On this proposition I think we are agreed that State Banks may under Section 6100 of the Compiled Laws of 1897 enter into a lease of the nature indicated. This section provides, in part, as follows: "A bank may purchase, hold and convey real estate for the following purposes, but no other: First, such as shall be necessary for the convenient transaction of its business, including with its banking offices other apartments to rent as a source of income, but which shall not exceed 50% of its paid in capital * * The National Banking Act (Revised Statutes, Section 5137) contains a very similar provision, namely: "A National Banking Association may purchase, hold and convey real estate for the following purposes and for no others: First, such as shall be necessary for its immediate accommodation in the transaction of its business. * * *"* Under this provision of the National Banking Law, the Supreme Court of the United States held in several instances that National Banks possessed the power to purchase and hold long term leases, provided such leases are bona fide. See Brown v. Schleier, 194 U. S., 18, affirming the decision of the Circuit Court of Appeals in the same case, reported 118 Fed. 981. I think this decision is conclusive upon the proposition, and that therefore it is intra vires of our State banks to enter into such a lease in preference to obtaining the fee. Your second inquiry is as to whether under such a lease the investment of the lessee bank should be carried under the head "Banking House." Upon this proposition so far as I have been able to find the authorities do not throw any light. If the bank had obtained the fee in the land upon which the building is erected it would be carried in its accounts as "Banking House." Having less than a fee, and an interest which might be forfeited through non-performance on the part of the bank, and the terms of the lease itself imposing a continuous liability upon the lessee bank, there is some question as to whether this lease is an asset or a liability. It is a liability to the extent that the bank must pay its rent whether it obtains any income from the building or not, and it has the further liability that it must erect a building worth not less than $50,000.00 upon the land, and it must at all times after the erection of such building maintain the new building and older buildings at a value of not less than $100,000.00. Undoubtedly if the plans of the bank do not miscarry the lease will be a valuable asset. Independent of such consideration, however, and which are largely speculative, the fact remains that the bank has invested, or will invest, a specified amount of money in the erection of a building or buildings for its own use as a bank. do not see how such an investment can be treated differently from the investment in a fee, both being for the same purpose. The only difference would be as to actual value. I understand that National Banks owning their banking houses under similar leases are permitted to carry the same in "Banking House" account. I am therefore of the opinion that the same rule should apply to State Banks. The amount which should be carried as "Banking House" account should not exceed the actual value of the buildings erected by the bank under the lease, and should not include the annual rental paid for the ground or buildings erected by the landlord. Respectfully yours, GRANT FELLOWS, Lansing, June 5, 1914. (41) Hon. E. H. Doyle, State Banking Commissioner, Capitol: Dear Sir-Your communication of the 1st inst. received, in which you request my opinion on a proposition submitted to you by the Bank. This proposition is as follows: "The Bank has outgrown its present quarters and it is absolutely necessary that we obtain a larger site or go to practically the same expense of rebuilding on the present site, and then not have a desirable building on account of the narrow lot which we now occupy, it being only 21 feet. "There is a building adjacent to our present location of 28 feet, the title of which stands as follows: The property was willed by a Mr. to his two daughters, a Mrs. and a Miss who have the use thereof for their natural lives. At the death of either one, the title is to go to her heirs. Miss is a maiden lady 60 years old. Mrs. the other tenant, is married and is now of the age of 56 years. She has three children, who will be the remaindermen of her interest in the property and undoubtedly the remaindermen of the maiden lady, unless Mrs. should survive her. "These life tenants are willing to sell to the bank, but the remaindermen do not wish to sell, claiming the money is well invested and that they would rather the investment would stand until the death of the life tenants. "The question arises as to whether the bank would have the right to take over the parties' interests by all of them joining in a lease, coupled with an option to purchase on the death of the life tenants, so that they could go on and erect a bank building, and pay the life tenants a rental during their lives, and at the end of the lease period, or at the death of the life tenants, have the option to purchase become operative and they convey their interests in fee to the present bank or its successor." In reply thereto would say that this proposition is similar to that involved in my opinion given you March 17th, 1914, relative to banks building on leased property. In this particular case the lease and option would necessarily have to include both the life tenants and all the possible remaindermen. GRANT FELLOWS, TREASURER OF MUNICIPALITY NOT TO DEPOSIT FUNDS IN BANK WHERE HE IS STOCKHOLDER OR OTHERWISE. (42) Hon. Edward H. Doyle, Commissioner of Banking, Capitol: April 29, 1914. Dear Sir-Your oral communication on the following proposition has been considered. You hand in a communication from Mr. Leon J. Navarre, of Essexville, Michigan, as follows: "The writer, who is a stockholder and director in the State Savings Bank of Essexville, has been elected treasurer of the village of Essexville. "An opinion has been handed me this morning which concerns the deposit of money which I may handle as such treasurer. The opinion is from the law firm of Coumans & Gaffney, of Bay City, and is enclosed herewith for your inspection. "The writer talked over phone this morning to Mr. Manning, who stated that if the village designated this bank as a depository everything would be all right. "I do not wish to do anything contrary to the rules of the department and wish you would write me in this regard, so that your decision may be submitted at the directors' meeting and settle any question with regard to your office." Accompanying this was also an opinion given by Messrs. Coumans & Gaffney, of Bay City, bearing upon the proposition, the conclusion of which is as follows: "Therefore, we conclude that by the provisions of Sections 892, 893 and 895, the treasurer of any municipality is forbidden to deposit moneys in any bank in which he is a stockholder or otherwise.' The references are to Howell's Michigan Statutes (new). In reply thereto would say that it has heretofore been the position of this department that the treasurers of the various municipalities can not deposit the funds which they hold as such treasurers in banks in which they are interested as stockholders, directors or officers. This, however, is modified by the provisions of Acts 99 and 305, Public Acts of 1909. Act 99 applies to counties, and 305 applies to townships. Both of these acts provide for the deposit of public funds in banks to be designated by Boards of Supervisors, County Auditors and Township Boards, as the case may be. Under either Act the treasurer is relieved from his responsibility in case of the failure of the banks in which the deposits are made where the depositories are designated in accordance with the terms of the Acts. I think it would also follow that where the Board of Supervisors or the Township Board, as the case may be, has undertaken to designate a depository for the funds, the treasurer would not be violating any law following the directions of those having the right to designate such depositories. This however, is by virtue of express statutes. As to such officials as do not come within the terms of the above Acts, I think the old rule would fully apply. The general school law also contains a provision by which the electors of a primary school district may designate the depository of the school district funds. Where this is done, I am of the opinion that it would relieve the treasurer of any liability for depositing funds in a bank in which he might be interested in the same way as in the case of Counties or Townships. In the absence of express statute I think the opinion given by Coumans & Gaffney is correct. (43) Respectfully yours, GRANT FELLOWS, SIGNER ON FACE OF NOTE CONSIDERED MAKER UNLESS OTHERWISE DESIGNATED. Hon. E. H. Doyle, State Banking Commissioner, Capitol: April 29, 1914. Dear Sir-Replying to your oral request for an opinion as to the liability of the signers of a promissory note for the following form: "$100.00 Michigan, Jan'y. 1, 1914. Sixty days after date I promise to pay to the order of THE FIRST STATE BANK OF.. MICHIGAN, One Hundred Dollars at its office, value received, with interest at 7 per cent per annum after due, waiving notice of demand, dishonor and protest. Due... I wish to advise you as follows: JOHN SMITH, It will be noted that the instrument is signed by two parties on its face, neither party having been required to sign on the back. What you desire to know in particular is as to the liability of William Jones, the second signer, who claims to have signed the note as accommodation party and not as a beneficiary. an In reply thereto, I call your attention to the following provisions of Act 265 of the Public Acts of 1905: "Section 2. The person primarily liable on an instrument is the person who by the terms of the instrument is absolutely required to pay the same. All other parties are secondarily liable." "Section 26. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value." "Section 31. ACCOMMODATION PARTY, Liability of-An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or endorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party." "Section 65. When person deemed endorser-A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be an endorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity." In view of the above provisions and the numerous authorities, there can be no doubt that in an instrument executed in the above form William Jones would be prima facie deemed to be the maker of the note, there being nothing on the face of the instrument to show that he signed the same in any other capacity. (44) Respectfully yours, GRANT FELLOWS, Attorney General. STATE BANKS NOT TO PLEDGE ASSETS IN LIEU OF BOND TO SECURE COUNTY FUNDS. Hon. Albert E. Manning, Deputy Banking Commissioner, Capitol: April 29, 1914. Dear Sir-I have your communication of the 28th inst., requesting my opinion as to whether or not a state bank can pledge its bonds with the County Treasurer in order to secure or guarantee county deposits. You have also forwarded to me the communication from the Bank, in which the question is raised. .... In reply thereto would say the only direct authority for the deposit of county funds with banks is found in Act 99 of the Public Acts of 1909. Before the passage of this Act, and even now in the absence of affirmative action by the Board of Supervsiors, or Board of County Auditors, the County Treasurer was held absolutely responsible for all county funds. There was no direct authority for his depositing the county moneys with banks or other depositories unless as in some cases by local legislation. Under the provisions of Act 99 of the Public Acts of 1909, above referred to, the Board of Supervisors may designate a depository for county funds under certain conditions. Your attention is called particularly to Section 3 of this Act, which provides as follows: "Before any deposit shall be made with any bank or banks as aforesaid, such bank or banks shall execute and deliver to the Board of Supervisors or the Board of County Auditors, as the case may be, a good and sufficient bond in an amount at least equal to the maximum amount to be deposited in such bank, and with such sureties as shall be approved by such board and the Prosecuting Attorney of the county. Said bonds shall be made to the county and shall be conditioned for the safe keeping and repayment of such moneys or any part thereof on demand and the payment of said interest, and shall contain such other conditions as may be required by the Board of Supervisors or the Board of County Auditors, not inconsistent with the provisions of this Act.' The condition prescribed in Section 3 is, in my opinion, an absolute one and for which there would be no authority to make a substitution. The depositing of collateral securities would not, in my opinion, fulfill the conditions prescribed in the Act. I am assuming for the purpose of this opinion that the Board of Supervisors or the Board of County Auditors of Wayne has undertaken to designate the depositories for their county funds either under the provisions of the above Act or some other similar law. (45) CERTAIN MUNICIPAL PUBLIC UTILITY BONDS NOT LEGAL SAVINGS INVESTMENTS. Hon. E. H. Doyle, State Banking Commissioner, Capitol: October 26, 1914. Dear Sir-You have referred to me a communication from a public committee in the City of Ypsilanti, requesting an opinion as to whether a proposed issue of utility bonds would come within the class of investments permitted to be made by savings banks organized under the Michigan Banking Law. The City of Ypsilanti has recently authorized the purchase of the Ypsilanti gas plant and has authorized an issue of one hundred thirty thousand dollars of mortgage bonds to pay for this plant, the bonds not being a liability upon the general credit of the city but being secured solely by a trust mortgage covering the property and revenues of the gas plant, including a twenty-year franchise in case of foreclosure. Section 27 of the State Banking Law prescribes the class of investments which may be made by savings banks of the savings money on deposit. There are several classes which are described in sub-sections (a) to (i) of this section. There are two classes of public bonds: (a) Bonds of the United States, or any State or Territory of the United States: (b) The public debt or bonds of any city, county, township, village, or school district of any State or Territory in the United States, which shall have been authorized by the legislature of such State or territory. The action of the City of Ypsilanti in purchasing the gas plant from a private corporation was evidently based upon the permission given in Section 4 of Act 279 of the Public Acts of 1909, as amended by Act 5 of the Public Acts of 1913. This section provides in part as follows: "Each city may in its charter provide: (b) For borrowing money on the credit of the city in a sum not to exceed eight per * * * * when centum of the assessed value of all real and personal property in the city a city is authorized to acquire or operate any public utility, it may for the purpose of acquiring the same borrow money on the credit of the city in a sum not to exceed two per centum of the assessed value of all the real and personal property of the city, and the city may also, for the purpose of acquiring such public utility, issue mortgage bonds therefor beyond the general limit of bonded indebtedness prescribed by law: Provided, That such mortgage bonds issued beyond the general limits of bonded indebtedness prescribed by law shall not impose any liability upon such city, but shall be secured only upon the property and revenues of such public utility, including a franchise stating the terms upon which in case of foreclosure, the purchaser may operate the same And provided further, That the charter shall provide for the creation of a sinking fund by setting aside such percentage of the gross or net earnings of the public utility as may be deemed sufficient for the payment * * * * The question arising from your inquiry is, whether bonds of the class described and issued by the City of Ypsilanti come within the provisions of sub-section b of Section 27 of the Banking Law above quoted. Section 27 of the banking law was last amended by Act 44 of the Public Acts of 1913 and was therefore re-enacted in its present form subsequent to the passage of Section 4 of the City Home Rule Law and under the ordinary rules of statutory construction must therefore be deemed to have been enacted in view of the provisions of the City Home Rule Law. The precise question under consideration involves the definition of the term "in the public debt or bonds of any city." The banking law does not attempt to define this term any more than is implied in the language used, and so far as I have been able to discover, the Supreme Court of this State has never been called upon to pass upon the question. It is also one of the first impressions so far as this department is concerned. The purpose of the provisions of Section 27 is to throw proper safeguards around the investments of savings deposits and like other similar provisions of our banking law, and the banking laws of other states and of the United States, must be strictly construed to give it its intended effect. In order that savings banks may invest in such debts or bonds, they must correspond to all the requirements of the statute, that is, they must be public debts or bonds and must pertain to the city, county, township, village or school district as the case may be and must have been authorized by the Legislature. So far as the particular bonds under consideration are concerned, I have no hestitation in saying that they are, strictly speaking, public bonds, and may be assumed to have been authorized by the Legislature of this State, at least for the purposes of this opinion. Whether or not they are the bonds of the City of Ypsilanti is, however, another question. It is true these bonds are authorized by the City of Ypsilanti and they are to be paid and redeemed by funds belonging to the City of Ypsilanti. They are not, however, secured by the faith and credit of the city as a whole. It is a general rule of law that where special funds are created for the payment of a particular class of claims, those funds cannot be used for any other purpose. People vs. Bay City, 36 Mich. 186; Claims payable out of a special fund are usually not payable out of any other fund, and hence the municipality is not liable outside of such fund. Brooks vs. San Luis Obispo, 109 Cal. 50; Directors Chicago Public Library vs. Arnold, 60 Ill. App. 328; Wiek vs. Wausan, 143 Wis. 645; Rhode Island M. & T. Company vs. Spokane, 19 Wash. 616; Loudenslager vs. Atlantic City, 80 N. J. L. 658. This being the law independent of statute, we may consider our own statute as not only laying down a rule already adopted but as absolutely controlling of the proposition. These bonds are not, therefore, chargeable against the City of Ypsilanti as a whole. Again, it will be noted that Section 4 of the City Home Rule Act makes a distinction between bonds issued on the faith and credit of a city, and bonds secured by a publicly owned utility and this distinction is not, as I understand it, disturbed by the decision rendered by our Supreme Court in Attorney General vs. Lindsay, 20 D. L. N. 1167, where this provision was under discussion and interpreted. It therefore follows the public debt and bonds of a city are subject to a very pronounced classification to the extent that one class is designated as the debt of a city and the other class is recognized as of an opposite description, although still a public debt. I have been unable to find any decision which is exactly in point. In this connection, however, the case of Smith vs. Smith, 30 Ky. 238, is of interest. In that case a suit was brought in chancery for settlement between a guardian and his wards, the question presented being whether the guardian should be held responsible for a sum of money received by him for the wards and by him invested in the purchase of shares in the Bank of Kentucky, which stock had become greatly depreciated. Under a rule that such moneys could only be invested in public funds, and holding the guardian liable in case of loss where other investments were made, it was held by the Court as follows: "We are of the opinion that the defendant (guardian) should be charged with the full amount of the fund invested by him in bank stock, whether his liability be tested by common or statutory law. We cannot consider stock in the Bank of Kentucky as 'public funds,' or in other words government stock, depending for its credit and security on the faith, solvency and stability of the Government." The Bank of Kentucky was, however, a Government bank (Briscoe vs. The Bank of The Commonwealth of Kentucky, 11 Pet. 257), but inasmuch as the faith and credit of the State of Kentucky was not pledged as security for the bank stock, the stock was not considered "public funds." So in the present case I am impressed that while the proposed bond issue is to meet a public expenditure, and is authorized by the City of Ypsilanti, the bonds are not "bonds of the City of Ypsilanti" within the meaning of the banking law. The object of Section 27 of the banking law is to provide the highest kind of security, but the City of Ypsilanti has not provided the highest kind of security. On the contrary it has expressly refused to pledge its faith and credit as a city to meet the bond issue and has pledged only a particular property belonging to the city. I am therefore of the opinion that these bonds do not meet the requirements of the section of the banking law above quoted. Respectfully yours, GRANT FELLOWS, EXECUTOR OF AN ESTATE CANNOT BE DIRECTOR OF STATE BANKS IN THAT REPRESENTATIVE (46) CAPACITY. January 4, 1915. Hon. E. H. Doyle, Commissioner of State Banking Department, Capitol: Dear Sir-Your communication of the 31st ult. received as follows: "An executor of an estate desires to become director in a state bank where the deceased held a large block of the stock, the executor as director wishing to hold stock of the bank in The Department has always taken the position that a director, to meet the provisions of Section 12 of the law, must own the stock individually. We would appreciate your opinion in the matter, and citing the following authorities handed us by the executor in support of his contention that he could qualify in his representative capacity as a director. 21 E. G. L. 838. 15 L. R. A. 665. 2 Cook Cors. 623, page 1889. 4 N. Y. Sup. 174. 42 Conn. 560. Will you kindly let us hear from you in re. the above at your earliest opportunity?" In reply thereto would say that the qualifications of directors are fixed by Section 12 of the General Banking Laws of the State. Among others, the following qualification is prescribed, "Every director must own and hold in his own name not less than ten shares of the capital stock of such bank." I have carefully examined the citations you have referred to and am of the opinion that the rules there laid down, while applicable to general corporations, are not controlling as to banks organized under the Michigan Bank Act, where personal responsibility, based upon beneficial ownership of stock, is plainly contemplated as a qualification for directorship. This position has heretofore been assumed by this Department and I see no reason for not adhering to the same. I am clearly of the opinion that an executor of an estate, whose only interest in a bank results from such office, would not be qualified to be a director of a State Bank. Respectfully yours, BANKS CANNOT LEGALLY SELL STEAMSHIP TICKETS. GRANT FELLOWS, (47) Hon. Frank W. Merrick, Commissioner of Banking Department, Capitol: April 12, 1915. Dear Sir-I have your communication of the 7th inst., as follows: "We are in receipt of several letters from a state bank desiring to be informed whether or not it can legally transact the business of selling steamship tickets. This bank is located in a community thickly populated by foreigners, and could transact more or less business in the direction of acting as agent for the various ocean steamship companies." In reply thereto would say that the general powers of banks incorporated under the Michigan Bank Act are prescribed in Section 4. Attention is particularly directed to the seventh subdivision of this section, reading as follows: "To exercise by its board of directors or duly authorized officers or agents, subject to law, all such power as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debts, by receiving deposits, by buying and selling exchange coin and bullion, and by loaning money on personal and real security as provided hereinafter." These are the usual powers granted to banks in carrying on a banking business. It is a general rule, laid down by all authorities, that the charter of a bank determines the limit of its powers, and that it can exercise no powers excepting those expressly conferred by statute, or necessarily implied and incidental to general banking powers. Michie, Section 87, page 647. I am of the opinion therefore that the business of selling steamship tickets by a bank in this state would be ultra vires and therefore unauthorized. Respectfully yours, (Signed) GRANT FELLOWS, Attorney General. STOCKHOLDERS MUST BE PRESENT OR REPRESENTED BY PROXY AT ANNUAL MEETING. April 21, 1915. (48) Hon. Frank W. Merrick, State Banking Commissioner, Capitol: Dear Sir-Your communication of the 13th inst., received, enclosing a form of notice of a meeting of stockholders of a State Bank which contains also a form of ballot, upon which stockholders may express their preference as to the directors to be chosen at such meeting. This form of ballot is as follows: "Below you will find a list of the stockholders eligible to Directorship: If you cannot be present please make a cross opposite the names of any five that you would like to have act as Directors for the ensuing year and send or bring to this bank on or before the above mentioned date, January 19.... |