THE ATIYOWNEY GENERAL 

0~ TEXAS 

WILL WILSON 

A-- GENERAL June 2, 1958 

Hon. J. M. Falkner Opinion No. WW-441 

Banking Commissioner 

Capital National Bank Bldg. Re: May a corporation or company 

Austin, Texas organized under 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 Imposed upon your department In the supervision of corporations organl.zed and operating under the provisions of Article 1513a, Vernon's Civil Statutes. Your question 

1s as follows: 

"Please advlse 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, if upon 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 corporation may obtain 

a certificate of authority to do buslness In Texas for 

~the following purpose: 

"To act as trustee, executor, admlnlstrator, or guardian when 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 authorized 
Hon. J.M..Falkner, page 2 WW-441 

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

There appears to be no statutory definition of the words 

"trust companies" or enumeration of the powers which are authorized by law to be exercised by such companies, with the exception hereinafter noted. 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 "trust companies" 

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 the Banklng 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 Corporation Act, the creation of 

"trust companies" thereunder has been expressly prohibited-'by 

the terms thereof (Art. 2.01B(4) and Art. 9.14A). The creation 

of cornorations with trust Dowers under the Drovlslons of ChaDter 

7 of.the Insurance Code was‘expressly'repeal&d by Section 1, . 

Article 1302a, V.C.S. 

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

follows: 

"The general law for incorporation and governing 

of corporations, and the provisions of Article 1513, 

Revised Civil Statutes of Texas, and the provisions 

of the Texas Business Corporation Act shall supplement the provisions of this Act and shall apply to 

such trust companies to the extent that they are not 

inconsistent herewith; provided, the provisions of 

Article 2.01A permitting a corporation to have more 

than one purpose shall not apply . s . D .'I 

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

or operating under the provisions of Section 2, Article 1513a. 

Therefore, under present law there are only two methods 

whereby corporations may be created with trust powers which would 

authorize the use of the words, "trust company": (1) Under'the 

provisl ons of Article 342-301, V.C.S. (Banking Code of 1943); 

and (2) Section 2, Article 1513a, V.C.S. In the case of a corporation with trust powers or a "trust company" organized under 

the provisions of Article 342-301(d), V.C.S., such corporation 
Hon. J.M. Falkner, page 3 ww-441 

can only be chartered under the provlalons of the Banking Code 

of 1943, and exercise the powers expressly set forth therein. 

In the case of a "trust company" organized under 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 

additional powers enumerated in Article 1513. 

Article 1513, Revised Civil Statutes of 1925, provides 

In part as follows: 

“Every trust company organized under 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 negotiate with 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 codified without change In the 

Revised Civil Statutes of 1925 under Title 32, "CorporatlonsPrivate", as Chapter 17, "Trust Companies and Investments". 

Section 2 of the original Act 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 contained Articles 1514 to 

1519, inclusive, 

tions", 

under sub-title "Agricultural Finance Corporaand Articles 1520 to 1524, Inclusive, under sub-title 

*Loan and 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's Civil 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 in notes, 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.........." 

(Rmphasls added) 

This provision Is almost identical with 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 thereof by Chapter 165, Acts 

42nd Leg., 1931, p. 280, the phraseology of the first sentence 

of Article 1520 was changed in Section 1, ARtlcle 1524a, V.C.S., 

to read as follows: 

"This Act shall embrace corporations heretofore 

created and hereafter created having for their purpose or purposes any or ,a11 of the powers now authorized in Sub-divisions 48, 49 or 50 of Article 1302, 

Revised Civil Statutes of Texas, 1925, and heretofore 

or hereafter created having in whole or ln~part any 

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 remaining phraseology 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 chartered with purpose clauses contalnlng "trust powers" 

under the provisions of either sub-section 49, Article 1302, or 

Article 1520 to enable them to discount promissory notes, 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 corporations chartered 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 1513 demonstrated a clear le 

$ 

lslatlve Intent to permit 

such corporations with a capital of 500,000.00, or more, in 

addition to p+archaslnq selling anddealing in notes, to "dlscount"~such notes and &her co&erclal paper in connectlon.wlth 

theirpurchase and sale. 

If the legislative Intent In enacting Article 1513 was 

to be applicable ~ to trust companies having a capltallzatlon 
Hon. J. M. Falkner, page 5 ww-441 

of $500,000.00, or more, chartered under the provisions of Title 

16, Revised Civil Statutes of Texas, 1925, titled "Banks and 

Banking" and particularly the provisions of Chapter 4 thereof 

styled, "Banks and Trust Companies", then the necessity for such 

legislation did not exist, since Article 396, R.C.S., 1925, provided that: 

"Bank and trust companies may be created for the 

purpdse of establishing a bank of deposit or discount 

or both of deposit and discount, with the purposes set 

out in Article 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 commercial paper of all kinds, It is clear that the anactment.of Article 1513 in 1920 for the purpose of giving trust 

companies powers to discount negotiable paper because "there Is 

now non law that will allow trust companies to purchase, sell, 

discount and negotiate notes, etc." was not Intended to apply 

to banks or trust companies chartered under the provisions of 

Chapter 4, Title 16, R.C.S., 1925, but to loan and brokerage companies whose creation was authorized in 1919 under 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 Is manlfest that in enacting Article 1513 the Legislature Intended to 

give to corporations chartered under 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 

accumulating and lending money 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 incorporated under the Banking Act, both 

prior and subsequent to the Banking Code of 1943, were authorized 

to accumulate and lend money, as well as to purchase, sell, and 

discount negotiable paper. But the "trust company", the creation 

of which was authorized by the provisions of Article 1513a, V.C.S., 

is only granted such powers as are specifically authorized by 

law and the additional powers set forth In Article 1513, V.C.S. 

Nowhere in either Article 1513 or Article 1513a is there any 

power granted or authorization given to such corporation to 

accumulate and lend money. 

A corporate purpose is to be dlstlngulshed from the powers 

exercised by the corporation Incident thereto. The general rule 

of law Is that a corporation created for the purpose of carrying 

on a business under a statutory purpose which merely states the 

nature of the business and does not further define its powers, 

may exercise such powers as are reasonably necessary to accomplish 

the purpose of its creation and as are usually Incident to the 

prosecution of its business, and no more, ~(Northslde.Ry:Co; v. 

Worthington, 88 Tex. 562, 30 S.W.~1055, 1057 (1895)) except.,:' 

such additional powers as may be speclfloally confe$ed by law-. 

Since the implied powers mst be in conformity with the purpose 

for which the corporation is ~formed, a corporation with the purpose~clause contalnedln Section 2, Article 1513a; V.C.S.,'does 

not have the power to accumulate and lend money, although corporations may be formed for that purpose in addition to other purposes under~ the'TexasBiislnes8 Corporation Act. But Section 7, 

Article 1513a, specifically provides that "The provisions of 

Article 2.01A permitt a ;g;Ezrat$on to have mart than one 

prp6se shall not apply . trust companies C~reated or 

authorized by the provisions of Article 1513a are limited to the 

purpose clause set forth ln Section 2 thereof, and may only exercise such powers as are reasonably incident tothe prosecution 

of Its business, which Is not that of accumulating and lending 

money, toget,her with such additional powers as may be conferred 

by Article 1513. 

Article 1513, V.C.S., confers the additional Dower to 

"purchase, sell, discount and,negotlate with or without its en-- 

dorsement or guarantee, notes, drafts", etc. 

"discount", 

In using the-word, 

In connection with the power to purchase, sell, and 

negotlate.notes and other commercial paper, it Is clear that the 

power to "discount" is to be used in conjunction with the power 

to-purchase, sell,.and negotiate the promissory notes and other 

commercial paper, and not to discount Interest In advance in the 

making of a loan as this term is generally understood In banking 

parlance. 

It has been suggested In a brief filed by counsel representing a trust company operating under the provisions of Article 
Hon. J. M. Falkner, page 7 w-441 

1513a, V.C.S., that trust companies created under 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 P and Section 3 

of .Artlcle 152&a-l state speclflcally that corporations doing 

business thereunder are subject to the provisions of Article 

1524a, nevertheless, It is clear that the additional powers 

granted to certain corporations under the provisions of Article 

152&a-1 are not appl1cabl.e to corporations operating under' 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 in mind the fundamental-distinction between a 

corporate purpose and a corporate power, It Is the opinion of 

this office that a corporation-whose charter"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 

public upon promissory notes, 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 of unlawful act or acts, 

or Is falling to comply with this Act, said Banking 

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 

charter powers. Failure or refusal to comply with 

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 corporation at the suit of the Attorney General 

upon request of the Banking Commissioner of Texas." 

Since It Is our opinion that a corporation which has as 

Its corporate purposes 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 corporation which has been or now is engaged l.n transacting a general 

loan business by making loans In its own behalf direct to the 

general public would be exceeding its authorized legal powers, 
Hon. J. M. Falkner, page 8 ww-441 

and it would be your duty to follow the procedure set forth in 

Section 9, Article 1524a, V.C.S. 

Nothing In this opinion shall be 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 corporation would not be authorized to engage In the business of lending any money which forms a part of Its capital ati 

surplus assets, or which 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 corporation with the corporate purposes 

set forth in Section 2, Article 1513a,V.C.S., 

is without authority to engage In a general 

loan business by making direct loans to the 

,general public in Its own behalf. Such corporation may purchase, sell, .and discount negotiable commercial paper undmthe provisions 

of Article 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/Fred B. Werkenthln 

Fred B. Werkenthl,n 

APPROVED: Assistant 

OPINION COMMITTEE: 

Geo..P. Blackburn, Chairman 

Houghton Brownlee, Jr. 

J. Mark McLaughlin 

REVIEWED FOR THE ATTORNEY GENBRAL BY: W. V, GeDDert