                                                                                  627




             OFFICE    OF THE ATTORNEY         GENERAL    OF TEXAS
                                     AUSTIN
0-c.-                          ..
A--
                               i



        Ronoroblo  J. T. ?Sdillin                           /"
        D3-puty C0rsdss10ner
        Depirrttint of Bank@
        Austin, mxas

        Dear Xr.   KcRillin;

                                        Re#     Whethe&?-raot    &'ticle    554


                                       ,/'    .,--~where'thebank*sUloan90thar-

                                                                     p a r tic
                                                tisdwl    SxcessiYe   lo&all,
                                                                            is



                    We beg ~63s.kno&A.g&       &ceipt    of your letter     of
        W3ruary    11, 1341, reqwpi.ng~ap        opinion, as follywst
                         /" /',               '.    .;
                    OX&',: # c&rse‘>.\are a&'&       ,%hat the Recon-
              struotidm Wuanoe      @qrporat~on,24     PederaL instru-
              323utaX.t&   +ing     plrsuarrf-to   Fsdersl   iStatute,
              is.,offerin~fa~nciqS       a~&istance    to,business
                     rough i+e *p3bution of participation           agee-
           ~t~execut~R~@&J?fym                     I&00,    a~ eom,of
              wH&QXs     hereto attichod.      The me+ch&cs      of the
               pratip&p6       I,undyrstand    then, aro'thy3ez       :'

                    ,nA\bushess' m~desiri&         8 subetantial   loan
                           $l+ieReoonetruction     Finsnoe Corporation
             for a:;LbanJ~     The Corporation    generally i6 unvill-
             ing to -0       loans    direotly.. Inetead, it sugg:ests-
              to &q>~orpower       that he apply to 1~s local~.bank
             l'or the 1osnnnB        that the R8oon6truation   Binsnoo
             Coiyoration     to ~assist~himln     obtaining the lOan
             will execute a particiption'i3greement          in favor
              of' the bank on the form above ~entionad,         agreeing
              upon demand to purchsse a stipulated         peroentage
              of the loan upon being requested         to do so by the
             bank.     Vith these facts in zlnd, I respeotfully
              a6k whether     or not   there is a violation   under Arti-
              010 554 of the ,3?enal Code of Texas in the following
              fact situation1
                                                                 628
lion. J. T. ?&%illin     - Pago   2




           *A State banking corporation        has a loan
     limit of     0,000.d0.      It makes a loan to an
     individua $ fork $bojooo.oo     aad Skidk3ZU3OU6ly
     with the loan%he     R.B.C. executes a participa-
     tion agreement    on the Porm above mentioned,
     agreeing On demand t0 purchase a $20,000.00
     participation    in the loan..

           It is the opinion of this deprtmnt      that the
~articipstion   plan outlined by you, and more specifioally
~mvn   in the participation   agreement, form of which accom-
pmie~   your letter, does not relieve the overloan of a
Mnk from the prohibition     oontained  in Penal Coda, Article
554.

           Article-g84     i6 a6 fOlloW6:    '-~


           "No incorporated     bank or trust company
     chartered    under the laws of this State shall
     loan it6 money, direotly       or indireotlp,   or
     permit any individual,      private corporation,
     company or firm to-becolne at any time indebt-
     ed or liable to it in a sum ercesding         twonty-
     five per cent of Its cayiltal stoak actually
     p6id in and surplus, or permit a lina of
     loans or credit6 to any greater amount to
     any individual,     private corporation,     company
     or firm.     Any agent or officer of any incor-
     porated bank or trust company who violates           any
     provision    of this Artiole shall be fined not
     11.36~than One RUndred nor more than Nvo          Hun-
     dred Dollars,     or be imprisoned    in jail for not
     less than thirty nor more than ninety days, or
     both.    All loans to manibers of any unincorpor-
     ated company or firm shall be considered          as if
     they were loans to such company or firm in de-
     termining    the limitation    here prescribed.      The
     discount    of commercial    orbusiness   paper actual-
     ly owned by the person negotiating        the same
     shall not be oonsidcred       a6 borrowed   moneyg a
     permanent    surplus,   the setting apart of which
     shall have been oortifiad        to the Ranking Corn-
     missioner    and which cannot be diverted without
     due notice to and consent of said officer, may
     be taken and COnsiderod       as a part Of the Capi-
     tol stock of this article.         In no event shall
Ron. J. l'. hchillin   - Page   3




     any such loan exoeed twenty-five   per cent of the
     authorlsod  capital stock and oertifiod   surplus.
     Frovidsd, howevsr,   that the word *corporation*
     or any other word or torn as hereinabwe     used
     shall not be taken to include or to refer to a
     municipal  corporation,  county or any district
     croated for sohool or any other State or local
     public purpos0.w


           The vice of an overloan, where there is one,
exists from the smment the transaction   is completed  and
tllc bank has parted with its money, and the agreement   of
another to purchase the excess portion of 6uch loan, or
tha entire loan, as to that, does not mge     the trans-
action of invalidity.

           Nomover,   the form of partioipation    agreemsnt
under consideration   is not even an unconditional    agree-
cant upon the part of the Reoonstruotion     Finance Corpora-
tien to purchase a partioipsting    interest in the loan.
The agreemnt    does purport to lurchas    for cash from the
?JZZ& a participation  interest, but it recites~

             'Subject  to the following   tem6   and con-
     ditions:     8 0 * (2) Upon five days'~ written
     notice    RPG may at its option at any tim0 pur-
     chase its agre'ed participation      in said loan
     (in which event bank shall simultan0ously        is-
     8~3   ta  RF0 a partioipation   certificate   on
     RJ?C Form L-$01) or said loan in its entirety;
     and upon five (5) days' writhn        notice bank
     may at its option any time purchase RFC~s
     interest in said loan.'


           It is thue plain the instrument  contemplates
that the lurchas   of the participation  interest in the
loan is to be at the option of the Reconstruction    finance
Corporation.

           In construing  the law, we are not to be swervecl
by the hardships   that may follow -- we are conoernod   only
with th0 true interpretation    of the statute.  We would
not be ju6tifiocZ in attempting   to relax th0 rigors of a
    *
.

        ifon* J. T. Iricxlllin - Page 4




        statute   where   the   statute   Itself    is plain     and wig-
        UOUE .



                                                   7ol-y truly   yours




                                                                    Assistant




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