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(1) A state bank with $2,000,000 paid in capital desires to invest $1,000,000 in a banking office and office building as a source of income, as follows: To obtain a site and erect an 18 story banking and office building at a total cost of not exceeding $2,000,000 using therefor one-half of its paid in capital, viz: $1,000,000 and issuing building bonds for the remaining $1,000,000, the principal and interest of which bonds shall be payable solely from the net Income of the property, and which bonds shall be, according to their terms, solely payable from such net income as may be derived and not a claim or debt against the bank, not a claim against any of its property nor assets nor against the building, but merely against the net income until the principal and interest of the bonds are paid. Is this permissible?

(2) Instead of the issuance of the bonds by the bank, may an independent corporation or an individual or individuals procure title to the site, erect the building, sell it absolutely to the bank for $1,000,000, reserving the title to the net income until the amount received from such net income shall reimburse it or him or them for the balance of the cost plus 5% per annum until paid?

(3) May an independent corporation, individual or individuals owning building and site worth $2,000,000 sell to the bank an undivided one-half interest therein for $1,000,000, they holding as tenants in common, and then lease the remaining undivided one-half interest therein to the bank for a rental equal to the net income of the whole building, with the proviso that when the bank has paid from such net rental an amount sufficient to cover the value of the undivided one-half interest plus 5% interest, the whole title thereto shall vest in the bank?

(4) If an independent corporation, individual or individuals procured the site and erected the building at a cost of $2,000,000, and gave a trust mortgage on the property to secure the payment of $1,000,000 construction bonds at a rate of $100,000 a year inclusive of interest, could a state bank of $2,000,000 paid in capital buy the property for banking offices and apartments as a source of income for $1,000,000, subject to such trust mortgage, on the express stipulation, however, that the bank does not assume and agree to pay the mortgage or bonds secured thereby, but that, so far as the bank is concerned, the holders must look to the property for liquidation, and payment?

(5) Can a state bank invest one-half of its paid in capital in a building and site as cotenant in common with another corporation, individual or individuals, and later by an increase of its capital paid in, buy out its co-tenant?

Proposition No. 1, I think should be answered in the negative. Under this proposition the net income from rentals, etc., would be used in discharging the principal and interest on the bonds. Such rentals are assets of the bank and the bank would, therefore, use its assets in paying off the mortgage bonds, thus increasing its investment in the banking house. The proposition is clearly an evasion of the restrictions imposed by section 11 and should not be approved.

Proposition No. 2. This is subject to the same objections as the first proposition and should likewise be disapproved.

Proposition No. 3. This proposition is subject to the criticism that the bank has already invested up to its limit in the banking house and then proceeds to lease the other undivided half interest from the other tenant in common for an amount equal to half the value of the building. This proposition is so clearly an evasion of the law that it should be given no further consideration.

Proposition No. 4. I do not see how a distinction can be made between the bank being liable for a debt and property of the bank being liable. In any event failure to meet the terms of the mortgage lien would involve the assets of the bank, especially since the bank would propose to invest one million dollars of its capital in the real estate. This proposition is an evasion of section 11 and possibly of section 45, which provides that a bank cannot pledge its assets as collateral security so as to give a preference to the creditor.

Proposition No. 5. This proposition is governed by a separate opinion this day rendered to you and in short may be answered as follows: that there is nothing in the banking law to prohibit a State bank from being a tenant in common with another corporation or individual provided that it does not involve as a necessary consequence a partnership agreement. My fear would be that a partnership agreement would be necessary, and that would be especially true where the parties as tenants in common contemplate from the beginning that one of the parties should purchase the other's interest and that in the meantime one of the parties would be acting as a trustee or agent for all in the collection of rents, payment of taxes, insurance, etc. I would suggest, as I did in my other opinion, that any contract made between the tenants in common under this proposition should be submitted to the banking department before taking effect.

Respectfully yours,
(Signed) GRANT FELLOWS,
Attorney General.

BANKING HOUSE.

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April 10, 1916.

Hon. Albert E. Manning, Deputy State Banking Commissioner, Lansing, Mich. : Dear Sir-Your communication of the 13th ult. received as follows: "I am directed by the Commissioner to ask for an opinion from your department on the following questions:

First. As to whether or not a State bank can own and carry as Banking House an undivided half interest in same when the total cost of the banking house exceeds fifty per cent of capital, the other undivided interest being owned by a Building Company consisting of bank directors.

Second. We will also appreciate your opinion as to whether or not a State bank can carry as Banking House a building with the title to upper story or stories in other corporations, fraternal or otherwise."

In reply thereto would say that the answer to your communication has been delayed because of the suggestion that the banks which are interested in this question proposed to submit a brief. Since that suggestion was made the interested parties have for some reason concluded

Answering your first question, would say that the right of a bank to purchase, hold and convey real estate is governed by Section XI of the General Banking Law which provides in part, as follows:

"A 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 departments to rent as a source of income, but which shall not exceed fifty per cent of its paid in capital;

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This section does not attempt to define the character of the title to the real estate which a bank may purchase; nor does it prescribe any limitations except such as may be inferred from the words themselves "purchase, hold and convey real estate." We have held that under this provision a bank may obtain less than a fee, as for instance a ninety-nine year lease.

Section 8825 of the Compiled Laws of 1897 provides as follows:

"Estates in respect to the number and connection of their owners are divided into estates in severalty in joint tenancy, and in common the nature and properties of which, respectively, shall continue to be such as are now established by law, except as far as the same may be modified by the provisions of this chapter."

Section 8826 provides:

"All grants and devices of lands, made to two or more persons, except as provided in the following section, shall be construed to create estates in common, and not in joint tenancy, unless expressly declared to be in joint tenancy."

It has been held that a corporation can not take an estate in joint tenancy, either jointly with another corporation or with a natural person. (10 Cyc., page 1132.) But it can take and hold as a tenant in common with another corporation or with a natural person. See DeWitt vs. San Francisco, 2 Cal. 289; Estell vs. Southern University, 12 Lea Tenn. 476; Haven vs. Mehlgarten, 19 Ill. 91; Hacket vs. Railway Company, 12 Ore. 131; 10 Cyc. 1132. It is a general rule that corporations can not enter into partnership agreements and this rule would prohibit a corporation from holding lands in partnership or under partnership agreements; but the rule as to partnerships would not prevent a corporation from holding an estate in common with another corporation or with a private person.

Answering your first question, therefore, I would say that a bank might hold title in common with another corporation or private individual, to real estate to be used as a banking house, provided there does not follow as a matter of necessity the entering into a partnership agreement relative to the use of the property. This I think would not prevent the tenants in common from agreeing by contract as to which portion of the proposed property should be used by either party, but would prohibit any agreement by which the one tenant in common should permit the other tenant in common to bind the entire property for obligations of a single tenant in common. In this connection I would suggest that any agreements made between the tenants in common as to the use of the property should be submitted to the Banking Commissioner so as to avoid ultra vires acts on the part of the bank.

Answering your second question your attention is called to an opinion rendered by me to Mr. Leland F. Bean on pages 427 and 428 of the Attorney General's Report for 1915, in which the question was raised as to whether a township could own the fee in a second story of a building. In that opinion I said:

"It does not occur to me that the township could own the second story of a building in fee. Such an attempted purchase of a building or a portion thereof apart from the realty would in all probability be construed as a severance in legal effect, and an estate in fee can exist only in land, and applies to buildings or other structures only insofar as the same are regarded as attached to and part of the land. It would be impossible for the land to be held in fee by one person and a building on such land to be held in fee by another."

I am clearly of the opinion that the title to upper stories of a building can not be held in fee by any person other than the owner of the land upon which the building stands.

BANKING HOUSE.

Respectfully yours,
(Signed) GRANT FELLOWS,
Attorney General.

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

July 18, 1916.

Dear Sir-You have recently submitted to me copy of a tentative agreement entered into by a State bank with certain persons mentioned therein and have asked that I give you my views upon the matter. Insofar as the bank is concerned, the essential parts of the agreement provided for the conveyance to a corporation to be hereafter formed of certain real estate for a stipulated consideration; for the leasing to the bank for a period of ninety-nine years of land on which is to be erected a building designed for hotel and bank purposes: for the purchase of a certain portion of said building; and for the leasing of all of said building thus purchased that is not used for banking purposes. Without reference to the practical operation of this contract as written, cr to its enforcibility, it does not occur to me that a State bank, if it performs the various acts contemplated, will thereby infringe any provision of the banking law or any other statute of the state. Undoubtedly it has the power of a corporation to sell its property, to lease property and to purchase property. does not appear that authority of any other or different nature is involved. I do not understand that my opinion is requested except as to the legality of these various acts, assuming that each and all of them may and will be performed in accordance with the written instrument. This opinion is limited accordingly and has, of course, no reference whatever to incidental propositions of business policy which may arise in case the proposed action is taken. I am returning herewith the copy of the contract and the correspondence submitted therewith.

Respectfully yours,
(Signed) GRANT FELLOWS,

It

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REPORT OF THE COMMISSIONER

JOINT TENANCY NOT CREATED BY JOINT DEPOSIT.

December 30, 1916.

Hon. Matthew Bush, Judge of Probate, Corunna, Michigan:

Dear Sir-I am in receipt of your communication of the 22d inst., wherein you request an opinion from this Department as to the construction to be placed upon the term "joint tenants" as used in section 3 of Act 248 of the Public Acts of 1909. The section to which you refer reads as follows:

"When a deposit shall be made in any bank or trust company by any person in the name of such depositor or any other person, and in form to be paid to either or the survivor of them, such deposits thereupon and any additjons thereto, made by either of such persons, upon the making thereof, shall become the property of such persons as joint tenants, and the same together with all interest thereon, shall be held for the exclusive use of the persons so named and may be paid to either during the lifetime of both, or to the survivor after the death of one of them, and such payment and the receipt of acquittance of the same to whom such payment is made shall be a valid and sufficient release and discharge to said bank for all payments made on account of such deposits prior to the receipt by said bank of notice in writing not to pay such deposits in accordance with the terms thereof."

Prior to the enactment of this statute it had been the holding of the Supreme Court that an estate in joint tenancy could not be created in personal property. See

Waite vs. Bovee, 35 Mich. 425:

State Bank of Croswell vs. Johnson, 151 Mich. 538;
Burns vs. Burns, 132 Mich. 441.

I am impressed that it was not the intention of the legislature in enacting this statute to create an estate in joint tenancy as it was known to the common law in bank deposits made in accordance with the provisions with the same, but that the object of this statute is to protect the bank in case payment of the money is made to the survivor before the bank has received notice of the death of one of the parties. The language of the statute would seem to indicate that this was the intention of the legislature and I am, therefore, of the opinion that section 3 of the act does not create a joint tenancy in personal property as the term "joint tenancy" was known to the common law.

Respectfully yours,
(Signed) GRANT FELLOWS,
Attorney General.

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Hon. Frank W. Merrick, Commissioner Banking Department, Lansing, Mich. :

March 19, 1917.

Dear Sir-Your communication of the 14th instant received requesting my opinion upon the following proposition:

"Investigation develops the fact that numerous banks under the supervision of this Department are from time to time advancing funds to certain building and loan associations in the State. The question has arisen whether building and loan associations, as organized under the Michigan statute, are given the right to borrow funds for loan purposes in this way; and as a consequence whether the loans held by banks are legal investments or not."

In reply thereto would say that under date of July 31, 1901, Honorable Horace M. Oren, See Attorney then attorney general, advised the secretary of state that building and loan associations have a right to borrow money to carry out the purposes of such organizations, in the absence of statutory prohibition, or by-laws of such associations prohibiting it; and have implied power to secure the payment of such loans by assignment of mortgages, bonds, etc. General's Report for 1902, page 59.

I do not find that this question has since been passed upon by this department, and I therefore assume that the opinion of Mr. Oren has been followed in this respect. If a building and loan association has the authority to borrow and pledge its securities it consequently follows that a bank would have the same right to loan its money to a building and loan association as to any other borrower.

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Respectfully yours,
(Signed) ALEX J. GROESBECK,
Attorney General.

BANK MAY NOT LEGALLY CLOSE ON ANY DAYS OTHER THAN THOSE PRESCRIBED BY LAW.

June 11, 1917.

Hon. Frank W. Merrick, Lansing, Michigan:

Dear Sir-Your communication of the 19th ult. received as follows: "We have been requested by a State bank to submit to you the proposition of whether a State bank may legally close its bank or an afternoon other than Saturday during the summer months. As you no doubt are aware Saturday afternoon is a busy time in the smaller towns, and for that reason barks dislike to close.

"Will you kindly give this matter your early attention?"

In reply thereto, would say that there does not appear to be any authority in the banking act under which State banks may close through banking hours on any days except those prescribed.

Very respectfully,
(Signed) A. B. DOUGHERTY,
Deputy Attorney General.

BANK DISCOUNTING ITS NEGOTIABLE NOTES FOR PURPOSE OF RELOANING, NOT ACTING IN GOOD FAITH. (61)

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

February 19, 1918.

Dear Sir-I have before me your communication of the 8th inst. with reference to the authority of a bank organized under the banking laws of this state to rediscount its negotiable notes for the purpose of securing funds to reloan.

Section 32 of the Michigan Banking statute provides in part as follows:

"Provided further that any bank may borrow money for temporary purposes, and may pledge assets of the bank not exceeding fifty per cent in excess of the amount borrowed as collateral security therefor: Provided further, That whenever it shall appear that a bank is borrowing habitually for the purpose of reloaning, the Commissioner of the Banking Department may require such bank to pay off such borrowed money. Nothing herein contained shall prevent any bank from rediscounting in good faith and endorsing any of its negotiable notes."

You will note that this section prevents a bank from borrowing habitually for the purpose of reloaning. This section provides further that nothing therein contained should prevent any bank from rediscounting in good faith and endorsing any of its negotiable notes.

It is my opinion that it was not the intention of the legislature in providing that a bank might rediscount in good faith its negotiable notes to authorize the said bank to rediscount its negotiable notes for the purpose of securing funds to reloan.

This section permits a bank to rediscount its negotiable notes if done in good faith, and should a bank rediscount such paper merely for the purpose of securing funds to reloan, I do not think it can be said that said bank is acting in good faith.

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Trusting this will serve to furnish you with the desired information, I am,
Respectfully yours,
(Signed) A. B. DOUGHERTY,
Deputy Attorney General.

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 invested 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,

Respectfully yours,
A. B. DOUGHERTY,
Deputy Attorney General.

TRUST COMPANIES DO NOT HAVE POWER TO EXECUTE ACCEPTANCES.

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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 legitimate banking business.

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

REPORT OF THE COMMISSIONER

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).

as to create a primary liability A close examination of the trust company act fails to reveal any direct or express provision authorizing trust companies to include acceptances so 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 preUnder the provisions of section scribed 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.

*

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 note and debentures, pay-
able at a future date, and to pledge its mortgages or real estate and other securities as
Under section 8054 of the Compiled Laws of 1915, the capital stock of
security therefor."
such companies may be invested, "in bonds secured by mortgages, or notes and mortgages or
and such board of directors may invest or loan
unincumbered real estate within the State of Michigan, worth double the amount secured
thereby or in public stocks and bonds
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
Nowhere
* or in such real or personal securities as they may deem proper."
of the United States
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.
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 be safely 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 In this connection your attention is invited to the opinion by the authorities for a criterion.

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 busiThis latter provision, in my opinion, is the ness, the management of societies, the collection of rents, interest, dividends, mortgages, bonds, bills, notes and securities for moneys." This power falls far short of grantmeasure of the powers of a trust company with reference to the handling of negotiable instruments originating outside of the trust company itself. The only legitimate ways, in my opinion, that ing to trust companies a general authority such as is conferred upon banks in the eighth subdivision of section 4 of the banking law. 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,

ALEX J. GROESBECK,
Attorney General.

TRUST POWERS OF NATIONAL BANKS.

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April 25, 1919.

Hon. Frank W. Merrick, State Banking Commissioner, Lansing, Michigan: Dear Sir-I have before me your communication of the 23rd instant wherein you call You also call attention to certain 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.

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 deposit securities with the State authorities for the protection of private or court trust 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.

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