Duhaime's Law Dictionary


Bank Definition:

A corporation empowered to deal with cash, domestic and foreign, and to receive the deposits of money and to loan those monies to third-parties.

Related Terms: Drawee, Check or Cheque, Banker

In 1899, the United States Supreme Court (Austen) used these words to define a bank:

"A bank is an institution, usually incorporated with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be used by the institution, for its own benefit, for one or more of the purposes of making temporary loans and discounts; of dealing in notes, foreign and domestic bills of exchange, coin, bullion, credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic powers, of receiving special deposits and making collections for the holders of negotiable paper, if the institution sees fit to engage in such business."

In 1901, Justice Holmes wrote, in an Irish case (Re Shields Estate):

"The real business of the banker is to obtain deposits of money which he may use for his own profit by lending it out again."

In 1921, in the case of Joachimson, Justice Atkin wrote:

"The bank undertakes to receive money and to collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch..... Bankers never do make a payment to a customer in respect of a current account except upon demand."

A "written order of the customer addressed to the bank" usually takes the form of a cheque.

In 1948, the Privy Council (England) used these words to describe a bank (in Bank of Chettinad):

"... a company which caries on as its principal business the accepting of deposits of money on current account or otherwise, subject to withdrawal by cheque, draft or order...."

In United Dominions (1966), Lord Denning deferred to these words to define a bank:

"An establishment for the custody of money received from, or on behalf of, its customers. Its essential duty is to pay their drafts on it: its profits arise from the use of money left unemployed by them."

In Canada, Justice Richards of the Manitoba Court of Appeal (1949) tried his hand at listing the business of a bank as being:

  • Receiving money on deposit from its customers;
  • Paying a customer's cheques or drafts on it to the amount on deposit by such customers, and holding Dominion Government and bank notes and coin for such purpose;
  • Paying interest by agreement on deposits;
  • Discounting commercial paper for its customers;
  • Dealing in exchange and in gold and silver coin and bullion;
  • Collecting notes and drafts deposited;
  • Arranging credits for itself with banks in other towns, cities and countries;
  • Selling its drafts or cheques on other banks and banking correspondents;
  • Issuing letters of credit;
  • Lending money to its customers on the customers' notes, by way of overdraft (or) on bonds, shares and other securities.

In that same Manitoba case, his brother judge Cohen used these words: 

"Chequeing privileges accorded depositors and general dealing in credit are characteristic of, and perhaps essential to, banking.

"In distinguishing banking from other business, probably the real test is the receiving money to be withdrawn by cheque.

"A banker undertakes by the very carrying on of his business that he will honour any cheque drawn upon an account, provided that that account is in credit to the amount of the draft."

In United Dominion Trust (1966), Justice Diplock noted (at page 986), that as of about 1915, the use of cheques became widespread and this altered the law of banks and banking and that the decisions in Re Shields Estate "adopted definitions of banking that may be too wide for the present day". Diplock added that:

"What I think is common to all modern definitions of banking and essential to the carrying on of the business of banking is that the banker should accept from his customers loans of money on deposit, that is to say, loans for an indefinite period on running account, repayable as to the whole or any part thereof on demand by the customer...."

REFERENCES:

  • Auten v United States National Bank 174 US 125, published at http://altlaw.org/v1/cases/388326
  • Bank of Chettinad Ltd. of Colombo v Income Tax Commissioner 1948 A.C. 378.
  • Joachimson v Swiss Bank Corporation 1921 All ER 92 and at 3 KB 110.
  • Morse, John, A Treatise on the Law Relating to Banks and Banking (Boston: Little, Brown and Company, 1870).
  • Re Bergethaler Waisenamt (1949) 1 DLR 769 (Manitoba Court of Appeal)
  • Re Shields Estate [1901] 1 Irish Reports 182
  • Union Dominions Trust v Kirkwood [1966] 1 All English Reports, page 968.

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