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-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 that banks may receive de-

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

As deposit-taking institutions, banks are 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 sustain and fructify or assist commercial, industrial

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 borrowing

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

economic heart and signif‌icance of banking in any society, whether

the borrowing or lending transactions are 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 Accounts227

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 types of deposits that ban ks may

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

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 transfer 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 understanding 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

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

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 provincial government has no legal right 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.

7For 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.).