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LA313 - Commercial Law - Cases





[HOUSE OF LORDS (Lord Cottenham, L.C., Lord Lyndhurst, Lord Brougham and Lord Campbell), July 31, August 1, 1848]

[Reported 2 H.L. Cas. 28; 9 E.R. 1002]

Bank—Banker and customer—Relationship—Debtor and creditor—No fiduciary relation.

The relation between a banker and his customer who pays money into the bank is that of debtor and creditor, the banker being liable to repay to the customer the money which he holds for him when required to do so by the customer. When a customer pays money into his account at a bank It ceases to be his money; it becomes the banker's money and he can deal it as his own. He is not vis--vis the customer in the fiduciary position of a trustee or quasi-trustee holding the money for the customer as for a cestui que trust.

Notes. It will be seen that a question was raised in this case whether ill the circumstances the appellant's claim for an account was a fit subject for a suit in a court of equity. This would depend on whether at law there was no satisfactory remedy or whether from the complexity of the account it was not a fit case to be referred to a jury. But by s. 86 of the Supreme Court of Judicature Act, 1925, re-enacting s. 24 of the Judicature Act, 1873, law and equity are now to be administered concurrently, so that the discussion of the above question is no longer of value, and counsel's argument and their Lordships' observations on that matter have been omitted from this report.

Considered: Re Gibson and Sturt, Pc St. Alban's Bank (1850), 15 L.T.O.S. 95.

 Distinguished: Pennell v. Duffell (1863), 4 De G.M. & G. 872.

Considered: Padwick v. Hurst (1854), 18 Beav. 575; Jackson v. Ogg (1859), 5 Jur.N.S. 976.

Distinguished: St. Aubyn v. Smart (1867), L.R. 5 Eq. 188.

Considered: A.G. v. Edmunds (1868), L.R. 6 Eq. 881; South Australian Insurance Co. v. Randell (1869), L.R. 3 P.C. 101; Burdick v. Garrick (1870), 5 Ch. App. 283.

Considered and Applied: Banner v. Berridgo (1881), 18 Ch.D. 254. 

Distinguished: Atkinson v. Bradford Third Equitable Benefit Building Society (1890), 26 Q.B.D. 877; Re Tidd, Tidd v. Overall (1893), 62 L.J. Ch. 915. 

Considered: Royal Bank of Scotland v. Tottenham, [1894] 2 Q.B. 715; Re Derbyshire, Webb v. Derbyshire, [1906] 1 Ch. 185; Kerrison v. Glyn, Mills, Currie & Co., [1911-13] All E.R. Rep. 417; N. Joachimson (a firm name) v. Swiss Bank Corpn., [1921] All E.R. Rep. 92; R. v. Davenport, [1954] 1 All E.R. 602.

Referred to: Teed v. Beere (1859), 83 L.T.O.S. 26; Smith v. Leveaur (1863), 2 De G..J. & Sm. 1; Hill v. South Staffordshire Rail. Co. (1865), 11 Jur.N.S. 192; Moxon v. Bright (1869), 4 Ch. App. 292; Blyth v. Whiffin (1872), 27 L.T. 380; Summers v. City Bank (1874), L.R. 9 C.P. 580; Greenwell v. Natonal Provincial Bank (1883), Cab. & El. 56; Marten v. Rocke, Eylton & Co. (1885), 53 L.T. 946; London Joint Stock. Bank, Ltd. v. Macmillan [1918-19] All E.R. Rep. 30; A.-G. of Canada v. A.-G. of Quebec [1947] A.C. 33.

As to the relation of banker and customer, see 2 HALSBURY'S LAWS (3rd Edn.) 166 et seq.; and for cases see 3 DIGEST (Repl.) 177-184.

Cases referred to in argument:

(1) Carr v. Carr (1811), 1 Mer. 541, n.; 3.5 E.R. 799; 44 Digest 728, 5813
(2) Devaynes v. Noble, Sleech's Case (1816), 1 Mer. 529, 539; 35 E.R. 767, 771; 3 Digest (Repl.) 340, 1101.
(3) Sims v. Bond (1833), 5 B. & Ad. 389; 2 Nev. & M.K.B. 608; 110 E.R. 834; 3 Digest (Repl.) 178, 299.
(4) Pott v. Clegg (1847) 16 M. & W. 321; 16 L.J.Ex. 210; 8 L.T.O.S. 493; 11 Jur. 289: 153 E.R. 1212; 3 Digest (Repl.) 178, 294.
(5) Marzetti v. Williams (1830) 1 B. & Ad. 415; 1 Tyr. 77, n.; 9 L.J.0.S.K.B. 42; 109 E.R. 842: 3 Digest (Repl.) 237, 613.

Appeal against an order of LORD LYNDHURST, L.C., reported 1 Ph. 399, reversing a decree of the Vice-Chancellor of England (KNIGHT-BRUCE, V.C.) and dismissing the appellant's bill.

In and previously to the year 1829, the appellant and Sir Edward Scott, owners of collieries in Staffordshire, kept a joint account at the respondents' bank at Stourbridge, in Worcestershire. In April, 1829, a sum of 6,117 10s. was transferred from that account to a separate account then opened for the appellant, and the respondents, in a letter enclosing a receipt for the sum so transferred, agreed to allow 3 per cent. interest on it. From 1829 to the end of 1834, when the joint account was closed. the appellant's share of the profits of the collieries was from time to time paid by cheques drawn by the colliery agents against the joint account. These cheques were, as the respondents alleged, paid in cash or by bills drawn by them on their London bankers in favour of the appellant, and none of them was entered in his separate account. The only items found in that account were the 6,117 10s. on the credit side, and two sums of 1,700 and 2,000 on the debit side, both being payments made to or on behalf of the appellant in 1830. There were also entries, in a separate column, of interest calculated on the sum or balance in the bank, up to Dec. 25, 1831, and not afterwards.

In January, 1838, the appellant filed his bill against the respondents, praying that an account might be taken of the sum of 6,117 10s. and all other sums received by the respondents for the appellant on his private account since April, 1829, with interest on the same at the rate of 3 per cent. per annum; and also an account of all sums properly paid by them for or to the use of the appellant on his account since that day, and that they might be decreed to pay the appellant what, upon taking such accounts, should be found due to him. A schedule annexed to the defendants' answer set forth the separate account of the appellant from the bank book, containing the items and entries before mentioned. The vice chancellor, on the hearing of the cause, decreed for an account as prayed, being of opinion that the respondents m-ere bound in duty to keep the account clear; that they were to be charged accordingly to their duty, the neglect of which could be no excuse, and that the agreement to allow the interest was in effect the same, in answer to the Statute of Limitations, as if the interest had been regularly entered or paid. LORD LYNDHURST, taking a different view of the case, upon appeal, held, first., that the Statute of Limitations was a sufficient defence; and, secondly, that the account consisting of only a few simple items, was not a proper subject for a bill fin equity, but a case for. an action at law for money had and received, and his Lordship reversed the decree, and dismissed the bill.

Stuart and G. L. Russell for the appellant.—The judgment appealed from proceeded partly on the ground that the Statute of Limitations is a bar to the appellants demand, and partly on the ground that the account prayed for is a simple account of debtor and creditor, and, therefore, not a fit subject for a suit in equity. The question is: What is the nature of the relation between a banker and those who deposit money with him, and who are called his customers? If it could be shown that a banker is in the position of a trustee for those who employ him, that he is clothed with a fiduciary character in relation to them, and that there is a personal trust and confidence in him, then the Statute of Limitations would be inapplicable, and the second defence also must be held to fail. The respondents were not in the relation of mere debtors to the appellant for the money deposited, which, in ordinary cases, is considered to be a loan, and, therefore, a debt: Carr v. Carr (1); Devaynes v. Noble, Sleech's Case (2) (1 Mer at p. 568); Sims v. Bond (3); Pott v. Clegg(4). POLLOCK, C.B., in Pott v. Clegg(4), doubted whether in all cases there was not an implied contract between a banker and his customer as to the money deposited which distinguishes it from an ordinary case of loan, but he yielded to the opinion of the other judges that it may as a simple loan and debt. It may be admitted that bankers are debtors, but they are debtors with superadded obligations, as, for instance, to repay the money deposited by honouring the depositor's cheques: Marzetti v. Williams(5). In the present case there was an additional obligation by the special contract to pay interest on the deposit. It was the duty of the respondents to keep the accounts with the appellant clear and intelligible, to calculate the interest on the balances in their hands from time to time, to make proper entries of it in the account. and to preserve all vouchers and other evidence of their transactions with him. These duties and transactions constitute a relation more complex than that of mere debtor and creditor, and an account of them is a fit subject for a bill in equity, because the account here sought is of moneys received by the respondents, the receipt of which is within their own knowledge, and the entries and record of which they were bound to keep.

Bethell, Kenyon Parker and Craig for the respondents, were not called on to argue.

LORD COTTENHAM, L.C.—The bill in this case-as is usual in cases of this description where bills state matters of account, and where there is concurrent jurisdiction at law and equity alleges that the account is complicated and consists of a great variety of items, so that it could not be properly taken at law. If that allegation had been made out, it would have prevented the necessity of considering any other part of the case. But that allegation has entirely failed of proof appears that the account consisted of only one payment of 6,117 10s. to a private account of the customer, and that against that sum two cheques were drawn and paid. That is the whole account in dispute as raised by these pleadings. Therefore, there is certainly no such account as would induce a court of equity to maintain jurisdiction as if the question had turned entirely upon an account so complicated, and so long, as to make it inconvenient to have it taken at law. It has been attempted to support this bill upon other grounds, and one ground is that the relative situation of the appellant and the respondents would give a court of equity jurisdiction, independently of the length or the complexity of the accounts. Although it is not disputed that the transactions between the parties gave the legal right, it is said a court of equity, nevertheless, has concurrent jurisdiction, and that is attempted to be supported upon the supposed fiduciary character existing between the banker and his customer.

No case has been produced in which that character has been given to the relation of banker and customer, but it has been attempted to be supported by reference to other cases supposed to be analogous. These are cases where bills have been filed as between principal and agent, or between principal and factor. As between principal and factor, there is no question whatever that that description of case which alone has been referred to in the argument in support of the jurisdiction has always been held to be within the jurisdiction of a court of equity, because the party partakes of the character of a trustee. Partaking of the character of a trustee, the factor as the trustee for the particular matter in which he is employed as factor—sells the principal's goods, and accounts to him for the money. The goods however, remain the goods of the owner or principal until the sale takes place, and the moment the money is received the money becomes the property of the principal. So it is with regard to an agent dealing with any property. He obtains no interest himself in the subject matter beyond his remuneration; he is dealing throughout for another, and though he is not a trustee according to the strict technical meaning of the word, he is quasi a trustee for that particular transaction for which he is engaged. Therefore, in these cases the courts of equity have assumed jurisdiction.

But the analogy entirely fails, as it appears to me, when you come to consider the relative situation of a banker and his customer, and for that purpose it is quite sufficient to refer to the authorities, which have been quoted, and to the nature of the connection between the parties. Money, when paid into a bank, ceases altogether to be the money of the customer; it is then the money of tile banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money paid into the banker's is money known by the customer to be placed there for the purpose of being under the control of the banker. It is then 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 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 it as he pleases. He is guilty of no breach of trust in employing it; he is not answerable to the customer if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of the customer, but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the customer, is when demanded, a sum equivalent to that paid into his hands. That has been the subject of discussion in various cases, and that has been established to be the relative situation of banker and customer. That being established to be the relative situations of banker and customer, the banker is not an agent or factor, but he is a debtor. Then the analogy between that case and those that have been referred to entirely fails, and the ground upon which those cases have, by analogy to the doctrine of trusteeship, been held to be the subject of the jurisdiction of a court of equity, has no application here, as it appears to me.

[HIS LORDSHIP dealt with the question whether under the law existing in 1848 the case came within the jurisdiction of a court of equity, and he added ]

There is nothing, in the relative situations of banker and customer which gives, per se the right to sue in equity. That is proved, I apprehend, by the consideration of the question whether, if there had been no money drawn out at all and simply a sum of money had been deposited with the banker—I will not say deposited, but paid to the banker—on account of the customer, the customer could file a bill to get that money back again. The learned counsel judiciously avoided giving an answer to that question. But that tries the principle, because, if it is merely a sum of money paid to a factor or an agent, the party has a right to recall it. He has a right to deal with the factor or agent in his fiduciary character. But the banker does not hold that fiduciary character, and, therefore, there is no such original jurisdiction; and if there be no original jurisdiction growing out of the relative situations of the parties to see if the account is of such a nature that it cannot be taken at law.......The principle upon which my opinion, is formed is that there is nothing to bring the demand within the precincts of a court of equity.

Upon that ground I think the decree was right in dismissing the bill.

LORD BROUGHAM.— My noble and learned friend, LORD LYNDHURST, who, from his right of precedence here, would naturally have addressed your Lordships before me—I, nevertheless, take leave, before he addresses your Lordships, to state my entire agreement in the reasons stated by my noble and learned friend, the Lord Chancellor, and in the opinion at which he has arrived through those reasons in favour of the decree of the court below.

There is clearly no such account-whatever may be set forth by the bill—upon the facts of the present case which calls upon a court of equity, upon that head of jurisdiction, to give relief.........The account being excluded by the facts of this, case, which show that there is no reason for this statement of account, there being but one sum paid in, and two sums of money drawn out, there is no reason for giving relief in equity. The question then comes to be, whether the appellant has succeeded on one or other of the two grounds, the first of which is, holding the banker to be in a quasi fiduciary position towards his customer and proceeding against him as if he were a trustee; and the other is whether the stipulation for -interest by the banker makes any difference in the case? The latter question may be disposed of in a few words. It does not follow that because a banker contracts to pay any strictly legal demand, therefore that puts the case on a different footing I should be very sorry if that should be so. because I am sure the Court of Chancery might have then a bill from every tradesman for payment of his account, for goods sold and delivered. and wherever there was a stipulation to pay after a certain time, as in many cases there is in such a case a bill might be filed But we know pretty well it is the ABC of the practice of a court of equity that no such bill can be filled.

I come then, to the only other ground. which m-as the main contention. AS to the banker, is his position with respect to his customer that of a trustee with respect to his cestui que trust? Is it that of a principal with respect to an agent, or that of a principal with respect to a factor? I see no ground for contending that there is any identity in those two points. I am now speaking of the common position of a banker—the common case of his receiving money from his customer on condition of paying it back when asked for or when drawn upon, or of receiving money from other parties to the credit of the customer upon like conditions to be drawn out by the customer, or, in common parlance. the money being repaid when asked for, because the banker who receives the money has the use of it as his own, and in the using of it his trade consists, but for which no banker could exist especially a banker who pays interest. Even a banker who does not pay interest could not possibly carry on his trade if he were to hold the money and to pay it back as a mere depositary of the principal. But he receives it to the knowledge of his customer for the express purpose of using it as his own, which if he were a trustee, lie could not do without a breach of trust. It is a totally different thing if we take into consideration certain acts which are often performed by a banker and put him in a totally different capacity. He may. in addition to his position of banker, make himself an agent or a trustee towards a cestui que trust. For example, suppose I deposit exchequer bills with a banker and he undertakes to receive the interest upon them, or to negotiate or sell them, and to credit my account with the proceeds of the sale, I do not stay to ask whether, in that case, he might not be in the position of a trustee, and might not partly sustain a fiduciary character, but he does that incidentally to his trade of a banker. His trade of a banker is totally independent of that, to it the other is an accidental addition. The trade of a banker is to receive money and use it as if it were his own, lie becoming debtor to the person who has lent or deposited with him the money to use as his own, for which money he is accountable as a debtor.

That being the trade of a banker, and that being the nature of the relation in which he stands to his customer, I cannot, without breaking down the bounds between equity and law, confound the situation of a banker with that of a trustee, and conclude that the banker is a debtor with a fiduciary character. I, therefore, entirely agree with my noble and learned friend, thinking that the view taken of this case in the court below was a correct one, and, therefore, I move that this appeal be dismissed, and the decree appealed from be affirmed, with costs.

LORD CAMPBELL.—I cannot help thinking that when this case was before KNIGHT-BRUCE, V.C., the decree he pronounced must have proceeded upon some incorrect statement of the facts, and that he had thought that several actions would have been necessary. When you come to examine the facts, it is quite clear that this is a purely legal demand, the relation between banker and customer, as far as the pecuniary dealings are concerned, being that of debtor and creditor. It has been said that the banker is liable to do something more than merely to repay the money. He is bound to honour cheques, and perhaps to accept bills of exchange, if drawn upon him, he having assets in his hands, but these are purely matters of legal contract, and it seems to me, that there is nothing of a fiduciary character at all in the relation subsisting, between them. I think the noble and learned Lord, LORD LYNDHURST, was perfectly right in reversing the decree of the Vice-Chancellor, and that we shall do right in dismissing this appeal.

LORD LYNDHURST.—I entirely concur in the view that has been taken by my noble and learned friends, with respect to jurisdiction in matters of account. I am of opinion, therefore, with my noble and learned friends, that this judgment must be affirmed.

Appeal dismissed.