        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
