## THEATTORNEY GENERAL OFTEmS'
AUSTIN II. TEXAS

March 13, 1957

Iloon.J. M. Falkner, Commissioner Opinion No. WW-44 State Department ofBanking Capital National Bank Building We: Whether Secretary ofiStat&:has .Austin, Texas theauthority to’approve a : %harter amendnient wh~ich changes thepurpose:cinuse-.of ricorporatidn.chart~sdd ‘under.. Article i,303b,Vernw’i Civil’ Statutes, 20daageheral fiducidr~‘dnd’drpositbrl.busihells wideL’the:prav i&ions,.:ofi Arttcte 7.Q1,Texha Insurancd Code, Dear Mr. Falkner: andrelated questions.

Your letter requesting our opinion relative to the capttoned matter, consists of five questions, together with thefactual situation involved. Since thefactual situation outlined inyour request is set out in great detail, it would unduly lengthen this opinion toquote the request in full. Therefore, only those facts will be restated which are deemed necessary as a basis for our answers tothe questions propounded. A corporation was chartered by the Secretary of State In May, 1947, with a purpose clause todo business for the purposes contained inArticle 1303b. Varnoh’s Civil Statutes of Texas (Acts 1927, 40th Leg., Ch. 275, p. 414). The purpose clause isasfollows:

“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 anddeal 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 andotherwise deal in and dispose of shares of capital stocks, bonds, mortgages, debentures, notes andother securities or obligations, contracts andevidences 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 andauthority herein conferred shall in noway 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 froT the purposes set forth above tothefollowing:

“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 thepropoeed change of the purpose clause is contained ln the purpcae clause authoriaed byArticle 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 ofTexas, 1925. Tbla Article was repealed by Section 4 ofthe Texas Insurance Code of 1951,approved June 28, 1951. The pertlncnt part ofArticle 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 ofany 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 anyjudiciary 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 thatmay be required of any State official, dLtrict offlclal, county offlclal or officialHon. J. H. Falkner, page 3 (WW-44)

of any school district or of anymunicipality, 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 inthis 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 ofthe 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 avote 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 ofprivate corporations contatned in Title 32of the Revised Civil Statutes ofTexas , 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 thefollowing questions:

“Question 1. Inview of the above factual situation would the approval andfiling by the Secretary of State of the above amendment constitute a legal change of the purpose clause of the corporation or is the amendmentHon. J..M, Falhner, p-e 4 (VW-44)

void and ‘of noforce or effect’? If the amendment was void and of noforce or effect then is the corporation still avalid corporation with the original purposes set out in the original charter? n In answer to the first question, propounded in “Question l”, it is theopinion of thls office that the approval andfiling by the Secretary of State of the proposed charter amendment onSeptember 14. 1954, was void ensamatter of law and “of no force or effect.” The provisions ofArticle 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. Sincethe purpose clause contained in the proposed amendment was not mentioned in Title 32at the time the Revised Civil Statutes, 1925,was adopted by the Legislature of the State ofTexas, or added thereto by amendment.: after that date, the proposed charter amendment does not meet the specific requirement of the provisions ofArticle 1314, as amended in 1951. Further, the purpose clause ‘To do Bgeneral fiduciary and depository business” stated a purpose which was contained originally .inArticle 4769. Chapter 16, Title 78, Revised Civil Statutes ofTexas, 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 1951as Article 7.01. Neither of these Articles was mentioned inor formed a part ofTitle 32, Revised Civtl Statutes, 1925. as amended, atthe time of the approval of the proposed charter amendment. In addition, the provlsLon ofArticle 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 cable -IIF and therefore the prdgosed amendment which purports to change the purpose clause ofths corporation is w.lthout “any force or effect”,

... ..-. ,,~_ .~:: .::

In answer to your second question propounded in ‘QuestIon 1”

. since the amendment was vold andof noforce andeffect, the corporation would still remain Bvalid corporation with the original purpose clause set out in the original charter, since it ts elementary that an attempted tnvaltd amendment toa charter does not render the original charter invalid. See Staacke v..Routledge. (Civ.App. San Antonio, 1915) 175S.W. 444, 447.

After the Secretary of State had approved thevoid 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 byArticle 7.01, Texas Insurance Code, among whkh atis the authority to do a trust business as authorized under Chapter 7, Insurance Code ofTexas, 1951. Presumably acting under the certlflcate of authority and under the provlsfons,

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

ofArticle 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, butwith cumulative interest payable to date upon demand.

Since Question No. 2 is based uponthe premise that the charter amendment filed with the Secretary of State wns valid, it is not deemed necessary to state or answer this question inview of our answer to Question No. 1. However, inQuestion 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 ofArticle 1524a, Vernon’s Civil Statutes.

Section 1ofArticle 1524a, provides in part ns follows:

“This Act shall embrace corporations heretofore created andhereafter crested having for their purpose or purposes any or all of the powers now authorized in Subdivisions 48, 49 or 50ofArticle 1302, Revised Civil Statutes of Texas, 1925, and heretofore or hereafter created having inwhole 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 ofthe 40th Leg,islature contains the’purposes now authorized and enumerated inArticle 1303b. V.C.S., above set forth.

lows: Section 7ofArticle 1524a, V.C.S., rends in part ns fol-

“All bonds, notes, certificates, debentures, or other obligations sold inTexas by any corporation sffected by nprovision 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 ofTexas as Trustee under aHon. J. M. Falkner, page

## 6(WW-44)

trust agreement, the terms ofwhich shall be approved in writing by the Banking Commissioner ofTexas,

. . .” Since the corporation in question was chartered origlnslly for the purposes authorized inArticle 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 inTexas, the corporation wns then and is now subject to the provisions ofArticle 1524a. V.C.S., under Section 1thereof 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 uponthe 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 nndof 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 IIdepositor and statement is further made that the certificates of trust currently earn 4+% interest from dste of purchase to date ofwithdrawal. 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 oftrust violate the provisions of the Banking Code of 1943, particularly Article 3421381(f), Article 342-707, andArticle 342-7081 If the provisions of ’the Banking Code are notviolatid: by the issuance of these certificates, would the company have the power to issue and sell these demand certificates of trust under the provisions ofArticle 1303bor Chapter 7ofthe Insurance Code?”

It is spaclf1cally stated inArticle 1303b, Vernon’s Civil Statuths. thnt “a private oorooration may be formed for any one or more of thefollo&ng purposes ,without-banking or insurance privlleger.” Article 342-301 of the Banklnn Code of 1943arovides thnt nState 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 ofthe qualifications of nsavings deposit, payable on demand at nnagreed 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 ofArticle 342-902 of the Banking Code of 1943which 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 ~DDLVto (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 1303bdoes 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 inArticle 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 ofSection 7,Article 1524s, Vernon’s Civil Statutes. SUMMARY

The Secretary of State is without legal authority or power to approve ncharter amendment which changes the purpose clause of a corporation originally chartered under Article 1303b,V.C.S., todo a general fiduciary and depository business under the provisions ofArticle 7iO1, Texas ,Insurarlre-Code; such .amendment be.ingof.noforce ‘and

### Hpn.J.-M. Falhner, page 8 (WW-44)

.::effect, udder..theprovisiona ofArtkle, 1314, 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 1and 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 ondemand by the depository, nre violstive of the provlslons of Articles 342- 301 and 342-982 of theTexas Badring Code of 1943, but must be collsterallzed under the provisions ofSections 1and 7,ofArticle 1524a, V.C.S. Yours very truly, WILL WILSON Attorney General

BV

APPROVED: * W. V. Geppert Assistant ,

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OPINION COMMITTEE , W;Grady Chandler, .Chairman WVG:ce