
    Banks Guaranteeing Mortgages.
    
      Banks and banking — Guaranteeing mortgages — Acts of May 13, 1876, and July 17,1919.
    
    A Rank chartered under the Act of May 13, 1876, P. L. 161, which, by virtue of the Act of July 17, 1919, P. L. 1032, has acquired the right to act in the same fiduciary capacities as a trust company and has added to its title the words “and trust company,” has no power to guarantee the principal and interest of bonds secured by mortgages upon real estate which it sells to customers.
    Department of Justice,. Opinion to Hon. Peter G. Cameron, Secretary of Banking.
    Dec. 3, 1926.
   Anderson, Dep. Att’y-Gen.,

You have requested an opinion as to whether a bank chartered under the Act of May 13, 1876, P. L. 161, which, by virtue of the Act of July 17, 1919, P. L. 1032, has acquired the right to act in the same fiduciary capacities as a trust company, and has added to its title the words “and trust company,” may lawfully guarantee the payment of the principal and interest of bonds secured by mortgages upon real estate which it sells to its customers. Trust companies clearly have that right by virtue of the Act of June 1, 1907, P. L. 382.

The act last mentioned was one of a series of statutes which from time to time added to the powers and privileges of title insurance companies, so that those companies gradually became quite different from what they were conceived to be under the General Corporation Law of 1874.

When, by the Act of July 17, 1919, banks were permitted to occupy the fiduciary positions that theretofore had been allowed to trust companies, all of the rights and privileges of trust companies were not bestowed upon banks. This was especially true with regard to the acquisition and disposition of bonds secured by mortgages of real estate. With regard to such securities, the rights of a bank are set forth in section 1 of the Act of April 19, 1901, P. L. 79, which amends section 8 of the Act of May 13, 1876, above referred to. Under this amending act it is lawful for a bank to purchase, hold and convey real estate as follows:

“1. Such as shall be necessary for its immediate accommodation in the transaction of its business.

“2. Such as shall be mortgaged to it in good faith as security for debts.

“3. Such as it shall purchase at sales under judgments, decrees or mortgages held by such corporation or shall purchase to secure debts due to said corporation.”

There has since been no legislation widening the powers of banks with regard to the acquisition and disposition of mortgages of real estate which are security for bonds.

It is true that the Constitution of Pennsylvania, in article xvx, section 11, as amended Nov. 2, 1920, authorizes and empowers the general assembly “by general law to provide for the incorporation of banks and trust companies and to prescribe the powers thereof.” In pursuance of that amendment, certain important legislation was enacted in the year 1923, and also at the Special Session of the Legislature in 1926; but no act passed since 1920 treats banks and trust companies alike with regard to the guaranteeing of the payment of the principal and interest of bonds secured by mortgages of real estate. It follows, therefore, that a bank which has complied with the provisions of the Act of 1919, above mentioned, so as to obtain the fiduciary powers of a trust company, and to embody in its title the words “trust company,” may not issue such a guarantee. The effect of the Act of 1919 is simply to enable banks to act “as trustees, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics or habitual drunkards, or in any other fiduciary capacity in which trust companies organized under the laws of this Commonwealth have authority and are permitted to act.” The guaranteeing of bonds and mortgages by trust companies is not part of their fiduciary functions. Therefore, banks operating under the Act of 1919 do not possess the right and power to make such guarantees. The only way in which banks, whether or not they have acquired the rights and powers enumerated in the Act of 1919, may be enabled to guarantee mortgages is through legislation of the general character which is authorized by the amendment of Nov. 2, 1920, to article xvi, section 11, of the Constitution.

You are, therefore, advised that it is within your province and power to cause any “bank and trust company” which is guaranteeing the payment of bonds secured by mortgages to cease and desist from that practice.

Prom C. P. Adclams, Harrisburg, Pa.  