Bank Accounts

• Author: M.H. Ogilvie
• Profession: Professor of Law, Carleton University
• Pages: 226-252

CHAPTER 7

BANK ACCOUNTS

A. INTRODUCTION

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

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

would not be able to continue to provide the numerous f‌inancia l inter-

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

Act acknowledges this when it provides that bank s may receive de-

posits from any person without the inter vention of any other person.1

As deposit-taking institutions, banks a re reservoirs of society ’s eco-

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

bank] is, in effect, a f‌inanc ial reservoir receiving stream s of currency in

every direction, and from which t here issues outf‌lowing streams where

and as required to sust ain and fructify or assi st commercial, industr ial

or other enterprises or adventures.”2

Fole y v. Hill3 f ramed the two main 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 borrow ing

money from customers and lending money to customers, remain at t he

economic heart and signif‌icance of banking in any soc iety, whether

the borrowing or lending t ransactions a re performed on paper or elec-

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

2Commissioners 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.).

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Bank Accounts 227

tronically. Without deposit taking, neither of these f unctions could be

performed.

This chapter will discuss va rious aspects of deposit taking by ba nks,

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

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

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

within deposits, that is, account operation as between ba nk 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 t ransfer of vari-

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

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

in both the legal and the common underst anding of the word.

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

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

terized as a debt, t hat is, a legal chose in action, and subject to the usual

characteriz ation of a debt in that it is capable of being pas sed from the

owner to another part y.7 A deposit of funds with a bank means t hat

the bank becomes the legal ow ner of property in those f unds 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

refuses to repay, the customer must sue in debt for money had and re-

ceived.8 Only the customer or the customer’s legal representative may

demand repayment, and a provi ncial government has no legal r ight to

substitute itself for the customer.9

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

5Mercantile Bank & Trust Co. (Liquida tors of) v. Credit Europeen S.A. (1960), 32

N.B.R. (2d) 239 at para. 60 (Q.B.), Stratton J.; see also Canadia n Imperial Bank

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

Quigley J.

6Foley v. Hill, above note 3 and Chapter 6, Sect ion C.

7 For example see Conveyancing and Law of Prope rty Act, R.S.O. 1990, c. C.34, s. 53.

8Above note 6.

9Attorney Ge neral of Canada v. Attorney Gene ral of Quebec, [1947] 1 D.L.R. 81 (P.C.).