Untitled Texas Attorney General Opinion ( 1957 )

THEATTORNEY GENERAL
OFTEmS'
AUSTIN II. TEXAS
March 13, 1957
Iloon. J. M. Falkner, Commissioner Opinion No. WW-44
State Department of Banking
Capital National Bank Building We: Whether Secretary ofiStat& :has
.Austin, Texas the authority to’approve a :
%harter amendnient wh~ich
changes the purpose: cinuse-.of
ricorporatidn.chart~sdd ‘under..
Article i,303b, Vernw’i Civil’
Statutes, 20 da a geheral fiduc-
idr~‘dnd’drpositbrl.busihells
wide L’the: prav i&ions, .:ofiAr ttcte
7.Q1, Texha Insurancd Code,
Dear Mr. Falkner: andrelated questions.
Your letter requesting our opinion relative to the capttoned
matter, consists of five questions, together with the factual situation
involved. Since the factual situation outlined in your request is set
out in great detail, it would unduly lengthen this opinion to quote the
request in full. Therefore, only those facts will be restated which are
deemed necessary as a basis for our answers to the questions propound-
ed.
A corporation was chartered by the Secretary of State In
May, 1947, with a purpose clause to do business for the purposes con-
tained in Article 1303b. Varnoh’s Civil Statutes of Texas (Acts 1927,
40th Leg., Ch. 275, p. 414). The purpose clause is as follows:
“A private corporation may be formed for any one
or more of the folloying purposes, without banking or
insurance privileges: to accumulate and loan money; to
sell and deal in notes, bonds and securities; to act as
Trustee under any lawful express trust committed to it
by contract or will. or under appointment of any court
having jurisdiction of the subject matter, and as agent
for the performance of any lawful act; to subscribe for,
purchase, invest in. hold, own, assign, pledge and other-
wise deal in and dispose of shares of capital stocks,
bonds, mortgages, debentures, notes and other securities
or obligations, contracts and evidences of indebtedness
of foreign or domestic corporations not compethg with
*
Emphases throughout are supplied.
Hon. J. M. Falkner, page 2 (WW-44)
each other in the same line of busineas; to borrow money
or issue debentures for carrying out any or all purposea
above enumerated. Provided that the power and authority
herein conferred shall in no way affect any of the provl-
rlons of the anti-trust laws of ihir Btate.”
On September 14. 1954, the corporation filed a proposed
charter amendment with the Secretary of State: (1) to change the
purpose clause of the corporation, (2) to change the dame of the
corporation, and (3) to increase the capital stock to the sum of
$500,000.00. The amendment proposed to change the purpose clause
of the corporation fro the purposes set forth above to the following:
T
“The purposes for which it is formed is to do
a general fiduciary and depository business, togs
with all other powers claimed tinder Chapter 7,
Article 7.01 through 7.18, inclusive, Insurance Code,
1951, V.A.T.S., and complying with Article 1513,
V.A.T.S., 1925.”
It is noted that the emphaslaed portion of the propoeed
change of the purpose clause is contained ln the purpcae clause
authoriaed by Article 7.01, Texas Insurance Code, which, prior to the
adoption of the Insurance Code , was Article 4969 of Chapter 16, Title
78, Revised Civil Statutes of Texas, 1925. Tbla Article was repealed
by Section 4 of the Texas Insurance Code of 1951, approved June 28,
1951. The pertlncnt part of Article 7.01 of the Insurance Code is as
follows:
“Private corporations may be created to act as
trustee, ualgnee. executor, administrator, guardtan
and receiver, when designated by any pereon, corpor-
ation or court to do so; to do a general fiduciary and
da$osltory buainesst to act as surety and guarantor
of the fidelity of employees, trustbea, executoro, ad-
ministratorn, guardians or others appointed to, or
umuming the performance of any trust, public or
prhats, under appointment of any court or tribunal,
or under contract betwean private individuals or
corporatiolur also upon any bond or bonds that may
be rsqulred to be filed in any judiciary proceedings; . . ..
also to guarantee ury contract or undertaking between
lndIviduals. or between private corporations, or between
lndividuala or private corporations end the State and
munici~l corporrtionr or counties or between torpor-
ations aU ladlvlduals: to act as executor and
testamentary guardtan when designated ~sl``lidd.ccddatf:;
or to act as administrator or guardian when appointed
by any court having jurisdiction; also on any bond or
boadn that may be required of any State official,
dLtrict offlclal, county offlclal or official
Hon. J. H. Falkner, page 3 (WW-44)
of any school district or of any municipality,
provided that the commissioners courts of each
county shall have the right to reject any or all
official bonds made by surety companies and in
their discretion may require any or all officials
to make their official bonds by personal sureties.
II
. . .
At the time the proposed charter amendment was
submitted to the Secretary of State for approval, Article 1314,
Revised Civil Stdtutes of Texas, 1925, as amended by the Acts of
1951, 52nd Legislature, Ch. 166, Sec. 1, p. 284, read as follows:
‘Any private corporation organized or incor-
porated for any purpose mentioned in this title,
may amend or change its charter or act of incor-
poration by filing, authenticated in the same manner
as the original charter, such amendments or changes
with the Secretary of State. A corporation created
by special Act of the Legislature shall also file with
said officer its original charter and such amendments
thereto or changes therein, if any, as have been made
by special Act of the Legislature; and the same shall
be recorded by the Secretary of State, followed by the
proposed amendments or changes thereof. Such
amendments or changes shall take effect and be in
force from the date of the filing thereof. The certifi-
cate of the Secretary of State shall be evidence of such
filing. Any private corporation organized for any
purpose mentioned in this title may change to another
purpose mentioned in this title, by a vote of eighty
(80%) per cent of the outstanding voting stock at a
meeting called for that purpose; provided no amend-
ment or change violative of the Constitution or laws
of this State or any provision oi this title shall be
of any force or effect. . . .”
A thorough search of the purpose clauses authorized to
be adopted in the charters of private corporations contatned in Title
32 of the Revised Civil Statutes of Texas , 1925, as amended, fails
to disclose any purpose clause which would authorize corporations
to be formed to do “a general fiduciary and depository business.”
Under the above stated facts you have requestetd an
answer to the following questions:
“Question 1. In view of the above factual situation
would the approval and filing by the Secretary of State
of the above amendment constitute a legal change of the
purpose clause of the corporation or is the amendment
Hon. J..M, Falhner, p-e 4 (VW-44)
void and ‘of no force or effect’? If the
amendment was void and of no force or effect
then is the corporation still a valid corporation
with the original purposes set out in the original
charter? n
In answer to the first question, propounded in “Question
l”, it is the opinion of thls office that the approval and filing by the
Secretary of State of the proposed charter amendment on September
14. 1954, was void ens a matter of law and “of no force or effect.”
The provisions of Article 1314, R.C.S., 1925, as amended, are clear
and unambiguous , and permit only the amendment of the purpose
clause of a corporation originally chartered for one of the purposes
set forth in Title 32. R.C.S., 1925. as amended to another purpose
mentioned or set forth in Title 32. Since the purpose clause contained
in the proposed amendment was not mentioned in Title 32 at the
time the Revised Civil Statutes, 1925, was adopted by the Legislature
of the State of Texas, or added thereto by amendment.: after that
date, the proposed charter amendment does not meet the specific
requirement of the provisions of Article 1314, as amended in 1951.
Further, the purpose clause ‘To do B general fiduciary and depository
business” stated a purpose which was contained originally .in Article
4769. Chapter 16, Title 78, Revised Civil Statutes of Texas, 1925. as
amended, until it was repealed by the enactment of the Texas Insur-
ance Code, 1951, by Acts 52nd Leg. Ch. 491, p. 868, and reenacted
in the Insurance Code of 1951 as Article 7.01. Neither of these
Articles was mentioned in or formed a part of Title 32, Revised Civtl
Statutes, 1925. as amended, at the time of the approval of the
proposed charter amendment. In addition, the provlsLon of Article
1314, as amended In 1951. which states that “no amendment or
change violative of the Constitution or Laws of this State or an
provision of this title shall be of any force or effect”, is app
-IIFcable
and therefore the prdgosed amendment which purports to change the
purpose clause of ths corporation is w.lthout “any force or effect”,
,,~_. . ...-.
.~ :: .::
In answer to your second question propounded in ‘QuestIon
1”. since the amendment was vold and of no force and effect, the
corporation would still remain B valid corporation with the original
purpose clause set out in the original charter, since it ts elementary
that an attempted tnvaltd amendment to a charter does not render the
original charter invalid. See Staacke v.. Routledge. (Civ.App. San
Antonio, 1915) 175 S.W. 444, 447.
After the Secretary of State had approved the void charter
amendment the corporation applied for and received from the Board
of Insurance Comati6sLoners a certificate of authority to engage in
business for the purposes authortzed by Article 7.01, Texas Insurance
Code, among whkh atis the authority to do a trust business as
authorized under Chapter 7, Insurance Code of Texas, 1951. Presum-
ably acting under the certlflcate of authority and under the provlsfons
,
Hon. J. M. Falkner, page 5 (WW-44)
of Article 1513, Revised Civil Statutes, 1925, which gave additional
powers to any “trust company organized under the laws of the State
of Texas with a capital of not less than $500,000.00” to issue
debenture bonds and promissory notes, the corporation proceeded to
issue, offer for sale, and sell what were denominated five yesr 5%
and 5;s debenture bonds, two year 5% debenture bonds, and
“certificates of trust”, payable on demand, with interest at the
rate of 4;s payable semi-anntially, but with cumulative interest
payable to date upon demand.
Since Question No. 2 is based upon the premise that the
charter amendment filed with the Secretary of State wns valid, it is
not deemed necessary to state or answer this question in view of
our answer to Question No. 1. However, in Question No. 3, you have
asked whether the issuance or sale of the evidences of indebtedness
were authorized under the original charter of the corporation
(Article 1303b) and, if so, are such “debenture bonds” snd “certifi-
cates of trust” subject to coll&teialization by the company under
the provisions of Article 1524a, Vernon’s Civil Statutes.
Section 1 of Article 1524a, provides in part ns follows:
“This Act shall embrace corporations heretofore
created and hereafter crested having for their purpose
or purposes any or all of the powers now authorized
in Subdivisions 48, 49 or 50 of Article 1302, Revised
Civil Statutes of Texas, 1925, and heretofore or
hereafter created having in whole or in part nny
purpose or purposes now authorized in Chapter 275,
Senate Bill Number 232 of the General and Special
Laws of the Regular Session of the 40th Legislature.
I.
. . .
Chapter 275 of Senate Bill 232 of the General and Special Laws of
the Regular Session of the 40th Leg,islature contains the’ purposes
now authorized and enumerated in Article 1303b. V.C.S., above set
forth.
Section 7 of Article 1524a, V.C.S., rends in part ns fol-
lows:
“All bonds, notes, certificates, debentures, or
other obligations sold in Texas by any corporation
sffected by n provision of this Act shsll be secured
by securities of the reasonable market value, equal-
ing at least at all times the face value of such bonds,
notes, certificates, debentures, or other obligations.
. . . Said securities shall be placed in the hands of n
corporation having trust powers approved by the
Banking Commissioner of Texas as Trustee under a
Hon. J. M. Falkner, page 6 (WW-44)
trust agreement, the terms of which shall be
approved in writing by the Banking Commissioner
of Texas, . . .”
Since the corporation in question was chartered origlnslly
for the purposes authorized in Article 13,03b, the proposed charter
amendment thereto being void at the time the so-called ‘debenture
bonds” and “certificates of trust” were issued; offered for sale and
sold in Texas, the corporation wns then and is now subject to the
provisions of Article 1524a. V.C.S., under Section 1 thereof above
quoted. Therefore the “debenture bonds” and ‘certificates of trust*
so issued, offered for sale, and sold are subject to and should be
collateralized under the provisions of Section 7, Article 1524s, V.C.S.
Your Question No. 4 is predicated upon the assumption
that the debenture bonds and trust certiflcstes were issued by the
corporation while acting under the certificate of authority issued by
the Board of Insurance Commissioners’. Since the proposed charter
amendment was void nnd of no force and effect the certificate of
authority issued by the Board of Insurance Commissioners could not
purport to authorize the issuance or sale of these securities under
the Insurance Securities, Act, and therefore it is unnecessary to
state or answer Question No.’ 4.
You have advised that the demand “certificates of trust”
referred to above are advertised through the mail ns being a savings
plan paying 4$% from the date of purchnse, which cnn be converted
into cash plus 41% earned interest to date at any time by the holder
thereof. These certificates are issued on accounts made with the
company ns II depositor and statement is further made that the
certificates of trust currently earn 4+% interest from dste of purchase
to date of withdrawal. The prospectus further states that the dividend
dates of payment of the 41% interest are twice annually, on June 30
and December 31.
“Qestion 5. Does the issuance of the so-called demand
certificates of trust violate the provisions of the Banking Code of
1943, particularly Article 3421381(f), Article 342-707, and Article
342-7081 If the provisions of’the Banking Code are not violatid: by
the issuance of these certificates, would the company have the power
to issue and sell these demand certificates of trust under the provisions
of Article 1303b or Chapter 7 of the Insurance Code?”
It is spaclf1cally stated in Article 1303b, Vernon’s Civil
Statuths. “a private oorooration
thnt may be formed for any one or
more of the follo&ng purposes , without-banking or insurance privlleger.”
Article 342-301 of the Banklnn Code of 1943 arovides thnt n State
bank may be incorporated wit& among others; the following powers:
“(f) To receive savings deposits with or without the payment of interest”
and (g) to receive time deposits with or without the payment of Interest.”
.
Hon. J. M. Falkner, page 7 (WW-44)
From the factual situation above stated, the “certificate
of trust” would seem to have all of the qualifications of n savings
deposit, payable on demand at nn agreed rate of interest. The use
of the words “savings plan”, “deposit”, and “dividend dates of pay-
ment ” of the semi-annual interest in the prospectus are indicative
of the solicitation by the corporation of savings accounts in its :
capacity 8s a trust company. The offering of these “certificates of
trust” by the corporntion to the general public in this connection
would therefore be in violation of Article 342-902 of the Banking
Code of 1943 which states in part that:
“It shall be unlawful for any . . . corporation
. . , to conduct (1) a banking or trust business or
to hold out to the public that it is conducting n
bsnking or trust business; . . . Provided, however,
that this article shall not ~DDLV to (1) national banks.
(2) state banks, (3) other corporations heretofore or
hereafter organized under the laws of this State. . .
to the extent that such corporations are authorized
under their charters or the laws of this State. . .,to
conduct such business. . .”
Inasmuch as Article 1303b does not confer any ‘banking
rivile es” upon a corporation formed thereunder, the
::,gZEeWikiZ-?- e without authority to solicit or receive deposits
with the payment of interest.
The Charter amendment, as to the change in name, and
the increase of its capital stock is valid. The corporation , having
increased its capital stock to $500.000.00 by virtue of the charter
amendment. is thereby automatically entitled to exercise the addition-
al powers specified in Article 1513, R.C.S., 1925. It is the opinion
of this office that the offering for ssle or selling of the “certificates
of trust” would not be permitted unless the “certificates of trust”
should be considered to be debentures, bonds, or promissory notes.
In our opinion the “certificates of trust” ns offered to the public,
are neither debentures, bonds, or promissory notes, although they
are “other obligations ” of the corporation which should and must be
collateralised under the provisions of Section 7, Article 1524s,
Vernon’s Civil Statutes.
SUMMARY
The Secretary of State is without legal authority
or power to approve n charter amendment which
changes the purpose clause of a corporation
originally chartered under Article 1303b, V.C.S.,
to do a general fiduciary and depository business
under the provisions of Article 7iO1, Texas ,Insur-
arlre -Code; such .amendment be.ing of .no force ‘and
Hpn. J.-M. Falhner, page 8 (WW-44)
.::effect, udder ..the provisiona of Artkle, 13 14,
V.C.S.’ Direct obligations such as debenture
bonds and certificates of trust issued by the
corporation are subject to collaterallaatlon
under the provisions of Sections 1 and 7,
Article 1524a, V.C.S. “Certificates of trurt”
which are issued and sold to the public as
being savings plans earning 4$% semi-annual
dividends, payable on demand by the depository,
nre violstive of the provlslons of Articles 342-
301 and 342-982 of the Texas Badring Code of
1943, but must be collsterallzed under the
provisions of Sections 1 and 7, of Article 1524a,
V.C.S.
Yours very truly,
WILL WILSON
Attorney General
BV
* W. V. Geppert
Assistant ,
.
APPROVED:
OPINION COMMITTEE ,
W; Grady Chandler, .Chairman
WVG:ce