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Thanks for your thoughts. Indeed taking a contractual approach seems sound. It could be implied that at the point when the bank makes the advance, there arises immediately a contractual debt to be repaid by the proceeds of the cheques in due course. Also in Laws v United Missouri Bank, UMB described the growing negative collected funds balance as 'an interest free loan'.

But UMB testified that 'we were lending money and the loan was not approved.' This, in my view, excludes any implied contract. The practical effect of making advances against uncollected cheque deposits is indeed a loan; but it remains that there is no contract to extend any credit.

Furthermore, when UMB concluded that the growing negative collected funds balance was unacceptable, it gave the debtor two options, ie eliminating the negative balance or paying interest on it. The debtor chose the former by transferring $4m to UMB. The court held that if the debtor agreed to pay interest on the negative balance, that balance would from that point onward carry many indicia of a loan. The court also said that 'had the debtor and UMB explicitly agreed to convert future negative balances into loans, the debtor would have been legally bound to pay such debts as incurred'. All this therefore shows that there could be no implied contract. The bank did not view it as a loan when they made the advances. They only became concerned when the negative balance drew rapidly.

So if there was a debt, what triggered it?

Look

On Wed, 13 Oct 1999, Eoin O' Dell wrote:

In your RDG message, you raised the question whether

advances a bank makes available against uncollected cheque deposits create a debt owed by the depositor to the bank ?

Why is there in such a situation not a debt arising out of the contractual relationship between the parties ? If there had been an express overdraft facility, there would have been express term governing the depositor's duties to repay the bank. I would have thought that, by analogy here, a duty to repay the bank would easily satisfy any test of implication of terms into a contract by reference to the parties' actual or presumed intentions. And that duty would be a debt arising from contract. On an event/response approach, the debt is triggered by the event of consent.