it is drawn, in some instances the paper is sold to other banks. The question now presents itself whether banks organized under the laws of this state can purchase this paper in amounts in excess of the limitation imposed by Section 8020 of the Compiled Laws of 1897. In other words, whether or not these acceptances are liabilities within the meaning of Section 8020, so that no bank can purchase them in amounts in excess of one-tenth part of the amount of its capital and surplus. Section 8020 of the Compiled Laws of 1897, heretofore referred to, provides in part as follows: 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 members thereof, except special partners, shall at no time exceed one-tenth part of the amount of capital and surplus of such bank, but the discount of bills of exchange drawn in good faith against actually existing values and the discount of commercial or business paper actually owned by the person negotiating the same shall not be considered as money borrowed." You will note from reading the foregoing that while the total liability of any person, firm or corporation to any bank shall not be in excess of one-tenth part of the amount of its capital and surplus that this limitation does not apply to the discount of bills of exchange drawn in good faith against actual existing values. From the information which we received from a representative of your Department it appears that a bank acceptance is nothing more than a bill of exchange, as defined by Section 6167 of the Compiled Laws of 1897, same being Section 128 of the negotiable instruments law. Such being the case I am of the opinion that the limitation imposed by Section 8020 does not apply to these acceptances, and they may be purchased by banks in such amounts as they see fit. Respectfully yours, (Signed) A. B. DOUGHERTY, Deputy Attorney General. (65) TRUST COMPANIES CANNOT LAWFULLY PURCHASE SHARES OF THEIR OWN CAPITAL STOCK. Hon. Frank W. Merrick, State Banking Commissioner, Lansing, Michigan: April 9, 1919. Dear Sir-Your communication of the 3d instant requesting an opinion from this Department as to the authority of a trust company organized under Act 108 of the Public Acts of 1889, to purchase shares of its own capital stock, is before me. In reply thereto would say that in my opinion your question should be answered in the negative for the following reasons: (1) The statutes under which this class of corporations is organized expressly enumerates the classes of securities in which they may invest their funds. This statute contains no provision authorizing a trust company to purchase shares of its own capital stock. The classes of securities enumerated in this statute are in my opinion the only securities in which a trust company may invest its funds. (2) The purchase of shares of its own capital stock by a trust company is a reduction of its capital stock. The statute under which these trust companies are organized provides the method for the reduction of capital stock, and in my opinion the statutory method is exclusive. (3) Section 14 of the act under which Michigan trust companies are organized imposes upon the stockholders a liability to the extent of the amount of the stock therein, at the par value thereof, in addition to the amount invesed in such shares. To permit a trust company to purchase shares of its own capital stock would permit it to impair the security intended for the benefit of creditors. Trusting this will serve to furnish you with the desired information, I am (66) TRUST COMPANIES DO NOT HAVE POWER TO EXECUTE ACCEPTANCES. October 2, 1919. Hon. Frank W. Merrick, Commissioner of Banking Department, Lansing, Michigan: Dear Sir-We have the following communication from your Department: "The question has arisen as to the rights of trust companies, operating under the Michigan trust law, to execute acceptances in the same manner as our Michigan state banks are allowed to do under the banking law. I am unable to find any provision in our trust law permitting the execution of acceptances, and for that reason the matter is referred to you for an opinion as to their rights in this connection." In answering this question we assume you have reference inter alia to the authority expressly granted to banks in subsection 8 of section 4 of the general banking law as follows: "To accept for payment at a future date, not to exceed six months, drafts drawn by the patrons, but no bank shall accept such drafts in the aggregate to an amount exceeding 50 per cent of its capital and undivided surplus, such acceptances to be considered liabilities within the meaning of limitations provided in section 52 of this act." The above provision was added by amendment in Act 299 of the Public Acts of 1917. In passing it should be said that it had been held by this Department that such acceptances (for future payment at a future date) could not be executed by State banks in the absence of express statutory permission, since it involved a species of loan of a bank's credit and a species of liability not contemplated by existing law and not embraced within their general authority. Hence the above legislation. The amendment of 1917 makes such transactions I think it can safely be assumed, if banks could not have included such business in their transactions, in the absence of express statutory authority, that trust companies equally could not since the powers of trust companies are also strictly statutory. The authority given to State banks in the above amendment cannot inure to the benefit of trust companies, since the two kinds of institutions are governed by different laws, and trust companies, on the contrary, are not permitted to do general banking business. See section 9 of Act 108 of the Public Acts of 1889 (section 8052 of the Compiled Laws of 1915). A close examination of the trust company act fails to reveal any direct or express provision authorizing trust companies to include acceptances so as to create a primary liability against the trust company as defined in the negotiable instruments law. While the silence of the statute would doubtless be a sufficient reason, a better reason for denying to trust companies the right to execute such acceptances is to be found in the strict limitations prescribed by the trust company act itself as to the character of transactions open to them, both as to employment of capital and investment of trust funds. Under the provisions of section 8052 of the Compiled Laws of 1915, trust companies shall have power "to loan money upon real estate and collateral security, and to execute and issue its notes and debentures, payable at a future date, and to pledge its mortgages or real estate and other securities as security therefor." Under section 8054 of the Compiled Laws of 1915, the capital stock of such companies may be invested "in bonds secured by mortgages, or notes and mortgages or unincumbered real estate within the State of Michigan, worth double the amount secured thereby or in public stocks and bonds *** and such board of directors may invest or loan the balance of its capital stock and other moneys received by such corporation in trust, in bonds secured by mortgages, or notes and mortgages, on unincumbered real estate within the State of Michigan worth double the amount secured thereby, or in public stocks and bonds of the United States or in such real or personal securities as they may deem proper." It will be seen that all of these investments require security, whether the funds so invested are derived from surplus capital, from loans or from trust funds in their keeping. Nowhere are they permitted to invest by loaning their funds without security. The acceptances under discussion primarily do not call for security and on the contrary are intended to operate without ordinary direct security. I think it can also safely be said that such acceptances have not heretofore been deemed a necessary part of trust company business within this state, and that in any event they fall more properly within the sphere of general banking operations than in that of trust company business, taking the distinction between the two institutions as generally laid down by the authorities for a criterion. In this connection your attention is invited to the opinion of Attorneys General Wykes and Fellows of December 31, 1912, Attorney General's Report for 1913 at page 170, where these distinctions are discussed in relation to the right of trust companies to issue certificates of deposit. As a limitation upon the general powers of trust companies, section 9 of the trust company law contains the following provision: "But nothing herein contained shall be construed as giving the right to issue bills to circulate as money, or to buy or sell bank exchange, or to do a general banking business." This provision is a direct limitation upon the powers granted to trust companies in the same section of the act "to act generally as agents or attorneys for the transaction of business, the management of societies, the collection of rents, interest, dividends, mortgages, bonds, bills, notes and securities for moneys." This latter provision, in my opinion, is the measure of the powers of a trust company with reference to the handling of negotiable instruments originating outside of the trust company itself. This power falls far short of granting to trust companies a general authority such as is conferred upon banks in the eighth subdivision of section 4 of the banking law. The only legitimate ways, in my opinion, that a trust company can handle negotiable instruments are in connection with their authority to make collections for their clients in which transactions they act solely as agents or attorneys; and in their regular investments permitted by law and as restricted by the terms of the trust company act; or in such limited transactions as become necessary in the discharge of their own corporate functions as distinguished from the employment of their capital and their transactions on behalf of clients. In conclusion, I am of the opinion that direct and express legislation would be necessary before trust companies can be authorized to execute acceptances of the nature contemplated in your inquiry. Very respectfully, Attorney General, TRUST POWERS OF NATIONAL BANKS. (67) April 25, 1919. Hon. Frank W. Merrick, State Banking Commissioner, Lansing, Michigan: Dear Sir-I have before me your communication of the 23d instant wherein you call attention to Section 11 (k) of the Federal Reserve act, which act authorizes national banks to exercise the powers of a trust company in certain cases. You also call attention to certain rules of the Federal Reserve Board, and you request to be advised whether or not a national bank which exercises the functions of a trust company is required to deposit with the state treasurer of this state the securities provided for in the Michigan trust company act. You also request to be advised whether or not such companies are subject to examination by the state banking department, as provided for in said act. In answer to your first inquiry, I would respectfully call your attention to the provisions of subdivision (k) of section 2 of the act of September 26, 1918, which provides in part as follows: "Whenever the laws of a State require corporations acting in a fiduciary capacity, to national banks so acting shall be required to make similar deposits and securities so deposited shall be held for the protection of private or court trusts, as provided by the State law." You will note from reading the foregoing that a national bank exercising the functions of a trust company is obliged to deposit with the treasurer of this state the securities provided for in the act governing Michigan trust companies. In answer to your second inquiry, I would respectfully call your attention to subdivision (k) of section 2 of the act of September 26, 1918, which provides in part as follows: "National banks exercising any or all of the powers enumerated in this sub-section shall segregate all assets held in any fiduciary capacity from the general assets of the bank and shall keep a separate set of books and records showing a proper detail all transactions engaged in under authority of this sub-section. Such books and records shall be open to inspection by the State authorities to the same extent as the books and records of corporations organized under State law which exercise fiduciary powers, but nothing in this Act shall be construed as authorizing the State authorities to examine the books, records, and assets of the national bank which are not held in trust under authority of this sub-section." You will note from the foregoing that you have the same authority to examine the books and records of a national bank exercising the functions of a trust company, insofar as the conduct of its affairs as a trust company is concerned, as is conferred upon you by the statutes of this state in reference to Michigan trust companies. Trusting this will serve to furnish you with the desired information, I am A. B. DOUGHERTY, Deputy Attorney General. (68) 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. Respectfully yours, (69) LEGAL ASSIGNMENT OF VENDORS 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 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, or A. B. DOUGHERTY, (70) BANKS LIABILITY WHERE DEPOSIT BOXES ARE RENTED TO TWO INDIVIDUALS JOINTLY. Hon. Hugh McPherson, Lansing, Michigan: Dear Sir-Your letter of recent date received as follows: June 11, 1921. "State banks often rent safety deposit boxes to husband and wife, the name of both appearing as lessees and each having access to the box, where, presumably, each has deposited their individual papers, and others. "The question has arisen, whether a bank, in the case of the death of one or the other of the lessees, has the right to permit the survivor to have access to the box? We shall appreciate an expression of opinion from you in this regard. "Also, in reference to a question as to the duty of the bank under section nine of the Inheritance Tax Law, being Section 14532 of the Compiled Laws, as amended. This section seems to require that notice be given to the county treasurer before safety deposit boxes of deceased persons may be opened. The question has arisen in some banks as to whether they should deny the right of the survivor to have access to the box until notice has been given to the county treasurer, in instances where the box is rented to two persons and the name of each appears as a lessee." Under the facts as stated in your letter, the death of one of the lessees of the safety deposit box would not terminate the right of the other lessee, unless there has been an agreement to that effect. However, the mere fact that the box had been rented jointly would have no necessary bearing upon the question of the title to the contents of the box after the death of one of the lessees. Ordinarily, there is no survivorship in personal property in this State excepting as created by statute. It is true that a species of such survivorship may be created by making a gift causa mortis. Johnson v. State Bank, 151 Mich. 538. Ludwig v. Bruner, 203 Mich. 556. As to the liability of the bank under Section 9 of the Inheritance Tax Law, that would largely depend upon the facts; and most of all upon what degree of control the bank retains over the deposit box. Many banks make a practice of retaining a key which must be used in opening the safety deposit box, and where that is the case it would seem that the bank has sufficient control over the box to bring it within the provisions of Section 9. In any event, prudence would dictate that the bank protect itself by notifying the county treasurer, or by obtaining instructions from the court, before permitting the possible assets of the decedant from being taken from the box. Owing to the variety of circumstances under which these questions may arise, it would be difficult, if not impossible, to make any ruling that would apply in every case, and I would prefer to leave the matter that way. Very truly yours, MERLIN WILEY, (71) LAND CONTRACTS NOT LEGAL INVESTMENTS FOR STATE BANKS. Hon. Hugh McPherson, Commissioner of Banking, Lansing, Michigan: July 13, 1921. 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 who has stated the matter very clearly in the opinion first above referred to. In other words, I think you would be safe in advising the bank in question that the purchase outright of land contracts out of funds of the bank for pure purposes of investment or speculation is not permitted by the banking laws of this state. |