Banker and Customer

BANKER AND CUSTOMER. In Great Britain, with tile exception of some few statutory provisions affording quali fied protection to bankers paying or collecting on behalf of their customers certain classes of cheques, orders and drafts (where, but for such protection, forged or unauthorized indorse ments might involve the banker in liability) there is no special law affecting the relation of banker and customer. Nor is there any satisfactory or exhaustive legal definition of the terms "bank," "banker," "customer." In the acts containing the statutory pro visions referred to, e.g., the Bills of Exchange Act, 1882, ss. 6o, 79, 8o and 82; the Stamp Act, 1853, s. 19; the Revenue Act, 1883, s. 17, the two last of these terms are employed and therefore call for definition. There is no attempted statutory definition of "customer" at all. The term "banker," however, is defined both in the Bills of Exchange Act and the Moneylenders Act 1900 (excluding bankers from the purview of that act) as a person or body of persons corporate or incorporate carrying on "the business of banking"—not a very helpful definition—and what that business is has been treated by the courts as mainly a question of fact; the limits of that business cannot be laid down as mere matter of law but must depend on evidence to be ad duced in any particular case (Banbury v. Bank of Montreal, 1918, A.C. at pp. 652-3). Modern banks perform, in conjunction with what is distinctive and characteristic banking business, other functions and services such as dealings in stocks and shares, trusteeships and executorships, etc., and in respect of these other services may incur liabilities. Questions may arise as to whether a bank is liable for the acts, defaults and representations of its servants or officials as being in the course of their employment. For instance, in Banbury's case, cited above, it was held on the evidence there adduced that advising on investments was not part of the ordinary business of the bank concerned, although it may be suggested that in other cases—as where a bank shares a broker's commission or acts as broker—evidence might establish the contrary. As to the distinctive tests to ascertain the meaning of "banker" and "banking business" as employed in the statutes referred to, decided cases have given some guide. In the Birk beck Building Society case it was held that the Society had, ultra vires, carried on a banking business and Buckley L. J. in that case, 1912, 2 Ch. at p. 227, indicates the characteristic features of such a business. Reviewing this and other cases Sir John Paget K.C. in The Law of Banking (3rd ed., p. 6) usefully deduces that no one can be a banker who does not take deposit and current accounts, issue cheque forms, pay cheques drawn on himself and collect cheques crossed and uncrossed for his cus tomers.

The term "customer" is without any formal definition. At one time it was thought that a single transaction, or the mere open ing of an account, without more, did not constitute a customer, such term implying some course or habit of dealing. Later cases do not take that view and hold that duration or course of dealing is not of the essence of the definition (per Lord Dunedin, 192o, A.C. at p. 68), and that a customer is created immediately the banker has accepted and opened his account and has agreed to render to him the performance of banking duties whether it be a first transaction or not (Ladbroke v. Todd, 3o T.L.R. 433; Commissioners of Eng. Scot. and Australian Bank, 192o, A.C. 683). This is in contradistinction to casual services rendered by a banker to persons who have opened no account with him. One bank may be the customer of another bank for the purposes of s. 82 of the Bills of Exchange Act, as where a foreign or non clearing bank has an account with a clearing bank that collects cheques for it (Importers Co. Ltd. v. Westminster Bank, 1927, 2 K.B. 297).

Relationship of Banker and Customer.

Of necessity bankers and their customers enter into special contracts expressly or gathered by implication from course of dealing. Familiar examples are the deposit account and terms of withdrawal, keep ing of separate accounts, terms of loan or overdraft, discounting or collection of bills, letters of credit. Quite apart, however, from any special circumstances, the mere opening of an account current with a banker and the banker's acceptance thereof involve con tractual relationship by implication. In 1848 the House of Lords in Foley v. Hill (L.R. 2 H.L. 28) declared that relatio' ship to be one of debtor and creditor; that is to say, the moneys paid in by the customer are lent by the customer to the banker who is under obligation to repay an equivalent amount. The banker does not hold such moneys as trustee or mere depositee but they are his to do as he will with subject only to the obliga tion to repay. The old statement was that the banker was debtor to the customer of any credit balance with the "super-added" obligation to honour his customer's cheques drawn upon such balance in so far as the same was sufficient and available. This was not quite a complete statement in that one has to add that the obligation to repay arises only upon demand made by the cus tomer. This exact point fell for decision in Joachimson v. Swiss Bank Corporation, 1921, 3 K.B. I Io. Moreover in that case Atkin L. J. (now Lord Atkin) proffered a useful summary of the one and indivisible contract created by the account current in the following words: "The bank undertakes to receive money and to collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the pro ceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer ad dressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept. Whether he must demand it in writing it is not necessary now to determine." The above does not purport to be an exhaustive statement of all the terms of the implied contract. Indeed a little later the same court of appeal (in the case Tournier v. National Provincial Bank, 1924, I K.B. 461) declared a further term to be implied in the contract between banker and customer, whenever and however that relationship was constituted ; namely, an obligation that the banker should not disclose to third parties any matter affecting the customer's account or any information coming to him in his character as the customer's banker except (a) by the express or implied consent of the customer himself (e.g., a trade reference invited by the customer), (b) under compulsion by law (e.g., an order under the Banker's Books Evidence Act), (c) under a pub lic duty to disclose (e.g., danger or treason to the State), (d) where the interests of the bank legally require disclosure (e.g., action against the customer for money due) . This obligation per sists even after closing of the account. Bankers have of course always acted honourably upon the principle of treating their cus tomers' affairs in confidence and only disclosing in exceptional and justifiable circumstances, but Tournier's case has for the first time put the obligation as a legal incident of the implied contract. Where a customer gives to one with whom he is dealing a banker's reference, one has an example of express assent to such disclosure as is reasonably necessary to accord with the terms of the refer ence. But there is also a well-recognized practice as between bankers themselves, described as "a common courtesy," whereby a bank desiring information (e.g., as to the credit of a proposed guarantor or surety, or of an acceptor of a bill under discount, or of a bill accepted payable by the customer of another bank) inquires of the other banker. Information given in response to such inquiries is given confidentially and is framed with great care so as to disclose no more than the general position of the customer. Such cases are, it is presumed, supported as permissible by reason of the implied consent of the customer derived fron evidence of a well-known practice among bankers and the circum stances giving rise to the inquiry. A banker, his officials anc servants are, as to any claims for defamation or for fraudulent misrepresentation, in the same position as any other member of the community. As regards the application of Lord Tenterden'; act to bankers it has been held, however, that the signature of a manager to any representation on which fraud is based is not a sufficient signature to support an action against the bank for any false representation as to the credit or financial ability of another person.

The Account.

Reverting to the matters affecting the account as between banker and customer it should be noted that when there are several accounts any special agreement as to appro priation of payments into specific accounts must be observed : but if the customer makes no specific appropriation the right of application may devolve on the banker. As regards a banking account that is worked as an unbroken running account, how ever, in the absence of any special agreement the rule in Clay ton's case applies as in all unbroken accounts where moneys are from time to time paid in and paid out by the customer. The rule is that presumably it is the sum first paid in that is first drawn out—the first item on the debit side is discharged or reduced by the first item on the credit side. The appropriation is, without ex press agreement to the contrary, naturally made by the dates in order as they come, so that the balance is struck at the foot of the account and the earlier credits go to discharge the earlier debits in order as they are entered. This is the main presump tion of appropriation as regards an unbroken running account. Its importance in banking practice is obvious especially where the interests of third parties are involved. Thus the operation of this rule taken in conjunction with the rule in Hopkinson v. Holt, 1861, 9 H.L.C. 514 may deprive a banker of the benefit of priority for a security in respect of advances after he has received notice of a subsequent charge on the same property, if he continues the account after such notice as an unbroken account. His obvious course is to rule off the account upon such notice and make the necessary rearrangement with his customer (London and County Banking Co. V. Ratcliffe, 1881, 6 App. Cas. 722 ; Deeley v. Lloyds Bank, 1912, A.C. 756). Where there are several accounts the banker has the right to combine them against the customer in order to ascertain the available balance or the debit as the case may be, provided always that the accounts are the customer's own accounts and also that there is no special agreement express or implied that they are to be kept separate A banker could not of course combine with an account or accounts held by the customer personally accounts known to be held by the customer in a fiduciary capacity. Although, subject to the above, a banker may combine accounts held by the customer in his own right, he must do so where "the ultimate balance" must be determined to fix the liability of a third party and securities have been lodged to cover the general balance (Mutton v. Peat, 1900, 2 Ch. 79). Third parties may sometimes have a claim upon a credit bal ance standing in the name of a customer : as for instance where money is paid into the account by a third party under mistake of fact (Admiralty Commissioners v. National Provincial Bank, 38 T.L.R. 492 ; Kerrison v. Glyn Mills and Currie, 1911, 17 Corn. Cas. 411) or in breach of trust (In re Hallett's Estate 13 Ch. D. 696) or as the fruits of fraud (Banque Belge v. Hambrouck, 1921, I K.B. 321). Moneys thus paid into the mixed account of a customer, and not being his own moneys, may be followed, in so far as a credit balance remains, as to that balance, and, in so far as securities have been purchased with such moneys, as to those securities, if traceable (see Hallett's Estate supra and Sinclair v. Brougham, 1914, A.C. 398 as to "tracing orders"). As has been judicially said, the older common law may have halted outside the banker's door but in 1879 (Hallett's Estate) "equity had the courage to lift the latch, walk in and examine the books." The same case made it clear that where a person holding money as a trustee or in a fiduciary character pays it into his account at his banker's and mixes it with his own money and afterwards draws out sums by cheques in the ordinary manner, the rule in Clayton's case attributing the first drawings out to the first pay ments in does not apply, and the drawer must be taken to have drawn out his own money in preference to the trust money so that any remaining credit balance is subject to the charge of the defrauded or wronged party. In this class of case the banker usually takes up the neutral position as a quasi-stakeholder, leaving the customer and the claimant to contest between them selves the right to the credit balance. It is a false position to argue (as has been done) that the moment money is paid in to a customer's account the debtor and creditor relation between banker and customer and the merging of the money into mixed account obliges the banker to disregard the claims of a third party arising from alleged mistake, breach of trust or fraud. (See Admiralty Commissioners v. National Provincial Bank supra.) Of course all drawings out of the account honoured by the banker in the ordinary course of business without knowledge of any such claim as above or of any breach of fiduciary duty or any fraud on the part of the customer so drawing involve the banker in no liability even if it afterwards turns out that such drawings were in fraud or breach of trust.

Nor does the law impose upon the banker any duty to pry into his customer's affairs. Generally speaking, a banker is not bound or expected to make inquiries as to the source from which moneys paid in by a customer are derived or the purposes for which cheques are drawn by him (Thomson v. Clydesdale Bank, A.C. 287 ; Bank of N.S.W . v. Goulburn etc. Co., 1902, A.C. 543)• But a banker may be liable as privy to a breach of trust if he permits an agent or a trustee or a person in any fiduciary char acter (as for instance a director of a company) to misapply his principal's money where, from the circumstances, the banker knew, or must be taken to have known, that such money was being misapplied ; nor is benefit to the banker an essential to his liabil ity, although it is a circumstance which may strengthen the inference that he was privy to the breach of trust (Gray v. John ston, 1868, L.R. 3 H.L. 1; Foxton v. Manchester and Liverpool Banking Co. 44 L.T. 406 ; British Elevator Co. v. Bank of Brit. N. Americc, 1916, A.C. 658). The heading of an account may show that it is in fact a fiduciary account, but any circumstances that indicate a fiduciary character may be adduced to affect the banker with notice of a trust.

Duty to Pay and Determination of Authority.

While the payment of a customer's cheques drawn on his account current is part of the recognized and implied relationship, it is different in the case of the payment of bills or other drafts or orders which are a matter of special agreement. That agreement may be ex pressed, or may be implied from the course of dealing obtaining between the parties. As to cheques, however, the obligation of the banker arises on the opening of the account. In the case of partnership, companies, administrative bodies or other bodies, a particular form of signature or signatures is agreed upon as the banker's authority to pay. But once the signature of his cus tomer appears upon a cheque regular in form, it is the banker's duty to honour it, provided that there is a sufficient credit balance, that such balance is available to the customer, and that there has been no countermand or other determination of authority. If the banker wrongfully refuses to pay a cheque, he is liable in damages to his customer. If the customer is a trader or a business man, those damages may be substantial; if he is an ordinary pri vate individual, the courts require some special grounds showing actual damage to credit before upholding any substantial claim (Marzetti v. Williams 1 B. and Ad. 415; Rolin v. Stewart 23 L.J.C.P. 148; Evans v. London and Provincial Bank, Times March 1, 1917; Cox v. Cox and Co., Times March 18, 1921). In cases where the bank has by mistake represented to a customer in his pass book that a certain balance exists and the customer in good faith acts upon that assumption and draws cheques accord ingly, the banker may be estopped from setting up the true facts, although it would have been open to correct the error before the customer, in good faith, acted upon it (Holland v. Manchester & Liverpool District Bank, 25 T.L.R. 386; Skyring v. Greenwood 4 B. and C. 289; Holt v. Marnham, 1923, 1 K.B. 504). It should be added that the customer's pass book, even when returned by him, does not, without more, constitute a settled account between banker and customer. Hence the practice of some banks to re quest periodical signed statements by customers as to correctness of the account. Where forged or unauthorized signatures are the ground of repudiation of a cheque, the mere fact that the cus tomer had had his pass book for examination is not, generally speaking, a bar to his claim (Kepitigalla Rubber Co. v. National Bank of India 25 T.L.R. 402) except in very special circum stances (Morison v. Westminster Bank, 1914, 3 K.B. 356). While a banker is bound to honour the customer's cheque in business hours at the branch on which it is drawn, there is an obligation upon the part of the customer to give his mandate in a clear and unambiguous form, so as not to mislead. Nor must he, by his own fault, so draw the cheque as to afford facilities for fraud. "Raised" cheques as they are often called (i.e., cheques drawn for one sum but fraudulently by some dishonest servant or outsider raised to a greater sum) have often been paid by bankers. Obviously if the alteration is apparent, or so marked as would be apparent to an ordinary careful business man, or if there are evidences of alteration not initialled by the customer, the bankers should not pay without inquiry. But if the alteration be so well done as to escape reasonable detection, then if it has been rendered directly possible by the carelessness of the customer, as in leaving spaces facilitating alteration, the loss falls on the customer himself (Young v. Grote, 1827, 4 Bing. 253, finally vin dicated and approved, after much intervening criticism in Mac mnillan's case, 1918, A.C. 777).

The holder of a cheque has no claim against the drawer's banker for non-payment, since a cheque is not in English law an assignment of funds in the banker's hands (Bills of Ex. Act 1882 s. 53). (It is otherwise in Scotland.) And an English banker would not pay a cheque in part when there is an available balance insuf ficient for the whole sum. But in the case of cheques presented simultaneously, in total exceeding the available balance, he should pay so many of the cheques as the balance will cover. The "mark ing" of cheques by bankers does not amount to an "acceptance" by the banker as against the holder of the cheque, who still has no remedy against the banker for non-payment, although, as between bankers themselves, "marking" may be recognized in practice as a binding representation that the cheque will be met. If such marking be done at request of the drawer, he cannot, gen erally speaking, afterwards revoke authority to pay.

By s. 75 of the Bills of Exchange Act the banker's authority to pay a cheque is revoked by countermand of payment by the customer himself or by the death of the customer. A credit bal ance, although sufficient in amount, may also become unavailable to meet cheques on the bankruptcy of a customer (or liquida tion, if a company), or notice by the banker of an available act of bankruptcy, or insanity of the customer, or by attachment of the credit balance by process of court as by a garnishee order attaching the balance. As to garnishee proceedings, it is important to note that the order binds the whole balance attached, irre spective of the amount of the judgment debt in respect of which it is made (Rogers v. Whiteley, 1892, A.C. 118). As to current account, although there is no debt due until demand made by the customer, Joachimson's case (supra) expressly reserved the appli cation of garnishee proceedings to accounts current. As to deposit accounts, the terms of withdrawal or repayment, usually evidenced by the deposit receipt or note, have to be looked to in order to ascertain whether there is then a debt due or accruing due that is garnishable. Determination of the banker's authority to pay by the customer's countermand, generally called "stopping a cheque," requires consideration. For if the banker pays after such counter mand he is liable to the customer for having paid contrary to his mandate or authority, and cannot charge him with the pay ment. Such countermand, however, to be effective must have actually reached the banker and must be unequivocal and free from ambiguity both in its terms and method of communication ; e.g., a banker is not bound to act upon an unconfirmed telegram but in case of doubt is justified in reserving payment for such reasonable time as in the circumstances allow of enquiry (Curtice v. London City and Midland Bank, 1908, 1 K.B. 293). In the case of an authenticated telegram wherein the customer erro neously gives the wrong number of the cheque he desires stopped, the court regards the number as the one certain means of identi fication, and will not lightly put upon the banker the fault by reason of other circumstances alleged to be such as to put him upon inquiry (Hilton v. Westminster Bank, 1926, W.W. 332. House of Lords; 43 T.L.R. 124). A banker is not bound to cash a cheque out of the advertised business hours, but, were he to do so, would he be liable to the drawer who had stopped the cheque on the re-opening of business hours next day? This question was raised, but not decided, in Baines v. National Provincial Bank, 32 Com. Cas. 216, where it was held that the payment, having been made within five minutes after closing time, was within such a reasonable margin as to constitute it a payment within business hours.

Conversion and Statutory Protections.

In the varied oper ations connected with banking business a banker is liable for any loss to the customer arising directly out of negligence, i.e., some act or omission which is contrary to the ordinary reasonable prac tice obtaining among business men and which is a breach of duty owing to his customer. But however careful a banker and his servants may be, there is always the risk of what is called con version of a bill or cheque either in payment or collection thereof. That is to say the person tendering for payment or collection a cheque or bill may prove to have either no title or a defective title, and in such case a banker paying or collecting, however innocent of the true state of things existing, may be liable to the true owner for "conversion" or for "money had and received." It is conversion so to deal with a thing adversely to the true owner's rights of possession without his assent, and ignorance of the facts is no defence. As to bills and many other securities there is no statutory protection, but as to cheques and certain other orders there is limited statutory provision. As to the paying banker, we have s. 6o of the Bills of Exchange Act protecting a banker paying "bills drawn on a banker payable on demand" (i.e., cheques) in the ordinary course of business notwithstanding forged or unauthorized indorsements. This covers only true cheques and would not apply to those "cheques" frequently used by local bodies or other corporations attaching some condition to payment such as signing a receipt, etc. But s. 19 of the Stamp Act, 1853, accords a similar protection to any draft or order payable to order drawn upon a banker ; and s. 17 of the Revenue Act, 1883, applies to such irregular "cheques" the benefit of the crossed cheques sections of the Bills of Exchange Act, 1882. The paying banker obtains protection when paying crossed cheques in accordance with their ostensible tenor (s. 8o and the proviso to s. 79).

With regard to the collecting banker, qualified protection against the perils of conversion is afforded by s. 82. Without such protection the customer's want of title may render the banker liable, since by collecting on an instrument to which the customer has no title or a defective title he is assisting in conversion of the true owner's property (Arnold v. Cheque Bank, 1876, I C.P.D. 578; Fine Art Society v. Nina Bank of London, 1886, 17 Q.B.D. 705). S. 82 enacts that "where a banker in good faith and without negligence receives payment for a customer of a cheque crossed generally or specially to himself and the customer has no title or a defective title thereto, the banker shall not incur any liability to the true owner of the cheque by reason only of having re ceived such payment." In Gordon v. Capital and Counties Bank, 1903, A.C.24o it was held by the House of Lords that a banker is not, within this section, "receiving payment for" the customer if he had credited the cheque as cash and allowed or agreed to allow the customer to draw against it before clearance, since he thereby becomes holder for value and collects for himself. Hence by an amending act of 1906 it was enacted that a banker should be within s. 82 "notwithstanding that he credits his customer's ac count with the amount of the cheque before receiving payment thereof." The protection thus accorded is strictly qualified by the holder of proof upon the banker that he acted "without negli gence" (Sonchette v. London County Westminster and Parrs Bank, 192o, 36 T.L.R. 195) in every stage of the process of col lection, from the taking of the cheque to the receipt and disposi tion of the money. And on the other hand it is not merely the re ceipt of the proceeds of the cheque that is protected but "every step taken in the ordinary course of business and intended to lead to that result" (per Lord Macnaghten in Gordon's case, cited above, at p. 244). The test of negligence is whether the transac tion of paying in any given cheque (coupled with the circum stances antecedent and present) is so out of the ordinary course that it ought to arouse doubts in the banker's mind such as to throw on him the duty of making inquiry. Instances of negligence familiar in decided cases, which are numerous, are : failure to de tect an obvious non-correspondence of indorsement with the name of the payee (190o, I Q.B. 27o) ; indorsement on the cheques payable to different persons being in the same hand writing ; a company's cheque sent home for amendment alteration not initialled by both the directors who draw it (Sonchette's case above) ; omission to make inquiries as to a customer opening an account and paying in a stolen cheque (St. John Hampstead v. Barclay's Bank, 39 T.L.R. 229; Ladbroke v. Todd, 1914, 19 Com. Cas. 256) ; cheque payable to order of a public official endorsed and paid into his private account (Ross v. London County Iestminster and Parrs Bank, 1919, I K.B. 678) ; cheque payable to a company indorsed and paid into a director's or sec retary's private account, the company's account being kept else where (Hannan's Lake View v. Armstrong, 1900, 16 T.L.R. 236; Underwood v. Barclay's Bank, 1924, I K.B. 775) ; cheque marked "account payee" where the circumstances raise a doubt as to whether the proceeds are being placed to that account—the words being a direction to the collecting bank so to place them (Bevan v. National Bank Ltd., 23 T.L.R. 65; and see Importers Co. Ltd. v. Westminster Bank, 1927, K.B.,'as to clearing bank acting for collecting bank). For cheques not crossed and bills there is no protection against the risk of innocent conversion in collection. The damages in conversion, by collecting cheques to which cus tomer has no title, may be mitigated by proof that the proceeds of cheques have been in some part applied to the proper purposes of the true owner (Underwood's case, Sonchette's case, supra), and an inquiry may be ordered accordingly.

If a banker can show that he holds a cheque as holder in due course, as having given value for it without notice of any defect in title, he of course needs no protection, for it is then his own property. If, for instance, a banker has credited his customer with the cheque on an agreement express or implied that he may draw against it before clearance, he may, if there is nothing to impute to him notice of any defect in title, be in such a position. Mere crediting in the books without such an agreement will not suffice (A. L. Underwood and Co. v. Barclay's Bank supra). And no forged endorsement must intervene, for forged signature confers no title at all.

In cases not covered by statutory authority where forgery or fraud intervene the banker has to rely on general legal princi ples. He cannot charge his customer with payments made on a forgery of the customer's signature; but if the customer has adopted the forgery or, having knowledge or reasonable ground for belief that it has been committed, has failed to warn the banker, the customer may be estopped from disputing the bank er's right to debit him (Vagliano v. Bank of England, 1891, A.C. 107 ; McKenzie v. British Linen Co., 1881, App. Cas. 82). Bona fide payment on a forgery to an innocent holder is payment under mistake of fact, but in case of negotiable instruments it is open to debate whether recovery back of the money so paid is permissible in any circumstances, having regard to the strict rule applied to negotiable instruments as stated and applied in London River Plate Bank v. Bank of Liverpool, 1896, 1 Q.B. 7 and referred to by Lord Cave L.C. in Jones v. Waring and Gillow, 1926, A.C. at p. 684; but see Imperial Bank of Canada v. Bank of Hamilton, 1903, A.C. 49, where the strictness of the rule was questioned.

Bankers' Lien and Securities.

As far back as the middle of the 19th century it was judicially decided that "bankers most un doubtedly have a general lien on all securities deposited with them as bankers by a customer unless there be an express contract or circumstances that show an implied contract inconsistent with lien" (Brandao v. Barnett, 1846, 12 C. and F. 787) . Where money is concerned, "set-off" is the appropriate term rather than lien. The above statement of banker's lien excludes documents or securities deposited for safe custody or deposited for any special purpose inconsistent with lien. And the implied general lien for balance of account is not needed where securities are specifically deposited as cover for amounts owing. There is in such cases a specific charge of the securities. But if securities so deposited are left in the banker's hands after the amount secured is cleared off, these securities may become subject to the general lien, as the customer, by leaving them, may be taken to have re-deposited them. And upon sale of securities to meet specific advances, if a surplus remains, the banker may have a right to set-off such surplus as against further sums due on general account. In the case of bills, notes and cheques, the banker has the right of a holder for value to the extent of his lien (Bills of Ex. Act s. 27 [3] ). In the case of other securities the banker has, presumably, the right of a pledgee, and after default, if notice to realise has been given, can sell the security and reimburse himself so far as possible. (See also MORTGAGE.) Quite distinct from this implied general lien is the case of charges taken by banks to secure advances. Where the banker affords accommodation to his customer by fixed loan or overdraft, or both, he usually requires securities to be lodged. The large banks have well recognized common forms printed for mortgages and charges upon property of all kinds. Memoranda of general charge, together with deposit of deeds, securities, share certifi cates, policies and so on, are also provided, both where the cus tomer himself provides the security and also where securities be longing to other persons are charged. In all cases the forms in use are so worded as to give the banker the fullest right over the property free from conflicting rights of sureties. In all cases of continuing accounts upon which advances are from time to time made by way of overdraft care has to be taken to observe the rule that notice of a subsequent charge on the same security by another person calls for the ruling off of the account, as, after no tice, such subsequent charge ranks in priority as regards any future advances. (See above as to rule in Hopkinson v. Holt and rule in Clayton's case.) The contract of personal guarantee is a characteristic, though ancillary or supplementary, security frequently taken by a banker. The common form is what is called a "continuing" guarantee; that is to say, not a guarantee of a fixed sum there and then advanced, but a guarantee of all sums then or thereafter from time to time advanced, and of all amounts in account between banker and cus tomer from time to time outstanding against the customer. The contract of guarantee is a form of suretyship, the guarantor en gaging to pay (usually on demand and up to a specified limit) any and all amounts at any time outstanding to the debit of the customer in the event of the customer's default. But in practice it would be a poor security were the banker, as creditor, to be subjected to the ordinary law relating to principal and surety, such as a claim for release by the surety in the event of the banker (the creditor), without the assent of the guarantor, grant ing time or indulgence to the customer (the principal debtor) or exchanging, releasing or surrendering other concurrent securities for the same debt. Moreover the banker requires to be in a posi tion to prove in bankruptcy, or to accept compositions in respect of, the whole amount due and owing without competition by the guarantor. Hence the common forms of printed guarantee in use in the banks are so framed as to allow the banker to operate the account and deal with securities and their realization as he may think fit, and to prove and take compositions and act with complete freedom so as to get as near his 20s. in the f as possible without endangering his remedy against the guarantor up to the agreed limit. It is quite usual to provide for a determination of the guarantee by the guarantor's giving of a fixed written notice— usually three or six months. This is a useful provision as without it a guarantor could at any time in case of a "continuing" guar antee give instant notice of determination, with the result that arrangements of the customer and banker might be considerably disturbed, for each cheque drawn on the overdrawn account is a fresh advance. Notice of determination on the part of the guar antor does not affect liability accrued up to expiry of term of notice, but thereafter no advances can be made in reliance on the guarantee.

Bankers generally consent to receive for safe custody customers' property such as plate, securities and other valuable things. It has been debated whether a banker in such cases is a gratuitory bailee or a bailee for reward ; in the former case he is liable only for neglect of such precautions as "a reasonably prudent and careful man may fairly be expected to take of his own property of the like description" (Giblin v. McMullen, 1868, L.R. 2 P.C. 317), whereas a bailee for reward is bound to provide at his own expense all appliances and safeguards possible. In view, however, of the well-known fact that bankers already have provided strong rooms, safes, etc., which are available, the test in both cases might be regarded as very much the same in practical effect.

Generally speaking, in the United States, according to charter, there are two types of banks, national and State ; the former being chartered by the Federal comptroller of the currency and the lat ter by the banking departments of the respective States. Under State charters, there are State banks and trust companies. The banking functions of the national banks, trust companies and State banks, with the exception of trustee or so-called mutual savings banks, are essentially similar. In a few States, mutual savings banks have been chartered. These banks have no capital stock, and the earnings, beyond that which is paid as dividends to the depositors, are placed in the guarantee fund. National banks which have the right to act in a fiduciary capacity are governed in that capacity by the laws of the State in which they are located. All national banks must be members of the Federal Reserve Sys tem; membership is optional with State banks, with the exception of the mutual savings banks which, under the Federal Reserve Act, are ineligible for membership.

Savings Banks and Accounts.

The Federal Reserve Act de fines savings accounts as those governed by the following condi tions : (I) The passbook, certificate or other form of receipt must be presented to the bank when a deposit or withdrawal is made. (2) The depositor may be required to give notice of not less than 3o days of intended withdrawals. The definition of sav ings accounts, as given by the Federal Reserve Act, is accepted by banks whether they are members of the Federal Reserve System or not.

In the State of New York the State statute provides that only mutual savings banks may use the word "savings"; other banks, having in effect savings departments, call them special interest departments or thrift departments. In mutual savings banks, the investment of savings deposits is carefully regulated by law. Mutual savings banks have one kind of deposits only, viz., savings. In these banks the agreement between the bank and the customer is specific : to return the funds to the depositor upon his written order and the presentation of his pass-book. This pass-book is a contract between the bank and its depositor, while a checking account pass-book in other types of banks is merely a memo randum of the deposits. In some States a part of the capital and surplus of the banks is segregated for the savings department, and the savings deposits are segregated and invested in accordance with specific legislation. A 3o day notice governing withdrawals of savings deposits is made especially desirable by the fact that under the Federal Reserve Act and under some State statutes con siderably less reserves are required if this provision is used. Under ordinary conditions this advance notice of withdrawal is seldom required. In time of stress, however, strict conformity with the requirement would be exacted, in order that the bank might not be embarrassed by lack of money. A stockholder in a national bank, and in most cases in a State bank, is liable in the event of the bank's failure to an amount equal to the par value of his stock.

This provision is for the further protection of the bank's customers.

Customers' Deposits.

Since very little actual money is handled in financial transactions in the United States, the cus tomer's initial deposit in a checking account is likely to be in cheques as well as in cash. After a signature card has been filed, cheques may be drawn at once against the cash on deposit. On a cheque immediately drawn against a deposited cheque, payment would probably be refused, since the deposited cheque might be ir regular, the drawer might have died or failed, or the account might be short. When collection has been made on the deposited cheque, cheques will be honoured against the account. A bank is bound to honour cheques drawn on it by a depositor if it has sufficient funds belonging to the customer when the cheque is presented. Where the customer does not keep a balance sufficiently large to compen sate the bank for the expense of his account, a service charge is made by many banks. If the customer is a corporation, a partner ship, or a fiduciary, the bank will insist on having a certified copy of the resolution or by-law enabling the officers to transact the business of the corporation, or of the partnership agreement, or of the court orders and other legal papers. If a cheque deposited by a customer and credited to his account is not paid upon presenta tion, the amount is charged back against the customer's account.

When making deposits, the customer should have (a) his bank pass-book, (b) the deposit-slip made out identically with the pass book, (c) the items arranged in the same order as they are listed on the deposit-slip, (d) the proper certificates relative to income tax attached to the bond coupons, (e) the cheques properly in dorsed. If the customer is an officer of a corporation and presents for deposit to his own account a cheque drawn by him to his own order, many banks will not accept it unless they have the written authorization of the corporation to do so. Some banks make a practice of accepting such deposits and protect themselves by insurance.

To secure payment on a cheque, it must be indorsed by the depositor in one of several ways, by writing on the back of the cheque : (a) In blank, "John Smith." An indorsement in blank is dangerous to the depositor unless he presents it at once at the bank. If it is lost or stolen, the holder can readily cash it. Under no circumstances should a cheque having this indorsement be sent by post ; (b) "Pay to the order of Blank National Bank, John Smith." Under this indorsement, if the cheque is lost or stolen, it cannot be negotiated, except through forgery. The customer is fully protected. This is the best indorsement. A cheque having it can be safely sent by post ; (c) "Without recourse, John Smith"; (d) "Pay John Jones only, John Smith"; (e) "Pay Blank National bank, for account of John Jones, John Smith." The "third party indorsement" is used widely by partnerships, corporations and associations, in depositing cheques to the account of employes, who may be travelling or away from home, or who for any reason are not in a position to indorse the cheques personally.

Under the law, the holder of cheques is required to deposit them within a "reasonable time" ; otherwise, there is danger of the release of indorsers. Furthermore, the cheque holder will be the loser if the bank fails after such "reasonable time." Cheques should be deposited not later than on the first business day suc ceeding that on which they are received. The customer's money, upon deposit, becomes the property of the bank. The bank ad mits that it owes the customer that amount, and, in the case of a savings deposit, promises to repay the customer in accordance with the rules in the pass-book in which the customer's deposit is re corded. In the case of a checking account, the bank promises to repay the money immediately upon the presentation of a cheque. In accepting this arrangement, the customer, by impli cation, agrees to prepare his cheques with care, i.e., to date them, to begin filling in the cheque at the extreme left, and to draw a heavy wave-like line through unused space, to make the figures plainly and close up to the dollar mark, to write clearly, using plenty of ink, and to use either a cheque form prepared by the bank or else a blank cheque. A cheque form of another bank should never be utilized. These safeguards will make fraudulent alteration difficult.

Under the standard form of collection agreement recommended by the American Bankers' Association, when the customer deposits cheques or drafts in a bank on another bank, these cheques or drafts remain the property of the customer until they are collected by the customer's bank, and the customer cannot draw against them until collection has been made. If the cheques or drafts are lost or destroyed, or the bank on which they are drawn fails before they are paid, the customer loses, although he may recover from the person originally drawing the cheques or making the drafts. It is the customer's right to have his cheque cashed in legal tender only, without specifying the kind of money he shall accept. However, the bank is usually willing to pay the customer in whatever kind of money the customer desires, though at times it may decline to pay in gold coin.

At stated intervals, or upon request, the bank returns to the customer his cancelled cheques, together with a statement of his account. If a forged cheque is included, the customer should im mediately notify the bank of the forgery and return the cheque to the bank, and the bank is bound to credit the customer's account. If the bank pays a cheque which has been "raised," the bank can charge the customer only the original amount of the cheque, unless it was so carelessly drawn as to lend itself to fraudulent manipulation. If the bank pays a cheque which has a forged indorsement, it is under obligation to reimburse the cus tomer. If the customer does not notify the bank of a "raised" or forged cheque within a reasonable time after the receipt of his cancelled cheques, the bank is not bound to credit him.

A bank certifies a cheque simply as an accommodation and is under no obligation to do so. A certified cheque gives assurance of payment. If the amount on a certified cheque has been "raised," the customer would receive only the amount of the original cheque.

The customer who has drawn a cheque has the right to stop payment. The stop order should give the number, the date and the amount of the cheque, and to whose order it was drawn, and must reach the bank before the cheque is presented for payment. Banks usually require written verification of a telephone stop order. The holder of a stopped cheque can recover against the drawer and indorser if he has purchased the cheque within a reasonable time after date, without notice of any defence. This is by virtue of the special rules applicable to negotiable paper.

The customer desiring to do so may borrow money from the bank on a promissory note, due on a specified date, or may bor row on a demand collateral note. If the customer has collateral, consisting of bonds listed on the stock exchange, his note usually will be discounted or a loan allowed at once by the officers of the bank. If his collateral is in real estate, notes, trade acceptances, or personal indorsement, more time is necessary, in order that the discount committee may pass on the matter. If money is secured on a promissory note, the customer receives in cash the difference between the face value of the note and the interest for the specified time. If a loan is made on a demand collateral note, the customer receives the face value of the note. An interest statement to the customer is made monthly.

As to promissory notes, a customer should remember that (a) a note bears interest before maturity only if so stated, (b) if no mention of interest is made, interest begins on the date the note becomes due and at the legal rate obtaining in that State, (c) notes due on Sunday fall due on Monday, (d) notes due on a holiday, or on Saturday when Saturday is a half holiday, fall due on the next business day. (W. E. AL.)