Untitled Texas Attorney General Opinion ( 1973 )

The Honorable Jesse James Opinion No. H-. 186
State Treasurer
Treasury Department Re:~ Are dividends held by
Austin, Texas 78711 a bank trust department
and credited to a parti-
cular trust account or
trust accounts subject to
being reported as an
“inactive account” or a
“dormant account, ”
pursuant to the provisions
of Article 3272b, V. T. C S ,
Dear Mr. James: and related questions.
You have asked for the opinion of this office on a number of questions
concerning the applicability of Articles 3272`` and 3272b, V. T. C. S. , to
certain dividends, cash and stock, received by the trust department of a
bank from the sale of stock sold before the “ex-dividend date. ” You advise us:
“[A] bank trust.department of a national banking
association with its principal place of business in a Texas
city administers many trusts, estate* and other fiduciary
accounts. Investments for such trust accounts frequently
include corporate stocks. . . . [S]tock purchased or
acquired for a trust account is usually registered in the
name of a trust department nominee for the Bank, but a
record is carefully maintained to show the interest of each
trust account i&shares held in the name of a trust depart-
ment nominee. . . .
“Occasionally corporate shares sold before the ex-
dividend date are not transferred before the dividend record
date. Consequently, the Bank will occasionally receive
dividends in respect of trust shares that have been sold. The
p. 865
The konorable Jesse James, page 2(H-186)
records of the Bank are kept in a~fasljion that enabl.?s it
to determine how such a dividend should be allocated to
a particular trust account or apportioned among two or
more trust accounts, if the Saleminvolves shares ~from
more than one account.
“Although it is infrequent, the Bank will. scmetimes
receive certificates for shares representing a stock
dividend or a stock split in respect of shares that were
sold before the ex-dividend date. . . .
“Under the procedure followed by the Ennk,
dividends in respect of shares that have been disposed
of are credited to the selling trust accounts, and when
a proper claim is presented for the amount of the divi -
dend, the claim will be paid (or discharged by transfer
and delivery in the case of dividend shares) and charged
to the appropriate trust account or accounts to which the
credit was made.
“In instances where a meritorious claim is filed,
the Bank pays the amount of cash dividend or transfers
the dividend shares to the account of the purchaser and
charges the disbursement or transfer to.the trust account
~from.:which the original shares were sold.
‘!In some instances no claim is ever mad,e by or on
behalf of the purchaser ;of the shares, vfith the result. that
the dividend remains credited to the selling trust account
without diminution on account of disbursement or transfer
in response to the meritorious claim ti,mely filed by or on
behalf of the purchaser. ”
The “ex-dividend date” is best understood in reference to another impor-
tant date in the dividend process. The record date is the date determined by
the bpard of directors as the date to determine which shareholders will receive
a dividend based onstock ownership up to and including that date. The ex-
dividend date is set by the stock exchange or by the National Association of
Securities Dealers (for over-the counter-stocks) and generally precedes the
record date by four business days. Trades made on the ex-dividend date nor-
mally settle one day after the record date which means that the shares of a
purchaser cannot be transferred into his name and on the books of the company
p. 866
The Honorable Jesse James, page 3 (H-186)
miime to receive the dividend. Therefore, ~stock sold on or after the ex-
dividend date is “without dividend, ” and the seller would be entitled to
receive the dividend. The price of stock seliing on its ex-dividend date is
nor~mally reduced by the amount of the dividend. Zarb and Kerekes, The
Stock
--_ Market Handbook, at p. 708-709 (1970); The New York Stock ExGge,
“The Language of Investing, ” at p. 12-13 (1973).
In the situation you describe the rightful owner of the dividends which
were sent to the bank would be the purchaser of the stock, and the fact that
the dividends were sent to the bank would be the result of a mistake on the
part of the issuing corporation.
..Your first two questions are as follows:
“1. Under the facts here presented, are the dividends
held by a bank trust department and credited to a par-
ticular trust account or trust accounts subject to or
not subject to being reported as an ‘inactive account’ or
a ‘dormant account, ’ pursuant to the provisions of Arti-
cle 3272b, Revised Civil Statutes of Texas?
“2
. Under the facts here presented, are the dividends
held by a bank trust department and credited to a par-
ticular trust account or trust accounts subject to or ,not
subject to escheat under Articles 3272a and/or 3272b of
the Revised Civil Statutes of Texas?”
This office answered similar questipns for your department in Attorney
General Opinion M-563 (1970), the only differences being that (1) in your present
opinion request you advise that the bank is depositing these dividends to its
beneficiary’s account, whereas in connection with Opinion M-563 you advised
that “the bank’s trust department is unable to allocate such dividends to any
particular trust account, ” and (2) the prior request did not make it clear that
the stocks involved were sold before the ex-dividend date and, thus, itcould
be assumed that the bank or its beneficiary had some character of title to the
dividends.
p. 867
The Honorable Jesse Jaires, page 4 (H-186)
Under the~facts ,you preseht the bank receives stock and cash divi-
dends which righ.tfully belong to the person to whom the stock which
formed the basis of the dividends had been’sold. Apparently the rightful
owner can be located by refe~rence’ to the corporation’s stock transfer
records; however, instead of returning the dividends to the corporation
for distributiw to the ri.ghtfuT owner, the bar;k distributes them to the
trust accounts which previofisly owned the stock.
Although we make no judgment on the potential criminal liability
caused by the set of facts described to us, we feel we must call your atten-
tion to Articles 1410, 1413, Vernon’s Texas Penal Code; $31.03, Vernon’s
Texas Penal Code, (eff.” Jan. 1, 1974); and see Byrd v. State, 235 S. W. 891(Tex. Grim. 1921); &dge _..-_I-
v. State, 229 S. W. 862 (Tex. Grim. 1921); Campos
V. State, 207 S:W. 931``(Tex. Crjm. 1918); Flilcher V. State, 25 S. W. 625(Tex. Grim. 1894); --’
ac~cord ‘Williams v. State, 268 S. W. 2d 670 (Tex. Grim.
1954) ; see, Worthi_ngtton
--. _-- V. State, 109 S. W. 187 (Tex. Grim. 1908); Reg v.
Middleton, L.R. 2 Cr. Cas.Res. 38 (1873).
If the ban!c:s policy bf distributing dividends to its trust accounts when
neither the~bank nor tlx twst beneficiaries have any claim of equitable owner-
ship constitutes a penal offense, the dividends will be subject to handling
under Texas C.&e of Crimi:.znl Procedure, Article 47.01, et seq. If, on the
other hand,~ there is no a&ion or omission which constitutes a criminal offense,
the ques~tion woul~d be controlled by Vernon’s Texas Civil Statutes, Articles
3272a &nd~ 3272b,. Article 3.272a, 5 1, provides in part:
“Se.ctioti 1 I . . . Every person who holds personal
propertywhi ch becomes subject to escheat under Article
.,3272:after the effective date of this Act, shall, within
sixty (60) days thereafter, file a report thereof with the
-. State Treasurer, as specified in Section 2 of this Article:
provided that after one report has been made under this
Article by any person, subsequent reports by such person
may he made on an annual basis on or before May 1st of
each year.
p. 868
The Honorable Jesse,James, page 5 (H-lE6)
“(a) The term ‘person’ as used in this Article
menas any individual, corporption, business associa-
tion, partnership, governmental or political subdivision
or offxe~r, public authority, estate, trust, trustee,
officer of a. court, liquidator, two (2) or more persons
having a joint or common interest, or any other legal,
commercial, governmental or political entity, except
banks, savings and loan associations, banking organi-
zations or institutions.
“(b) The term ‘personal property’ includes, but is
not limited to, . : . dividends. . . . ”
,
Article 3272b provides in part:
“Section 1. Every depository holding dormant
deposits or inactive,accounts of depositors or owners
whose existence and whereabouts ar.e unknown to the
depository, shall preserve intact the deposits and
accounts so long as they remain in a dormant or inac-
tive status.
"a. The term ‘depository’ as-used in this Article
means’any bank, savings and loan association, banking
institution or organization which receives and holds for
others deposits of money or its equivalent in banking
practice .or other personal property in this State, or in
other States ~for residen,ts last known to have resided in
.this State.
“b. Th.e terms ‘dormant deposits’ and ‘inactive
accounts’ mean those demand, savings, or other deposits
of money or its equivalent in banking practice, including
but not limited to sums due on certified checks, dividends,
notes, accrued interest, or other evidences of indebted-
ness, held by a depository for repayment to the depositor
or creditor, or his order, which on or after the effective
p> 869
The Honorable Jesse James, page 6 (H-186)
date of this Article have continuously remained
inactive for a period of more than one (1) year with-
out credit or debit whatsoever through the act of the
depositor, either in person or through an authorized
agent other than the depository itself. ‘Dormant
deposits’ and ‘inactive accounts’ lose their status
as such when a deposit is made by the depositor, or
a check is drawn or withdrawal is made therefrom
by such depositor, either in person or through an
authorized agent other than the depository itself.
“Sec. 2: it shall be unlawful for any depository
to transfer;., convert or reduce any dormant deposit or
inactive account to the profits or assets of the deposi-
tory, either through book transfer, assessments,
service charges or any other procedure so long as the
deposit or account remains in a dormant or inactive
status.. This-shall not apply to the charges hereinafter
specifically authorized for efforts to locate the deposi-
tors. ”
Assuming the absence of a. penal offense, we believe Article 3272a
would apply when the dividends are distributed to the trusts or to the bene-
ficiaries. Attorney General Opinion M-563 does not require a different
result. Unlike .the situation .you describe for us here, that opinion assumed
the maintenance:of the. dividc~nds by the bank in a separate fund since it was
una.ble to distribute them among the trusts. Here, the dividends are held
by-either,the trusts or .the beneficiaries. We do not believe that the fact that
a nominee of a bank acts as trustee would cause these dividends to fall under
the~bank,exc,lusion ~8 Article 3272a.
Accordingly, in the context of the narrow fact situation you present,
we answer your first question in the negative and your second question in
the affirmative.
Your third and fourth questions are:
p. 870
.
. . . a
The Honorable Jesse James, page 7 (H-186)
“3. If the answer to number 1 above should be in the
negative, under the facts here presented wi’ll the cause
of action for recovery of the dividends on behalf of the
purchaser of the stock accrue on the giving of notice to
the broker to or through whom the sale is made, as
stated in the letter set out in the preceding paragraph?
“4. Under the facts here presented, do the provisions
of Attorney General’s Opinion No. M-563 (1970) with
respect to the bar of limitations in an escheat action
apply to a bank trust department’s trust accounts whose
records specifically identify the owner of the dividends,
shares of other securities credited to a particular trust
account? ”
You have advised us that the bank proposes to give notice to brokers
in an attempt to begin the running of the statute of limitation under Vernon’s
Texas Civil Statutes, Article 342-701, on any action to recover the dividends. :
Article 342-70.1 provides in part that, “[t]he cause of action on any such depos-
itory contract, ~&her than a time deposit, shall not accrue until the bank has
denied liability and given the depositor notice thereof. ”
The notice the bank proposes to give is contained in a letter which will
be sent periodically to each broker with whom the trust department nominee
has done business during the period. It will read:
; -. : .,
“(Na.me of Nominee) has carefully reviewed its records
respecting stock, bonds and other securities sold to~or
through your firm during month period ending
on the last day of , 197-* As shown
by our records, all meritorious claims that have been
filed with us on account of dividends, whether in cash,
shares or other securities received by us after the making
of the sale, have been paid and discharged. Accordingly,
this company hereby denies liability for any claim that
you may now or hereafter have on behalf of yourself or on
behalf of any other person, for dividends, whether in cash,
p. 871
,The Honorable Jesse James, page 8 (H-186)
shares or other securities, received by us after the
making of any sale to or through you during the period
above specified. ”
We do not believe this letter constitutes notice under Article 342-701.
It is not directed to the equitable owner of the dividends, who in the context
of Attorney General Opinion M-563 (1970) is the depositor, and~it does not
identify the property on which liability is being denied. However, we do not
believe Article 342-701 is applicable to the situation you describe. T~he divi-
dends have been allocated to the trusts and beneficiaries and, unlike the
situation considered in Attorney General Opinion M-563, are not held by the
bank for possible repayment to the equitable owner. Therefore, your third
and fourth questions are answered in the negative.
SUMMARY
Dividends on stock sold before the ex-dividend date
which a bank trust department distributes to the~trust which
sold the stock may be subject to escheat under Vernon’s Texas
Civil Statutes, Article 3272a. Also, a distribution of dividends
to someone other than their rightful owner, dep,ending on all the
relevant facts and circumstances, could be in violation of the
Penal Code.
DAVID M. KENDALL, Chairman
Opinion Committee
p. 872