Case Information

*1 Au- 11. TlEKAs PRICE DANIEL ATTORNEY GENERAL January 24, 1948

Hon. J. M. Faulkner, Opinion Ho. V-483 Banking Commissioner,

Austin, Texas A0: Ellglblllty of tbr,

State Treasurar to sot Attakian: as trustee for a corpcvr- Mr. H. L. Bengston, atlon Issuing securities under Article 1524a Deputy Banking Com-

missioner. 1 Construction (V.C.S.

a proposed twt agree- ment , and a plicablllt~ . or Article % 96 of the li e- vised Civil Statutes.

Dear Sir:

Your request for an o inion upon the above P captioned subject mtter is as fo low! ., "The Sam Houston Underur%tero,;Inc.

of ROUStOB, Texas Is a domestic corpora- tion haviag been granted a charter by Secretary of State on’Jaly 3 1947, vlth Sub-Section,&9 of Article 136’2, Rtiaed Civil Statutes of Texis al it8 purpose clause and by virtue 0) iald pawe~8 It 1s under the general superti~sion oi {his Department in accordance with the ptovls- Ions of 1524a, Retired Civil Stat- utes of Texas.

“Said corporation now proposes to issue and to the general public a fifteen-year Maturity Underwriters Bond subject provlslo~s Section 7 of Article 1524ap Revised Civil Statutes of Texas, which provfdes for collaterallza- tlon of all outstanding bonds, notes, cer- tificates, debentures and other obligations sold In Texas by securities of the’ reason- able market value equalling at least at all times the face value of‘ such obligations, which securities shall be placed in the *2 &Bn, J. M. Faulkner - Page 2 (V483)

hands of a corporation having trust powers approved by the Ba;nklng Commls- sloner of Texas, as Trustee, under a trust agreement or at the option of any such corporation which sells ln Texas such obligations as heretofore referred to, such corporation may, upon appllca- tlon to and approved by the Banking Corn- missloner~ deposit, seew%t%es-wi%h the State Treasurer ,of Texr,s”wader a trust agreementin lieu.of such deposits with Trustee as set forth hereinabove.

llSubject corporation has submitted foor. the Commissioner’s approval Its trust tidrnture naming the State Treasurer as Erustee, together with a specimen bond or obligation which it ~proposes to sell. We enclose said instruments and, 1 ln connection therewith, the foPlow .Y questions are submitted for gouP opln onr “1. Are the terms and conditions of the trust indenture. such as to warrant the approval thereof by : the. Banking Commissioner? ’

“2. Wbuld the’ State Treasurer, ‘by virtue of his .offlclal aapaclty, be eligible to act as Trustee under the terms of the submitted trust in- denture?

“3. Is the roposed bond conslder- ed to be ln P egal form and does It come within the class of Instruments or obligations aentloned 1.n Section 7 of Article 1524a, Revised Civil Statutes of Texas?

I;f so, would the provisions of Article 696, Revised Cfvil Statutes, also apply?” We do not apppowe the form of agreement pro- posed by Sam Houston Underwriters, Inc. with the .State Treasurer. The rights, llabllitles, duties, and the like of the parties are statutory and fixed as a matter of law, and any attempt to restate them, explain them, or affect *3 Hon. J, M. Faulkner - Page 3 W-483)

them one way or the other tends only to codusfaa and serves no useful or necessary purpose.

A short 9 formal instment exscut ed by f&e Corporation, reciting the desire to make deposits collateral with the State Treasurer in virtue of the tie a plicable is all that Is necss%ary, sfnce

law Itself wili be read into the act or agpw of deposit and the Treasurer htie no authority to mk% any agreement whatsoever other than’thoee contemplated by the statute Itself 0

This answers your que,etfons 1 and 2. In respect to .mr questloa 3 we Be to advise that Section 7 of Arttcle 15240 (V.’ Co 8-f pm- vldee :

“All bonds, notes, certlflcates, de-. bentures, or other obllgatlotis sbld ln Texas by any corporation affected pro- vision of this Pet 9 shall be secured by. se- curities of the reaeoneble m?ket velae, .equalllfig at least at all tfmee the face value of such bonds, notes, c%rtlffcato@p debentures, or other obl%gatfozM.”

The language *Ior other obllgatfons” means the direct .oblfgatlon of the eorpomtion like the par- titiular Instruments mentfoned,

It will be seen f’rom an ex’a&.n&lon ob the specfmen bona accompanying your request that an 61)8en- tlal part of the purpose of t~he eale of bonds is to to the purchaser twenty-ff;oe’f’ully paid, non-am- se%+able shares of Class A. capital stock of the company.

Obviously, the shares of the ca 4tal %tock company constitute no direct obl~fgat 1 on of the company o We are fherefoPe constrafhed to hold that the bond Is net such bond OF o’bffgatfon of the company as cf fnstPument% or oblfgatfons 0s comes wfthfn the chss Seetfon 7 of the statute0 To hold it to be such an ob- lfgation would be ta extend the seeps of the power gfv- en to the company heycnd the plain language of the stat- ute.

Hon. J. M. Faulkner - Page 4 (V-483)

An extended trust agre4m4nt brtws4n a corporation operat lng under 15244, (V.C.S.) and the State Treasurer fs not to be approved. The riFhtS, liabilities pow* ers and duties .gener&y of ba%h palti48 Pro fixed the statute itself end a formel, brief agreement indlcafia Ch4 porpOd4 Qf the company to make dapos f t8 V@h t?%4 Troabr urer in pursuance of soId articr16 is splff’im cient.

The specimen bond submiCf4& $8 not such bond or %ther obligatiaPt" o*thor$c*d or required by the be collateral* lzed sine4 a substantial pwticm ef the ob- ligation is the selling w th4 Wwatfoti to the subscribsr capital of pa%d ap ShW48 4f if3

stock, which IS not a d2rect obh%g&-’ tion of the corporation*

Yours very trZtlf, ATTORNEX GEWA$ OF TEXAS OS cwb

APPROVED C ti*

FIR& ASSISTAW ATTORNEY GBURAt