''Devaynes v Noble'' (1816) 35 ER 781, best known for the claim contained in ''Clayton's case'', created a rule, or more precisely

common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipres ...

presumption, in relation to the distribution of money from a bank account. The rule is based upon the deceptively simple notion of ''first-in, first-out'' to determine the effect of payments from an account, and normally applies in English Law in the absence of evidence of any other intention. Payments are presumed to be appropriated to debts in the order in which the debts are incurred.

Facts

Mr. Clayton had an account with a banking firm, Devaynes, Dawes, Noble, and Co, that was a

partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments ...

rather than a joint stock company as modern banks almost always are. The bank's partners were therefore personally liable for the debts of the bank. One of the partners, William Devaynes, died in 1809. The amount then due to Clayton was £1,717. After Mr. Devaynes' death, Clayton made further deposits with the bank and the surviving partners paid out to Mr. Clayton more than the £1,717 on deposit at the time of Mr. Devaynes' death. The firm went bankrupt in 1810.

Judgment

Sir William Grant,

Master of the Rolls The Keeper or Master of the Rolls and Records of the Chancery of England, known as the Master of the Rolls, is the President of the Civil Division of the Court of Appeal of England and Wales and Head of Civil Justice. As a judge, the Master of ...

, held that the estate of the deceased partner was not liable to Clayton, as the payments made by the surviving partners to Clayton must be regarded as completely discharging the liability of the firm to Clayton at the time of the particular partner's death.

Significance

The ruling was based on the legal fiction that, if an account is in credit, the first sum paid in will also be the first to be drawn out and, if the account is overdrawn, the first sum paid in is allocated to the earliest debit on the account which caused the account to be overdrawn. It is generally applicable in cases of running accounts between two parties, e.g., a banker and a customer, moneys being paid in and withdrawn from time to time from the account, without any specific indication as to which payment out was in respect of which payment in. In such case, when final accounts, which may run over several years, are made up, debits and credits will be set off against one another in order of their dates, leaving only a final balance to be recovered from the debtor by the creditor. The rule is only a presumption, and can be displaced. The rule is one of convenience and may be displaced by circumstances or by agreement. In '' Commerzbank Aktiengesellschaft v IMB Morgan plc and others''

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EWHC 2771 (Ch), the court elected to not apply the rule on the fact of the case (sums held in bank accounts derived from victims of Nigerian

advance fee fraud An advance-fee scam is a form of fraud and is one of the most common types of confidence tricks. The scam typically involves promising the victim a significant share of a large sum of money, in return for a small up-front payment, which the frau ...

s). Notwithstanding the criticisms sometimes levelled against it, and despite its antiquity, the rule is commonly applied in relation to tracing claims where a fraudster has commingled unlawfully obtained funds from various sources.

Exception to the rule

The rule does not apply to payments made by a

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for examp ...

out of an account which contains a mixture of

trust funds A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...

and the fiduciary's personal money. In such a case, if the

trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...

misappropriates any moneys belonging to the

trust Trust often refers to: * Trust (social science), confidence in or dependence on a person or quality It may also refer to: Business and law * Trust law, a body of law under which one person holds property for the benefit of another * Trust (bus ...

, the first amount so withdrawn by him will not be allocated to the discharge of his funds held on trust but towards the discharge of his own personal deposits, even if such deposits were in fact made later in order of time. In such cases, the fiduciary is presumed to spend their own money first before misappropriating money from the trust; see '' Re Hallett's Estate'' (1879) 13 Ch D 696. The rule is founded on the principles of equity. If a fiduciary has mixed his or her own money with sums of trust money in a private account, withdrawals are attributed to his or her own money as far as possible, '' Re MacDonald''

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Qd R 255. However, if the funds of two

beneficiaries A beneficiary (also, in trust law, '' cestui que use'') in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example, the beneficiary of a life insurance policy is the perso ...

, or of a beneficiary and an innocent volunteer, are mixed the rule determines their respective entitlements, ''

Re Diplock ''Re Diplock'' or ''Ministry of Health v Simpson'' 951AC 251 is an English trusts law and unjust enrichment case, concerning tracing and an action for money had and received. Facts Various charities, including the Royal Sailors Orphans Girls� ...

''.

948 Year 948 ( CMXLVIII) was a leap year starting on Saturday (link will display the full calendar) of the Julian calendar. Events By place Byzantine Empire * Arab–Byzantine War: Hamdanid forces under Sayf al-Dawla raid into Asia Minor ...

Ch 465, 547-548

Applications to a partnership

The rule has special application in relation to

s upon the death of a partner. In most jurisdictions, the death of a partner ordinarily has the legal effect of

dissolution Dissolution may refer to: Arts and entertainment Books * ''Dissolution'' (''Forgotten Realms'' novel), a 2002 fantasy novel by Richard Lee Byers * ''Dissolution'' (Sansom novel), a 2003 historical novel by C. J. Sansom Music * Dissolution, in mu ...

. The partners'

personal representative In common law jurisdictions, a personal representative or legal personal representative is a person appointed by a court to administer the estate of another person. If the estate being administered is that of a deceased person, the personal repres ...

s have no right to step into the partner's shoes; they cannot take part in its management; they can only claim the deceased partner's share in the assets of the firm. The banker, who provides financial accommodation to the firm, can have no objection in continuing the account; the bank can presume that the surviving partners will account to the representatives of the deceased for his share in the assets. Where the firm has a debit balance, the account should be stopped to fix the liability of the estate of the deceased partner and to avoid the operation of the rule in ''Clayton's case''.

References

{{Reflist, 2 * Encyclopaedic Australian Legal Dictionary Bank regulation

Clayton's Case ''Devaynes v Noble'' (1816) 35 ER 781, best known for the claim contained in ''Clayton's case'', created a rule, or more precisely common law presumption, in relation to the distribution of money from a bank account. The rule is based upon the d ...