    ,




        OFFICE OF THE ATTORNEY GENERAL OF TEXAS
                             AUSTIN




    Bon. FrQac. Brazmoa
    Co8ulm3ioner
    DQpamnt o? Eellung
    h8tin, Texan
    Dear82r1
                        opinion No. O-l
                        Ret Interpretat


               Your letter




                                        and Investment oaa-
                                        h banking and dlmount-
                                        llanoe vlth the requiw-



                                                 ook subsorib-




          and discounting  privileges*   under our Consti-
          tution  upon roper oertifloate    being made to
          the Banking Eommltteioner?
               -2%. Could the oertifioets       of adoption of
          banking power8 be Iswfull~        made by the Board
          of Dire&ore   end oertified       eb auoh, or nhould it

-
Hon. ?red C. SIWIEWE,Page Z


      be made only after the same has been aIIthOriZe4
      by a stookholders meeting in annuel W3SiOn.   or
      oalled for that purpose?”
               Article   16, Seotlon   16 of the Terse Constitution
provides   1
           ‘The Ieglslature    shall,  by general law&
     authorize the lnoorporation      of corporate bodies
     with banking end dlsoonntlng      privileges, and
     shall provide for a system or Stats supenlaion,
     regulation    and oontrol or suoh bodies which will
     adequately proteot end seoure the depositor8
     end creditors    thereof.
            ~To such corporate body shall be oharter-
      ed unttl all of the authorized    oapital  stoak
      haa been subscribed and ~14 for In full      in
      oash.   Suoh bo4y aorporete  Bhell not be author-
      ized to en&p    in business at more than one
      plaoe, rhioh shall. be designated   in its charter.
             *ho foreign corporation,    other than the
      nations1 banks of the ZJnited States,      shall be
      petitted    to exercise  banlciq   or discounting
      privileges    in this State.    (Seation 16, Artiole
      16, adopted eleation    Axust 25, 1937.)”
             For the purposes of this opinion,      the amendment
adopted Au@xst ZS, 1937, to Artiole        16, Section 16, of our
Constitution    la of no significanoe.      The smendmect simply
eliminated a former prwision        o? said Artiole   and Seotion
pertaining    to the liability    of shareholders   In such banks.
           Under this constitutional    sanctloh,    thr LegiS-
lature passed laws euthorizing     the incorporation     of qor-
  orate bodies with banking and dlsoounting      prLtileges.
Fit18 16; Artiole   942 through Artiole    MS, inclusive,     Re-
vised Civil Statutes 0r Texas.
           What is nou Chapter 9 o? Title 16, Artiole    542
throagh Artiole   548, lnoluaive, Revised Civil Statutes of
Texes, mas one&e4 by the Thirty-sixth     Legislature  in 1917.
The chapter title   oarrled in Vernon’s Annotate4 Civil Sta-
tutes,  1995, Is %orrls    Plan &u&a*, although the term Ian
a misnomer, there being no suoh thing as a Xorrle plan
Bank knowto,    or defined by, our statutes.    Se&ion 1 of
Hon. Fred C. Bramon,          Page 3


the A& as passed        pmvlde4:
             Who term *loan ana inrestment oomptgfy*,
       as  use4 in this Chapter, means any corpofatlon
       formed under the prolrlafona of this law..."

          Subsequently,  In 1957, it was held by the San
Antonio Court o? Civil Appeal.6  In the ease o? ~llakl  vs.
Ooaaett, 109 SU (2nd) 540, that oorporetiona   tomed uuder
Chapter 9, aupre, were not oorporationa   with banking and
diaQount~       prlvilegea.

           The Forty-sixth Legislature thereafter  paased
Senate Sill 268, *hioh amnded Artiole   545, Section 2,
Chapter 9, supra, to reads
             "2. To reoelve money on time deposits,
       eml to purohase, sell,  diaaount,  or nego-
       tiate bonds, notes, oertltloete8   o? inreat-
       wnt and chose8 in action torthe     payment
       o? money at a t&e either tired or unoertaln,
       an4 to retieire payment therefor  In lnstell-
       menta, or otherwiaa, with or without an
       allowanoe o? interest  upon auoh installments.
       To purehaae atook in Federal *posit     Inaur-
       enoe Corporation."
              There wes alao     added to euoh Chapter,         by Senate
Bill   208,   a new Artlole,     Ho. 548a, whiah prorides:
              *All oorporatloua   now ohartered  under
       the provisions    o? thfa Chapter my adopt
       the pmera herein granted by ?iliw        e OWtf-
       tioate   to auoh etteot i&h the Ccmlaslon       o?
       Banking, provided,     however, that the inoor-
       poratlon of oorporetions     In the iuture under
       this Chapter shall make appliaetion      to the
       State Em&king Eoara and be governed by the
       prorielons   of Chapter 2 OS this Title.*
           we, there?ore, have the questions posed by you,
set out above, with reierenae  to the interpretation of
Senate Bill No. 268.
              The oeae o? Kaliskl      va.   Coaaett,   aupn,     being
Hon. Fred C. Brsnson,       Rage 4


the only 4eclalon  of.our oourta oonstrulng the .ald pro-
visions of Chapter 9, and hol4lnq thet auoh Q$4 not
oonier banking and dlwouat privileges,    under the aon-
atitution, Artiole  16, Section 16, upon the, oorporationa
oreated thereunder, wa shell first  analyae auah opinion
and the reeaons given by the oourt for arriving    at its
dealsion.
             The reasoning       of the court was based upan
rive   general propositionat
             Fir&,      the  court pointed out thet the aeption
of the eat showed it to be or18 aowerniag              loan and lnvest-
ment canpanies,       ths aeptfon not being broad enoughtto
inolude the powers of banking end diaoounting.
             Second, the court pointed out that auoh oorpora-
tion mey b8 organized In the aam manner as oorporatlona
for profit     under and by virtue       of ‘Pitlo 25 of the Revised
Stetutaa,    whloh title       la now .title 52, Revised Civil Sta-
tutes, 1926, hrtiole         X50&. et seq.     In this connection,
the opinion reads:          *It it we8 the intention       of the Legis-
lature to authorize         the oreation    of a banking aorporatlon,
the act shou)d have provided for their organization                under
end by virtue Of the tit18 relating            to bsnks and banking.”
             Third, the oourt says: “The title            on privets
oorporations       authorizes    the creation    of aorporations     tith
fifty   per oent of the capital         stock paid in nhlle the
oonatltutlon,       section 16, article      16, requires that bank-
19% corporations        can only be created when all stook has
been paid for in’cash.”
             I’ourth, the oourt points out that certain sta-
tutre appliceble        to banking corporation8      were eroluded,
by implication,       as to their aRplicebllity       to the corpore-
tions oreated under Chppter 9.
             Fifth,     ths court further saia: *Rut WQ are of
the opinion that the law did not grant to the FeOpl8a
Industrial      Benk banking an4 dlsaountlng        privlleges.a       ‘phe
oourt bases lte oonaluaion on this point primarily                upon
the   laok at authority        under Chapter     9 of the aorporationa
oreated thereunder to receive           depoSita.
           It will be not84 that the oorporationa    taking
advantage of the new provisions    under Senate Bill. 2BB
are not given the same or as aompnhensive~powers,      as
those under the other chapters of Title 16, pertainihg
to the usual banking oarporatlona.     They are, however,
under the supervision  OS the Benking CaPmniasioner, by
lion. Fred C. 5ran808,     Page 6


virtue or Art1010 548. Also, new corporations          Pomed
thereunder are governed by Chapter 2 of Title /'a, the
ohapter dealing    rlth the fonaatlon    of the reoagnlzed
bauklng institutions;    whereas, old oorporati%ns       lxreto-
tore ronned under Chepter-9,     in the sane manor       as oor-
poratlous  for profit,   may. under new Partible 54Sa, take
advantage or the new     0Wer8  b7 riling   a oertirioate     to
suoh effeot with the %epartment of Banking.
           Acoordingly,    we still   hare, nottithstanding
Seuate Bill 268, the followlug       olrctmstanoee   pointed out
by the court I8 the opinion of Kaliaki         ~8. Cossett,
supra: the caption of the Aot remains the same; no
p~~vi8iOu i8 made for the payment Of all Of the author-
lted capital   stock, as a oonditlon      precedent to qualiii-
oation under the new statute,       as to the oorporations    in
existenoe  at the time ot the passage or Senate Bill 268
and the eireotive    date of the aot; and nwnerous or the
statute8 applioeble     to banking OOrpOratiOnS generally
are exoluded from application       to the neu and old corpora-
tions tontmd under Chapter 9, by implication.
            Kenoe, the ueryr Notwithstanding   uhlch, ia
the effect   or Senate 3 ill 268 to coufer banking and dis-
oouut prtlileges   upou euoh oorporations?
              We believe the correct   rule in this oouneotion
is   stated   in American Jurisprudence,   701. 7, at page 26:
              "Furthermore, a designation      by statute
       as to the oharaoter Or a business is not
       neoessarlly    oonolu8lve.   A lcgislatixe     de-
       olaratlon    in an aot that a oorporation      under
       it shall not be deemed a bank or a company
       having or exereiaFng banklng powers, doe8
       not lrreot the powers oonferred       or limit
       the authority    of the oorporation;     and if
       any section    of the sot in express words oon-
       rem bankIng powers, the oharaoter of the
       oorporation    ie to be determined thereby.*
             We, therefore, at this point shall Seek to as-
oertaln the.meaniug of the tern 7banki       and dleoounting
privileges*,    as used in the Texas ConatY tutlon.
            The ootut in KaliSki x6. Cossett,        supra,   quotes
the following   language with approval rmm         the case   or In
Hon. Fred     C. Branson,   Pags 6



Re Prudenoe Company, (C.C.A.)         79 F.   (2nd)   77, 79 as
the derlnitlon of a bank:
           *Strictly  spealcing, the term *bank*
     implies a place for the deposit Of money,
     a8 that i8 the mO8t obvious purpose 0r
     auoh an Institution....        and all or the
     oases, so far as we are advised, rhioh
     have construed the worild %anklng         oorpora-
     tlon' a8 used in the Bankruptoy Act, hare
     regarded the legal power to reoelve deposits
     as the essential    thing.,..*
              We quote   froa   %~a8 Jurisprudenoe,     Vol.    6, at
page 143:
            "The business or banking has always
     bedn
     -    . unde+ood    to-inolade, _ - as f.pr@olp$
     runtion,   the reoeptron or aeposita.-
              Er. Justice Holmes, of the United States Supreme
Court,     in the case of Engsl ~8. OWalley,   219 U. S. 128
says:
               *The reoeipt of money by a bank, al-
         though it only oreatee a debt, is in a
         popular sense the receipt    or money for
         safe keeping, henoe the depositor    can draw
         It out again at suoh time and in such sum8
         as he chooses....    One form, at least,  of
         the bUSine8s almed at, and, on the raoe or
         the bfll,  thet carried on by the plaintiffs
         is a branch of the banking business...."
          Xe read again from the o inion in the case of
In 3e Prudence Company, 79 F. (2nd P 79, olted in the
opinion of Kaliski ~8. Gossett, aupra, as roiloprs:
               "Henoe the debtor does no      ; possess the
         power to receive deposits,    rhi    lh 18 gener-
         ally reoognized    aa the eeeenti    11 oharacter-
         istic  or a banking business.        :n Qulton vs.
         German Savings & Loan llseoolat      .on, 17 Wall.
         108, 118, 21 L. Ed. 618, Kr. J       tstloe ciirr0rd
         etated that,   'Strlotly  speakin    ;, the term
         bank implies a plaoe for the d       tp08it 0r
         money, a8 that is the Paoat obv      .OU8 purpose
                                                                       622




Hon. Fred C. Sranson,    Page 7


     or such an institution.'     And all the
     oases, so far a8 we are advised, whlah
     have construed the words 'banking carport
     ation'  as used in the Bankruptcy Act, hete
     regarded the legal power to receive deposit8         a8
     the essential  thing.    See Gamble vs. Daniel,
     39 F. (2nd) 447, 450; State of Kansas VS.
     &yes,   62 1. (2nd) 597; Cleaon8 VS. Liberty
     Sarinqs 8 Real Kstcte Corp., 61 F. (2nd)
     448; Woolaey T8. Security    Trust co., 74 F.
     (2nd) 334, 97 A. L. R. 1081."
          In American Jurisprudence,       Vol.   7, at page
24, ws read:
           "Strictly   speaking, the tepn *bank* im-
     plies a place ior the deposit of money. In
     Its more enlarged sense, a bank may be darin-
     ed SE an institution,     generally inoorporsted,
     euthorized    to reoeive deposit8 of money; to'
     lend money and issue promissory notes, USuslly
     known by the name of bank notes, or to perform
     some one or wore OS these fUnctiona...,        Ao-
     oordfngly,    banks in the comerold      SeLLSO, are
     of three kinds: 11, of deposit,     (2) Of dis-
     count, (3) 0r oirouletion.n
          Ue read rurther     from Texas Jurisprudence,        Vol.
6, at page 142:
            -As to what are 'banking or dlsoounting
     pririle,vs*      within the meaning of the Constl-
     tution,     there appears no Texas daolsiona which
     really aid the investigator."
            We have only the definite       inference   in the opin-
ion of Kallski vs. Gossett,        suprs, that the power to re-
ceive deposits,     together with the other powers conierred
upon corporf:tiona     created under Chapter 9, would be suf-
ficient   to OOnStitUtO     suoh corporations    as being one8 with
 'banking and disoounting      privileges'    with the Constitution.
             Notwithstanding which, however, we believe   the
conolusion.ine8oapable,     under the authority olted,  that
the amendment embodied in Senate Bill 268 constitutes       the
corporations    created under Chapter 9, suprs, oorporsta
Hoon* Pwd C. &anson,      Page 8


bodies with banking and discounting   privI2ege8,  within
the meaning of the constitution   upon their compliance
with the requirements of the aot itself,   the ~ndments
thereho, and the oonstltution.
           In enswer to the seoond question propounded
by you we point out that as ta new oorpolatlons     towed
under &la pter 9, supra, as amended, such are governed by
Chapter 2 of Title 18, &vised Civil Statutes,     in the
same msnner a8 ordinary banking corporations.    Artioles
377 and 375 of 8UOh Chapter embody the oonstltutional
requirements that all capital stock be paid for In full
in oash berore the granting of the Oharter to suoh oor-
poratlon.
            As to corporations     In eristenoe    at the time
or the efreotlre     date or Ssnate Bill 268, such oorpora-
tions ara.authorised     to adopt the powers granted by the
amendment, by filing     a acstliioate    to suoh &feat with
the Commirtsioner of Panking.       50 prwislon     is msda per-
taining to the requirement of the ooastltution          as to the
oapltal   atook, and Under Art1018 543, suprs, the general
oorporation    Statute oontrollsd     the original   method of
orgamisatioh    0r suoh oorporstions.
             It Is maniiest,   however, under the conetitution,
Artiole    16, Seotion 16, thet no corporation        can exercise
banking and discount privileges        unless all of the author-
ized oapltel    Stock he8 been subcoribed       and paid for in
rull in cash.     It follows that no corporation        In azis-
tenoe at the time or the effeOtIve         date  or Senate Bill
268 oould qualify thereunder snd be Invested with bank-
ing and dfsoount prIvilege8,       unless suoh oorporetion       has
in all respects oomplled with the constitutional           require-
ments.     In our opinion,   Artiole 16, Seotion 16, oi.the
Con8tltutlon    is salf~enaoting    (kaliski    18. Gossett,
supra) and tharerore,      suoh a oorporation      oould qualify
under 3enste Bill 268 at suoh time as all of It8 author-
ized oapitsl    stock had been subaoribed and paid for in
rull In oash.
             We rurther point out that the exlstenoe     oi
these raats Is a oonditicn      preoedent to the right 0r a
oorporatIcn.to    be ohartared under the ocnstitutlon;
aocordingly,    we suggest that you should.requlre,    before
permitting    such corporations   to qualify, the 8ame method
of establishment     of these faots as i8 required before
                                                                                       624




Eon.    Fred C. Rranson,             Paga 9


the grantlnq        of a aharter         to the       ordinary    barking
oorporiktlon.
          As to your third qupotion, w_belIe+s~the                              _
general rule in suoh suttrrs  is oorzvmtlp stated as                          r0p
lows in Texar. Jur., Vol. 10, page0 56a and OS61
              "The oorporate   orgmlzatlon     is sub&tot
        to oqatrol by the    stookholders    as to the
        tOllOWl    metterrr   (a) alteration     of the by-
        lawa; (by llterat%on o? the m&or          of dlmot-
        oral (0 Insmass      or derreaso    of oapltal
        &OOk;       4)    CrolUnt~       biSSOhtiOS.Of           t&6   OCR-
        pany; (01 am fundastental alteration            of the
        a rmrste      oumoe~      strtmture and properties.
        A: to t&ass sutters          the aontrol ot the oor-
           ration    1s rested la the dockiolden          by
        r aw, and tholr right In this rsgard oannot
        he tnken away By ths agratmtmt orgsnltlng             the
        oorperatlon.       In all other aPttar8       It seems
        that the voluntary lsa o o la tes       for&g    the
        ocmpwy ara at liberty           to regulate tha posers
        of stookholders       by the organlo ocntraot of
        assooiation.*      (tinderaoo,ring   ours)
                At ‘Pa&a 9561

              “A8 we rlaro sedn, a aoalyoration has its
        algln    in the eompaot of the individuals      *Lo
        ooslporr* it.   Tbs general pumr or the direstor-
        ate, headerore     n%ntio,aEd, Is subjaot to ths
        sas~sliaItatIm~     that Is to my, the dlrsotors
        pat    to partorm all oorporate~aots     rorsrs   to
        ordinary buslnsas tmnsao%Ions~ they have no
        power to destroy or to mdif'y the oorpor6tiOn
        org6niratIon.'
                3.n the    OQOOof Clark         vs.      Zromn, 208 SW 480,     445,
the    murt     sayer
             *The prlnolple    of law upoa ahloh these
        rules of ocarstruetfo~   ars based (1) that the
        power to maks fundmeental    ohsnges ia the
Eon, Fred C. Branson, Page 10


     identity    or in the plan or pollay o? a aor-
     poration le not oonferred upon its ofilaen
     sfmpl~ in giving them the general paaer 9f
     menagement, but 18 reserved to the IndlCidual
     st0okholdere;      (81 that such rundamental
     ahanger In the polloy or identity,        of the
     organlzatlon     nre not within the teas8 of
     the organio oaepaot;and       involve the IntrO-
     duotioa of naw terms;areatlng        new a&d
     different    liabilities,   and aubjeoting   to
     different    rlake from those attendIng the
     oompaot into whioh the ahareholdere had
     entered by becoming membere..

          Ukewiee,  in Thoapcloa on Corporatiaar,         Srd ltd.,
we read in Vol. 1, at page 5l2r
           -As rhown in another reotlon o? this
     ohapter, an amendment whioh makes a funda-
     mental ohange In the nature of the oorpora-
     tiOIl Win   IlOt be bindillg  ULlh4SS~008ptBd..
     Pundamontal, radiaal,      or vital   amend~entrr to
     a oharter muat be unanl~ouely looepted by
     the stoakholderr.     Where the whole body of
     stookholdere    or other persons in interest,
     compose the aorporetion,      the right of essent-
     ing to any proposed ohange In the oharter
     resides in them, anl not in the board of
     dire&ore,    whioh is oharged nith the exeroise
     of the oorporate powers.        In their oapeoity
     as managers, they have no authority         elther
     to oell ror or assent to a ohange o? the
     oorporate aonstitution..     ..     notwithstanding
     the general rule that aooeptanoe of amendments
     end alterations    must be by the stookholders...”
          And In Vol. 2, et page 940, pare.       128t3, from the
ame authority,  we quoter
            Winoe, on prlnolples    already rererred
     to, the dlreotore    have no parer to make
     aanstituent   ohanges in the oorpmatfoa,       it
     foll0u8 for like reaaona that they have M)
     implied authority to aooept an emendmnt
     to the shader     of the oorparetlon     where the
     amendment operates to make axif fundamental
     ehnge    in the oharaoter   or oollstltutlon   of
                                                              626



Bon. Fred C. Rraneon, Page 11



     _- eorporatlon.
     the                 - The . rule aleo applies ii
     fne propoeea amensment oonrere new parers
     or privileges.  not within tho general powe,m
     aonferred by the original       oherter or by Che
     stockholders.    The stoakholdere      alone are
     emp&wered to aooept suoh amendment. This
     prinalple   la stated In the eyllabus oi a
     Tedoral Court a8 r0llom
                *'Roard cU Direotore     of a
          eorporetlon,    who, under the ohar-
          ter, are vested vlth *all the
          oorpomte     powers' of the company,
          may not, a8 a eeneral tie,       have
          the lneldental     power oi aooepting
          from the Legislature      en ameddaeat
          to the oharter,     the eifeot  bi whish
          Is to enlarge beyond the vlsh of
          the etoekholders the extent of the
          oompany*s lmeetments.~"
           Uo iid a no tk eta uo einalta
                                      t temnnt ot the rule
in the ease of the Attoraey   Oeneral we. hmza~etiest  Bmkk
ot Louisiana,  26 La. AJI& ZSS, wherein the Supreme Court
of LouIslena 86~81
            *The alteration   proposed by this Act to
     the ohsrter of the kmn B Pledge Aseooletion
     fundamentally ohanges its oharaoter.        Instead
     of merely to loan money et a. oerteln rate of
     lutmst     08 aovabbo property;   the oorpuratlon,
     under the amendment proposed,     is authorlsed
     to rsoeivo deposits     and to do a general bank-
     ing bueiness.      The aoaeptanoe of this grant
     should have been by the unanimous oonsont of
     the stookholders.      The assent of e majority
     whloh was given, was not sufiioient.
            *Legislative    alterations   of the oharter
     or a private oorporetlon        when merely auxiliary
     and not fundemental, may be eooeptgd by a
     majority    of the oorporators,     and enoh sooep-
     tenoe will bind ths whole; but if ouch altera*
     tti,i~~rundamental,         the eooaptanoe met be
                     w00ir0ur vs. Union Rank, S Celdwell
     Rap. 48Qt"The rssent of the sUb8OrlbsrS must
     be obtained ta any amendment OS the oh8I'tBr
Hon. Fred C. Braneon, Pago 12

          whloh materially  end essentlelly  alters the
          eondltion  upon which the original  aontreot
          o? the parties was made. * 11 Ga. 438; aen”
          also 2 lEetoelr 314.”
           Clearly,    the change in the oorporation       upon an
aooeptenoe of the addftlonal       powers granted to such oor-
poretlon  under end by virtue o? Senate Bill 268, is
material,  vital,    end rundemental.    Nev paera    are ;iebe
exerolaed and additional     llebilitlea   nil1 ensue.
ohanges would not be immaterial or 8uperrtiOial ones; im
the oontrary,     they go Into the fund~ental     eotlvltiee,
purpoeea, end tranaeotions      of the oorporetion.
            It la, therefore,    our opinion that the certifi-
oat8 of adoption of the banking powers oooierred       upon
exist&g   oorporatlona   by Senate Bill 268 should be made
only attar the seme has been suthorised      by e atookholders
laeeting either In the gnnuel meeting or la e-meeting oell-
ed ror each spsoifio    purpose.
             Ve. do not undertake in this opinfon to go into
the qusstioo of the delegation        of authority  to the Board
of Mreotore      by the oonstitutioa    or by-lava of any suoh
oorporation;     neither do we go into the question o? vhether
or not the adoption of the added power under Senate Efll
268 must be by e unanimous rots of the stookholdera         or
oua be by e majority vote thereof.         We simply hold, as
a general proposition,      that the adoption of such added
powers by the Board of Direotors        would be en fnsuff ioient
acceptance thereot,      es required by Senate Bill 268, on
the part of the corporation,        but that suoh should be done
by the stockholders      oomposlng the corporate body.
               We trust this   answers your question   satisfao-
torily,      and we-remsin
                                       Very truly   yours
                                  ATToR.?.?Y(XxJQzALOF TEAS
AC;&

                                  BYs/“;izffF*
                                       ..           Assistant
ATTCRE’EY
        GI3iEXU.L
                OF TFXAS



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