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 represeateootion with a recent examination 

authority ot 

oae regarding the &fscretiooary 

tho Comolimaioner in coapeot to 

a propomd auiculbpant to a trta8t agreePent 

filed by Mtbjcct oorporatton rbloh 8enld permlt 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 htestore 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 latters reeeired Srom Yr. Edward Y. Burke, Assistant to Qenaral Counsel for aubjeet aorpuration, one dated February 18th aad another 

dated Yabruary el8t, the latter suggesting an 

altematlte plan vhich embraaea a oortit%aation 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 urko . l 0 0.î 

aection 7 at Article 1622a, Vernon's Civil Statutoa, dealing with loon and brokerage aompaaiee, insofar 

as pertinent, ia es tollova~ 

sAl1 boada, notes, certiricates, debentures, 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, debeotures or other obligations upon vh%ah it reooirea hietallment poymollts, auah bonds, 

notes, oertiiioatea, debentures aud other obligations sOal be secured at all times by aeauritioa hating the reasonable market value 

equal to the withdrawal or Gvncellation value 

or suah obligations outstanding. Said aecuritlea shall be plaoed in tha hnnda ol a oorporation 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 oorporatioa 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 reaaonable 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 Truateo 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 l eouritiea w depedted, aai-aanuall~ vitb tha BanJUq Comdaaloner 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 securities 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 maintained 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 ASsignments 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 Banking 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 reasonable 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 accurfties deposited the measure of 8aaurities required or 

tba iaauiag and depoalting aorporations. What that reusnnable 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 ooupanies 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 insuranoe 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 company in 

lieu OP the securitie,u required by law.