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ment as to the authority of a trust company organized under Act 108 of the Public Acts of 1889, to purchase shares of its own capital stock, is before me.
In reply thereto would say that in my opinion your question should be answered in the negative for the following reasons: (1) The statutes under which this class of corporations is organized expressly enumerates the classes of securities in which they may invest their funds. This statute contains no provision authorizing a trust company to purchase shares of its own capital stock. The classes of securities enumerated in this statute are in my opinion the only securities in which a trust company may invest its funds.
(2) The purchase of shares of its own capital stock by a trust company is a reduction of its capital stock. The statute under which these trust companies are organized provides the method for the reduction of capital stock, and in my opinion the statutory method is exclusive.
(3) Section 14 of the act under which Michigan trust companies are organized imposes upon the stockholders a liability to the extent of the amount of the stock therein, at the par value thereof, in addition to the amount invested in such shares. To permit a trust company to purchase shares of its own capital stock would permit it to impair the security intended for the benefit of creditors. Trusting this will serve to furnish you with the desired information I am, Respectfully yours.
A. B. DOUGHERTY,
TRUST COMPANIES DO NOT HAVE POWER TO EXECUTE ACCEPTANCES.
October 2, 1919.
Hon. Frank W. Merrick, Commissioner of Banking Department, Lansing, Michigan:
Dear Sir-We have the following communication from your Department: "The question has arisen as to the rights of trust companies, operating under the Michigan trust law, to execute acceptances in the same manner as our Michigan state banks are allowed to do under the banking law. I am unable to find any provision in our trust law permitting the execution of acceptances, and for that reason the matter is referred to you for an opinion as to their rights in this connection."
In answering this question we assume you have reference inter alia to the authority expressly granted to banks in subsection 8 of section 4 of the general banking law as follows: "To accept for payment at a future date, not to exceed six months, drafts drawn by the patrons, but no bank shall accept such drafts in the aggregate to an amount exceeding 50 per cent of its capital and undivided surplus, such acceptances to be considered liabilities within the meaning of limitations provided in section 52 of this act."
The above provision was added by amendment in Act 299 of the Public Acts of 1917. passing it should be said that it had been held by this Department that such acceptances (for future payment at a future date) could not be executed by State banks in the absence of express statutory permission, since it involved a species of loan of a bank's credit and a species of liability not contemplated by existing law and not embraced within their general authority. Hence the above legislation. The amendment of 1917 makes such transactions legitimate banking business.
I think it can safely be assumed, if banks could not have included such business in their transactions, in the absence of express statutory authority, that trust companies equally could not since the powers of trust companies are also strictly statutory. The authority given to State banks in the above amendment cannot inure to the benefit of trust companies. since the two kinds of institutions are governed by different laws, and trust companies, on the contrary, are not permitted to do general banking business. See section 9 of Act 108 of the Public Acts of 1889 (section 8052 of the Compiled Laws of 1915).
A close examination of the trust company act fails to reveal any direct or express pro vision authorizing trust companies to include acceptances so as to create a primary liability against the trust company as defined in the negotiable instruments law. While the silence of the statute would doubtless be a sufficient reason, a better reason for denying to trust companies the right to execute such acceptances is to be found in the strict limitations prescribed by the trust company act itself as to the character of transactions open to them, both as to employment of capital and investment of trust funds. Under the provisions of section 8052 of the Compiled Laws of 1915, trust companies shall have power to loan money upon real estate and collateral security, and to execute and issue its note and debentures, payable at a future date, and to pledge its mortgages or real estate and other securities as security therefor." Under section 8054 of the Compiled Laws of 1915, the capital stock of such companies may be invested "in bonds secured by mortgages, or notes and mortgages or unincumbered real estate within the State of Michigan, worth double the amount secured thereby or in public stocks and bonds *** and such board of directors may invest or loan the balance of its capital stock and other moneys received by such corporation in trust. in bonds secured by mortgages, or notes and mortgages, on unincumbered real estate within the State of Michigan worth double the amount secured thereby, or in public stocks and bonds of the United States *** or in such real or personal securities as they may deem proper." It will be seen that all of these investments require security, whether the funds so invested are derived from surplus capital, from loans or from trust funds in their keeping. Nowhere are they permitted to invest by loaning their funds without security.
The acceptances under discussion primarily do not call for security and on the contrary are intended to operate without ordinary direct security.
I think it can also be safely said that such acceptances have not heretofore been deemed a necessary part of trust company business within this state, and that in any event they fall more properly within the sphere of general banking operations than in that of trust com pany business, taking the distinction between the two institutions as generally laid down by the authorities for a criterion. In this connection your attention is invited to the opinion of Attorneys General Wykes and Fellows of December 31, 1912, Attorney General's Report for 1913 at page 170, where these distinctions are discussed in relation to the right of trust
As a limitation upon the general powers of trust companies, section 9 of the trust company law contains the following provision:
"But nothing herein contained shall be construed as giving the right to issue bills to circulate as money, or to buy or sell bank exchange, or to do a general banking business."
This provision is a direct limitation upon the powers granted to trust companies in the same section of the act "to act generally as agents or attorneys for the transaction of business, the management of societies, the collection of rents, interest, dividends, mortgages, bonds, bills, notes and securities for moneys." This latter provision, in my opinion, is the measure of the powers of a trust company with reference to the handling of negotiable instruments originating outside of the trust company itself. This power falls far short of granting to trust companies a general authority such as is conferred upon banks in the eighth subdivision of section 4 of the banking law. The only legitimate ways, in my opinion, that a trust company can handle negotiable instruments are in connection with their authority to make collections for their clients in which transactions they act solely as agents or attorneys; and in their regular investments permitted by law and as restricted by the terms of the trust company act; or in such limited transactions as become necessary in the discharge of their own corporate functions as distinguished from the employment of their capital and their transactions on behalf of clients.
In conclusion, I am of the opinion that direct and express legislation would be necessary before trust companies can be authorized to execute acceptances of the nature contemplated in your inquiry. Very respectfully,
ALEX J. GROESBECK,
TRUST POWERS OF NATIONAL BANKS.
Hon. Frank W. Merrick, State Banking Commissioner, Lansing, Michigan:
April 25, 1919.
Dear Sir-I have before me your communication of the 23rd instant wherein you call attention to Section 11 (k) of the Federal Reserve act, which act authorzes national banks to exercise the powers of a trust company in certain cases. You also call attention to certain rules of the Federal Reserve Board, and you request to be advised whether or not a national bank which exercises the functions of a trust company is required to deposit with the state traesurer of this state the securities provided for in the Michigan trust company act. You also request to be advised whether or not such companies are subject to examination by the state banking department, as provided for in said act.
In answer to your first inquiry, I would respectfully call your attention to the provisions of subdivision (k) of section 2 of the act of September 26, 1918, which provides in part as follows:
"Whenever the laws of a State require corporations acting in a fiduciary capacity, to deposit securities with the State authorities for the protection of private or court trust, national banks so acting shall be required to make similar deposits and securities so deposited shall be held for the protection of private or court trusts, as provided by the State law."
You will note from reading the foregoing that a national bank exercising the functions of a trust company is obliged to deposit with the treasurer of this state the securities provided for in the act governing Michigan trust companies.
In answer to your second inquiry, I would respectfully call your attention to subdivision (k) of section 2 of the act of September 26, 1918, which provides in part as follows: "National banks exercising any or all of the powers enumerated in this subsection shall segregate all assets held in any fiduciary capacity from the general assets of the bank and shall keep a separate set of books and records showing a proper detail all transactions engaged in under authority of this sub-section. Such books and records shall be open to inspection by the State authorities to the same extent as the books and records of corporations organized under State law which exercise fiduciary powers, but nothing in this Act shall be construed as authorizing the State authorities to examine the books, records, and assets of the national bank which are not held in trust under authority of this sub-section."
You will note from the foregoing that you have the same authority to examine the books and records of a national bank exercising the functions of a trust company, insofar as the conduct of its affairs as a trust company is concerned, as is conferred upon you by the statutes of this state in reference to Michigan trust companies.
Trusting this will serve to furnish you with the desired information, I am
Hon. Frank W. Merrick, Commissioner of Banking, Lansing, Michigan:
May 8, 1919.
Dear Sir I have before me your communication of the 1st instant, wherein you call attention to our letter of the 25th ultimo in reference to the authority conferred upon the state banking commission by the federal reserve act to examine national banks exercising the powers of trust companies, insofar as the conduct of their affairs pertains to the trust company business; also in reference to the deposit of securities by said banks with the state treasurer, and request to be advised whether or not in my opinion it is your duty, under the statutes of this state, to require this deposit to be made and to conduct an examination of the affairs of these banks exercising the functions of a trust company, as is done in the case of trust companies organized under the laws of this state.
In reply thereto would say that inasmuch as Congress, by appropriate legislation, has placed these banks exercising the functions of a trust company on the same footing as trust companies organized under the state law, insofar as the requirements as to deposits and examinations are concerned, I am of the opinion that to that extent such banks must be
your duties in that connection are the same as your duties in relation to trust companies organized under the laws of this state.
Mr. Joseph Conway, Deputy State Banking Commissioner, Lansing, Michigan:
Dear Sir-We refer to yours of the 19th instant in which you ask this Department's opinion on the following:
"In the assets of banks under our supervision, we frequently find loans which are secured by assignments of vendors' equities in land contracts. The question on which we would apprecitae your opinion pertains to what may be considered a proper legal assignment of a vendor's equity in a land contract as collateral."
We know of no agreement or arrangement that can be made referring to the vendee's contract or the vendor's equity in a contract that will have the result of placing a lien upon the property sold by the vendor. Such agreements can be enforced as agreements and under some circumstances it probably would be true that an equitable lien against property involved could be enforced, but this could only be done after a determination by proper legal procedure. Whenever it is deemed advisable to have the security of the land itself back of the loan that is made, it is necessary that some conveyance be given whereby the land becomes security for the loan. This can be done either by deed or mortgage, and if by deed the same should be recorded as a mortgage. The condition that exists does not differ in any way from that where a loan is asked by the owner of lands not subject to land contract. A quit claim deed conveys the same interest as a warranty deed, the only difference in the two being that in a warranty deed the vendor guarantees or warrants the title, while no warranty exists with the quit claim deed, but so far as the interest conveyed it is the same in either instance.
Trust the above opinion gives you the information desired.
BANKS LIABILITY WHERE DEPOSIT BOXES ARE RENTED TO TWO INDIVIDUALS JOINTLY.
Hon. Hugh McPherson, Lansing, Michigan:
June 11, 1921.
Dear Sir-Your letter of recent date received as follows: "State banks often rent safety deposit boxes to husband and wife, the name of both appearing as lessees and each having access to the box, where, presumably, each has deposited their individual papers, and others.
"The question has arisen, whether a bank, in the case of the death of one or the other of the lessees, has the right to permit the survivor to have access to the box? We shall appreciate an expression of opinion from you in this regard.
"Also, in reference to a question as to the duty of the bank under section nine of the Inheritance Tax Law, being Section 14532 of the Compiled Laws, as amended. This section seems to require that notice be given to the county treasurer before safety deposit boxes of deceased persons may be opened. The question has arisen in some banks as to whether they should deny the right of the survivor to have access to the box until notice has been given to the county treasurer, in instances where the box is rented to two persons and the name of each appears as a lessee."
Under the facts as stated in your letter, the death of one of the lessees of the safety deposit box would not terminate the right of the other lessee, unless there has been an agreement to that effect. However, the mere fact that the box had been rented jointly would have no necessary bearing upon the question of the title to the contents of the box after the death of one of the lessees. Ordinarily, there is no survivorship in personal property in this State excepting as created by statute. It is true that a species of such survivorship may be created by making a gift causa mortis.
Johnson v. State Bank, 151 Mich. 538.
Ludwig v. Bruner, 203 Mich. 556.
As to the liability of the bank under Section 9 of the Inheritance Tax Law, that would largely depend upon the facts; and most of all upon what degree of control the bank retains over the deposit box. Many banks make a practice of retaining a key which must be used in opening the safety deposit box, and where that is the case it would seem that the bank has sufficient control over the box to bring it within the provisions of Section 9. In any event, prudence would dictate that the bank protect itself by notifying the county treasurer, or by obtaining instructions from the court. before permitting the possible assets of the decedant from being taken from the box.
Owing to the variety of circumstances under which these questions may arise, it would be difficult, if not impossoble, to make any ruling that would apply in every case, and I would prefer to leave the matter that way.
Very truly yours,
LAND CONTRACTS NOT LEGAL INVESTMENTS FOR STATE BANKS.
July 13, 1921.
Hon. Hugh McPherson, Commissioner of Banking. Lansing, Michigan :
"We have several letters from a state bank in which they contend that it is legal for them to invest their funds in land contracts, purchasing the same from the original vendors by means of a warranty deed recorded as a deed only, conveying title to the property sold under the contract and subject to any prior existing mortgage liens that may be upon the property. Supporting their contention that this action is legal, they refer to an opinion of former Attorney General Kuhn, rendered this Department December 7, 1911, and to Supreme Court decisions mentioned therein.
"It has been our position that land contracts do not constitute proper investments for state banks as contemplated by the banking law. The acceptance of a warranty deed from the vendor, conveying his interest appears to us to amount to the outright purchase of real estate, subject to the interest of the vendee. Section 11 of the banking act seems to specifically prohibit such transactions.
"Kindly advise as to your opinion as to the legality of investments of this kind."
In reply thereto would say that I have examined the opinion of Attorney General Kuhn, dated December 7, 1911, found on page 197 of the Attorney General's Report for 1912, and it seems to me that this opinion fully sustains the position taken by your department with reference to land contracts as investments for savings banks, and fails to sustain the position taken by the bank, to which you refer, that a state bank may purchase for investment the vendor's interest in land contracts.
As I understand the position which has for many years been taken by your Department, a bank may loan money upon the security of the vendor's interest in a land contract and in connection therewith may take by deed the vendor's title to the land itself by way of mortgage security, but that where a bank attempts to purchase the vendor's interest outright and takes along with such purchase the vendor's title to the land itself, such a transaction is not deemed to be within any of the provisions of Section 27 of the General Banking Law.
We do not seem to have any decisions in this state squarely in point and the matter has heretofore rested upon construction by your department and this Department. I see no reason at this time for disagreeing with the opinion of former Attorney General Kuhn who has stated the matter very clearly in the opinion first above referred to. In other words, I think you would be safe in advising the bank in question that the purchase outright of land contracts out of funds of the bank for pure purposes of investment or speculation is not permitted by the banking laws of this state. Respectfully yours,
BANKS NOT REQUIRED TO FILE STOCKHOLDERS LIST WITH SECRETARY OF STATE.
February 17, 1922.
Hon. Hugh McPherson, State Banking Commissioner, Lansing, Michigan:
Dear Sir-We have your letter of the 15th instant, requesting an opinion as to whether or not Section 15082 of the Compiled Laws of 1915 requiring corporations to file lists of their stockholders with the Secretary of State applies to banks organized under the general banking laws of this State.
In reply thereto, you are advised that Section 15082 reads as follows:
"Every banking, insurance, mining, plank road, or other incorporated company, which issues script or shares, shall within ninety days after the passage of this act, file with the secretary of state a list of the number of shares issued by said corporation, and the names of the owners thereof and their postoffice addresses, with the number of shares owned by each; and annually thereafter shall file with said secretary of state during the months of January or February, in each and every year, a statement similar to that above required, showing the ownership of the shares of said corporation at the day of the date of said statement; all of which statements, including the first, shall be made by one of the officers of said company, under oath, Provided, That corporations which file an annual report with the secretary of state containing a list of stockholders with the post office addresses and the number of shares held by each, shall not be required to file a separate list under this act."
Your attention is particularly called to the proviso in this section.
"There is hereby established in the state department a separate and distinct bureau which shall have charge of the execution of the laws relating to banks, trust, loan, mortgage security, or safety deposit companies formed and transacting business under the laws of this state, to be designated as the state banking department.'
Section 15 of the banking law requires banks to file lists of stockholders with the Commissioner annually. While it is true that the Banking Department is operated independently of the State Department, yet the provision of Section 35 quoted above, and which has never been repealed or modified, distinctly makes the Banking Department a bureau of the State Department and, in my opinion, the filing of a list of stockholders with the Commissioner is equivalent to filing the same with the Secretary of State. follows, therefore, that banks are not required to comply with Section 15082.
Very truly yours,
IN RE: BORROWERS RIGHT TO SET-OFF.
June 14, 1922.
Hon. Hugh McPherson, State Banking Commissioner, Lansing, Michigan: Dear Sir-Your recent letter received as follows: "In the liquidation of the affairs of the question will undoubtedly arise as to the right of a depositor in the savings department to offset his loan which may be carried in the commercial department. We respectfully ask your opinion as to the rights of the depositor in such a case and as to the duty of the
"It should be remembered that when a customer deposits money in the bank he determines for himself whether his deposit shall be a commercial or a savings deposit, but when a customer negotiates a loan from the bank he is not in position to make such a determination. In the latter case at least it is customary for the bank to determine for itself whether the customer's loan shall be carried as a commercial or a savings asset. Your early advice in this matter will be appreciated."
In reply thereto, would state that the right of set-off in any case results from the relation of debtor and creditor as between the bank and its borrowers or depositors. In the absence of statute, and as applied to private banks in this State, this Department has held that the right of set-off exists regardless of whether the loan was made on the commercial or savings side of the bank. Attorney General's Report for 1913, page 548.
With regard to banks organized under the General Banking Law, however, I am of the opinion that a clear distinction must be made. In Peters v. Union Trust Company, 131 Mich. 322, it was held that the securities and deposits in the savings department of a bank having both a commercial and savings business must be segregated and held for the benefit of the savings depositors. It seems clear from the decision in the above case that securities for loans made out of the savings deposits could not be surrendered by way of set-off to a commercial deposit without at the same time taking from the savings side of the bank an asset which belongs to it for the benefit of its depositors.
In the final liquidation of a State bank after the savings depositors have been satisfied, or after their claims have been paid, the remainder of the assets on the savings side of the bank would, of course, be available for general creditors. Trusting this makes the matter clear, I am,
Very truly yours,
COMMISSIONER'S AUTHORITY RE: CONSOLIDATIONS.
October 24, 1922.
Hon. Hugh A. McPherson, State Banking Commissioner, Lansing, Michigan: Dear Sir-Your letter of the 23rd instant received as follows: "Section 54 A of Act 205 of the Public Acts of 1887, commonly known as the general banking law, provides for the consolidation of state and national banks. We have before us the proposition of the consolidation of a Michigan national bank The statute does not appear to be clear regarding the authority of the Commissioner of this Department to prevent this action by his disapproval. We will appreciate your opinion regarding the authority of the Commissioner to maintain a separation of the assets of two institutions, providing that in his opinion the creditors of the state bank might be defeated or defrauded by the consolidation.
In answer to your letter we call your attention to the following provision appearing in Section 54 A: "It shall also be the duty of the commissioner of the banking department, to cause an examination of each bank and no such consolidation shall be made without the consent of the commissioner of the banking department, and not then to defeat or defraud any of the creditors of either of the banks parties to such consolidation."
Under this provision the State Banking Department has authority to withhold its consent to the consolidation for the protection of the creditors of the state bank, and, in my opinion, also for the protection of the stockholders of the state bank it may require, and it is its duty to require an examination to be made of the national bank as well as the state bank prior to final action upon the consolidation. In case the national bank should refuse to permit an examination, then it would be the duty to withhold its consent. In other words, we are of the opinion that the statute referred to in your letter gives you all of the power and authority necessary to prevent a consolidation until the commissioner is satisfied that neither bank, nor the creditors of either bank, will be harmed by the transaction.
Yours very truly,