2. The first of these cases is the ordinary one where a customer opens an account with a banker by means of paying in money to his account. In this case, the customer cedes the Property in the Money to the banker, and receives in exchange the Eight or Property to demand an equal sum when he may require it. The transaction is a Sale or an Exchange of Money for a Debt. The Money placed with the banker is not a Depositum but a Mutuum. The banker and his customer stand in the common law relation of Debtor and Creditor. It is also part of the fundamental contract between the banker and his customer that the latter may transfer this Right or Property, called a Credit or a Debt, to any one else he pleases, and this Right of Action may circulate exactly in the same way as Money itself.

The banker therefore has bought this money: he has acquired the entire Property in it, and he may do what he pleases with it. He may trade with it in any way he pleases, and his customer has no legal ground of complaint against him. He has voluntarily parted with his money and received in exchange for it the Right to demand an equivalent sum: and if when he does so, his banker is unfortunately unable to pay it, the customer is only entitled to receive a proportion of the banker's property rateably with other creditors.

Therefore the common phrase when a man says he has so much "money" at his banker's is incorrect. He has no money at his banker's, he has nothing but a Right of action to demand money which is recorded in his banker's books, and which is called a Deposit.

If a customer makes his will bequeathing "all his ready money" "all his Debts" "all his moneys" the sum standing at his credit in his banker's books has been held by numerous decisions in Equity to pass under these designations.

The relation between banker and customer being simply that of Debtor and Creditor, if a customer were to leave a balance on his banker's hands for six years without operating on it, the Statute of Limitations would take effect, and he might if he chose refuse to pay it.

This is the simplest case of an account between banker and customer and is called a Drawing or Current Account.

Trading customers however usually keep a different kind of an account with their banker. They sell their goods and take a bill at 3 months for them. As this bill is not convenient for trading purposes, they take it to their banker and offer it to him for sale. If he thinks it a good debt which will be paid at maturity he buys it from his customer. He writes down to the Credit of his customer's account the full amount of the bill and at the same time he debits his account with the sum he agrees to receive as profit. When the profit is retained at the time of the advance it is called Discount. The discount is, therefore, the difference between the price of the bill and the amount. When a banker buys a bill in this manner he is said to discount it.

When a banker discounts a bill for a customer or buys a Debt which is due to him, it is a complete sale of the Debt. The banker first makes his customer indorse it, that is write his name on the back of it. By this indorsement the customer, though he has sold the Debt to the banker, remains a security for its due payment. And if the acceptor or principal debtor does not pay the bill when it becomes due, the banker has the right to charge his customer with the amount of the bill, provided he gives him immediate notice of dishonour.

When a banker discounts a bill, the entire Property in it passes to him, just as we have seen above, the entire Property in the money paid in by his customers passes to him. The bill belongs to him just as much as any other chattels he possesses. He may sell it again if he pleases, or re-discount it, as it is termed: and if he becomes bankrupt, the entire Property in it passes to his assignees.

It is of great importance to observe the true nature of the transaction. In the loose language in which Economical subjects are usually treated it is commonly said that when a banker discounts a bill for a customer, he makes him a loan on the security of the bill. This, however, is a complete misconception of the nature of the transaction: and it can easily be shewn to be so. If the banker merely made a loan to his customer on the security of the bill, it would be the customer's duty to repay the money at the time fixed, just as in all other loans it is the duty of the person receiving the money to repay it. But when a banker discounts a bill it is wholly different. He does not seek repayment of the money from his own customer, but he demands payment of the debt from the acceptor of the bill, and if it is duly paid, his customer never hears of or sees the bill again. It is only in the event of the non-payment of the bill by the acceptor that he comes back upon his own customer. If he made a loan to his customer on the security of the bill, he would give the bill back to his customer when he was repaid; but he never does so when it is duly paid. In such a case the Property in the bill would remain with the customer, and pass to his assignees in the event of his bankruptcy: whereas it does not do so; it is the Property of the banker, and the assignees of the customer have no right to it.

The transaction is in reality an exchange of Debts. The banker buys a Debt payable at a future time, by creating a Debt in his customer's favour, payable on demand.

It may seem to some to be mere logomachy to distinguish between a discount as a sale and as a loan on the security of a bill: it is however nothing of the kind: the two transactions are essentially distinct, and involve distinct legal consequences to all parties, of the most important nature, civil, as well as criminal.

As a matter of fact the whole difficulty in understanding the nature of banking arises from the circumstance that those who have written on it were not sufficiently acquainted with the elementary principles of Mercantile Law. A debt is, as we have several times pointed out, a saleable Commodity or Merchandise, Goods, or a Chattel, like any other. The banker buys this Chattel or Goods, or Merchandise from his own customer, at a lower price, and sells it to the acceptor at a higher price just as any other retail dealer buys goods at a lower price from one person, and sells them at a higher price to another. And these goods are Capital to the trader because he makes a profit by buying and selling them. Exactly in the same way the Debts which the banker has bought and keeps in his portfolio, are Capital to him, because he makes a profit by buying and selling them. And he buys these Goods by creating a Debt in exchange for it, for which he charges exactly the same as if it were cash, consequently his Credit is Capital to him, just as if it were money.

In these cases, therefore, which are the simplest, the banker does not stand in any fiduciary relation to his customer. They are independent exchangers, or buyers and sellers, of Money and Debts.

On the relation of a Banker to his Customer as his Agent or Trustee, or Bailee of Specie and Banking Securities.

3. Besides, however, the simplest and most ordinary relation between bankers and their customers, as exchangers of Money and Debts, bankers do undertake trusts, and enter into fiduciary relations with their customers. They receive sums of money which are specifically directed by their customers to be appropriated to some special purpose: as well as securities, and other valuable Property, such as Stock, Shares, etc. to receive the dividends, on behalf of their customers: they receive Bills of Exchange on behalf of their customers, and collect them for their customers exactly in the same manner as they do for themselves: and are answerable to them for any loss incurred through any negligence in not complying with the known usages of commerce. Bills of Exchange, Stock, Shares, Exchequer Bills, etc, are called Banking Securities.

In such cases as this the Property in these Valuable Securities does not pass to the Banker: he is the mere Agent, Trustee, or Bailee of his customer, and he has to obey his specific instructions in each case, and if he appropriated them to his own use it would be criminal. Moreover in the event of his bankruptcy, the Property in such things would manifestly not pass to his assignees.

The temptation to a banker to use for his own benefit, the Valuable Securities entrusted to his care, is so great in times of commercial pressure that it is enacted by the Larceny Act 24 & 25 Vict. (1861) c. 96, s. 75 "As to Frauds by Agents, Bankers or Factors -75. "Whosoever having been entrusted, either solely or jointly with any other person, as a Banker, Merchant, Broker, Attorney or other Agent, with any Money, or Security for the payment of money with any direction in writing to apply pay or deliver such Money or Security or any Part thereof respectively, or the Proceeds or any part of the proceeds of such Security for any purpose or to any person specified in such direction, shall in violation of good faith, and contrary to the terms of such direction in any wise convert to his own use or benefit, or the use or benefit of any person other than the person by whom he shall have been so entrusted, such Money, Security or Proceeds, or any part thereof respectively: and whosoever having been intrusted either solely or jointly with any other person as a Banker, Merchant, Broker, Attorney, or other Agent with any Chattel or Valuable Security or any power of attorney for the sale or transfer of any share or interest in any Public Stock or Fund whether of the United Kingdom, or any Part thereof, or of any Foreign State, or in any Stock or Fund of any Body Corporate, Company, or Society, for safe custody, or for any special purpose without any authority to sell, negotiate, transfer, or pledge, shall in violation of good faith, and contrary to the object or purpose for which such Chattel, Security, or Power of Attorney shall have been intrusted to him, sell, negotiate, transfer, pledge, or in any manner convert to his own use or benefit, or the use or benefit of any person other than the person by whom he shall have been so intrusted, such Chattel or Security, or the Proceeds of the same, or any part thereof, or the share or interest in the Stock or Fund to which such Power of Attorney shall relate, or any part thereof, shall be guilty of a misdemeanour, and being convicted thereof shall be liable at the discretion of the Court, to be kept in penal servitude for any term not exceeding seven years, and not less than three years, or to be imprisoned for any term not exceeding two years, with or without hard labour, and with or without solitary confinement."