The opinion
,
OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
Bon. FrQac. Brazmoa
Co8ulm3ioner
DQpamnt o? Eellung
h8tin, Texan
Dear82r1
opinion No. O-l
Ret Interpretat
Your letter
and Investment oaa-
h banking and dlmount-
llanoe vlth the requiw-
ook subsorib-
and discounting privileges* under our Consti-
tution upon roper oertifloate being made to
the Banking Eommltteioner?
-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
plaoe, rhioh shall. be designated in its charter.
*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 to the 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.
Fit18 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
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 Appeal.6 In the ease o? ~llakl vs.
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
o? money at a t&e either tired or unoertaln,
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
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.
The reasoning of the court was based upan
rive general propositionat
Fir&, the court pointed out thet the aeption
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-
lature to authorize the oreation of a banking aorporatlon,
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
the 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. They are, however,
under the supervision OS the Benking CaPmniasioner, by
lion. Fred C. 5ran808, Page 6
virtue or Art1010 548. Also, new corporations Pomed
thereunder are governed by Chapter 2 of Title /'a, the
ohapter dealing rlth the fonaatlon of the reoagnlzed
bauklng institutions; whereas, old oorporati%ns lxreto-
tore ronned under Chepter-9, in the sane manor as oor-
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 to 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
the effect or Senate 3 ill 268 to coufer banking and dis-
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
neoessarlly oonolu8lve. A lcgislatixe de-
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 lrreot 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 ConatY tutlon.
The ootut in KaliSki x6. Cossett, supra, quotes
the following language with approval rmm the case or In
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.-
Er. Justice Holmes, of the United States Supreme
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 in the
opinion of Kaliski ~8. Gossett, aupra, as roiloprs:
"Henoe the debtor does no ; possess the
power to receive deposits, rhi lh 18 gener-
ally reoognized aa the eeeenti 11 oharacter-
istic or a banking business. :n Qulton vs.
German Savings & Loan llseoolat .on, 17 Wall.
108, 118, 21 L. Ed. 618, Kr. J tstloe ciirr0rd
etated that, 'Strlotly speakin ;, the term
bank implies a plaoe for the d tp08it 0r
money, a8 that is the Paoat obv .OU8 purpose
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 thing. See Gamble vs. Daniel,
39 F. (2nd) 447, 450; State of Kansas VS.
&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 to 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 in Senate Bill 268 constitutes the
corporations created under Chapter 9, suprs, oorporsta
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 to 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 date or Senate Bill
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
Con8tltutlon is salf~enaoting (kaliski 18. Gossett,
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
Eon. Fred C. Rranson, Paga 9
the grantlnq of a aharter to the ordinary barking
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 llterat%on o? the m&or of dlmot-
oral (0 Insmass or derreaso of oapltal
&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
oorperatlon. In all other aPttar8 It seems
that the voluntary lsa o o la tes for&g the
ocmpwy ara at liberty to regulate tha posers
of stookholders by the organlo ocntraot of
assooiation.* (tinderaoo,ring ours)
At ‘Pa&a 9561
“A8 we rlaro sedn, a aoalyoration has its
algln in 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 rorsrs to
ordinary buslnsas tmnsao%Ions~ they have no
power to destroy or to mdif'y the oorpor6tiOn
org6niratIon.'
3.n the OQOOof Clark vs. Zromn, 208 SW 480, 445,
the murt sayer
*The prlnolple of law upoa ahloh these
rules of ocarstruetfo~ ars based (1) that the
power to maks fundmeental ohsnges ia the
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 the
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, or vital amend~entrr to
a oharter muat be unanl~ouely looepted 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 rule that aooeptanoe of amendments
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
amendment operates to make axif fundamental
ehnge in the oharaoter or oollstltutlon of
626
Bon. Fred C. Rraneon, Page 11
_- eorporatlon.
the - The . rule aleo applies ii
fne propoeea amensment oonrere new parers
or privileges. not within tho general powe,m
aonferred by the original oherter or by Che
stockholders. The stoakholdere alone are
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 the
oorpomte powers' of the company,
may not, a8 a eeneral tie, have
the lneldental power oi aooepting
from the Legislature en ameddaeat
to the oharter, the eifeot bi whish
Is to enlarge beyond the vlsh of
the etoekholders the extent of the
oompany*s lmeetments.~"
Uo iid a no tk eta uo einalta
t temnnt ot the rule
in the ease of the Attoraey Oeneral we. hmza~etiest Bmkk
ot Louisiana, 26 La. AJI& ZSS, wherein the Supreme Court
of LouIslena 86~81
*The alteration proposed by this Act to
the ohsrter of the kmn B Pledge Aseooletion
fundamentally ohanges its oharaoter. Instead
of merely to loan money et a. oerteln rate of
lutmst 08 aovabbo property; the oorpuratlon,
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 stookholders. The assent of e majority
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
majority of the oorporators, 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 rssent of the sUb8OrlbsrS must
be obtained ta any amendment OS the oh8I'tBr
Hon. Fred C. Braneon, Pago 12
whloh materially end essentlelly alters the
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 powers granted to such oor-
poretlon under end by virtue o? Senate Bill 268, is
material, vital, end rundemental. Nev paera are ;iebe
exerolaed and additional llebilitlea nil1 ensue.
ohanges would not be immaterial or 8uperrtiOial ones; 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(XxJQzALOF TEAS
AC;&
BYs/“;izffF*
.. Assistant
ATTCRE’EY
GI3iEXU.L
OF TFXAS
ZCSiAlT