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the power to call for special reports from any bank or banks whenever, in his judgment the same are necessary to inform him fully of the condition of such banks." Section 39 provides : "It shall be the duty of the Commissioner of the Banking Department, and he shall have power for himself, his deputy, or any examiner he may appoint for that purpose, to examine two or more times in each year, the cash. bills, collaterals or securities, books of account, condition and affairs of each bank under the law, and also when requested by the board of directors of any bank. For that purpose he may examine on oath any of the officers, agents, clerks, customers or depositors of such bank, touching the affairs and business of such bank. Any wilful false swearing in any examination shall be deemed perjury. He shall also ascertain whether each bank transacts its business at the place designated in the articles of incorporation, and whether its business is conducted in the matter prescribed by law." Section 55 of the general banking law provides among other things, that if the commissioner shall become satisfied that a bank "is conducting its business in an unsafe or unauthorized manner, or if any bank shall refuse to submit its books and papers and concerns to the inspection of the commissioner, his deputy or any examiner, or if any officer of such bank shall refuse to be examined under oath touching the concerns of the bank, or if from any examination made or report here provided for, the commissioner shall conclude that such bank is in an unsound or unsafe condition to transact the banking business, so that it is unsafe and inexpedient to continue same," he shall in the manner therein prescribed make application for the appointment of a receiver for such bank.

The foregoing sections are the only provisions of statute to which my attention has been called expressly bearing upon your question. The language of the statute seems clearly to confer upon the Banking Commissioner the right and authority to demand, receive and procure any and all such information as he may require or deem necessary in order to fully understand the condition of a bank. the character or amount of its obligations and the affairs thereof. The commissioner is expressly charged with the duty of determining whether or not a bank is conducting its bank in an unsafe or unauthorized manner. He must also determine whether the bank is in an unsound or unsafe condition to transact the banking business so that it is unsafe and inexpedient to continue the same. He has the right to secure information upon forms prescribed by him, and he may examine on oath any of the officers. agents, clerks, customers or depositors of the bank touching its affairs and its business. The Commissioner of Banking, and not the bank, is the judge of the information necessary for him to have to place him in a position where he can perform his statutory duty. It will be assumed that the Commissioner of Banking, or his deputy, or any assistant duly authorized. will not demand or require any information other than such as it is deemed expedient to have in order to determine the exact condition of a bank and its affairs. When information is demanded, it is the duty of the bank to furnish it, and the Commissioner's demands are not open to question by the bank. It would be indeed an anomalous condition if notwithstanding all the duties devolving upon the Banking Commissioner, the bank could determine for itself the character or amount of information it should disclose.

It is therefore my opinion that the bank has not the right to withhold any information which the Banking Commissioner shall in the exercise of his discretionary authority determine is necessary in order to furnish him with the knowledge to perform his duty.

Said section 55 is very clear and explicit in its terms. When any such condition as is therein referred to exists, it is clearly the duty of the Banking Commissioner to make application for a receiver. The Banking Commissioner has no right to assume that because of the failure or refusal of the bank to furnish the information he desires, the bank is in a safe or sound condition. The very fact that information which the Banking Commissioner may determine is necessary is refused by a bank is in itself some reason for suspicion. If, therefore, through the refusal of a bank to furnish such information as you may deem necessary you are unable to determine whether it is proper for the bank to continue in the banking business. It is my judgment that you would be clearly authorized to proceed in the manner outlined in said section 55 of the general banking law.

Very respectfully,

GRANT FELLOWS.

Attorney General.

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BOARD OF DIRECTORS CANNOT INCREASE OR DECREASE THEIR NUMBER

Hon. E. H. Doyle, Banking Commissioner, Capitol, Lansing:

April 3, 1913.

Dear Sir-I have your communication of March 27th, in which you state that. "The Department has always held that the board of directors could not increase or decrease the number of stockholders' constituting the board, that the only authority delegated to the directors in this regard was that they could indicate the manner in which the members of the board should be elected, and in case of a vacancy occurring on the board between the annual meetings of stockholders, the directors have the right to fill such vacancy?" You state. "We would appreciate your opinion as to whether or not the board of directors of a state bank has the right to increase or decrease the number of members constituting the board."

In reply thereto would say it is my opinion that, at least between stockholders' meetings. the number of directors cannot be decreased or increased by the board of directors. Section 12 of the banking law provides in part that, "any vacancy in the board of directors shall be filled by the Board, and the director so appointed shall hold office until the next election." The above quoted language clearly implies a duty developing upon the board of directors to fill any vacancy that may occur. It is not a discretionary duty with the board of directors. It is a positive requirement that the vacancy "shall be filled by the board." This is a manda tory provision, and the law clearly contemplates a strict compliance therewith. Very respectfully,

(Signed) GRANT FELLOWS,

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DIRECTORS MUST HAVE FULLY PAID FOR TEN SHARES OF STOCK AT ORGANIZATION

Hon. Edward H. Doyle, Commissioner of Banking, Capitol, Lansing :

April 3, 1913.

My Dear Sir-I have your communication of March 22nd in which you inquire whether as a condition precedent of the right of a person to be elected and act as a director of a bank he must actually pay in full for at least ten shares, or if he subscribes for ten shares of stock and only pays for fifty per cent if he thereby becomes eligible as a director.

In reply thereto would say section five of the banking law requires that at least 50 per cent of the capital stock of every bank shall be paid in before it shall be authorized to commence business. Section 12 of the banking law, which relates to directors, provides in part that: "Every director must own and hold in his own name not less than ten shares of the capital stock of such bank."

The fact that a bank may be authorized to commence business with only 50 per cent of the capital stock thereof paid in has absolutely nothing to do with the statutory provision requiring every director to own and hold in his own name not less than ten shares of the capital stock. The language above quoted means exactly what it says: It means that every director must actually own, that is, that he must have fully paid for at least ten shares of the capital stock of the bank and not that he may actually pay for 50 per cent of the ten shares and subsequently have the right of ownership in the balance thereof when he makes payment therefor. Very respectfully, (Signed)

GRANT FELLOWS,

Attorney General.

TAXATION OF BANK STOCK

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Hon. Edward H. Doyle, Banking Commissioner, Capitol, Lansing:

April 26, 1913

Dear Sir-I have before me your communication of April 18th, in which you request an opinion upon the following proposition:

"First. Has the board of directors of an incorporated bank by proper procedure, the power to authorize the total stock of the bank, to be assessed to the bank by the supervisor where the bank is located, and have the taxes on stock paid by the bank, regardless of where the stockholders are located?

Second. Has the village assessor a legal right to assess the total bank stock to the bank in the village where the bank is located, where a portion is located on one side of the county and a portion outside of the village?"

In reply thereto would say the answer to your inquiries seems to be contained in the language of the 3rd subdivision of section 14 of the general tax law as found on page 27 of the pamphlet of general tax laws, revision of 1907. This subdivision provides that, "All shares in banks shall be assessed to their owners in the township, village or city where the bank is located: Provided, That the shares owned by a person residing in the county where the bank is located shall be assessed in the township or city where he resides."

My attention has not been challenged to any provision of the law that would authorize either the board of directors or the village assessor to change the method prescribed in the above statute. Accordingly, I am inclined to believe that each of the inquiries which you submitted should be answered in the negative. Very respectfully,

(Signed) GRANT FELLOWS, Attorney General.

STATE BANKS CONTEMPLATED IN CITIES OR VILLAGES ONLY

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May 10, 1913.

Hon. Albert E. Manning, Deputy Commissioner of Banking, Capitol, Lansing: Dear Sir I have your communication of May 1st in which you state that you are in receipt of an application to organize a state bank with its office and place of business to be located in "the township of Springwells," County of Wayne and State of Michigan, with a capital of $25,000.00. You ask:

"First. Can the Department legally accept the articles of incorporation with the location designated, and business to be carried on, as in a township rather than in a city or village? Second. If so what construction on the law can be placed with reference to the capital stock requirements?

Third. In other words, would the capital stock be based upon the population of the

township as a whole (inclusive, of course, of incorporated cities and villages), or would the capital stock be based upon the population of the settlement, or community, in which the bank actually transacts business?

In answer to your first inquiry, would say that section 1 of the General Banking Law seems to recognize only cities and villages as the place where a banking business may be conducted. We have, however, held that a bank may be established in an unincorporated village. (See Attorney General's Report for 1905, page 98.)

Section 2 of the General Banking Act requires the persons associating to execute articles of incorporation which shall specify: "2nd. The county and city or village where such bank is to be located and to conduct its business." It is my opinion that it was clearly the intent of the legislature to limit the place where a banking business may be conducted to either a city or village (including unincorporated villages) and that your department would have no authority to accept an application which shows upon its face that the place of business is a designated "township" rather than a city or village.

In answer to your second and third inquiries, would say if a bank is established in an incorporated village the amount for which it may be capitalized depends upon the population

have heretofore held that where a state bank is authorized to do business within an unincorporated village, that it cannot legally establish a branch agency outside of such unincorporated village and in another settlement or unincorporated village. (See opinion to Hon E. H. Doyle, Banking Commissioner, under date of February 17, 1913.)

It is therefore my opinion that the capital stock in the case you suggest would be based upon the population of the settlement, community or village, incorporated or otherwise, in which the bank is actually authorized to transact business.

Very respectfully,
(Signed)

GRANT FELLOWS,

Attorney General.

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PROPER RECORD OF REPORT OF DIRECTORS' EXAMINATIONS.

Edward H. Doyle, Commissioner of Banking, Capitól, Lansing:

June 30, 1913.

Dear Sir I have your communication of June 25th, which reads in part as follows: "We desire to call your attention to Section 15 of the law. We have recently been asked by a state bank whether they would be complying with the provisions of this section of the law if they permitted the report of directors' examination to be read at board meeting, and have the minutes of such meeting show as follows: The committee appointed on the 8th day of October to make the second examination of the year submitted report of such examination. On motion of Mr. C. report was accepted and order placed on file, and report made a part of these records.'

In reply thereto would say section 15 of the Banking Law to which you refer requires the board of directors to appoint an examining committee. The section provides that:

"The examining committee shall report to the board, give in detail all items included in the assets of the bank, which they have reason to believe are not of the value at which they appear on the books and records of the bank, and give the value of each of such items as in their judgment they may have determined. The board shall make a proper record of said report in the minute books of the bank, etc."

The material requirement is that the report of the examining committee shall be made to the board, and that the board shall make a proper record thereof. The statements set forth in the minutes as indicated by your letter, show that the report, was submitted, accepted, placed on file and made a part of the record. The statute requires the report to be recorded in the minute books of the bank. It is believed, however, that the action in question is a substantial compliance with the law. Respectfully yours. (Signed) GRANT FELLOWS, Attorney General.

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AMOUNT OF BONDS OF OFFICERS AND EMPLOYES MUST BE COMMENSURATE WITH SIZE OF BANK, ETC.

Hon. Edward H. Doyle, Commissioner of Banking, Capitol:

August 21, 1913

Dear Sir-I have your communication of the 20th in which you submit an inquiry under the Fifth subdivision of Section 4 of Act 205 of the Public Acts of 1887, as amended. Your inquiry is as follows:

"Where the directors of a bank accept bonds from officers and employes at a nominal amount only when compared to the cash and securities in their control, would the Department have the right to require bonds of a greater amount which would be more commensurate with the size of the bank, and the opportunity for defaulting or manipulating?

Will you also advise whether or not under said amendment the Department has the right to reject personal bonds of bank officers and employees where officers and bank direetors become sureties thereon ?"

The amendment to the Act in question is found in Act No. 11 of the Public Acts of 1913. The Fifth subdivision thereof reads as follows:

"To elect or appoint directors, who shall choose from their members a president and one or more vice-presidents, and shall have power to appoint and employ a cashier or treas urer, and other officers, define their duties, dismiss such officers so elected or appointed, or any of them, at pleasure and elect or appoint others to fill their places, and the board of directors shall require every officer and every clerk concerned in the handling of moneys. accounts and securities of the bank to be bonded either by a surety company authorized to do business in the State of Michigan or by a personal bond in such an amount as shall be determined by the board of directors: Provided, That the bank shall pay for any surety bonds required of its employees."

It will be observed from the foregoing quotation that it is a mandatory duty devolving upon the board of directors to require every officer and clerk concerned in the handling of moneys, accounts and securities to give a bond. The law clearly contemplates that the amount of the bond shall be for a reasonable amount and for an amount reasonably proportionate to the size of the bank, the character of employment and the opportunities afforded for wrong doing. A board of directors would not be performing its statutory duty if it approves a bond for an amount which clearly shows the action to be a mere subterfuge. is probably true that a board of directors would be liable for failure to require a bond in a proper and reasonable amount. I am inclined to believe that the Banking Commissioner has authority to require a board of directors to perform its statutory duty in approving and accepting a bond for a reasonable amount.

It

Relative to the second portion of your inquiry, the above quoted language authorizes any such officer or clerk to be bonded either by a surety company authorized to do business in the State of Michigan, or by a personal bond. It needs no argument to support the proposition that the legislature never intended that the personal bonds referred to in the above quoted law should have as sureties thereon the officers and directors of the bank.

any such bond, and that you would be acting well within your rights if you reject personal bonds of bank officers and bank employes where the sureties thereon are officers and directors of the bank.

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Respectfully yours,
(Signed) GRANT FELLOWS,
Attorney General.

DISCRETIONARY AUTHORITY VESTED IN COMMISSIONER IN CAPITAL STOCK IMPAIRMENT

Hon. E. H. Doyle, Commissioner of Banking, Capitol, Lansing:

October 2, 1913.

Dear Sir-I have your communication of September 11th, which reads as follows: "We respectfully request your opinion as to whether or not, in case of an impairment of capital stock, the Department could permit a state bank to accept, in lieu of cash, stockholders' notes pro rata to make good the deficiency of capital stock in said bank on account of bad or doubtful assets, required by the Department to be eliminated?"

In reply thereto, would say the matter of making good a deficiency as a result of the impairment of capital stock in a bank seems to be governed by section 42 of the Banking Law, being compilers' section 52 of the pamphlet of laws relating to banking, revision of 1911. This section provides in part that:

"Whenever it shall appear from the report of any bank, or the Commissioner shall have reason to believe that the capital stock of any bank is impaired or reduced below the amount required by law, it shall be the duty of the Commissioner, and he shall have the power to examine the said bank and ascertain the facts, and in case he finds such impairment or reduction of capital, he shall require such bank to make good the deficiency so appearing within sixty days after the date of such requisition."

The same section makes it the duty of the directors of the bank upon such requisition to levy the necessary assessment and prescribe the method for the sale of the stock in case the assessment is not paid.

It will be observed from the foregoing quotation that there is a mandatory requirement that the Commissioner of Banking shall require the bank to make good the deficiency. I am unable to find any provision which is controlling in the particular manner in which the deficiency shall be made good. In the absence of a statutory requirement prescribing whether the impairment may be remedied either by the payment of cash, note or collateral security, it is somewhat difficult to outline a hard and fast rule, to be generally and universally applicable, unless the particular bank, the character of the impairment and the ability of the stockholders, thereof to pay, is taken into consideration. The statutory provision which makes it the duty of the Commissioner of Banking to require the bank to make good the deficiency so appearing vests in him a large discretionary authority. It is his duty to see that the deficiency is made good. He must be satisfied, any action or approval of the board of directors to the contrary nothwithstanding. Cash or its equivalent should be required. A stockholders' note would not necessarily in every instance be a compliance with the law, while in a particular case you might be warranted in approving a note, with or without collateral security in determining whether there has been a compliance with the law and your requisition.

It is therefore my opinion that it is for the Commissioner of Banking to determine whether his requisition requiring a bank to make good the deficiency so appearing is obeyed; that there may be a compliance with the law without the payment of cash; that cash or its equivalent should be required and that in determining whether there has been a compliance with the law a note, or a note accompanied by collateral security may in the discretionary authority of the Banking Commissioner be approved in determining whether there has been a compliance with your requisition.

Very respectfully yours,
(Signed) GRANT FELLOWS,
Attorney General.

LOANS TO MUNICIPAL CORPORATIONS LIMITED TO TWENTY PER CENT OF CAPITAL AND SURPLUS.

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Hon. E. H. Doyle, Commissioner of Banking, Capitol, Lansing:

November 24, 1913.

Dear Sir-I have your communication of November 19th, directing attention to Sections 27 and 52 of the Banking Law. Your letter reads, in part as follows:

"The latter provides that a loan to any person, firm or corporation shall not exceed twenty per cent of capital and surplus; and then only upon the two-thirds authorization of the board of directors. Under said section we desire to be informed whether or not a municipal corporation can borrow on its note, signed by proper officials, an amount in excess of twenty per cent of capital and surplus. It is maintained upon the part of some banks that the limitation in said section does not apply to loans to municipal corporations; that such loans are in the nature of a public debt, as mentioned in subdivision (b), section 27 of the law, and thereby are subject to such limitations."

In reply thereto would say it is believed that the banks referred to in your letter are placing an erroneous construction upon the statute. Section 52 provides in part:

"The total liabilities to any bank of any person or of any company, corporation or firm for moneys advanced, including the liabilities of the company or firm, the liabilities of the several members thereof except special partners, shall at no time exceed one-tenth part of the amount of the capital and surplus of such bank, etc."

The same section authorizes a loan of not to exceed twenty per cent capital and surplus upon the authorization of two-thirds of the board of directors.

Section 37 refers to entirely different matter. This section prescribes a direction concerning deposits or investments, while Section 52 prescribes a limitation on loans which

Wedemeyer v. Hindelang, 161 Mich. 600 (603).

In the absence of express authority authorizing a greater loan to a municipal corporation than to any other person, firm or corporation, no good reason suggests itself to me requiring the application of a different rule. Instances might arise when it might be hazardous to a bank to overstep this limit in making loans to a municipal corporation as to any other corporation.

It is my opinion that a municipal corporation is bound by the strict terms of section 52, and that the bank has no authority to loan money to a municipal corporation on a note signed by the proper officials in an amount in excess of twenty per cent of the capital and surplus. Respectfully yours, (Signed) GRANT FELLOWS, Attorney General.

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RENEWALS WITH PROPER SIGNATURES TO BE PROCURED.

Hon. E. H. Doyle, Commissioner of Banking, Capitol, Lansing:

March 14, 1914.

Dear Sir-You have recently forwarded to this Department a letter from Charles D. Thompson of Bad Axe, Michigan, asking my opinion upon the inquiry therein made. This letter reads in part as follows:

"To avoid the objectionable practice of country banks in extending their power from time to time because of the inability to get all signers to join in new notes, it has been suggested to me that a note for the original loan with the guarantors signing under a guaranty clause of for value received, I hereby guarantee the payment of the within note at maturity, or at any time thereafter, including any renewal of same, waiving a demand, notice of non-payment and protest' could safely and properly be handled by permitting the maker to execute a new note and retaining the old note with the endorsement under the above guaranty.

This would give the banker new paper and avoid the question of extension, yet would not inconvenience his customer."

You desire to know whether there are any objections to the method outlined in the above communication.

In reply thereto would say that the principal idea contained in the suggestion seems to be that such a contract would lessen the work of the bank in procuring renewals of unpaid notes by having the renewals signed only by the parties primarily liable. It is entirely possible that such a contract would be binding upon the makers were the matter tested in court, but it occurs to me that it would establish a bad practice for banks. As a matter of practice I do not think customers of banks should be encouraged in the idea that the status of their paper is more a matter for the banks to look out for than the borrowers themselves. It is unquestionably the duty of borrowers to see that their paper is renewed as often as necessary. Regardless of the exact legal question involved I am impressed that you should not countenance the suggestion made by Mr. Thompson.

Respectfully yours,
A. B. DOUGHERTY,

Deputy Attorney General,

I return herewith Mr. Thompson's letter.

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PURCHASE PRICE OF LEASES MAY BE CARRIED AS BANKING HOUSE.

Lansing, March 17, 1914.

Hon. E. H. Doyle, Banking Commissioner, Capitol, Lansing: Dear Sir-Your communication of recent date, relative to long term leases by banks for banking houses, received and contents noted. In your first communication you state the following:

"As you are probably well aware, in the large cities in Michigan state banks are estab lishing a number of branches or agencies, and in some instances procure banking office and real estate under the long time lease, in some instances for 99 years, carrying purchase price of the lease in banking house account.

In view of the fact we are advised that certain banks may erect expensive buildings on leased grounds with the expectation of carrying same in their banking house account, we respectfully ask your opinion as to whether or not the Department has the right, under the law and all the circumstances, to permit banking house and land so held where the fee of the property is not in the bank."

The particular question is presented as to whether a certain lease entered into by the Bank, a copy of which you have procured and forwarded to me, is valid so far as the bank is concerned; and also whether buildings erected upon the ground so leased by the bank should be carried as "banking house."

I have examined this lease, which was originally made between the
Company and the
Company, parties of the first part, and

party of the second part. I assume that the lessee's rights have been assigned to the bank. Under the terms of this lease, which runs for 99 years, the lessee is required to pay $20,000.00 a year ground rent for the first ten years, and $25,000.00 a year thereafter. The lessee also agrees to construct on part of the ground a building of not less value than $50,000.00. Permission is also given in the lease by which the lessee may construct a building of not less than $100,000.00, to take the place of any buildings now or hereafter constructed. The lease contains the usual provisions for forfeiture and security for performance and provides in case of forfeiture before the end of the term also upon the termination of the lease by expiration of time, all buildings erected by the lessee shall become the property of the lessor. During the term, however, the lessee is given the right to sublet, make improvements, assign or sell his interest in the lease, or use it as security for loans, etc. The intent of the instrument apparently is that the lessee shall exercise all the rights of ownership in the building or buildings incident to ordinary ownership with the exception that the lessor has the right of entry for inspection or exhibition, and with the further reservation that the lessee may not

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