### THEATJTORNEY GENERAL

OFTEXAS

Gerald C. Mann AUSTXN~~.-~'EXA~

ATTOxcNF,Y ‘:rENr!2HAr.

Hon. Jno. Q0McAdams Opinion No. O-5724 Coulml .ssioner, Depart- Rer Construction of Articles 1524a ment of Banking and

### 696,of the Revised Civil StatAustin, Texas utes, with respect to depositing securities by loan andbrokerage comDear Mr. McAdams: panles.

Yourequest anopinion from this Department in the following letter:

“Two companies hold charters under Article 1303b of the Revised Civil Statutes of Texas for 

### 1925.Both companies upto nowhave engaged only in the business of accumulating andlending money. The companies nowpropose to issue face amount installment certificates as authorized by 1303b and 1524a, Revised Civil Statutes for 1925. The issue and sale of these certificates, however, are to be only in connection with loans madebythe respective companies. Nocertificates will be sold to any person other than aborrower from the company. Nocertificate will be sold in anamount in excess of the amount loaned to the purchaser. Nogeneral offering to the public of these certificates will be made. Nopart of the capital of either company is to be raised bythe issuance and sale of these certificates. The sole purpose to be accomplished bythe issue and sale of such certificates is to afford the borrower aconvenient plan for savings to repay his loan obligation at its maturity.

“Wewould like to Imowwhether loan andbrokerage companies issuing debentures and certificates uponwhich they are to receive installment payments under Article 1524a Revised Civil Statutes of 1925 in the manner set out above are also re uired to makethe deposit provided by Article 

### 69 %Title 21 of the samestatute.‘*

Section 

### 7,of Article 1524a, Vernon’s Revised Civil Statutes, as amended in

### 1937,45th Legislature, p. 405, Chap. 204, Sec. 2, contains the following:Hon. Jno. Q. McAdams, page 2 

### (O-5724)

“All bonds, notes, certificates drbentures, or other obligations sold in !.‘exas by any corporation affected by aprovision of this Act shall be secured by securities of the reasonable market value, equaling at least at all times the face value of such bonds, notes, certificates, debentures or other obligations. If such corporation sells in Texas bonds, notes, certificates, debentures or other obligations uponwhich it receives installment payments, such bonds, notes, certificates, debentures and other obligations shall be secured at all times by securities having the reasonable market value equal to the withdrawal or cancellation value of such obligations outstanding. Said securities shall be placed in the hands of a corporation having trust powers approved by the Banking Commissioner of Texas as Trustee under a trust agreement, the terms ofwhich shall be approved in writing bythe Banking Commissioner o,fTexas, or at the option of any such corporation which sells in Texas bonds, notes, certificates, debentures or other obligations upon which it receives installment payments, such corporation mayupon application to, and approval by, the Banking Commissioner of Texas deposit securities having areasonable market value equal to the withdrawal or cancellation value of such obligations outstanding with the State Treasurer of Texas in lieu of such deposits with aTrustee
as set forth hereinabove, ***.

“Any such corporation which sells in Texas bonds, notes, certificates, debentures or other obligations uponwhich it receives installment payments, which upon the effective date of this Act has securities deposited with aTrustee hereunder, may, with the written consent of the Banking Commissioner continue under said trust agreement
, and/or agreements as to bonds, notes, certificates, debentures or other obligations already sold in Texas uponwhich it receives installment payments, andavail itself of the option to deposit such securities as to future sales of said obligations with the State Treasurer of Texas by complying with this Act in the
samemanner that acorporation hereafter organized would be required to comply with this Act._-

Hon. Jno. Q.McAdams, 

### page 3 (O-5724)

“All cash or securities left with the State Treasurer in compliance with Article 

### 696, Revised Civil Statutes of 1925, shall be considered as part of the collateral required under this section.” It has been held bythis Department that the securities deposited under Article 

### 696, of the Revised Civil Statutes,
are for creditors of the depositing corporation generally, and not specially for its Texas creditors. (See opinion of Mr. Richard Brooks, Assistant Attorney General, of date Mayll,s1e9838’ addressed to Honorable Charley Lockhart, State Treasurer.

, also, opinion by Assistant Attorney General Cureton, June 17, 

### 1917, Opinions Attorney General, 

### 1916-1918, p. 202). Theopinion byMr. Brooks likewise held that securities deposited under the requirement of Section 

### 7of the Loan andBrokerage Corn: panics’ Act are exclusively for the benefit of holders of obligations sold in Texas.

It will be seen that the Loan andBrokerage Companies hct (Article 152&a) requires such company issuing and selling to the public its bonds or other securities in Texas to keep its outstanding obligations secured “at all times”

, to the extent therein stated, while Article 

### 696 does not require such continuous collateral security. There can be no doubt of the Banking Commissioner’s authority to require companies operating under Article 1524a to keep its outstanding obligations collateralized at a 1tw but such power does not exist under Article 

### 696, as above sta;ed.

Weare of the opinion the provision above quoted, that securities deposited with the State Treasurer under Article 

### 696, maybe considered as part of the collateral security required by Article 1524a, is aprivilege extended to the corporation, but there is nothing to be found in either Act that would justify the construction that anissuing companywould be required to domore than to collateralize its outstanding obligations sold in Texas with securities deposited under Article 1524a, either with the State Treasurer, in the exercise of its option, or with atrustee, as provided for in Article 152&a.

Tokeep such outstanding obligations collateralized in amanner here indicated would be afull compliance with every requirement, andmeet every purpose of the Loan andBrokerage Companies Act.-- ,_

Hon. Jno. Q*McAdams, page 4 

### (O-5724)

Trusting that what wehave said is sufficient answer to your inquiry, weare Very truly yours
ATTORNEY

GEiNERAL

OFTEXAS
By/s/ Ocie Speer Ocle Speer, Assistant

APPROVED

DEC

### 3, 1943 /s/ Grover Sellers FIRST ASSISTANTATTORNEY GENERAL

APPROVED:OPINIONCOMMITTEE BY: BWB,CHAIRMAN

OS-MRrwb