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You desire to know whether or not such a ballot would be legal.

In reply thereto would say that it does not appear from your letter or from the notice that the so-called ballot is used for any other purpose than obtaining an expression of opinion from stockholders who cannot attend the annual meeting. If this ballot is used for no other purpose, I cannot see how any possible harm or wrong could result from its use.

On the other hand if this ballot is used for the purpose of actually electing directors, and as marked by an absent stockholder is cast in the ballot box of the meeting along with the ballots of stockholders who are present, I am clearly of the opinion that such ballot is invalid. I know of no principle of corporation law which would permit the election of directors in any other manner than at a meeting lawfully called and duly assembled. Cook on Corporations, 7th Edition, Sections 588, 595, 596, 604, 605 and 610. It is possible that under a proper charter provision and by-laws enacted under the authority thereof, or by statutory provisions such a method of electing directors could be legalized, but I am of the opinion that under our present banking law a stockholder must be either personally present or present by proxy before his ballot can be cast in the election of directors.

Respectfully yours,

(Signed) GRANT FELLOWS, Attorney General.



April 27, 1915.

Hon. Frank W. Merrick, Commissioner of Banking, Lansing, Michigan:

Dear Sir-Your communication of the 22nd instant received as follows: "Recently the directors of a state bank passed a resolution authorizing the bank to assume all liabilities of certain directors who were sureties on bonds of city treasurer. Can a state bank assume any such liability by vote of directors or by unanimous vote of stockholders? We will appreciate your opinion in this regard."

In reply thereto will say that banks are authorized to give bonds to secure city moneys deposited with them in certain cases, as for instance, under Section 3033 of the Compiled Laws of 1897, as amended by Act 156 of the Public Acts of 1901, and under the provisions of some of the Home Rule charters and legislative charters. This, however, must not be con- · fused with the bond given by the city treasurer when he qualifies for his office.

I do not know of any statute authorizing a bank organized under the Michigan Banking Law to become surety upon the bond of any public officer. In the absence of an express statute upon the subject, I am clearly of the opinion that a state bank cannot lend its credit in this way or enter upon any such obligation, either with or without consideration. A bank can lend its credit and assume the obligations of third parties only in cases where the bank is directly interested and in the ordinary course of banking.

Michie on Banks and Banking, page 681.

Thomas v. City National Bank, 24 L. R. A. 263 (Neb.).
First National Bank v. Am. National Bank, 173 Mo. 153.
Bowen v. Needles National Bank, 94 Federal Rep. 925.
Thilmany v. Iowa Paper Bag Co. 79 N. W. 68.

Mine Supply Co. v. Stock Growers Bank, 173 Federal 859.

If the bank cannot become the direct surety upon a city treasurer's bond, it cannot assume the liabilities of directors who have become sureties. Neither the directors nor the stockholders have the power to bind the bank for this purpose and I am, therefore, of the opinion that your question should be answered in the negative.

Respectfully yours,

Attorney General.



Lansing, June 4, 1915.

Hon. Albert E. Manning, Deputy Banking Commissioner, Lansing, Michigan:

Dear Sir-Your letter of the first instant received, containing the following inquiry:

"I call your attention to Act 106, Public Acts of 1913, and would appreciate your opinion as to whether or not this in any way supersedes the provisions of the banking law with reference to the statutory lien upon bank stock as provided in Section 9. We have recently had several inquiries as to whether or not said Act No. 106 related to the stock of state banks, and will appreciate your opinion in regard thereto."

In reply would say that the Act to which you refer is entitled "An Act to make uniform the law of transfer of shares of stock in corporations." The evident purposes of this Act as expressed in its title and in the various provisions made with respect to the methods of transferring stock, is to adopt a uniform set of rules, most of which are already recognized as settled corporation law.

With regard to the question as to whether this Act is applicable to shares of stock in banks, I am inclined to the opinion that insofar as bank shares may be treated as transferable personal property, the Act would apply to them as well as to the shares of other corporations. Insofar, however, as this may be in conflict with express provisions of the general banking law of the State as to the methods of transferring bank shares and the lien on the same created by any provision of the banking act, quite a different question is presented.

Banks, as corporations, are controlled and regulated by the general banking law of this State. To that extent they are separate and distinct corporations. Section 9 of Article 12 of

"No general law providing-for the incorporation of trust companies or corporations for banking purposes, or regulating the business thereof, shall be adopted, amended or repealed except by a vote of two-thirds of the members elected to each house of the legislature...

As partially insuring the strict observance of this Constitutional provision, the legislature has adopted rules as follows:

Rule No. 27. "The question on the final passage of all bills, which by the constitution, require the assent of two-thirds of the senators-elect, shall be taken by yeas and nays, and entered on the journal, and unless two-thirds of all the members-elect vote in the affirmative, the bill shall be declared lost. And whenever such bill shall receive such assent of two-thirds as aforesaid, the fact thereof shall be certified upon said bill."

House Rule No. 64. "No bill appropriating the public money or property for local or private purposes, or providing for the incorporation of trust companies, or corporations for banking purposes, or regulating the business thereof, or amending or repealing any law providing for such incorporation or regulation shall be passed unless two-thirds of the members elected to the House shall have voted in favor of the passage thereof."

The legislative history of Act 106 of the Public Acts of 1913 is contained on page 96 of the "Index and History,' of Senate Bills, this Act being Senate Bill No. 28. The bill was introduced January 13, 1913, by Senator Smith, and was on the same day referred to the Committee on Banks and Corporations. It was passed on third reading in the Senate March 18th, 1913, and the journal entry is as follows:

"Senate Bill No. 28 (file No. 30), entitled 'A bill to make uniform the law of transfer of shares of stock in corporations;' was read a third time and passed, a majority of the Senatorselect voting therefor by ycas and nays, as follows:


Names of Senators (26)

The title of the Bill was agreed to."

Names of Senators (2)

I refer to the legislative history as merely showing that the bill was not evidently regarded in the Senate, where it was introduced, as an amendment to the banking laws, inasmuch as the Senate rules applicable to such bills were not observed in the passage of this measure. Of course, it is not a direct amendment to any law and only repeals or amends other laws by implication. Repeals by implication are not favored, and I do not think the provisions of this Act were intended to repeal or modify the express provisions of the general banking law. In view of these facts and principles, I have no hestitation in advising you that no provision of the general banking law is affected by the Act under consideration. Very respectfully,

Attorney General.



Lansing, July 6, 1915.

Honorable Frank W. Merrick, Commissioner of the Banking Department, Lansing, Michigan:

Dear Sir-I have before me your communication of the 30th ult., in which you request my views as to the construction to be placed upon certain provisions found in Section 27 of the general banking law. As I understand the situation, a certain savings bank in this state desires to invest a certain amount of its deposits in so-called "vendor's lien notes" executed in the State of Texas, and by the terms of which a lien is created upon real estate. The question presented is as to whether or not such investment may be made under the law.

Insofar as it is material to the determination of this question, the section of the statute above referred to provides:

"A savings bank shall keep on hand at least fifteen per cent of its total deposits, one-third of which reserve shall be in lawful money in its own vaults, and the balance on deposit payable on demand, with banks, national or state, in cities approved by the Commissioners as reserve cities, or invested in United States bonds; three-fifths of the remainder of the savings deposits shall be invested by the board of directors as follows:

(h) Said banks may loan the same upon negotiable paper, or other evidences of indebtedness secured by any of the above mentioned classes of security; or

(i) Upon notes or bonds secured by mortgage lien upon unencumbered real estate worth at least double the amount loaned.

The answer to the question upon which you have requested my views must depend upon the construction to be given to the expression "mortgage lien" as used. It appears from the correspondence submitted with your inquiry that the land upon which the lien stated in the notes exists has been sold at prices ranging from $25 to $35 per acre. One-third of the purchase price has been paid in cash and the remainder in the notes referred to. Said notes were issued in series, the obligations in each series maturing at different times, varying from one to four years. The deed of the property refers expressly to the vendor's lien created by virtue of the clause in the notes. This deed has, it is stated, been recorded.

Although it is not expressly so stated, I infer that the investment is sought to be made out of the 51% of deposits that may be loaned upon negotiable paper or other evidences of indebtedness secured by mortgage lien upon unencumbered real property. The requirement that such property be unencumbered necessarily implies that there shall be no other lien thereon prior to, or equal in rank to, the mortgage by which the obligations taken by the bank are secured. If, therefore, a savings bank were to be permitted under any circumstances to invest moneys, out of the fund in question in vendor's lien notes, all of such notes outstanding against a particular description must necessarily be taken. Otherwise, if a number of such notes were owned by others, the objection would be encountered that the property was not unencumbered because there would exist thereon a lien equal in rank to that held by the savings bank.


This brings us to a Quite possibly, however, in the case to which you refer, it is desired to buy all of such outstanding notes so that the objection above suggested would be avoided. consideration of the principal point at issue; that is, whether or not the lien created by these notes can be said to be a "mortgage lien" within the meaning of the Michigan statute here involved. The so-called "vendor's lien" is expressly recognized by statute in the State of Texas. The provisions with reference thereto are analogous in many respects to the enactments of the legislature affecting mortgages upon real property. The decisions of the court of last resort of Texas, construing these legislative enactments and involving the nature and necIt is significant to essary incidents pertaining to the vendor's lien, proceed upon the theory that such lien is analogous to the lien that exists by virtue of a mortgage or deed of trust. note, however, that the statute does not treat the vendor's lien in connection with mortgage liens, nor does it declare that such liens shall be regarded as identical and subject in all respects to the same considerations. Likewise, the decisions of the courts, while recognizing the analogy do not go to the extent of declaring that for all practical purposes, the vendor's lien The comparatively recent case of Busch v. Broun, 152 S. and the mortgage lien are identical.

It was there W. 683, may be cited as suggesting the attitude of the Supreme Court of Texas. held that an assignment of a vendor's lien note should be registered upon the ground that under the terms of the statute and prior decisions of the court, an assignment of a mortgage must be recorded, in order to protect the rights of the assignee as against third parties and that the assignment of a vendor's lien note was subject to similar consideration because such It is obvious from the reading of this opinion of note conveyed "the same character of lien."

the court that in the use of the words quoted it was meant to imply that the note like the mortgage created a lien upon the land within the meaning of the laws, relating to registration It was not indicated that in the opinion of the of instruments affecting the title to land. court the same lien was created by the notes as is created by a mortgage.

It is also of interest to note in this connection that the statutes of the State of Texas relating to certain mutual insurance companies permit the investment of the funds of such companies, in national, state, county and city bonds, and also in first mortgages upon real estate, subject to the restriction that the amount secured by such mortgages should not exceed Permission is not given to such companies to invest in vendor's 50% of the value of the land. This inference would seem to be lien notes. Had it been the intention to grant such permission, it may, I believe, be assumed that the terms of the statute would have been so expressed.

fully warranted because of the various statutory provisions by which mortgages and vendor's lien notes are recognized as separate and distinct undertakings, although analogous in many respects, and of the same character in that each creates a lien on real property.

As I view the matter the reasons that may have prompted the legislature of Texas in not including vendor's lien notes in the list of securities in which mutual insurance companies As suggested by the correspondence submitted by might invest are not difficult to ascertain. you, many such notes may be issued, each imposing a lien upon the same property. If, as is usually the case, these notes are held by different parties, it follows necessarily that no one of Rather, all of such liens are of equal rank. such holders has what may be termed a prior lien.

It should be noted also in this connection that each of such notes imposes a lien, while in the event that a mortgage is executed, securing an indebtedness, there is, of course, but the one lien, even though such indebtedness may be evidenced by a number of notes, bonds, or other obligations. It was unquestionably the view of the Texas legislature that first mortgages were preferable to vendor's lien notes. Undoubtedly reasons of public policy were deemed to exist that warranted the apparent discrimination.

I am impressed that similar reasons of public policy obtain in the construction of the proA reading of Section 27 is sufficient to vision of the Michigan statute that is here involved. indicate conclusively that the legislature decmed it wise to carefully safeguard the investment I challenge your attention specifically to subdivisions (e), (f), of the funds of savings banks. and (g) thereof. It was clearly intended that every precaution should be observed in order Undoubtedly the history of banking, as conducted prior to prevent even a possibility of loss. to the passage of supervisory and regulatory statutes, explains in large measure the extreme In permitting investments in notes or bonds secured by care with which this act was drawn. mortgage, it was provided, in accordance with the general spirit of this act, not only that the real estate must be unencumbered, but that it must be worth at least double the amount loaned, it occurs to me that this last provision might operate to prevent investments in the specific notes referred to in your communication, for it appears that such notes were given Assuming that such price may be taken to for two-thirds of the purchase price of the land. indicate the actual value of the land, it is patent that the liens created by such notes exceed in the aggregate one-half the value of the property. If, therefore, all of the notes outstanding against any particular description were acquired by the bank to which you refer, there might still be involved the question as to whether or not such investment is in contravention of this clause. However, I regard this feature as of minor importance unless it is sought to purchase notes secured by a trust mortgage, to which more specific reference will hereafter be made.

The significant feature of the clause to which attention has been directed lies in the fact that the legislature has seen fit to refer only to mortgage liens rather than to liens generally Had it been the intention to include liens other than those that may cover real property. I am strongly impressed existing by virtue of a mortgage, within the purview of the act, it is, I believe, fair to assume that this particular clause would have been enacted accordingly. reasons of Precisely the same that the intention of the legislature cannot be carried out unless the restrictions imposed are carefully observed in accordance with the letter of the law. public policy that prompted the inclusion of these provisions in Section 27 require that in construing the same, there shall be no exception permitted and no practice allowed that will In accordance with these suggestions, open the door to a modification of the requirements deemed to be necessary to safeguard the rights and interests of the depositors in savings banks.

I am constrained to the opinion that the savings bank to which you refer may not properly invest in vendor's lien notes covering property in the State of Texas on the theory that the lien created by such notes is a "mortgage lien" within the meaning of Section 27 of the general banking law. This, I believe, covers your first question.


This With reference to your second inquiry as to whether or not a loan secured by trust deed on realty in the State of Texas may be made the subject of an investment made by a savings In bank out of its deposits, it would seem that no feasible objection may be made thereto. so-called "deed of trust" a copy of which is submitted, is to all intents and purposes a mortgage and in consequence the lien created thereby may fairly be said to be "mortgage lien." making investment in obligations secured by such lien, it must be borne in mind that the aggregate of such obligation may not exceed one-half the value of the property and that such lien must be prior in character to all other liens outstanding. The fact that it is deemed necessary to execute this instrument. in certain cases may in itself be taken as an indication that the so-called vendor's lien notes are not as ample security as is the lien created by a mortIn case of any default under the latter, the trustee is, of course, gage or deed of trust. charged with the duty of protecting the rights of all the holders of the obligations that are As stated, there seems to be no objection to an investment in obligations secured by such lien. secured in this manner providing of course, the necessary restrictions and limitations imposed by the statute are observed.


Respectfully yours,

Attorney General.


October 29, 1915.

Hon. Frank W. Merrick, Commissioner Banking Department:

Dear Sir-Your communication of the 28th inst. received as follows:

"I desire to call your attention to Section 11 of the banking law, which provides that a bank may purchase and hold real estate such as shall be necessary for the convenient transac Under this provision of tion of its business, including with its banking office other apartments to rent as a source of income, but which shall not exceed fifty per cent of its paid in capital. said Section, I desire to inquire whether or not in your opinion it would be legal for a state bank to carry as an asset stock of a Building Company up to fifty per cent of capital? The Building Company is one organized for the purpose of erecting a bank and office building for the state bank, which bank heretofore held a ninety-nine year lease of the property. Capital stock of the Building Company is $250,000, all held by the directors of the bank, and the Building Company will also have a bond issue of $250,000, retirable at the end of twentyseven years from the income of the building.

Trusting that this will have your early attention

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It is my understanding from your inquiry that this particular bank contemplates carrying the stock in the Building Company as an asset under its banking house account.

The authority of a state bank to invest in real estate is limited by the provisions of SecUnquestionably this section contion 11 of the General Banking Law to which you refer. templates direct ownership either by way of a fee or, as we have heretofore held, a long term lease. See Attorney General's Report for nineteen-fourteen at page 578. I do not think that the provisions of this section can be further extended by construction.

Moreover the authorities are uniform in holding that unless expressly authorized by statute, State and National banks cannot hold stock in other corporations and where they are authorized to hold such stock they can only do so in the manner and for the purposes prescribed. Upon this proposition you are respectfully referred to Attorney General's Report for nineteenfourteen at page 434.

Further discussion of this matter I think is unnecessary, and your inquiry is therefore answered in the negative. Respectfully yours, (Signed) GRANT FELLOWS, Attorney General.



December 28, 1915.

Hon. Frank W. Merrick, Banking Commissioner, Lansing, Michigan: Dear Sir-Answering your communication of recent date as follows: "Section 11 of the banking law limits the investment by a state bank in real estate for The question is asked whether the banking purposes to 'fifty per cent of its paid in capital.' We will phrase 'paid in capital' means 'capital stock' or does it mean the entire assets of a bank, viz: money paid in for stock, surplus, undivided profits, or other property in the bank. appreciate an opinion from your Department on this question."

In reply thereto would say that the provision of section 11 of the State Banking law to which you refer reads in part as follows:

"The 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 office, other apartments to rent as a source of income but which shall not exceed fifty per cent of its paid in capital...

The meaning of the phrase "paid in capital" as it appears in this section is doubtless made clear by reference to the provisions of section 5 of the same act in which it is provided:

"At least fifty per cent of the capital stock of every bank shall be paid in before it shall be authorized to commence business and the remainder of the capital of such bank shall be paid in monthly installments of at least ten per cent on the whole of the capital, payable at the end of each succeeding month...

Other provisions of the banking law clearly distinguish between paid in capital and other This, as I take it, is the view held assets of the bank, such as surplus, undivided profits, etc. by Michie in that part of his work devoted to a discussion of capital stock and dividends from

"Section 36. Amount of Capital and Shares. The capital of a bank is not an ideal, fictitious, arbitrary sum of money set down in the articles of association, but is composed of substantial property and is that which gives value and solidity to the stock of the institution. It is the foundation of its credit in the business community. Capital used in the business of banking is none the less so because it is borrowed. The mere fact that the money permanently invested in the business is borrowed does not alter its character as capital but a temporary loan obtained to meet an emergency is not capital.

The capital stock of a bank is the whole undivided fund paid in by the stockholders, the legal right to which is vested in the corporation to be used in trust for the benefit of the members. If a large surplus be accumulated and laid up that does not become a part of it. (Citing Fireington v. Tenn., 95 U. S. 679.)

"Capital" and "capital stock" of a bank, while sometimes used interchangeably, are not one and the same thing. "Capital" includes the entire assets of the bank, whether represented by money paid in for stock, surplus, undivided profits, or other property of the bank; while capital stock represents only the total amount derived from the issuance of the shares of stock." (West v. Newport News, 104 Va. 21; Michie Banks and Banking, pages 75 and 76.)

The term "paid in capital" as used in section 11, therefore, must be taken to refer only to money paid in for stock, which amount is fixed by statute as distinguished from reserve capital, undivided profits, etc., which are more or less under the control of the directors of the bank and may vary with the fortunes of the business.

Respectfully yours,
Attorney General.



Hon. Frank W. Merrick, State Banking Commissioner, Lansing, Michigan:

January 17, 1916.

Dear Sir-I have your communication of the 14th inst. as follows: "I am enclosing herewith letter from one of our State banks, as well as advertisements attached, upon the subject matter mentioned in the letter. Will you kindly advise us as to whether or not a building and loan association can legally advertise for deposits; and also advise us, whether or not in the event of an individual or bank loaning a building and loan association money, would the person or bank become a preferred creditor as against the stockholders of the building and loan association."

In reply thereto would say that domestic building and loan associations are governed by the provisions of Act 50 of the Public Acts of 1887, as amended by Act 17 of the Public Acts of 1901. The purpose of such associations is stated in section 1 of the above act as follows: "Any number of persons * * desiring to organize a building and loan association for the purpose of building and improving homesteads, removing incumbrances therefrom, and loaning money to the members thereof, may, by complying with all the provisions of this act and entering into articles of association, become a corporate body. * **

Section 5 provides in part as follows:

"The authorized capital stock of such association shall be divided into shares having a par value of not less than twenty-five dollars, nor more than two hundred dollars each, payable in periodical installments, called dues, not exceeding two dollars per month on each share: Provided, That the by-laws may provide for the advance payment of installment dues and for which there may be issued an advance payment certificate. The shares may be issued in series, or at any time as the by-laws shall determine, and subscriptions therefor shall be made payable to the association."

Under the provisions of sections five and six of the act most building and loan associations in this State make provision for investment in their capital stock on the installment plan. This, however, must be distinguished from receiving deposits as banks do business.

I have examined the advertisement to which you refer and do not think it is open to the objection that the building and loan association in question is holding itself out to be a bank. I am of the opinion that were they doing so it would constitute a misuse of their charter.

With reference to the second question which you ask as to whether a bank loaning money to a building and loan association would be preferred in case of insolvency over stockholders in the association, I am of the opinion that the same rule would apply as in ordinary corporations. The members of a building and loan association are mutually liable for its obligations and the funds of the association and its assets in case insolvency results, may be used for the payment of debts. In this connection I call your attention to Thornton and Blackledge on building and loan associations, Sections 376 and 377.


Respectfully yours,
Attorney General.


Hon. Frank W. Merrick, State Banking Commissioner, Lansing, Michigan:

April 10, 1916.

Dear Sir-We have had under consideration for some time the proposition submitted to your Department by one of the State Banks in Detroit, relative to the proposed building of a banking house where the cost of the land and the building will be approximately two million dollars, which amount equals the capital of the bank. Inasmuch as section 11 of the general banking law only permits 50% of the capital to be invested in a banking house, this bank has submitted several propositions for your approval. These propositions are as follows:

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