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to regulate its customers. It was, as remarked in Fowler v. Scully, a regulation to prevent these associations from splitting on the rock which has ruined so many banks, to wit, that of lending too much of their capital to one person or firm. The intention being to protect the association and its stockholders and creditors from unwise banking, we cannot suppose it was meant to injure them by forbidding recovery of the injudicious loans."

In Vol. 29 of the Amer. & Eng. Ency. of Law, 2nd ed. p. 382, we find the following with respect to the limitation found in the National Banking Law: "The object of this provision of the statute was to guard National banks from the hazard of speculative loans, but it contemplated and permitted to an unlimited amount the discount of paper used and required in facilitating the transfer of property and money in the transaction of the legitimate business of the country." Citing Oswego Second National Bank v. Burt, 93 N. Y. 244.

It was evidently the intent of the Legislature, in enacting the provision above referred to, as found in the banking law of this State, to guard the banks organized thereunder from the hazard of speculative loans, and to prevent such banks from advancing or loaning too much of their money to any one person, firm or corporation, and in construing the statute with respect to the exception, it is necessary to keep constantly in mind the purpose of the limitation, and not to construe the provision relating to the exceptions therefrom in such a way as to destroy the force and effect of the limitation itself. The exceptions to which I refer relate to 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, and which, in my opinion, should be strictly construed and should be held to apply to no transaction that did not clearly and fully come within the provisions of the statute in this particular. Black on Interpretation of Laws, 275. I find that the questions which you submit for my consideration are quite fully considered in Pratt's Digest, pages 93-94-95, in their application to National banks, but I am unable to concur in some of the conclusions reached which do not seem to be based upon judicial decisions, and which, in my opinion, tend to defeat the very purpose of the limitation. It is an elementary proposition recognized by the courts with respect to statutory or constitutional inhibitions, that you cannot do indirectly that which you are prohibited from doing directly. In their application to commercial paper, the terms "loans" and "discounts" are synonymous. Amer. & Eng. Ency. of Law, Vol. 21, 2nd ed. 381. The question who is borrower is not always to be determined from the position of the parties as they appear on the paper. The borrower may be the maker or the endorser. Pratt's Digest, 94. Our statute provides that in the discount of commercial or business paper actually owned by the person negotiating the same, it shall not be considered as money borrowed. The application of this provision, in my opinion, relates exclusively to the person negotiating the paper. The statute contemplates that he alone shall be considered as not receiving a loan from the bank. With respect to the maker of such paper who is primarily liable, if such maker has received credit at the bank to the full limit imposed by law, the bank should not be permitted to discount such paper, as in that

the General Banking Law, and if such a transaction should be permitted, it would indirectly defeat the very purpose for which this limitation was imposed.

In determining the questions submitted by you, I realize that there may be some doubt as to the proper construction of these provisions in the absence of any judicial determination as to their proper meaning. In view of the fact that the several banks of this State organized under the General Banking Law, are subject to State supervision, not only for the protection of the banks themselves, but for the protection of the persons doing business with such banks, the laws relating thereto should be construed in such a manner as to afford such protection in every possible way, until such time as the courts may determine otherwise.

In answer to your first question, I would therefore say that, in my opinion, the amount which the directors of a bank would be authorized to loan to any person, or company, or corporation, or firm, by a twothirds vote of its board of directors, would not exceed one-fifth of the capital and surplus of the bank, and it would be immaterial whether such loan was secured or unsecured, excepting, of course, loans on real estate or other collateral securities authorized by the General Banking Law.

In answer to your second question, I would say that the same rule would apply to any one line of commercial paper that would apply to . any one person, company, firm or corporation.

In answer to your third question I would say that, in my opinion, it is immaterial whether such loan is secured by the bond or personal endorsement of the officers or directors of the firm, company or corporation, or by the assignment of value as collateral, except where such loan is made upon real estate or other collateral securities recognized by the General Banking Law. In this connection I call your attention to the rule laid down in the Amer. & Eng. Ency. of Law, Vol. 21, 2nd ed., page 382, to the effect that "Drafts may be bona fide bills of exchange drawn upon actual existing values within the meaning of the statute, though not accompanied by specific bills of lading in each case. It is sufficient if they are drawn against property previously consigned and existing either in its original-form or in the shape of proceeds of sales in the hands of the consignees." This rule, of course, applies to the federal statute. The State and federal statute being identical in this particular, unquestionably the same rule would apply to a bank organized under the General Banking Law of this State.

Respectfully yours,

CHAS. A. BLAIR,
Attorney General.

This year, like 1905, has been a prosperous one for Michigan, and as a result the banks show a large increase in business, as will be seen in the foregoing report. There has been no failures, and a general healthy condition obtains.

By making two examinations the department has been enabled to keep in closer touch with the banks, and as a result the directors have

be the chief aim of the department, as only by the earnest co-operation of a careful, painstaking board can the best interests of the depositor and the stockholder be subserved. The directors know the value of local paper and securities, they know the requirements of each individual, firm or corporation, and through this knowledge are enabled to decide as to the genuineness and soundness of the loans of the bank.

I have no amendments to suggest to our general banking act; it is sufficiently broad to permit a supervision, the thoroughness and efficiency of which is only limited by the ability of the examiner and the time allowed him for the work.

I desire to acknowledge the efficient services rendered the department by Deputy Commissioner Wm. Donovan, the examiners and other employes.

Very respectfully,

M Moon

Commissioner of the Banking Department.

ABSTRACTS OF REPORTS

COMPARATIVE ABSTRACTS (STATE BANKS).

Comparative abstracts, giving the volume of business as shown by the last reports of Michigan State banks called for in the years 1889, 1890, 1891, 1892, 1893, 1894, 1895, 1896, 1897, 1898, 1899, 1900, 1901, 1902, 1903, 1904, 1905 and 1906, as made to the Commissioner of the Banking Department.

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