OFFICE OF THE ATTORNEY GENERAL OF TEXAS 

AUSTIN 

~onortblt Jno. Q. Litldua, Commisdonu 

State Dejwtl;snt of buikbg 

Austin, rexas 

subject-Eattar 

th8t it sets S 

action under r 

apon thhr above 

t to the bet 

particular trrnstfon to Artiolt 1X24*, and 

bb o? nection 12 fhereoi, 

8 “bondE, ‘notefl, ‘Otrti~~tand 'other ebli~~tions~, 

8 Aet, ahall nbt bb aonstrabd 

luds nottS errouted by eorpomand other fintntit1 tnstitauy borrowed by sueb eorpOrstlOn8 

tht utatl tourtt of itr badattr.* 

l Ptrttotort this Dqmrtotnt has prmumed tbbt corporations org8nlseui pursuaat to thb prori0lons st Arti 

l.524a rbl~b hart sold ~a i8SuS of bdnG8, nSt.8, SSrtifiostts, 

debeaturss and otbr oblig8tlons to a finbnoial institution 

tar the purpose of obtaining worw capital to be used by 

said corpomtion in the ususl ooursb tt its Budntss mss txsludsd from Obetlon 2 oi the Sb.orS l ea tlo ned Artisle which 

ha8 to do with the bXSminStiOS of W& SOrpOmtioaS ml~!tlly 

or ofttntr b7 ths Bei~k.ing Comndssioner of Texas. 
~snocrble Jao. U* LiCAdsms - pagO 2 

‘it it rboald bb held tb8t the only sxsluslon 

ffrOD tbt prOViSiOn Of tb8 tit %I3 it8 SIBthat iS ill 

sonnsatloa with laoto* ebligationm th8t uo OxeoutsU 

by oorporst~oas to banks end OtbOP ~Inswial institutions, ChSS it Sould aem ImpOrtWIt iOr tbls Deputmcmt 

to be rdVi.Sbd 88 CO &iStil#uiShing ebuaoteristies bstrosn OOLOS ud Ihb 8tbSr type 9i obllgstloas rbhb uw 

rsiarrtd to in the 18S. CO-TIC, beads, of!Ftiila~tbs, debbDtWS0~ bt0. the ?mJs of thb roasoalng on the put 

sf this DepsrtsMnt la rbspSot to tbs prooadure which it 

haa rolloral h88 bbon to the tifebt that the exsminstion 

of amb aorporulons tmbrsot a publio latrrest in tbb 

ssnse of lndlrldusl cltistas orning tbb obli~8tlons sf 

suok CorpOrStions and th8t the 69mb pub110 intbrost did 

BOt present itseir in the oass of l flnanaial lnnitutiona auetr 8s ua lkmur8no~ cornpony emlag the bonds, 

mrtUiobtta, debentures and other type ot ob\ig~tions 

issued by oorpontloas orgrnised pur8u8nt to lrtltlo 

is240 g 

*se therefore solisit your sdrlca as to whether 

or not this Ceputo?cnt roust give Iltersl InteFprctstion 

LO the lant senttaet of Saatior 12 et the Act rbiah roultl 

swsi to ueludt only notes eseCutsd by oorporstlo~s and 

held by GthCr iinancl~st1tutions and, thus requlrc 

ttA8 Litpartaent to sxarAac wmmll~ or oftentr those corporations which bare lssuod any other typb of obtlfrtion 

won though &he as&e is bald by a financial institution. 

10 this OOMS@tiOIB Sb 8Fb PlbSSSd t0 SnSlOSb 8 StT'ibS Of 

letters, ldtntitled as Ibrblbit .A', to and frwm Er. Dsxtu lisailton, Ro8ldmt of the Southwestern Inestors Coryorstloo or Usllss, Dsilss, texss, thlcb 1s a direct aasc 

in point. 28 bbre nob in rbOat 7b8rs bmmla~ this tarpOFStiOn, .SltbOUgb their COUDStl SOn8SdsS tbSt thb CorpOrrtlun ia subiset to exssAnat1oa by this Dcputmeqt. 

thou are further drlsbd that 7ou.r vioss on this 

subjeot ssy hats f8r-rtuchin:: tfte8t8, sines it is tntlrt17 11~x17 Chat 8 nutbbr of oorpor8tlons organirtd pursuant 

t0 ANdOlt lb248 bSlS iSSUbd 8 trpS Of Obli~StiOn, other 

than notes, ~hlctr 18 held in its tntirbtf by SODS subddlarf corgoratlon propbrly olsssiii8blo 8s 8 iiaraoi8l institution* 

'AS &Wt tS0 Of this inqUil'7, tb sbsuld like 8drice bs to tbc rbspOnslbilit7 of this Depsrttmt whioh ewbraces k&e msaniog of tbb term (other obli~stians.~ As s 
270 

VOnOrublb Jao. Q. LeAd~us - )rgc q 

S8SS la pOiS8 SS h t. l ttSabin~ hOtbt0 8 bS18lMS ShoSt 

at the &tiOM ciOnOt&l h+OstBsnt Cotpbtatian, Uoust0n, 

FOX&*, aa ot OlOW Of busln.88, Daesmhsr 31, 1919. Turn 

bsl8.MO Sb@bt PbflbSts, SmSIk& other tblngs, 8 trust fund 

l~&blLit~ ia the Up Sf 

$ 

DO ,oa4 .?l l This p ut1 0u1 u 

SOtyOt8tiOO raa organis JSWWbBt to th8 ptWib.iOM o f 

fit10 32, r;h8p, 2, APti810 1303b. WI' SbnQbptiOn of the 

ttUSt tUti l SOOUDt, bS Shm in the b818DOO &Obt, is 

that the WBO l’O@‘tSSlltS L)bmblltS subb by individuals la 

CQMWtiOn with 8 trsl OStrtt lora Ubeutbd by certain indl+idUsls 8nd held br subj~t ootpotetloa on 8aaoUm ot 

ta% Uod iOtUt8Mb bCOPW1 l 

.zO be Lot@ ~p~oltio, TOU We 8dvlmd that r?sny 

coryetrilous brvo bbSn Otgnirbd for the pUtpOSb of bandling Sbbt &sy be tbrmsd Ir. Me A. 1081)x, ths pl8n of opcr8tioa SsibtscLng 8n ogreaent on the part at the debtor or 

the rypllesnt, Sbo dtslres to finmoe tba putah8sb of 8 

hama through subject oorpor8tlon, to ptq not only 8 apeeltied 8aouot to be rppllal on the prlncips1 and tntercst 

or the POttgbgt 10&D, but Ipr y;rassnt to p8y an 8dditionsl mm b&Oh Siontb to bs held by tbs payee ot bolder at the 

oiOrt&Pl(O 108ll and St tb0 PrOper time l pplitd in pb~cnt of 

the taXiIs Which bare 800FUed dUtin(l; tbQ TtSr S~biYi¶t the 

2iortgagtd prap6Xty and, ss iodiebted, t0 8180 prarlds for 

inmutance tortrap;s. AOtlUllT, therefore muoh tturt fu?v38 

as bald by subjeot ‘ootpor8tion 8nd m8ny atbrrs functioning 

in 8 slmil8r o&JWitT 8Fa btld for 8 pbtibd of twelve 

&oaths after sblch the trust h a nd l osauni builds up throw 

monthly p8ments urd in Lb0 sormsl coursa of bsadllry: is 

b&rZ sppllad by tbb ESrtmSS 10 behalf Of tbb @&WK,eS 

striah 8eWuo qpinst thhs property owned by the mortgagee. 

%s should like Sp~ifi6 8dvlCO tbubfotb a6 to 

shsrbtr or no& such 8 trusb tund bOt.OUnt is althin tbe term 

,o~Aar obllg8tloo8, as usad in thb 18~ bad, if w, vbetber 

or oot It booomss 8auntitorT OS the pat% of this Depart~cnt 

IO bXUdBb such COryOrstians that art obll@tal to lnditidu81sin such a lrmulsr~ 

&tie10 lb248 tol;ulsteS the 86tititi68 Ot 10&n 

abnd broksryb aoupsn&bs, and Beetioa 4 tbswaf, iawtu 

as psrtintat, 18 Ss fsllaasc 
274 

r&lob oorporatioD taot ho8 oora la 

Ioxa8 it0 boM0, notrr, r4wrlfioatoo, asb~obweo o? otbw l bl~oUon8 or Lo oftorlag for wlr la Zaa its bom40, motor, 

rrtitiUto@, 4 eb o a turor ul the o b lige 

tiwo, oh11 pubua ir, oomo nowepaper ef 

ganro1 8eool~tion in the oount7 rboro it 

ham it, )rirmipal ph.. of krdawor, em oe 

batoro t&o lat 4rj ol lobruy mob 7.~ l 

l ta1WW& or itr oon4itioD 01 the prff1oaa 

alot 4a7 of Doambew, la oaa form l a oy 

bo roQuire4 by rho soaklog comismiooer or 

rams SbO~iRg uR4a OOUI it8 assoto ud 

lioWliiib8 and rboll rue l 0 

olllr 

ot awh 

sl,otmmitmb with tbo Banki~ C l siona of 

Zaoo, to 

Do11um ( 

other rltb a fee of hontpFi+o 

32 b.00) rr illlag. l l . .* 

T&O prtiasme of tbio pCt&iOD IO thot WCtien la ei that Aa101* Quota4 by foe iao1rro prsaiM17 blr0 MBIO OlOOSO8 Of obligotion~ WUmWOted iD 8-0 

tiOD 4. 

(1) Uctiun la ot Artiole 1824o quote4 b7 7eu 

•~PVOO and wa8 latetxlcd to l ervo 0~17 eao purpose, thot 

lo, Lo exabpt tror the Act in an7 a~6 a&l rmpeoto whateww l wteo aocutotl b7 ouch oorporatiooo to boa&~ and 

obhc fA~aDCi&l iDOtiiUtiODC for monq borrem4 b7 aob 

oorpor8tioos tar U80 iD bh0 Uuol OOUrsO l t it8 buoidaoma.~ 

u other werbm, uch note0 40 not oom rithia any prorision or the Act - they or0 8pee1f1.8117 asospted. euob 

aotoo fr borrow4 8onw,*fr uw in the owol ooltrme or 

ISo b uo inoOu; IíQ tb a o fo cr Oe mQthl io owo(tl o adl apart 

from Um QOD~O, IpotW, oOrt&Cioatea, dabcntures, and 

otbef Obli&OtiODO DWtiODbQ tbl’O@OOt the Aot. 

Zho writer of tbia opinloa, wbilo am7107a4 m 

Lb0 bORk&~ ~OOdOdOOQP 00 CWDWl , i8 OpiRiOll HO. @@d 

o44reue4 to you, odriosd with rcepaat to a band am Collar: 

‘The bond ubittad lo ie tho am of 

~#o~&o oodim on0 of l owlem OS bead. 

oggfogatlog &ho pr1nelpol w of @Oo#aoO.oo. 

it ia poyobls to rtr. ro@otWa4 08n.r LQ 
272 

yoncwoble Jm. u. Lcidomu - yoge 6 

7oaro a?ta 4at0, providing ror annual 

intrsot at ?aur par oeat. It oootoino 

no l aoolerotioo olouoe for default on4 

4000 not pwport to bo aecutad in toror 

ef w beak or other tinonoiol inotitatioa. 

wader Do roaoonable wR8truotioD of 

Cbo statute8 l u) it be aold that this obiigmtiw is v0r aone7 borrow4 b7 ooi4 

oupOrtMw ior use 10 the tmol ceuroe 

Of' it0 bUSiD000.’ Clear17 it is the oouol 

0~4 odinor method of ocou6ulotlng 0 coplto1 for the proewutloo of its oorporote 

purpeoo of l otumuloting, on4 IenUiag meoWa 

Tbim lo not tho borrowing of mom!7 @for 

UM la the uU01 a0ur00 or its buuDe00.” 

ue think bhe o4rioe ~glrea in tbot oplDion tarrwtly interprets the statute. 

~ot~ithotnndlng the exmiptioo oontoined in Section 12, tt lo yet true tbat loan amI brokerage coqmnie~ 

orgmolred mod operating under Artlole 18210, (1) Kay not 

*offar for oolo or 8ell its bonds, noter, eerti?icotco, 

debentures or oLhor obligotiOn8 in fexoo* tmlo88 it oh011 

bat0 oD oatuol d in eopltol of not lea8 tboa 'fen Tbeuson4 ($lo,ooo.oo r' Dollum, (See. 1); (2) lo oubjeot to emamlaotion by the umki~g Ceomt88io~ar ii *it boo mold or 

otters to sol1 in Texor its bmdo, Doter, certitiootco, 

4obentuFeo, or other obli~otiaoog, (Bee. 2); and (1) 011 

bonds, ao01e0, oertifiooto8, dCbenture8, or other Obllgotiono sold ln Texas b7 any suab corporotloa, obo\t be secured iD tho ooDllOr pOiDtcd Wt in 6-c. 7 Of the AOC. 

Zhe obviouo purpose of exoo&Dotion mad cnlloteroilnorion OC the oeeuritieo issued by 8uoh eomponlco lo 

the pOteC?tiOD OC the publie. nd.0 puPpoD by P@~~uw Of 

the acmptbm lo SW. 12 does not ateul to the proteat- 

&on ot bo~ko and 0th~ finonciol lnocitution8 IendiD~ 

aoaey to sncb oorporotiono tor use in the usual amroe 

of their bu01~808~ in this re8peot 8 different ehorooter 

Or Qblig8tiOD 10 1D~Omd -- the uouol &tort-time loan. 

kmk8 0no other ritt0wol lnotitutioao lending won- r0r 

web purpose8 a8 ore uWtioasd irr tb0 otorption belng.mbJeer LO con*taDt aomiDatioa, or0 4Om34 to be wftiUOibt17 protected. 
2’73 . 

yanoroblo Ju . Qe &cMuo - pago a 

Th. ‘bem4s., l 8ortlt~ooto*~, '4rbentorem' ) 

and l otha' obligotieoo", *a 11804 rhrotyhat the Aot, 

m bb. iDOt?UDODt 0 Ot 8hotev.r IWO iO#ed by Lb0 

~ompery aad eel4 LO &ho pub110 h tUO0 rOP tbb, perpsoo of ~suu~loti~ 8 worki@ wpitol rrOaw tbdz 

l ,,00101 ohorbc WWOF (i0 cWWU~Ot0 Bon- tOP the 

plwQ- @ l-44* ahwms, tho apresdon, %onw 

&WFOMd w aOh OwpOr8tiO~O tOP US0 ia the uuol 

ssuroo of its busiasso* , coatewplotoo Lb0 a-1, ordiDw pCOOM1 IOWO w 8 bask, Or 0-C ti~oaaiol inl titut~o oto mee , tt h o o ur r ~mc c 4l 0 o f the o o mp a1nj 8 

the peoeoutioR 0r 1ts kOioeoo, obb DOI tor the geat- 

@F JNW&4OM Of iDWOOOtDg it8 OpOPOtill# 0O)itOl. It 10, 

thorefora, ot DO lmportomr ehmt euch 18mtrux8at or herrowlag tror the bank ~7 be 4eaocittmts4 - wbotbar notes, 

bond@, OC what DOt -- it is the aabotonme of the tronal olioa rotbor than its name that eontrolo khe oraption. 

tb0 *Orb rSOte@ UStUt b b@OtiOa 12 4eiiai~ Lb0 emImptiOD &I tbiS OOllD~tiOD i0 USOd tD it0 bread aa4 gemrio 

l a~mo am wi4o~ln4 rho la4ebte4neoo of a borreuer to a 

loader tar the pu~pooo mfmtioaod, regordloom et tha axmot cloodfiootioa at tbe inowumeat evi4moia~ ouch loon. 

A simple lOU, 00 nw4rott, or aa7 other r0n oi laRDi obligation OVidetmiar: the loon, rculd bo mutflciamt. 

Again, it tho obli~otion8 0r meh coopany c-0 

within the cloo~ of obli@tlono required to be oollatarl li8ad, it wuld make oo diftor~0 tbot suoh ioue in 

whole or in port bod bow sol4 to ban&a or otbc tlnanci&l inotibuCions, ter tbaf or0 8 port at tbr pubIfs to 

whom amh obligotiooo 8to7 mt be sold oxocpt tha7 bo 

properly oolloternliosd. 

Ab tolloro troa ahot we bore oold that we are 

Or tbo l pmon &be departwmtol praotloe rontioned by ~a3 

in Lb10 aoanwtioo ha8 boca in error. 

(2) The term l otbor obligotianti, as used 

bIbrougbout uabio Aot, mewm the dircxt abligotion OP 

wl',"" loan and brekara40 ocmpel3y or t&r tfpo oi 

, l aetoo~, l oertiiio8teo~ or l 4sbenturoo.~ It 

is Lb0 ouol on4 vairorm rulo of ceaotruetisn or Lnl truPent0 0aumeroUng oewtoin puticuloro tollr8sd w 

the exprSS~lor, .or 0tlmP rrab IDstruBmDtr. It lo what 

is &own in leg01 tom0 as tba eluda mnerlr dootrino 

or ~10~ 
t 

Ihe llablllt~ or th0 loua and brok@rqw aon,- 

pay, frob dome brluroc 8heot y o u quote l *00,0~4,71*, 

:s not t&t of 10~ lower or urj gboolt8, aotea, certtfieatO@, debentures, or other obllgatlonrm , that 

soul9 call rer or 8uthorlre exanilmtloa ot the eonoern undS tba Act s At 1s l llablllty to bo are, 

but it ulres out of a tranrrotlon wholly dlr8kllu 

tros. tl80 imuanoe o? bond8, note*, certifioates, debenturea, and the like. 

Of eouree, thla 118bllit~ 1s set within the 

exocptloa mntloned la Sestlon 12 at the Aot, that 18, 

it is Dot A note or otbw 1Dmtrunant wbstooarar ot the 

coupany midcnolng 8 loan for use by the compan~~ in 

the ururl cowme ot Its buainers. 

That web a lfoblltty ml@t be ouch ce could 

beookd a serious Batter rlth any going OonearR, i8 obllOU8. kut the romody tor ucb a situatton, lt disCOT~~CL!, woulU be for your Departaenl te rclatn Chc 

wtter L.0 the Attorney Ciencral for appropriate ciatlan. 

Vary truly yourr