THE ATIYOWNEY GENERAL
0~ TEXAS

WILL WILSON
**A-- GENERAL**  June 2, 1958

Hon. J. M. Falkner Opinion No. WW-441 Banking Commissioner CapitalNational Bank Bldg. Re: May a corporation or company Austin, Texas organizedunder Article 1513a, V.C.S., engage in a general loan business, and the appropriate action to be taken by the Department of Banki~ng by
reason of the provisions of Section g.,

Article 1524a, V.C.S., If a company organized under hrtlcle 1513a Is found to be making direct loans to the general public.

Dear Mr. Falkner:

You have requested.the opinion of this office In connection with certain dutFes Imposedupon your department In the supervision of corporations organl.zed and operatingunder the provisions of Article 1513a,Vernon's Civil Statutes. Your question 1s as follows:

"Pleaseadvlse us whether or not a 1513a company may engage In a general loan business and, further, whether this Department should take action as prescribed In Section 9, Article 1524a, ifupon examlnation of such a company It Is determined that the company has made or Is making direct loans to the general publfc."
Section 2, Article 1513a, V.C.S., Is as follows:

"Trust companies may be created and any corporation, however created, may amend iis charter in compliance herewith, or a foreign corporationmay obtain
a certificate of authority to do buslness In Texas for ~thefollowing purpose:

"Toact as trustee, executor, admlnlstrator, or guardianwhen designated by any person, oorporatlon, or court to do so, and as agent for the performance of any lawful act, including the right to receive deposits made by agencies of the United States of America for the authorizedHon. J.M..Falkner,page 2 WW-441

account of any Individual; to act as attorney-infact for reciprocal or interinsuranceexchange."

There appears to be no statutorydefinition of the words "trustcompanies" or enumeration of the powers which are authorizedby law to be exercised by such companies,with the exception hereinafternoted. Prior to the enactment of the Texas Business CorporatLon Act corporations organized for the purposes set forth in sub-division 49, Article 1302, and Article 1303b, V.C.S.. have been defined by the courts as being "trustcompanies" under certain specific factual situations. Stewart v. Ramsey 148 Tex. 249, 223 S.W. 2d 782 (1949);sarney v. Sam Houston U&erwriters, 272 S.W. 26 942 (Clv.App. 1954, error ref. n.r.e.).

The words "trust company"appear in theBanklng Code of 1943 (Article 342-102,V.C.S.), the Insurance Code (Article 7.17, V.C.S.), and in Article 1513, V.C.S., and specific corporate trust purposes authorized by law are delineated In sub-division 49; Article 1302, and Article 1303b,V.C.S. However, since the, enactment of the Texas Business CorporationAct, the creation of "trust companies" thereunder has been expresslyprohibited-'by the terms thereof (Art. 2.01B(4) and Art. 9.14A). The creation of cornorationswith trust Dowersunder the Drovlslons of ChaDter 7 of.the Insurance Code was‘expressly'repeal&dby Section 1,

. Article 1302a,V.C.S.

Section 7, Article 1513a, V.C.S., provides In part as follows:

"Thegeneral law for incorporationand governing of corporations,and the provisions of Article 1513, Revised Civil Statutes of Texas, and the provisions of the Texas Business CorporationAct shall supplement the provisions of this Act and shall apply to such trust companies to the extent that they are not inconsistentherewith; provided, the provisions of Article 2.01A permitting a corporationto have more than one purpose shall not apply

. s
. D .'I

In addition, Section 3, Article 1513a,V.C.S., makes the provlslons ofArticle 1524a, V.C.S., applicable to corporations created
or operatingunder the provisions of Section 2, Article 1513a.

Therefore,under present law there are only two methods whereby corporationsmay be createdwith trust powers which would authorize the use of the words, "trustcompany": (1) Under'the provisl

ons of Article 342-301,V.C.S. (BankingCode of 1943); and (2) Section 2, Article 1513a,V.C.S. In the case of a corporationwith trust powers or a "trustcompany" organizedunder the provisions of Article 342-301(d),V.C.S., such corporationHon. J.M. Falkner, page 3 ww-441

can onlybe charteredunder the provlalons of the Banking Code of 1943, and exercise the powers expressly set forth therein. In the case of a "trustcompany" organizedunder the provisions of Article 1513a, and charte.red by the Secretary of State, the purposes of such corporation are llm1ted to those specifically set forth in Section 2, Article 1513a and it may exercise the additionalpowers enumerated in Article 1513.

Article 1513,Revised Civil Statutes of 1925, provides In part as follows:

“Every trust company organizedunder the laws of the State with a capital of not less than five hundred thousand dollars shall, in addition to all other powers conferred by law, have the power to purchase, sell, discount and negotiatewith or wlthout its endorsement or guaranty, notes, drafts, checks, bills of exchange, acceptances, including bankers' acceptances, cable transfffrs and other evidences of indebtedness

......... This article was originally enacted as Chapter 49, Acts 3rd C.S., 36th Leg., 1920, p. 90, and was codifiedwithout change In the Revised Civil Statutes of 1925

### underTitle 32, "CorporatlonsPrivate", as Chapter 17, "TrustCompanies and Investments".

Section 2 of the originalAct reads in part as follows:

"The fact that there is now no law that will allow trust companies to purchase; sell,discount, and negotiate notes, drafts, checks, bills of exchange, etc., as provided in this bill, creates an emergency.
. . -" Chapter 17, Title 32, also containedArticles 1514 to 1519, inclusive, tions", 

### under sub-title "AgriculturalFinance Corporaand Articles 1520 to 1524, Inclusive,under sub-title *Loanand Brokerage Companies".,'Chapter 16 1931, p. 280, repealed Articles 1520 to 152

### P Acts 42nd Leg., Inclusive and substituted in lieu thereof what is now codified as Articli 1524a, Vernon'sCivil Statutes.

Article 1520 read in part as follows:

“Art. 1520. Powers.--This subdivision shall embrace corporations created for any or all of the following purposes: To accumulate and lend money, purchase, sell and deal innotes, bonds, and securities, but withat banking and dlscountlnu privileges; and to act as trustee under any lawful express trust committed to them by contract and as agent for the per-Hon. J. M. Falkner, page 4 WW-441

formance of any lawful act.........." (Rmphaslsadded)
This provision Is almost identicalwith sub-section 49, Article 1302,Revised Civil Stautes of Texas, 1925. Both sub-section 49, Article 1302, and Article 1520 were derived from Chapter 83, Acts 36th Leg., 1919, p. 134.

When Article 1520,R.C.S., 1524a,V.C.S., 1925,was repealed and Article

was enacted in lieu thereofby Chapter 165, Acts 42ndLeg., 1931, p. 280, the phraseology of the first sentence ofArticle 1520was changed in Section 1, ARtlcle 1524a,V.C.S., to read as follows:

"ThisAct shall embrace corporationsheretofore createdand hereafter created having for their purpose or purposes any or ,a11of the powers now authorized inSub-divisions 48, 49 or 50 ofArticle 1302, Revised Civil Statutes of Texas, 1925, and heretofore
or hereaftercreated having inwhole or ln~partany purpose or purposes now authorized In Chapter 275, Senate Bill Number 232 of the General,andSpeclal Law? of the Regular Session of the 40th Legislature.

. . . The remainingphraseology of Article 1520 and Section 1, Article 1524a, Is identical.

As above noted, Section 2, Chapter 49,Acts 3rd C.S., 36th hiiT.,1920 (Art. 1513), which was the emergency clause, stated that: "There is now no law" permitting trust companies to purchase, sell,discount and negotiate notes, etc., as provided In the Act. It is therefore clear that the Legislature, in enacting Article 1513, intended to supplement the powers given to corporations charteredwith purpose clauses contalnlng "trustpowers" under the provisions of either sub-section 49,Article 1302, or Article 1520 to enable them to discount promissorynotes, bills of exchange,etc., provided that such corporations had a capital of $500,000.00,or more.

Both sub-section 49,Article 1302, and Article 1520 per- - mltted corporationschartered thereunder to accunulate and.lend money, and also to purchase, sell, and deal in notes, etc.,but without banking and discounting urlvlleges. The enactment of Article 1513demonstrated a clear le$lslatlve Intent to permit such corporationswith a capital of 500,000.00, or more, in additionto p+archaslnq selling anddealing in notes, to "dlscount"~suchnotes and &her co&erclal paper in connectlon.wlth theirpurchase and sale.

If the legislative Intent In enactingArticle 1513 was to be applicable~ to trust companies having a capltallzatlonHon. J. M. Falkner, page 

### 5 ww-441

of $500,000.00, or more, charteredunder the provisions of Title 

### 16,Revised Civil Statutes of Texas, 1925, titled "Banksand Banking" and particularly the provisions of Chapter 4 thereof styled, "Banksand Trust Companies", then the necessity for such legislationdid not exist, sinceArticle 396,R.C.S., 1925, provided that:

"Bankand trust companiesmay be created for the purpdse of establishing a bank of deposit or discount
or both of deposit and discount, with the purposes set out inArticle 392, and any one or more of the following purposes;

. . . ."
Article 396 then enumerates ten additional purposes consisting of various trust powers, powers to act as fiscal or transfer agent, and powers as executors, administrators, or guardians.

Article 392,R.C.S., 1925, authorized banking dorporatlons to act as a depository, to lend money at the legal rate of interest,and to buy, sell, and discount negotiable and nonnegotiable commercial paper of all kinds.

Since the provisions of Article 392 relating to the powers of trust companies chartered by the Banking Commissioner permitted the bank and trust company or turst company, ln additionto lending money, to buy, sell, and discount negotiable and non-negot+ able commercialpaper of all kinds, It is clear that the anactment.of Article 

### 1513 in 1920 for the purpose of giving trust companiespowers to discount negotiable paper because "there Is now nonlaw that will allow trust companies to purchase, sell, discount and negotiate notes, etc." was not Intended to apply to banks or trust companies charteredunder the provisions of Chapter 4, Title 

### 16,R.C.S., 1925, but to loan and brokerage companies whose creation was authorized in 1919under the provisions of sub-division 49, Article 1302 and Article 1520, and regulated by the provisions of Articles 1521 to 1524, inclusive, and later by Article 1524a,V.C.S., enacted in 1931 in lieu of Articles 1520 to 1524,R.C.S.

In view of the foregoing legislative history it Ismanlfest that in enactingArticle 

### 1513the Legislature Intended to give to corporations charteredunder the provisions of sub-dlvlsion 49, Article 1302, or Article 1520,R.C.S., the power to dlsccrunt

commercial paper in addition to the orl~glnal purpose of accumulatingand lendingmoney if such corporations had a mlnlmum capitalization of $500,000.00,and that the Legislature realized that there was a distinction between the loan of money to a borrower with interest discounted in advance and the purchase of commercial paper from others than the makers thereof at a discount.Hon. J. M. Falkner, Page 6 WW-441

Trust companies incorporatedunder the Banking Act, both prior and subsequent to the Banking Code of 1943,were authorized to accumulate and lendmoney, as well as to purchase, sell, and discountnegotiable paper. But the "trustcompany", the creation of which was authorizedby the provisions of Article 1513a,V.C.S., is onlygranted such powers as are specificallyauthorizedby law and the additionalpowers set forth In Article 1513,V.C.S. Nowhere in either Article 1513 or Article 1513a is there any power granted or authorizationgiven to such corporation to accumulateand lend money.

A corporatepurpose is to be dlstlngulshed from the powers exercisedby the corporation Incident thereto. The general rule of law Is that a corporation created for the purpose of carrying
on a businessunder a statutorypurposewhich merely states the nature of the business and does not furtherdefine its powers, may exercise such powers as are reasonably necessary to accomplish the purpose of its creation and as are usually Incident to the prosecutionof its business, and no more, ~(Northslde.Ry:Co;v. Worthington, 

### 88 Tex. 

### 562, 30 S.W.~1055, 1057 (1895)) except.,:' suchadditionalpowers as may be speclfloally confe$ed by law-. Since the impliedpowers mst be in conformitywith the purpose forwhich the corporation is~formed,a corporationwith the purpose~clause contalnedln Section 2, Article 1513a;V.C.S.,'does not have thepower to accumulate and lendmoney, although corporationsmay be formed for that purpose inaddition to otherpurposesunder~the'TexasBiislnes8CorporationAct. But Section 

### 7, Article 1513a, specificallyprovides that "Theprovisions of Article 2.01A permitt a ;g;Ezrat$on to have mart than one prp6se shall not apply

. trust companies C~reated or authorizedby the provisions of Article 1513a are limited to the purpose clause set forth ln Section 2 thereof, and may only exercise suchpowers as are reasonably incident tothe prosecution of Itsbusiness,which Is not that of accumulatingand lending money, toget,her

with such additionalpowers as may be conferred by Article 1513.

Article 1513, V.C.S., confers the additional Dower to "purchase,sell,discount and,negotlatewith or without its en-- dorsement or guarantee, notes, drafts", etc. "discount", Inusing the-word,

In connectionwith the power to purchase, sell, and negotlate.notesand other commercial paper, it Is clear that the power to "discount"is to be used in conjunctionwith the power to-purchase,sell,.and negotiate the promissorynotes and other commercialpaper, and not to discount Interest In advance in the making of a loan as this term is generally understood Inbanking parlance.

It has been suggested In a brief filed by counsel representinga trust company operatingunder the provisions ofArticleHon. J. M. Falkner, page 7 w-441

1513a,V.C.S., that trust companies createdunder the provisions of Article 1513a, V.C.S. have the additional powers granted in. Article 152&a-l,V.C.S. fCh. 472, Acts 52nd Leg., 1951, p. 832), since the provisions of Section 3, Article 1513a, provide that the provisions of Article 1524a,V.C.S., shall a ply to such corporations. While it Is true that Section l(d and Section 3 P of .Artlcle152&a-l state speclflcally that corporationsdoing business thereunder are subject to the provisions of Article 1524a, nevertheless, It is clear that the additionalpowers granted to certain corporationsunder the provisions of Article 152&a-1 are not appl1cabl.eto corporations operatingunder'the provisions of Article 1513a, since Section 1, Article 1524a-1, provides that the Act shall be applicable to corporations heretofore or hereafter formed for the purposes specified in Sections 48, 49, and 50 of Article 1302, and Article 1303b,Vernon's Civil Statutes, only.

Keeping inmind the fundamental-distinctionbetween a corporate purpose and a corporate power, It Is the opinion of this office that a corporation-whosecharter"contalns a purpose clause authorized In Section 2, Article 1513a, V.C.S., may not engage In a general loan business by making loans to the general publicupon promissorynotes, and "discounting"the Interest thereon In advance.

You also request our opinion as to the applicablllty of Section 9, Article 1524a,V.C.S., the pertinent part of which is
as follows:

"

. . . Or, If it shall appear from such examlnatlon that such corporation has exceeded its corporate powers or has been guilty ofunlawful act or acts,
or Is falling to comply with this Act, saidBanking Commissioner of Texas shall give notice to such corporation to cease such act or practices and to conduct Its business in accordance with law and Its charterpowers. Failure or refusal to complywith the notice of the Banking Commissioner of Texas wlthin 30 days from receipt of said notice shall constltute grounds for the forfeiture of the charter of such corporationat the suit of the AttorneyGeneral upon request of the Banking Commissioner of Texas."
Since It Is our opinion that a corporationwhich has as Its corporatepurposes those set forth In Section 1,Article 152&a, may not engage in a general loan business by making direct loans to the general public in Its own behalf, any such corporationwhich has been or now is engaged l.ntransactinga general loan businessby making loans In its own behalf direct to the general publicwould be exceeding its authorized legal powers,Hon. J. M. Falkner, page 

### 8 ww-441

and itwould be your duty to follow the procedure set forth in Section 9, Article 1524a,V.C.S.

Nothing In this opinion shallbe construed as preventing such a trust company from making loans out of funds In Its possession,as trustee,under a bona fide trust agreement authorizing the corporation to use such trust funds for the purpose of making loans of money for the benefit of the trustor. However, such corporationwould not be authorized to engage In the business of lending any money which forms a part of Its capital ati surplusassets, orwhich is borrowed by the corporation for the purpose of lending money to the general public in Its own behalf
or for its own benefit.

SUMMARY

A corporationwith the corporate purposes set forth in Section 2, Article 1513a,V.C.S., iswithout authority to engage In a general loan business by making direct loans to the ,generalpublic in Its own behalf. Such corporationmay purchase, sell, .anddiscount negotiable commercialpaperundmthe provisions ofArticle 

### 1513,V.C.S. The word "discount"
as used in Article 

### 1513,V.C.S.; does not authorize the making of direct loans to the borrower by discounting the interest thereon in advance. Where such corporation has been or now is engaged in the general loan business by making direct loans of money to the public in its own behalf, It has exceeded Its charter powers and the Banking Commissioner should follow the procedure set forth in Section 9, Article 152&a,V.C.S.

Yours very truly,

WILL WILSON Attorney General of Texas

FBW:lm:wc By s/FredB. Werkenthln Fred B. Werkenthl,n APPROVED: Assistant OPINION COMMITTEE: Geo..P.Blackburn, Chairman
Houghton Brownlee, Jr. J. Mark McLaughlin

REVIEWEDFOR THE ATTORNEY GENBRAL BY: W. V, GeDDert