BANKS ‑- OFFICERS ‑- LIMITATION ON AMOUNT OF OBLIGATIONS ACQUIRED BY BANK, WHERE OFFICER IS JOINT MORTGAGOR AS ACCOMMODATION FOR THIRD PARTY.
The obligation of a bank officer as joint mortgagor for accommodation of third party is included in the total amount of obligations of officer which statute permits bank to acquire.
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July 31, 1950
Honorable J. C. Minshull,Supervisor
Division of Banking
Olympia, Washington Cite as: AGO 49-51 No. 313
We quote in part your letter of June 27, 1950, requesting the opinion of this office:
"A state bank has loaned to one of its officers the maximum permissible amount; namely, $2,500.00. The officer of the bank is joint owner of a parcel of real estate with an individual who is neither director, officer or employee of the bank. This individual has applied to the bank for a loan to be secured by a mortgage upon the parcel of real estate that is owned jointly with the officer of the bank. The bank requests that the mortgage given against the real estate to secure the debt be signed jointly by the two owners. It is proposed that the name of the officer of the bank be omitted from the mortgage note. It is further represented that the proceeds of the loan will be entirely for the use and benefit of the joint owner and that the officer of the bank will receive no benefits therefrom.
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"Our inquiry is as to whether in your opinion the real estate mortgage transaction may be entered into as above outlined without being in violation of that portion of the section referred to above relating to loans to bank officers."
In addition, and by your same letter you have furnished us with a printed form of mortgage, which it is proposed to use in completing the transaction.
The question presented is whether the bank, in accepting the mortgage joined in by the co-owner bank officer, as security for a loan to a third party co-owner, will be acquiring an "obligation" of such officer in addition to and in excess of the allowable maximum of twenty-five hundred dollars ($2500.00) already loaned to him.
Our conclusion may be summarized as follows:
The covenants and agreements of the joint mortgagor under the terms of the proposed mortgage constitute an "obligation" within the meaning and intent of the provisions of the Banking Law, which limits the bank as to the total value of loans made and obligations acquired for any one of its officers. The bank having already loaned the officer involved the permitted maximum of twenty-five hundred dollars ($2500.00), cannot acquire the joint mortgage of such officer.
As indicated by you, section 1, chapter 147, Laws of 1947 (3259 Rem. Supp. 1947), provides in part as follows:
"* * * Any bank or trust company shall be permitted to make loans to any officer of such corporation, or to purchase, discount or acquire, as security or otherwise, the obligation or debt of any officer to any other person: Provided That the total value of the loans made and obligation acquired for any one officer shall not exceed twenty-five hundred dollars ($2500): * * *"
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We have found no case in either the Washington Reports or in the reported cases from other jurisdictions which is in point. In construing the provisions of section 3259, Rem. Rev. Stat., prior to its amendment in its present form,supra our Supreme Court in the case of State v. Larsen 119 Wash. 123, 125, 204 Pac. 1041, although recognizing that such statutes, being penal in character, should be strictly construed, nevertheless stated:
"* * * But it is not true that they are to be construed so strictly that they would be defeated by a forced and over-strict construction. * * *"
The term "obligation" as used in the statute is one of much broader meaning than the terms "debt" or "loan." Every debt is an obligation but not every obligation is a debt. Lindstrom v. Spicher 53 N.D. 195, 205 N.W. 231.
"* * * Obligations is a generic word, and includes all kinds of contracts by which contracting parties bind themselves, and, in the absence of limiting words, or the connection in which it is used, will be construed in its generic sense." Sinton v. Carter 23 Fed. 535, 538.
Under the terms of the proposed mortgage, the bank officer as joint mortgagor would subject himself to liability for the performance of various covenants and agreements. These include covenants to pay taxes, to purchase insurance, to deliver policies of insurance, to keep buildings in repair, etc. The form of mortgage also includes a provision consenting to a deficiency judgment. The liability under these covenants and agreements would constitute an "obligation" of the bank officer within the meaning of the statute, which the bank would "acquire" if the transaction were completed. The officer being indebted to the bank for loans to the extent of the permitted maximum of twenty-five hundred dollars ($2500), the bank is prohibited from acquiring any further obligation of such officer.
Very truly yours,
FRED L. HARLOCKER
Assistant Attorney General