to ptq not only 8 apeel-
tied 8aouot to be rppllal on the prlncips1 and tntercst
or the POttgbgt 10&D, but Ipr y;rassnt to p8y an 8ddition-
sl mm b&Oh Siontb to bs held by tbs payee ot bolder at the
oiOrt&Pl(O 108ll and St tb0 PrOper time lpplitd in pb~cnt of
the taXiIs Which bare 800FUed dUtin(l; tbQ TtSr S~biYi¶t the
2iortgagtd prap6Xty and, ss iodiebted, t0 8180 prarlds for
inmutance tortrap;s. AOtlUllT, therefore muoh tturt fu?v38
as bald by subjeot ‘ootpor8tion 8nd m8ny atbrrs functioning
in 8 slmil8r o&JWitT 8Fa btld for 8 pbtibd of twelve
&oaths after sblch the trust h a ndlosauni builds up throw
monthly p8ments urd in Lb0 sormsl coursa of bsadllry: is
b&rZ sppllad by tbb ESrtmSS 10 behalf Of tbb @&WK,eS
striah 8eWuo qpinst thhs property owned by the mortgagee.

%s should like Sp~ifi6 8dvlCO tbubfotb a6 to
shsrbtr or no& such 8 trusb tund bOt.OUnt is althin tbe term
,o~Aar obllg8tloo8, as usad in thb 18~ bad, if w, vbetber
or oot It booomss 8auntitorT OS the pat% of this Depart~cnt
IO bXUdBb such COryOrstians that art obll@tal to lnditid-
u81sin such a lrmulsr~

&tie10 lb248 tol;ulsteS the 86tititi68 Ot 10&n
abnd broksryb and Beetioa
aoupsn&bs, 4 tbswaf, iawtu
as psrtintat, 18 Ss fsllaasc
 274

r&lob oorporatioD taot ho8 oora la
Ioxa8 it0 boM0, notrr, r4wrlfioatoo, as-
b~obweo o? otbw lbl~oUon8 or Lo oftor-
lag for wlr la Zaa its bom40, motor,
rrtitiUto@, 4 eb o a turo u
r lth e o b lig e
tiwo, oh11 pubua ir, oomo nowepaper ef
ganro1 8eool~tion in the oount7 rboro it
ham it, )rirmipal ph.. of krdawor, em oe
batoro t&o lat 4rj ol lobruy mob 7.~ l
lta1WW& or itr oon4itioD 01 the prff1oaa
alot 4a7 of Doambew, la oaa form la oy
bo roQuire4 by rho soaklog comismiooer or
rams SbO~iRguR4a OOUI it8 assoto ud
lioWliiib8 and rboll rue l 0 ot awh
sl,otmmitmb with tbo Banki~ Colllr lsiona of
Zaoo, to other rltb a fee of hontpFi+o
Do11um (32 b.00) rr illlag. l l . .*

T&O prtiasme of tbio pCt&iOD IO thot WC-
tien la ei that Aa101* Quota4 by foe iao1rro prsaiM-
17 blr0 MBIO OlOOSO8 Of obligotion~ WUmWOted iD 8-0
tiOD 4.

(1) Uctiun 1824o quote4 b7 7eu
la ot Artiole
•~PVOO and wa8 to lervo
0~17 eao purpose, thot
latetxlcd
lo, Lo exabpt tror the Act in an7 a~6 a&l rmpeoto what-
eww lwteo aocutotl b7 ouch oorporatiooo to boa&~ and
obhc fA~aDCi&l iDOtiiUtiODC for monq borrem4 b7 aob
oorpor8tioos tar U80 iD bh0 Uuol OOUrsO lt it8 buoidaoma.~
u other werbm, uch note0 40 not oom rithia any proris-
ion or the Act - they or0 8pee1f1.8117 asospted. euob
aotoo fr borrow4 8onw,*fr uw in the owol ooltrme or
ISob uo ino O
u;
I’Q
tb a o for cOe
mQthlio
o wo(to
l adl apart
from Um QOD~O, IpotW, oOrt&Cioatea, dabcntures, and
otbef Obli&OtiODO DWtiODbQ tbl’O@OOt the Aot.

Zho writer of tbia opinloa, wbilo am7107a4m
Lb0 bORk&~ ~OOdOdOOQP 00 CWDWl , i8 OpiRiOll HO. @@d
o44reue4 to you, odriosd with rcepaat to a band am Col-
lar:

‘The bond ubittad lo ie tho am of
~#o~&o oodim on0 of l owlem OS bead.
oggfogatlog &ho pr1nelpol w of @Oo#aoO.oo.
it ia poyobls to rtr. ro@otWa4 08n.r LQ
 272

yoncwoble Jm. u. Lcidomu - yoge 6

7oaro a?ta 4at0, providing ror annual
intrsot at ?aur par oeat. It oootoino
no laoolerotioo olouoe for default on4
4000 not pwport to bo aecutad in toror
ef w beak or other tinonoiol inotita-
tioa.

wader Do roaoonable wR8truotioD of
Cbo statute8 lu) it be aold that this ob-
iigmtiw is v0r aone7 borrow4 b7 ooi4
oupOrtMw ior use 10 the tmol ceuroe
Of' it0 bUSiD000.’ Clear17 it is the oouol
0~4 odinor method of ocou6ulotlng 0 copl-
to1 for the proewutloo of its oorporote
purpeoo of lotumuloting, on4 IenUiag meoWa
Tbim lo not tho borrowing of mom!7 @for
UM la the uU01 a0ur00 or its buuDe00.”

ue think bhe o4rioe ~glrea in tbot oplDion tar-
rwtly interprets the statute.
~ot~ithotnndlng the exmiptioo oontoined in Sec-
tion 12, tt lo yet true tbat loan amI brokerage coqmnie~
orgmolred mod operating under Artlole 18210, (1) Kay not
*offar for oolo or 8ell its bonds, noter, eerti?icotco,
debentures or oLhor obligotiOn8 in fexoo* tmlo88 it oh011
bat0 oD oatuol d in eopltol of not lea8 tboa 'fen Tbeus-
on4 ($lo,ooo.oo r' Dollum, (See. 1); (2) lo oubjeot to em-
amlaotion by the umki~g Ceomt88io~ar ii *it boo mold or
otters to sol1 in Texor its bmdo, Doter, certitiootco,
4obentuFeo, or other obli~otiaoog, (Bee. 2); and (1) 011
bonds, ao01e0, oertifiooto8, dCbenture8, or other Obllgo-
tiono sold ln Texas b7 any suab corporotloa, obo\t be se-
cured iD tho ooDllOr pOiDtcd Wt in 6-c. 7 Of the AOC.

Zhe obviouo purpose of exoo&Dotion mad cnlloter-
oilnorion OC the oeeuritieo issued by 8uoh eomponlco lo
the pOteC?tiOD OC the publie. nd.0 puPpoD by P@~~uw Of
the acmptbm lo SW. 12 does not ateul to the proteat-
&on ot bo~ko and 0th~ finonciol lnocitution8 IendiD~
aoaey to sncb oorporotiono tor use in the usual amroe
of their bu01~808~ in this re8peot 8 different ehorooter
Or Qblig8tiOD 10 1D~Omd -- the uouol &tort-time loan.
kmk8 0no other ritt0wol lnotitutioao lending won- r0r
web purpose8 a8 ore uWtioasd irr tb0 otorption belng.mb-
Jeer LO con*taDt aomiDatioa, or0 4Om34 to be wftiUOibt-
17 protected.
 2’73 .
yanoroblo Ju . Qe &cMuo - pago a

Th. ‘bem4s., l 8ortlt~ooto*~, '4rbentorem' )
and lotha' obligotieoo", *a 11804 rhrotyhat the Aot,
m bb. iDOt?UDODt 0 Ot 8hotev.r IWO iO#ed by Lb0
~ompery aad eel4 LO &ho pub110 h tUO0 rOP tbb, per-
psoo of ~suu~loti~ 8 worki@ wpitol rrOaw tbdz
l,,00101 ohorbc WWOF (i0 cWWU~Ot0 Bon- tOP the
plwQ- @ l-44* ahwms, tho apresdon, %onw
&WFOMd w aOh OwpOr8tiO~O tOP US0 ia the uuol
ssuroo of its busiasso* , coatewplotoo Lb0 a-1, ordi-
Dw pCOOM1 IOWO w 8 bask, Or 0-C ti~oaaiol in-
ltitut~oto o meet
, th o ur r ~
mc
c l4 0
o fth e
o o mp a1 nj
8
the peoeoutioR 0r 1ts kOioeoo, obb DOI tor the geat-
@F JNW&4OMOf iDWOOOtDg it8 OpOPOtill# 0O)itOl. It 10,
thorefora, ot DO lmportomr ehmt euch 18mtrux8at or her-
rowlag tror the bank ~7 be 4eaocittmts4 - wbotbar notes,
bond@, OC what DOt -- it is the aabotonme of the trona-
lolioa rotbor than its name that eontrolo khe oraption.
tb0 *Orb rSOte@ UStUt b b@OtiOa 12 4eiiai~ Lb0 emImp-
tiOD &I tbiS OOllD~tiOD i0 USOd tD it0 bread aa4 gemrio
la~mo am wi4o~ln4 rho la4ebte4neoo of a borreuer to a
loader tar the pu~pooo mfmtioaod, regordloom et tha ax-
mot cloodfiootioa at tbe inowumeat evi4moia~ ouch loon.
A simple lOU, 00 nw4rott, or aa7 other r0n oi laRDi ob-
ligation OVidetmiar: the loon, rculd bo mutflciamt.

Again, it tho obli~otion8 0r meh coopany c-0
within the cloo~ of obli@tlono required to be oollatar-
lli8ad, it wuld make oo diftor~0 tbot suoh ioue in
whole or in port bod bow sol4 to ban&a or otbc tlnan-
ci&l inotibuCions, ter tbaf or0 8 port at tbr pubIfs to
whom amh obligotiooo 8to7 mt be sold oxocpt tha7 bo
properly oolloternliosd.
Ab tolloro troa ahot we bore oold that we are
Or tbo lpmon &be departwmtol praotloe rontioned by ~a3
in Lb10 aoanwtiooha8 boca in error.

(2) The term lotbor obligotianti, as used
bIbrougbout uabio Aot, mewm the dircxt abligotion OP
wl',"" loan and brekara40 ocmpel3yor t&r tfpo oi
, laetoo~, loertiiio8teo~ or l4sbenturoo.~ It
is Lb0 ouol on4 vairorm rulo of ceaotruetisn or Ln-
ltruPent0 0aumeroUng oewtoin puticuloro tollr8sd w
the exprSS~lor, .or 0tlmP rrab IDstruBmDtr. It lo what
is &own in leg01 tom0 as tba eluda mnerlr dootrino
or ~10~
t

Ihe llablllt~ or th0 loua and brok@rqw aon,-
pay, frob dome brluroc 8heot y o u quote l*00,0~4,71*,
:s not t&t of 10~ lower or urj gboolt8, aotea, cer-
ttfieatO@, debentures, or other obllgatlonrm , that
soul9 call rer 8uthorlre exanilmtloa
or ot the eon-
oern undS tba Act s
At 1s l llablllty to bo are,
but it ulres out of a tranrrotlon wholly dlr8kllu
tros. tl80 imuanoe o? bond8, note*, certifioates, de-
benturea, and the like.

Of eouree, thla 118bllit~ 1s set within the
exocptloa mntloned la Sestlon 12 at the Aot, that 18,
it is Dot A note or otbw 1Dmtrunant wbstooarar ot the
coupany midcnolng 8 loan for use by the compan~~in
the ururl cowme ot Its buainers.

That web a lfoblltty ml@t be ouch ce could
beookd a serious Batter rlth any going OonearR, i8 ob-
llOU8. kut the romody tor ucb a situatton, lt dis-
COT~~CL!,woulU be for your Departaenl te rclatn Chc
wtter L.0 the Attorney Ciencral for appropriate ciatlan.

Vary truly yourr