B. The Legal Nature of a Bank Deposit

• 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: 227-230

Page 227

The Bank Act does not define the term "deposit," but it has been defined by the courts as "an entry ... to the credit of a customer"⁴and 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 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 characterized legally as a "loan" by the customer to the bank.⁶

Thus, a deposit is also properly characterized 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 refuses to repay, the customer must sue in debt for money had and received.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

Page 228

Since an account into which a deposit is made is governed by one continuing contract, there is no new contract with every deposit, rather simply another deposit to that account.¹⁰

Although there is no case law directly on point, it would appear that the deposit is only final in transferring property in the funds deposited to the bank once a provisional credit to an account is finalized through the clearing system. The deposit may be in any currency agreed by bank and customer and may be made into an account kept in that currency if foreign currency accounts are provided by the bank or transferred into the currency in which the account is kept. A bank is required to repay the customer in the same currency as that in which the funds were deposited unless there is an agreement to the contrary.¹¹

Foreign currency deposits have increased in the past two decades, especially in the form of swap deposits, in which the bank sells foreign currency to the customer to deposit with the bank for repurchase at a specific price in the future, thereby facilitating the maintenance of foreign currency in Canada.¹²

When an account contract is entered into and deposits are made into the account, the bank may promise to pay interest on that loan made by the customer to the bank. However, while Foley v. Hill established the right of the customer to demand repayment of the loan, no obligation to pay interest was mandated. Effectively, a bank may receive something which it never gives: an interest-free loan. Banks offer accounts on which interest may be paid and accounts on which no interest is paid, the latter typically being chequing accounts. There is no legal prohibition on customers making interest-free loans to banks!

However, when banks offer accounts in which they promise to pay interest on...