Court Opinion

ID: 4134973
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:56:54.545376+00
Date Added: 2024-06-11T14:34:23.748794
License: Public Domain

Honorable J. M. Falkper              No. c- ‘.4aa
    Banking CommlsEiionerof Texas
    Austin, Texas .,                     Re:   Under the given factual
                                               situation and the
                                               provisions of the
                                               Texas Trust Act,
                                               la the bank ~ln
                                               quektlon, as trustee,
                                               prohibited from
                                               depositing the '.
                                                !%Zc~e%~oslts
                                                lq its.de inatl-
                                               .iiatution
                                                       for a period
                                               .of more~than.one
                                                y.earand 'related
    Deay Mr. Balkner:.                         ~questions. i
        'You hav&~reQueated.our opinlon:on certain,Quesflons
    undetithe following relevant
                        .        facts:
             ‘!A6 &at& chartered.bank and trust.company
         has b.&nrx=&d:truatee tinderVarlou~;tri~stinden;
         'tureswhich auttibx$zethe .bw-In its-.flduciary
         capacity,'irrespectlve~of any proviklon..or pakt
         bf'thk.%.xasTrust Act,..to'lnveat $r’shares   of a
         savings- and loan tisociatlon located in ,the .s&nti
        zl$y and deposit money‘fn the trustee bank. The
         trustee Is &so given the right and ~1s requested
         to depdslt the income ftim the trust estates in
        the savlngs~and.loah asso&atlons'to earn the
        .curxent rate of Interest,
            "The tkstee~bank 'has deposllzedkth it&f
         on time c.ertiflcatea.ofdeposit.$37.500 which
         has been so deposited'for bn6 year. Trus'tee
         bank has alko deposited with a sayings and loan
         'aasoc+atlonvarious savings accounts which form
         part of the trust'--eetates,under
                                         sbeclflc author-
         ization in the various trust -dentures ltitie,spect$ve
         PC any provlafon of the Texas Trust-Act. . . .

:

                                -2302-
Honorable J.'M. Falkner, Page 2 ,(C-488)

        "The bank's directors own 85.4$ of the outstand-
     ing stock in the bank. The savings and loqn dlrec-
     tors own 97% of the outstanding stock In the savings
     and loan association. Mrectors of both the bank
     and the savings and loan association own 82.3% of
     the bank stock.and 77.6% of~the savings and loan
     stock."
     Under the foregoing facts   you have.reqtieatedour opinion
to the following questions:
        Is the trustee bank prohibited f’rom depositing
the $& 500 In time certificate deposits In Its own ln-
stltutl& for a.perlod of more than'one year?
    .2,. Is the.trus$ke bank prohibited from.maklng deposits
               In savings accounts ln.$he savings and loan
of trust f'inxia
assbclat$@
     3. If queatloti'number2 ls.anawered,ln,$he affirma-.
tlve, then Uthe   savings and loan asaociat~o~l~c~eaa~s
its permanent reserve stock by selling shares-of additional
stock, would.the trustee bank be prohibited from +ve%tlng
tiuat funds In such'atock of the savings and loan asaocla-
lqion?
    .Ir-some   legal relatlonahlps, the.fiduclaryelement
Is ‘inore Intense than In others. It la pecullar.ly,lntense
in the caae'of a trust. While this fiduclary~relatlonahlp
creates zinumber of duties, none Is more fundamental than
the duty owed by the trustee .to the beneficiaries In the
nature of the dtityof loyalty. This duty Is.sometimes
characterized as.not permlttlng a trustee'to place hlm-
self fi'a position where,lt would be Sor-his own benefit
to violate his duties to the beneficiaries. This duty
6f 'lojralty Is based on‘a .generalprincipal ~of'pollby and
morality which forblds~a fi'duclaryfrom placing himself'
In a sltuatiotiwhere there is or could be 'confll.ct'b+ween
his self-interest and his duty to others. See Scott on
Trust, 8 170, Duty of $,yalty, et seq..
      A number of .states.haveexpr&asly enacted statutes
 that set out the duty of loyalty.ln-clear and unambiguous
 terms. In Tegas; any dev$atlon.from this hi
 loyalty Is exprkssly prohibited by Article 7
 which provides:

                             -2303-
.

    Honorable J. Mi Falkner, Page-3 (C- 488)

             II
                  .  but no act of the trustor shall relieve
                      .   .

         a corporate trustee from the duties, restrlctions,-
        .and llabllltles Imposed upon It by Sectldns 10, 11,
         and 12 of the Texas Trust Act." (Qnphasls added)
         Neither can the beneficiary relieve the trustee of
    the prohlbltlons contained in Sections 10, ll.and 12 of
    the Texag.Trust Act. See Article 7ti25b-23.
         However, pursuant'to Article 7425b-24 (E),V&nonls
    Civil Statutes, a court of competent jur$suict.ionmay
    modify or entirely relieve any trustee from any or all
    of ~he'duties,~llmltatlons and restrictions Imposed upon
    him by the Texas Trust Act,:to-wlt:
           "E. A court of competent lurlsdlction may, for
        cause.shown and upon notice to the beneficlarlc
        s:eve.a' trustee from any or all of the'dutlea,
        'limitations,and restrdotlona~whlch .would.otherwlse
        be placed upon .hlm'bythis Act, or.whol.ly'oroartly
        release.and excu8e.a trustee..who .has acted'honestls
        and reationably,'f*m llablil~y.for~~olatloris of thk
        provisions of this Act." @nphasls .added)..        ~_
         Obviously.,the .princlpleswhich are applicable,to a
    corporate .truqtee are equally'applicable~to 'ocirooratiolis
    affiliated with.it. Bystatutory deflnltion, an affilllate
    IS .deflnedltiArtlc,ie'7.425b-J+(E)
                                      to mean:
              ..
            11      any peraon.dlrectly or Indirectly con-
         trolil&'or controlled by.the person, or zany oer-
         son .under d1tiec.t
                           or Indirect common'control wlth
         another'person . ;. V (Eknphaalsadded)
         The:aforementlbned Sections XI, .ll and ‘12 of the Texas
    Trust Act; that are equally appllcable.to both the corporate
    trustee and~any affiliate, are as follows:
         "Art. 74~5~io.       Loan of.trust~funtis
            ~"Exkeptaa.&ovlded 'ln~Sectl& 11 oi:,+&ls.A&,
         a corporate trustee.shall not lend trust funds to
         Itself or an affiliate (as defined herein); or to
         at~,director,~offlcer, or employee of Itself 'or of
         an affiliate; nor.shall any noncorporate trustee
         lend trust funds to hImseLf, or to his relative,
         emplbyer,.employee, parttier,or.other business
         zy3oclate.

                                   -2304-       .
Honorable J. M. Falkner, Page 4 ,(~-488)

     '"Art.7$25b-11.   Corporate trustee depositing trust
                       funds with self
        "A corporate  trustee may deposit with Itself
     trust funds which are being held Cendlng lnvest-
     ment, distribution, or to pay debts, provldedt
     maintains under control of Its trust department
     (If It .h+s a trust department separate from its
     banking department) as securlty'for such deposit
     a separate.fund consisting of securities legal for
     trust Investments which have at all times dur-
     lng the deposit a total market .value equal to the'
     .amountof the deposit.    No such security shall be
     requlred to the extend said deposit Is Insured or
     otherwlse.secured by or under state or federal law.
     The separate fund of securltles.shall be marked
     as.such. Withdrawals from or additions to It may
     be made from time to time, as long as the required
     value.ls malntalned. The~lqcome of such securities
     shall belong to thencorporate trustee.
     "A&   7&2$b-12. ,mstee    buying from orselld~ng to
                      sel'f
         "A:trustee shaxl~not buy nor sell. either dl-
    rectly or indlrectly,~any property owned by or
    .-belongingto the.trust ,estate;: from or .to'ltaelf
    or an affiliate; or from orto ,a director, officer,
    or.emolcvee of such trustee..~drof an affiliate:
    or from &to himself, a relative, employer, ..part-
    ner or caner business associate; provlded,.a:natlon-
    al banking assdclation,   or a state chartered bank
     andltrust company, or a statechartered trust company,
     or a state:.charteredbank having ~trust n~owetis,
    or any other.state chartered corporation having
     the Fight to exercise trust powers. when acting
     or~servlng as ~executor,administrator, .guarolan,
     trustee, or receiver, may sell-shares of the xapltal
     stock o.fltself'so owned .or held by Itself, -for any
     estate, to one.~o.rmore of Its officers, stockholders
     or directors, upon a court of comnetent jurisdiction
    .findlng that any such sale will be to the best interest
     ofthe estate owning such shares; flxlng or approving
     the price to be paid .therefor,and tlieterms of sale,
     upon entering an order,'.decpeeo,rjudgment, authorizing,
     approving and'dlrectlng such sale to'be made; and
    provided furtherthat a corporate trustee, executor,

                              -230%
:Honorable J..,M.Falkner,.Page 5 (C-488   )

     In the absence of a court of competent jurisdiction
relieving the trustee bank of the proi%slons of Sections
10, 11 and 12. '~upra,‘lt~ 1s the oplnlon'of this office
<hat + corporate  trustee,  .or affiliate, Is absolut'ely
prohlblted from disregarding the provlsibns of the.Texas
TrmBt Act and mu& strlctlv compls theiewlth:'Under these
restrict$ons;.,sucha,&xstee mai &ly,depoqit trust finds
with itst?lf-%endlng lrivestmeht,distrlbixt%in,br.to'pay
debts." We,doi%iude;.'under,the:'facts  presented, that-,the
depositing of .a sum ifi-time certlf@ate'deposits for
more than-one gear would not fall tithin'th~.aforetiald
pemlsslve category of deposit. Such common owner&hip
of,stpck ln~the bank and savings and loan association as‘
set forth~in.your lettdr'clearly demonstr&5es'that ~the
sa\i&igs,tid~loar.~ssciclat~on~l,s; ~by.statutes,&~,al~Yllate
of.t@e trustee~~bankfqr~'thepurposes of the TetiadTrust
Act. TheSefore, the savings an4 lGan assoddatlon is
&o;oirr:med
          by the.s+me ~res~.rlCtlons as the trustee bank.
Thus;,deposits of trust funds tnayonly be made ln.ttie
savings +d loan association "~etidlng~lnvestment,tiistrlbu-
.tlon,or to'pay debts!"

   . If the.trust'cor&&. originally contained shares of
stock of the afflllate;.then the tru&ee can,'lf,consistent
wlth.the ~prucjentman r&..ptirchase-addltion~l~shares of
-suchstqck when increases In said stock are offered on
a pro rata basis to all stockholders alike. If .the trust
corpus did not.ofigina&ly contain such .atocki.thenthe
trustee 1s:prohibited,from purchasing shares of.its affiliate's
stock for the trust;
      It should alsO be observed that this question has
 not mlsen by vlrtue,of any $ntentlonal wrongdoings by a
 trustee bank or that any loss has resulted. ,,In fact,,the

                              -2306:
Honorable J. M. Falkner, Page 6 (C- 488)

numerous saving accounts are .a11In amounts less than
the current Insurance limit of llablllty of the Federal
Savings and Loan Insurance Corporation.. We also ao-
preclate having the benefit of the full exolanatlon
of this matter and.of your policies.

                     S U M M.A R Y
                     -------
        Artlcie 7425b-22, V.C.S., provides that no act
     of the trustor shall relieve a corporate trustor
     from the restrictions, duties and llabilltles lm-
     posed on It by Section 10, 11 and 12 of.the Texas
     Trust Act.    :’

        .However, a court of competent jurlsdlctlon may
     modlfy..or'entirelyrelieve any .trusteefrom any or
     all of .the duties, llmltatlons and restrlctlons
     imposed.upon-him by the Texas -&.A&.
        In the absence of such judlclaireIlef, It Is our.
     opinion that:,.
        1.. A .trustee.banklsprob$blted.~~fromdepositing
     trust funds ln time certificate deposits ln.lts'own
    'lnstltutlon,,~
                  unless.such depoaltls made "Rending
     Investment, dlstrlbutlon, or.to oay debts..
        2. The savlngs'and loan assoclatlon, under‘the
     stated'facts, ,ls an affiliate with the trustee.bank,
     and as such is prohibited ~from having trust funds
    .deposlted~ln It except "nendlng-Investment,
                                      -.--.-.     distrlbu-
     tlon or to oay debts."
       .3:~,:The.trustee~.bankmaypurchase additional
     sharesof, permanent reserve stock of the affiliate
     savings and loan association If thent.rustcorpus
     originsillycontained shares of such stock,'and the
     additional shares'constitute 1ncreases“In the.capl-
    'tai stock offered DM rata to ail &ockholders.

                            -2307-
Honorable J. M. Faikner, Page 7 (c-488   )

                             Tours.very truly;
                             WAGGONER CARR
                             Attorney General of Texas

RRJ:nr

APPROVED BY:
OPINIONCOMMITTEE
W. V. Geppcrt, Xhalwan
J&mes Strock
John Pettlt.
John Bapke
Gordon Rouser

                               -2!08-