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December 31, 1912.

Hon. Edward H. Doyle, Commissioner of Banking, Capitol, Lansing: Dear Sir-In your communication to this department of November 26th, 1912, you present for consideration the following questions:

"Referring to Act No. 108 of the Public Acts of 1889, as amended, known as the Trust, Deposit and Security Company Law, we would appreciate your opinion as to whether or not a trust company has the right to issue certificates of deposit; and whether or not such certificates of deposit must be restricted as evidencing the receipt of money in trust.

Also advise whether or not a trust company can issue its certificates of deposit for money received in any other manner than in trust."

The specific inquiry is, whether a trust company in Michigan can receive moneys otherwise than in trust and issue certificates of deposit as evidence thereof.

All authority which a trust company possesses must be conferred upon it by law. As in the case of any other corporation, the act of incorporation which constitutes the charter is the measure of its powers. Unless that charter ( with other statutes of the State, which may properly be termed a part of the charter) confers the authority, the trust company does not possess it.

The law for the incorporation of trust companies in Michigan is Act No. 108 of the Public Acts of 1889, being Sections 6156 to 6189 (C. L. 1897) inclusive. Under the terms of this act, a trust company possesses the specific authority:

(a) To act in various capacities as a trustee.

(b) To act as and to conduct a depository for the safe keeping of certain personal property and the renting of safety deposit receptables, and

(c) To act as surety and guarantor under certain circumstances. In addition to these specific authorities, Section 9 of said act confers upon the trust companies organized thereunder the following authority:

"Any corporation organized under this act shall have power in and by its corporate name to take, receive, and hold, and repay, reconvey and dispose of any effects and property, both real and personal, which may be granted, committed, transferred or conveyed to it with its consent, upon any terms."

The language last above quoted, is sufficient to confer upon trust companies the authority to receive money on deposit and as incident to that authority there would exist the right to issue notes, certificates or other evidences of the indebtedness or relation thereby created.

This general language, however, is limited by the exception contained later in the same section (Section 9) which is:

"But nothing herein contained shall be construed as giving the right to issue bills to circulate as money, or buy or sell bank exchange, or do a general banking business."

posit is not the issuing of bills to circulate as money or buying or selling of exchange; the question therefore resolves itself into whether the issuing of such certificates is doing a general banking business as to be within the limitation upon the powers of trust companies and thus beyond their authority.

The general structure of the act in question indicates that the authority of trust companies in receiving effects and property is not to be limited to the receipt of those which it receives and holds as trustee. It is unnecessary to point out all of the provisions of the act which lead to this conclusion: It is sufficient to refer to the general provision above quoted, (Section 9) which was unnecessary if the authority of the corporation was to be limited to the taking and receiving of effects and property (which would include money) to be held in trust, as, full authority is, by other provisions of the act, conferred upon the company to act as trustee. This conclusion is further borne out by the state of the law and the changes made therein the passages of said Act No. 108 of the Public Acts of 1889. Previous to the passage of that act, the act for the incorporation of trust companies being section 3237 and 3251 (Howell's Statutes) inclusive, conferred quite full authority upon trust companies to act as trustees for any lawful purpose and the extension of their authority, by the use of language designed to include other than powers of trusteeship, indicates a purpose to so enlarge the powers permitted to be exercised by trust companies as to go beyond the usual functions of a trustee and to permit them to receive effects and property upon other terms than as trustee, and in fact, as the statute as amended provides, "upon any terms."

We come then to the real question presented for solution, namely, whether in the receiving of deposits and issuing certificates therefor, a trust company would be doing "a general banking business."

Unquestionably, the receiving of deposits and the issuing of certifi cates therefor, is one of the many functions ordinarily and usually performed by a bank, but it does not appear that such function has been exercised alone by banks, or that it is such as to be inseparable from the banking business, or that its exercise would fix the dividing line between being a bank or not, or between exercising or not exercising "general banking business."

In the inception and growth of the banking business there have been three types of banks-banks of issue, banks of deposit and banks of discount. The modern banking institution, however, usually combines two or more of these authorities and has many ramifications in the plan and method of carrying out its functions. The general banking authority is exercised in Michigan, by state banks at least, will be best described in the language of the General Banking Law (Section 4, 6093, C. L. 1897) which authorizes:

"All such powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, bills of exchange, or other evidences of debts, by receiving deposits, by buying and selling exchange, coin and bullion, and by loaning money on personal and real security as provided hereinafter."

If a trust company sought to exercise all or a principal part of the

portant functions usually exercised only by banks, it would be within the inhibition of the statute. The exercise, however, of a single authority which a bank in the course of its business exercises but which is open to others than bankers, namely, the borrowing of money and issuing an evidence of the debt, would not constitute the doing of a general banking business. To do a general banking business, a trust company must exercise those functions which are primarily banking functions and which fix the character of the institution doing them as a bank. A trust company does not receive money in the same manner, and in the same relation that a bank receives it. A trust company receives the money which the depositor places with it as a trust company and not otherwise. This is the only power that is given to such company to receive money. It is not incorporated as a bank, nor authorized as a bank, to receive money, but as a trust company. And having received said money as a trust company, the only implied authority that such trust company would have to repay it would be to repay it as a trust company and not as a bank. When a deposit is made in a bank, no understanding, no contract, no arrangement, nothing is necessary to authorize the depositor to draw his check on such bank and such bank is by operation of law alone compelled to honor such check. Without this characteristic no institution is usually a bank; with it, any institution is doing a banking business.

In Corwin vs. The Urbana & Champaign Mutual Insurance Company (14 Ohio 6) the charter contained a provision prohibiting the exercising of banking powers and it was held that the receiving of deposits was not within the prohibition against banking. It did, however, appear that certificates of deposits were not issued. The Court there said:

"It does not appear to us this finding is within the prohibition against banking; and, if not, it is a lawful pursuit, in which a corporation, as well as an individual, may engage; and it is well said by the defendant that, although receiving deposits is a part of the business of banks, it is no exclusive privilege of theirs, nor is the discounting of notes."

In Dietrich v. Rothenberger, (75 S. E. (Kentucky) 271) it was held that the borrowing of money by a title company and the issuance of a certificate of deposit therefor did not constitute the doing of a banking business, the Court saying:

"The distinction between such a transaction and the business of banking is plain, for any one may borrow money, and may put in such form as he pleases the evidence of his indebtedness. An express company is not a bank, although it draws and sells bills of exchange. Wells, Fargo & Co. v. Northern Pacific Railroad Co. (C. C.) 23 Fed. 469. Nor is a corporation a bank, which borrows for its own use on bonds. Barry v. Merchants' Exchange Company, 1 Sandf. Ch. 280. In 3 American & English Ency. of law, 791, it is said: The distinction between a bank and a trust company is well defined. The powers of the trust company depend upon the terms of its charter, of course, but they are not banking powers. The trust company like the savings bank, pays interest upon deposits, but its deposits are strictly loans, not subject to check. It may not issue its own notes for circulation, nor does it buy or sell exchange in the ordinary course of its dealings. In direc

extend outside the monetary realm into real estate transactions, trusteeships, and the conduct of property interests of all kinds. The exercise by a trust company of some of the functions of a bank does not make the company a banking institution, nor lay its officers liable to prosecutions for violating the banking laws.' Banks receive deposits subject to check. They are public agencies created for the public service, and are required to serve the public. The money in this case was simply lent for 12 months. It was not subject to check. There was nothing in the transaction that might have been done, and is not in fact done, by many individuals throughout the State. It was not exercise by the corporation of any banking privilege, nor beyond the powers of the corporation under its charter."

See State ex inf. Crow, Attorney General v. Lincoln Trust Company, 144 Mo. 562, 588.

The practical construction which has been given to the statute in question should be given some weight. It is claimed that the act in question has been construed by those operating under it as permitting the receiving of moneys for safe keeping, and the issuance of certificates of deposits therefor, and that this practice has been followed without successful opposition or objection, from the passage of the act in 1889, until the present time. Where the language of the act is doubtful, the long continued practice under it is often permitted to turn the scale in favor of the construction evidenced by the practice, under it, and this, we think, is an influence to be considered in determining that trust companies may receive deposits and issue evidence thereof.

In other states, it has been quite common to confer upon trust companies the authority to receive deposits and to issue certificates thereon, and at least twenty-three of the states have such provisions. There is evidently, therefore, nothing inconsistent in the idea of trust companies receiving money on deposit for safe keeping, and the question is not to be viewed in the same light as though a well defined public policy pointed to the exclusion of this power from trust companies.

In Bank of Saginaw v. Title & Trust Company, (105 Fed. 491, 492,) a Pennsylvania trust company issued six certificates of deposit, which were negotiated at the Bank of Saginaw, and the bank brought its action in the United States Circuit Court in Pennsylvania to recover upon the certificates. The certificates issued by the Trust Company were in form as follows:


$500.00 No. 2.

Title & Trust Company of Western Pennsylvania,
Connellsville, Pa., Feb. 5, 1900.

J. F. Barrows has deposited with this company five hundred dollars, payable to the order of J. F. Barrows on return of this certifi cate properly endorsed

Certificate of Deposit. Not subject to check.

W. M. Ruth, Treasurer.

The question arose respecting the right of the Trust Company to issue certificates, and Circuit Judge Acheson said:

"That the defendant company is authorized to receive deposits of money is conceded, but it is denied that it had lawful authority to issue such certificates as those in suit. There is, however, no statutory or other inhibition of such certificates. These certificates are in the form commonly used everywhere in the commercial world by bankers and companies receiving money deposits and the defendant's right to issue them in the course of its business and as an incident thereto is not to be doubted."

In Michigan, as well as in many other states, a certificate of deposit is considered to be a promissory note subject to the same rules and conditions. This we believe to be the law in all but three of the states, namely, Massachusetts, Pennsylvania and Texas.

The authority to receive money would carry with it the authority. to give an evidence of its receipt in the form of a hote, and this would extend to and permit the issuance of a certificate of deposit.

There has been some question as to whether a demand certificate could be given, and whether if the right to issue certificates exists it is not limited to time certificates. We think, however, that the authority to issue a certificate carries with it the authoriy to issue it either payable at a stated time, or upon demand.

"It will be noted that trust companies are not expressly required to maintain a reserve as is required to be maintained by state banks in that they are expressly required to maintain as reserve only 20% of their matured obligations, while state banks are required to maintain 15 to 20% of all obligations. We doubt somewhat the policy of permitting a trust company to do a deposit business without maintaining at least the same reserve that is maintained by state banks. To this question, we wish to direct the attention of the legislature to the neces sity of express legislation requiring the maintaining of sufficient reserves by trust companies in case the authority which the present law given them to receive deposits is to be continued."

We concur in the above opinion.

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