CHAPTER II.

DEPOSITORS AND CUSTOMERS.

It is of the essence of the business of banking that the bank or banker should receive on deposit the money and funds of other persons. In receiving deposits and opening accounts the bank is free to choose whom it will as customers, from among those that offer. No duty exists on the part of the bank towards the public akin to that which binds common carriers to take every person who requests them to do so, and who is in a fit condition to be taken, or that which obliges hotel-keepers to admit any proper applicant as a guest. The bank may select arbitrarily, and cannot be held accountable to any person for the propriety of its action in this matter. The receiving a deposit from a person, without explanation or understanding to the contrary, at once and without more makes that person a customer of the bank. But no implied undertaking to allow him to continue so for any length of time exists. Neither is he under any obligation to continue so. The relationship may be dissolved at any time by either party, saving the then existing liens and rights of each.

Relation of the Customer on a simple Deposit Account.

The ordinary relation existing between a bank and its customer, if not complicated by any further transaction than that of the depositing and withdrawing of moneys by the customer from time to time, is simply that of debtor and creditor at common law. The original and every subsequent deposit by the customer is in strict legal effect a loan by the customer to the bank, and e converso every payment by the bank to, or on

1 Thatcher v. Bank of State of New York, 5 Sandf. 121.

account of, the customer, is a repayment of the loans pro tanto. Wherefore it follows that the customer can never hold or charge the bank as a trustee, quasi trustee, factor, or agent. The bank may of course assume any of these functions,1 and in fact it often does so; but they are all nevertheless wholly outside of its ordinary legal relationship to the depositor. Efforts have been made to hold banks to the duties and responsibilities of trustees in respect to the sumis placed on deposit with them, also to hold them as agents of the depositor, but these have uniformly failed both in England and in the United States; and the general doctrine as laid down above is sustained by a great weight of authority.2

Accordingly it has been held that a testator's bequest of "all my debts" (meaning all debts owing to him), would carry the balance standing to his credit with his banker.

If the bank could be held in the character of trustee, it would follow that the giving of a check upon the bank would operate as an assignment of the drawer's funds pro tanto, and would enable the payee to demand the amount, as of right, from the bank (provided there were sufficient funds of the drawer to meet it), and upon non-payment to sue the bank. The right of the check-holder to sue the bank has, however, at last, after being long disputed, been conclusively denied by courts of unquestionable authority, as will be seen hereafter, and the

1 See Grant on Bankers and Banking, 3d ed. pp. 5, 11; Crosskill v. Bower, 32 Beav. 86; 32 L. J. Ch. 540; Shiells v. Blackburne, 1 H. Bl. 158 (per Lord Loughborough).

* English cases: Foley v. Hill, 2 H. L. Cas. 39; Crosskill v. Bower, 32 Beav. 86; Carr v. Carr, 1 Mer. 541 n.; Bishop v. Countess of Jersey, 2 Drew. 143; Devaynes v. Noble, 1 Mer. 541; Bellamy v. Majoribanks, 8 Eng. L. & Eq. 517; Sims v. Bond, 6 Barn. & Ad. 392; 2 Nev. & Man. 608; Watts v. Christie, 11 Beav. 546; Pott v. Clegg, 16 M. & W. 321; In re Agra & Masterman's Bank, Er parte Waring, 36 L. J. Ch. 151; Grant on Bankers and Banking, p. 4. American cases: National Bank v. Eliot Bank (in which, however, there is a long dissenting opinion, delivered by Abbott, J.), 20 Law Rep. 138; Commercial Bank of Albany v. Hughes, 17 Wend. 94; Bullard v. Randall, 1 Gray, 605; Chapman t. White, 2 Seld. 412; Downes v. Phoenix Bank, 6 Hill, 297; Foster v. Essex Bank, 17 Mass. 479; Bank of Northern Liberties v. Jones, 42 Penn. St. 536; Marsh v. Oneida Central Bank, 34 Barb. 298 (citing many authorities); Curtis v. Leavitt, 15 N. Y. 9; Bank of the Republic v. Millard, 10 Wall. 152.

Carr v. Carr, 1 Mer. 541 n.

denial has been based in great measure upon the fact that the bank is not in any sense a trustee.

In England it has been held that where money is paid in to the banker by his customer, for the express and declared purpose that the same should be paid over to a third party, nevertheless such third party can enforce no claim against the fund until the banker shall, by some act upon his own part, have come under an obligation to pay to him.1

All the sums paid into the bank on general deposit, by the same or different depositors, form one blended fund. So soon as the money has been handed over to the bank, and the credit given to the payer, it is at once the proper money of the bank. It enters into the general fund and capital, and is undistinguishable therefrom. Thereafter the depositor has only a debt owing him from the bank; a chose in action, not any specific money, or a right to any specific money.3 It follows that the act of deposit having been once consummated, nothing short of payment on the part of the bank, or some act of the depositor himself, will suffice to exonerate it from the indebtedness it has assumed. The identical bag of coin or roll of bills in which the deposit was made may be stolen, before it has been in any practical manner commingled with the funds of the bank; it may be embezzled or fraudulently misapplied by an officer of the bank; still the indebtedness of the bank subsists, entirely unaltered by these circumstances. Neither the intentional nor the accidental segregation of the specific moneys (unless, by distinct agreement with the depositor a "special deposit" is effected 4) will enable the bank to follow them and to affect its customer with their fate.5

1 Malcolm v. Scott, 5 Exch. 610; Grant on Bankers and Banking, 3d ed. p. 4. 2 Devaynes v. Noble, 1 Mer. 541; Bodenham v. Purchas, 2 Barn. & Ald. 39; Henniker v. Wigg, 4 Q. B. (Ad. & El.) 792; Commercial Bank of Albany v. Hughes, 17 Wend. 94.

Marine Bank v. Fulton Bank, 2 Wall. 252; Thompson v. Riggs, 5 id. 663; Bank of the Republic v. Millard, 10 id. 152; Ætna National Bank v. Fourth National Bank, 46 N. Y. 82; Carr v. National Security Bank, 107 Mass. 45; First National Bank v. Ocean National Bank, 60 N. Y. 278; and cases cited in note 2, page 29.

4 Marine Bank v. Fulton Bank, 2 Wall. 252.

5 Concord v. Concord Bank, 16 N. H. 26 Commercial Bank of Albany v. Hughes, 17 Wend. 94.

On the other hand, however, it appears that under certain peculiar circumstances, the customer may follow and establish his ownership of funds deposited by him, but not yet actually mingled with the assets of the bank. Thus, when money is paid in by a customer after banking hours, and is put in a separate place by itself, and not entered in the regular books of the bank, and the bank fails and does not open on the next day, the necessity of failing having been already agreed upon by all the partners, the customer may reclaim his deposit and hold it as against the assignee of the bankrupt.1 Though in another case wherein it was shown that the bankers were in the habit of receiving, and the customer was in the habit of making, deposits after banking hours, and that such deposits were always regarded and treated by both parties as if regularly made during banking hours, and the bankers had not determined upon the necessity of failing when the deposit was made, a contrary decision was reached.2

The various items of deposit with and payment by the bank form a running account between the bank and the customer. For any indebtedness accruing from the customer to itself, the bank has the right of set-off. If the depositor becomes bankrupt, his deposit becomes security for the payment of his debt to the bank. If this debt be contingent in character, or if it be a claim for unliquidated damages arising out of a contract, then the bank may retain possession of the deposit until such time as the probable indebtedness shall be ascertained, when the deposit may be set off against it.3 The rule was laid down by Judge Lowell in the case cited, that "The credit should be set off against the whole ultimate debt of the bank, that is to say against the aggregate amount of the notes of the bankrupt in which he is the principal debtor; and as to those on which he is indorser, so far and so far only, as is made necessary by the insolvency of the real principals."

Judge Lowell further said that he understood "the practice in England to be that a banker who has discounted notes for

1 Threlfal v. Giles, cited 2 M. & Rob. 492; Sadler v. Belcher, id. 489.

2 Ex parte Clutton, 1 Fonb. 167.

In re North, 16 N. B. R. (Mass. Dist.) 420.

his customer, may prove for the whole money as so much lent to the customer, exhibiting a list of his notes or bills, which are called securities. Any deposit the banker has in hand would come out of this sum total. If, however, any bill or note is paid by other parties after the proof has been admitted, its amount is to be deducted from the total debt proved. In other words, the proof is considered as made on each note or bill separately, though not so in form."1

So at any time it is only the balance of all the items up to that date that the customer can recover from the bank, or for which he can draw his checks upon it. It is the first item on the debit side that is discharged or reduced by the first item on the credit side, without regard to the identity or disparity of any particular sums.2 Simple as this principle appears, it is sometimes the only thread which can show the way out of complicated labyrinths, as is well shown by the cited case of Devaynes v. Noble. There the partner in a large banking house died. The business was continued without any real or even formal change. Some customers knew of the death; some did not. The daily course of the business continued in all respects as before, till the house failed. Then various customers sought to hold the estate of the deceased partner to satisfy their deficits. The question was, on what principle the accounts should be made up, for no hesitation was expressed as to the necessity of subjecting the estate to meet the unsatisfied claims of all persons who were customers at the time of the death of the deceased. Since then some had increased, and others had decreased, the amount of their deposits; members of each of these classes had received credits to the amount of their balances at the time of the death; other members had not. The arguments of counsel were very long and ingenious; the court gave the matter the most serious consideration, but regarded no solution as possible save that of a simple running account: it decreed that every payment made to each customer

1 Ex parte Burn, 2 Rose, 55; Ex parte Barratt, 1 Gl. & J. 827; Ex parte Hornby, De G. 69.

Devaynes v. Noble, 1 Mer. 541; Bodenham v. Purchas, 2 B. & Ald. 39; Henniker v. Wigg, 4 Q. B. 792; Concord v. Concord Bank, 16 N. H. 26; Commercial Bank of Albany v. Hughes, 17 Wend. 94.