K. Bankers’ Liens

• Author: M.H. Ogilvie
• Profession: LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University
• Pages: 251-252

Page 251

Since the late eighteenth century, the common law has recognized the existence of a banker’s lien over commercial paper deposited with the bank by a customer or a third party as security as part of the law merchant.¹⁴⁸

As such, there is no need for an express agreement to create a banker’s lien. Rather, it comes into effect at the time of deposit except where there is an express or implied agreement to the contrary or the commercial paper fits into a recognized category of exceptions to the rule.¹⁴⁹

The existence of an implied agreement that no lien has arisen is a question of fact.¹⁵⁰

In contrast to other liens or securities, a banker’s lien gives a bank a right to sell the security as if it were a pledge,¹⁵¹and since it normally attaches to the whole indebtedness of the customer, in the absence of a contrary agreement to limit its application, the sale proceeds may be applied to reduce in whole or in part that indebtedness.¹⁵²

In the early case Brandao v. Barnett,¹⁵³a court suggested that all classes of securities may be subject to a banker’s lien, and in subsequent decisions, the courts have confirmed that in addition to negotiable instruments, this lien may attach to deposit receipts,¹⁵⁴share certificates,¹⁵⁵share warrants,¹⁵⁶money-transfer orders,¹⁵⁷insurance policies,¹⁵⁸securities deposited for collection,¹⁵⁹and their sale proceeds.¹⁶⁰ Land title deeds are not

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regarded as subject to a banker’s lien,¹⁶¹nor would money be either, since this can simply be appropriated to an account in overdraft.¹⁶²

However, in certain contexts and in certain specific fact situations, commercial paper cannot become subject to a banker’s lien. A lien does not attach to the following personal property: property deposited for safekeeping;¹⁶³property known to belong to someone else;¹⁶⁴property affected by a trust;¹⁶⁵and property deposited for another specific purpose.¹⁶⁶

In addition, the courts have dealt with a number of individual cases in which no banker’s lien was found on the facts including: (i) where a bank credits a negotiable instrument as cash because it receives legal title to that sum, not a lien;¹⁶⁷(ii) where a bank merely cashes a cheque without deposit;¹⁶⁸(iii) where a bank advances a sum because it has no lien on other funds of the borrower prior to the due date;¹⁶⁹and (iv) where a bank has funds or security of a partnership for the debts due by a partner.¹⁷⁰

It is also clear that a bank cannot have a lien on funds on deposit because these are...