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. Respectfully yours, GRANT FELLOWS, Attorney General. SIGNER ON FACE OF NOTE CONSIDERED MAKER UNLESS OTHERWISE DESIGNATED. April Twenty-ninth Hon. E. H. Doyle, State Banking Commissioner, Capitol: 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 Jany. 1, 1914. Sixty days after date I promise to pay to the order of THE FIRST STATE BANK 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.. OF 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 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 a 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 a maker of the note, there being nothing on the face of the instrument to show that he signed the same in any other capacity. Respectfully yours, GRANT FELLOWS, Attorney General. STATE BANKS NOT TO PLEDGE ASSETS IN LIEU OF BOND TO SECURE COUNTY FUNDS. April Twenty-ninth, Hon. Albert E. Manning, Deputy Banking Commissioner, Capitol: 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 that the only direct authority for the deposit of county bonds 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 Supervisors 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. 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. Respectfully yours, GRANT FELLOWS, CERTAIN MUNICIPAL PUBLIC UTILITY BONDS NOT LEGAL SAVINGS INVESTMENTS. Hon. E. H. Doyle, State Banking Commissioner, Capitol: October 26, Nineteen Fourteen. 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 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, of 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 centum of the assessed value of all real and personal property in the city **** when 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 utilty as may be deemed sufficient for the payment of the mortgage bonds at maturity." '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 passtatutory 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 first impression so far as this department is concerned. The purpose of the provisions of Section 27 is to throw proper safeguards around the investment 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 of 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 hesitation 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. Peoples 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. Brooke vs. San Luis Obispo, 109 Cal. 50; Directors Chicago Public Library vs. Arnold, 60 III. 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 the faith 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, |