Macaulay, Wallace D.

English

University of New Brunswick: Centre for Digital Scholarship Journals

24 U .N .B .  LA W  JOURNALThe Bank and its Current Account CustomerPrior to the decision of Foley v. Hill1 legal opinion was mixed as to what was the exact relationship which existed between a bank- ancl its customer. Originally it was the custom for a customer to leave his coin and plate with a goldsmith for safekeeping, to be delivered up in specie upon demand. Out of this practice arose the opinion that the goldsmith was a bailee of the goocls. Later the goldsmith varied his business. Instead of letting the money deposited with him lie idle he put it to work in earning money for himself; he also commenced to refer to himself as a “banker”. Eventually, the conception arose that this “banker” occupied the position of an agent or trustee in rela­tion to his customer-principal and as such was obliged to handle de­posits in a fiduciary manner. The nature of the relationship finally was decided by the f louse of Lords in the case of Foley v. Hill1.In delivering the judgment of the House, the Lord Chancellor* declared that the banker and customer relationship is that of debtor and creditor; oncc a customer deposits money in his bank the owner­ship immediately passes to it. Ilis Lordship also pointed out that as a result of acquiring the ownership the bank is free to use the money as it secs fit anci is not obliged to inform its customer how the deposit is employed.4It is doubtful if the banking business would have survived if the House of Lords had found a fiduciary relationship existing between a bank and its customer. Certainly banking would not have obtained its present day position in the commercial world if such had been the decision. A fiduciary relationship would have restricted a bank to trustee investments only; employment of deposits in other ventures would have made the bank liable for actions for breach of trust. In­stead of being 111 the banking business the bank would have become a trust company.The debt incurred by a bank in taking its customer’s deposit upon a current account is 110 ordinary debt. At common law, unless there is an agreement to the contrary, a debtor must seek out his creditor and pay him, otherwise the debtor is in default. Also, a debt usually accrues due upon a specified date or upon the occurrence of a certain event. The debt which a bank owes to its customer, however, is not gov­erned bv these rules.In delivering judgment in the case of Joachimson v. Swiss Bank Cor­poration* the English Court of Appeal declared that the debt incurredI. »1848i. 2. H. L . Cas. 28.2 En g lish  cases u su ally  re fe r  to a ‘ b a n k e r"  b ecau se th e  b an k in g  bu siness in E n g lan d  is carried  on larg ely  by  in div iduals, p artn ersh ip s and in co rp o rated  com p an ies A s th e  b an k in g  bu siness in Canada is carried  on only  by in co rp o rated  com p an ies. (S e e  T h e  B a n k  A ct, R . S . C ., 1952, c. 12, s. 4i C an ad ian  cases re fe r  to  a “ b a n k ” .3. Lord  C o tten h am , L . C.4. A t pp. 36-37.5. 11921) 3 K  B  110.U .N . B. LA W  JOURNAL 25bv a bank is not due until its customer lias made a valid demand for repayment. Otherwise, as the Court pointed out, the debt would be due as soon as a customer made a deposit. From this would then arise the absurd situation in w hich the bank would have to return the deposit immediately’ or be in default; and if the customer was not available the bank would have to seek him out, which would mean that the bank could elose the account without first giving noticc to its customer. In a like fashion, a customer could bring an action for the credit amount of his account before lie first made a demand for its repayment; the bank’s first indication that a customer wanted his money returned would be the servicc of a writ of summons. Under these circumstances, the Court declared that an implied term of the relationship which exists between a bank and its current account customer is that a de­mand should be made first for rcpavment before the debt becomes due. That is, the debt is not due until the customer lias made a demand upon his bank for rcpavment of the deposit or part of it.In the Joachimson case the plaintiff, acting 011 behalf of his firm, made 110 demand for repayment of the balance of a current account held by the defendant before bringing an action to enforce repayment. Consequently the Court dismissed tne proceedings; a cause of action only arises when a demand lias been made and it is dishonoured.I11 delivering judgment in the Joachimson case, Atkin L. J. point­ed out that as a result of the Court’s decision the statutory time in which to bring an action for rcpavment of the deposit does not run from the time the deposit is made, but rather from the time a valid demand is made for rcpavmcnt and it is refused.0 This means that a bank would be obliged to honour a demand for repayment of a deposit which had remained dormant for, say, fiftv years. If the bank refused to repav, the statutorv period in which a customer could bring an action would then commence to run. T o  avoid the accumulation of dormant accounts111 Canadian banks, however, The Bank Act7 provides that after an ac­count has remained dormant for 10 years the amount of the account and any interest thereon is to be transferred to the Bank of Canada. After that a customer’s right to demand repayment from his own bank is bar­red. His demand must then be directed to the Bank of Canada, although 110 statutory time runs against him as to when such demand may be made.Considerable thought also was given in the Joachimson case to the effect of its decision in regard to the attachment of a garnishee order upon a current account. Tne common law rule is that a garnishee order cannot attach a debt until it is due or accruing due. Therefore, if a current account is not due until a demand is made upon it, how can a garnishee order attach the account before the demand has been made? In answer to this, Bankes L. J. expressed the opinion of the Court when he6. A t p. 131.7. R . S . C ., 1952, c. 12, s. 92.26 U .N .B .  LA W  JOURNALsaid that a garnishee order was a sufficient demand by operation of law to satisfy the bank's right to have a demand before the credit amount of the account became due".'1W hen a customer opens a current account, he enters into a con­tract’" with his bank. It is vcrv seldom, however, that the actual terms of the contract arc expressly set out. Consequently, the Court often is called upon (such as in the above-mention eel Joachimson case) to declare what the terms are. Of course, a Court will neither make nor alter a contract: that is the duty and right of the parties to it. If a term of a contract is lacking, however, which is obv iously a necessary term and which both parties must have intended to be in the con­tract but hav e not expressed it because its necessity was so obvious that it was taken for granted, a Court w ill not hesitate to declare that term to be an implied term of the contract.11 It is in this manner that most of the terms, which now arc known to comprise the contract between a bank and its customer, have conic to light.The bank, 011 its part, undertakes to honour immediately its cus­tomer’s mandate1- to the extent that there is a crcdit balance owing to that customer.13 Upon payment, the bank is entitled to debit the account to that extent.1* However, if the bank pays a mandate upon which a customer’s signature has been forged as the drawer, the bank has 110 right to debit tlie account. The bank is estopped from debiting the account, not because the bank has failed to notice that the signature does not belong to the customer indicated, but because there is in fact 110 mandate upon which to act: the ostensible mandate is merely a value­less piece of paper. At 011c time it was the considered opinion that a bank was unctcr a duty to know its customer’s signature13, and failure to observe a forgery was negligence for which the bank had to stand the loss of the amount so paid. This fallacy was corrected by Mathew J. in London and River Plate v. Bank of Liverpool'6 where he pointed out that a forgcrv could be so cleverly executed that it would be impossible for a bank using ordinary care to detect it.17The bank further undertakes to receive and to collect bills for the account: the money so received being borrowed by the bank with the undertaking that it shall be repaid upon demand.18 It is agreed, hovv-8. A t  p. 121.9. In  th e case of an acco u n t w h ere m ore th an  a dem and is req u ired  b e fo re  a c re d it am ou n t beco m es due. a g arn ish ee  order can n o t a tta c h : B a g ley  v. W insom e, (N ational  Provincial  B a n k ,  Ltd., G arn ish ee) 119521 2 Q. B  236.10. I.ondon J o i n t  Stock  B a n k ,  Ltd. v. Macm illan 11918] A. C. 777. per V iscou nt  H ald an e a t p. 814: Jo a c h im s o n  v. Sw iss B a n k  Corporation 119211 3 K  B . 110, p er A tk in  L .  J .  a t  p. 127 In  Foley v. Hill «18481 2 H. L  Cas. 28. a “ superad ded o b lig a tio n ” is  re fe rre d  to  ra th e r  than  a co n tra ct .11. R e  Com ploir  Co m m erc ia l  Anversois  v. P o w e r ,  Son & Co. [19201 1 K .B . 868, p er S c r u t-  ton  L . J .  a t  pp. 899-900.12. A s t*:e cu rre n t acco u n t is th e top ic u n d er d iscu ssion  in  th is  a r t ic le  th e  m an d ate  u su ally  ta k es  th e  form  o f a chequ e.13. I.ondon J o i n t  S to ck  B a n k ,  Ltd. v. M acm illan  [1918] A. C. 777, a t  p. 814.14. L o c. c it .. a t p. 830.13. S m ith  v. M ercer  1 18151 6 T au n t. 76.16. 118961 1 Q. B . 7.17. A t pp. 10-11.18. Jo a c h im s o n  v. Swiss B a n k  Corporation 11921] 3 K .  B .  110, a t p. 127.U .N .B .  LA W  JOURNAL 27ever, that the demand must be made at the branch at which the ac­count is kept; a customer cannot expect repayment at any branch.,s It is also agreed that, as a customer’s mandate may be outstanding for sev­eral days in the ordinary course of business, the bank will not close an account which is in credit except upon reasonable notice; the notice will depend upon the nature of the account and the facts and circum­stances of the case.19During the operation of an account a bank cannot help but become intimate with a customer’s business dealings and private af­fairs. For this reason there is imposed upon a bank in relation to its customer a confidence similar to that existing between an agent and his principal.20 Information pertaining to a customer which is gathered bv a bank in its capacity as a bank and during the currency of the account must be held in strict secrecy. Disclosure of such information to a third party could give rise to an action against the bank for breach of the implied contract not to disclose confidential matters.-1This duty of secrecy applies not only to the condition of the ac­count and other facts gathered from the account’s operation, but also to information pertaining to the customer which is gathered from other sources, such as someone else’s account, provided it is gathered bv the bank while acting in its official capacity.21 It is doubtful if the bank’s duty to remain silent about information already gathered ceases the moment an account is closed, although it is unlikely that the duty extends to information gathered after the account is in fact closed.22However the above dutv of secrecy is not absolute. As Banks L. J. pointed out in Tournier v. National Provincial and Union Bank of Eng­land-', there appear to be four qualifications when disclosure is justi­fied. 'These qualifications are:(a) where disclosure is under compulsion bv law;(b) where there is a duty to the public to disclose;(c) where the interests of the bank require disclosure;(d) where the disclosure is made bv the express or implied consent of the customer.24At the time a customer opens an account he impliedly agrees on his part to exercise reasonable care in executing his mandates so as not to mislead the bank.25 If he issues a mandate which contains a patent ambiguity the bank is justified, indeed it would almost appear to be a duty, in delaying payment until the true facts are ascertained because the bank’s duty to honour a mandate is correlative to the customer’s to19 Prosperity , Lim ite d v. Lloyds B a n k ,  Lim ite d (1923* 39 T.  L . R 372.20. A lth ou g h  it has been  pointed out. supra, th a t no fid u ciary  re la tio n sh ip  e x is ts  b etw een  a ban k  rn d  its cu stom er, th e fo rm er in han dlin g  th e  la t te r ’s tran sactio n s  com es in sev era l resp ects  und er th e ob ligation s o f an agent.21. T ou rn ier  v. National Provinc ia l  and Union B a n k  of E n f la n d  [1921] 1 K. B . 461.22. L o c. c it ., per B a n k e s  L . J .  a t  p. 473.23 119241 1 K.  B .  461.24 A t p. 473.25 London J o i n t  Sto ck B a n k  v. M acm illan  [19181 A. C. 777. a t p. 789.28 U .N .B .  LA W  JOURNALfirst drawing it in an unambiguous form.-“ If the ambiguity is latent, however, and the bank bona ride acts upon the wrong meaning, there seems little doubt but that the bank has the right to deDit its customer’s account for the amount so paid because the error has occurred due to the customer’s negligencc in not issuing a clear order.-7The customer further undertakes to exercisc reasonable care in ex­ecuting his mandate so as not to facilitate forgery.-’5 If a customer issues a mandate containing gaps in it so that the fraudulent alteration of the amount is facilitated, lie is bound bv the instrument as altered if the bank honours it bona fide. It is a breach of a customer’s duty to issue such a mandate and forgery is a natural and dircct consequence to be anticipated when a mandate is so drawn.25 There arc some authorities who feel that in such a case the true basis for allowing the bank to debit the account is that the customer has estopped himself by his conduct from denying the validity of the altered cheque.2* But it seems to be generally accepted, however, that the true grounds arc based upon the customer’s failure to carry out properly his contractual duty.20As already indicated, the duties set out in the foregoing discussion have been established judicially as implied obligations. W hat other obli­gations exist in the relationship must await further elucidation by the Court as it is improbable that the practice will ever arise wherefey an express comprehensive contract will be entered into by a customer at the time of opening an account. Of course, if such a contract is entered into, an express term therein will bar the application of any incompatible implied obligation as herein set out.30Wallace D. Macaulay, Saint John, N. B.26. L oc. c it .. a t p. 814.27. Ireland v. Livingston  H872I L .R .  5 H. L. 395.28. H art. I , iw  of Ban k in g ,  4th Ed ., pp. 384-389.29. C h orley . Law of B a n k in g ,  3rd Ed ., p. 78.30. Jo a c h im s o n  v. Swiss B a n k  Corporation  [1921] 3 K .B .  110, p er A tk in  L .  J .  a t p. 132.

The Bank and Its Current Account Customer

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The Bank and Its Current Account Customer

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