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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 in 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
Deputy Attorney General.
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 regarded as doing business under the Michigan statute relating to trust companies, and that your duties in that connection are the same as your duties in relation to trust companies organized under the laws of this state.
LEGAL ASSIGNMENT OF VENDOR'S EQUITY.
March 21, 1921.
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 appreciate 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.
Yours very truly,
A. B. DOUGHERTY,
BANKS LIABILITY WHERE DEPOSIT BOXES ARE RENTED TO TWO INDIVIDUALS JOINTLY.
June 11, 1921.
Hon. Hugh McPherson, Lansing, Michigan:
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 appre
"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 decedent from being taken from the box.
Owing to the variety of circumstances under which these questions may arise, it would be difficult, if not impossible, 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: Dear Sir-I have your request of the first instant for an opinion upon the following proposition:
"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 the state.
BANKS NOT REQUIRED TO FILE STOCKHOLDERS LIST WITH SECRETARY OF STATE.
Hon. Hugh McPherson, State Banking Commissioner, Lansing, Michigan:
February 17, 1922.
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
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 postoffice 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. It 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 receiver.
"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 Laws, however, I am of the opinion that a clear distinction must be made. In Peters v. Union Trust Company, 131 Mich. $22, 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:
"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
REPORT OF THE COMMISSIONER
"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 In case the national bank should refuse to In other words, 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. permit an examination, then it would be the duty to withhold its consent. we are of the opinion that the statute referred to in your letter gives you all of the power Very truly yours, 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.
A. B. DOUGHERTY,
COMPOSING SUCH PARTNERSHIP.
Mr. Harry O. Mohrmann, Deputy Banking Commissioner, Lansing, Michigan:
June 25, 1923.
Dear Sir-You have requested the opinion of this department as to whether the obligations of a partnership may be considered as the obligations of the individuals composing such partnership in determining the total of the liabilities that such person or persons may owe to a bank under Section 52 of the General Banking Laws.
Said Section 52 of the General Banking Laws is Section 8020 of the Compiled Laws of 1915, as amended by Act 108 of the Public Acts of 1919 and provides that,
"The total liabilities to any bank of any person or of any company, corporation or firm for moneys advanced, including in the liabilities of the company or firm the liabilities of the several * ** Provided further, That by a two-thirds vote of members thereof, except special partners, shall at no time exceed one-tenth part of the amount of capital and surplus of such bank, directors, the liabilities to any bank of any person or company, or corporation or firm may be increased to a sum not exceeding one-fifth of the capital and surplus of the bank."
It cannot be questioned that the individual obligations of all members of partnerships must be charged against the line of credit of such partnership or firm in determining the total amount of money that may be advanced to such partnership or firm and we think that that portion of the statute, above italicized, shows a plain legislative intent that the liabilities of a partnership or firm shall be considered as the liabilities of each of the individuals composing the partnership or firm, except special partners and therefore the liabilities of a firm or partnership should be charged against the liabilities of each of the persons composing such firm or partnership, except special partners, in determining whether or not the sums advanced or loaned to such individuals are within the limitations of said Section 52.
February 18th, 1924. HAS BANK AUTHORITY TO PAY TAXES ASSESSED AGAINST THE SHARES OF STOCK?
Honorable H. A. McPherson, State Banking Commissioner, Lansing, Michigan:
Dear Sir-You have recently requested my opinion as to whether or not a bank organized under the laws of this state has the authority to pay taxes assessed against the shares of stock to their respective owners.
all shares in banks Section 4002, C. L. '15, as amended by Act 297, Public Acts of 1921, provides in part: "For the purpose of taxation, personal property shall include * organized within this state under the laws of this state or the United States at their cash value, after deducting the assessed value of real property owned by and assessed to such banks." Section 4008, C. L. '15, 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 From the foregoing, it is apparent that the shares of stock may be, city where he resides.
The in some instances, assessed for taxes in the township, village or city where the bank is located, and in others be assessed in some township, or city other than that in which the bank is located. It follows that the rate of taxation would not be uniform, which would result in the bank paying a larger amount in taxes per share for some stockholders than for others. statute makes no express provision authorizing the bank to pay taxes assessed against the stock of its shareholders, and I am therefore of the opinion that it is without authority to pay these taxes, should any of its stockholders object. I am also of the opinion that any stockholder could enjoin the bank from paying these taxes.
ANDREW B. DOUGHERTY,
February 19, 1924. LIABILITY OF A BANK FOR THE LOSS OF THE CONTENTS OF A SAFE DEPOSIT BOX.
Hon. Hugh A. McPherson, State Banking Commissioner, Lansing, Michigan:
Dear Sir-You have requested my opinion as to the liability of a bank for the loss of the contents of a safe deposit box rented to a customer for a consideration. You further request to be advised whether or not the bank can limit its liability by special contract.
While the question is an open one in this state, the weight of authority is to the effect that when a banking corporation conducts such a business in connection with the general
business of banking and receives personal property from individuals for safe-keeping, the general rule of law is that the bank becomes a bailee and in case of loss is liable as such.
A bailee for hire must exercise the care equal to that to be expected from ordinarily prudent persons under similar conditions and circumstances in order to relieve him from liability and whether such care is exercised or not is a question for the determination of the jury under proper instructions.
As to the right of the bailee to limit his liability by special contract, the parties to the transaction may make their own contracts in reference to their mutual rights and liabilities under bailment of property as well as in reference to other subjects and generally speaking, may, by express contract enlarge, abridge, qualify or supersede the obligations which otherwise would arise from the bailment by implication of law. To make such a contract valid, the bailor must have notice that there are special terms and the means of knowing what they are and if the bailee chooses to make the bailment, he is bound by them, providing the contract is not in violation of positive law or public policy. Trusting this will serve to furnish you with the desired information, I am Respectfully yours,
ANDREW B. DOUGHERTY,
BANK MAY DEPOSIT COLLATERAL TO SECURE STATE DEPOSITS.
November 6, 1924. Mr. H. A. McPherson, State Banking Commissioner, Lansing, Michigan: Dear Sir-In compliance with your request we enclose herewith copy of opinion recently furnished the Deputy State Treasurer. Yours very truly, CLARE RETAN, Deputy Attorney General.
SECURITIES pledged with the State Treasurer by a bank to secure the repayment of a state deposit cannot be reclaimed by a receiver for the bank, without redeeming them.
Hon. Hoyt Woodman, Deputy State Treasurer, Lansing, Michigan:
October 31, 1924.
"It has been a custom of this department to permit banks wishing state deposits to deposit collateral with us in the form of Federal, Municipal or other negotiable bonds to secure State deposit.
"A question has arisen whether or not in event of a failure of such bank we would be permitted to retain these bonds to secure this deposit, or whether we would be compelled to turn the bonds over to the receiver of said bank, or take our chances with other depositors." Section 289 of the Compiled Laws of 1915 requires the State Treasurer:
"To require of any bank before he shall have made it a depository of surplus funds belonging to the State, good and ample security, to be approved by the said State Treasurer, the auditor general and the secretary of state, for the safekeeping and reimbursement of such surplus funds, whenever called for, and the payment of such rate of interest as the State Treasurer, in his discretion, shall deem best for the interest of the state."
The security pledged with the State Treasurer by a bank, is security for state moneys deposited with it and the taking of such security would appear to be a compliance with the requirement of the statute. Unless there is a clear prohibition against so doing, there is no reason why a bank may not pledge a part of its assets to secure a deposit of state funds and pledge having been made, it cannot be recovered either by the pledgor or his receiver in the event of insolvency, except by redeeming it.
"The lien of a valid pledge is undoubtedly preserved in bankruptcy and where a pledge of property was made in good faith by the bankrupt and for a valuable consideration and not in violation of the provisions of the bankrupt law, the assignee cannot recover the property except by redeeming it."
21 R. C. L. 652.
See also Tiffany, Trustee V. Boatman's Savings Institution, 21
U. S. (L. Ed.) 868 at Page 971.
Yeatman and Moore, Assignees in Bankruptcy v. New Orleans Savings
Hancock v. Varick Bank, 51 U. S. (L. Ed.) 945.
Some states prohibit a bank from pledging any part of its assets to secure loans, but in Michigan under Section 9002 of the Compiled Laws of 1915, as amended by Act 21 of the Public Acts of 1919, a bank may pledge
"Qualified assets of the bank for the purpose of becoming a depository for postal savings funds, under the laws of the United States or for the purpose of becoming a depository for surplus funds belonging to the State of Michigan, but no bank transacting a savings business shall pledge mortgages or bonds which represent any portion of the investments of its savings deposits."
Although the doctrine of the common law right of the sovereignty to a preference in the payment of moneys on deposit is not clearly recognized in this state and may be entirely lost if a receiver is appointed for it, as declared in
Banking Commissioner v. Chelsea Savings Bank, 161 Mich. 691,
there seems no objection to the state, irrespective of its rights to priority in payment as a sovereign, to make an ordinary business arrangement to secure the repayment of its moneys when placed on deposit, and if in compliance with the statute, a pledge of security is properly taken, the same may be held until redeemed, even as against the receiver for a bank declared insolvent. Respectfully yours, ANDREW B. DOUGHERTY,