1942 Present: Soertsz and Keuneman JJ.

POPE v. ABDULLA.

93-D. C. Colombo, 2,605.

Bank-Payment of money to Bank-Undials issued to persons living in place.

where the Bank has other' branches-Bank in liquidation-Rights of Depositor.

A merchant, who has to pay money to persons living in towns in India in which a Bank has branches, pays to the Colombo Branch a cheque covering the amount to be paid, giving at the same time the names of the payees and the -amount to be paid.

Thereafter, the Colombo Branch issued to the payee a draft or undial addressed to the branch concerned, ordering it to pay on demand, to the party named or order, the sum indicated.

Held, that, on the failure of the Bank, the merchant was entitled to preferential treatment in respect of the sums deposited in connection with the drafts.

APPEAL from an order of the District Judge of Colombo.

H. V. Perera, K.C. (with him V. A. Kandiah), for petitioners, appellants.

N. K. Choksy for respondent.

Cur. adv. vult.

February 17, 1942. KEUNEMAN J.

The petitioners are creditors of the Colombo Branch of the Bank in question, now in liquidation. They claim preferential payment in respect of various moneys alleged to have been entrusted to the Bank, in connection with certain drafts or uncials and also telegraphic transfers.. Admittedly the amounts in question were not paid on presentment at the proper places, viz., the branch offices of the Bank in various parts of India. The Bank suspended payment shortly after the issue of these drafts or undials.

The point to be decided depends upon the nature of these transactions.. The law has been correctly stated by the District Judge, and may be shortly set out as follows. If r person pays money into a Bank and nothing further happens, the money is regarded as the money of the Bank, with the obligation superadded that the Bank will meet cheques presented to it up to that amount. The relationship created is that of ordinary debtor and creditor. The position, however, is different where the Bank received money in trust, or in a fiduciary capacity, such as an agent or bailee, as a result of directions which set out a particular purpose for which the money is given. In this case, the money does not become the money of the Bank to use as, it pleases, but is earmarked for the particular purpose, and should not be mixed with the ordinary funds of the Bank. The right of the person who gives the money to, the' Bank to follow this money in the event of the insolvency of the Bank need not be gone into in this case, but that right is well-established-see  In re Hallett's Estate, In re Knatchbull v. Hallett [(1879) 13 Ch. D. 696.] and subsequent cases. The only question argued in this case is whether the moneys in question were received by the Bank in a fiduciary capacity.

The procedure followed in the present case is as follows merchant, having obligations to pay individuals living in towns in India, where the Bank has branches, sends particulars to the Colombo Branch, giving the place of payment, the name of the payee, and the amount to be paid. With this, the merchant sends to the respondent a cheque covering the amount to be paid, and the commission charged by the respondent in the. present case the cheque given in payment was not drawn on the respondent Bank, but on other Banks. Upon receipt of the money the Colombo Branch immediately makes an entry in its books, debiting itself and crediting the branches concerned. Thereupon, Colombo issues to the payee a draft or undial, addressed to the branch concerned, ordering it to pay, on demand, to the party named by the payee or order, the sum indicated. The witness, George, who was himself an accountant under this Bank, and familiar with the practice, added: "When we issue a draft to the party it shows that the money has left this branch. So that it is no longer here but in the Madras books as money received." The mo