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'the bank*sUloan90thartisdwl SxcessiYe lo&all, is p a r tic 

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 Reconstruotidm Wuanoe 

323utaX.t& 

@qrporat~on,24 PederaL instru- 

+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+ie Reoonetruction Finsnoe Corporation 

for a:;LbanJ~ The Corporation generally i6 unvilling to -0 loans direotly.. Inetead, it sugg:eststo &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 Arti010 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 participation 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 accompmie~ 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 indebted or liable to it in a sum ercesding twontyfive 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 incorporated bank or trust company who violates any 

provision of this Artiole shall be fined not 

11.36~ than One RUndred nor more than Nvo Hundred Dollars, or be imprisoned in jail for not 

less than thirty nor more than ninety days, or 

both. All loans to manibers of any unincorporated company or firm shall be considered as if 

they were loans to such company or firm in determining the limitation here prescribed. The 

discount of commercial orbusiness paper actually 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 Cornmissioner and which cannot be diverted without 

due notice to and consent of said officer, may 

be taken and COnsiderod as a part Of the Capitol 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 transaction of invalidity. 

Nomover, the form of partioipation agreemsnt 

under consideration is not even an unconditional agreecant upon the part of the Reoonstruotion Finance Corporatien 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 conditions: 8 0 * (2) Upon five days'~ written 

notice RPG may at its option at any tim0 purchase its agre'ed participation in said loan 

(in which event bank shall simultan0ously is8~3 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 wigUOUE . 

7ol-y truly yours 

Assistant 

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