                        THE   ATIYOWNEY           GENERAL
                                  0~      TEXAS


      WILL     WILSON
A--              GENERAL
                                  June 2, 1958

      Hon. J.    M. Falkner            Opinion No. WW-441
      Banking    Commissioner
      Capital    National Bank Bldg.   Re:    May a corporation or company
      Austin,    Texas                        organized under Article 1513a,
                                              V.C.S., engage in a general
                                              loan business, and the appro-
                                              priate action to be taken by
                                              the Department of Banki~ngby
                                              reason of the provisions of
                                              Section g.,Article 1524a,
                                              V.C.S., If a company organized
                                              under hrtlcle 1513a Is found
                                              to be making direct loans to
                                              the general public.
      Dear Mr. Falkner:
              You have requested.the opinion of this office In connec-
      tion with certain dutFes Imposed upon your department In the sup-
      ervision of corporations organl.zedand operating under the pro-
      visions of Article 1513a, Vernon's Civil Statutes. Your question
      1s as follows:
                 "Please advlse us whether or not a 1513a company
             may engage In a general loan business and, further,
             whether this Department should take action as pre-
             scribed In Section 9, Article 1524a, if upon examl-
             nation of such a company It Is determined that the
             company has made or Is making direct loans to the
             general publfc."
                Section 2, Article 1513a, V.C.S., Is as follows:
              "Trust companies may be created and any corpor-
          ation, however created, may amend iis charter in com-
          pliance herewith, or a foreign corporation may obtain
          a certificate of authority to do buslness In Texas for
         ~the following purpose:
                 "To act as trustee, executor, admlnlstrator, or guard-
             ian when designated by any person, oorporatlon, or court
             to do so, and as agent for the performance of any lawful
             act, including the right to receive deposits made by
             agencies of the United States of America for the authorized
Hon. J.M..Falkner, page 2         WW-441


    account of any Individual; to act as attorney-in-
    fact for reciprocal or interinsurance exchange."
        There appears to be no statutory definition of the words
"trust companies" or enumeration of the powers which are author-
ized by law to be exercised by such companies, with the excep-
tion hereinafter noted. Prior to the enactment of the Texas
Business CorporatLon Act corporations organized for the purposes
set forth in sub-division 49, Article 1302, and Article 1303b,
V.C.S.. have been defined by the courts as being "trust companies"
under certain specific factual situations. Stewart v. Ramsey
148 Tex. 249, 223 S.W. 2d 782 (1949); sarney v. Sam Houston U&er-
writers, 272 S.W. 26 942 (Clv. App. 1954, error ref. n.r.e.).
          The words "trust company" appear in the Banklng Code of
1943 (Article 342-102, V.C.S.), the Insurance Code (Article 7.17,
V.C.S.), and in Article 1513, V.C.S., and specific corporate
trust purposes authorized by law are delineated In sub-division
49; Article   1302, and Article 1303b, V.C.S. However, since the,
enactment of the Texas Business Corporation Act, the creation of
"trust companies" thereunder has been expressly prohibited-'by
the terms thereof (Art. 2.01B(4) and Art. 9.14A). The creation
of cornorations with trust Dowers under the Drovlslons of ChaDter
7 of.the Insurance Code was‘expressly'repeal&d by Section 1, .
Article 1302a, V.C.S.
        Section 7, Article 1513a, V.C.S., provides In part as
follows:
          "The general law for incorporation and governing
   of corporations, and the provisions of Article 1513,
   Revised Civil Statutes of Texas, and the provisions
   of the Texas Business    Corporation Act shall supple-
   ment the provisions of this Act and shall apply to
   such trust companies to the extent that they are not
   inconsistent herewith; provided, the provisions of
   Article    2.01A permitting a corporation to have more
   than one purpose shall not apply . s . D .'I
In addition, Section 3, Article 1513a, V.C.S., makes the provl-
slons of Article 1524a, V.C.S., applicable to corporations created
or operating under the provisions of Section 2, Article 1513a.
        Therefore, under present law there are only two methods
whereby corporations may be created with trust powers which would
authorize the use of the words, "trust company": (1) Under'the
provislons of Article 342-301, V.C.S. (Banking Code of 1943);
and (2) Section 2, Article 1513a, V.C.S. In the case of a cor-
poration with trust powers or a "trust company" organized under
the provisions of Article 342-301(d), V.C.S., such corporation
Hon. J.M. Falkner, page 3          ww-441


can only be chartered under the provlalons of the Banking Code
of 1943, and exercise the powers expressly set forth therein.
In the case of a "trust company" organized under the provisions
of Article 1513a, and charte.redby the Secretary of State, the
purposes of such corporation are llm1ted to those specifically
set forth in Section 2, Article 1513a and it may exercise the
additional powers enumerated in Article 1513.
        Article 1513, Revised Civil Statutes   of 1925, provides
In part as follows:
        “Every trust company organized under the laws
    of the State with a capital of not less than five
    hundred thousand dollars shall, in addition to all
    other powers conferred by law, have the power to
    purchase, sell, discount and negotiate with or wlth-
    out its endorsement or guaranty, notes, drafts,
    checks, bills of exchange, acceptances, including
    bankers' acceptances, cable transfffrsand other
    evidences of indebtedness.........
This article was originally enacted as Chapter 49, Acts 3rd C.S.,
36th Leg., 1920, p. 90, and was codified without change In the
Revised Civil Statutes of 1925 under Title 32, "Corporatlons-
Private", as Chapter 17, "Trust Companies and Investments".
        Section 2 of the original Act reads in part as follows:
        "The fact that there is now no law that will allow
    trust companies to purchase; sell, discount, and nego-
    tiate notes, drafts, checks, bills of exchange, etc.,
    as provided in this bill, creates an emergency. . . -"
        Chapter 17, Title 32, also contained Articles 1514 to
1519, inclusive, under sub-title "Agricultural Finance Corpora-
tions", and Articles 1520 to 1524, Inclusive, under sub-title
*Loan and Brokerage Companies".,'Chapter 16   Acts 42nd Leg.,
1931, p. 280, repealed Articles 1520 to 152P Inclusive and sub-
stituted in lieu thereof what is now codified as Articli 1524a,
Vernon's Civil Statutes.
       Article 1520 read in part as follows:
       “Art. 1520.  Powers.--This subdivision shall em-
   brace corporations created for any or all of the fol-
   lowing purposes: To accumulate and lend money, pur-
   chase, sell and deal in notes, bonds, and securities,
   but withat banking and dlscountlnu privileges; and
   to act as trustee under any lawful express trust com-
   mitted to them by contract and as agent for the per-
Hon. J. M. Falkner, page 4        WW-441


    formance of any lawful act.........."
    (Rmphasls added)
This provision Is almost identical with sub-section 49, Article
1302, Revised Civil Stautes of Texas, 1925. Both sub-section 49,
Article 1302, and Article 1520 were derived from Chapter 83,
Acts 36th Leg., 1919, p. 134.
        When Article 1520, R.C.S., 1925, was repealed and Article
1524a, V.C.S., was enacted in lieu thereof by Chapter 165, Acts
42nd Leg., 1931, p. 280, the phraseology of the first sentence
of Article 1520 was changed in Section 1, ARtlcle 1524a, V.C.S.,
to read as follows:
        "This Act shall embrace corporations heretofore
    created and hereafter created having for their pur-
    pose or purposes any or ,a11 of the powers now author-
    ized in Sub-divisions 48, 49 or 50 of Article 1302,
    Revised Civil Statutes of Texas, 1925, and heretofore
    or hereafter created having in whole or ln~part any
    purpose or purposes now authorized In Chapter 275, Senate
    Bill Number 232 of the General,andSpeclal Law? of the
    Regular Session of the 40th Legislature. . . .
The remaining phraseology of Article 1520 and Section 1, Article
1524a, Is identical.
        As above noted, Section 2, Chapter 49, Acts 3rd C.S., 36th
hiiT.,1920 (Art. 1513), which was the emergency clause, stated
that:  "There is now no  law" permitting trust companies to pur-
chase, sell, discount and negotiate notes, etc., as provided In
the Act. It is therefore clear that the Legislature, in enacting
Article 1513, intended to supplement the powers given to corpor-
ations chartered with purpose clauses contalnlng "trust powers"
under the provisions of either sub-section 49, Article 1302, or
Article 1520 to enable them to discount promissory notes, bills
of exchange, etc., provided that such corporations had a capital
of $500,000.00, or more.
        Both sub-section 49, Article 1302, and Article 1520 per- -
mltted corporations chartered thereunder to accunulate and.lend
money, and also to purchase, sell, and deal in notes, etc., but
without banking and discounting urlvlleges. The enactment of
Article 1513 demonstrated a clear le lslatlve Intent to permit
such corporations with a capital of $500,000.00, or more, in
addition to p+archaslnq selling anddealing in notes, to "dls-
count"~such notes and &her co&erclal paper in connectlon.wlth
theirpurchase and sale.
        If the legislative Intent In enacting Article 1513 was
to be applicable ~    to trust companies having a capltallzatlon
Hon. J. M. Falkner, page 5         ww-441


of $500,000.00, or more, chartered under the provisions of Title
16, Revised Civil Statutes of Texas, 1925, titled "Banks and
Banking" and particularly the provisions of Chapter 4 thereof
styled, "Banks and Trust Companies", then the necessity for such
legislation did not exist, since Article 396, R.C.S., 1925, pro-
vided that:
        "Bank and trust companies may be created for the
    purpdse of establishing a bank of deposit or discount
    or both of deposit and discount, with the purposes set
    out in Article 392, and any one or more of the follow-
    ing purposes; . . . ."
Article 396 then enumerates ten additional purposes consisting
of various trust powers, powers to act as fiscal or transfer
agent, and powers as executors, administrators, or guardians.
        Article 392, R.C.S., 1925, authorized banking dorpora-
tlons to act as a depository, to lend money at the legal rate of
interest, and to buy, sell, and discount negotiable and non-
negotiable commercial paper of all kinds.
         Since the provisions of Article 392 relating to the powers
of trust companies chartered by the Banking Commissioner permitted
the bank and trust company or turst company, ln additionto lend-
ing money, to buy, sell, and discount negotiable and non-negot+
able commercial paper of all kinds, It is clear that the anact-
ment.of Article  1513 in 1920 for the purpose of giving trust
companies powers to discount negotiable paper because "there Is
now non law that will allow trust companies to purchase, sell,
discount and negotiate notes, etc." was not Intended to apply
to banks or trust companies chartered under the provisions of
Chapter 4, Title 16, R.C.S., 1925, but to loan and brokerage com-
panies whose creation was authorized in 1919 under the provisions
of sub-division 49, Article 1302 and Article  1520, and regulated
by the provisions of Articles 1521 to 1524, inclusive, and later
by Article 1524a, V.C.S., enacted in 1931 in lieu of Articles
1520 to 1524, R.C.S.
        In view of the foregoing legislative history it Is manl-
fest that in enacting Article 1513 the Legislature Intended to
give to corporations chartered under the provisions of sub-dlvl-
sion 49, Article 1302, or Article 1520, R.C.S., the power to
dlsccruntcommercial paper in addition to the orl~glnalpurpose of
accumulating and lending money if such corporations had a mlnl-
mum capitalization of $500,000.00, and that the Legislature
realized that there was a distinction between the loan of money
to a borrower with interest discounted in advance and the pur-
chase of commercial paper from others than the makers thereof
at a discount.
Hon. J. M. Falkner, Page 6         WW-441


        Trust companies incorporated under the Banking Act, both
prior and subsequent to the Banking Code of 1943, were authorized
to accumulate and lend money, as well as to purchase, sell, and
discount negotiable paper. But the "trust company", the creation
of which was authorized by the provisions of Article 1513a, V.C.S.,
is only granted such powers as are specifically authorized by
law and the additional powers set forth In Article  1513, V.C.S.
Nowhere in either Article  1513 or Article 1513a is there any
power granted or authorization given to such corporation to
accumulate and lend money.
         A corporate purpose is to be dlstlngulshed from the powers
exercised by the corporation Incident thereto. The general rule
of law Is that a corporation created for the purpose of carrying
on a business under a statutory purpose which merely states the
nature  of the business and does not further define its powers,
may exercise such powers as are reasonably necessary to accomplish
the purpose of its creation and as are usually Incident to the
prosecution of its business, and no more, ~(Northslde.Ry:Co; v.
Worthington, 88 Tex. 562, 30 S.W.~1055, 1057 (1895)) except.,:'
such additional powers as may be speclfloally confe$ed by law-.
Since the implied powers mst be in conformity with the purpose
for which the corporation is ~formed,a corporation with the pur-
pose~clause contalnedln Section 2, Article 1513a; V.C.S.,'does
not have the power to accumulate and lend money, although cor-
porations may be formed for that purpose in addition to other pur-
poses under~the'TexasBiislnes8 Corporation Act. But Section 7,
Article  1513a, specifically provides that "The provisions of
Article 2.01A permitt     a ;g;Ezrat$on to have mart than one
prp6se shall not apply .            trust companies C~reatedor
authorized by the provisions of Article 1513a are limited to the
purpose clause set forth ln Section 2 thereof, and may only ex-
ercise such powers as are reasonably incident tothe prosecution
of Its business, which Is not that of accumulating and lending
money, toget,herwith such additional powers as may be conferred
by Article 1513.
        Article 1513, V.C.S., confers the additional Dower to
"purchase, sell, discount and,negotlate with or without its en--
dorsement or guarantee, notes, drafts", etc. In using the-word,
"discount", In connection with the power to purchase, sell, and
negotlate.notes and other commercial paper, it Is clear that the
power to "discount" is to be used in conjunction with the power
to-purchase, sell,.and negotiate the promissory notes and other
commercial paper, and not to discount Interest In advance in the
making of a loan as this term is generally understood In banking
parlance.
        It has been suggested In a brief filed by counsel repre-
senting a trust company operating under the provisions of Article
Hon. J. M. Falkner, page 7         w-441



1513a, V.C.S., that trust companies created under the provisions
of Article 1513a, V.C.S. have the additional powers granted in.
Article 152&a-l, V.C.S. fCh. 472, Acts 52nd Leg., 1951, p. 832),
since the provisions of Section 3, Article 1513a, provide that
the provisions of Article 1524a, V.C.S., shall a ply to such
corporations. While it Is true that Section l(dP and Section 3
of .Artlcle152&a-l state speclflcally that corporations doing
business thereunder are subject to the provisions of Article
1524a, nevertheless, It is clear that the additional powers
granted to certain corporations under the provisions of Article
152&a-1 are not appl1cabl.eto corporations operating under'the
provisions of Article 1513a, since Section 1, Article 1524a-1,
provides that the Act shall be applicable to corporations here-
tofore or hereafter formed for the purposes specified in Sec-
tions 48, 49, and 50 of Article 1302, and Article 1303b, Vernon's
Civil Statutes, only.
        Keeping in mind the fundamental-distinction between a
corporate purpose and a corporate power, It Is the opinion of
this office that a corporation-whose charter"contalns a purpose
clause authorized In Section 2, Article 1513a, V.C.S., may not
engage In a general loan business by making loans to the general
public upon promissory notes, and "discounting" the Interest
thereon In advance.
        You also request our opinion as to the applicablllty of
Section 9, Article 1524a, V.C.S., the pertinent part of which is
as follows:
       ". . . Or, If it shall appear from such examlna-
   tlon that such corporation has exceeded its corporate
   powers or has been guilty of unlawful act or acts,
   or Is falling to comply with this Act, said Banking
   Commissioner of Texas shall give notice to such cor-
   poration to cease such act or practices and to con-
   duct Its business in accordance with law and Its
   charter powers. Failure or refusal to comply with
   the notice of the Banking Commissioner of Texas wlth-
   in 30 days from receipt of said notice shall constl-
   tute grounds for the forfeiture of the charter of
   such corporation at the suit of the Attorney General
   upon request of the Banking Commissioner of Texas."
        Since It Is our opinion that a corporation which has as
Its corporate purposes those set forth In Section 1, Article
152&a, may not engage in a general loan business by making direct
loans to the general public in Its own behalf, any such corpora-
tion which has been or now is engaged l.ntransacting a general
loan business by making loans In its own behalf direct to the
general public would be exceeding its authorized legal powers,
Hon. J. M. Falkner, page 8          ww-441


and it would be your duty to follow the procedure set forth in
Section 9, Article 1524a, V.C.S.
        Nothing In this opinion shall be construed as preventing
such a trust company from making loans out of funds In Its
possession, as trustee, under a bona fide trust agreement author-
izing the corporation to use such trust funds for the purpose of
making loans of money for the benefit of the trustor. However,
such corporation would not be authorized to engage In the busi-
ness of lending any money which forms a part of Its capital ati
surplus assets, or which is borrowed by the corporation for the
purpose of lending money to the general public in Its own behalf
or for its own benefit.
                              SUMMARY
       A corporation with the corporate purposes
       set forth in Section 2, Article 1513a,V.C.S.,
        is without authority to engage In a general
       loan business by making direct loans to the
       ,general public in Its own behalf. Such cor-
       poration may purchase, sell, .and discount ne-
       gotiable commercial paper undmthe provisions
       of Article 1513, V.C.S. The word "discount"
       as used in Article 1513, V.C.S.; does not au-
       thorize the making of direct loans to the bor-
       rower by discounting the interest thereon in
       advance. Where such corporation has been or
       now is engaged in the general loan business
       by making direct loans of money to the public
       in its own behalf, It has exceeded Its charter
       powers and the Banking Commissioner should
       follow the procedure set forth in Section 9,
       Article 152&a, V.C.S.
                                 Yours very truly,
                                 WILL WILSON
                                 Attorney General of Texas
FBW:lm:wc                        By s/Fred B. Werkenthln
                                      Fred B. Werkenthl,n
APPROVED:                             Assistant
OPINION COMMITTEE:
Geo..P. Blackburn, Chairman
Houghton Brownlee, Jr.
J. Mark McLaughlin
REVIEWED FOR THE ATTORNEY GENBRAL BY:   W. V,   GeDDert
