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or official, in either one or all of the states in which the property is located in order therein to legally qualify and act as such trustee? Would the depositing of such assets be considered as giving preference to one creditor over another, as mentioned in Section 34 of said act?" You have also submitted a letter of Louis H. Withey embodying his views relative to the question involved. Under date of October 17th a letter from Messrs. Butterfield & Kenney, attorneys-at-law, Grand Rapids, Michigan, containing a discussion of these questions was received by this department.
The statute of Illinois regarding this deposit is Sections 129 to 147 of the Revised Statutes of Illinois for 1909. It is clear under the decision of the United States Supreme Court in Blake v. McClung, 172 U. S. 239, that the deposit of securities made with the State Auditor of Illinois could not be used for the purpose of giving preference to creditors of a trust company residing in Illinois. On the other hand, a Michigan trust company could not be admitted to a trust company business in Illinois even to the extent of enforcing an active trust partially in Illinois and partially in Michigan without making this deposit.
Farmers' Loan Company v. Elevated Ry. Company, 173 Ill. 439.
Section 6179 of the Compiled Laws of 1897 provides as follows:
"All transfers of notes, bonds, bills of exchange, or other evidences of debt owing to any such corporation, or of deposit to its credit. all assignments of mortgages or other security on real estate, or judgments, or decrees in its favor, or deposits of money, bills or other valuable things for its use, or for the use of its stockholders or creditors, all payments of money either after the commission of an act of insolvency, or in contemplation thereof, with a view to prevent application of its assets in the manner prescribed in this act, or with a view to the preference of one creditor over another, shall be held to be null and void."
The interest upon deposits of securities made pursuant to the Illinois statute is paid to the depositing company as long as it remains solvent. We are unable to see how the making of this deposit under the statute of Illinois and the decision of the Supreme Court of the United States hereinbefore referred to, constitute any preference to Illinois creditors in violation of the provisions of Section 6179 of the Compiled Laws.
We are of the opinion that it would not be in violation of the provisions of Act 108 of the Public Acts of 1889 for a Michigan trust company to make a deposit of securities with the Auditor of the State of Illionois under the provisions of the statutes now in force in that state, in order to permit such trust company to carry out the provisions of an act of trust in that state.
LAND CONTRACTS NOT EVIDENCES OF INDEBTEDNESS AS CONTEMPLATED BY BANKING LAW. (24)
December 7, 1911.
Hon. Edward H Doyle, Commissioner of the Banking Department, Lansing, Michigan:
Dear Sir-I am in receipt of your communication of November 23rd in which you ask whether or not land contracts evidencing the sale of real estate are legal investments for savings banks under subdivision (i) of Section 27 of the General Banking Law, which reads as follows:
"The remainder of such deposits may be invested in notes, bills or other evidences of debt, the payment of which is secured by the deposit with the bank of collateral security consisting of personal property or securities of known marketable value, worth ten per cent more than the amount so loaned and interest for the time of the loan."
It appears from your statement that certain savings banks in the state invest savings deposits in these contracts, taking an assignment thereof from the vendor who also transfers to the bank the legal title to the real estate contracted to be conveyed. In some instances the legal title to the property is transferred and the assignment made as collateral security for a loan to the vendor and I do not understand that your inquiry relates to the legality of this practice, it being conceded that this may lawfully be done, but that your inquiry relates to the right of a savings bank to so invest its savings deposits in these contracts when no loan is made to the vendor. The savings banks claim that these contracts are "evidences of debt" within the meaning of the subdivision quoted and that the investment of savings deposits therein in the manner outlined is permissible and legal.
For reply thereto would say that when a contract of this character for the sale of real estate is made, the vendor holds the legal title only as trustee for the vendee and equitable title vests in the vendee. The vendor retains the legal title as security for the proper performance of the contract on the part of the vendee.
Hooper v. Van Husan, 105 Mich. 592;
City of Marquette v. Iron & Land Company, 132 Mich. 130, 132.
In the case last cited the court held that there was no legal distinction between these obligations and credits secured by mortgages.
While these contracts may under our decisions be "evidences of debt," I do not believe that they are such within the meaning of the statute under consideration. By the terms of that statute it is only evidences of debt "the payment of which is secured by the deposit with the bank of collateral security consisting of personal property or securities of known marketable value, worth ten per cent more than the amount so loaned and interest for the time of the loan," in which savings deposits may lawfully be invested.
This statute, as I read it, treats of "loans" by the bank upon bills, notes and other evidences of debt, secured by the deposit with the bank of collateral. As I understand it. the bank in dealing in these contracts makes no loan to the holder of the legal title to the land, but the land contract and the security of the legal title are purchased outright by the
property. I do not believe that transactions of this nature are within the contemplation of the statute and consequently am of opinion that savings banks may not lawfully invest their savings deposits in these contracts.
Very respectfully yours,
(Signed) FRANZ C. KUHN, Attorney General.
TRUST COMPANIES MAY OWN AND OPERATE ABSTRACT DEPARTMENT.
February 16, 1912. Hon. Edward H. Doyle, Commissioner of the Banking Department, Lansing, Michigan: Dear Sir-Your letter of February 2d, calling attention to parts of sections 9 and 10 of Act 108 of the Public Acts of 1889, as amended, (Compiled laws of 1897. Sections 6164-6165) relative to the power of a trust company organized under said act to acquire and hold as personal estate abstract books of title used by it in its business of guaranteeing or insuring the validity of title to real estate, and requesting an opinion thereon, has been received.
In reply thereto would say that under the provisions mentioned which give to a trust company organized under the act power to guarantee or insure to grantees the validity of titles in real estate transfers, at a rate of compensation, and upon such terms and conditions as may be agreed upon. (Section 9), and which makes it lawful "for any such corporations to lease, purchase, hold and convey such personal estate as may be necessary to carry on its business." (Section 10), a trust company is lawfully entitled to acquire and hold any system of abstract books necessary to enable it to engage in the business of guaranteeing or insuring titles to real estate. The sections of the law quoted have not been amended or modified in any way and the ruling of your Department in accordance with the above should therefore be continued.
BANKS INCORPORATED IN AN UN-INCORPORATED VILLAGE CANNOT LEGALLY MAINTAIN
Hon. E. H. Doyle, Banking Commissioner, Lansing, Mich. :
February 17, 1912.
Dear Sir-We have yours of the 7th instant enclosing map of Greenland Township, showing the town sites in Greenland and Mass villages.
You ask whether your department will have the right or authority to permit the Miners & Merchants State Bank of Greenland to establish an agency in Mass.
I gather from your communication that the Miners & Merchants State Bank of Greenland was recently incorporated under authority of your department, and that Greenland is an unincorporated village. I also infer that Mass or Mass City is also an unincorporated village. I note what you say relative to one of the officers of the bank claiming that to all intents and purposes Mass City and Greenland is one village and that there are no defined boundaries of the unincorporated village of Greenland. Nevertheless the plat submitted shows two settle ments, and I presume a similar plat is in accordance with the laws of this State, on file with the Register of Deeds of the county, and while the limits of Greenland Township may not be defined, still, it could hardly be claimed that Greenland Village would or could include the settlement known as Mass.
The articles of incorporation of the Miners & Merchants State Bank undoubtedly confers upon the bank the authority to do business within the unincorporated village of Greenland, and I am inclined to the opinion that said bank could not legally establish a branch agency outside of the unincorporated village of Greenland and that the settlement known as Mass or Mass City would be outside of the boundary lines of the unincorporated village of Greenland consequently an agency could not be established in Mass. I am returning herewith map of Greenland Township.
Very respectfully. (Signed) GRANT FELLOWS, Attorney General.
BANKING CORPORATIONS MUST INCORPORATE UNDER GENERAL BANKING LAW.
Honorable Frederick C. Martindale, Secretary of State, Lansing, Michigan:
March 27, 1912.
Dear Sir I am in receipt of your communication of March 19 in which you state that recently articles of association organizing "The Citizens Banking Company. Limited," and drafted under the provisions of Chapter 160 of the Compiled Laws of 1897 (The Partnership Association Limited Act), were presented for record; and that the purposes of organization set up in these articles of association are as follows:
"This association is organized for the following purposes: To own and operate a bank in Wakefield, Gogebic County, Michigan, and to transact a general banking business, the location of said bank and of the transaction in said business being at said Wakefield."
You wish to be advised whether or not you should accept for record articles of association under Chapter 160 of the Compiled Laws of 1897, in which the purposes of organization stated are to own and operate a bank and to transact a general banking business.
Act No. 191 of the Public Acts of 1877 (Chapter 160, Section 6079 et seq. Compiled Laws of 1897), is entitled:
"An act authorizing the formation of partnership association in which the capital subscribed shall alone be responsible for the debts of the association, except under certain circumstances."
Section 1 of this Act provides that these associations may be formed "for the purpose of conducting any lawful business or occupation within the United States or elsewhere." The members of such associations are liable only to the extent of their subscription and for labor debts. The legislature has expressly recognized associations organized under this Act as corporations, as is shown by Section 36 of Act 232 of the Public Acts of 1903, the general corporation law, which excepts from its operation "the corporations provided for in the follow
ing statutes: Chapters 160 to 164 both inclusive
Chapter 160 being Act 191 of the
Public Acts of 1877, the partnership association limited law.
And the Supreme Court of this State has held that partnership associations limited, organized under Act 191, are to be governed by the general rules governing corporations.
Rouse Hazzard & Co. v. Detroit Cycle Co., 111 Mich. 251,
Act 191 provides that partnership associations limited may be formed for the purpose of conducting any lawful business or occupation. As these partnership associations limited are governed by the rules relating to corporations it follows that under this general blanket clause a partnership association limited cannot be organized to transact a business around which the legislature has thrown special restrictions and for which it has provided special incorporation laws. It has been held that where a statute authorizes incorporation for any lawful purpose, and another statute provides for the incorporation of certain kinds of corporations such as railway, telegraph or telephone companies--no company can be incorporated under the more general statute for the purposes which are covered by the other statute. The legislature is taken to have intended that, notwithstanding the general language of the one statute, no corporation should be formed for the purposes mentioned in the other without subjecting itself to the provisions of the other and more restrictive Machem's Modern Law of Corporation, Vol. 1, Sec. 63.
The legislature of this state has provided by the General Banking Laws for the incorporation of companies proposing to do a banking business, has fixed the liability of stockholders in such corporations in excess of the capital stock, and has placed special restrictions around such corporations. The passage of these General Banking Laws, providing for the organization of corporations under conditions quite inconsistent with those prescribed by the partnership association limited law, seems to be a strong legislative declaration that banking companies cannot be organized to acquire a corporate existence under acts such as the latter, and shows a clear legislative intent to separate banking corporations from other corporations, or from partnership associations limited which might lawfully be organized and promoted under such broad and general language as is contained in the partnership association limited law. The General Banking Laws have placed upon banking corporations special restrictions and limitations not applicable to other corporations or to partnership associations limited, and have imposed upon stockholders of such corporation a special and increased liability. These special restrictions and limitations cannot be evaded by the simple device of incorporation under the partnership limited law or other general incorporation laws.
In my judgment the legislature has clearly expressed its intention that no corporation or partnership association limited shall acquire or exercise the right to do a banking business without subjecting itself to the statutory provisions of the General Banking Laws by incorporating under such laws, and it is therefore, my opinion that an association or partnership limited cannot be organized under Chapter 160 of the Compiled Laws of 1897, for the purpose of owning and operating a bank or conducting a general banking business.
Your communication calls attention to a previous ruling of this department to the effect that "There is no legal objection to a partnership association limited, formed under and pursuant to Chapter 160 of the Compiled Laws of 1897, doing a private banking business, but that such business would have to be conducted pursuant to and in accordance with the requirements of Chapter 133 of the Compiled Laws of 1897." The opinion herein given is contrary to and reverses this ruling.
I have carefully examined Chapters 160 and 133 to determine their possible relation to each other. Chapter 160, the partnership association limited act, appears to attach no liability to members of such associations other than for labor debts and to the extent of their stock subscriptions, while Chapter 133, which is an act relating to the business of bankers, brokers, and exchange dealers, creates no restriction or limitations upon the common law liability of members of a partnership carrying on a business pursuant to its requirements.
It is true that under Chapter 133 individuals or partnership associations may engage in a private banking business, but it by no means follows that partnership associations organized under Chapter 160, the partnership association limited law, may therefore also engage in the same business. The liability incurred by members of a partnership acting under the former law is clearly inconsistent and irreconcilable with that imposed upon and incurred by members or stockholders of a partnership incorporated and acting under the latter law, and it would therefore be impossible for a partnership association limited, organized under Chapter 160 to come under the provisions of Chapter 133 and to conduct a private banking business under that act.
Yours very truly,
(Signed) FRANZ C. KUHN, Attorney General.
EXECUTOR NOT TO SUBSCRIBE FOR STOCK IN BANK IN HIS REPRESENTATIVE CAPACITY.
Hon. E. H. Doyle, Commissioner of the Banking Department, Lansing, Michigan:
June 6, 1912.
Dear Sir-I am in receipt of your communication of May 21st, in which you ask whether or not the Department should accept articles of incorporation for a state bank which discloses that one of the proposed incorporators is an executor of an estate and subscribes for shares in his representative capacity as executor.
For reply thereto would say that section 1 of the General Banking Law authorizes the organization of commercial banks by any number of persons not less than five who may associate together for that purpose. The persons so associating are required to execute articles of incorporation which are approved by the Commissioner of the Banking Department. The act is silent upon the subject of who may become the original incorporators. By other provisions of the act each stockholder is liable for the benefit of the depositors to the amount of his stock at the par value thereof in addition to the stock, but it is expressly provided that persons holding stock as executors, administrators, guardians or trustees, and persons holding stock as collateral security, shall not be personally liable as stockholders but
the assets and funds in their hands constituting the trust shall be liable to the same extent as the testator, intestate, ward or person inerested in such trust funds would be if living and competent to act.
This provision, while recognizing that stock in state banks may come into the hands of executors, administrators, guardians or trustees, does not in my judgment, authorize an executor or administrator to take part in the organization of a state bank and subscribe for stock therein as one of the original incorporators. It seems to me that in principle an executor or administrator would not have authority to bind the estate in this manner and I am of opinion consequently that under the provisions of the General Banking Law you should not accept articles of incorporation for a state bank which discloses that one of the proposed incorporators is an executor of an estate and subscribes for shares in his representative capacity. Yours respectfully,
(Signed) FRANZ C. KUHN,
TRUST COMPANIES MAY RECEIVE DEPOSITS AND ISSUE CERTIFICATES THEREFOR.
Hon. Edward H. Doyle, Commissioner of Banking, Capitol, Lansing:
December 31, 1912.
Dear Sir-In your communication to this department of November 26th, 1912, you present for consideration the following questions:
"Referring to Act No. 108 of the Public Act of 1889, as amended, known as the Trust. Deposit and Security Company Law, we would appreciate your opinion as to whether or not a trust company has the right to issue certificates of deposit; and whether or not such certificates of deposit must be restricted as evidencing the receipt of money in trust.
Also advise whether or not a trust company can issue its certificates of deposit for money received in any other manner than in trust."
The specific inquiry is, whether a trust company in Michigan can receive moneys otherwise than in trust and issue certificates of deposit as evidence thereof.
All authority which a trust company possesses must be conferred upon it by law. As in in the case of any other corporation, the act of incorporation which constitutes the charter is the measure of its powers. Unless that charter (with other statutes of the State, which may properly be termed a part of the charter) confers the authority, the trust company does not possess it.
The law for the incorporation of trust companies in Michigan is Act No. 108 of the Public Acts of 1889, being sections 6156 to 6189 (C. L. 1897) inclusive. Under the terms of this act, a trust company possesses the specific authority: To act in various capacities as a trustee.
(a) To act as and to conduct a depository for the safe keeping of certain personal property and the renting of safety deposit receptacles, and
(c) To act as surety and guarantor under certain circumstances.
In addition to these specific authorities, Section 9 of said act confers upon the trust companies organized thereunder the following authority:
Any corporation organized under this act shall have power in and by its corporate name to take, receive, and hold, and repay, reconvey and dispose of any effects and property, both real and personal, which may be granted, committed, transferred or conveyed to it with its consent, upon any terms.'
The language last above quoted, is sufficient to confer upon trust companies the authority to receive money on deposit and as incident to that authority there would exist the right to issue notes, certificates or other evidences of the indebtedness or relation thereby created.
This general language, however, is limited by the exception contained later in the same section (Section 9) which is:
"But nothing herein contained shall be construed as giving the right to issue bills to circulate as money, or buy or sell bank exchange, or to do a general banking business.
It may be taken for granted that the issuance of certificates of deposit is not the issuing of bills to circulate as money or buying or selling of exchange; the question therefore resolves itself into whether the issuing of such certificates is doing a general banking business as to be within the limitation upon the powers of trust companies and thus beyond their authority. The general structure of the act in question indicates that the authority of trust com panies in receiving effects and property is not to be limited to the receipt of those which it receives and holds as trustee. It is unnecessary to point out all of the provisions of the act, which lead to this conclusion: It is sufficient to refer to the general provisions above quoted (Section 9) which was unnecessary if the authority of the corporation was to be limited to the taking and receiving of effects and property (which would include money) to be held in trust, as full authority is, by other provisions of the act, conferred upon the company to act as trustee. This conclusion is further borne out by the state of the law and the changes made therein the passages of said act No. 108 of the Public Acts of 1889. Previous to the passage of that act, the act for the incorporation of trust companies being section 3237 and 3251 (Howell's Statutes) inclusive, conferred quite full authority upon trust companies to act as trustees for any lawful purpose and the extension of their authority, by the use of language designed to include other than powers of trusteeship, indicates a purpose to so enlarge the powers permitted to be exercised by trust companies as to go beyond the usual functions of a trustee and to permit them to receive effects and property upon other terms than as trustee, and in fact, as the statute as amended provides, "upon any terms."
We come then to the real question presented for solution, namely, whether in the receiving of deposits and issuing certificates therefor, a trust company would be doing "a general banking business."
Unquestionably, the receiving of deposits and the issuing of certificates therefor, is one of the many functions ordinarily and usually performed by a bank, but it does not appear that such function has been exercised alone by banks, or that it is such as to be inseparable from the banking business, or that its exercise would fix the dividing line between being a bank or not, or between exercising or not exercising "general banking business".
In the inception and growth of the banking business there have been three types of banks
however, usually combines two or more of these authorities and has many ramifications in the plan and method of carrying out its function. The general banking authority as is exercised in Michigan, by State banks at least. will be best described in the language of the General Banking Law (Section 4, 6093, C. L. 1897) which authorizes:
"All such powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, bills of exchange or other evidences of debt, by receiving deposits by buying and selling exchange, coin and bullion, and by loaning money on personal and real security as provided hereinafter."
If a trust company sought to exercise all or a principal part of the authorities above conferred upon banks, or even a single one of the important functions usually exercised only by banks, it would be within the inhibition of the statute. The exercise, however, of a single authority which a bank in the course of its business exercises but which is open to others than bankers, namely, the borrowing of money and issuing in evidence of the debt, would not constitute the doing of a general banking business. To do a general banking business, trust companies must exercise those functions which are primarily banking functions and which fix the character of the institution doing them as a bank. A trust company does not receive money in the same manner and in the same relation that a bank receives it. A trust company receives the money which a depositor places with it as a trust company and not otherwise. This is the only power that is given to such company to receive money. It is not incorporated as a bank, nor authorized as a bank, to receive money, but as a trust company. And having received said money as a trust company, the only implied authority that such trust company would have to repay it would be to repay it as a trust company and not as a bank. When a deposit is made in a bank. no understanding, no contract, no arrangement. nothing is necessary to authorize the depositor to draw his check on such bank and such bank is by operation of law alone compelled to honor such check. Without this characteristic no institution is usually a bank; with it, any institution is doing a banking business.
In Corwin . The Urbana and Champaign Mutual Insurance Company (14 Ohio 6) the charter contained a provision prohibiting the exercising of banking powers and it was held that the receiving of deposits was not within the prohibition against banking. It did, however, appear that certificates of deposit were not issued. The court there said:
"It does not appear to us this finding is within the prohibition against banking; and, if not, it is a lawful pursuit, in which a corporation, as well as an individual, may engage; and it is well said by the defendant that, although receiving deposits is a part of the business of banks, it is no exclusive privilege of theirs, nor is the discounting of notes."
In Dietrich v. Rothenberger (75 S. E. [Kentucky] 271) it was held that the borrowing of money by a title company and the issuance of a certificate of deposit therefor did not constitute the doing of a banking business, the Court saying:
"The distinction between such a transaction and the business of banking is plain, for any one may borrow money, and may put in such form as he pleases the evidence of his indebtedness. An express company is not a bank, although it draws and sells bills of exchange. Wells Fargo & Co. v. Northern Pacific Railroad Co. (C. C.) 23 Fed. 469. Nor is a corporation a bank, which borrows for its own use on bonds. Barry v. Merchants' Exchange Company. 1 Sandf. Ch. 280. In 3 American & English Ency. of Law, 791, it is said: "The distinction between a bank and a trust company is well defined. The powers of the trust company depend upon the terms of its charter, of course, but they are not banking powers. The trust company. like the savings bank, pays interest upon deposits, but its deposits are strictly loans, not subiect to check. It may not issue its own notes for circulation, nor does it buy or sell exchange in the ordinary course of its dealings. In directions that are not akin to banking. its powers are much broader, and extend outside the monetary realm into real estate transactions, trusteeships, and the conduct of property interests of all kinds, The exercise by a trust company of some of the functions of a bank does not make the company a banking institution, nor lay its officers liable to prosecution for violating the banking laws. Banks receive deposits subject to check. They are public agencies created for the public service, and are required to serve the public. The money in this case was simply lent for 12 months. It was not subject to check, There was nothing in the transaction that might have been done, and is not in fact done, by many individuals throughout the State. It was not exercise by the corporation of any banking privilege, nor beyond the powers of the corporation under its charter."
See State ex inf. Crow. Attorney General v. Lincoln Trust Company, 144 Mo. 562. 588. The practical construction which has been given to the statute in question should be given some weight. It is claimed that the act in question has been constructed by those operating under it as permitting the receiving of moneys for safe keeping, and the issuance of certificates of deposits therefor, and that this practice has been followed without successful opposition or objection, from the passage of the act of 1889, until the present time. Where the language of the act is doubtful, the long continued practice under it is often permitted to turn the scale in favor of the construction evidenced by the practice under it, and this,
we think, is an influence, to be considered in determining that trust companies may receive deposits and issue evidence thereof.
In other states, it has been quite common to confer upon trust companies the authority to receive deposits and to issue certificates thereon, and at least twenty-three of the states have such provisions. There is evidently, therefore, nothing inconsistent in the idea of trust companies receiving money on deposit for safe keeping, and the question is not to be viewed in the same light as though a well defined public policy pointed to the exclusion of this power from trust companies.
In Bank of Saginaw v. Title and Trust Company (105 Fed, 491. 492), a Pennsylvania trust company issued six certificates of deposit, which were negotiated at the Bank of Saginaw, and the bank brought its action in the United States Circuit Court in Pennsylvania to recover upon the certificates. The certificates issued by the trust company were in form as follows: "$500.00
Title & Trust Company of Western Pennsylvania.
$500,00 No. 2
Connelsville, Pa., Feb. 5, 1900