Honorable J. M. Falkper 

Banking CommlsEiioner of Texas 

Austin, Texas ., 

No. 

Re: 

Deay Mr. Balkner:. 

c- ‘.4aa 

Under the given factual 

situation and the 

provisions of the 

Texas Trust Act, 

la the bank ~ln 

quektlon, as trustee, 

prohibited from 

depositing the '. 

!%Zc~e%~oslts 

lq its. de inatl- 

.iiatution for a period 

.of more~than.one 

y.ear and 'related 

~questions. i 

'You hav&~reQueated.our opinlon:on certain,Quesflons 

undeti the following relevant . facts: 

‘!A6 &at& chartered.bank and trust. company 

has b.&nrx=&d:truatee tinder Varlou~;tri~st inden; 

'tures which auttibx$ze the .bw-In its-.flduciary 

capacity,' irrespectlve~of any proviklon..or pakt 

bf'thk. %.xasTrust Act,..to 'lnveat $r’shares of a 

savings- and loan tisociatlon located in ,the .s&nti 

zl$y and deposit money‘fn the trustee bank. The 

trustee Is &so given the right and ~1s requested 

to depdslt the income ftim the trust estates in 

the savlngs~and.loah asso&atlons'to earn the 

.curxent rate of Interest, 

"The tkstee~bank 'has deposllzed kth it&f 

on time c.ertiflcatea.of deposit.$37.500 which 

has been so deposited'for bn6 year. Trus'tee 

bank has alko deposited with a sayings and loan 

'aasoc+atlon various savings accounts which form 

part of the trust'--eetates,under sbeclflc authorization in the various trust -dentures ltitie,spect$ve 

PC any provlafon of the Texas Trust-Act. . . . 

: 

-2302- 
Honorable J.'M. Falkner, Page 2 ,(C- 488) 

"The bank's directors own 85.4$ of the outstanding stock in the bank. The savings and loqn dlrectors own 97% of the outstanding stock In the savings 

and loan association. Mrectors of both the bank 

and the savings and loan association own 82.3% of 

the bank stock.and 77.6% of~the savings and loan 

stock." 

Under the foregoing facts you have.reqtieated our opinion 

to the following questions: 

Is the trustee bank prohibited f’rom depositing 

the $& 500 In time certificate deposits In Its own lnstltutl& for a.perlod of more than'one year? 

.2,. Is the.trus$ke bank prohibited from.maklng deposits 

of trust f'inxia In savings accounts ln.$he savings and loan 

assbclat$@ 

3. If queatloti'number 2 ls.anawered,ln,$he affirma-. 

tlve, then Uthe savings and loan asaociat~o~l~c~eaa~s 

its permanent reserve stock by selling shares-of additional 

stock, would. the trustee bank be prohibited from +ve%tlng 

tiuat funds In such'atock of the savings and loan asaoclalqion? 

.Ir-some legal relatlonahlps, the.fiduclaryelement 

Is ‘inore Intense than In others. It la pecullar.ly,lntense 

in the caae'of a trust. While this fiduclary~relatlonahlp 

creates zi number of duties, none Is more fundamental than 

the duty owed by the trustee .to the beneficiaries In the 

nature of the dtity of loyalty. This duty Is. sometimes 

characterized as.not permlttlng a trustee'to place hlmself fi'a position where,lt would be Sor-his own benefit 

to violate his duties to the beneficiaries. This duty 

6f 'lojralty Is based on‘a .general principal ~of'pollby and 

morality which forblds~ a fi'duclary from placing himself' 

In a sltuatioti where there is or could be 'confll.ct'b+ween 

his self-interest and his duty to others. See Scott on 

Trust, 8 170, Duty of $,yalty, et seq.. 

A number of .states.have expr&asly enacted statutes 

that set out the duty of loyalty.ln- clear and unambiguous 

terms. In Tegas; any dev$atlon.from this hi 

loyalty Is exprkssly prohibited by Article 7 

which provides: 

-2303- 
. 

Honorable J. Mi Falkner, Page-3 (C- 488) 

II 

. . . but no act of the trustor shall relieve 

a corporate trustee from the duties, restrlctions,- 

.and llabllltles Imposed upon It by Sectldns 10, 11, 

and 12 of the Texas Trust Act." (Qnphasls added) 

Neither can the beneficiary relieve the trustee of 

the prohlbltlons contained in Sections 10, ll.and 12 of 

the Texag.Trust Act. See Article 7ti25b-23. 

However, pursuant' to Article 7425b-24 (E),V&nonls 

Civil Statutes, a court of competent jur$suict.ion may 

modify or entirely relieve any trustee from any or all 

of ~he'duties,~llmltatlons and restrictions Imposed upon 

him by the Texas Trust Act,:to-wlt: 

"E. A court of competent lurlsdlction may, for 

cause. shown and upon notice to the beneficlarlc 

s:eve.a' trustee from any or all of the'dutlea, 

'limitations, and restrdotlona~whlch .would.otherwlse 

be placed upon .hlm 'by this Act, or.whol.ly'or oartly 

release. and excu8e.a trustee..who .has acted'honestls 

and reationably, 'f*m llablil~y.for~~olatloris of thk 

provisions of this Act." @nphasls .added) .. ~_ 

Obviously., the .princlples which are applicable,to a 

corporate .truqtee are 

affiliated with.it. 

equally'applicable~to 'ocirooratiolis 

Bystatutory deflnltion, an affilllate 

IS .deflned lti Artlc,ie '7.425b-J+(E) to mean: 

. . 

11 

any peraon.dlrectly or Indirectly controlil&'or controlled by. the person, or zany oerson .under d1tiec.t or Indirect common'control wlth 

another'person . ;. V (Eknphaals added) 

The:aforementlbned Sections XI, .ll and ‘12 of the Texas 

Trust Act; that are equally appllcable.to both the corporate 

trustee and~any affiliate, are as follows: 

"Art. 74~5~io. Loan of.trust~funtis 

~"Exkept aa.&ovlded 'ln~Sectl& 11 oi:,+&ls .A&, 

a corporate trustee. shall not lend trust funds to 

Itself or an affiliate (as defined herein); or to 

at~,director,~offlcer, or employee of Itself 'or of 

an affiliate; nor.shall any noncorporate trustee 

lend trust funds to hImseLf, or to his relative, 

emplbyer,.employee, parttier, or.other business 

zy3oclate. 

-2304- . 
Honorable J. M. Falkner, Page 4 ,(~-488) 

'"Art. 7$25b-11. Corporate trustee depositing trust 

funds with self 

"A corporate trustee may deposit with Itself 

trust funds which are being held Cendlng lnvestment, distribution, or to pay debts, provldedt 

maintains under control of Its trust department 

(If It .h+s a trust department separate from its 

banking department) as securlty'for such deposit 

a separate.fund consisting of securities legal for 

trust Investments which have at all times durlng the deposit a total market .value equal to the' 

.amount of the deposit. No such security shall be 

requlred to the extend said deposit Is Insured or 

otherwlse.secured by or under state or federal law. 

The separate fund of securltles.shall be marked 

as. such. Withdrawals from or additions to It may 

be made from time to time, as long as the required 

value.ls malntalned. The~lqcome of such securities 

shall belong to then corporate trustee. 

"A& 7&2$b-12. ,mstee buying from orselld~ng to 

sel'f 

"A:trustee shaxl~not buy nor sell. either dlrectly or indlrectly,~ any property owned by or 

.-belonging to the.trust ,estate;: from or .to'ltaelf 

or an affiliate; or from orto ,a director, officer, 

or.emolcvee of such trustee..~dr of an affiliate: 

or from &to himself, a relative, employer, ..partner or caner business associate; provlded,.a:natlonal banking assdclation, or a state chartered bank 

andltrust company, or a statechartered trust company, 

or a state:.chartered bank having ~trust n~owetis, 

or any other.state chartered corporation having 

the Fight to exercise trust powers. when acting 

or~servlng as ~executor, administrator, .guarolan, 

trustee, or receiver, may sell-shares of the xapltal 

stock o.f ltself'so owned .or held by Itself, -for any 

estate, to one.~o.r more of Its officers, stockholders 

or directors, upon a court of comnetent jurisdiction 

.findlng that any such sale will be to the best interest 

ofthe estate owning such shares; flxlng or approving 

the price to be paid .therefor, and tlie terms of sale, 

upon entering an order,'.decpee o,r judgment, authorizing, 

approving and'dlrectlng such sale to'be made; and 

provided furtherthat a corporate trustee, executor, 

-230% 
:Honorable J..,M. Falkner,. Page 5 (C-488 ) 

In the absence of a court of competent jurisdiction 

relieving the trustee bank of the proi%slons of Sections 

10, 11 and 12. '~upra,‘lt~ 1s the oplnlon'of this office 

<hat + corporate trustee, .or affiliate, Is absolut'ely 

prohlblted from disregarding the provlsibns of the.Texas 

TrmBt Act and mu& strlctlv compls theiewlth:'Under these 

restrict$ons;.,such a,&xstee mai &ly,depoqit trust finds 

with itst?lf-%endlng lrivestmeht, distrlbixt%in, br.to'pay 

debts." We,doi%iude;.'under,the:'facts presented, that-,the 

depositing of .a sum ifi -time certlf@ate'deposits for 

more than-one gear would not fall tithin'th~.aforetiald 

pemlsslve category of deposit. Such common owner&hip 

of, stpck ln~the bank and savings and loan association as‘ 

set forth~in.your lettdr'clearly demonstr&5es'that ~the 

sa\i&igs,tid ~loar.~ssciclat~on~l,s; ~by.statutes, &~,al~Yllate 

of.t@e trustee~~bankfqr~'the purposes of the Tetiad Trust 

Act. TheSefore, the savings an4 lGan assoddatlon is 

&o;oirr:med by the.s+me ~res~.rlCtlons as the trustee bank. 

Thus;, deposits of trust funds tnay only be made ln.ttie 

savings +d loan association "~etidlng~lnvestment, tiistrlbu- 

.tlon, or to'pay debts!" 

. If the.trust'cor&&. originally contained shares of 

stock of the afflllate;.then the tru&ee can,'lf, consistent 

wlth.the ~prucjent man r&..ptirchase-addltion~l~shares of 

-such stqck when increases In said stock are offered on 

a pro rata basis to all stockholders alike. If .the trust 

corpus did not.ofigina&ly contain such .atocki.then the 

trustee 1s: prohibited, from purchasing shares of.its affiliate's 

stock for the trust; 

It should alsO be observed that this question has 

not mlsen by vlrtue,of any $ntentlonal wrongdoings by a 

trustee bank or that any loss has resulted. ,,In fact,,the 

-2306: 
Honorable J. M. Falkner, Page 6 (C- 488) 

numerous saving accounts are .a11 In amounts less than 

the current Insurance limit of llablllty of the Federal 

Savings and Loan Insurance Corporation.. We also aopreclate having the benefit of the full exolanatlon 

of this matter and.of your policies. 

S U M M.A R Y ------- 

Artlcie 7425b-22, V.C.S., provides that no act 

of the trustor shall relieve a corporate trustor 

from the restrictions, duties and llabilltles lmposed on It by Section 10, 11 and 12 of.the Texas 

Trust Act. :’ 

.However, a court of competent jurlsdlctlon may 

modlfy..or 'entirely relieve any .trustee from any or 

all of .the duties, llmltatlons and restrlctlons 

imposed. upon-him by the Texas -&.A&. 

In the absence of such judlclaireIlef, It Is our. 

opinion that:,. 

1.. A .trustee.bank lsprob$blted.~~from depositing 

trust funds ln time certificate deposits ln.lts'own 

'lnstltutlon,,~ unless. such depoaltls made "Rending 

Investment, dlstrlbutlon, or.to oay debts.. 

2. The savlngs'and loan assoclatlon, under‘the 

stated'facts, ,ls an affiliate with the trustee.bank, 

and as such is prohibited ~from having trust funds 

.deposlted~ln It except "nendlng-Investment, distrlbutlon or to oay debts." 

-.--.-. 

.3:~,:The .trustee~.bankmay purchase additional 

sharesof, permanent reserve stock of the affiliate 

savings and loan association If then t.rust corpus 

originsilly contained shares of such stock,' and the 

additional shares' constitute 1ncreases“In the. capl- 

'tai stock offered DM rata to ail &ockholders. 

-2307- 
Honorable J. M. Faikner, Page 7 (c-488 ) 

Tours. very truly; 

WAGGONER CARR 

Attorney General of Texas 

RRJ:nr 

APPROVED BY: 

OPINIONCOMMITTEE 

W. V. Geppcrt, Xhalwan 

J&mes Strock 

John Pettlt. 

John Bapke 

Gordon Rouser 

-2!08-