happen in the case of a Deposit: because the Creditor may transfer his Right of action by means of a Cheque to any one else: and it may circulate exactly like a Bank Note. Hence, the banker may be equally ignorant who his real Creditor is, in one case as the other It is, therefore, a fundamental error to divide banks into "Banks of Deposit" and "Banks of Issue." All banks are "Banks of Issue." The only distinction is, whether the Credit they create is strictly confined to the Money they buy with it or whether they are allowed to create Credit in excess of the Cash they hold, in order to buy Bills of Exchange with them, and so make a profit by so doing Whether the Credit they create is recorded on paper or not, in no way alters the amount of their liabilities On the method of Utilising Banking Credits 9. The banker, then, having Issued these Credits, Deposits, or Rights of action against himself to his customers, they, of course, cannot transfer them to any one else by manual delivery. In order to be capable of manual delivery, they must be recorded on paper and this might be done in two forms— 1. The banker might give him his own Note, promising to pay a certain sum to the customer, or to "bearer 2. The customer might write a note to the banker, desiring him to pay the money to some particular person: or to his order, or to bearer. These orders were formerly called Cash Notes: they are now called Cheques These paper documents neither create nor extinguish liabilities: they merely record them on paper for the purpose of transferring them to some one else Bankers' Notes were at first merely written on paper, like any other Promissory Notes: and they were for any sums. In 1729, Child & Co. introduced the practice of having their Notes partly printed and partly written, like a modern cheque. But still they were not like modern bank notes for even pounds: but just for any odd sums that might be required, like a cheque London bankers appear to have issued their own notes till about 1793: when, perhaps, the panic of that year may have : shown them the danger of having their notes in the hands of the public and it seems that they discontinued issuing them about that time. But they were never forbidden to issue notes till the Bank Charter Act of 1844 Operations by means of Cheques 10. When, therefore, a banker has created a Credit, or Deposit, in favour of a customer, he can put this Credit into circulation either by means of the banker's own Note, or by means of a Cheque and, when he does so, the following different results may take place 1. The customer himself, or the holder of the Cheque or Note, may draw out the actual money if they do so, the banker's liability is extinguished. It is a resale of money to the holder of the Note or Cheque, and the banker buys up the Right of action against himself 2. The Cheque or Note may circulate in commerce, and effect any number of payments, exactly like money and it may, ultimately, be paid into the account of another customer of the same bank, and the series of transactions finally closed by the mere transfer of Credit from one account to another 3. The Cheque or Note may, after performing a similar number of exchanges, fall into the hands of the customer of another bank, and be paid into that bank. So the banker becomes debtor to the customer of another bank. But if the banker A. becomes debtor to the customers of the banker B., the chances are that about an equal number of the customers of the banker A. will have claims against the banker B. If the mutual claims of the customers of each bank on the other are exactly equal, the respective orders are interchanged, and the Credits re-adjusted to. the accounts of the different customers, without any payment in money. Thus, if the mutual claims among any number of bankers exactly balanced, any amount of business might be carried on without requiring a single coin. Formerly, if the mutual claims did not balance, the differences used to be paid in coin or bank notes but now, by an ingenious arrangement at the Clearing House, the use of coin and bank notes is entirely dispensed with : and all the banks in the clearing are really and practically formed into one huge banking institution for the purpose of transferring Credits amongst each other, just as Credits are usually transferred from one account to another in the same bank without a single coin being required On the Legal Relation between Banker and Customer 11. It must be carefully observed that the Legal Relation between Banker and Customer is simply that of Debtor and Creditor. When a customer pays in money to his account, he cedes the absolute property in the money to his banker: and, in exchange for it, he acquires nothing but a Right of action to demand an equal sum at any time he pleases There is so much misapprehension on this point, and in speaking of banking business it is so often implied that the money placed with a banker still belongs to the customer, that it may be of advantage to quote the words of Lord Chancellor Cottenham, in the case of Foley v. Hill, in the House of Lords (2 H. L., cases 28) Money, when paid into a bank, ceases altogether to be the money of the principal: it is then the money of the banker, who is then 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 principal 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 as he pleases he is guilty of no breach of trust in employing it he is not answerable to the principal if he put 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 principal: but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay the principal when demanded, a sum equivalent to that paid into his hands" It must, therefore, be carefully observed that a "banker" in no way resembles the treasurer of a public fund, or a solicitor, or a money scrivener, who are mere trustees of the money entrusted to them. If a "banker were the mere trustee of the money placed with him, he would not be entitled to use it for his own purposes It is often the custom of persons to say that they have so much "money" at their banker's: but such an expression is entirely erroneous: they have no money" at their banker's: they have nothing but a Right of action to demand so much money from their banker As a consequence of this relation between banker and customer, if a customer were to leave a balance at his banker's for six years, without operating on his account, the banker might, if he chose, refuse to pay the balance, under the Statute of Limitations: but if it were a mere Trust, he could not refuse: because that Statute does not apply to Trusts Another consequence of this relation is that a Cheque is a Bill of Exchange, and not a Draft: it is an Order addressed by a Creditor to his Debtor, and not to his Trustee or Bailee to call a Cheque a Draft, as is often done, is to mistake the relation between Banker and Customer : On the Legal Contract between Banker and Customer 12. It has been shown that the Legal Relation between Banker and Customer is simply that of Debtor and Creditor Nevertheless, there is an important distinction between an ordinary Debtor and a banker Debtor An ordinary Debtor is not bound at Common Law to accept or pay a bill drawn upon him by his Creditor without his own consent; even though he should admit that he possessed funds : nor if his Creditor assigns his Debt is he bound to pay the Transferee nor has the Transferee an action against him in his own name: because there is no privity of contract between the Debtor and the Transferee: and the Creditor has no power to stipulate that the Debtor should pay the Transferee: unless he expressly consents to do so The Transferee can only sue the Debtor under the name of the Transferor or the Transferor can sue as the Trustee of the Transferee If, however, the Debtor had entered into an Obligation, under seal, promising to pay an assignee, or bearer: or had accepted a Bill of Exchange payable to order, or to bearer: then the Transferee might sue him in his own name, because the consent of the Debtor had created a privity of contract between himself and the Transferee But the case of a Banker Debtor has always been different. In order to encourage persons to place their money with them, the Goldsmith Bankers agreed that their customers should have, as nearly as possible, the same facilities for transferring their Rights, as if they had the money itself in their hands Consequently, from the very first, it was always the Custom of bankers that their customers might either demand payment themselves; or they might transfer their Rights of action to any one else they pleased, or to bearer By the very nature, therefore, of the Consensual Contract, termed the Custom of Bankers, a banker having funds of his customer, is in the position of an ordinary Debtor who has accepted a Bill payable to order, or to bearer Hence, while no simple admission of the possession of funds by an ordinary debtor can compel him to pay the holder of a Bill drawn on him, without his own consent: the admission of the possession of funds by a banker operates, ipso facto, as a legal acceptance of any Cheques or Bills drawn on him by his customer: and gives the holders of them a Right of action against him It has sometimes been supposed that the holder of a Cheque has no action against a banker, even though he possesses funds of his customer, because he has not accepted the Cheque But this is to overlook the special conditions of the relation of Banker and Customer. By that contract he specially agrees with his customer to pay any one to whom his customer may transfer his Right of action: and, therefore, if the holder can prove that he has funds of his customer in his hands, he has an action against him In Liversidge v. Broadbent (4 H. & N., 612), Martin, B., |