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I am of the opinion that the statute should not be construed to include private banks. Generally, when reference is made to a bank this means an incorporated bank and not a private bank. For example, when a note is made payable at any bank in a city, this is held to mean an institution incorporated for banking purposes and does not include a private bank.

Way v. Butterworth, 106 Mass. 75;

Way v. Butterworth, 108 Mass. 509.

The legislature has passed a law providing for the incorporation and organization of banks and making them subject to the State supervision. Under that law, as under the federal law providing for the organization of national banks, the stockholders are liable in double the amount of the stock held by them. It seems to me that when reference is made in the statute to a bank, it means an incorporated bank organized under the State or national banking laws. A private banker, so-called, conducts his business under Chapter 133 of the Compiled Laws of 1897, the same being an act relative to brokers and exchange dealers. . The law prohibits the private banker from advertising or putting up any sign tending to convey the impression that the place of business is an organized bank. If he advertises, he must use his individual name and may add thereto "bank," "banking office" or "exchange office."

I do not think the place of business of one conducting a private bank is a bank within the meaning of Act 99, Public Acts of 1909.

A somewhat similar question was before the court in the case of the City of DuQuoin v. Kelly, 176, Ill. 218. An ordinance was passed by the city requiring the treasurer to keep the city funds in a regularly organized bank. It was held that the ordinance contemplated a bank organized under the State or national banking law and not a private bank owned by an individual. The court said:

"We are of the opinion that the term 'regularly organized bank' in the City and Village act means a bank organized under either the State law or the act of Congress, and that is was not intended by the legislature that a city officer who has given bond for the safekeeping of the funds in his hands should be required to deposit them in a private bank. There would seem to be no more reason for that than there would be for turning the funds over to a private individual. It is true, provision is made that such banker or bankers shall give bond; but we do not think this alters the case.'

I believe as was said by the court in this case, that there is no more authority for depositing the public funds in a private bank than there is for loaning them out to an individual, and the fact that security is required to be given makes no difference.

I am of the opinion, therefore, that the Board of Supervisors cannot lawfully designate a private bank as a depository of county funds, under the provisions of Act 99, Public Acts of 1909.

Very respectfully yours.
(Signed) FRANZ C. KUHN,
Attorney General.

(18)

BANK STOCK MAY BE CANCELED AND NEW CERTIFICATES ISSUED.

March 10, 1911.

Hon. Edward H. Doyle, Commissioner of the Banking Department, Capitol, Lansing, Michigan : Dear Sir-In your letter of February 25th, you state that the Bank of Michigan, recently sought to enforce its rights, under Section 6090 of the Compiled Laws of 1897, by a sale of shares of its own bank stock, which is at the present time held by Chicago parties as collateral to a loan made by them. This sale was made by the sheriff, by order of the court and stock bid in by the Bank. The Chicago parties refused to surrender the stock in question, and you inquire by what authority, under the statute, can the officers of the bank cancel the old outstanding issue and a new issue of stock be made, which, when sold, will reimburse the bank for the amount which they have already applied on the stockholders' obligation, as noted above.

Since receiving this communication we have received a copy of the proceedings under which the sheriff's sale, above referred to was made. It appears that this sale was not made pursuant to the authority conferred by the General Banking Law, Section 6090, to which you refer in your letter, but was made pursuant to an agreement confessing judgment, which seems to be in compliance with Section 10299 of the Compiled Laws of 1897. The sale of stock was then made pursuant to authority conferred by Sections 10335 to 10338 of the Compiled Laws of 1897. Section 10338 provides:

"And the purchaser (at such execution sale) shall thereupon be entitled to a certificate or certificates of the shares bought by him, upon paying the fees therefor, and for recording the transfer.'

It is clear from the above statutory provision that the bank has authority to issue to itself new certificates to take the place of those sold upon the execution and pursuant to the authority conferred upon it by the General Banking Law would have authority to sell these shares so issued within the statutory period.

Very respectfully yours,
(Signed) FRANZ C. KUHN,

(19)

CORPORATIONS TO INVEST IN OR POSSESS BANK STOCK ONLY ON CERTAIN CONDITIONS.

May 24, 1911.

Hon. Edward H. Doyle, Commissioner of the Banking Department, Capitol, Lansing: Dear Sir-You state in your letter of April 20th that the banking department has ruled that the several sections of the banking law relating to stockholders require the individual ownership of capital stock of state banks; that in recent reports to the department it appears that in numerous instances capital stock of state banks is owned by firms, copartnerships, corporations and two or more individuals jointly. You inquire whether such a holding is legal.

In reply thereto will say that it is our view that two or more individuals have the authority to hold bank stock jointly, also that copartnerships have the same right.

The question of the right of a corporation to take and hold stock in a bank is dependent upon the statute providing for the organization of such corporation and the manner in which the stock is acquired. The rule is thus stated in Clark and Marshall on Corporations, page, 523:

"A corporation has no power to subscribe for or purchase shares of stock in another corporation unless such power is expressly granted or unless the nature of the corporation and circumstances under which the stock is acquired are such as to render the transaction a necessary or reasonable means of carrying out the object for which it was created or of accomplishing some purpose which is authorized by its charter."

Without making an extensive examination into the acts providing for the creation of the different classes of corporations doing business in this state, will say that in the great majority of cases the act providing for the organization of such corporations does not authorize the purchasing and holding of shares in other corporations, and under the general rule above stated such corporations would have no authority to purchase and hold shares in banks unless such shares were taken in a manner that could be said to be reasonably necessary to the carrying out of the objects for which the corporation was created. No instance occurs to us where it could be said to be necessary for a corporation to purchase and hold shares of stock in a state bank except as such stock might be taken in payment of debts in good faith owing to the corporation.

Section 50 of the Compiled Laws relative to the construction of statutes provides: "The word 'person' may extend and be applied to bodies politic and corporate as well as to individuals."

Reference must be had to the provisions of the act of incorporation of the corporation holding the bank stock and a determination must be made of the purpose for which such stock was purchased in order to settle the question of the right of the corporation to take and hold such stock. Very respectfully yours, (Signed) FRANZ C. KUHN, Attorney General.

(20)

BANK ABSORBING ANOTHER CANNOT CONTINUE TO HOLD CERTAIN UNAUTHORIZED
INVESTMENTS.

May 24, 1911.

Hon. Edward H. Doyle, Commissioner of the Banking Department, Capitol, Lansing, Michigan: Dear Sir-We are in receipt of your letter of May 20th, in which you state as follows: A state bank recently purchased the assets of another state bank, among which were certain bonds coming within the provisions of subdivisions (e), (f) and (g), or section 27 of the Banking Law, which had not been approved by the Securities Commission. These assets had been permitted to be held by the selling bank by reason of the fact that they were investments prior to the taking effect of the amendments to Section 27 made by Act 262 of the Public Acts of 1905. The purchasing bank contends that because the department permitted them to be held by the selling bank, it should also authorize the purchasing bank to hold the same until maturity. You submit the inquiry as to whether the purchasing bank should be allowed to carry such securities as legal savings investments.

In reply thereto would say that it is our opinion that the purchasing bank should be held to the plain requirements of Section 27, and that the fact that the securities mentioned were purchased from another savings bank would not justify you in permitting the bank purchasing same to carry them as legal savings investments. In this connection it may be proper to say that Section 27 requires fifteen per cent of the deposits to be kept on hand as a reserve, in cash or reserve banks, three-fifths of the remainder of the deposits are required to be invested in securities mentioned in subdivisions (a) to (i) inclusive of Section 27.. You will note that subdivision (i) provides that:

"A portion of said remainder not exceeding the capital and additional stockholders' liability may be invested in negotiable paper approved by the board of directors."

This would authorize a savings bank to carry an amount of negotiable bonds or other negotiable paper up to the amount named in the above quoted provision, even though such bonds or other negotiable paper had not received the approval of the Securities Commission.

Very respectfully yours,
(Signed) FRANZ C. KUHN,

(21)

JOINT TRUSTEESHIP IN CERTAIN BOND ISSUES PERMISSIBLE.

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

June 29, 1911.

Dear Sir-Replying to your letter of June 15th, relative to the first mortgage six per cent bonds of the Oregon-Washington Timber Company, for which the Union Trust Company of Detroit, and the Mississippi Valley Trust Company of St. Louis, are co-trustees, will say that we think this mortgage comes within our ruling of October 15, 1910, to the effect that if the bonds possess the other requisite qualifications for investment for savings banks, you would be warranted in permitting savings banks to invest therein. Very respectfully yours,

(Signed) FRANZ C. KUHN, Attorney General.

(22)

ASSESSMENT ON STOCKHOLDERS NOT LIMITED TO ONE HUNDRED PER CENT.

October 14, 1911.

Hon. Edward H. Doyle, Commissioner of the Banking Department, Capitol, Lansing, Michigan: Dear Sir-In your letter of September 30th you submit the following inquiries: "In case of an impairment of the capital stock of a state bank to an amount in excess of its total capital, has the board of directors the authority to order, upon the requisition of the Commissioner of the Banking Department, to make good such deficiency, an assessment upon the capital stock of such bank for an amount exceeding 100 percent of such stock?

After having paid an assessment of 100 per cent in accordance with the present Banking Law, in case of an impairment ascertained subsequently by the department, could a further assessment be levied by the directors, upon requisition of the Commissioner, for the purpose of making good such deficiency?

Would the payment by stockholders of assessments such as above indicated, lessen their liability in case of the liquidation of insolvency of the bank?

The statutory provisions involved in these inquiries are Section 46 of the Banking Law, which provides as follows:

"The stockholders of every bank shall be individually liable, equally and ratably, and not one for another, for the benefit of the depositors in said bank to the amount of their stock at the par value thereof, in addition to the said stock; but 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 persons interested in such trust funds would be, if living or competent to act, and the person pledging such stock shall be deemed the stockholder and liable under this section. Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation, or by any receiver, or other officer succeeding to the legal rights of said bank."

Also Section 42 of Act 1 of the Public Acts of 1911, which provides, in part, as follows: "Whenever it shall appear from the report of any bank, or the Commissioner shall have reason to believe that the capital of any bank is impaired or reduced below the amount required by law, it shall be the duty of the Commissioner and he shall have the power to examine the said bank and ascertain the facts, and in case he finds such impairment or reduction of capital, he shall require such bank to make good the deficiency so appearing within sixty days after the date of such requisition. The directors of every such bank upon which such requisition shall have been made shall levy an assessment upon the stock thereof to repair such deficiency, and shall cause notice of such requisition to be given to each stockholder of the bank and of the amount of the assessment which he must pay for the purpose of making good such deficiency, by a written or printed notice mailed to such stockholder at his last known place of residence or served personally upon him."

These two sections are plainly intended to subserve entirely different purposes. Section 46 refers only to cases where the bank is in process of liquidation and limits the amount of the assessment which may be made upon the stockholders for that purpose to 100 per cent. Section 42, above quoted, is for the purpose of preventing the bank from going into liquidation and maintaining it as a going concern. The language used is equivalent to saying to the stockholders, "The capital of your bank is impaired, you must make it good or it will be obliged to go into liquidation at the hands of a receiver."

It is our view that the two sections have no relation to each other and that under Section 42 of Act 1 of the Public Acts of 1911, the Commissioner has a right to order the bank to make good an impairment of any amount, whether less than or in excess of 100 per cent. I am also of the opinion that in case an assessment had been levied pursuant to Section 42 to make good an impairment, a further assessment or assessments could be made to meet future contingencies. I am further of the opinion that payment by stockholders of assessments under Section 42 would in no way lessen their liability to an assessment by the receiver in case of the liquidation or insolvency of the bank.

Very respectfully yours,
(Signed) FRANZ C. KUHN,

(23)

TRUST COMPANIES IN ORDER TO QUALIFY AS TRUSTEE IN OTHER STATES MAY DEPOSIT
SECURITIES.

October 28, 1911.

Hon. Edward H. Doyle, Commissioner of the Banking Department, Lansing, Michigan : Dear Sir-we have had under consideration your letter of October 13th, in which you submit the following inquiries:

"Can a corporation organized under Act No. 108 of the Public Acts of 1889, as amended, acting as trustee under an issue of bonds covering property located in part in Michigan, and in part in one or more other states, deposit its bonds or mortgages with a state department or official, in either one or all of the states in which the property is located in order therein to legally qualify and act as such trustee? Would the depositing of such assets be considered as giving preference to one creditor over another, as mentioned in Section 34 of said act?"

You have also submitted a letter of Louis H. Withey embodying his views relative to the question involved. Under date of October 17th a letter from Messrs. Butterfield & Kenney, attorneys-at-law, Grand Rapids, Michigan, containing a discussion of these questions was received by this Department.

The statute of Illinois regarding this deposit is Sections 129 to 147 of the Revised Statutes of Illinois for 1909. It is clear under the decision of the United States Supreme Court in Blake v. McClung, 172 U. S. 239, that the deposit of securities made with the State Auditor of Illinois could not be used for the purpose of giving preference to creditors of a trust company residing in Illinois. On the other hand, a Michigan trust company could not be admitted to do a trust company business in Illinois even to the extent of enforcing an active trust partially in Illinois and partially in Michigan without making this deposit.

Farmers' Loan Company v. Elevated Ry. Company, 173 Ill. 439.

Section 6179 of the Compiled Laws of 1897 provides as follows:

"All transfers of notes, bonds, bills of exchange, or other evidences of debt owing to any such corporation, or of deposit to its credit, all assignments of mortgages or other security on real estate, or judgments, or decrees in its favor, or deposits of money, bills or other valuable things for its use, or for the use of its stockholders or creditors, all payments of money either after the commission of an act of insolvency, or in contemplation thereof, with a view to prevent application of its assets in the manner prescribed in this act, or with a view to the preference of one creditor over another, shall be held to be null and void."

The interest upon deposits of securities made pursuant to the Illinois statute is paid to the depositing company as long as it remains solvent. We are unable to see how the making of this deposit under the statute of Illinois and the decision of the Supreme Court of the United States, hereinbefore referred to, constitute any preference to Illinois creditors in violation of the provisions of Section 6179 of the Compiled Laws.

We are of the opinion that it would not be in violation of the provisions of Act 108 of the Public Acts of 1889 for a Michigan trust company to make a deposit of securities with the Auditor of the State of Illinois under the provisions of the statutes now in force in that state, in order to permit such trust company to carry out the provisions of an act of trust in that state.

Very respectfully, (Signed) FRANZ C. KUHN, Attorney General.

LAND CONTRACTS NOT EVIDENCES OF INDEBTEDNESS AS CONTEMPLATED BY BANKING LAW.

(24)

December 7, 1911.

Hon. Edward H. Doyle, Commissioner of the Banking Department, Lansing, Michigan:

Dear Sir-I am in receipt of your communication of November 23rd in which you ask whether or not land contracts evidencing the sale of real estate are legal investments for savings banks under subdivision (1) of Section 27 of the General Banking Law, which reads as follows.

"The remainder of such deposits may be invested in notes, bills or other evidences of debt, the payment of which is secured by the deposit with the bank of collateral security consisting of personal property or securities of known marketable value, worth ten per cent more than the amount so loaned and interest for the time of the loan."

It appears from your statement that certain savings banks in the state invest savings deposits in these contracts, taking an assignment thereof from the vendor who also transfers to the bank the legal title to the real estate contracted to be conveyed. In some instances the legal title to the property is transferrd and the assignment made as collateral security for a loan to the vendor and I do not understand that your inquiry relates to the legality of this practice, it being conceded that this may lawfully be done, but that your inquiry relates to the right of a savings bank to so invest its savings deposits in these contracts when no loan is made to the vendor. The savings banks claim that these contracts are "evidences of debt" within the meaning of the subdivision quoted and that the investment of savings deposits therein in the manner outlined is permissible and legal.

For reply thereto would say that when a contract of this character for the sale of real estate is made, the vendor holds the legal title only as trustee for the vendee and equitable title vests in the vendee. The vendor retains the legal title as security for the proper performance of the contract on the part of the vendee.

Hooper v. Van Husan, 105 Mich. 592;

In the case last cited the court held that there was no legal distinction between these obligations and credits secured by mortgages.

While these contracts may under our decisions be "evidences of debt," I do not believe that they are such within the meaning of the statute under consideration. By the terms of that statute it is only evidences of debt "the payment of which is secured by the deposit with the bank of collateral security consisting of personal property or securities of known marketable value, worth ten per cent more than the amount so loaned and interest for the time of the loan," in which savings deposits may lawfully be invested.

This statute, as I read it, treats of "loans" by the bank upon bills, notes and other evidences of debt, secured by the deposit with the bank of collateral. As I understand it, the bank in dealing in these contracts makes no loan to the holder of the legal title to the land, but the land contract and the security of the legal title are purchased outright by the bank. The transaction is one of dealing in credits secured by the legal title to the real property. I do not believe that transactions of this nature are within the contemplation of the statute and consequently am of opinion that savings banks may not lawfully invest their savings deposits in these contracts. Very respectfully yours, (Signed)

FRANZ C. KUHN,
Attorney General.

(25)

TRUST COMPANIES MAY OWN AND OPERATE ABSTRACT DEPARTMENT.

February 16, 1912. Hon. Edward H. Doyle, Commissioner of the Banking Department, Lansing, Michigan: Dear Sir-Your letter of February 2d, calling attention to parts of sections 9 and 10 of Act 108 of the Public Acts of 1889, as amended, (Compiled laws of 1897, Sections 6164-6165) relative to the power of a trust company organized under said act to acquire and hold as personal estate abstract books of title used by it in its business of guaranteeing or insuring the validity of title to real estate, and requesting an opinion thereon, has been received.

In reply thereto would say that under the provisions mentioned which give to a trust company organized under the act power to guarantee or insure to grantees the validity of titles in real estate transfers, at a rate of compensation, and upon such terms and conditions as may be agreed upon. (Section 9), and which makes it lawful "for any such corporation to lease, purchase, hold and convey such personal estate as may be necessary to carry on its business.' (Section 10), a trust company is lawfully entitled to acquire and hold any system of abstract books necessary to enable it to engage in the business of guaranteeing or insuring titles to real estate. The sections of the law quoted have not been amended or modified in any way and the ruling of your Department in accordance with the above should therefore be continued.

Yours respectfully,
(Signed) FRANZ C. KUHN,
Attorney General.

BANKS INCORPORATED IN AN UN-INCORPORATED VILLAGE CANNOT LEGALLY MAINTAIN
BRANCHES IN ANOTHER UN-INCORPORATED VILLAGE,

(26)

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

February 17, 1912.

Dear Sir-We have yours of the 7th instant enclosing map of Greenland Township, showing the town sites in Greenland and Mass villages. You ask whether your department will have the right or authority to permit the Miners & Merchants State Bank of Greenland to establish an agency in Mass.

I gather from your communication that the Miners & Merchants State Bank of Greenland was recently incorporated under authority of your department, and that Greenland is an unincorporated village. I also infer that Mass or Mass City is also an unincorporated village. I note what you say relative to one of the officers of the bank claiming that to all intents and purposes Mass City and Greenland is one village and that there are no defined boundaries of the unincorporated village of Greenland. Nevertheless the plat submitted shows two settlements, and I presume a similar plat is in accordance with the laws of this State, on file with the Register of Deeds of the county, and while the limits of Greenland Township may not be defined, still. it could hardly be claimed that Greenland Village would or could include the settlement known as Mass.

The articles of incorporation of the Miners & Merchants State Bank undoubtedly confers upon the bank the authority to do business within the unincorporated village of Greenland, and I am inclined to the opinion that said bank could not legally establish a branch agency outside of the unincorporated village of Greenland and that the settlement known as Mass or Mass City would be outside of the boundary lines of the unincorporated village of Greenland consequently an agency could not be established in Mass.

I am returning herewith map of Greenland Township.

Very respectfully,
(Signed) GRANT FELLOWS.

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