I. ESTABLISHING THE RELATIONSHIP
In the normal course of business, when a customer deposits money in the bank, and the bank accepts such money, a legally binding contractual relationship is established. The transaction is essentially an unsecured loan of the depositor to the bank. The bank assumes the role of “debtor” and title of the money passes to the bank subject to the unsecured creditor claims of the depositor. Rights and duties of the depositor and the bank arise out of a contractual relationship, either written or oral or both. The signature card is generally the contract and is a legally binding agreement which controls the relationship. The rules of the bank may be properly made a part of the contract either by incorporation or reference. Some banks utilize a deposit account agreement while others employ a “bare-boned” signature card to establish the terms of the relationship.
NOTE: The deposit account relationship should be distinguished from relationships wherein the bank may be deemed an “agent,” a “bailee,” or a “trustee.”
A. “Agent”
For example, the deposit of checks or other monetary instruments which are payable by someone other than the depository bank. UCC §§ 4-104(1)(g), 4-105(d) and 4-201(1) provides essentially that the depositor remains owner of the instrument while being collected and that a collecting bank assumes the role of agent. The collection bank’s credit is provisional and subject to reversal. When the bank does receive final payment, the creditor-debtor legal relationship comes into existence.
B. “Bailee”
For example, a customer places securities or personal property in the bank for safekeeping. Title of the property remains in customer and bank is to exercise duty of ordinary care. See, “Safe Deposit Boxes” article Volume II, Nondeposit Products section of the NBA Compliance Handbook, for when the placing of property is not a bailor-bailee relationship but a lease (with limitations on bank liability).
C. “Trustee”
For example, trust activities of the bank, trustee under a trust deed, revocable trust, etc. as trustee, bank has a fiduciary duty to other parties involved in the trust instrument. The bank, as trustee, holds title to the trust property but must account to the beneficiary among other duties of care.
II. TERMINATING THE RELATIONSHIP
Either the bank or the depositor may end the relationship created by a deposit account. As a rule, the bank ends the relationship with notification and any balance due to the depositor. In turn, the depositor gives notice and receives any balance due on a deposit account with the bank. Without notification, the relationship continues. Even in the case of an overdraft, the relationship does not terminate (such is regarded as an “unauthorized loan of the bank”) unless notice is given. The terms of deposit agreements may vary these general rules so long as not unconscionable or an exercise of bad faith.