R-337

Hon. Paul H. Brown Opinion No. V-163 Secretary of State Austin, Texas Re: The designation of notes receivable as "property"within the meanln of Article XII, Section i?

, Constitution Dear Sir: of Texas.

You have submitted the following request for the opinion of this department.

"1
. There has~beensubmitted to this department applications for proposed corporate charterswherein the following situationappears: "a. In payment for capital stock subscriptions notes receivable securedby chattel mortgages on automobiles Is shown. "b
. Current assets of the proposed corporations include customers accounts receivable. "2
. Do the items shown in 8 and b, foregoing,'or either of them, coiistitu6 propertywithin the meaning of Article 12, Section 6, Constitution of Texas, and, if so, what investigation, if any, should the Secretary of State make In respect to either E or b_?" ArticleXII, Section 6, of the Constitution of Texas is as follows:

"No corporation shall issue stock or bonds except formoney paid, labor done or property actually received,end 811 fictl- ,tlous ,lncreaeeof stock sr indebtedness ,shellbe void." Article 1308, Revised Civil Stetutea of Texss, 1925,which was enactedpursuant to the abov6 constltu-. -

Hon. Paul R. Brown - Page 2, v-163

tional provision, is In part as follows:

"Before the charter of a private corporation created for profit can be filed by the Secretary of State, the full amount of its authorized crpFta1 stock rust be in good faith subscribedby its stockholders and fiftyper cent thereofpaid in mesh, or its equivalent in otherproperty or labor done, the product ofwhich shallbe worth to the company the actual value at which it was taken or at which the property was received. The affidavit of thosewho executed the charter shallbe furnished to the Secretary of State, showing:
. . . .' "2
. The cash value of any property received, giving its description, loostion and from Whom and the price et which It was received;
. . .n. That notes receivable securedby chattelmortgages on automobilesand customers'accounts receivable are persona1property subject to taxation is conclusively demonstratedby the Legislature definition thereof contained in Article 7147, Revised Civil Statutes of Texas, 1925,which is inpart as follows:

"Personalproperty, for the purposes of taxation, shallbe construed to include all goods, chattels ard effeots,and all moneys, credits,bonds and other evldences of de-d by citizenmthis State,whether the aeme be in or out of the State;
. . ." (EmphaaFsadded). Article 7149, Revised Civil Statutes of Texas, 1925, defines the term “credits”as follows:

"ICredits.'-Theterm. 'credits.? wherever used in this titie, shall bb held to mean and Include every claim and demand for money or other valueble thing, and everv annuity or sum ofmoney receivable at stated ueriods. due or to become due, and all cleims end demends securedbx deed or mortgage,due or to become due." nmphasis added)Hon. Paul H. Brown - Page 3, v-163

In the oaae of OIBesr-ResterGlass Company et al, 101 Tex. 43,1, 1.08 S.W. 967, the Supreme Court of Texaa, construed the meaning of ArticleXII, Section 6 of the Constitution of Texas aa follows:

“The terms in which this section of the Constitution is expressed indicates the purpose that the assets of the corporation shouldbe somebfh~substantlal, and of such e character that they could be subjected to the payment of claims against the corporationa§ wel,l88 to secure the shareholders in ,theirrights in the capital stock.
. . .‘I, In view of the rbove legislativeand judicial construction, it .1a. the opinion of ,thisdepartment that notes receivabl,e

secured by c.hattel mortgages on sutomobiles and cuatbmel)sV accounts receivsble constituteproperty within the meaning of ArticleXII, Section 6, Constitution of Texas.

Referring to the s,ecwnd pert of your question as to what i,nve8tlgation, If anyJ should the Secretary of State meke in ,reapectto the above property, it is presumed that pour querypdfbrs to the a3certrlnment of the “value” of such property.

Article 1309,Revised Civil Statutes of Texas, 1925,which mubt be construed in connectionwith Article 1308, supti, is as follows:

“If the Secretary of State is not satisfied, he’8.ary,

at the expense of the inocrporators,‘,

requi,re

other 36tisfac

tory evidence before he ah*11 be required to receive, file and record such charter,” The foregoing article was csnatruedby preme Court of Texas in the case ofBeach et 81, Kay, State Secretary, 191 S.W. 557, as f0llews:

“Thequestionwhether the stock had been subscribed in go@d faith, and whether the Suvs. Mc50 psr cent thereof Md been paid ia Gosh, or i&3 equivalent, ai?3 questions of fact to be deterainedby the ~aaretary of state by the exerciseof a discretion ledgedwith him by law.
. . .”Hon. Paul B. Brown - Page 4, V-163

Therefore, Therefore, the nature and extent of any further investig6tlonof the,v@lue OS 8uah property, if investig6tlon the,velue such investigation Is deemed neaeasary, lisi whbilg froperty, if is8 wholly within your dlscretioti,

Bates receivable aec’urad by ohattel mortgagee on automobilesand ouetoaers1 acaounts receivable oonatituteproperty which may be received la r

## ywat of aapitsl stock subaarlptionsu thin the moaning of Article XII, Beotlen 6, OOMtitution of Texas. Investigationmay be made by the Seoretary of State 80 to the value of such property under the provi8iona of Artiole 1309,R.C.S., and the aatum and extent thereof lieswholly within his discretion. I Yours very truly ATTORNEY GEliBRAL

OF TEXAS

CW/lh A t April’ 25, 1947
I, . A @EEERAL