Case Information
*1 ,
OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
Bon. FrQa c. Brazmoa
Co8ulm3ioner DQpamnt o? Eellung
h8tin, Texan
Dear 82r1
opinion No. O-l
Ret Interpretat
Your letter
and Investment oaa- h banking and dlmount- llanoe vlth the requiw- ook subsorib- under our Consti- and discounting privileges* tution upon roper oertifloate being made to the Banking E ommltteioner?
-2%. Could the oertifioets of adoption of banking power8 be Iswfull~ made by the Board of Dire&ore end oertified eb auoh, or nhould it -
Hon. ?red C. SIWIEWE, Page Z
be made only after the same has been aIIthOriZe4 by a stookholders meeting in annuel W3SiOn. or oalled for that purpose?”
Article 16, Seotlon 16 of the Terse Constitution provides 1
‘The Ieglslature shall, by general law& authorize the lnoorporation of corporate bodies with banking end dlsoonntlng privileges, and shall provide for a system or Stats supenlaion, regulation and oontrol or suoh bodies which will adequately proteot end seoure the depositor8 end creditors thereof.
~To such corporate body shall be oharter- ed unttl all of the authorized oapital stoak haa been subscribed and ~14 for In full in oash. Suoh bo4y aorporete Bhell not be author- ized to en&p in business at more than one in its charter. plaoe, rhioh shall. be designated *ho foreign corporation, other than the nations1 banks of the ZJnited States, shall be petitted to exercise banlciq or discounting privileges in this State. (Seation 16, Artiole 16, adopted eleation Axust 25, 1937.)” For the purposes of this opinion, the amendment adopted Au@xst ZS, 1937, to Artiole 16, Section 16, of our Constitution la of no significanoe. The smendmect simply eliminated a former prwision o? said Artiole and Seotion pertaining liability of shareholders In such banks.
Under this constitutional sanctloh, thr LegiS- lature passed laws euthorizing the incorporation of qor-
orate bodies with banking and dlsoounting prLtileges. F it18 16; Artiole 942 through Artiole MS, inclusive, Re- vised Civil Statutes 0r Texas.
What is nou Chapter 9 o? Title 16, Artiole 542 throagh Artiole 548, lnoluaive, Revised Civil Statutes of Texes, mas one&e4 by the Thirty-sixth Legislature in 1917. The chapter title oarrled in Vernon’s Annotate4 Civil Sta- tutes, 1995, Is %orrls Plan &u&a*, although the term Ian a misnomer, there being no suoh thing as a Xorrle plan Bank knowto, or defined by, our statutes. Se&ion 1 of *3 Hon. Fred C. Bramon, Page 3
the A& as passed pmvlde4:
Who term *loan ana inrestment oomptgfy*, as use4 in this Chapter, means any corpofatlon formed under the prolrlafona of this law..."
Subsequently, In 1957, it was held by the San Antonio Court o? Civil In the ease o? ~llakl vs. Appeal.6 Ooaaett, 109 SU (2nd) 540, that oorporetiona tomed uuder Chapter 9, aupre, were not oorporationa with banking and diaQount~ prlvilegea.
The Forty-sixth Legislature thereafter paased Senate Sill 268, *hioh amnded Artiole 545, Section 2, Chapter 9, supra, to reads
"2. To reoelve money on time deposits, eml to purohase, sell, diaaount, or nego- tiate bonds, notes, oertltloete8 o? inreat- wnt and chose8 in action torthe payment tired or unoertaln, o? money at a t&e either an4 to retieire payment therefor In lnstell- menta, or otherwiaa, with or without an allowanoe o? interest upon auoh installments.
To purehaae atook in Federal *posit Inaur- enoe Corporation."
There wes alao added to euoh Chapter, by Senate Bill 208, a new Artlole, Ho. 548a, whiah prorides:
*All oorporatloua now ohartered under the provisions o? thfa Chapter my adopt the pmera herein granted by ?iliw e OWtf- tioate to auoh etteot i&h the Ccmlaslon o?
Banking, provided, however, that the inoor- poratlon of oorporetions In the iuture under this Chapter shall make appliaetion to the State Em&king Eoara and be governed by the prorielons of Chapter 2 OS this Title.*
we, there?ore, have the questions posed by you, set out above, with reierenae to the interpretation of Senate Bill No. 268.
The oeae o? Kaliskl va. Coaaett, aupn, being *4 Hon. Fred C. Brsnson, Rage 4
the only 4eclalon of.our oourta oonstrulng the .ald pro- visions of Chapter 9, and hol4lnq thet auoh Q$4 not oonier banking and dlwouat privileges, under the aon- atitution, Artiole 16, Section 16, upon the, oorporationa oreated thereunder, wa shell first analyae auah opinion and the reeaons given by the oourt for arriving at its dealsion. of the court was based upan
The reasoning rive general propositionat court pointed out thet the aeption
Fir&, the of the eat showed it to be or18 aowerniag loan and lnvest- ment canpanies, ths aeptfon not being broad enoughtto inolude the powers of banking end diaoounting.
Second, the court pointed out that auoh oorpora- tion mey b8 organized In the aam manner as oorporatlona for profit under and by virtue of ‘Pitlo 25 of the Revised Stetutaa, whloh title la now .title 52, Revised Civil Sta- tutes, 1926, hrtiole X50&. et seq. In this connection, the opinion reads: *It it we8 the intention of the Legis- the oreation of a banking aorporatlon, lature to authorize the act shou)d have provided for their organization under end by virtue Of the tit18 relating to bsnks and banking.”
Third, the oourt says: “The title on privets oorporations authorizes the creation of aorporations tith fifty per oent of the capital stock paid in nhlle the oonatltutlon, section 16, article 16, requires that bank- 19% corporations can only be created when all stook has been paid for in’cash.”
I’ourth, the oourt points out that certain sta- tutre appliceble to banking corporation8 were eroluded, by implication, as to their aRplicebllity to the corpore- tions oreated under Chppter 9.
Fifth, ths court further saia: *Rut WQ are of the opinion that the law did not grant to the FeOpl8a Industrial Benk banking an4 dlsaountlng privlleges.a ‘phe oourt bases lte oonaluaion on this point primarily upon laok at authority under Chapter 9 of the aorporationa oreated thereunder to receive depoSita.
It will be not84 that the oorporationa taking advantage of the new provisions under Senate Bill. 2BB are not given the same or as aompnhensive~powers, as those under the other chapters of Title 16, pertainihg to the usual banking oarporatlona. under the supervision OS the Benking CaPmniasioner, by They are, however,
lion. Fred C. 5ran808, Page 6 or Art1010 548. Also, new corporations Pomed
virtue thereunder are governed by Chapter 2 of Title /'a, the fonaatlon of the reoagnlzed ohapter dealing rlth bauklng institutions; whereas, old oorporati%ns lxreto- in the sane manor as oor- tore ronned under Chepter-9, poratlous for profit, may. under new Partible 54Sa, take advantage or the new 0Wer8 b7 riling a oertirioate to suoh effeot with the % epartment of Banking.
Acoordingly, we still hare, nottithstanding Seuate Bill 268, the followlug olrctmstanoee pointed out by the court I8 the opinion of Kaliaki ~8. Cossett, supra: the caption of the Aot remains the same; no p~~vi8iOu i8 made for the payment Of all Of the author- lted capital stock, as a oonditlon precedent to qualiii- oation under the new statute, as the oorporations in existenoe at the time ot the passage or Senate Bill 268 and the eireotive date of the aot; and nwnerous or the statute8 applioeble to banking OOrpOratiOnS generally are exoluded from application to the neu and old corpora- tions tontmd under Chapter 9, by implication.
Kenoe, the ueryr Notwithstanding uhlch, ia 3 ill 268 to coufer banking and dis- the effect or Senate oouut prtlileges upou euoh oorporations?
We believe the correct rule in this oouneotion is stated in American Jurisprudence, 701. 7, at page 26:
"Furthermore, a designation by statute as to the oharaoter Or a business is not A lcgislatixe de- neoessarlly oonolu8lve. olaratlon in an aot that a oorporation under it shall not be deemed a bank or a company having or exereiaFng banklng powers, doe8 not l rreot the powers oonferred or limit the authority of the oorporation; and if any section of the sot in express words oon- rem bankIng powers, the oharaoter of the oorporation ie to be determined thereby.* We, therefore, at this point shall Seek to as- oertaln the.meaniug of the tern 7banki and dleoounting privileges*, as used in the Texas Conat tutlon. Y
The ootut in KaliSki x6. Cossett, supra, quotes the following language with approval the case or In rmm *6 Hon. Fred C. Branson, Pags 6
Re Prudenoe Company, (C.C.A.) 79 F. (2nd) 77, 79 as the derlnitlon of a bank:
*Strictly spealcing, the term *bank* implies a place for the deposit Of money, a8 that i8 the mO8t obvious purpose 0r
auoh an Institution.... and all or the
oases, so far as we are advised, rhioh have construed the worild %anklng oorpora- tlon' a8 used in the Bankruptoy Act, hare regarded the legal power to reoelve deposits as the essential thing.,..*
We quote froa %~a8 Jurisprudenoe, Vol. 6, at page 143:
"The business or banking has always bedn unde+ood to-inolade, as f.pr@olp$ - . _ - runtion, the reoeptron or aeposita.- Justice Holmes, of the United States Supreme
Er. Court, in the case of Engsl ~8. OWalley, 219 U. S. 128 says:
*The reoeipt of money by a bank, al- though it only oreatee a debt, is in a
popular sense the receipt or money for
safe keeping, henoe the depositor can draw It out again at suoh time and in such sum8 as he chooses.... One form, at least, of the bUSine8s almed at, and, on the raoe or the bfll, thet carried on by the plaintiffs is a branch of the banking business...."
Xe read again from the o inion in the case of In 3e Prudence Company, 79 F. (2nd P 79, olted the opinion of Kaliski ~8. Gossett, aupra, as roiloprs:
"Henoe the debtor does no ; possess power to receive deposits, rhi lh 18 gener- 11 oharacter- ally reoognized aa the eeeenti
istic or a banking business. :n Qulton vs.
German Savings & Loan llseoolat .on, 17 Wall. tstloe ciirr0rd
108, 118, 21 L. Ed. 618, Kr. J ;, the term tp08it 0r .OU8 purpose etated that, 'Strlotly speakin bank implies a plaoe for the d
money, a8 that is the Paoat obv
[622] Hon. Fred C. Sranson, Page 7
or such an institution.' And all the oases, so far a8 we are advised, whlah have construed the words 'banking carport ation' as used in the Bankruptcy Act, hete regarded the legal power to receive deposit8 a8 the essential 39 F. (2nd) 447, 450; State of Kansas VS. thing. See Gamble vs. Daniel, &yes, 62 1. (2nd) 597; Cleaon8 VS. Liberty Sarinqs 8 Real Kstcte Corp., 61 F. (2nd) 448; Woolaey T8. Security Trust co., 74 F.
(2nd) 334, 97 A. L. R. 1081."
In American Jurisprudence, Vol. 7, at page 24, ws read:
"Strictly speaking, the tepn *bank* im- plies a place ior the deposit of money. In Its more enlarged sense, a bank may be darin- ed SE an institution, generally inoorporsted, euthorized to reoeive deposit8 of money; to' lend money and issue promissory notes, USuslly known by the name of bank notes, or to perform some one or wore OS these fUnctiona..., Ao- oordfngly, banks in the comerold SeLLSO, are of three kinds: 11, of deposit, (2) Of dis- count, (3) 0r oirouletion.n
Ue read rurther from Texas Jurisprudence, Vol.
6, at page 142:
-As to what are 'banking or dlsoounting pririle,vs* within the meaning of the Constl- tution, there appears no Texas daolsiona which really aid the investigator."
We have only the definite inference in the opin- ion of Kallski vs. Gossett, suprs, that the power to re- ceive deposits, together with the other powers conierred upon corporf:tiona created under Chapter 9, would be suf- ficient OOnStitUtO suoh corporations as being one8 with 'banking and disoounting privileges' with the Constitution.
Notwithstanding which, however, we believe the conolusion.ine8oapable, under the authority olted, that the amendment embodied Senate Bill 268 constitutes corporations created under Chapter 9, suprs, oorporsta *8 Hoon* Pwd C. &anson, Page 8
bodies with banking and discounting privI2ege8, within the meaning of the constitution upon their compliance with the requirements of the aot itself, the ~ndments thereho, and the oonstltution.
In enswer to the seoond question propounded by you we point out that as ta new oorpolatlons towed under &la pter 9, supra, as amended, such are governed by Chapter 2 of Title 18, &vised Civil Statutes, in the same msnner a8 ordinary banking corporations. Artioles 377 and 375 of 8UOh Chapter embody the oonstltutional requirements that all capital stock be paid for In full in oash berore the granting of the Oharter to suoh oor- poratlon.
As corporations In eristenoe at the time or the efreotlre date or Ssnate Bill 268, such oorpora- tions ara.authorised to adopt the powers granted by the amendment, by filing a acstliioate to suoh &feat with the Commirtsioner of Panking. 50 prwislon is msda per- taining to the requirement of the ooastltution as to the oapltal atook, and Under Art1018 543, suprs, the general oorporation Statute oontrollsd
the original method of orgamisatioh 0r suoh oorporstions.
It Is maniiest, however, under the conetitution, Artiole 16, Seotion 16, thet no corporation can exercise banking and discount privileges unless all of the author- ized oapltel Stock he8 been subcoribed and paid for in rull in cash. It follows that no corporation In azis- tenoe at the time or the effeOtIve or Senate Bill date 268 oould qualify thereunder snd be Invested with bank- ing and dfsoount prIvilege8, unless suoh oorporetion has in all respects oomplled with the constitutional require- ments. In our opinion, Artiole 16, Seotion 16, oi.the is salf~enaoting (kaliski 18. Gossett, Con8tltutlon supra) and tharerore, suoh a oorporation oould qualify under 3enste Bill 268 at suoh time as all of It8 author- ized oapitsl stock had been subaoribed and paid for in rull In oash.
We rurther point out that the exlstenoe oi these raats Is a oonditicn preoedent to the right 0r a oorporatIcn.to be ohartared under the ocnstitutlon; aocordingly, we suggest that you should.requlre, before permitting such corporations to qualify, the 8ame method of establishment of these faots as i8 required before
624 Rranson, Paga 9 Eon. Fred C. of a aharter to the ordinary barking
the grantlnq oorporiktlon. As to your third qupotion, w_belIe+s~the _
general rule in suoh suttrrs is oorzvmtlp stated as r0p lows in Texar. Jur., Vol. 10, page0 56a and OS61
"The oorporate orgmlzatlon is sub&tot to oqatrol by the stookholders as to the tOllOWl metterrr (a) alteration of the by- lawa; (by l lterat%on o? the m&or of dlmot- or derreaso of oapltal oral (0 Insmass &OOk; 4) CrolUnt~ biSSOhtiOS.Of t&6 OCR- pany; (01 am fundastental alteration of the a rmrste oumoe~ strtmture and properties.
A: to t&ass sutters the aontrol ot the oor- ration 1s rested la the dockiolden by r aw, and tholr right In this rsgard oannot he tnken away By ths agratmtmt orgsnltlng the In all other aPttar8 It seems oorperatlon.
that the voluntary l sao olates for&g the regulate ocmpwy ara at liberty tha posers of stookholders by the organlo ocntraot of assooiation.* ours) (tinderaoo,ring
At ‘Pa&a 9561
“A8 we rlaro sedn, a aoalyoration has its algln the eompaot of the individuals *Lo ooslporr* it. Tbs general pumr or the direstor- ate, headerore n%ntio,aEd, Is subjaot to ths sas~sliaItatIm~ that Is to my, the dlrsotors pat to partorm all oorporate~aots to rorsrs ordinary buslnsas tmnsao%Ions~ they have no power to destroy or to mdif'y the oorpor6tiOn org6niratIon.'
3.n the OQOO of Clark sayer vs. Zromn, 208 SW 480, 445, the murt
*The prlnolple of law upoa ahloh these rules of ocarstruetfo~ ars based (1) that the power to maks fundmeental ohsnges ia *10 Eon, Fred C. Branson, Page 10
identity or in the plan or pollay o? a aor- poration le not oonferred upon its ofilaen sfmpl~ in giving them the general paaer 9f menagement, but 18 reserved to the IndlCidual st0okholdere; (81 that such rundamental ahanger In the polloy or identity, of the organlzatlon nre not within the teas8 of the organio oaepaot;and involve the IntrO- duotioa of naw terms;areatlng new a&d different liabilities, and aubjeoting to different rlake from those attendIng oompaot into whioh the ahareholdere had entered by becoming membere..
Ukewiee, in Thoapcloa on Corporatiaar, Srd ltd., we read in Vol. 1, at page 5l2r
-As rhown in another reotlon o? this ohapter, an amendment whioh makes a funda- mental ohange In the nature of the oorpora- tiOIl Win IlOt be bindillg ULlh4SS ~008ptBd.. Pundamontal, radiaal, amend~entrr to or vital a oharter muat be unanl~ouely l ooepted by the stoakholderr. Where the whole body of stookholdere or other persons in interest, compose the aorporetion, the right of essent- ing to any proposed ohange In the oharter resides in them, anl not in the board of dire&ore, whioh is oharged nith the exeroise of the oorporate powers. In their oapeoity as managers, they have no authority elther to oell ror or assent to a ohange o? the oorporate aonstitution.. . . notwithstanding the general that aooeptanoe of amendments rule end alterations must be by the stookholders...” And In Vol. 2, et page 940, pare. 128t3, from the ame authority, we quoter
Winoe, on prlnolples already rererred to, the dlreotore have no parer to make aanstituent ohanges in the oorpmatfoa, it foll0u8 for like reaaona that they have M) implied authority to aooept an emendmnt to the shader of the oorparetlon where the make axif fundamental amendment operates the oharaoter or oollstltutlon of ehnge *11 626 Bon. Fred C. Rraneon, Page 11 ii
the eorporatlon. The rule aleo applies _- - . fne propoeea amensment oonrere new parers or privileges. not within tho general powe,m aonferred by the original oherter or by Che The stoakholdere alone are stockholders.
emp&wered to aooept suoh amendment. This prinalple la stated In the eyllabus oi a Tedoral Court a8 r0llom
*'Roard cU Direotore of a eorporetlon, who, under the ohar- ter, are vested vlth *all oorpomte powers' of the company, may not, a8 a eeneral tie, have the lneldental from the Legislature power oi aooepting en ameddaeat the oharter, the eifeot bi whish Is to enlarge beyond the vlsh of the etoekholders the extent of the oompany*s lmeetments.~"
Uo iid anotket auoeinat l tatemnnt ot the rule the ease of the Attoraey Oeneral we. hmza~etiest Bmkk 26 La. AJI& ZSS, wherein the Supreme Court ot Louisiana, of LouIslena 86~81 proposed by this Act to
*The alteration the ohsrter of the kmn B Pledge Aseooletion fundamentally ohanges its oharaoter. Instead of merely to loan money et a. oerteln rate of 08 aovabbo property; the oorpuratlon, lutmst under the amendment proposed, is authorlsed to rsoeivo deposits and to do a general bank- ing bueiness. The aoaeptanoe of this grant should have been by the unanimous oonsont of The assent of e majority the stookholders.
whloh was given, was not sufiioient.
*Legislative alterations of the oharter or a private oorporetlon when merely auxiliary and not fundemental, may be eooeptgd by a of the oorporators, majority and enoh sooep- tenoe will bind ths whole; but if ouch altera* tti,i~~rundamental, the eooaptanoe met be
w00ir0ur vs. Union Rank, S Celdwell Rap. 48Qt"The be obtained rssent of the sUb8OrlbsrS must
ta any amendment OS the oh8I'tBr
Hon. Fred C. Braneon, Pago 12
whloh materially end essentlelly alters eondltion upon which the original aontreot o? the parties was made. * 11 Ga. 438; aen” also 2 lEetoelr 314.”
Clearly, the change in the oorporation upon an aooeptenoe of the addftlonal poretlon under end by virtue o? Senate Bill 268, is powers granted to such oor- material, vital, end rundemental. Nev paera are ;iebe exerolaed and additional ohanges would not be immaterial or 8uperrtiOial ones; llebilitlea nil1 ensue.
im the oontrary, they go Into the fund~ental eotlvltiee, purpoeea, end tranaeotions of the oorporetion.
It la, therefore, our opinion that the certifi- oat8 of adoption of the banking powers oooierred upon exist&g oorporatlona by Senate Bill 268 should be made only attar the seme has been suthorised by e atookholders laeeting either In the gnnuel meeting or la e-meeting oell- ed ror each spsoifio purpose.
Ve. do not undertake in this opinfon to go into the qusstioo of the delegation of authority to the Board of Mreotore by the oonstitutioa or by-lava of any suoh oorporation; neither do we go into the question o? vhether or not the adoption of the added power under Senate Efll 268 must be by e unanimous rots of the stookholdera or oua be by e majority vote thereof. We simply hold, as a general proposition, that the adoption of such added powers by the Board of Direotors would be en fnsuff ioient acceptance thereot, es required by Senate Bill 268, on the part of the corporation, but that suoh should be done by the stockholders oomposlng the corporate body.
We trust this answers your question satisfao-
torily, and we-remsin
Very truly yours ATToR.?.?Y (XxJQzAL OF TEAS BY s/“;izffF* AC;& . . Assistant ATTCRE’EY GI3iEXU.L OF TFXAS
ZCSiAlT