Bank Accounts

• Author: M.H. Ogilvie
• Profession: Chancellor's Professor and Professor of Law, Carleton University
• Pages: 238-266

238

Chapter 7

BANK ACCOUNTS

a. IntroduCtIon

A bank is f‌irst and foremost a deposit-taking institution. Without the

deposit of funds, banks would never have come into existence and

would not be able to continue to provide the numerous f‌inancial inter-

mediation services they offer in society and to the economy. The Bank

Act acknowledges this when it provides th at banks may receive deposits

from any person without the intervention of any other person.1 As

deposit-taking institutions, banks are reservoirs of society’s economic

wealth as stated by Isaacs J. in the High Court of Australia: “[A bank]

is, in effect, a f‌inancia l reservoir receiving streams of currency in every

direction, and from which there issues outf‌lowing streams where and

as required to sustain and fructify or assist commercial, industrial or

other enterprises or adventures.”2

Foley v. Hill3 framed the two ma in economic functions of banks and

deposit-taking institutions in legal terms as a contract of loan between

bank and customer, but those two economic functions, of borrowing

money from customers and lending money to customers, remain at the

economic heart and signif‌icance of banking in any society, whether

1 Bank Act, S.C. 1991, c. 46, s. 437(1).

2 Commissioners of the Sta te Savings Bank of Victoria v. Permewan, Wright & Co.

Ltd. (1914), 19 C.L.R. 457 at 471 (H.C.A.).

3 (1848), 2 H.L. Cas. 28, 9 E .R. 1002 (H.L.).

Bank Accounts239

the borrowing or lending transactions are performed on paper or elec-

tronically. Without deposit taking, neither of these functions could be

performed.

This chapter will discuss various aspects of deposit taking by banks,

including the legal nature of a deposit, the various types of deposit, and

the legal relationships among the var ious type s of deposits that ban ks may

take from a single customer. The next chapter will deal with transactions

within deposits, t hat is, account operation as between bank and customer.

B. the LegaL nature of a Bank deposIt

The Bank Act does not def‌ine the term “deposit,” but it has been de-

f‌ined by the courts as “an entry … to the credit of a customer”4 and as

“something laid up in a place or committed to the charge of a person

for safekeeping.”5 The word “deposit” in the Act assumes the common

understanding of the word as a deposit of funds in an account, but the

word is also used in banking practice to refer to the transfer of various

items of property for safekeeping or as security for a loan. In this chap-

ter, the term “deposit” refers to the deposit of funds in an account in

both the legal and the common understanding of the word.

A deposit of funds in an account is characterized legally as a “loan”

by the customer to the bank.6 Thus, a deposit is also properly character-

ized as a debt, that is, a legal chose in action, and subject to the usual

characterization of a debt in that it is capable of being passed from the

owner to another party.7 A deposit of funds with a bank means that

the bank becomes the legal owner of property in those funds and is

obligated to repay only an equivalent amount on demand. By contrast

to other debtor and creditor relationships, it is the creditor, that is, the

customer, who must make the demand for repayment, and if the bank

4 Reference re Albert a Legislation, [1938] 2 D.L.R. 81 at 99 (S.C.C.), Duff J.

5 Mercantile Bank & Trust Co. (Liquidators of ) v. Credit Europeen S.A. (1980), 32

N.B.R. (2d) 239 at para. 60 (Q.B.), Stratton J.; see also Canadian Imp erial Bank

of Commerce v. Gardner Watson Ltd. (1983), 25 Alta. L.R. (2d) 319 at 328 (Q.B.),

Quigley J. [Gardner]. Gardner also held t hat a cheque delivered to a teller for th e

purpose of purc hasing a draft was not a dep osit. See also Kaufman v. Royal Bank

of Canada (1994), 34 C.P.C. (3d) 334 (Ont. Sm. Cl. Ct.).

6 Foley v. Hill, above note 3 and Chapter 6, Section C . See also Saskatch ewan

Co-operative Credit Society Lt d. v. Canada (Minister of Fin ance) (1990), 65 D.L.R.

(4th) 437 at 444 (F.C.T.D.), Collier J., aff’d (1991), 77 D.L.R. (4th) 186 (F.C.A.);

Nova Scotia Savings and Loa n Co. v. Canada (Minister of Finance)(1990), 32 F.T.R.

83 at para. 26, Collier J.

7 For example see Conve yancing and Law of Property Act, R. S.O. 1990, c. C.34, s. 53.