PROXY: Stockholders must be represented by, if not present at annual meeting PUBLIC OFFICER : State bank cannot become surety of. on face of note considered maker unless otherwise designated. . . . STATE BANK: cannot become surety of public officer. cannot legally sell steamship tickets. contemplated in city or village only incorporated in an unincorporated village cannot legally maintain branch in another unincorporated village. may be organized by stockholders of national bank. not to pledge assets in lieu of bonds to secure county funds. Bank, to be invested in or possessed by corporations only on certain conditions Corporation, not trust company investment. in building company cannot be carried as banking house under Section 11 transfer of, Act to make uniform law of, does not affect general banking law xxix lvii lxviii lii lvi lv xlvil xl xxxiii liii Iv Xxxvii xlvii xxxvij xxviii lix 52 lvi STOCKHOLDERS: Assessment on: not limited to one hundred per cent. must be present or represented by proxy at annual meeting. of national bank may organize state bank. not required to file stockholders list with Secretary of State. SURETY: Act to make uniform law of, does not affect general banking law.. TRUST COMPANY: cannot lawfully purchase shares of their own Capital stock. do not have power to execute acceptances.. may deposit securities in other states in order to qualify as trustee may own and operate abstract department.. authority to subscribe articles of incorporation as such required.. TRUSTEESHIP: OPINIONS OF THE ATTORNEY GENERAL. EXCESSIVE LOANS. On account of the importance of the subject of excessive loans I deem it advisable to again publish the construction of section 52 of the Banking Law in this regard as submitted to this department by the Attorney General in the year 1903: (1) Lansing, Mich., May 23, 1903. Hon. George W. Moore, Commissioner of Banking, Lansing, Michigan : Dear Sir-I am in receipt of your communication of the 19th inst., referring to the General Banking Law of this State, and requesting my opinion upon the following questions: "First, How much money may the directors of a bank loan to any person, or company, or corporation, or firm, by a two-thirds vote of its board of directors? Second, How much money may any bank loan on any one line of commercial paper? Third, May a bank increase the first named line by the bond or personal endorsement of the officers or directors of a firm, company or corporation, or by the assignment of value as collateral?" In considering these questions I desire to call your attention to section 6141 of the Compiled Laws, being section 52 of the General Banking Law of this State, which provides in part as follows: "The total liabilities to any bank of any person or of any company, corporation or firm for moneys advanced including in the liabilities of the company or firm the liability of the several members thereof, except special partners, shall at no time exceed onetenth part of the amount of the capital and surplus of such bank; but the discount of bills of exchange drawn in good faith against actually existing values and the discount of commercial or business paper actually owned by the person negotiating the same shall not be considered as money borrowed: Provided, however, That the foregoing limitations shall not apply to loans on real estate or other collateral securities authorized by this act: Provided, however, That by a two-thirds vote of the directors the liabilities to any bank or any person. or company, or corporation, or firm may be increased to a sum not exceeding one-fifth of the capital and surplus of the bank." It is evident that this limitation was borrowed from the National Banking Law, section 5200 of the Revised Statutes of the United States, providing as follows: "The total liabilities of any association, or any person, or any company, corporation, or firm for money borrowed. inluding in the liabilities of the company or firm the liabilities of the several members thereof shall at no time exceed one-tenth part of the amount of capital stock of such association actually paid in; but the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borrowed." This provision, as found in our General Banking Law and also in the National Banking Law, has never been construed by the courts in so far as it relates to the particular question submitted by you. The Supreme Court of Pennsylvania, in the case of O'Hare v. Second National Bank of Titusville, 77 Pa. St., 102 referring to this provision in its application to national banks, makes use of the following language: "Evidently the limitation of the indebtedness to the one-tenth in the 29th section, was intended as a general rule for conducting the business of the bank a rule laid down from experience to regulate its loans for its own best interest and those of stockholders and creditors, not a rule to regulate its customers. It was as remarked in Fowler v. Scully, a regulation to prevent these associations from splitting on the rock which has ruined so many banks, to wit, that of lending too much of their capital to one person or firm. The intention being to protect the association and its stockholders and creditors from unwise banking, we cannot suppose it was meant to injure them by forbidding recovery of the injudicious loans." In Vol. 29 of the Amer. & Eng. Ency. of Laws, 2nd ed. p. 382, we find the following with respect to the limitation found in the National Banking Law: "The object of this provision of the statute was to guard National banks from the hazard of speculative loans, but it contemplated and permitted to an unlimited amount the discount of paper used and required in facilitating the transfer of property and money in the transaction of the legitimate business of the country." Citing Oswego Second National Bank v. Burt, 93 N. Y. 244. It was evidently the intent of the legislature, in enacting the provision above referred to, as found in the banking law of this State, to guard the banks organized thereunder from the hazard of speculative loans, and to prevent such banks from advancing or loaning too much of their money to any one person, firm or corporation, and in construing the statute with respect to the exception, it is necessary to keep constantly in mind the purpose of the limitation, and not to construe the provision relating to the exceptions therefrom in such a way as to destroy the force and effect of the limitation itself. The exceptions to which I refer relate to the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper, actually owned by the person negotiating the same, and which, in my opinion, should be strictly construed and should be held to apply to no transaction that did not clearly and fully come within the provisions of the statute in this particular. Black on interpretation of Laws, 275. I find that the questions which you submit for my consideration are quite fully considered in Pratt's Digest, pages 93-94-95, in their application to national banks, but I am unable to concur in some of the conclusions reached, which do not seem to be based upon judicial decisions, and which, in my opinion, tend to defeat the very purpose of the limitation. It is an elementary proposition recognized by the courts with respect to statutory or constitutional inhibitions, that you cannot do indirectly that which you are prohibited from doing directly. In their application to commercial paper, the terms "loans" and "discounts" are synonymous. always to be determined from the position of the parties as they appear on the paper. The borrower may be the maker or the endorser. Pratt's Digest. 94. Our statute provides that in the discount of commercial or business paper actually owned by the person negotiating the same, it shall not be considered as money borrowed. The application of this provision, in iny opinion, relates exclusively to the person negotiating the paper. The statute contemplates that he alone shall be considered as not receiving a loan from the bank. With respect to the maker of such paper who is primarily liable. if such maker has received credit at the bank to the full limit imposed by law, the bank should not be permitted to discount such paper, as in that event the liability of the maker would exceed the liability permitted by the General Banking Law, and if such a transaction should be permitted, it would indirectly defeat the very purpose for which this limitation was imposed. In determining the questions submitted by you, I realize that there may be some doubt as to the proper construction of these provisions in the absence of any judicial determination as to their proper meaning. In view of the fact that the several banks of this State organized under the General Banking Law, are subject to State supervision, not only for the protection of the banks themselves, but for the protection of the persons doing business with such banks, the laws relating thereto should be constructed in such a manner as to afford such protection in every possible way, until such time as the courts may determine otherwise. In answer to your first question, I would therefore say that, in my opinion, the amount which the directors of a bank would be authorized to loan to any person, or company, or corporation, or firm, by a two-thirds vote of its board of directors, would not exceed one-fifth of the capital and surplus of the bank, and it would be immaterial whether such loan was secured or unsecured, excepting of course, loans on real estate or other collateral securities authorized by the General Banking Law. In answer to your second question, I would say that the same rule would apply to any one line of commercial paper that would apply to any one person, company, firm or corporation. In answer to your third question, I would say that, in my opinion, it is immaterial whether such loan is secured by the bond or personal endorsement of the officers or directors of the firm, company or corporation, or by the assignment of value as collateral, except where such loan is made upon real estate or other collateral securities recognized by the General Banking Law. In this connection I call your attention to the rule laid down in the Amer. & Eng. Ency. of Law, Vol. 21, 2nd ed. page 382, to the effect that "Drafts may be bona fide bills of exchange drawn upon actual existing values within the meaning of the statute, though not accompanied by specific bills of lading in each case. It is sufficient if they are drawn against property previously consigned and existing either in its original form or in the shape of proceeds of sales in the hands of the consignees." This rule, of course, applies to the federal statute. The state and federal statute being identical in this particular, unquestionably the same rule would apply to a bank organized under the General Banking Law of this State. Respectfully yours, The following opinions have been rendered during the years, 1907, 1908, 1909, 1910, 1911. 1912, 1913, 1914, 1915 and 1916 by the Attorney General's Department on questions concerning the construction of the Banking Law. (2) CORPORATION STOCKS NOT TRUST COMPANY INVESTMENTS. Lansing, Michigan, March 21, 1907. Hon. Henry M. Zimmermann, Banking Commissioner, Lansing, Mich. : Dear Sir-This department has given careful consideration of your inquiry of the 13th inst. as to whether trust companies organized under Act No. 108 of the Public Acts of 1889 have the right to invest in the stocks of Savings Banks; and particularly to the question as to whether section 11 of this act (Compiled Laws of 1897, Section 6166) permits such investment. It is the opinion of this department that there is no general right under the laws of the State on the part of trust companies to invest in the stock of other corporations; and, further that the clause in Section 11 of the above act, which authorizes the directors to invest in "such real or personal securities as they may deem proper" does not authorize investment in the stock of private corporations. (3) AUTHORITY TO SUBSCRIBE ARTICLES OF INCORPORATION Respectfully yours, JNO. E. BIRD, AS "TRUSTEE" REQUIRED. Lansing, Michigan, August 7, 1907. Hon. Henry M. Zimmermann, Commissioner State Banking Department. "Capitol," Lansing: Dear Sir-It appears that steps ars being taken to organize a bank under the General Banking Laws of this State, with a capital stock of $100.000. From the articles of association which have been prepared, it appears that, approximately, sixty per cent. of such capital stock has been subscribed for by certain persons designated as "trustees"; that such articles do not disclose the names or residences of the cestui que trust in any instance, or the authority of the persons subscribing as trustee to act in that capacity. In this connection, you ask my opinion as to whether or not it would be proper for you to issue the certificate of authority provided for by section 7 of the General Banking Law. In reply thereto would say that section 2 of the Banking Law requires the persons associating in the organization of a bank to execute articles of incorporation, which shall specify. among other things, "The names and places of residence of the stock holders and the number of shares held by each of them." The latter part of section 4 provides as follows: "No bank shall transact any business except such as is incidental and necessarily preliminary to its organization until it has been authorized by the Commissioner of the Banking Department to commence the business of banking." The articles of incorporation are required to be executed in triplicate, one to be recorded in the office of the county clerk of the county in which the bank is located; one filed in the office of the Commissioner of the Banking Department; and one filed in the office of the Secretary of State. When such articles of incorporation are properly executed and filed and recorded, as required by law, and the Commissioner of the Banking Department is notified that at least fifty per cent. of its capital has been paid in, and that such bank has complied with all the provisions of the general banking law; before the bank shall be authorized to commence business, the Commissioner is required to examine into the condition of such bank, and if it is found that such organization is in accordance with the statute and that the various provisions of the law have been complied with a certificate of authority to engage in the business of banking is issued by such Commissioner. When the statute is not complied with in any essential particular, it is clearly my opinion that such certificate of authority should be withheld. It seems to me that articles of incorporation which do not fully disclose the name and residence of the cestui que trust, where the stock is subscribed for by a trustee, and which also fails to disclose the authority to subscribe for such stock in that capacity, do not conform to the requirements of the general banking law, and, under such conditions as you have outlined, it would be your duty to refuse to issue the certificate of authority provided for by law. I do not deem it essential to point out the numerous complications that might arise if stock in a banking corporation should be subscribed for in the manner indicated. It is sufficient to say that it does not conform to the requirements of the General Banking Law. Respectfully yours, JNO. E. BIRD, Attorney General. (4) CERTAIN CERTIFICATES OF INDEBTEDNESS ARE LEGAL INVESTMENTS. Lansing, Michigan, October 23, 1907. Hon. H. M. Zimmerman, Commissioner of the Banking Department, "Capitol," Lansing, Michigan: My Dear Sir-I am in receipt of your communication of the 16th inst., in which you ask whether or not certificates of indebtedness issued in payment for voting machines under the provisions of section 13 of Act 217 of the Public Acts of 1905 are proper investments for savings banks under subdivision (b), section 27 of the General Banking Law, which provides that a certain portion of the savings deposits of such banks shall be invested as follows: "(b). In the public debt or bonds of any city, county, township, village or school district of any state or territory in the United States, which shall have been authorized by the legislature of such state or territory: Provided the total indebtedness of such municipality does not exceed five per cent. of its assessed valuation, except by a vote of two-thirds of the board of directors, such bonds may be purchased if the total liabilities do not exceed ten per cent. of its assessed valuation." You also state that it has always been the ruling of the Banking Department that the terms "public debt" and "bond" were synonymous and that an issue of bonds, in order to be a proper investment for savings banks under this subdivision must previously have received the approval of the voters of the municipality issuing the bonds. For answer to your inquiry I would say it is my opinion that the ruling of your department places too narrow a construction upon the statute. The terms "public debt" and "bonds" are not synonymous. The term "public debt" includes not only a bonded debt, but also other form of public indebtedness. State v. Hickman, 11 Mont. 541, and cases cited. The statute under which certificates of indebtedness are issued in payment for voting machines reads as follows: "The local authorities, on the adoption and purchase of a voting machine, may provide for the payment therefor in such manner as they may deem for the best interest of the locality and may for that purpose issue bonds, certificates of indebtedness or other obligations, which shall be a charge on the city, town or village. Such bonds, certificates or other obligations may be issued with or without interest, payable at such time or times as the authorities may determine, but shall not be issued or sold at less than par." The legislature has the undoubted right to authorize debts of this character to be incurred without the vote of the electors of the municipality. Callan v. The City of Saginaw, 50 Mich. 7. I am of the opinion that the certificates of indebtedness issued under authority of this section come within the term "public debt" as used in subdivision (b), section 27 of the General Banking Law, and that, consequently, savings banks may lawfully invest their funds in such certificates of indebtedness. STRICTLY COMMERCIAL BANKS MUST AMEND ARTICLES TO TRANSACT SAVINGS BUSINESS. (5) Dear Sir-I am in receipt of your communication of the 16th inst., requesting an opinion upon the question of whether or not a bank organized as a purely commercial bank under the General Banking Law of the State is authorized to advertise for savings deposits and do a general banking business under the exception contained in section 24 of that law, which provides: Commercial banks may allow interest on accounts or certificates of deposit, but all deposits in such banks shall be payable on demand without notice, except when the contract of deposit otherwise provides." any number of persons, not less than five, "may associate to establish offices of discount and deposit, to be known as commercial banks, and also to establish offices of loan and deposit to be known as savings banks, or to establish banks having departments for both classes of business," etc. Under section 2 of the General Banking Law, the articles of incorporation are required to specify the nature of the business to be carried on, whether that of a commercial bank, savings bank, or both. Sections 23, 24 and 25 of the same law contain certain provisions referring to "any bank which, by its articles of incorporation, shall designate its business as that of a commercial bank;" and section 26 and succeeding sections of the same law contain provisions governing "any bank which by its articles of incorporation shall designate its business as that of a savings bank;" and section 29 contains provisions governing "any bank combining the business of a commercial bank and a savings bank" and provides that "all receipts, investments and transactions relating to each of said classes of business shall be governed by the provisions and restrictions herein specifically provided for the respective kinds of banks." Reading all these provisions of the General Banking Law together, it is clear that it was not intended to permit a bank organized as a strictly commercial bank to engage in the business of a savings bank, and that the exception contained in section 24, to which reference has been made, was not intended to have that effect. Before a commercial bank, organized as such can conduct a savings bank business, it must amend its articles of incorporation so as to provide for conducting both classes of business. (6) Respectfully yours, JNO. E. BIRD, BANKS CANNOT EXTEND THEIR CREDIT TO AN INDIVIDUAL OR BANK. June 10, 1908. Hon. H. M. Zimmermann, Commissioner, Banking Department, "Capitol," Lansing: Dear Sir-I have your communication of June fifth, enclosing certain correspondence with the.. bank. It appears from your communication that this bank, by an arrangement with certain private banks, permits the latter to issue drafts payable out of the funds of the former bank on deposit with its correspondent banks at New York and Chicago. You state that you have taken the position that such practice is illegal, and request an opinion as to the propriety of this holding. Replying thereto would say, any attempt upon the part of any bank to permit anyone or any institution to issue drafts payable out of its deposit with correspondence banks is an attempt to perform an act and permit an arrangement not authorized by law. The bank possesses no authority to extend its credit to any individual or bank in the manner set forth in your communication. Such a practice may operate to the detriment of depositors and may impair the faith and credit of the bank. The practice in question is without authority of law. You possess general power under the statute to prohibit such practice and it is the duty of the officials of the bank to cancel this arrangement. Respectfully yours, SIMILARITY OF TRUST COMPANY TITLES. JNO. E. BIRD, (7) June 30, 1908. Hon. Henry M. Zimmermann, Commissioner of Banking, Lansing, Michigan: Dear Sir-I am in receipt of yours of the 19th instant in which you state that a certain corporation organized under Act 232, Public Acts of 1903, as the " ..and Trust Company" is engaged in the business of selling various kinds of securities, and request the opinion of this department as to whether it is permissible for such a concern to do business under a name so closely allied to that of institutions organized under Act 108, Public Acts of 1889, under which trust companies are organized. Subdivision 1 of section 2 of Act 232, Public Acts of 1903, contains this proviso: "No name shall be assumed already in use by any other existing corporation of this State. or corporation lawfully carrying on business in this State, or so nearly similar as to lead to uncertainty or confusion." Under the decisions of the courts of this State, it seems to be clear that the question of the right to use a corporate name not identical with that of another existing corporation depends upon whether the names are so similar that persons would be likely to deal with one concern when they believed in good faith they were dealing with the other. See Lamb Knit Goods Co. v. Lamb Glove & Mitten Co., 120 Mich. 159; Great Hive L. O. T. M. v. Supreme Hive, 135 Mich. 392, 415. It would seem also if the similarity of the name of a corporation organized under Act 232. Public Acts of 1903, to the names of corporations organized under Act 108, Public Acts of 1889, which is the trust company act, was such that people dealing with it would be deceived into believing that they were dealing with a corporation which was under the supervision of the Banking Department. that the use of such a name could properly be restrained in a proceeding instituted for that purpose. Very respectfully yours, |