THEATJTORNEY GENERAL 

OFTEXAS 

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

ATTOxcNF,Y ‘:rENr!2HAr. 

Hon. Jno. Q0 McAdams 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 and brokerage comDear Mr. McAdams: panles. 

You request an opinion 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 up to now have engaged only 

in the business of accumulating and lending money. 

The companies now propose 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 made by the 

respective companies. No certificates will be 

sold to any person other than a borrower from the 

company. No certificate will be sold in an amount 

in excess of the amount loaned to the purchaser. 

No general offering to the public of these certificates will be made. No part of the capital of 

either company is to be raised by the issuance and 

sale of these certificates. The sole purpose to 

be accomplished by the issue and sale of such certificates is to afford the borrower a convenient 

plan for savings to repay his loan obligation at 

its maturity. 

“We would like to Imow whether loan and brokerage companies issuing debentures and certificates 

upon which 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 

make the deposit provided by Article 69 % Title 21 

of the same statute.‘* 

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 a provision 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 

upon which 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 of which shall be 

approved in writing by the Banking Commissioner 

o,f Texas, 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 may upon application to, and approval by, the Banking Commissioner of Texas deposit 

securities having a reasonable 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 a Trustee 

as set forth hereinabove, ***. 

“Any such corporation which sells in Texas 

bonds, notes, certificates, debentures or other 

obligations upon which it receives installment 

payments, which upon the effective date of this 

Act has securities deposited with a Trustee 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 upon which it receives installment payments, and avail 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 

same manner that a corporation 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 by this 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 May ll,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). The opinion by Mr. Brooks likewise held that securities deposited under the requirement of Section 7 of the Loan and Brokerage Corn: 

panics’ Act are exclusively for the benefit of holders of obligations sold in Texas. 

It will be seen that the Loan and Brokerage 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 1 tw but such power does not exist under Article 

696, as above sta;ed. 

We are of the opinion the provision above quoted, 

that securities deposited with the State Treasurer under Article 696, may be considered as part of the collateral security 

required by Article 1524a, is a privilege extended to the corporation, but there is nothing to be found in either Act that 

would justify the construction that an issuing company would be 

required to do more 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 a trustee, as provided for in Article 152&a. 

To keep such outstanding obligations collateralized 

in a manner here indicated would be a full compliance with 

every requirement, and meet every purpose of the Loan and Brokerage Companies Act. 
-- ,_ 

Hon. Jno. Q* McAdams, page 4 (O-5724) 

Trusting that what we have said is sufficient answer to your inquiry, we are 

Very truly yours 

ATTORNEY GEiNERAL OF TEXAS 

By /s/ Ocie Speer 

Ocle Speer, Assistant 

APPROVED DEC 3, 1943 

/s/ Grover Sellers 

FIRST ASSISTANT ATTORNEY GENERAL 

APPROVED: OPINION COMMITTEE 

BY: BWB, CHAIRMAN 

OS-MRrwb