CHAP. VII. sion, though his claims to it could, on discovery of the fraud, be disowned by the party liable, but he transferred before repudiation. The cases may vary infinitely.

The first element to be looked at in such a case would be the obligation of the bank to its depositor arising out of the circumstances under which it obtained the cash, cheques, or other documents of credit whence the credit, in current account, arose. The general nature of this obligation has been determined in cases quite independently of any question of Jus tertii. Thus in 1847 Relation of it was decided, in the case of Pott v. Clegg, that customer is money deposited with a banker by his customer in one of debtor the ordinary way of business is money lent to the 16 M. & W., banker, with the superadded obligation that it is to

banker and

and creditor.

321.

Statute of

be paid when called for by cheque, and the relationship is not altered by an agreement to pay interest on the balance. Therefore, if for six years there has been no payment of principal, nor any allowance of interest, the Limitations Statute of Limitations applies, and the banker could applies. avail himself of that defence to an action for the money. In the next year there was decided by the House of customer's Lords the case of Foley v. Hill. There the plaintiff, who ordinary remedies are at was an ordinary current-account creditor, claimed relief Common in equity, which would be applicable if the banker were 2 H.L C., 28. a trustee or quasi trustee for the plaintiff, and which was

And

Law.

refused, on the ground that the relationship was the simple one of debtor and creditor, and it followed that the plaintiff had, and ought to proceed by, the usual remedies of a creditor to enforce his rights, if any. The following passage occurs in the judgment:-"The money paid into the banker's is known by the principal to be placed there for the purpose of being under the control of the banker; it is thus the banker's money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains to himself, paying back only the principal, according to the custom of bankers in some places,

or the principal and a small rate of interest, according CHAP. VII. to the custom of bankers in other places. The money

placed in the custody of a banker is to all intents and purposes the money of the banker, to do with as he pleases. He is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it in jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands."

(In the above quotation, principal is used four times to denote customer, and twice to denote sum of money.) In these cases no Jus tertii was involved. They are decisions of conclusive authority, and they harmonise with the law which applies to banking accounts the rule in Clayton's case (itself a banking case, date 1816). See ante, p. 51.

case

no room to

set up against ad- customer a

Jus tertii.

H.L. 1.

Twenty years later, in the case Gray v. Johnston, the And there is question was litigated as to a bank's liability in the of misappropriation of funds, in the account of an ministratrix, belonging to the trust estate, by means of L.R. 3, a cheque drawn by her upon that account and placed to the credit of her private account; the whole transaction being thus open to view of the bank. It was held the bank was not liable; the view that prevailed in previous cases was taken; that the money, when deposited, became the banker's, and the customer a simple contract creditor entitled to call for the amount by cheque. In such a relationship there is no room for the debtor bank to question the customer's right to draw any particular cheque, or set up a Jus tertii (right of a third party) against him, though the case would be different if there were a distinct knowledge on the banker's part of the intended fraud, and any attempt to derive a benefit from it-e.g., the liquidation of a weak, overdrawn account.

CHAP. VII.

This, too, is a decision of conclusive authority, and its principles have been used to assist in determination of many banking cases since 1868.

Cases of trust Turning to Australian cases, the principles laid estates. down in Gray v. Johnston were applied by the Supreme Court of New South Wales to the case of a trustee fixed depositor, who, upon due date, gave orders for the transfer of large amounts upon fixed deposit, which the bank knew to be trust funds, to the credit of his ordinary business account, which was at the time in debt; the Court holding that upon the maturity of a F.D.R. the creditor upon fixed deposit was in a like relation, as regards the bank, to the case of a creditor having funds at current account payable at call-Dixon v. Bank of New South L.R. Eq. 355 Wales; and that therefore, in the absence of complicity in any fraud, the bank should not be made responsible for the disposal of money made upon orders it was not at liberty to disregard.

17 N.S.W.

A further, though somewhat different, illustration of the banker's duty to respect his contract may be seen in the case of Bridgman v. Gill; there, a fund was at the credit of two trustees in the books of bankers, who knew that it was a trust fund. By direction of the tenant for life (of the trust estate) alone they transferred it to his account, and thus got payment of a debt due by him: held, the trustees could sue to have the fund replaced.

It is thus perfectly clear, on principle, that, in all ordinary circumstances, there can be no right in the banker to set up the claims of another against his customer, where the customer though in a position of trust has a legal title to the account, and to the funds used to supply it; but, as pointed out in the opening of this chapter, the cases that can arise are very various.

In extreme cases, the customer may have no title at all to the cash or paper deposited; and two recent Australian cases seem to indicate that the Courts would not

tolerate an action by a thief brought to recover from a CHAP. VII. bank the proceeds of his crime, or a credit balance into which those proceeds had been converted. The precise range of such a principle introduces a very debatable field of law, but a review of the recorded decisions is very instructive.

several.

In 1814, in the case of Pinto v. Santos, an agent for Customer lawfully several persons received three large sums, in each of which banking the all his principals had a share, and paid these sums to his money of bankers, who knew the circumstances. He drew out 5 Taun. 447 various sums to the amount of £7,300, and at length went abroad; having some dispute with the other proprietors, they revoked his authority to act as their agent, and he gave notice to his bankers to pay over the residue of his money, which was about £2,700, to no one without his own orders. The plaintiff in the case, Pinto, who had by far the largest share in the property, claimed all this remaining money, and sued the bank (Santos) for it. The defendants declared readiness to pay to whomsoever it belonged, but said that, as they received it from the agent, they could pay no one else.

Decision in favour of the banker. It was said: "This is not like the case of one man paying into a bank a sum belonging to one other person." The bank was apparently willing to account for the sum in an Equity suit, where all interested in the fund would have been parties.

makes the

Bank?

In Sims v. Bond, 1833, A, as the managing owner The question of a vessel, was permitted by the other owners to have the is, Who possession of two warrants or orders of the East India loan to the Company, to pay to the owners or bearer the sum of 5 B. & Ad., money therein mentioned for freight. A deposited these 389. warrants in the hands of his bankers, and they received the money due on them, and gave him credit for it in account. After A's death the surviving part owners sued the bank for money had and received, money paid, &c.,

CHAP. VII. in respect of the balance of this account.

The plaintiffs were non-suited, on the ground that there was no privity of contract between them and the defendant bank. Plaintiffs appealed, and again lost. In course of judgment the Court said:

"Sums which are paid to the credit of a customer with a banker, though usually called deposits, are, in truth, loans by the customer to the banker .; and the plaintiffs who seek to recover the balance of such an account must prove that the loans were made by them."

In Calland v. Loyd, 1840, Calland received in 1837 a sum of £373, which he was entitled to receive as his wife's share of property which her father had bequeathed her; he deposited £300 of this money in a bank, and gave the rest to his wife to take care of. Almost immediately afterwards she took a £50 Bank of England note-part of this money—and on the same day paid it into the bank of Jones, Loyd and Co., in the name of her son, Robert Birch, an only son of a former marriage. They gave her an accountable receipt in Robert Birch's name, bearing interest, which she kept. Robert Birch was then about twelve years old. Calland soon discovered the deposit with the bank, and demanded the money from them; on their refusal to pay it, this action was brought. The plaintiff succeeded.

It is almost unnecessary to point out that this was before the days of the Married Women's Property Act.

The Court thought that the title to the money had been clearly in the father, and the bank was bound to Robert Birch by no contract with him. Therefore, having received notice from Calland that the note deposited was his, the bank had no defence. Or, rather, "The case set up by the defendants is answered by this, that there is no contract to bind them. The wife was not the agent of her husband, nor had she any right to make a deposit for the infant, who could give her no authority." Baron