97-17
December 10, 1997
Re: Applicability of Financial Code
Section 14157 to Proposed Business in California
Dear Mr. __________:
This responds to your letter of October 7, 1997 on behalf of (“_______”). You asked in your letter whether _______ must comply with Section 14157 of the California Financial Code before it makes loans to certain of its members who reside or will reside in California. As discussed below, we conclude that compliance with Financial Code Section 14157 is not required because the business proposed to be done by _______ in California (the “proposed business”) does not constitute transacting intrastate business in this state.
We understand the circumstances to be as follows:
_______ is a credit union organized under the laws of Ohio. From time to time, some of its members are relocated by their employer to California. To facilitate such relocations, ________ proposes to lend relocated members money to acquire homes in California. Each loan would be secured by the member’s California residence. During 1996, six members were relocated to California.
________ would not have an office in California. When advised by the employer of the relocation of a member to California, ________ would notify the member by phone and mail of the availability of home loans from ________ . All correspondence with the member regarding such a loan would be by phone or mail. If ________ received a loan application from a member located in California, it would hire a licensed California appraiser to value the property, and, if approved, the loan would close through the offices of a title company in California. Neither the appraiser nor the title company would be affiliated with ________ . ________ would make all lending decisions at its offices in Ohio and would disburse any loan proceeds from its offices in Ohio. Borrowers would mail payments on California home loans to ________ ‘s offices in Ohio.
The issue is whether, as a credit union organized in a state other than California (a “foreign credit union”), ________ may conduct the proposed business in California without being qualified under Section 14157 of the California Credit Union Law (Division 5 (commencing with Section 14000) of the Financial Code) to be a credit union organized under the California Credit Union Law.
Section 14157 of the California Credit Union Law sets forth the terms on which foreign credit unions may do certain business in this state. Section 14157 provides in pertinent part:
“(a) A credit union organized and duly qualified as a credit union in another state of the United States shall become a credit union organized and operating pursuant to this division if in compliance with each of the following requirements:
“(1) The credit union has filed a statement with the Secretary of State pursuant to Section 2105 of the Corporations Code. . . .”
Section 30.200 of Title 10 of the California Code of Regulations implements Section 14157. Paragraph 1 of Subdivision (b) of Section 30.200 provides that a Foreign Credit Union must not only file a statement under Corporations Code Section 2105, it must also have received from the Secretary of State a certificate of qualification pursuant to Section 2105 of the Corporations Code.
Corporations Code Section 2105(a) provides in pertinent part:
“(a) A foreign corporation shall not transact intrastate business without having first obtained from the Secretary of State a certificate of qualification. . . .” (Emphasis added.)
Inasmuch as Section 14157 of the California Credit Union Law requires as a condition to qualification that a foreign credit union comply with Section 2105 of the Corporations Code, it is our view that a foreign credit union is not required to comply with Section 14157 of the California Credit Union Law if it is not subject to Section 2105 of the Corporations Code for the reason that its business in California is interstate rather than intrastate in nature.
________ ‘s proposed business does not constitute transacting intrastate business for purposes of Corporations Code Section 2105.
The term “transact intrastate business” is defined in Section 191 of the Corporations Code. Subdivision (c) of Corporations Code Section 191 delineates some of the activities that do not constitute transacting intrastate business for purposes of Corporations Code Section 2105. Paragraph 6 of Subdivision (c) provides that, “[s]oliciting or procuring orders, whether by mail or through employees or agents or otherwise, where such orders require acceptance without this state before becoming binding contracts”, is an activity which does not constitute transacting intrastate business. In Thorner v. Selective Cam Transmission Co., 180 Cal.App.2d 89, 91 (1960) the Court held that this principle applies to the making of loans as well as to sales of goods. The Court stated:
“Even though negotiations are carried on within the State by an agent of a foreign corporation which lead to the making of a contract with the foreign corporation the corporation is not ‘transacting intrastate business’ within the state where the final acceptance of the offer which results from the negotiations is made by the foreign corporation at its office outside the State of California. (Charlton Silk Co. v. Jones, 190 Cal. 341 [213 P.203].) The Charlton case was one in which the agent of the foreign corporation solicited orders for goods in California which orders were accepted and filled by the foreign corporation at its home office. The rule, supported by citation of authorities is thus stated in 20 Corpus Juris Secundum, Corporations, section 1839, page 55: ‘. . . a foreign corporation is not doing, transacting, carrying on, or engaging in business in a state, by making loans outside the state to residents thereof, on applications obtained by agents of the corporation acting within the state, where the application is transmitted to a foreign corporation at a point outside the state for acceptance or rejection, and the loan is made payable outside the domestic state.’ [Citations omitted]”
Furthermore, Subdivision (d) of Corporations Code Section 191 excludes from the definition of “transacting intrastate business” the holding of and executing on collateral located in California by a foreign lending institution. That subdivision provides in pertinent part:
“Without excluding other activities which may not constitute transacting intrastate business, any foreign lending institution, . . . shall not be considered to be doing, transacting or engaging in business in this state solely by reason of engaging in any or all of the following activities . . . .
“(3) The ownership of any loans and the enforcement of any loans by trustee’s sale, judicial process or deed in lieu of foreclosure or otherwise. “(4) The modification, renewal, extension, transfer or sale of loans or the acceptance of additional or substitute security therefor or the full or partial release of the security therefor or the acceptance of substitute or additional obligor thereon, if the activities are carried on from outside this state by the lending institution.
“(5) The engaging by contractual arrangement of a corporation, firm or association, qualified to do business in this state, which is not a subsidiary or parent of the lending institution and which is not under common management with the lending institution, to make collections and to service loans in any manner whatsoever, including the payment of ground rents, taxes, assessments, insurance and the like and the making, on behalf of the lending institution, of physical inspections and appraisals of real or personal property securing any loans or proposed to secure any loans, and the performance of any such engagement. . . .
“(7) The engaging in activities necessary or appropriate to carry out any of the foregoing activities. . . .”
The proposed business fits entirely within the exclusions discussed above. Thus, in our view, ________ is not subject to qualification under Corporations Code Section 2105 and, as a result, need not comply with Section 14157 of the California Credit Union Law.
Among other laws, this Department administers the California Credit Union Law. We express no opinion as to any law, state or federal, other than the California Credit Union Law. Furthermore, this response is limited to the facts and circumstances set forth above. Should any of the facts or circumstances change, our answers might be different.
Very truly yours,
CONRAD W. HEWITT
Commissioner of Financial Institutions
By
THOMAS M. LOUGHRAN
Senior Counsel
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