                     J-0 11, 1949
                                            :

Hon. ,J.Y. Felkner                Opinion Noo,V-842.
Banking Conanisrloner
Au&In, Texas                      Re: Eligibilityof the
                                      State Traemaror te
                                      not es.tl=u8teo~f'er
mm:     H.I.,Be&son                   i corporetion ieau-
        Doputj Sealking               lag seallritlrrllndw
        CQ~SShXWP                     titiole 1524a(v.C.S.).
                                      Conritrwtloao$ a
                                      proposed trust dgrrs-
                                      mmt,~.end epplioebll*
                                      ity of Artlola 696
                                       (V4.S.).
Deer sir:
          mu hero rsquestod the reoonsldaretionof
Opinion Ho. V-483 by this office. Pour original ra-
quoat is res&hd a8 follour:
           "The Sem liouatonIhiderwriters,Incr
      OS Hou8ton, Texas la.8 dan*stlo serpora-
      tioh hevlng &am granted a oherter by the
      Saorrt~ of State on July 3, 1947, with
      Sub-So&Ion 49 of Artlale 1302, Revised
      Civil sptutas or Tixe.8,&I its purpoas
      OhlaB   Ui,   bJ   +irtUo     of   anid   ~oWVZ%,   it
      la under the gdnoral aupsmielon  of this
      Bapertment pn aaoordaaor with the provia-
      16~ of Artiols,1624a,Rerlaod Civil.
      Statutes of Tans.
           Q@ld c&paration now propores to
      lssue.end soil to the conoral puUo a
      Siftren-tmr Maturity undwwritor~ Bond
      sub oOt ta the proVlslon8 of Emotion 7
      of irtlolb 2524ao,Rsvised.CltllStetutas
      of Teum, whhhprovldm     for oelletorel-
      ieetlo*..,ti
                 La1 o&steadl~ bomPs,.akoter,
      cartiiioatsa;daInntur~s ~a@ @iabr eblii
      getionl$8vla l.mTrus by ~~0ur1t1.8 of tlro
      reesmebls urket relue equeling et leest
      at lll tinba tho faae value of suoh obll-
      getions, which amuritiis ahell ba pleood
        Hon. J. 88.Folkimr - Pees 2        (V-842)


             ln.t,he hands of e oorpOr0tiOn h0vi    trust
             powvrs opprovod by the IkanLrlnyCf’s3 rrloaer
             of Texas, as Trustee, under e trust egros-
         .’. moat or at the option of eny such oar
             tltinwhloh sells in Texes-such vbll$eI?--
                                                     loss
             es heretofora  referred to, such aorpvretloki
             mey, upon applicetlonto end epprotel brrthe
                      ccwl8sionor, deposit aoourlt%vr
             fi?ii%a 8tatv Trvasursr of T&x&s m&r      a
             trust e@sammnt la llou of auoh d-apelta
             with e Truotev as set forth hsrelPabvva,
                   Ns~bJeotCvrpvretlonhea Ouhrittodfor
             the Coml~~Ionbr~a epprora& its  tmut    ipba-
             -0-y        thb Wets 'Treeaurrr *a   Timtea,
             tvgvtherrtit 0 speoiran of the bvnllfob-
             ligatloa rhfallIt propo8va to abll. lo va-
             olvar'sa~4 IfWmiwnta aad, in ooanwliian
             tkarvvlthtt&w fvllvwlng questions erv lub i
             mlt#d fvrm      oplnivns
                : "lo h    ths torma end condkons vi
             thv t&M ~onturv vuch as to rerreat'tho
             approtel thmvof by tha B        Cvmlaaivner?
                    : .,
                  "2* wouu the St&t; Treeeurer., tlr- '
             tam OS his crfflalaloepeoity,bo &l&17 I.8to
             rot u T&uatU.p*ll)r  th etirma vi th 6lnb dt-
             tee ttiut La dvh -tur a ?
                  "30 Ia the proposed bond oo~,idmM   to
             be ln..la$elSvma ed doa? It oou WOhim tko
             claaa vi inatoracl&#or &I. at&ma atvatloa-
             od $.nJtitivW'? vi Artlok 1241;
                                        4     Il~~Sao~
             civil 8tatMva vi 2 x08? .If so, .wvaldtha
             pr+la,ivaa,bf'A&lo(l6 BM,.hvvlaed Civil
             St0tutcis   of TeXU,   ala0   applft”

.                 Yvu have aLao raqmat       W up~a mom&d-
        *r&ion ths bond rvferrsd  tv so     1)eldby the 8U
    .   Svuitam ~ndvrwr%tvra,lgw,;lo        o vf obli~etlcm .
        m@.P      ovlletorelit*tlvn,m        a6 to the eromtr
        far whlo
              "g oaoh bond la TV bv ool;l.rtsrgl~aed~
                   FOP th0p\rrpoae of thlr B#,$.@ba, queatlona   (1)
        end (2) am   QlaaurseQ 0ad enawanwe th@thvr,
                 Tbo psrtimant rovlaiona of 8vatilon7 of &t-l-
        010 1624e,,Varnom~aClriE ntetutr a ,lpv as ~ollvwar
Hon. J. I(.Falkner - Page 3   (V-842)


         "All bonds, notes, aortifioetes,debon-
    turas, or athe+ vbllgetlons sold In Texas by
    my corporationeffeated by a provlsZon of
    this &et shall bd scoured by securitiesof'
    the reasonablemarket value, equaling at least
    et ell tiaeo the Sam value of such bonds,
    notes, oortlSlaetea,debentures or other obll-
    getlons. IS such aorporatlon sells in Texas,
    bonds, notes, osrtlSloetss,dsbentures,.,or
    other obligationsupon which it receives ln-
    stallaentpaJluntsp auoh bondag noteso cei%l-
    Tloates, deb@ntuIWs ana other obligations
    shall be mowed at all tlmea by seourltles
    having the reasonable market value equal to
    the wlthdi5awLlor oauosllatlou value of such
    obligatlcmsoutstsndiag,,Said ssourltles
    shall be.&laCmd.Luthe h@ds of a eorporatlon
                 powera approved by the Banking
    brii~lng.trust
    Conpnlssiotaer
                 of Texas.as Trustes under e trust
    agree&&t, the terms of which shall be opprov-
    ed In writIn&-.hy.
                     tbe...Banklngnp~ssloaer vi
    Taxes, or et the option .oSany lrachoorpora-
    tlon wh.&h sells In Texea* bonds, notes, oer-
    tifioetes,debentures,or other obligations
    upon which it receives instel&f@ pag*lents,
    such corporationmay upon appllaat$otl t@,.and
    approval by, the Banking C~asiotier   of
    Texas deposit-securitiaxhaving a reas&abIe
    market value equal to the withdrawal or cen-
    oellatlon value of such obligations outstand-
    ing with the State Treasurer of Texas in lieu
    of such depositirWith e Trustee as set forth
    heroinabove, o Q on (Enlphesissupplied,.)
          The underwriter*sbond issued by the ~QPI
Houston Underwriters,Inc., la what ia kuoWn as a asin-
gle-payment"type of bond or obligation iu that the en-
tire considerationfor the sale thereof is payeble at
the time of its delivery,'end therefore is not the tVpe
of bond referred to in Sac, 7 upon which the Issuer re-
oelves a considerationlln installment paylllenta+"
          Under the pro&Ions of Section ?‘ab&     quot-
ed It is mandatorg that the collateral securing the Un-
derwritersBonds be placed In the hauds of a corpora-
tion having trust powers approved by the Banking Commis-
sloner of Texas as Trustee under a trust agreemesit,the
tams of which shall be ep~reved in wrltlngby the Bank-
ing c~ssloner    of Texas, end the State Treasurer in


                                                     :
Non 3’.!:.F!nI.knur
                  _ I’afsQ
                        4 (V-842)


his Sficlal aepacity would not be eligible to aot as
Truetee,   If tbo.Und4rwritsrs~Bon~s      in qu4sti4zl VW4
#old upon tho’installmont@RA, tlieAat tb4 4ptiCm of
the 3an1&lUSt7OA Fnd4I'Ur~tOlW,    IIIO., .tb4 d4 pet  ot’the
collitsra3. aeour~ti4s   could be.mads with t”b,@ats
 Treaaur4.rin the:mannerand form provided @r Jjsbtlan
 .7,,b@ since the Underwriters,Bondsin question are
 not being sold upoAth ins
-~%3ing14-paym6nCnplan, it is
 tloh.ha
       *g.irW;...~yugt.~powrs,
                          ap
'miaglich   ~P'tii:d:'~iigt44bc   @pp
dltfom W :t+ tjlpst.$ndelItur
tcate@~:Uptiti the    ii~@+d2.l~y 0
act.as   Trustee,    $0 no+ WtWd
                    Odmiesimaer
                   29 ary t;heref




.a14
     Hon. J. M. FaUmr   - Page 6   (V-842)


     Houston Undorwritore,Inc., shrll be swmrod by 444w-
     itiee of th4 r4asenablemarl& valme equal* et 14ast
     at all timoa the face value of suah bon&--or    other ob-
     lIRetI4As. Under the express pmwiaions of th4,bond
     ia qu4stioA, the isstur, 9u EoulltOAmdorwrit4rs, IAN.,
     is obligatsd to pay to the bondholdsrflft44n ywrs
     from the date of the bond the mm of )l,OOO.OO or mw4,
     whleh shall oonsist of (A) $750.OO'Inoash; (B) 25 ful-
     ly ~Id~AOA-as8lOstiablO shar.8 Of the capital stock of
     Sam Houston Undmrw&itetis, IPC., valuod,$or the purpode
     of the bond at #2SO.O0;  and (C) such annual bwuwoa
     as may acoru4 to the bondhoid4r undrr the other provia-
     iOASiof t&.bond. The oompanj further obll atra 1tsel.f
     wIthIn thirty day8 rratatha data.of.th.4 bon 8 tq dellvor
     to the bondholder the 26 rharws of staak r4farMd to 'iA
     (B) aboro,'md further obllgatos itself at my t3.m af-
     ter the 4~d 0r ths first y4rr,frn the'date oi the bond
     or at the end of an) suoooedlngyear thdroefterc)   to par
     to tha bondholdar the 4ash aurrendm valu4 themof aa
     s4t'fOrth IA the table On page 3 of the bond, both of
     uhich obligationsuw dlreot obligationsof th4 iaauor.
               ‘fh4 issuer has'& direct obligation to perfomi
     all of the oond~tia~~Imp4sod upon It adsr the terms of
     the %tdoiwrltem%Bonds aAd upon Its fail- to,pez'fm
     e   of swh obl&b9ilmse..%ha.Lammr.wouldb4 subject t0
     a judgment ior the ~poriflo performem o OS suaktobllgw
     tione Or in.lima theroof$ &Ad'-iAthe OrOAt of its in+bil-
     ity to perlorm Its obliglition, to,dolirortlu 8herW of
     stook in qAaatirn,'it roald ba lIabl4 ir &nag@8 for the
     noAperf4rmaA4 4 of such abll'grtI4A..
               Howe94r, that prrt of ths UAdOrWrit4rs Bond
     (B) which provides for the twenty-five (25) fully paid
     nanars4ssable ahares of capital stook of th4 aomp
     hmein valued at Two Hum&?ed Fifty Dollars ($260*OO Is
     not aA "other (diMat.) 4buatioA    rlthin thg.neaning
     of Sootion 7, Art1414 1524a, which would require Its
     oollatoralisatlontherounder. The toti "other obliga-
     tionen as ue4d IA Artlolo 1624a means direct
     4blIgatiOAs of the lesu~$ ay*bX4 in fixed
     a8 bonds, notea, &4aw.fim L b *ad ,dclbentulwr.
                                                   8.4 Oman
     corpI v. lau.BOO% CO.~,177 ~18, 49, 187 IT&   606 Tmd,

               It Is th4I'Of&Wethe OpiAiOA of this offi, that
..   the bond in question Is such a bond or other obligatloa
     of the Sam Houston Undsruritera,Inc., whloh Is roqulred
     to be collaterallse~under the provisions of SOOtiOA'7~
     &-?ticle1524a, V.C.S.; and the faglure to col3.at4ral~t4
     tlloaobonds by~tha issum b4forr offer- them for dale
     or selling then would subj.4attti comppny to tha patiOIt
  Hon. J..M. Palkner - rage 6   (V-642)


  Preeoribed In tho la& paragraph of:motion 7, whloh
  would bo tho forfeitureof Its ohartor and a receiver-
  ship at the suit of the Attorney General brought at
  iy;;;geet of the Bankl~ CommIsslonerof the State
          *
           The UndorwrltorrBond oontaine the tollowing
  provialonat the bettor of page 1:
            “An amount oqud to ‘or In ucoin of
       the Guaranteed Cash SurrenderVoluo.of this
       Bond shall be invested tn United Stat08
      Government Bonds, First.xortgagoLoans on
       real estate situated in the Stat0 ol Toxae
      .and/orother eeourltlaswhioh ar*'qualifIed
       inverrtmontfor the Capital Stoats,Surplus
       and Ramlive funds of an Old Line Legal Re-
       BOFVO Life Insurance Compan~.aud$bo.sa$d
       aeourltlss shall be deposited in Trust with
       the Treasurer of the State af bxea.as ro-.
       &r~dkgT~sBj~          Cotiaslollei'of tho
                       or the bonoflt of tho Bond-
       holderso The sosurltlosheroin referrid to
       shall at all times have a roraonabloarrket
       value equal to the maratood ea@h value of
       this rmd.al.1other Binidaof this clam out-
       stand~o"
   thus c&ljIng~wIth tho pFovIsIon of so&ion 7 last
   above quotod requiring a doflnlto dosorlptlonof tho
   oharaotor of aollatoral roourlng tho pryaont of mob
.' obligation.
            The proposod underwritor*n:bond ir In legal
  form and OQOI uithin the class of Iastrmnontaor obllo
  gatlons mentioned In Seetlon 7 of Article 1524a, R.C.S,
  of Texaco,and rhou&d be oollatqralicadin aooordanco
  with theiprovlsto~baf Saetlon 7 for oollat6ralIzation
  of a ueIngle~pa~tn    bond or othor obligation. Sin00
  the underwrltercrBond la #old upon the "rlwl~-
  plan and not upon the *partIrbpayMnt or Inrt
  plan," tho provlaiona OS AFtIolo 696, Tit10 21, Revised
  ClvIl.Statutoa,arr not applicable. .
            Sinoo it Is tho oplnlon of this ofilcw that
  the UndorwrltsraBond rororrod to 1s the trpe of ablI#a-
  tlon roquirlng ool.latoralleatIonas a *rlngle-payment
  bond or obligation,you requort our opinion ab td tho
  amount for which said boqd I* to be oollatorallred.
r




         Hon. J. Y. Falkn9r - ?ago 7       (V-&i2)
                       .

                    while the free of thr.bon@ rlmarll~ call8
         for tho paymotitto tha bondhol0m b$ thd irruer of the
         ~sum of $l,OOO.OO or awe at the explratloziof 15 year8
         from date theroof, qevertholescl, upon the delivery to
         tho.boudholderof.the 25 8,bnrelr of th9 capital stock
        '.ofthe company at tb8 rgrood valuation 9f $260.00, that
         part of the obllgrtlon of the 188~6~ ha9 been dlsoharg-
         ed, whIoh leaves the obllgatlonof th9 %rruer In full
         force and effeot to py &t mhturitp ,#ta the 8um of
         @O.OO In cash, the Guaranteed l&tii&y Value,' plu8
         any bonuses rooeIre&undop olauso fc), which are of no
         fixed amount and may posalbly be of no amount at all*
         The tcras of the bond a180 0411 for the pawest to the
         bondho&iierof o9rtaj.n&umo lieted under the guaranteed
         ohah #mrrender Valw QlLphgS 3 6f the bond upon oortaln
         ly9ntuaUt1.r~




                    mnoad-th9 n$ao6 yalu& of $ho Unde~Itq,$a Bond
         which nuet be SrpOrbd #t all tIaiesb qMuFltlo8 of the
         reasonable mark9t orLu9 theroef U$ $$e@,+@; .9&dtho laank-
             Ca8nel88io~ of Texas should rrqU%r9 +$%a%surk under-
         9 tbr*s bond b9 ool~@taralIeedby ti9 (196ait with tho
         9r
         Trurtee of ruoh reo~itlos a8 may W9 r;j$$i+medby hIa which
         have a roaecnrble qll?ket valuo oquiNkot  tr t&at U(cunt,
                      opinion Ho. V-483,   approvd
         overruled.

                                      !i!Qlw

                     The Stbto Troasuror of Poxha I8 not oll-
                &lb19 to act a9 TruatloeSor a odn;r)rorat.lon
                                                          ire
                s~bondu     or ot&or obligaticum'undm tll9
                provlalens 6f brt. lS24r, V,U.S., Wbloh ara.



    .
Eon. J. H, Falknor - Pa&O 8   (v-842)




                                c, Ke Rlahard8.
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