                           EA           ORNEY          GENERAL

                                      OF         XAS

                                     +lSTlN   11. TEXAS

   BVILL   WILSON
*z-rORNEYGENERAr.
                                      May. 18, 1962

      The Hon. William A. Harrison              Opinion No.    WW-1331
      Commissioner    of Insurance
      International Life Building               Re:    Whether Certificates of
      Austin 14, Texas                                 Deposit in Banks are “Lawful
                                                       Money of the United States. ”

      Dear Commissioner         Harrison:

             In your recent letter you request an opinion of this office whether
      time certificates  of deposit are “lawful money ,of the United States I’
      within the contemplation    of those provisions   of the Texas ,Insurance Code
      which require that various funds of insurance companies be maintained
      in certain kinds of investments,    which include “lawful money of the
      United States. I’ The Insurance Department has considered          in the past
      funds deposited in a state or national bank to be “lawful money~of the
      United States” if such funds are subject to immediate        withdrawal or
      withdrawal upon demand by the insurance company,           but the department
      has regarded money deposited in a bank for a fixed period of time, such
      as that evidenced by a Certificate    of Deposit,   to be a loan to the bank
      rather than a deposit.    This view was adopted because of an Attor~ney
      General’s   Opinion written in 1912 by acting Attorney General Walthall.
      The questions that you ask are these:

             1.     Are funds on deposit with a state or national bank t’lawful
                    money of the United States” if there is in force a written
                    contract between the depositor and the bank that neither
                    the whole nor any part of such funds may~be withdrawn,
                    by check or otherwise,   prior to the date of maturity,  or
                    prior to the expiration of a specified period of notice
                    which must be given by the depositor to the bank in ad-
                    vance of withdrawal of such funds?

            2.      If your answer to question No. 1 is to the effect that such
                    funds cannot be considered   “lawful money of the United
                    States, 1’would such funds ,be “lawful money,of the United
                    States” if the contract between the depositor and the bank
                    provides that the depositor may withdraw all or a portion
                    of such funds upon presenting proper proof, in an
Hon.   William   A.   Harrison,   page2(WW-13,31)




            emergency,   that it is necessary to withdraw      such funds
            to prevent great hardship to the depositor?

       3.   Would funds deposited with a state or national bank be
            considered     “lawful money of the United States” where
            the depositor receives     a “certificate  of deposit” which
            certifies   that such funds have been deposited b&t which
            certificate   also provides that such funds shall be pay-
            able to the order of the depositor or to the bearer upon
            return of the certificate    on a specified date?

        A time certificate    of deposit is a negotiable or non-negotiable    in-
strument received by the depositor,         obligating the bank to pay the amount
of the deposit on a specific date set out in the instrument.        See 2 CCH
Fed. Banking L. Rep.,        paras.   30,413 and 32,313.     The Federal statutes
and regulations     provide that the time certificates    may be paid before
maturity if necessary      to prevent hardship to the depositor.     See Federal
Reserve    Regulation l’A’l, Sec. 4(d), 2 CCH Fed. Banking L. Rep.,          para.
19,~llO. 05.   It is also significant to note that certificates   of deposit are
regarded as insurance       deposits within the meaning of the Federal Deposit
Insurance Corporation       Act.   See 1 CCH Fed. Banking L. Rep.,       par,a.
13,517,; 12 USC 1813 (1).

       A high degree of liquidity and safety is the ultimate purpose of the
insurance   law concerning   investments     by insurance   companies.   From the
standpoint of liquidity and safety,    then, certificates   of deposit are cer-
tainly a desirable  investment;    a certificate  of deposit differs only from
a demand deposit in that it may not be drawn prior to maturity except
under emergency     circumstances.

       Because of the Walthall opinion, it is necessary        to re-examine
whether or not a certificate    of deposit is a loan or is a deposit.      The
Walthall opinion cites no Texas case to support its conclusion.           Subse-
quent to the Walthall opinion, it was held in Shaw, Banking Commissioner,
v. McBride,     9 S. W. 2d 410, 411-412   (Civ. App.,    1928, opinion approved
27 S. W. 2d 121), wherein the controlling      question was whether a certifi-
cate of deposit was a loan or a deposit,     that a time certificate    of deposit
was not a loan, but rather a deposit.      The reasoning of Shaw, Banking
Commissioner      v. McBride finds additional support in the decisions         of
other jurisdictions:    McCormickv.      Hopkins,    122 N.E.    151, 153 (Ill.,
1919); Elliott v. Capital City State, 103 N.‘W. 777, 778 (Iowa, 1905).
In view of the Shaw, Banking Commissioner          v. McBride case, the
Walthall opinion is not controlling.
-   --




         Hon.   William   A.   Harrison,   page 3    (WW-1331)




                Consequently,  it is the opinion of this office that the Certificates of
         Deposit are “lawful money of the United States” within the contemplation
         of those provisions  of the Texas Insurance Code which require that
         various funds of insurance    companies be invested in certain investments
         which include “lawful money of the United States. ‘1

                                           SUMMARY

                     Certificates   of Deposit are “lawful money,of the
                     United States” within the contemplation   of those
                     provisions   of the Texas Insurance Code which
                     require the various funds of insurance   companies
                     to be invested in certain investments   which
                     include “lawful money of the United States. ‘I

                                                     Very ,truly yours,

                                                     WILL WILSON
                                                     Attorney General     of Texas



                                                     BY
                                                          Bob E. Shannon
                                                          Assistant

         BESrlmc

         APPROVED:

         OPINION COMMITTEE:

         W. V. Geppert,        Chairman
         Marvin Sentelle
         Bob Patterson
         Malcolm Quick

         REVIEWEDFOR          THEATTORNEYGENERAL
         BY:  Houghton     Brownlee
