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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 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.1 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

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

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 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, 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 sums 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.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,5 not any specific money, or a right to any specific money. It follows that the act of deposit having been once consummated, nothing short of pay

1 English cases: Foley v. Hill, 2 H. L. Cas. 39; Crosskill v Bower, 32 Beav. 86; Carr v. Carr, 1 Meriv. 541 n.; Bishop v. Countess of Jersey, 2 Drew. 143; Devaynes v. Noble, 1 Meriv. 541; Bellamy v. Majoribanks, 8 Eng. Law & Eq. 517; Sims v. Bond, 5 Barn. & Ad. 392; 2 Nev. & Man. 608; Watts v. Christie, 11 Beav. 546; Pott v. Clegg, 16 M. & W. 321; Grant on Bankers and Banking, pp. 113-118. 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 v. 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.

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.

3 Foley v. Hill, ubi sup.

4 Ibid.

5 Chapman v. White, ubi sup.

ment 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 separation of the specific moneys will enable the bank to follow them and to affect its customer with their fate.1

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. 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

1 Concord v. Concord Bank, 16 N. Hamp. 26; Commercial Bank of Albany v. Hughes, 17 Wend. 94.

2 Ibid. Devaynes v. Noble, Bodenham v. Purchas, Henniker v. Wigg, ubi supra.

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 since the death should be applied in reduction of the debt or balance owing to that customer at the time of the death, and this equally (1) where the customer had since made no deposit, but simply drawn checks; (2) where the customer had continued to deal with the firm, depositing and checking, but on the whole increasing his balance; and (3) where, dealing in like manner, he had decreased his balance. The principle was stated to be unalterable that each payment to the customer should be referred back and set against the earliest indebtedness to him; that the rule of law, sometimes laid down, that if at the time of the payment the debtor neglects to appropriate it, the creditor may afterwards appropriate it to suit his own wishes, cannot be allowed to govern in cases of banking; where, in the absence of express contemporary arrangement or understanding, it will be considered that the appropriation of each payment to the discharge of the earliest then subsisting indebtedness is in fact made by the very act of setting down the two items in their order in the account.

But though the items constitute a running account, yet it is not of such a nature that a bill in equity for an accounting will lie. At any time the simple striking of a balance between the two columns of debits and credits will show a sum which is a simple debt; so that there is in fact no ground on which an accounting can be demanded in equity. An ordinary action of debt will lie on behalf of the depositor, and if the bank answer payment or discharge it is matter of common law, where the

remedy for either party is perfect. Neither, as has been stated, is there a fiduciary relation of any nature whatsoever between the parties which could justify recourse to equity. Suit will lie on the common money counts. This has been conclusively settled by the sound decision, given in the House of Lords in the case of Foley v. Hill, supra.

Obligation of the Bank to Honor Checks.

The bank is under the obligation of honoring the customer's drafts and checks whenever the same are presented for payment, provided that at the time of such presentment the balance of the account, if then struck, would show a credit in favor of the customer sufficient to meet the sum called for by the check or draft. The contract so to honor the depositor's orders is implied from the usual course of business. The deposit is made with the tacit understanding that the bank shall respond to the depositor's orders, so long as there is sufficient balance to his credit.1 Such an order is almost always expressed in writing, by check or otherwise. But there is no absolute necessity for this. A verbal direction from the customer to the bank to pay a sum or to transfer a credit, would fully justify the bank in so doing. If the bank itself is willing to act upon verbal orders, they would be a perfect defence to a suit by the depositor for the amount transferred under them. But though the bank may, if it chooses, act upon such directions, it is under no obligation to do so; by the usages of the banking business it is entitled to demand some written evidence of the order. So too the customer may draw out his funds in such parcels as he may see fit, both as regards number and amount. The rule of law forbidding a creditor to split up his demand does not affect this principle, which is based upon a custom of

1 Downes v. Phoenix Bank, 6 Hill, 297; Marzetti v. Williams, 1 Barn. & Ad. Watson v. Phoenix Bank, 8 Met. 217.

415;

2 Watts v. Christie, 11 Beav. 546; Coffin v. Henshaw, 10 Ind. 277; Walker v. Rostron, 9 M. & W. 421.

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