There is no obligation on a banker to permit his customer Overdrafts and advances. to overdraw, apart from agreement express or implied from course of business. Drawing a cheque or accepting a bill payable at the banker's which there are not funds meet is an implied request for an overdraft, which the banker may or may not comply with. Interest is clearly chargeable on overdrafts whether stipulated for or not. There is no direct authority establishing this right in the banker, and interest is not usually recoverable on mere debts, but the charge is justifiable on the ground of the universal custom of bankers, if not otherwise. The charging of compound interest or interest with periodical rests has been supported where such system of keeping the accounts has been brought to the notice of the customer by means of the pass-book, and not objected to by him, but in the present attitude of the courts towards the pass-book some further recognition would seem necessary. Such system of charging interest, even when fully recognized, only prevails so long as the relation of banker and customer, on which it is founded, continues in force; the taking a mortgage for the existing debt would put an end to it.
The main point in which advances made by bankers differ Lien. from those made by other people is the exceptional right possessed by bankers of securing repayment by means of the banker's lien. The banker's lien is part of the law merchant and entitles him, in the absence of agreement express or implied to the contrary, to retain and apply, in discharge of the customer's liability to him, any securities of the customer coming into his possession in his capacity as banker. It includes bills and cheques paid in for collection (Currie v. Misa, 1 A.C. 564). Either by virtue of it, or his right of set-off, the banker can retain moneys paid in by or received for the credit of the customer, against the customer's debt to him. Goods deposited for safe custody or moneys paid in to meet particular bills are exempt from the lien, the purpose for which they come to the banker's hands being inconsistent with the assertion of the lien. The existence of the banker's lien entitles him to sue all parties to bills or cheques by virtue of sec. 27, subs. 3 of the Bills of Exchange Act, and to the extent of his advances his title is independent of that of the previous holder.
Moreover, the banker's lien, though so termed, is really in effect an implied pledge, and confers the rights of realization on default pertaining to that class of bailment. But with regard to the exercise of his lien, as in many other phases of his relation to his customer, the banker's strict rights may be curtailed or circumscribed by limitations arising out of course of business. The principle, based either on general equity or estoppel and independent of definite agreement or consideration, requires that when dealings between banker and customer have for a reasonable space of time proceeded on a recognized footing, the banker shall not suddenly break away from such established order of things and assert his strict legal rights to the detriment of the customer. By the operation of this rule, the banker may be precluded from asserting his lien in particular cases, as for instance for an overdraft on one account against another which had habitually been kept and operated on separately. It equally prevents the dishonouring of cheques in circumstances in which they have hitherto been paid independent of the actual available balance.
Restrictions arising from course of business can of course be put an end to by the banker, but only on reasonable notice to the customer and by providing for outstanding liabilities undertaken by the latter in reliance on the continuance of the pre-existing state of affairs (see Buckingham v. London & Midland Bank, 12 Times L.R. 70). As against this, the banker can, in some cases, fortify his position by appeal to the custom of bankers. The validity of such custom, provided it be general and reasonable, has frequently been recognized by the courts. Any person entering on business relations with a banker must be taken to contemplate the existence of such custom and implicitly agree that business shall be conducted in accordance therewith. Practical difficulty has been suggested with regard to proof of any such custom not already recognized in law, as to how far it can be established by the evidence of one party, the bankers, unsupported by that of members of the outside public, in most cases impossible to obtain.
It is conceived, however, that on the analogy of local custom and the Stock Exchange rules, such outside evidence could be dispensed with, and this is the line apparently indicated with relation to the pass-book by the court of appeal in Vagliano's case (23 Q.B.D. at p. 245). The unquestionable right of the banker to summarily debit his customer's account with a returned cheque, even when unindorsed by the customer and taken by the banker in circumstances constituting him a transferee of the instrument, is probably referable to a custom of this nature. So is the common practice of bankers to refuse payment of a so-called "stale" cheque, that is, one presented an unreasonable time after its ostensible date; although the fact that some banks treat a cheque as stale after six months, others not till after twelve, might be held to militate against the validity of such custom, and lapse of time is not included by the Bills of Exchange Act among the matters working revocation of the banker's duty, and authority to pay his customer's cheque.
Indirectly, this particular custom obtains some support from sec. 74 (2) of the Bills of Exchange Act, although the object of that section is different.
That section does, however, import the custom of bankers into the reckoning of a reasonable time for the presentation of a cheque, and with other sections clears up any doubts which might have arisen on the common law as to the right of the holder of a cheque, whether crossed or not, to employ his banker for its collection, without imperilling his rights against prior parties in case of dishonour. On dishonour of a cheque paid in for collection, the banker is bound to give notice of dishonour. Being in the position of an agent, he may either give notice to his principal, the customer, or to the parties liable on the bill. The usual practice of bankers has always been to return the cheque to the customer, and sec. 49, subs. 6 of the Bills of Exchange Act is stated to have been passed to validate this custom. Inasmuch as it only provides for the return of the dishonoured bill or cheque to the drawer or an endorser it appears to miss the case of a cheque to bearer or become payable to bearer by blank endorsement prior to the customer's.