THEATJTORNEY GENERAL
OFTEXAS
Gerald C. Mann AUSTXN~~.-~'EXA~
ATTOxcNF,Y ‘:rENr!2HAr.
Hon. Jno. Q0 McAdams Opinion No. O-5724
Coulml.ssioner, Depart- Rer Construction of Articles 1524a
ment of Banking and 696, of the Revised Civil Stat-
Austin, Texas utes, with respect to depositing
securities by loan and brokerage com-
Dear Mr. McAdams: panles.
You request an opinion from this Department in the
following letter:
“Two companies hold charters under Article
1303b of the Revised Civil Statutes of Texas for
1925. Both companies up to now have engaged only
in the business of accumulating and lending money.
The companies now propose to issue face amount
installment certificates as authorized by 1303b
and 1524a, Revised Civil Statutes for 1925. The
issue and sale of these certificates, however, are
to be only in connection with loans made by the
respective companies. No certificates will be
sold to any person other than a borrower from the
company. No certificate will be sold in an amount
in excess of the amount loaned to the purchaser.
No general offering to the public of these certi-
ficates will be made. No part of the capital of
either company is to be raised by the issuance and
sale of these certificates. The sole purpose to
be accomplished by the issue and sale of such cer-
tificates is to afford the borrower a convenient
plan for savings to repay his loan obligation at
its maturity.
“We would like to Imow whether loan and brok-
erage companies issuing debentures and certificates
upon which they are to receive installment payments
under Article 1524a Revised Civil Statutes of 1925
in the manner set out above are also re uired to
make the deposit provided by Article 69% Title 21
of the same statute.‘*
Section 7, of Article 1524a, Vernon’s Revised Civil
Statutes, as amended in 1937, 45th Legislature, p. 405, Chap.
204, Sec. 2, contains the following:
Hon. Jno. Q. McAdams, page 2 (O-5724)
“All bonds, notes, certificates drben-
tures, or other obligations sold in !.‘exas by
any corporation affected by a provision of
this Act shall be secured by securities of the
reasonable market value, equaling at least at
all times the face value of such bonds, notes,
certificates, debentures or other obligations.
If such corporation sells in Texas bonds, notes,
certificates, debentures or other obligations
upon which it receives installment payments,
such bonds, notes, certificates, debentures and
other obligations shall be secured at all times
by securities having the reasonable market value
equal to the withdrawal or cancellation value
of such obligations outstanding. Said securi-
ties shall be placed in the hands of a corpora-
tion having trust powers approved by the Bank-
ing Commissioner of Texas as Trustee under a
trust agreement, the terms of which shall be
approved in writing by the Banking Commissioner
o,f Texas, or at the option of any such corpora-
tion which sells in Texas bonds, notes, certi-
ficates, debentures or other obligations upon
which it receives installment payments, such
corporation may upon application to, and approv-
al by, the Banking Commissioner of Texas deposit
securities having a reasonable market value equal
to the withdrawal or cancellation value of such
obligations outstanding with the State Treasurer
of Texas in lieu of such deposits with a Trustee
as set forth hereinabove, ***.
“Any such corporation which sells in Texas
bonds, notes, certificates, debentures or other
obligations upon which it receives installment
payments, which upon the effective date of this
Act has securities deposited with a Trustee here-
under, may, with the written consent of the Bank-
ing Commissioner continue under said trust agree-
ment , and/or agreements as to bonds, notes, cer-
tificates, debentures or other obligations
already sold in Texas upon which it receives in-
stallment payments, and avail itself of the
option to deposit such securities as to future
sales of said obligations with the State Treas-
urer of Texas by complying with this Act in the
same manner that a corporation hereafter organ-
ized would be required to comply with this Act.
_-
Hon. Jno. Q. McAdams, page 3 (O-5724)
“All cash or securities left with the State
Treasurer in compliance with Article 696, Revised
Civil Statutes of 1925, shall be considered as
part of the collateral required under this section.”
It has been held by this Department that the securi-
ties deposited under Article 696, of the Revised Civil Statutes,
are for creditors of the depositing corporation generally, and
not specially for its Texas creditors. (See opinion of Mr.
Richard Brooks, Assistant Attorney General, of date May ll,s1e9838’
addressed to Honorable Charley Lockhart, State Treasurer. ,
also, opinion by Assistant Attorney General Cureton, June 17,
1917, Opinions Attorney General, 1916-1918, p. 202). The opin-
ion by Mr. Brooks likewise held that securities deposited un-
der the requirement of Section 7 of the Loan and Brokerage Corn:
panics’ Act are exclusively for the benefit of holders of ob-
ligations sold in Texas.
It will be seen that the Loan and Brokerage Companies
hct (Article 152&a) requires such company issuing and selling to
the public its bonds or other securities in Texas to keep its
outstanding obligations secured “at all times”, to the extent
therein stated, while Article 696 does not require such continu-
ous collateral security. There can be no doubt of the Banking
Commissioner’s authority to require companies operating under
Article 1524a to keep its outstanding obligations collateral-
ized at a 1 tw but such power does not exist under Article
696, as above sta;ed.
We are of the opinion the provision above quoted,
that securities deposited with the State Treasurer under Arti-
cle 696, may be considered as part of the collateral security
required by Article 1524a, is a privilege extended to the cor-
poration, but there is nothing to be found in either Act that
would justify the construction that an issuing company would be
required to do more than to collateralize its outstanding obli-
gations sold in Texas with securities deposited under Article
1524a, either with the State Treasurer, in the exercise of its
option, or with a trustee, as provided for in Article 152&a.
To keep such outstanding obligations collateralized
in a manner here indicated would be a full compliance with
every requirement, and meet every purpose of the Loan and Brok-
erage Companies Act.
-- ,_
Hon. Jno. Q* McAdams, page 4 (O-5724)
Trusting that what we have said is sufficient an-
swer to your inquiry, we are
Very truly yours
ATTORNEYGEiNERALOF TEXAS
By /s/ Ocie Speer
Ocle Speer, Assistant
APPROVEDDEC 3, 1943
/s/ Grover Sellers
FIRST ASSISTANT ATTORNEYGENERAL
APPROVED: OPINION COMMITTEE
BY: BWB, CHAIRMAN
OS-MRrwb