H~~:~~TIYORNEY GENERAL
EXAS
Hon. Lee Brady Opinion No. O-2714
Banking Commissioner Re: Security deposited under trust
Austin, Texas indenture~is for benefit for Texas
certificate holders.
Dear Sir:
For a full understanding of the problems involved in
your inquiry of January 10, 1941, we deem it essential to here
set out your request in full:
Investors Syndicate is a Minnesota corporation au-
thorized to do business in Texas under Section 48 of
Article 1302, and is subject to the provisions of Sen-
ate Bill 165, Acts of the 45th Legislature, commonly
known as the Loan and Brokerage law.
“On January 19, 1932, the Investors Syndicate, on
one part, and Guardian Trust Company as Trustee, on the
other part, executed a trust indenture, a copy of which
is hereto attached. This indenture was approved by the
Banking Commissioner on June 20, 1932. Pursuant to this
indenture the Investors Syndicate sold bonds of the char-
acter attached to the original trust indenture, both in
Texas and ia most of the other states in the Union.
Seemingly, the Investors Syndicate construed this trust
indenture to secure the payment only of the bonds sold
in Texas, despite the fact that bonds identical in every
respect were sold elsewhere. Following that construc-
tion the Investors Syndicate deposited with the Trustee,
under this indenture, collateral equal only to the with-
drawal value of bonds sold in Texas.
“011 August 28, 1934, Investors Syndicate prepared,
and caused to be approved, by the Banking Commissioner,
its ‘10 year coupon and annuity certificate’ aa its’10
year -single payment certificate’, copies of -which are
hereto at?ached and marked ‘Exhibits A & B’. Bonds iden-
tical to these exhibits were sold both in, Texas and in
other states, but the Syndicate construing the indenture
to secure only those bonds of this type sold in Texas,
maintained with the trustee collateral equal only to
the withdrawal value of the bonds sold in Texas. At an
undetermined date the Investors Syndicate prepared, and
had approved by the Banking Commissioner, its ‘10 year
. .
Hon. Lee Brady, page 2 (O-2714)
coupon certificate’, ‘10 year coupon and annuity
certificate’, and !15-year installment investment
certificate I, copies of which are hereto attached
and marked respectively ‘Exhibit C, D & El. These
certificates were likewise sold both-in Texas, and
in other states and the Syndicate has maintained
collateral with the Trustee only to the extent of
the withdrawal value of the bonds of this character
sold in Texas.
“On July 6, 1936, Investors Syndicate prepared
and caused to be approved, its ‘10 year single pay-
ment certificate I, ‘10 year coupon and annuity cer-
tificate’ , and its !investment contract’, copies of
which are hereto attached and marked respectively
‘Exhibits F, G, & H’. These last three bonds are
generally referred to as ‘Series M bonds’. You will
note the printed sticker which is attached to each
of these bonds. These bonds were likewise sold in
Texas and in other states. However, the bonds sold
outside of Texas did not carry the printed sticker
above referred to. The Investors Syndicate likewise
construed the trust indenture to secure only those
bonds equal to the withdrawal value of Texas bonds.
“It is my understanding that during this entire
period the Investors Syndicate maintained a general
trust indenture by which it intended to secure bonds
sold in those states which did not require a local
trust indenture, or which required no trust indenture
at all. In other states, as in Texas, where the law
or state authority required a local trust indenture,
the Syndicate executed trust indentures in favor of
local trustees and presumptively intended that the
bonds sold in each of these states would be respect-
ively secured by the trust indenture required by such
states. No trust indenture other than the indenture
executed by the Syndicate in favor of Guardian Trust
Company was ever presented to the Banking Commissioner
of Texas, or ever approved by hiti. We have no knowl-
edge or information as to the character of collateral
held by the several trustees, nor the amount of col-
lateral. We are advised by the Investors Syndicate
that these trust indentures do exist and that the sum
total of all collateral held by all the trustees is
at least equal to the sum total of withdrawal value
on all bonds sold throughout the United States.
“Your attention is directed to the fact that un-
der the provisions of Senate Bill 165, the Banking
. -
Hon. Lee Brady, page 3 (O-2714)
Commissioner is required to approve both the trustee
named, the trust indenture, (which, under the law
must describe the character of collateral) and the
bond to be sold.
“In the light of the above, we respectfully sub-
mit the following questions:
“1. Are bonds of the kind and character origi-
nally ‘attached to the .trust indenture and sold out-
side of the State of Texas secured by the trust in-
denture?
“2 : Are bonds of the character shown in Exhibits
i, B.,C. D, and E, which were sold by the Investors
Syndicate.outside of the State of Texas, secured by
the Trust indenture?
#3. Are bonds of the character shown, as Exhibits
F, G. & H, not bearing the printed sticker and sol,d
outside of the State of Texas secured by this trust
indenture?
"4. If, in answer to any of the above questions,
you have held that any of these bonds sold outside of
the State of Texas, are secured by this trust indenture,
then is the Investors Syndicate complying with the re-
quirement of Texas law by maintaining with the trustee
collateral of a value equal to the withdrawal value of
the bonds secured by the trust indenture?
“5. If you have held that the Investors Syndicate
is not complying with provisions of Texas law, in thcit
it is not maintaining adequ.ate collateral under the
trust indenture, may the Investors Syndicate legal,ly
collect future installments on bonds heretofore sold fn
Texas and not outstanding in the hands of Texas inves-
tors?
'"6. If you have held that the Investors Syndicate
cannot legally collect future installments on its bonds,
as contemplated in Question 5 above, is it the duty of
the Banking Commissioner to prohibit the collection of
such future installments until such time as the Inves-
tors Syndicate has deposited collateral with the trustee
equal to the withdrawal value of bonds outstanding and
secured by trust indenture?”
.
Senate Bill 165, acts of the 42nd Legislature, thereaf-
ter amended, and now known as Article 1524a of the Revised Civil
Hon. Lee Brady, page 4 (O-2714)
Statutes is a comprehensive act for the supervision and regula-
tion of corporations, both domestic and foreign, dealing in
the business of loaning money and dealing in bonds and securi-
ties, without banking and discounting privileges. Section 7
thereof, with which we are here concerned, reads in part:
“All bonds, notes, certificates, debentures, or
other obligations sold in Texas by any corporation
affected by a provision of this Act shall be Secured
bv securities of the reasonabluarket value. eaual-
ea t at all times the fa e value of such
!?%i$! ioke”s. ce rtificates. debeitures o th obli.-
If such corporation sells in Tzxzs E&ds
few certificates, debentures or other obligatio&
upon :hich it receives installment payments such
bonds, notes, certificates, debentures and &her ob-
ligations sh a11 be set ure d at all times by securities
havinp the reason&le market value eaual to the with-
&-wla a o r cancellation valu of u h obliaations ut-
standigg. Said securities zhallsbt placed in the’
hands of a corporation having trust powers approved
by the Banking Commissioner of Texas as Trustee under
a trust agreement, the terms of which shall be approved
in writing by the Banking Commissioner of Texas, or at
the option of any such corporation which sells in
Texas bonds, notes, certificates, debentures or other
obligations upon which it receives installment pay-
ments , such corporation may upon application to, and
approval by, the Banking Commissioner of Texas deposit
securities having a reasonable market value equal to
the withdrawal or cancellation value of such obliga-
tions outstanding with the State Treasurer of Texas
in lieu of such deposits with a Trustee as set forth
hereinabove, . . .‘I (Underscoring ours>
We are not called upon and consequently do not pass
upon the question of whether or not the statute within itself
is sufficient to create a lien upon the funds required to be de-
posited thereunder in favor of Texas purchasers of bonds or cer-
tificates. This necessity is eliminated by the fact that the
determination of such question rests upon construction of a con-
tract and not upon statute.
After the passage of such act Investors Syndicate made
and entered into a trust agreement pursuant to the authority con-
tained in the above quoted section. The agreement, dated Janu-
ary 19, .1932, between Investors Syndicate as the party of the
first part and Guardian Trust Company as trustee is a third party
beneficiary contract, the beneficiaries being the purchasers of
bonds secured under the terms of such contract. We must look
therefore to the contract for the creation and existence of the
Hon. Lee Brady, page 5 (O-2714)
lien granted in favor of creditors by virtue of their acqui si-
tion of, bonds ore dertificates and for the determination of what
creditors, are secured, thereby.
The trust agreement consists of 18 pages and because
of the d,isposition to ,be~made of the questions before us we do
not deem .it nec:essary to here set out ‘the terms of such indenture e
We are not requested to, and do snot pass upon the question of
whether or not such indenture adequately describes the character
of collateral deposited,with the trustee as required under the
terms of Senate Bill 165. Suffice it to say that the indenture
is vague; indefinite and uncertain in many respects. We believe,
however, that the certified copy of the resolution of the Board
of Direct;ors of Investor~s Syndicate attached to and made a part
of,the trust agreement negatives the possibility that the funds
deposited thereunder can stand as security for any other than
Texas purchasers.
The second paragraph of the trust agreement reads in
part:
‘WHEREAS,the Company has determined for its cor-
porate purposes to execute, issue and sell, its Bonds,
as provided for hereunder, and to secure the same as
herein provided, and has full corporate power and au-
thority so to execute, issue, sell and secure the same,
and the execution of this instrument has been fully
authorized by the Board of Directors of the Company, a
certified copy of the resolution or order, authorizing
its ezecution 1,s h eret o attached and made a Dart hereof,
. . .
The resolution referred to in the paragraph next herein-
above reads:
~QISSOLVED, that the Board of Directors hereby au-
thorizes the execution of a collateral trust agreement
dated January 19, 1932, between Investors Syndicate and
the Guardian Trust Company of Houston, Texas, covering
m deoosit of securities for the benefit of nurchaserg
gfeInvestors Syndicate Certificates in Texas subsequent ,j
to May 22, 1931, and B. E. Grabb, Vice President and
E. M. Richardson, Secretary, are hereby authorized to
execute said trust agreement on behalf of Investors Syn-
dicate.” (Unde:~~scoring ours)
The words “deposit of securities for the benefit of pur-
chasers of . . . Certificates in Texas” are a definite and ex-
press limitation of the deposit as security for those bonds sold
in Texas. No citation of authorities is required to support the
principle of law that an exhibit attached to an agreement and
Hon. Lee Brady, page 6 (o-2714)
expressly made a part thereof by appropriate language consti-
tutes a part of such agreement just as effectively as if set
out in full in the body of the agreement.
It ne.cessarily follows therefore that all your ques-
tions are disposed of by our conclusion that the trust agree-
ment presented secures Texas purchasers only.
Yours very truly
BTTORNEY
GENERAL
OF TEXAS
tiy /s/ Lloyd &strong
Lloyd Armstrong) hSiStant
APPROVED FEB 24, 1941
/s/ Gerald C. Mann
ATTORNEY GENERALOF TEXAS
APPROVED:OPINION COMMITTEE
BY: RWF, CHAIRMAN
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