Alan L Tyree

Deposits by strangers

Alan L Tyree*

Abstract: Can a stranger make a deposit to another’s bank account? This note reviews the relevant law, concluding that the purported deposit is without effect unless the depositor is authorised or unless the deposit is ratified. It also considers the implications for the application of the Financial Transaction Reports Act 1988.

1  Background

Can one person make an unauthorised deposit to another’s account? In practice, the most common example is a parent or other relative making a deposit to an account. In such a case, the deposit is clearly intended as a gift and, in most cases, authority may be inferred from the circumstances or there is later ratification in the form of acceptance of the gift.

There are other circumstances where the account holder has given express consent for funds to be deposited to the account. The most obvious of these is the common practice of providing account details to employers for the purpose of direct crediting salary payments or wages.

However, it is said to be the practice of Australian banks to accept a deposit from anyone who is able to provide an account number. We are concerned here with the situation where there is no express or implied authority and no subsequent ratification.

The question has arisen in case law in two different contexts:

2  Holder paying funds to meet a cheque

A holder of a cheque presents the cheque to the drawee bank for payment. There are insufficient funds in the drawer’s account to meet the cheque. May the holder offer to pay in the difference so as to enable payment of the cheque?

The issue has been obscured because it is acknowledged that the bank may not disclose the amount of the shortfall. To do so is a clear breach of the Tournier duty. This was the issue in Foster v Bank of London (1862) 3 F & F 214; 176 ER 96 where the plaintiff succeeded in an action for breach of the duty of confidentiality.

The Institute of Bankers “Questions on Banking Practice”1 indicates that it is acceptable banking practice. However, as Ellinger [2] notes the question of the holder’s right to do so is much debated.2

Chorley [1] notes the problem with determining the amount but then continues “[a]part from this it is not clear that any authority can be implied in a banker to accept gifts on his customer’s behalf ….”3 Chorley goes on to consider special circumstances where the banker does have such authority, for example, where a solicitor may be taken to have authority to make deposits to the clients account.4

Paget [3] notes the problem but offers no comment on it.5

Chorley’s view is the obviously correct one. As noted by Holland J in Westpac v Rae [1992] 1 NZLR 338 at 338:

The law is equally clear that it will not in equity assist an officious outsider who voluntarily makes payment to another person. A benefit cannot be thrust upon another person against his wishes.

3  Rekstin’s case

The view that an unauthorised deposit to the account of a stranger is ineffective is supported by the decision, and later interpretation, of Rekstin’s case,6 a matter that the authors cited above seem not to consider: see Tyree [5] at para 27.2

Rekstin’s case is usually treated as a case on finality of payment. Rekstin was a Russian trading company which instructed its bank to transfer funds from its account to the account of the Russian trade delegation. The sole purpose of the transfer was to avoid a judgment creditor who was attempting to levy execution.

Both accounts were held at the same branch of the same bank. The bank had begun processing the transfer. However, the Court held that the transfer was incomplete.

The problem with Rekstin’s case is that it is in direct conflict with an older case, Eyles v Ellis (1827) 4 Bing 112. This conflict was considered in substantial detail by Kerr J in Momm v Barclays Bank International [1977] QB 79.

In Eyles v Ellis the plaintiff was a creditor of the defendant. Both parties kept accounts at the same bank. On a Friday, the defendant debtor instructed the banker to transfer the sum owed to the account of the plaintiff. The banker did this by making the appropriate entry in his books, even though the defendant’s account was then overdrawn. On that same day, the defendant wrote to the plaintiff to inform him that the transfer had been ordered, but the letter did not reach the plaintiff until Sunday. The court found for the defendant, observing that the plaintiff could have drawn for the sum and the banker could not have refused his draft.

It is important to notice a further feature of the case: the judgment of the court, given by Best CJ, clearly assumed that the bank had been given explicit authority to receive the money on behalf of the plaintiff. That this was indeed the case is evidenced by the fact that the transfer in question was a result of a complaint by the plaintiff that an earlier transfer had not taken place as it was supposed to have.

Kerr J held that the two cases could not both stand. After careful analysis, he concluded that the proper rule in Rekstin was one of two propositions:

The first of these begs the question in that finality of the transaction is what the court had to decide in Rekstin. It is, on its own, wrong, or at least misleading, in that subsequent cases clearly indicate that payment may be complete prior to the completion of internal accounting procedures when the bank has authority to receive the payment. Indeed, this was the case in Momm itself.

Paget [3], at p 302, indicates that the second interpretation of Rekstin is “surely the correct interpretation”, a conclusion with which I respectfully agree: see Tyree [5].

4  Summary

The result of Rekstin is that the funds were never properly credited to the Trade Delegation account irrespective of what the bank’s books might have shown. It must be remembered that the books are only evidence of the debt owed to the customer, and although the bank has an obligation to maintain accurate accounts, the mere appearance of a balance in the account books or in the statement is not binding: see Lloyds Bank Ltd v Brooks (1950) 6 LDAB 161 and British and North European Bank Ltd v Zalzstein [1927] 2 KB 92.

The customer may, of course, expressly accept the gift. Implied acceptance may be a more difficult topic. Since the customer is under no duty to scrutinize the bank statements, merely failing to question the sums cannot be said to be acceptance of the gift.

In either case, the actual addition of the sum to the account is a decision for the customer, not the unauthorised person who provides the deposit.

5  FTRA Implications

The issue is relevant to the requirements of the Financial Transaction Reports Act 1988. Section 18 of the FTRA requires a “signatory” to an account to be subject to an approved identification procedure.

Section 3 provides:

“signatory”, in relation to an account with a cash dealer, means the person, or one of the persons, on whose instructions (whether required to be in writing or not and whether required to be signed or not) the cash dealer conducts transactions in relation to the account.

A person who is authorised to deposit funds into an account is, of course, a “signatory” to the account since a deposit is obviously a transaction on the account.

Is an unauthorised person who purports to deposit funds to an account a “signatory” to the account? If the analysis of the preceding sections is correct, then the stranger cannot deposit funds to the account, but the account holder may later accept the funds.

This leads to the argument that the deposit is on the instruction of the account holder, not the person who provides the funds. If this argument is accepted, then the person who provides the funds is not a “signatory” for the purposes of the Act.

The argument must be rejected. It is similar in all respects to the discredited argument that the individual customer in a cash management trust is not a “signatory”: see Tyree [4] for a full discussion of this argument.

The better view is that the person who provides the funds is “one of the persons” who is providing instructions which, if the account holder agrees, results in a deposit to the account. In other words, the purported depositor is a “signatory”.

This means that parents and others who make deposits to accounts of “strangers” should probably be subject to the identification requirements of the FTRA. This is not a very nice conclusion, and we can suppose that AUSTRAC may continue to overlook the infraction without causing an epidemic of money laundering. Of course, any attempt to “deposit” a large sum to the account of a stranger would probably be a “suspect transaction” within the meaning of s 16 of the FTRA and would be directly reportable.


R S T Chorley. The Law of Banking, 6th ed. Sweet & Maxwell, London, 1974.
E P Ellinger and E Lomnicka. Modern Banking Law, 2nd ed. Oxford University Press, 1994.
Mark Hapgood. Paget’s Law of Banking, 11th ed. Butterworths, London, 1996.
Alan L Tyree. Cmts, ftra, etc, etc. JBFLP, 12(1):31, Mar 2001.
Alan L Tyree. Banking Law in Australia. Butterworths, Sydney, fourth edition, 2002.

Consultant, Mallesons Stephen Jaques, Sydney; formerly Landerer Professor of Information Technology and Law, University of Sydney. The views expressed are my own and do not necessarily reflect the views of any other person or organisation.
10th ed, question 417 as cited in Ellinger & Lomnicka.
At page 336
At p 71.
Reckitt v Nunburnholme (1929) 45 TLR 629.
at p 330
Rekstin v Severo Sibirsko Gosudarstvennoe Akcionernoe Obschestvo Komseverputj [1933] 1 KB 47.