THEATTORNEY GENERAL 

OFTEmS' 

AUSTIN II. TEXAS 

March 13, 1957 

Iloon. J. M. Falkner, Commissioner Opinion No. WW-44 

State Department of Banking 

Capital National Bank Building We: Whether Secretary ofiStat& :has 

.Austin, Texas the authority to’approve a : 

%harter amendnient wh~ich 

changes the purpose: cinuse-.of 

ricorporatidn.chart~sdd ‘under.. 

Article i,303b, Vernw’i Civil’ 

Statutes, 20 da a geheral fiducidr~‘dnd’drpositbrl.busihells 

wide L’ the: prav i&ions, .:ofi Ar ttcte 

7.Q 1, Texha Insurancd Code, 

Dear Mr. Falkner: andrelated questions. 

Your letter requesting our opinion relative to the capttoned 

matter, consists of five questions, together with the factual situation 

involved. Since the factual situation outlined in your request is set 

out in great detail, it would unduly lengthen this opinion to quote the 

request in full. Therefore, only those facts will be restated which are 

deemed necessary as a basis for our answers to the questions propounded. 

A corporation was chartered by the Secretary of State In 

May, 1947, with a purpose clause to do business for the purposes contained in Article 1303b. Varnoh’s Civil Statutes of Texas (Acts 1927, 

40th Leg., Ch. 275, p. 414). The purpose clause is as follows: 

“A private corporation may be formed for any one 

or more of the folloying purposes, without banking or 

insurance privileges: to accumulate and loan money; to 

sell and deal in notes, bonds and securities; to act as 

Trustee under any lawful express trust committed to it 

by contract or will. or under appointment of any court 

having jurisdiction of the subject matter, and as agent 

for the performance of any lawful act; to subscribe for, 

purchase, invest in. hold, own, assign, pledge and otherwise deal in and dispose of shares of capital stocks, 

bonds, mortgages, debentures, notes and other securities 

or obligations, contracts and evidences of indebtedness 

of foreign or domestic corporations not compethg with 

* 

Emphases throughout are supplied. 
Hon. J. M. Falkner, page 2 (WW-44) 

each other in the same line of busineas; to borrow money 

or issue debentures for carrying out any or all purposea 

above enumerated. Provided that the power and authority 

herein conferred shall in no way affect any of the provlrlons of the anti-trust laws of ihir Btate.” 

On September 14. 1954, the corporation filed a proposed 

charter amendment with the Secretary of State: (1) to change the 

purpose clause of the corporation, (2) to change the dame of the 

corporation, and (3) to increase the capital stock to the sum of 

$500,000.00. The amendment proposed to change the purpose clause 

of the corporation fro 

T 

the purposes set forth above to the following: 

“The purposes for which it is formed is to do 

a general fiduciary and depository business, togs 

with all other powers claimed tinder Chapter 7, 

Article 7.01 through 7.18, inclusive, Insurance Code, 

1951, V.A.T.S., and complying with Article 1513, 

V.A.T.S., 1925.” 

It is noted that the emphaslaed portion of the propoeed 

change of the purpose clause is contained ln the purpcae clause 

authoriaed by Article 7.01, Texas Insurance Code, which, prior to the 

adoption of the Insurance Code , was Article 4969 of Chapter 16, Title 

78, Revised Civil Statutes of Texas, 1925. Tbla Article was repealed 

by Section 4 of the Texas Insurance Code of 1951, approved June 28, 

1951. The pertlncnt part of Article 7.01 of the Insurance Code is as 

follows: 

“Private corporations may be created to act as 

trustee, ualgnee. executor, administrator, guardtan 

and receiver, when designated by any pereon, corporation or court to do so; to do a general fiduciary and 

da$osltory buainesst to act as surety and guarantor 

of the fidelity of employees, trustbea, executoro, administratorn, guardians or others appointed to, or 

umuming the performance of any trust, public or 

prhats, under appointment of any court or tribunal, 

or under contract betwean private individuals or 

corporatiolur also upon any bond or bonds that may 

be rsqulred to be filed in any judiciary proceedings; . . . . 

also to guarantee ury contract or undertaking between 

lndIviduals. or between private corporations, or between 

lndividuala or private corporations end the State and 

munici~l corporrtionr or counties or between torporations aU ladlvlduals: to act as executor and 

testamentary guardtan when designated ~sl~~lidd.ccddatf:; 

or to act as administrator or guardian when appointed 

by any court having jurisdiction; also on any bond or 

boadn that may be required of any State official, 

dLtrict offlclal, county offlclal or official 
Hon. J. H. Falkner, page 3 (WW-44) 

of any school district or of any municipality, 

provided that the commissioners courts of each 

county shall have the right to reject any or all 

official bonds made by surety companies and in 

their discretion may require any or all officials 

to make their official bonds by personal sureties. II 

. . . 

At the time the proposed charter amendment was 

submitted to the Secretary of State for approval, Article 1314, 

Revised Civil Stdtutes of Texas, 1925, as amended by the Acts of 

1951, 52nd Legislature, Ch. 166, Sec. 1, p. 284, read as follows: 

‘Any private corporation organized or incorporated for any purpose mentioned in this title, 

may amend or change its charter or act of incorporation by filing, authenticated in the same manner 

as the original charter, such amendments or changes 

with the Secretary of State. A corporation created 

by special Act of the Legislature shall also file with 

said officer its original charter and such amendments 

thereto or changes therein, if any, as have been made 

by special Act of the Legislature; and the same shall 

be recorded by the Secretary of State, followed by the 

proposed amendments or changes thereof. Such 

amendments or changes shall take effect and be in 

force from the date of the filing thereof. The certificate of the Secretary of State shall be evidence of such 

filing. Any private corporation organized for any 

purpose mentioned in this title may change to another 

purpose mentioned in this title, by a vote of eighty 

(80%) per cent of the outstanding voting stock at a 

meeting called for that purpose; provided no amendment or change violative of the Constitution or laws 

of this State or any provision oi this title shall be 

of any force or effect. . . .” 

A thorough search of the purpose clauses authorized to 

be adopted in the charters of private corporations contatned in Title 

32 of the Revised Civil Statutes of Texas , 1925, as amended, fails 

to disclose any purpose clause which would authorize corporations 

to be formed to do “a general fiduciary and depository business.” 

Under the above stated facts you have requestetd an 

answer to the following questions: 

“Question 1. In view of the above factual situation 

would the approval and filing by the Secretary of State 

of the above amendment constitute a legal change of the 

purpose clause of the corporation or is the amendment 
Hon. J..M, Falhner, p-e 4 (VW-44) 

void and ‘of no force or effect’? If the 

amendment was void and of no force or effect 

then is the corporation still a valid corporation 

with the original purposes set out in the original 

charter? n 

In answer to the first question, propounded in “Question 

l”, it is the opinion of thls office that the approval and filing by the 

Secretary of State of the proposed charter amendment on September 

14. 1954, was void ens a matter of law and “of no force or effect.” 

The provisions of Article 1314, R.C.S., 1925, as amended, are clear 

and unambiguous , and permit only the amendment of the purpose 

clause of a corporation originally chartered for one of the purposes 

set forth in Title 32. R.C.S., 1925. as amended to another purpose 

mentioned or set forth in Title 32. Since the purpose clause contained 

in the proposed amendment was not mentioned in Title 32 at the 

time the Revised Civil Statutes, 1925, was adopted by the Legislature 

of the State of Texas, or added thereto by amendment.: after that 

date, the proposed charter amendment does not meet the specific 

requirement of the provisions of Article 1314, as amended in 1951. 

Further, the purpose clause ‘To do B general fiduciary and depository 

business” stated a purpose which was contained originally .in Article 

4769. Chapter 16, Title 78, Revised Civil Statutes of Texas, 1925. as 

amended, until it was repealed by the enactment of the Texas Insurance Code, 1951, by Acts 52nd Leg. Ch. 491, p. 868, and reenacted 

in the Insurance Code of 1951 as Article 7.01. Neither of these 

Articles was mentioned in or formed a part of Title 32, Revised Civtl 

Statutes, 1925. as amended, at the time of the approval of the 

proposed charter amendment. In addition, the provlsLon of Article 

1314, as amended In 1951. which states that “no amendment or 

change violative of the Constitution or Laws of this State or an 

provision of this title shall be of any force or effect”, is app -IIF cable 

and therefore the prdgosed amendment which purports to change the 

purpose clause of ths corporation is w.lthout “any force or effect”, 

. . . ..-. 

,, ~_ .~ :: .:: 

In answer to your second question propounded in ‘QuestIon 

1”. since the amendment was vold and of no force and effect, the 

corporation would still remain B valid corporation with the original 

purpose clause set out in the original charter, since it ts elementary 

that an attempted tnvaltd amendment to a charter does not render the 

original charter invalid. See Staacke v.. Routledge. (Civ.App. San 

Antonio, 1915) 175 S.W. 444, 447. 

After the Secretary of State had approved the void charter 

amendment the corporation applied for and received from the Board 

of Insurance Comati6sLoners a certificate of authority to engage in 

business for the purposes authortzed by Article 7.01, Texas Insurance 

Code, among whkh atis the authority to do a trust business as 

authorized under Chapter 7, Insurance Code of Texas, 1951. Presumably acting under the certlflcate of authority and under the provlsfons 
, 

Hon. J. M. Falkner, page 5 (WW-44) 

of Article 1513, Revised Civil Statutes, 1925, which gave additional 

powers to any “trust company organized under the laws of the State 

of Texas with a capital of not less than $500,000.00” to issue 

debenture bonds and promissory notes, the corporation proceeded to 

issue, offer for sale, and sell what were denominated five yesr 5% 

and 5;s debenture bonds, two year 5% debenture bonds, and 

“certificates of trust”, payable on demand, with interest at the 

rate of 4;s payable semi-anntially, but with cumulative interest 

payable to date upon demand. 

Since Question No. 2 is based upon the premise that the 

charter amendment filed with the Secretary of State wns valid, it is 

not deemed necessary to state or answer this question in view of 

our answer to Question No. 1. However, in Question No. 3, you have 

asked whether the issuance or sale of the evidences of indebtedness 

were authorized under the original charter of the corporation 

(Article 1303b) and, if so, are such “debenture bonds” snd “certificates of trust” subject to coll&teialization by the company under 

the provisions of Article 1524a, Vernon’s Civil Statutes. 

Section 1 of Article 1524a, provides in part ns follows: 

“This Act shall embrace corporations heretofore 

created and hereafter crested having for their purpose 

or purposes any or all of the powers now authorized 

in Subdivisions 48, 49 or 50 of Article 1302, Revised 

Civil Statutes of Texas, 1925, and heretofore or 

hereafter created having in whole or in part nny 

purpose or purposes now authorized in Chapter 275, 

Senate Bill Number 232 of the General and Special 

Laws of the Regular Session of the 40th Legislature. I. 

. . . 

Chapter 275 of Senate Bill 232 of the General and Special Laws of 

the Regular Session of the 40th Leg,islature contains the’ purposes 

now authorized and enumerated in Article 1303b. V.C.S., above set 

forth. 

lows: 

Section 7 of Article 1524a, V.C.S., rends in part ns fol- 

“All bonds, notes, certificates, debentures, or 

other obligations sold in Texas by any corporation 

sffected by n provision of this Act shsll 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. 

. . . Said securities shall be placed in the hands of n 

corporation having trust powers approved by the 

Banking Commissioner of Texas as Trustee under a 
Hon. J. M. Falkner, page 6 (WW-44) 

trust agreement, the terms of which shall be 

approved in writing by the Banking Commissioner 

of Texas, . . .” 

Since the corporation in question was chartered origlnslly 

for the purposes authorized in Article 13,03b, the proposed charter 

amendment thereto being void at the time the so-called ‘debenture 

bonds” and “certificates of trust” were issued; offered for sale and 

sold in Texas, the corporation wns then and is now subject to the 

provisions of Article 1524a. V.C.S., under Section 1 thereof above 

quoted. Therefore the “debenture bonds” and ‘certificates of trust* 

so issued, offered for sale, and sold are subject to and should be 

collateralized under the provisions of Section 7, Article 1524s, V.C.S. 

Your Question No. 4 is predicated upon the assumption 

that the debenture bonds and trust certiflcstes were issued by the 

corporation while acting under the certificate of authority issued by 

the Board of Insurance Commissioners’. Since the proposed charter 

amendment was void nnd of no force and effect the certificate of 

authority issued by the Board of Insurance Commissioners could not 

purport to authorize the issuance or sale of these securities under 

the Insurance Securities, Act, and therefore it is unnecessary to 

state or answer Question No.’ 4. 

You have advised that the demand “certificates of trust” 

referred to above are advertised through the mail ns being a savings 

plan paying 4$% from the date of purchnse, which cnn be converted 

into cash plus 41% earned interest to date at any time by the holder 

thereof. These certificates are issued on accounts made with the 

company ns II depositor and statement is further made that the 

certificates of trust currently earn 4+% interest from dste of purchase 

to date of withdrawal. The prospectus further states that the dividend 

dates of payment of the 41% interest are twice annually, on June 30 

and December 31. 

“Qestion 5. Does the issuance of the so-called demand 

certificates of trust violate the provisions of the Banking Code of 

1943, particularly Article 3421381(f), Article 342-707, and Article 

342-7081 If the provisions of’the Banking Code are not violatid: by 

the issuance of these certificates, would the company have the power 

to issue and sell these demand certificates of trust under the provisions 

of Article 1303b or Chapter 7 of the Insurance Code?” 

It is spaclf1cally stated in Article 1303b, Vernon’s Civil 

Statuths. thnt “a private oorooration may be formed for any one or 

more of the follo&ng purposes , without-banking or insurance privlleger.” 

Article 342-301 of the Banklnn Code of 1943 arovides thnt n State 

bank may be incorporated wit& among others; the following powers: 

“(f) To receive savings deposits with or without the payment of interest” 

and (g) to receive time deposits with or without the payment of Interest.” 
. 

Hon. J. M. Falkner, page 7 (WW-44) 

From the factual situation above stated, the “certificate 

of trust” would seem to have all of the qualifications of n savings 

deposit, payable on demand at nn agreed rate of interest. The use 

of the words 

ment ” 

“savings plan”, “deposit”, and “dividend dates of payof the semi-annual interest in the prospectus are indicative 

of the solicitation by the corporation of savings accounts in its : 

capacity 8s a trust company. The offering of these “certificates of 

trust” by the corporntion to the general public in this connection 

would therefore be in violation of Article 342-902 of the Banking 

Code of 1943 which states in part that: 

“It shall be unlawful for any . . . corporation 

. . , to conduct (1) a banking or trust business or 

to hold out to the public that it is conducting n 

bsnking or trust business; . . . Provided, however, 

that this article shall not ~DDLV to (1) national banks. 

(2) state banks, (3) other corporations heretofore or 

hereafter organized under the laws of this State. . . 

to the extent that such corporations are authorized 

under their charters or the laws of this State. . .,to 

conduct such business. . .” 

Inasmuch as Article 1303b does not confer any ‘banking 

rivile es” upon a corporation formed thereunder, the 

::,gZEeWikiZ-?- e without authority to solicit or receive deposits 

with the payment of interest. 

The Charter amendment, as to the change in name, and 

the increase of its capital stock is valid. The corporation , having 

increased its capital stock to $500.000.00 by virtue of the charter 

amendment. is thereby automatically entitled to exercise the additional powers specified in Article 1513, R.C.S., 1925. It is the opinion 

of this office that the offering for ssle or selling of the “certificates 

of trust” would not be permitted unless the “certificates of trust” 

should be considered to be debentures, bonds, or promissory notes. 

In our opinion the “certificates of trust” ns offered to the public, 

are neither debentures, bonds, or promissory notes, although they 

are “other obligations ” of the corporation which should and must be 

collateralised under the provisions of Section 7, Article 1524s, 

Vernon’s Civil Statutes. 

SUMMARY 

The Secretary of State is without legal authority 

or power to approve n charter amendment which 

changes the purpose clause of a corporation 

originally chartered under Article 1303b, V.C.S., 

to do a general fiduciary and depository business 

under the provisions of Article 7iO1, Texas ,Insurarlre -Code; such .amendment be.ing of .no force ‘and 
Hpn. J.-M. Falhner, page 8 (WW-44) 

.:: effect, udder ..the provisiona of Artkle, 13 14, 

V.C.S.’ Direct obligations such as debenture 

bonds and certificates of trust issued by the 

corporation are subject to collaterallaatlon 

under the provisions of Sections 1 and 7, 

Article 1524a, V.C.S. “Certificates of trurt” 

which are issued and sold to the public as 

being savings plans earning 4$% semi-annual 

dividends, payable on demand by the depository, 

nre violstive of the provlslons of Articles 342- 

301 and 342-982 of the Texas Badring Code of 

1943, but must be collsterallzed under the 

provisions of Sections 1 and 7, of Article 1524a, 

V.C.S. 

Yours very truly, 

WILL WILSON 

Attorney General 

BV 

APPROVED: 

* W. V. Geppert 

Assistant , 

. 

OPINION COMMITTEE , 

W; Grady Chandler, .Chairman 

WVG:ce