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LAWS, CUSTOMS, AND PRACTICES OF BANKS IN GENERAL
1. Of the nature of the business of Banking.
2. Bankers how far bound to obey the orders of their customers. Consequences of neglecting to do so.
3. Effect of doctrine that the Banker is a borrower and the customer a lender. Statute of Limitations.
4. A Banker must know his customer's hand-writing. 5. On the duties of a Banker in reference to bills for acceptance, and the law respecting non-accepted bills.
6. On the liability of a Banker receiving money lodged with him for an illegal purpose.
7. On the liability of a Banker paying cheques for a customer after his Bankruptcy.
8. "Money at call."
9. "Short bills;" Banker improperly disposing of them.
10. Lien of Bankers.
11. On Guarantees given to Bankers and by Bankers. 12. Of Bankers' books, on the legal importance of their being correctly kept.
13. Of Bankers' pass books.
14. Difference between money of a customer in the hands of his Banker, and money in his own hands.
15. Difference between Banks of deposit which do not issue notes, and Banks of issue.
16. Unnecessary to legislate for non-issuing private Banks.
1. The business of a banker, though largely regulated by statute and by the common law of the land, is yet in part governed by the law merchant, or custom of merchants, early adopted into the general body of English law. The business principally consists in borrowing money or receiving money at interest, as well as lending upon securities; bankers thereby form a connecting link in the chain between the operative and inoperative
classes, they become the debtors of the capitalists and the creditors of the producers or distributors of revenue, and thus afford a ready medium of adjustment between the interests of these two great divisions of society.
It is therefore the chief object of a banker's study, and his constant desire, to search out and make choice of, the most secure as well as the most profitable subject for the employment of the capital placed under his charge, and for the safety of which he is responsible.
The business of banking as distinguished from mercantile business is, that the one is a dealer in money and credit, and the other in produce; each may be carried on purely as a commission business. The merchant sells goods on commission, the banker may be said to sell credit; he, however, charges no commission, but is satisfied on receiving a certain per-centage for the use of his money, and his customer readily pays the charge, which is sometimes called interest, and at other times discount; the latter term with bankers has another signification, for it is also applied to parties who cannot obtain accommodation on the ordinary terms, and whose credit is consequently said to be at a discount.
A banker, in his character as a dealer in money, is purely an agent, for he undertakes to dispose of the moneys lodged in his hands by his customers in any way and in any sum, that they his customers may in their discretion think fit to order, not exceeding the amount standing to their credit; as an agent, therefore, the banker should be paid.
2. Bankers are bound to obey the orders of their customers within the usual course of business. If they disobey them they are responsible not only for damages for the delay itself, which would be mere interest, but to damages for the result directly consequent upon the delay.
And though such orders be not within the ordinary course of business, yet when the banker has undertaken to obey them, he is bound to do so, or he will be liable to pay compensation in damages as above mentioned. For instance, a banker in the country instructs his London banker to pay to a life assurance company, on a given day, a certain sum as the annual premium on a policy of assurance on the life of A. B. Should the banker neglect
to pay the same, after consenting to do so, he might be liable, in the event of the death of A. B., to pay the amount of the sum assured.
If a banker refuse to comply with the order of his customer in the ordinary course of business he is liable for such a refusal; but he is quite justified in refusing to comply with any order which is neither within the general business of banking, nor within the duties performed by bankers in the particular district, nor such as he is, by agreement, or practice, bound to perform for the customer in question.
In either case, whether the banker is justified or not, the person for whom money is deposited or transmitted by the customer never has any claim upon the banker where the latter refuses to obey his customer's direction, unless the banker has given to the person in question something amounting to an assent to hold the money for him, in which case the banker is liable.
But if the banker once undertakes with his customer, either expressly or by course of dealing, to remit money, he is bound to do, though it be out of the ordinary course of dealing, and he is to get nothing by the transaction. This rule, indeed, is not peculiar to bankers, but applies to all persons who undertake gratuitously the care or disposition of property.
When a banker receives instructions to invest money deposited in his hands by a customer in any specific manner, and assents, or does not repudiate the order, he is in the situation of a trustee or agent with reference to that money.
When a customer pays to his banker a sum of money, and, at the time of doing so, gives written instructions that the money is for the express purpose of providing for particular bills, and the banker, instead of following his instructions, places the amount to the credit of his general account, which at the time is overdrawn, and the bills are consequently dishonoured; should the bankruptcy of the customer follow, his assignees can recover the whole of the sum from the bankers, who would also be liable to an action for the consequences of the nonperformance of the instructions of the customer, on which, by receiving the money, they tacitly consented to act.
By the 7 and 8 Geo. IV, cap. 29, bankers may, under certain circumstances, render themselves liable to transportation by misapplying securities intrusted to them.
The following is the clause for the punishment of agents intrusted with property:
"That if any money or security for the payment of money shall be intrusted to any banker, merchant, broker, attorney, or other agent, with any direction in writing, to apply such money or any part thereof, or the proceeds, or any part of the proceeds, of such security, for any purpose specified in such direction, and he shall, in violation of good faith, and contrary to the purpose so specified, in any wise convert to his own use or benefit, such money, &c., and being convicted thereof, shall be liable at the discretion of the court to be transported beyond the seas for any term not exceeding fourteen years nor less than seven."
The above Act has been further strengthened by the following enactment:
"If any banker intrusted with the property of any other person for safe custody, shall, with intent to defraud, sell, negotiate, transfer, pledge, or in any other manner convert or appropriate property so intrusted to his care, to or for his own use, or any part thereof, will be guilty of a misdemeanor.
"If any director, member, or public officer of any public company shall fraudulently take or apply to his own use any of the money or property of such company, will be guilty of misdemeanor.
"If any director, manager, or public officer of any public company, shall, as such, fraudulently appropriate property, or keep fraudulent accounts, wilfully destroy books, or publish fraudulent statements of accounts, knowing them to be false in any material particular, with intent to deceive or defraud, will be guilty of a misdemeanor."
3. Paying money into a bank is in law a borrowing on the part of the bank, and a lending on the part of the customer, to whom therefore there immediately becomes a debt due, for which an action at law will lie. (The banker's position is not that of a trustee, otherwise the remedy would be by bill in Chancery).
The Statute of Limitations runs against such debts as
against any other simple contract debt, and consequently, if there were no other receipts and payments between the banker and his customer for six years, the banker might then plead, in answer to an action for the money, that the contract (sc. of lending and borrowing) did not take place within six years, and that would be a good defence. As to the wisdom of such a defence no comment is necessary.
If the relation between customer and banker constituted the latter a trustee, the Statute of Limitations would not bar the remedy, for that statute does not run against a breach of trust.
If a banker stood in the relation of trustee for his customer, another legal consequence of such a relationship would be that the banker would be bound by every cheque drawn by the customer as a notice of an assignment of so much of the fund in his (the banker's) hands, and would be under an obligation to the payee or bearer of the cheque to pay the money, and the latter could maintain a suit in equity against the banker. But the doctrine that money in the banker's hands is a loan by the customer, and that the banker is not his trustee but his creditor, causes the banker to be under an obligation only to his customer, who may maintain an action at law against him for non-payment of his cheque; but the person in whose favour the cheque is drawn has no such remedy against the banker.
Thus the doctrine that the relation between banker and customer is simply that of debtor and creditor, though apparently simple, is yet one upon which depends the principal part of the law of banking, and is one which it has taken many decisions to establish.
4. A banker is bound to know his customer's handwriting, and must bear the loss if he pay a cheque, bill, or note which turns out a forgery. When I say "bear the loss," I mean he must bear the loss as far as his customer is concerned, but he may recover back the money from the person presenting the forged order for payment.
Where, however, that person is not the original payee, but a subsequent indorsee of the instrument, he must be informed of the forgery the same day on which payment is refused, in order that he may give notice of dishonour 2