Court Opinion

ID: 4136939
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:19:13.143583+00
Date Added: 2024-06-11T14:35:18.761731
License: Public Domain

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 fiduc-
                                                    idr~‘dnd’drpositbrl.busihells
                                                    wide L’the: prav i&ions, .:ofiAr ttcte
                                                    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 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 propound-
ed.

            A corporation was chartered by the Secretary of State In
May, 1947, with a purpose clause to do business for the purposes con-
tained 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 other-
      wise 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 provl-
      rlons 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   the purposes set forth above to the following:
                           T
               “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, corpor-
      ation 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,    ad-
      ministratorn,       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     torpor-
      ations   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 incor-
         porated for any purpose mentioned in this title,
         may amend or change its charter or act of incor-
         poration 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 certifi-
         cate 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 amend-
         ment 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 Insur-
ance 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
                                                                                 -IIFcable
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. Presum-
ably 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 “certifi-
    cates 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.

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

                    “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, equal-
            ing 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.       “a private oorooration
              thnt                         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 “savings plan”, “deposit”,         and “dividend dates of pay-
    ment ” of 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 addition-
    al 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 ,Insur-
                  arlre -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
                                          *    W. V. Geppert
                                                Assistant            ,
                                                                    .
APPROVED:

OPINION COMMITTEE         ,
W; Grady Chandler, .Chairman

WVG:ce