                    THEATJTORNEY                      GENERAL
                                    OFTEXAS
  Gerald     C. Mann                AUSTXN~~.-~'EXA~

ATTOxcNF,Y    ‘:rENr!2HAr.




       Hon. Jno. Q0 McAdams              Opinion No. O-5724
       Coulml.ssioner,  Depart-          Rer    Construction  of Articles    1524a
       ment of Banking                   and 696, of the Revised     Civil   Stat-
       Austin,    Texas                  utes, with respect    to depositing
                                         securities    by loan and brokerage     com-
       Dear Mr. McAdams:                 panles.

                     You request     an opinion     from   this   Department      in the
       following     letter:

                      “Two companies hold charters             under Article
              1303b of the Revised           Civil    Statutes    of Texas for
              1925. Both companies up to now have engaged only
              in the business        of accumulating        and lending     money.
              The companies now propose to issue face amount
              installment      certificates        as authorized     by 1303b
              and 1524a, Revised          Civil Statutes       for 1925.     The
              issue and sale of these certificates,                 however,    are
              to be only in connection             with loans made by the
              respective      companies.       No certificates       will   be
              sold to any person other than a borrower                  from the
              company.      No certificate         will   be sold in an amount
                in excess     of the amount loaned to the purchaser.
              No general      offering     to the public       of these certi-
              ficates    will    be made.      No part of the capital          of
              either    company is to be raised            by the issuance      and
              sale of these certificates.               The sole purpose to
              be accomplished        by the issue and sale of such cer-
              tificates     is to afford       the borrower       a convenient
              plan for savings         to repay his loan obligation            at
              its maturity.

                    “We would like to Imow whether loan and brok-
              erage companies   issuing   debentures     and certificates
              upon which they are to receive       installment     payments
              under Article   1524a Revised    Civil   Statutes    of 1925
              in the manner set out above are also re uired to
              make the deposit   provided   by Article     69% Title 21
              of the same statute.‘*

                     Section   7, of Article   1524a, Vernon’s           Revised      Civil
       Statutes,     as amended in 1937, 45th Legislature,               p. 405,      Chap.
       204, Sec.     2, contains   the following:
Hon. Jno.   Q. McAdams, page 2          (O-5724)

             “All bonds, notes,          certificates       drben-
     tures,     or other obligations           sold in !.‘exas by
     any corporation        affected      by a provision      of
     this Act shall        be secured by securities            of the
     reasonable      market value,        equaling     at least    at
     all times the face value of such bonds, notes,
     certificates,       debentures       or other obligations.
     If such corporation          sells     in Texas bonds, notes,
     certificates,       debentures       or other obligations
     upon which it receives            installment       payments,
     such bonds, notes,          certificates,        debentures      and
     other obligations         shall be secured at all times
     by securities       having the reasonable            market value
     equal to the withdrawal             or cancellation      value
     of such obligations          outstanding.         Said securi-
     ties    shall be placed in the hands of a corpora-
     tion having trust powers approved by the Bank-
     ing Commissioner        of Texas as Trustee under a
     trust agreement,        the terms of which shall be
     approved in writing          by the Banking Commissioner
     o,f Texas, or at the option of any such corpora-
     tion which sells        in Texas bonds, notes,            certi-
     ficates,      debentures     or other obligations          upon
     which it receives         installment        payments,    such
     corporation      may upon application            to, and approv-
     al by, the Banking Commissioner                 of Texas deposit
     securities      having a reasonable            market value equal
     to the withdrawal         or cancellation         value of such
     obligations       outstanding       with the State Treasurer
     of Texas in lieu of such deposits                 with a Trustee
     as set forth hereinabove,              ***.

             “Any such corporation          which sells      in Texas
     bonds, notes,       certificates,        debentures     or other
     obligations      upon which it receives           installment
     payments, which upon the effective                date of this
     Act has securities          deposited     with a Trustee here-
     under, may, with the written              consent    of the Bank-
     ing Commissioner        continue      under said trust       agree-
     ment , and/or agreements            as to bonds, notes,       cer-
     tificates,      debentures      or other obligations
     already     sold in Texas upon which it receives               in-
     stallment      payments,     and avail itself        of   the
     option to deposit         such securities        as to future
     sales of said obligations             with the State Treas-
     urer of Texas by complying with this Act in the
     same manner that a corporation               hereafter    organ-
     ized would be required            to comply with this Act.
       _-




Hon.    Jno.   Q. McAdams,   page 3    (O-5724)


              “All cash or securities     left with the State
        Treasurer   in compliance  with Article     696, Revised
        Civil  Statutes  of 1925, shall     be considered  as
        part of the collateral    required    under this section.”
             It has been held by this Department that the securi-
ties   deposited   under Article     696, of the Revised Civil Statutes,
are for creditors      of the depositing     corporation    generally,    and
not specially     for its Texas creditors.        (See opinion     of Mr.
Richard Brooks,      Assistant   Attorney   General,   of date May ll,s1e9838’
addressed     to Honorable    Charley Lockhart,    State Treasurer.           ,
also,   opinion   by Assistant     Attorney  General Cureton,      June 17,
1917, Opinions Attorney General, 1916-1918, p. 202).                The opin-
ion by Mr. Brooks likewise         held that securities     deposited    un-
der the requirement       of Section    7 of the Loan and Brokerage Corn:
panics’    Act are exclusively      for the benefit     of holders    of ob-
ligations     sold in Texas.

             It will      be seen that the Loan and Brokerage         Companies
hct (Article      152&a) requires      such company issuing     and selling    to
the public     its bonds or other securities          in Texas to keep its
outstanding      obligations     secured   “at all times”,    to the extent
therein   stated,      while Article     696 does not require    such continu-
ous collateral        security.     There can be no doubt of the Banking
Commissioner’s       authority    to require   companies operating      under
Article   1524a to keep its outstanding           obligations   collateral-
ized at a 1 tw             but such power does not exist       under Article
696, as above sta;ed.
             We are of the opinion    the provision     above quoted,
that securities     deposited  with the State Treasurer      under Arti-
cle 696, may be considered       as part of the collateral       security
required   by Article    1524a, is a privilege     extended to the cor-
poration,    but there is nothing    to be found in either       Act that
would justify    the construction    that an issuing     company would be
required   to do more than to collateralize        its outstanding      obli-
gations   sold in Texas with securities      deposited    under Article
1524a, either    with the State Treasurer,       in the exercise     of its
option,   or with a trustee,     as provided   for in Article     152&a.
           To keep such outstanding  obligations      collateralized
in a manner here indicated   would be a full     compliance     with
every requirement,  and meet every purpose of the Loan and Brok-
erage Companies Act.
                                                                        --     ,_




Hon. Jno.   Q* McAdams, page 4   (O-5724)


          Trusting    that what we have     said    is     sufficient        an-
swer to your inquiry,     we are

                                 Very truly        yours

                                 ATTORNEYGEiNERALOF TEXAS

                                 By /s/ Ocie        Speer
                                 Ocle Speer,        Assistant

APPROVEDDEC 3, 1943
/s/ Grover Sellers
FIRST ASSISTANT ATTORNEYGENERAL

APPROVED: OPINION COMMITTEE
BY:       BWB, CHAIRMAN

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