Untitled Texas Attorney General Opinion

J-0 11, 1949
:

Hon. ,J.Y. Felkner Opinion Noo,V-842.
Banking Conanisrloner
Au&In, Texas Re: Eligibilityof the
State Traemaror te
not es.tl=u8teo~f'er
mm: H.I.,Be&son i corporetion ieau-
Doputj Sealking lag seallritlrrllndw
CQ~SShXWP titiole 1524a(v.C.S.).
Conritrwtloao$ a
proposed trust dgrrs-
mmt,~.end epplioebll*
ity of Artlola 696
(V4.S.).
Deer sir:
mu hero rsquestod the reoonsldaretionof
Opinion Ho. V-483 by this office. Pour original ra-
quoat is res&hd a8 follour:
"The Sem liouatonIhiderwriters,Incr
OS Hou8ton, Texas la.8 dan*stlo serpora-
tioh hevlng &am granted a oherter by the
Saorrt~ of State on July 3, 1947, with
Sub-So&Ion 49 of Artlale 1302, Revised
Civil sptutas or Tixe.8,&I its purpoas
OhlaB Ui, bJ +irtUo of anid ~oWVZ%, it
la under the gdnoral aupsmielon of this
Bapertment pn aaoordaaor with the provia-
16~ of Artiols,1624a,Rerlaod Civil.
Statutes of Tans.
Q@ld c¶tion now propores to
lssue.end soil to the conoral puUo a
Siftren-tmr Maturity undwwritor~ Bond
sub oOt ta the proVlslon8 of Emotion 7
of irtlolb 2524ao,Rsvised.CltllStetutas
of Teum, whhhprovldm for oelletorel-
ieetlo*..,ti
La1 o&steadl~ bomPs,.akoter,
cartiiioatsa;daInntur~s ~a@ @iabr eblii
getionl$8vla l.mTrus by ~~0ur1t1.8 of tlro
reesmebls urket relue equeling et leest
at lll tinba tho faae value of suoh obll-
getions, which amuritiis ahell ba pleood
 Hon. J. 88.Folkimr - Pees 2 (V-842)

ln.t,he hands of e oorpOr0tiOn h0vi trust
powvrs opprovod by the IkanLrlnyCf’s3 rrloaer
of Texas, as Trustee, under e trust egros-
.’. moat or at the option of eny such oar
tltinwhloh sells in Texes-such vbll$eI?--
loss
es heretofora referred to, such aorpvretloki
mey, upon applicetlonto end epprotel brrthe
ccwl8sionor, deposit aoourlt%vr
fi?ii%a 8tatv Trvasursr of T&x&s m&r a
trust e@sammnt la llou of auoh d-apelta
with e Truotev as set forth hsrelPabvva,
Ns~bJeotCvrpvretlonhea Ouhrittodfor
the Coml~~Ionbr~a epprora& its tmut ipba-
-0-y thb Wets 'Treeaurrr *a Timtea,
tvgvtherrtit 0 speoiran of the bvnllfob-
ligatloa rhfallIt propo8va to abll. lo va-
olvar'sa~4 IfWmiwnta aad, in ooanwliian
tkarvvlthtt&w fvllvwlng questions erv lub i
mlt#d fvrm oplnivns
: "lo h ths torma end condkons vi
thv t&M ~onturv vuch as to rerreat'tho
approtel thmvof by tha B Cvmlaaivner?
: .,
"2* wouu the St&t; Treeeurer., tlr- '
tam OS his crfflalaloepeoity,bo &l&17 I.8to
rot u T&uatU.p*ll)r th etirma vi th 6lnb dt-
tee ttiut La dvh -tur a ?
"30 Ia the proposed bond oo~,idmM to
be ln..la$elSvma ed doa? It oou WOhim tko
claaa vi inatoracl&#or &I. at&ma atvatloa-
od $.nJtitivW'? vi Artlok 1241;
4 Il~~Sao~
civil 8tatMva vi 2 x08? .If so, .wvaldtha
pr+la,ivaa,bf'A&lo(l6 BM,.hvvlaed Civil
St0tutcis of TeXU, ala0 applft”

. Yvu have aLao raqmat W up~a mom&d-
*r&ion ths bond rvferrsd tv so 1)eldby the 8U
. Svuitam ~ndvrwr%tvra,lgw,;lo o vf obli~etlcm .
m@.P ovlletorelit*tlvn,m a6 to the eromtr
far whlo
"g oaoh bond la TV bv ool;l.rtsrgl~aed~
FOP th0p\rrpoae of thlr B#,$.@ba, queatlona (1)
end (2) am QlaaurseQ 0ad enawanwe th@thvr,
Tbo psrtimant rovlaiona of 8vatilon7 of &t-l-
010 1624e,,Varnom~aClriE ntetutr a ,lpv as ~ollvwar
Hon. J. I(.Falkner - Page 3 (V-842)

"All bonds, notes, aortifioetes,debon-
turas, or athe+ vbllgetlons sold In Texas by
my corporationeffeated by a provlsZon of
this &et shall bd scoured by securitiesof'
the reasonablemarket value, equaling at least
et ell tiaeo the Sam value of such bonds,
notes, oortlSlaetea,debentures or other obll-
getlons. IS such aorporatlon sells in Texas,
bonds, notes, osrtlSloetss,dsbentures,.,or
other obligationsupon which it receives ln-
stallaentpaJluntsp auoh bondag noteso cei%l-
Tloates, deb@ntuIWs ana other obligations
shall be mowed at all tlmea by seourltles
having the reasonable market value equal to
the wlthdi5awLlor oauosllatlou value of such
obligatlcmsoutstsndiag,,Said ssourltles
shall be.&laCmd.Luthe h@ds of a eorporatlon
powera approved by the Banking
brii~lng.trust
Conpnlssiotaer
of Texas.as Trustes under e trust
agree&&t, the terms of which shall be opprov-
ed In writIn&-.hy.
tbe...Banklngnp~ssloaer vi
Taxes, or et the option .oSany lrachoorpora-
tlon wh.&h sells In Texea* bonds, notes, oer-
tifioetes,debentures,or other obligations
upon which it receives instel&f@ pag*lents,
such corporationmay upon appllaat$otl t@,.and
approval by, the Banking C~asiotier of
Texas deposit-securitiaxhaving a reas&abIe
market value equal to the withdrawal or cen-
oellatlon value of such obligations outstand-
ing with the State Treasurer of Texas in lieu
of such depositirWith e Trustee as set forth
heroinabove, o Q on (Enlphesissupplied,.)
The underwriter*sbond issued by the ~QPI
Houston Underwriters,Inc., la what ia kuoWn as a asin-
gle-payment"type of bond or obligation iu that the en-
tire considerationfor the sale thereof is payeble at
the time of its delivery,'end therefore is not the tVpe
of bond referred to in Sac, 7 upon which the Issuer re-
oelves a considerationlln installment paylllenta+"
Under the pro&Ions of Section ?‘ab& quot-
ed It is mandatorg that the collateral securing the Un-
derwritersBonds be placed In the hauds of a corpora-
tion having trust powers approved by the Banking Commis-
sloner of Texas as Trustee under a trust agreemesit,the
tams of which shall be ep~reved in wrltlngby the Bank-
ing c~ssloner of Texas, end the State Treasurer in

:
Non 3’.!:.F!nI.knur
_ I’afsQ
4 (V-842)

his Sficlal aepacity would not be eligible to aot as
Truetee, If tbo.Und4rwritsrs~Bon~s in qu4sti4zl VW4
#old upon tho’installmont@RA, tlieAat tb4 4ptiCm of
the 3an1&lUSt7OA Fnd4I'Ur~tOlW, IIIO., .tb4 d4 pet ot’the
collitsra3. aeour~ti4s could be.mads with t”b,@ats
Treaaur4.rin the:mannerand form provided @r Jjsbtlan
.7,,b@ since the Underwriters,Bondsin question are
not being sold upoAth ins
-~%3ing14-paym6nCnplan, it is
tloh.ha
*g.irW;...~yugt.~powrs,
ap
'miaglich ~P'tii:d:'~iigt44bc @pp
dltfom W :t+ tjlpst.$ndelItur
tcate@~:Uptiti the ii~@+d2.l~y 0
act.as Trustee, $0 no+ WtWd
Odmiesimaer
29 ary t;heref

.a14
 Hon. J. M. FaUmr - Page 6 (V-842)

Houston Undorwritore,Inc., shrll be swmrod by 444w-
itiee of th4 r4asenablemarl& valme equal* et 14ast
at all timoa the face value of suah bon&--or other ob-
lIRetI4As. Under the express pmwiaions of th4,bond
ia qu4stioA, the isstur, 9u EoulltOAmdorwrit4rs, IAN.,
is obligatsd to pay to the bondholdsrflft44n ywrs
from the date of the bond the mm of )l,OOO.OO or mw4,
whleh shall oonsist of (A) $750.OO'Inoash; (B) 25 ful-
ly ~Id~AOA-as8lOstiablO shar.8 Of the capital stock of
Sam Houston Undmrw&itetis, IPC., valuod,$or the purpode
of the bond at #2SO.O0; and (C) such annual bwuwoa
as may acoru4 to the bondhoid4r undrr the other provia-
iOASiof t&.bond. The oompanj further obll atra 1tsel.f
wIthIn thirty day8 rratatha data.of.th.4 bon 8 tq dellvor
to the bondholder the 26 rharws of staak r4farMd to 'iA
(B) aboro,'md further obllgatos itself at my t3.m af-
ter the 4~d 0r ths first y4rr,frn the'date oi the bond
or at the end of an) suoooedlngyear thdroefterc) to par
to tha bondholdar the 4ash aurrendm valu4 themof aa
s4t'fOrth IA the table On page 3 of the bond, both of
uhich obligationsuw dlreot obligationsof th4 iaauor.
‘fh4 issuer has'& direct obligation to perfomi
all of the oond~tia~~Imp4sod upon It adsr the terms of
the %tdoiwrltem%Bonds aAd upon Its fail- to,pez'fm
e of swh obl&b9ilmse..%ha.Lammr.wouldb4 subject t0
a judgment ior the ~poriflo performem o OS suaktobllgw
tione Or in.lima theroof$ &Ad'-iAthe OrOAt of its in+bil-
ity to perlorm Its obliglition, to,dolirortlu 8herW of
stook in qAaatirn,'it roald ba lIabl4 ir &nag@8 for the
noAperf4rmaA4 4 of such abll'grtI4A..
Howe94r, that prrt of ths UAdOrWrit4rs Bond
(B) which provides for the twenty-five (25) fully paid
nanars4ssable ahares of capital stook of th4 aomp
hmein valued at Two Hum&?ed Fifty Dollars ($260*OO Is
not aA "other (diMat.) 4buatioA rlthin thg.neaning
of Sootion 7, Art1414 1524a, which would require Its
oollatoralisatlontherounder. The toti "other obliga-
tionen as ue4d IA Artlolo 1624a means direct
4blIgatiOAs of the lesu~$ ay*bX4 in fixed
a8 bonds, notea, &4aw.fim L b *ad ,dclbentulwr.
8.4 Oman
corpI v. lau.BOO% CO.~,177 ~18, 49, 187 IT& 606 Tmd,

It Is th4I'Of&Wethe OpiAiOA of this offi, that
.. the bond in question Is such a bond or other obligatloa
of the Sam Houston Undsruritera,Inc., whloh Is roqulred
to be collaterallse~under the provisions of SOOtiOA'7~
&-?ticle1524a, V.C.S.; and the faglure to col3.at4ral~t4
tlloaobonds by~tha issum b4forr offer- them for dale
or selling then would subj.4attti comppny to tha patiOIt
 Hon. J..M. Palkner - rage 6 (V-642)

Preeoribed In tho la& paragraph of:motion 7, whloh
would bo tho forfeitureof Its ohartor and a receiver-
ship at the suit of the Attorney General brought at
iy;;;geet of the Bankl~ CommIsslonerof the State
*
The UndorwrltorrBond oontaine the tollowing
provialonat the bettor of page 1:
“An amount oqud to ‘or In ucoin of
the Guaranteed Cash SurrenderVoluo.of this
Bond shall be invested tn United Stat08
Government Bonds, First.xortgagoLoans on
real estate situated in the Stat0 ol Toxae
.and/orother eeourltlaswhioh ar*'qualifIed
inverrtmontfor the Capital Stoats,Surplus
and Ramlive funds of an Old Line Legal Re-
BOFVO Life Insurance Compan~.aud$bo.sa$d
aeourltlss shall be deposited in Trust with
the Treasurer of the State af bxea.as ro-.
&r~dkgT~sBj~ Cotiaslollei'of tho
or the bonoflt of tho Bond-
holderso The sosurltlosheroin referrid to
shall at all times have a roraonabloarrket
value equal to the maratood ea@h value of
this rmd.al.1other Binidaof this clam out-
stand~o"
thus c&ljIng~wIth tho pFovIsIon of so&ion 7 last
above quotod requiring a doflnlto dosorlptlonof tho
oharaotor of aollatoral roourlng tho pryaont of mob
.' obligation.
The proposod underwritor*n:bond ir In legal
form and OQOI uithin the class of Iastrmnontaor obllo
gatlons mentioned In Seetlon 7 of Article 1524a, R.C.S,
of Texaco,and rhou&d be oollatqralicadin aooordanco
with theiprovlsto~baf Saetlon 7 for oollat6ralIzation
of a ueIngle~pa~tn bond or othor obligation. Sin00
the underwrltercrBond la #old upon the "rlwl~-
plan and not upon the *partIrbpayMnt or Inrt
plan," tho provlaiona OS AFtIolo 696, Tit10 21, Revised
ClvIl.Statutoa,arr not applicable. .
Sinoo it Is tho oplnlon of this ofilcw that
the UndorwrltsraBond rororrod to 1s the trpe of ablI#a-
tlon roquirlng ool.latoralleatIonas a *rlngle-payment
bond or obligation,you requort our opinion ab td tho
amount for which said boqd I* to be oollatorallred.
r

Hon. J. Y. Falkn9r - ?ago 7 (V-&i2)
.

while the free of thr.bon@ rlmarll~ call8
for tho paymotitto tha bondhol0m b$ thd irruer of the
~sum of $l,OOO.OO or awe at the explratloziof 15 year8
from date theroof, qevertholescl, upon the delivery to
tho.boudholderof.the 25 8,bnrelr of th9 capital stock
'.ofthe company at tb8 rgrood valuation 9f $260.00, that
part of the obllgrtlon of the 188~6~ ha9 been dlsoharg-
ed, whIoh leaves the obllgatlonof th9 %rruer In full
force and effeot to py &t mhturitp ,#ta the 8um of
@O.OO In cash, the Guaranteed l&tii&y Value,' plu8
any bonuses rooeIre&undop olauso fc), which are of no
fixed amount and may posalbly be of no amount at all*
The tcras of the bond a180 0411 for the pawest to the
bondho&iierof o9rtaj.n&umo lieted under the guaranteed
ohah #mrrender Valw QlLphgS 3 6f the bond upon oortaln
ly9ntuaUt1.r~

mnoad-th9 n$ao6 yalu& of $ho Unde~Itq,$a Bond
which nuet be SrpOrbd #t all tIaiesb qMuFltlo8 of the
reasonable mark9t orLu9 theroef U$ $$e@,+@; .9&dtho laank-
Ca8nel88io~ of Texas should rrqU%r9 +$%a%surk under-
9 tbr*s bond b9 ool~@taralIeedby ti9 (196ait with tho
9r
Trurtee of ruoh reo~itlos a8 may W9 r;j$$i+medby hIa which
have a roaecnrble qll?ket valuo oquiNkot tr t&at U(cunt,
opinion Ho. V-483, approvd
overruled.

!i!Qlw

The Stbto Troasuror of Poxha I8 not oll-
&lb19 to act a9 TruatloeSor a odn;r)rorat.lon
ire
s~bondu or ot&or obligaticum'undm tll9
provlalens 6f brt. lS24r, V,U.S., Wbloh ara.

.
Eon. J. H, Falknor - Pa&O 8 (v-842)

c, Ke Rlahard8.
cm :wb A88htut