REPORT OF THE COMMISSIONER 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 statute. 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 associa The General Banking Laws have placed upon banking corporations special tion limited law. restrictions and limitations not applicable to other corporations or to partnership associar tions 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 The opinion herein given is 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." 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 The liability incurred by members of a partnership acting under the former same business. 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, (26) 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 so associating are required to execute The persons organization of commercial banks by any number of persons not less than five who may associate together for that purpose. 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 interested 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 one of the original incorporators. It seems to me that in principle an stock therein as 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, Attorney General. (27) TRUST COMPANIES MAY RECEIVE DEPOSITS AND ISSUE CERTIFICATES THEREFOR. December 31, 1912. Hon. Edward H. Doyle, Commissioner of Banking, Capitol, Lansing: Dear Sir-In your communication to this department of November 26th, 1912, you present for consideration the following questions: "Refering to Act No. 108 of the Public Acts 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 certifi cates 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 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 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: (a) To act in various capacities as a trustee. (b) 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 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 there 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 sections 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 -banks of issue, banks of deposits and banks of discount. The modern banking institution, 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 v. The Urbana and Chamgaign 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 subject 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 deposit 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 Connellsville, Pa., Feb. 5, 1900. J. F. Barrows has deposited with this company five hundred dollars, payable to the order of J. F. Barrows on return of this certificate properly endorsed. W. M. Ruth, Certificate of Deposit. Not subject to check. Treasurer. The question arose respecting the right of the Trust Company to issue certificates and Circuit Judge Acheson said: "That the defendant company is authorized to receive deposits of money is conceded, but it is denied that it had lawful authority to issue such certificates as those in suit. There is, however, no statutory or other inhibition of such certificates. These certificates are in the form commonly used everywhere in the commercial world by bankers and companies receiving money deposits and the defendant's right to issue them in the course of its business and as an incident thereto is not to be doubted." In Michigan, as well as in many other states, a certificate of deposit is considered to be a promissory note subject to the same rules and conditions. This we believe to be the law in all but three of the states, namely Massachusetts, Pennsylvania and Texas. The authority to receive money would carry with it the authority to give an evidence of its receipt in the form of a note, and this would extend to and permit the issuance of a certificate of deposit. There has been some question as to whether a demand certificate could be given, and whether if the right to issue certificates exists it is not limited to time certificates. We think however, that the authority to issue a certificate carries with it the authority to issue it either payable at a stated time, or upon demand. "It will be noted that trust companies are not expressly required to maintain a reserve as it is required to be maintained by state banks in that they are expressly required to maintain as reserves only 20% of their matured obligations, while state banks are required to maintain 15 to 20% of all obligations. We doubt somewhat the policy of permitting a trust company to do a deposit business without maintaining at least the same reserve that is maintained by state banks. To this question we wish to direct the attention of the legislature to the necessity of express legislation requiring the maintaining of sufficient reserves by trust companies in case the authority which the present law gives them to receive deposits is to be continued." (28) We concur in the above opinion. (Signed) GRANT FELlows. ROGER I. WYKES. VACANCY ON BOARD THROUGH FAILURE OF STOCKHOLDERS TO ELECT CANNOT BE FILLED Lansing, January 8, 1913. Hon. Albert E. Manning, Deputy Commissioner of Banking Department, Lansing, Michigan: Dear Sir-I am in receipt of your communication of December 30th enclosing copy of letter received by your department from Mr. William V. Moore, of Detroit, relative to amending the articles of association of a certain state bank organized in the year 1871 under what is known as the old banking law, and asking for an opinion from this department with reference to the same. Mr. Moore's letter states that in the original articles filed by the Wayne County Savings Bank in 1871, the first directors were named and their number was fixed by Article 7; that subsequently by amended articles filed February 12, 1885, the number of directors was fixed at 9; and later, after certificates had been filed under the new banking law bringing the bank within its provisions, the number of directors was fixed at 11 by a resolution of the stockholders adopted January 11, 1900. It is now proposed to amend the articles of association by providing that the board of directors shall be elected at the regular annual meeting in January of each year, that the number of directors to be elected shall be regulated by a by-law prescribed by the board of directors, and that such by-law may provide for the filling of any vacancy on said board arising through a failure to elect at the regular annual meeting, or through the death, resignation or incapacity of any director duly elected. You wish to know whether or not such an amendment will be legal. Section 4 of the old banking law (Section 2185 of the Laws of 1871), under which the Wayne County Savings Bank was organized, provides for a board of directors of not more than nine members. The present banking law under which that bank is now operating by virtue of having filed the certificate required by section 60 thereof (Section 6149, Compiled Laws of 1897) does not limit the number of directors. Section 4 of the law (Section 6093, Compiled Laws of 1897) provides in part that a bank upon filing its articles shall be a body corporate, and as such shall have power: "Fifth. To elect or appoint directors "Sixth. To prescribe by its board of directors, by-laws not inconsistent with law, regulating the manner in which its stock shall be transferred, its directors and officers elected or appointed, its stockholders convened for special meetings, its property transferred, its general business conducted and the privileges granted to it by law exercised and enjoyed." Section 12 of the present law (Section 6101, Compiled Laws of 1897 as amended) provides in part that "the affairs of each bank shall be managed by a board of not less than five directors who shall be elected by the stockholders." As the certificate filed by the Wayne County Savings Bank under section 60 (since repealed) of the present banking law brought it within its provisions, it is now governed by the provisions above set forth with reference to the number and manner of election of its directors. Under these provisions there are no limitations as to the number of directors, except that there cannot be less than five. The directors must, however, be elected at the annual meeting of the stockholders in January, and if "for any cause an election is not had at that meeting it may be had at a subsequent meeting called for that purpose." Vacancies in the board of directors shall be filled by the board, but I am of the opinion that this does not mean such vacancies as are created by failure of the stockholders to elect at an annual meeting. The proposed amendment to the original articles of the Wayne County Savings Bank, above referred to, provides for the election of a board of directors at the regular annual meeting in January, provides that the number of directors to be elected shall be regulated by a by-law prescribed by the board of directors, and provides further that said by-law may provide for the filling of any vacancy on the Board arising through a failure to elect at the regular annual REPORT OF THE COMMISSIONER meeting, or through the death, resignation or incapacity of any director duly elected. None of these provisions, except the one relating to the filling of a vacancy on the board caused by failure to elect at an annual meeting, is inconsistent with the provisions of the present banking law, and it would therefore be entirely proper and legal to incorporate them into the original articles by the proposed amendment. I am of the opinion, however, that the provision relative to the filling of a vacancy on the board caused by failure to elect at the annual meeting is inconsistent with the terms of section 21 of the present banking law above set forth, and such As hereinbefore stated, a vacancy caused by the failure provisions would therefore be illegal. to elect at an annual meeting is not such a vacancy as can be filled by the board of directors itself. It may be suggested, that the provisions which can be incorporated into the articles of association of the Wayne County Savings Bank by amendment, and which are not already a part of its charter because contained in the banking law, can be made just as legal and efficacious by a by-law adopted by the board of directors under subdivision 6 of section 4 of the banking law, which gives the board of directors power to make by-laws not inconsistent with law regulating the manner of election or appointment of its directors and officers. (29) Very respectfully, STATE BANKS MAY OPEN ON LEGAL HOLIDAYS WITH CERTAIN RESTRICTIONS. March 15, 1913. Hon. Edward H. Doyle, Banking Commissioner, Capitol, Lansing: Dear Sir-I have yours of the 12th inst, in which you state: "We have had several inquiries of late from state banks asking whether or not a state bank could keep open on all holidays for the transaction of a general business except such business which relates to the presentation for payment or acceptance or protesting of promisory notes and other obligations. We have always taken the position that there was nothing in the law to prohibit a bank from keeping open on any of the holidays mentioned in Act 124 of the Public Acts of 1865 as amended and transacting business except that relating to presentation, acceptance or protesting of notes, etc." In reply thereto would state that the language of the Act in question is somewhat confusing. "An Act designating the holidays to be observed in The title of the Act being as follows: the acceptance and payment of bills of exchange and promissory notes, in holding of courts While Section 1 as amended by Act 246 of the Public and relative to the continuance of suits." Acts of 1909, provides, in part, as follows: "Provided, further, That nothing herein contained shall be construed to prevent or invalidate the entry, issuance, service or execution of any writ, summons or confession of judgment or other legal process whatever, holding courts or the transaction of any lawful business except banking on any of the Saturday afternoons herein designated as half holidays, nor to prevent any bank from keeping its doors open or transacting its business on any of the said Saturday afternoons, if by a vote of its directors it elects to do so." From a reading of the last section it might be implied that there was a legal restriction against keeping a bank open upon a legal holiday. I do not believe, however, that this was the legislative intent; but that on the contrary the intent was, as is set forth in the title of the act itself, namely; the prevention of the acceptance and payment of bills of exchange and promissory notes. Consequently, I am of the opinion that to keep a bank open for purposes other than the ones stated would not be a violation of the law, and that your ruling in the matter has been right. (30) Very respectfully, A. B. DOUGHERTY, Deputy Attorney General. COMMISSIONER MAY REQUIRE INFORMATION TENDING TO SHOW BANK'S CONDITION. Hon. Edward H. Doyle, Banking Commissioner, Capitol, Lansing: March 24, 1913. Dear Sir-I have your communication of March 17th calling attention to sections 21, 39 You state: and 55 of the General Banking Laws relating to reports to be made by state banks and the furnishing of information to the Banking Commissioner. "We would appreciate your opinion as to whether or not a state bank has the right to To what extent could the Department go in withhold information of any character from the Commissioner, his deputy, or one of the bank examiners, upon being requested to furnish same. case of refusal to furnish any information affecting the condition of the bank?" In reply thereto would say section 21 of the general banking law requires every bank to make certain reports according to the forms which he (Commissioner of Banking) shall prescribe and furnish. This section also provides that "Such reports shall exhibit in detail, and Also that "Such Commissioner shall also have under appropriate heads, the resources, assets and liabilities of the bank at the close of business of any past day by him specified," etc. Section 39 provides: 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." "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 willful 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 manner prescribed by law." |