          OFFICE OF THE ATTORNEY GENERAL OF TEXAS
                           AUSTIN




ilonorable ho. 9. YoAdamr,
Cordmdoner,
Btate Deprctment of Qanklng
Auatfa,     r62au
Dear iire WAdam




                                          eve #ubjeot-matter



                                   ate and Investors
                                  ., domhiled  In
                                  a authorbed to do
                              euumt to the prcrisiimJ
                                 ot the oorporatioas
                                 nod by represeate-


                       ootion with a recent examination
                       oae regarding the &fscretiooary
      authority ot tho Comolimaioner in coapeot to
      a propomd auiculbpant     to a trta8t agreePent
      filed by Mtbjcct      oorporatton rbloh 8enld per-
      mlt said aorporatioa to Cnruivtl Lnwrance
      poliaiem in conneotivn with mortgage loan8
      pledged as onll8teral 8fXurity and held br a
      cocporaCe truetee ot this state,       containing
      a loss payable olnuae lo favor oP the htest-
      ore 8yabtoate or its asmlgafi. Our lstter of
                                                              442

Bonorablo   Jno. 4. UAdams        - paga 2




     dAte_JAnuary 13th vhlch is attached touches
     upon tbe aubjeat mstter.

           *We are also enclosing two original  lat-
     ters reeeired  Srom Yr. Edward Y. Burke, As-
     sistant to Qenaral Counsel for aubjeet aor-
     puration,  one dated February 18th aad another
     dated Yabruary el8t, the latter suggesting an
     altematlte   plan vhich embraaea a oortit%aa-
     tion as to ln8urMee   ootorago being ma%ntalaed
     in oouaeatioa with a giron loan.

          *au should like adrioe as to vbether or
     not tho Comvilaaioner in his dlaoretion aould
     Approve either on0 ot tho plaoe submitted  by
     Yr e   b u r k o . l 0 0.”



           aection 7 at Article 1622a, Vernon's Civil Stat-
utoa, dealing with loon and brokerage aompaaiee, insofar
as pertinent, ia es tollova~


            sAl1 boada,  notes, certiricates,     debent-
     ures, or other ebligatlOn8 sold in Texas by
     any oorporation atteuted by a provision at
     this Aot ahall be secured by aeouritiea        ot
     the reaaonable market value, equaling at
     least    at all tfmea the Saoe +alue a? auah
     bonds, notes,    cortiFioate8, debentures or
     othar ObligAtiOnSr     It such oorporatian 88118
     in Texas bonds, notes, oertitieatea, debeot-
     ures or other obligations     upon vh%ah it    re-
     ooirea hietallment poymollts, auah bonds,
     notes, oertiiioatea, debentures aud other ob-
     ligations sOal be secured at all times by ae-
     auritioa hating the reasonable market value
     equal to the withdrawal or Gvncellation value
     or suah obligations outstanding.         Said aecur-
     itlea shall be plaoed in tha hnnda ol a oor-
     poration having trust power8 approved by the
     Jianking   Commissioner of Tea88 as Trustee under
     a trust agreement, the terma of which shall be
     approved in writing by the Banking Commiasioaer
     Of Texas, or at the option of any such oorpora-
      tioa vhioh sells in Texas bonds, a&es,         oer-
                                                                         .
.c-


      nonorable Jao.      a.   haldame - page 3




           tltioatea,  dobonturea or Other obligations
           upon vhlch it raaeirea lnatallment payments,
           such corporation siay upon application to,
           aod opprotal by, the Baoking Cewdasioner
           et Texas depoait   aeauritiea  having a reaaon-
           able market value aqua1 to the withdrawal
           or aanccllation ralua of such obllgatioaa
           outataodlog with the State Treamurer ot
           Toxaa in lieu ot such deposits vitb a Trua-
           teo as sot Sorth breinoboro, proridad that,
           la the waut suoh dopcait is lrda with the
           State Trwsurc    of Taxaa in lieu ot arch
           trustee:   (1) Such corperatloa    shall tile a
           eertitied  atatummt of reserve liability
           a& detailad list ot leouritiea      w depedt-
           ed,     aai-aanuall~     vitb   tha BanJUq   Comdaa-
           loner     at Tcxas, vbiob OertltLcation
                                                ahall be
           vu&da by a Cwtitiod  public Aaoountant, who
           shall be approved 87 and be aatisfrotovy to
           the Bonkiag Ccmiaaioncr.    The corporation
           shall pay a tea ot Oiitem   ($lS.OD) Dollars
           for filing esch tmah statement. (2) Said se-
           curities  ahall be depeaitcd with the State
           Treasurer  uuder a trust agreement, the terms
           ot which shall be approred by the Panking
           Cow&s8ionar .”


                ~‘JWiefly stated, the plans submitted by counsel
      Par the particular companies imolved Are aa follevar

                 1. Tha acapany will furnish            the dapoaltarr
      with a oortitioata as follovat

                    “Loan uo.                  uama                 -
                    @This is to certlry that adequate tire
                     insuraoca protection in being main-
                     tained in connection with the abora
                     loan, and aaid ioauranoa i a being
                     hold by the Investors Syndioate of
                     hioneapolis, Minnesota.*

                  2. Ao amndment to the trust    agreement deleting
       the raqu&rcmcnt tfith reapeOt to the furniahin~ of the AS-
       signments with the pollcios And inserting n requirement to
                                                                     444

Llenorable Jno, Q+ UAdsmS -    page   4




the sff'eat thrt the 0ompany furtish a oertiricate      similar
to the rorm quoted above.

             7Jmre 18 a broad diooretion lodged in the Bank-
ing Commissioner In Sbotion 7 above quoted with respect
to the moaaribies to be plsdged by a loan ahd brokerage
comp~.       rhat diror%tion, however, is not an arbitrary
one, but is that       dimarstion that should be axeraised by
ah szsoutite or sdmihistratire orflasr charged ritb the
duty or approtiag such seourftiss as aollatsral        to the
companJ*s outstanding obligation8 to the publio. me
statute   rqulres      such seourltiea  to be sof the reason-
able market value, aqua1 at Isart St 811 times        the faa@
value ot such bonds, notes, oertiiieates, bebfintures, or
other QbligStiOllS*, where mah obllgationa.       hare barn sold
and paid tar, and in asses uhere sueb obligations        hark
been sold on installmeat        payanents*by securities having
the reasonable market value equal to the withdrawal or
asnaellatioa      value of auob obligations outstanding.*     The
etatuts thus makes the reasonable market value OF the ac-
curfties deposited the measure of 8aaurities        required or
tba iaauiag and depoalting aorporations.         What that reusnn-
able market value is, has be4n faotu8lly uubmittcd to the
detarminotlon of th6 l+anking Comrsissionar for hi8 oPfioia1
approval.

           Nor, the plans proposed by the particular ooupan-
ies under oonaideration oontmplate     tbQ doposit of aotas
secured by aattgage or other lien upon improved real estate,
which ubwaotsr    of instruments undoubtsdly could be ell~lbla
and sdequate under tbc test of reasonabl6 market value of
nuah note and ifenD lut nhsro, as is usually      the sass,  the
value OP the note is materially   affeoted by the value of
the auildiags   upon the lsnd mortgsgsd, naosmsaril~ au insur-
anoe pollay in Tator of tbo holder of such paper rould be an
essential element   in appraising tbe market salue of the note,
and consequently the adsquaoy of the security    of sbich it
was   a   part.

          Ye are thaaforo   of the opinion the sukPJestion8 of
aounsel ror the oompanies should not be follored, for this
Tould bs to aoospt the personal liability ot the companyin
lieu OP the securitie,u required by law.
