Untitled Texas Attorney General Opinion ( 1944 )

OFFICE OF THE ATTORNEY GENERAL OF TEXAS AUSTIN ~onortblt Jno. Q. Litldua, Commisdonu State Dejwtl;snt of buikbg Austin, rexas apon thhr above subject-Eattar t to the bet th8t it sets S particular trrns- action under r tfon to Artiolt 1X24*, and bb o? nection 12 fhereoi, 8 “bondE, ‘notefl, ‘Otrti~~t- and 'other ebli~~tions~, 8 Aet, ahall nbt bb aonstrabd luds nottS errouted by eorpom- and other fintntit1 tnstita- uy borrowed by sueb eorpOrstlOn8 tht utatl tourtt of itr badattr.* lPtrttotort this Dqmrtotnt has prmumed tbbt cor- porations org8nlseui pursuaat to thb prori0lons st Arti l.524a rbl~b hart sold ~a i8SuS of bdnG8, nSt.8, SSrtifiostts, debeaturss and otbr oblig8tlons to a finbnoial institution tar the purpose of obtaining worw capital to be used by said corpomtion in the ususl ooursb tt its Budntss mss tx- sludsd from Obetlon 2 oi the Sb.orS lea tlo ned Artisle which ha8 to do with the bXSminStiOS of W& SOrpOmtioaS ml~!tlly or ofttntr b7 ths Bei~k.ingComndssioner of Texas. ~snocrble Jao. U* LiCAdsms - pagO 2 ‘it it rboald bb held tb8t the only sxsluslon ffrOD tbt prOViSiOn Of tb8 tit %I3 it8 SIBthat iS ill sonnsatloa with laoto* ebligationm th8t uo OxeoutsU by oorporst~oas to banks end OtbOP ~Inswial institu- tions, ChSS it Sould aem ImpOrtWIt iOr tbls Deputmcmt to be rdVi.Sbd 88 CO &iStil#uiShing ebuaoteristies bs- trosn OOLOS ud Ihb 8tbSr type 9i obllgstloas rbhb uw rsiarrtd to in the 18S. CO-TIC, beads, of!Ftiila~tbs, de- bbDtWS0~ bt0. the ?mJs of thb roasoalng on the put sf this DepsrtsMnt la rbspSot to tbs prooadure which it haa rolloral h88 bbon to the tifebt that the exsminstion of amb aorporulons tmbrsot a publio latrrest in tbb ssnse of lndlrldusl cltistas orning tbb obli~8tlons sf suok CorpOrStions and th8t the 69mb pub110 intbrost did BOt present itseir in the oass of l flnanaial lnnitu- tiona auetr 8s ua lkmur8no~ cornpony emlag the bonds, mrtUiobtta, debentures and other type ot ob\ig~tions issued by oorpontloas orgrnised pur8u8nt to lrtltlo is240 g *se therefore solisit your sdrlca as to whether or not this Ceputo?cnt roust give Iltersl InteFprctstion LO the lant senttaet of Saatior 12 et the Act rbiah roultl swsi to ueludt only notes eseCutsd by oorporstlo~s and held by GthCr iinancl~st1tutions and, thus requlrc ttA8 Litpartaent to sxarAac wmmll~ or oftentr those cor- porations which bare lssuod any other typb of obtlfrtion won though &he as&e is bald by a financial institution. 10 this OOMS@tiOIB Sb 8Fb PlbSSSd t0 SnSlOSb 8 StT'ibS Of letters, ldtntitled as Ibrblbit .A', to and frwm Er. Dsx- tu lisailton, Ro8ldmt of the Southwestern Inestors Cor- yorstloo or Usllss, Dsilss, texss, thlcb 1s a direct aasc in point. 28 bbre nob in rbOat 7b8rs bmmla~ this tar- pOFStiOn, .SltbOUgb their COUDStl SOn8SdsS tbSt thb CorpOrr- tlun ia subiset to exssAnat1oa by this Dcputmeqt. thou are further drlsbd that 7ou.r vioss on this subjeot ssy hats f8r-rtuchin:: tfte8t8, sines it is tntlrt- 17 11~x17 Chat 8 nutbbr of oorpor8tlons organirtd pursuant t0 ANdOlt lb248 bSlS iSSUbd 8 trpS Of Obli~StiOn, other than notes, ~hlctr 18 held in its tntirbtf by SODS subdd- larf corgoratlon propbrly olsssiii8blo 8s 8 iiaraoi8l in- stitution* 'AS &Wt tS0 Of this inqUil'7, tb sbsuld like 8d- rice bs to tbc rbspOnslbilit7 of this Depsrttmt whioh ew- braces k&e msaniog of tbb term (other obli~stians.~ As s 270 VOnOrublb Jao. Q. LeAd~us - )rgc q S8SS la pOiS8 SS h t. lttSabin~ hOtbt0 8 bS18lMS ShoSt at the &tiOM ciOnOt&l h+OstBsnt Cotpbtatian, Uoust0n, FOX&*, aa ot OlOW Of busln.88, Daesmhsr 31, 1919. Turn bsl8.MO Sb@bt PbflbSts, SmSIk& other tblngs, 8 trust fund l~&blLit~ ia the Up Sf DO ,oa4 .?l l This p ut1 0u1 u SOtyOt8tiOO r a a organis $ JSWWbBt to th 8 ptWib.iOM of fit10 32, r;h8p, 2, APti810 1303b. WI' SbnQbptiOn of the ttUSt tUti lSOOUDt, bS Shm in the b818DOO &Obt, is that the WBO l’O@‘tSSlltS L)bmblltS subb by individuals la CQMWtiOn with 8 trsl OStrtt lora Ubeutbd by certain in- dl+idUsls 8nd held br subj~t ootpotetloa on 8aaoUm ot ta% Uod iOtUt8Mb bCOPW1 l .zO be Lot@ ~p~oltio, TOU We 8dvlmd that r?sny coryetrilous bbSn Otgnirbd brvo for the pUtpOSb of band- ling Sbbt &sy be tbrmsd Ir. Me A. 1081)x, ths pl8n of opcr- 8tioa SsibtscLng 8n ogreaent on the part at the debtor or the rypllesnt, Sbo dtslres to finmoe tba putah8sb of 8 hama through subject oorpor8tlon, to ptq not only 8 apeel- tied 8aouot to be rppllal on the prlncips1 and tntercst or the POttgbgt 10&D, but Ipr y;rassnt to p8y an 8ddition- sl mm b&Oh Siontb to bs held by tbs payee ot bolder at the oiOrt&Pl(O 108ll and St tb0 PrOper time lpplitd in pb~cnt of the taXiIs Which bare 800FUed dUtin(l; tbQ TtSr S~biYi¶t the 2iortgagtd prap6Xty and, ss iodiebted, t0 8180 prarlds for inmutance tortrap;s. AOtlUllT, therefore muoh tturt fu?v38 as bald by subjeot ‘ootpor8tion 8nd m8ny atbrrs functioning in 8 slmil8r o&JWitT 8Fa btld for 8 pbtibd of twelve &oaths after sblch the trust h a ndlosauni builds up throw monthly p8ments urd in Lb0 sormsl coursa of bsadllry: is b&rZ sppllad by tbb ESrtmSS 10 behalf Of tbb @&WK,eS striah 8eWuo qpinst thhs property owned by the mortgagee. %s should like Sp~ifi6 8dvlCO tbubfotb a6 to shsrbtr or no& such 8 trusb tund bOt.OUnt is althin tbe term ,o~Aar obllg8tloo8, as usad in thb 18~ bad, if w, vbetber or oot It booomss 8auntitorT OS the pat% of this Depart~cnt IO bXUdBb such COryOrstians that art obll@tal to lnditid- u81sin such a lrmulsr~ &tie10 lb248 tol;ulsteS the 86tititi68 Ot 10&n abnd broksryb and Beetioa aoupsn&bs, 4 tbswaf, iawtu as psrtintat, 18 Ss fsllaasc 274 r&lob oorporatioD taot ho8 oora la Ioxa8 it0 boM0, notrr, r4wrlfioatoo, as- b~obweo o? otbw lbl~oUon8 or Lo oftor- lag for wlr la Zaa its bom40, motor, rrtitiUto@, 4 eb o a turo u r lth e o b lig e tiwo, oh11 pubua ir, oomo nowepaper ef ganro1 8eool~tion in the oount7 rboro it ham it, )rirmipal ph.. of krdawor, em oe batoro t&o lat 4rj ol lobruy mob 7.~ l lta1WW& or itr oon4itioD 01 the prff1oaa alot 4a7 of Doambew, la oaa form la oy bo roQuire4 by rho soaklog comismiooer or rams SbO~iRguR4a OOUI it8 assoto ud lioWliiib8 and rboll rue l 0 ot awh sl,otmmitmb with tbo Banki~ Colllr lsiona of Zaoo, to other rltb a fee of hontpFi+o Do11um (32 b.00) rr illlag. l l . .* T&O prtiasme of tbio pCt&iOD IO thot WC- tien la ei that Aa101* Quota4 by foe iao1rro prsaiM- 17 blr0 MBIO OlOOSO8 Of obligotion~ WUmWOted iD 8-0 tiOD 4. (1) Uctiun 1824o quote4 b7 7eu la ot Artiole •~PVOO and wa8 to lervo 0~17 eao purpose, thot latetxlcd lo, Lo exabpt tror the Act in an7 a~6 a&l rmpeoto what- eww lwteo aocutotl b7 ouch oorporatiooo to boa&~ and obhc fA~aDCi&l iDOtiiUtiODC for monq borrem4 b7 aob oorpor8tioos tar U80 iD bh0 Uuol OOUrsO lt it8 buoidaoma.~ u other werbm, uch note0 40 not oom rithia any proris- ion or the Act - they or0 8pee1f1.8117 asospted. euob aotoo fr borrow4 8onw,*fr uw in the owol ooltrme or ISob uo ino O u; I’Q tb a o for cOe mQthlio o wo(to l adl apart from Um QOD~O, IpotW, oOrt&Cioatea, dabcntures, and otbef Obli&OtiODO DWtiODbQ tbl’O@OOt the Aot. Zho writer of tbia opinloa, wbilo am7107a4m Lb0 bORk&~ ~OOdOdOOQP 00 CWDWl , i8 OpiRiOll HO. @@d o44reue4 to you, odriosd with rcepaat to a band am Col- lar: ‘The bond ubittad lo ie tho am of ~#o~&o oodim on0 of l owlem OS bead. oggfogatlog &ho pr1nelpol w of @Oo#aoO.oo. it ia poyobls to rtr. ro@otWa4 08n.r LQ 272 yoncwoble Jm. u. Lcidomu - yoge 6 7oaro a?ta 4at0, providing ror annual intrsot at ?aur par oeat. It oootoino no laoolerotioo olouoe for default on4 4000 not pwport to bo aecutad in toror ef w beak or other tinonoiol inotita- tioa. wader Do roaoonable wR8truotioD of Cbo statute8 lu) it be aold that this ob- iigmtiw is v0r aone7 borrow4 b7 ooi4 oupOrtMw ior use 10 the tmol ceuroe Of' it0 bUSiD000.’ Clear17 it is the oouol 0~4 odinor method of ocou6ulotlng 0 copl- to1 for the proewutloo of its oorporote purpeoo of lotumuloting, on4 IenUiag meoWa Tbim lo not tho borrowing of mom!7 @for UM la the uU01 a0ur00 or its buuDe00.” ue think bhe o4rioe ~glrea in tbot oplDion tar- rwtly interprets the statute. ~ot~ithotnndlng the exmiptioo oontoined in Sec- tion 12, tt lo yet true tbat loan amI brokerage coqmnie~ orgmolred mod operating under Artlole 18210, (1) Kay not *offar for oolo or 8ell its bonds, noter, eerti?icotco, debentures or oLhor obligotiOn8 in fexoo* tmlo88 it oh011 bat0 oD oatuol d in eopltol of not lea8 tboa 'fen Tbeus- on4 ($lo,ooo.oo r' Dollum, (See. 1); (2) lo oubjeot to em- amlaotion by the umki~g Ceomt88io~ar ii *it boo mold or otters to sol1 in Texor its bmdo, Doter, certitiootco, 4obentuFeo, or other obli~otiaoog, (Bee. 2); and (1) 011 bonds, ao01e0, oertifiooto8, dCbenture8, or other Obllgo- tiono sold ln Texas b7 any suab corporotloa, obo\t be se- cured iD tho ooDllOr pOiDtcd Wt in 6-c. 7 Of the AOC. Zhe obviouo purpose of exoo&Dotion mad cnlloter- oilnorion OC the oeeuritieo issued by 8uoh eomponlco lo the pOteC?tiOD OC the publie. nd.0 puPpoD by P@~~uw Of the acmptbm lo SW. 12 does not ateul to the proteat- &on ot bo~ko and 0th~ finonciol lnocitution8 IendiD~ aoaey to sncb oorporotiono tor use in the usual amroe of their bu01~808~ in this re8peot 8 different ehorooter Or Qblig8tiOD 10 1D~Omd -- the uouol &tort-time loan. kmk8 0no other ritt0wol lnotitutioao lending won- r0r web purpose8 a8 ore uWtioasd irr tb0 otorption belng.mb- Jeer LO con*taDt aomiDatioa, or0 4Om34 to be wftiUOibt- 17 protected. 2’73 . yanoroblo Ju . Qe &cMuo - pago a Th. ‘bem4s., l 8ortlt~ooto*~, '4rbentorem' ) and lotha' obligotieoo", *a 11804 rhrotyhat the Aot, m bb. iDOt?UDODt 0 Ot 8hotev.r IWO iO#ed by Lb0 ~ompery aad eel4 LO &ho pub110 h tUO0 rOP tbb, per- psoo of ~suu~loti~ 8 worki@ wpitol rrOaw tbdz l,,00101 ohorbc WWOF (i0 cWWU~Ot0 Bon- tOP the plwQ- @ l-44* ahwms, tho apresdon, %onw &WFOMd w aOh OwpOr8tiO~O tOP US0 ia the uuol ssuroo of its busiasso* , coatewplotoo Lb0 a-1, ordi- Dw pCOOM1 IOWO w 8 bask, Or 0-C ti~oaaiol in- ltitut~oto o meet , th o ur r ~ mc c l4 0 o fth e o o mp a1 nj 8 the peoeoutioR 0r 1ts kOioeoo, obb DOI tor the geat- @F JNW&4OMOf iDWOOOtDg it8 OpOPOtill# 0O)itOl. It 10, thorefora, ot DO lmportomr ehmt euch 18mtrux8at or her- rowlag tror the bank ~7 be 4eaocittmts4 - wbotbar notes, bond@, OC what DOt -- it is the aabotonme of the trona- lolioa rotbor than its name that eontrolo khe oraption. tb0 *Orb rSOte@ UStUt b b@OtiOa 12 4eiiai~ Lb0 emImp- tiOD &I tbiS OOllD~tiOD i0 USOd tD it0 bread aa4 gemrio la~mo am wi4o~ln4 rho la4ebte4neoo of a borreuer to a loader tar the pu~pooo mfmtioaod, regordloom et tha ax- mot cloodfiootioa at tbe inowumeat evi4moia~ ouch loon. A simple lOU, 00 nw4rott, or aa7 other r0n oi laRDi ob- ligation OVidetmiar: the loon, rculd bo mutflciamt. Again, it tho obli~otion8 0r meh coopany c-0 within the cloo~ of obli@tlono required to be oollatar- lli8ad, it wuld make oo diftor~0 tbot suoh ioue in whole or in port bod bow sol4 to ban&a or otbc tlnan- ci&l inotibuCions, ter tbaf or0 8 port at tbr pubIfs to whom amh obligotiooo 8to7 mt be sold oxocpt tha7 bo properly oolloternliosd. Ab tolloro troa ahot we bore oold that we are Or tbo lpmon &be departwmtol praotloe rontioned by ~a3 in Lb10 aoanwtiooha8 boca in error. (2) The term lotbor obligotianti, as used bIbrougbout uabio Aot, mewm the dircxt abligotion OP wl',"" loan and brekara40 ocmpel3yor t&r tfpo oi , laetoo~, loertiiio8teo~ or l4sbenturoo.~ It is Lb0 ouol on4 vairorm rulo of ceaotruetisn or Ln- ltruPent0 0aumeroUng oewtoin puticuloro tollr8sd w the exprSS~lor, .or 0tlmP rrab IDstruBmDtr. It lo what is &own in leg01 tom0 as tba eluda mnerlr dootrino or ~10~ t Ihe llablllt~ or th0 loua and brok@rqw aon,- pay, frob dome brluroc 8heot y o u quote l*00,0~4,71*, :s not t&t of 10~ lower or urj gboolt8, aotea, cer- ttfieatO@, debentures, or other obllgatlonrm , that soul9 call rer 8uthorlre exanilmtloa or ot the eon- oern undS tba Act s At 1s l llablllty to bo are, but it ulres out of a tranrrotlon wholly dlr8kllu tros. tl80 imuanoe o? bond8, note*, certifioates, de- benturea, and the like. Of eouree, thla 118bllit~ 1s set within the exocptloa mntloned la Sestlon 12 at the Aot, that 18, it is Dot A note or otbw 1Dmtrunant wbstooarar ot the coupany midcnolng 8 loan for use by the compan~~in the ururl cowme ot Its buainers. That web a lfoblltty ml@t be ouch ce could beookd a serious Batter rlth any going OonearR, i8 ob- llOU8. kut the romody tor ucb a situatton, lt dis- COT~~CL!,woulU be for your Departaenl te rclatn Chc wtter L.0 the Attorney Ciencral for appropriate ciatlan. Vary truly yourr