DEBTOR-CREDITOR RELATIONSHIP

Banker
1. According to Walter Leaf, a banker is "a person or corporation which receives from the
public deposits payable on demand or by cheque."

⚫ Bills of Exchange Act, 1882, a banker is defined as "a person or a body of persons
incorporated or not, carrying on the business of banking."
⚫ According to Section 3 of the Negotiable Instruments Act, 1881, "Banker includes any
person acting as a Banker and any post office saving bank."
⚫ Section 5(b) of the Banking Regulation Act, 1949 defines "Banking" as the accepting, for
the purpose of lending or investment, of deposits withdrawable by cheque, draft, order,
or otherwise.

Customer
There is no strict statutory definition of a "customer" in banking law; instead, the concept
depends largely on interpretations by authorities on banking law and court judgments.
1. Dr. Herbert L. Hart- for a person to be considered a customer of a bank, there must be a
recognizable habit of transactions that align with regular banking activities. To classify
someone as a customer, certain conditions must be met:
⚫ The individual must have some form of an account with the bank.
⚫ There must be an identifiable course or pattern of dealing between the individual and the
bank.
⚫ The transactions must be related to standard banking services, such as deposits,
withdrawals, or cheque payments.

Banker-Customer relationship
The banker-customer relationship is fundamentally trust-based, relying on the type of
transaction and specific terms and conditions. This fiduciary relationship, built on faith,
involves certain rights and obligations for both parties. It begins with a legal agreement
formed through the customer's proposal to open an account and the banker's acceptance,
establishing an implied contract. Each transaction thereafter solidifies the relationship, with
benefits and obligations reflecting the contractual terms. Unlike a mere depository, a banker is
permitted to use deposited funds to earn profit, provided they return the equivalent sum
according to the agreed terms. Confidentiality is crucial, and the terms governing this
relationship must not be disclosed to third parties.

⚫ The fundamental relationship between a banker and a customer is that of a debtor and
creditor. When a customer deposits money into a bank, that money legally becomes the
property of the bank. This principle was established in the case of Foley v. Hill (1848),
where Sir John Paget explained that the money deposited is not kept separately but
becomes a debt owed by the bank to the customer.
⚫ The banker, therefore, is a debtor who must repay an equivalent sum when requested by
the customer, typically through withdrawals, cheques, or other agreed means. The bank
does not need to return the exact notes or coins that were deposited but only the amount.
⚫ The debtor-creditor relationship can change based on the state of the customer's account.
If a customer overdraws their account, taking out more money than they have deposited,
the bank becomes the creditor, and the customer becomes the debtor.
⚫ When loans or overdrafts are secured by tangible assets, the banker's status evolves to
that of a secured creditor.

Shanti Prasad Jain v. Diwan Sugnachand (1964):

In this case, the Supreme Court of India held that the bank has the freedom to use the money
for its operations, investments, or lending, as long as it can honor the customer’s withdrawal
requests.
Characteristics
1. Initiation of the Relationship:
The relationship between a bank and its customer begins when the customer voluntarily
deposits money with the bank. Unlike an ordinary debtor-creditor relationship where the
debtor seeks out the creditor for a loan, the bank does not actively approach the customer for
deposits. This relationship is formed without any coercion or obligation from the bank, with
the customer willingly entrusting their funds to the bank.

2. Payment of Debt:
In a typical debtor-creditor scenario, the debtor must repay the debt by a set date or upon the
creditor’s demand. However, in a bank-customer relationship, the bank is not required to keep
the exact amount of deposited money on hand. The bank is only obliged to repay when a
formal demand is made by the customer, allowing the bank to use the funds for other
purposes in the meantime.

Joachimson v. Swiss Bank Corporation (1921) established that a formal demand from the
customer is a prerequisite for the bank’s obligation to return the money. This decision
reinforced the idea that a banking debt differs from a standard commercial debt, where
repayment can occur without a demand.

3. Location of Repayment:
Ordinary debt can be repaid at any mutually agreed location, but in banking, repayment is
typically bound to the branch where the customer’s account is held unless there are special
arrangements. This geographic restriction ensures that banking transactions follow specific
protocols tied to the customer's branch.

In Clare & Co. v. Dresdner Bank (1915), it was decided that a bank’s obligation to repay is
limited to the branch where the account exists unless otherwise agreed. This case underscored
the importance of the location in the banker-customer relationship, which is not a factor in
ordinary commercial debts.

4. Time Restrictions:
In an ordinary debt relationship, repayment can occur at any time. However, for a bank-
customer debt, repayment must occur during specified banking hours set by statutory
regulations. This adds a time-bound dimension to the bank's obligation, distinct from other
types of debts.

In Arab Bank v. Barclays Bank (1954), the court confirmed that a bank is only liable to honor
cheques presented within official banking hours. This case illustrated the temporal limitations
inherent in the bank-customer relationship, unlike standard debtor-creditor situations.

5. Mode of Withdrawal:
In a regular debt scenario, withdrawals can be requested informally or verbally. However, in
banking, withdrawals must be formally requested through instruments like cheques or
withdrawal slips. This formality distinguishes the nature of banking debts from ordinary debts.

6. Security and Privilege:

An ordinary debtor might offer security to their creditor for a loan, while a bank does not
provide security for deposits. Instead, the bank enjoys the privilege of using deposited funds
for profit while maintaining an obligation to repay on demand, making it a "privileged
debtor."

7. Limitation Act Exemptions:

Ordinary debts are subject to the Limitation Act, requiring repayment within three years of
the due date. In contrast, banking debts do not adhere to this timeline; the limitation period
begins only when the customer makes a formal demand, granting the bank more flexibility in
managing deposits.

Under Article 22 of the Indian Limitation Act, the timeline for repayment in banking debts is
calculated from the date a demand is issued by the customer, not from the date of the original
deposit.

8. Partial vs. Full Claims:

Customers typically withdraw only part of their deposits based on immediate needs, whereas
ordinary creditors usually seek full repayment of a debt at once. This ongoing partial
withdrawal system is unique to the bank-customer relationship and does not apply to general
debtor-creditor situations.

9. Immediate Repayment:
An ordinary debtor might delay repayment or negotiate terms, whereas banks are expected to
honor withdrawal requests promptly, reflecting the obligation to meet customer demands
without delay.

10. Account Closure:

Ordinary debtors can end the relationship with their creditor by repaying the loan in full. In
contrast, a bank cannot close a customer’s account without their consent, maintaining a
fiduciary responsibility towards the customer.

11. Right to Combine Accounts:

Banks have the legal right to combine or "set-off" different accounts of the same customer to
settle debts, a right not available to an ordinary debtor. This helps banks manage the risks
associated with multiple accounts of the same customer.

12. Interest Rates:

Banks offer lower, more regulated interest rates influenced by government policies, while
interest rates on ordinary commercial debts are higher, driven by market forces and associated
risks. This stability in bank interest rates attracts depositors seeking security over potential
profit.

BANKER’S RIGHT TO SET OFF

The relationship between a banker and a customer is founded on mutual rights and duties,
established when the customer opens an account. This relationship imposes several
responsibilities on both parties. The banker has obligations to honor the customer's
instructions, maintain confidentiality, and manage the customer's funds responsibly. On the
other hand, customers have duties such as providing accurate information, maintaining a
minimum balance, and adhering to the bank's terms. Rights and duties can be modified or
superseded by agreement, and customers can exercise their rights, including withdrawing
funds and accessing banking services, in accordance with the bank's policies.

RIGHT OF SET-OFF IN BANKING

The right of set-off is a legal right that allows a creditor, such as a bank, to offset a debtor’s
obligation with any corresponding claim the creditor has against the debtor. In banking, this
means that if a customer maintains multiple accounts with a bank, the bank can combine
those accounts to determine the net obligation if one account is in debit and another in credit.
This right is crucial for banks as it allows them to minimize the risk of unpaid debts and
facilitates the efficient recovery of funds owed. Unless an explicit agreement restricts it, the
right of set-off is automatically available to the banker.
Case: Halesowen Presswork and Assemblies Ltd. v. Westminster Bank Ltd. (1970)
The court held that a bank does have the right to combine such accounts unless there's a
specific agreement to keep them separate. This case established the precedent that bankers
can use the right of set-off at their discretion, helping them manage the financial risks
associated with customer defaults, provided no contractual limitations exist.

Subject Matter of Set-Off

The right of set-off is specifically applicable to debts or credit balances in a customer's bank
account. If a customer has accounts that are in debt and credit, the bank can consolidate them
to determine the net balance owed. However, this right does not extend to securities such as
shares, bonds, or similar instruments, which are covered under the right of lien instead. For
instance, if a customer owes Rs. 5,000 on an overdraft but has Rs. 2,000 in a savings account,
the bank can apply the set-off right and require the remaining balance of Rs. 3,000 only.

Conditions Necessary for Exercising Set-Off

⚫ The accounts must be held in the same name and capacity. A bank cannot combine
accounts held in a personal capacity with those held in a fiduciary or representative
capacity.
⚫ he right of set-off only applies to debts that are currently due and not to future or
contingent debts.
⚫ The debt must be certain and not contingent.
⚫ Before exercising the right of set-off, a banker should formally notify the customer. This
ensures transparency and fairness in the banking relationship.
⚫ If a specific agreement exists that limits or excludes the right of set-off, the bank must
comply with it.

Automatic Right of Set-Off

⚫ Death, Insolvency, or Mental Incapacity of the customer.
⚫ Liquidation of a Company, triggering automatic set-off rights.
⚫ Garnishee Orders: The bank can exercise its right of set-off before a garnishee order
becomes effective, thereby protecting its financial interests.
⚫ Notification of Second Mortgage: If a second mortgage is created over security held by
the bank, the bank may use its right of set-off.

Case: Thakur Prasad Chaudari v. Official Liquidator, Benares Bank Ltd. (1941)
The court ruled that although the law of limitation restricts the ability to file a lawsuit, it does
not eliminate the debt itself. Thus, the bank retains the right to set-off for time-barred debts.
This ruling emphasized that the right to set-off is independent of limitations set by the legal
system, underscoring that it can still be exercised even if legal avenues for recovery are
closed.

Right of Set-Off in Fiduciary Accounts

⚫ Accounts in Personal and Firm's Name: If a customer holds accounts both in a personal
name and a firm's name, those accounts may be considered in the same right, permitting
the bank to exercise set-off.
⚫ Solicitors and Advocates: Money held by solicitors or advocates in 'clients' accounts'
does not belong to them personally. Consequently, the bank cannot exercise set-off
against these accounts to recover debts that are personal to the solicitor or advocate.
⚫ Partners in a Firm: When partners have individual accounts and a joint account with the
firm at the same bank, the bank cannot set-off the firm's debt against the partners'
personal accounts unless the partners are jointly and severally liable for the firm’s debt.
⚫ Guardians for Minors: An account held by a guardian for a minor is not treated in the
same right as the guardian’s personal account.
⚫ Executors, Administrators, or Trustees: Accounts maintained by an individual as an
executor, administrator, or trustee are distinct from their personal accounts. Therefore,
 the bank does not have the right to set-off the credit balance of such fiduciary accounts
against the individual's personal overdraft.

Set-Off in Joint Accounts

In situations involving joint accounts, the principle that joint obligations cannot be set-off
against individual claims holds unless a specific arrangement is made. For example, if two
individuals jointly owe a debt, the bank cannot claim funds from an individual account unless
both parties are equally liable. This underscores the separation between individual and joint
liabilities in banking practices.

Set-Off in Fixed Deposit Accounts

Banks are entitled to set-off a fixed deposit against dues on a loan account. Fixed deposit
receipts represent claims the bank can enforce through set-off rather than a lien. In garnishee
proceedings, where third-party debt claims are made, banks can claim set-off rights for fixed
deposits to settle outstanding liabilities.

Set-Off in the Context of Guarantees

Set-off cannot be applied to contingent liabilities, such as guarantees, until they are due. Once
a guarantor's liability becomes concrete—usually upon the default of the principal debtor—
the bank can exercise set-off rights.

Set-Off Against Time-Barred Debt

Banks can still exercise set-off for debts that are time-barred. The law of limitation only
eliminates the legal remedy (such as filing a suit) but does not void the debt itself. Thus, even
if a debt cannot be legally enforced due to time constraints, a bank can still set-off a time-
barred debt if the customer maintains sufficient funds.

Set-Off in Case of Specific Purpose Deposits

If funds are earmarked for a specific purpose—like covering a particular payment or meeting
an obligation—the bank cannot apply those funds to unrelated debts. This limitation preserves
the intended use of funds and prevents misallocation, even when a bank has outstanding
claims against the customer.

BANKER’S RIGHT OF GENERAL LIEN

A lien is a legal right that allows a creditor to retain possession of a debtor's property until the
debtor fulfills their obligations. In the context of banking, it enables banks to hold onto goods,
securities, or other assets belonging to their customers until debts are satisfied. A lien can
arise without any special agreement, either written or oral, but certain conditions must be
fulfilled for it to be valid.

Conditions for a Valid Lien

⚫ The creditor must be in possession of the goods or securities.
⚫ The possession must be acquired in the ordinary course of business.
⚫ The owner of the goods must have a lawful debt owed to the creditor.
⚫ There must be no express or implied contract contradicting the right to retain possession.

Kinds of Lien
(a) Specific or Particular Lien: A specific lien allows the holder to retain goods related to a
specific debt. It applies to one transaction or a particular set of transactions. For instance, a
watch-repairer has a lien over a watch until the owner pays the repair charges. According to
Section 170 of the Indian Contract Act, 1872, if a bailee provides a service that involves skill
or labor regarding goods, they have the right to retain those goods until they receive payment
for their services. For example, if a customer delivers a diamond to a jeweler for cutting and
polishing, the jeweler can retain the diamond until they are paid for the services rendered.

(b) General Lien: A general lien allows the holder to retain all goods or property in their
possession until all claims against the owner are satisfied. This type of lien is broader than a
particular lien and covers all transactions, not just specific ones.

Nature
The right of a banker to exercise a general lien is governed by Section 171 of the Indian
Contract Act, 1872. This section states that bankers, as well as other specified professionals
like factors and policy brokers, may retain goods bailed to them as security for a general
balance of account unless there is an express contract to the contrary.

Conditions for Lien:

⚫ The goods or securities must have been given to the banker as a bailment.
⚫ The banker must hold these goods in their capacity as a banker (qua banker).
⚫ Incidents of Banker's General Lien:

A banker has a lien on:

⚫ Bills of exchange or cheques deposited for collection or pending discount.
⚫ Securities deposited to secure a specific loan but left after the loan is repaid.
⚫ Securities, whether negotiable or not, which the banker has purchased or taken up at the
request of the customer.

Features
⚫ Right of General Lien: The banker possesses the right of general lien on all goods and
securities entrusted to them in their capacity as a banker.

⚫ Applicability: The right of lien can only be exercised on goods or other securities
standing solely in the name of the borrower. If a customer does not own certain
properties and these are passed to the banker, the banker cannot extend the general lien
over such properties.

⚫ Post-Loan Securities: The banker can exercise the right of lien on securities that remain
in their possession even after the loan for which they were lodged is repaid by the
customer, provided no contract states otherwise.

⚫ The right of banker is entrusted with the Indian Contract Act, 1872.

⚫ Absence of Express Contract: A general lien can be enforced only in the absence of an
express contract to the contrary. For instance, in Krishna Kishore Kar v. United
Commercial Bank, the court held that since there was an express contract via a counter
guarantee detailing reimbursement methods, the bank could not claim a general lien as
per Section 171 of the Indian Contract Act, which stipulates that the general lien applies
only when no express contract exists.

⚫ Mutual Demand Requirement: General lien can be enforced if a mutual demand exists
between the banker and the customer.

⚫ Creation of Right of Lien: No specific agreement or contract is required to create the

right of lien since it is conferred upon the banker by Section 171 of the Indian Contract
Act. However, it is prudent for the banker to obtain a letter from the customer stating that
the goods are entrusted as security for an existing or future loan to ensure clarity and
protection of interests.
⚫ Implied Pledge Nature: A banker's general lien is considered an implied pledge. Unlike
ordinary liens, which merely allow retention of possession, a banker's lien also includes
the right to sell the pledged items to recover debts.

⚫ Negative Lien: In some cases, customers may deposit securities with the banker,
allowing them to hold these securities until the loan is repaid. This type of lien is referred
to as a "negative lien" or "non-possessory lien."

Exceptions
⚫ No General Lien on Safe Custody Deposits:
Securities or valuables deposited for safe custody are not subject to a general lien. In Cuthbert
v. Roberts, the court emphasized that when banks hold items merely for safekeeping, they do
not retain any lien over those items. This means that if a customer deposits jewelry or
important documents in a bank’s safe deposit box, the bank cannot use those items to satisfy
any unrelated debts owed by the customer.

⚫ No Lien on Securities or Documents for Specific Purpose:

If goods are deposited with a specific purpose in mind (for example, for a particular loan or
transaction), the banker cannot exercise a lien over them. The rationale is that the customer
has entrusted these items for a defined purpose, and exercising a lien would violate the terms
of that trust.

⚫ No Lien on Articles Left by Mistake or Negligence:

When items are inadvertently left with the bank (for example, if a customer forgets their
laptop), the bank cannot assert a lien over these items. The bank's lien requires the existence
of a proper bailment relationship, which is not present in cases of accidental deposits.

⚫ No Lien on Deposits:
A banker does not have a lien on deposits made by a customer against debts due from the
same customer. This means that funds deposited in a bank account cannot be used to offset
debts owed to the bank unless there is an express agreement permitting this action.

⚫ No Lien on Stolen Bonds:

If a banker possesses stolen property and the true owner claims it before the bank has sold the
property, the bank cannot exercise a lien over it. This is rooted in the principle that a thief
cannot confer good title, meaning that the bank does not have a rightful claim to retain stolen
goods.

⚫ No Lien Until Due Date of Loan:

A lien does not come into effect until the due date of the loan. This is based on the
understanding that no debt is considered "due" until that specified date. Therefore, the banker
cannot claim a lien before the loan's due date.

⚫ No Lien in Respect of Trust Accounts:

If a banker is unaware that the securities in their possession do not belong to the customer (i.e.,
they were deposited in a trust account), their right to a general lien remains unaffected.
However, the bank may not have the right to retain those assets if they become aware of the
true ownership.

⚫ No Lien on Title Deeds of Immovable Properties:

A banker cannot exercise a lien over title deeds relating to immovable properties (like land or
buildings). Instead, the bank may pursue civil proceedings to recover any debts due, meaning
they would have to take legal action rather than retaining the title deeds.

⚫ No Lien on Balance in Deposit Account of a Partner:

In a partnership context, a banker cannot exercise a lien on a partner’s account concerning
debts owed by the firm. This is because a partner's account is separate from the firm's
obligations, and the bank cannot unilaterally decide to offset the partner's personal account
against the firm's debts.

Cases
⚫ Chettinad Mercantile Bank Ltd. v. PL.A. Pichammai Achi (AIR 1945)
In this case, it was held that a banker has the right to keep possession of items delivered to
them if and as long as, the customer to whom the items belonged or who had the power to
dispose of them when delivered, is indebted to the banker. This right persists provided the
banker has obtained possession under circumstances that do not imply an agreement to waive
this right.

⚫ City Union Bank Ltd. v. Thangarajan (2003)

This case established that a bank has the right of a general lien concerning all securities of a
customer, including negotiable instruments and fixed deposits, but only to the extent of the
customer’s liability. If the bank fails to return the balance amount to the customer and the
customer suffers a loss, the bank is liable to pay damages. The court emphasised that invoking
a lien by a bank requires interdependency between the bank and the customer. Detaining the
customer’s properties beyond the total liability is unauthorised and can attract damages
against the bank.

⚫ Brando v. Barnett (1846)

In Brando v. Barnett, a bank held goods that Barnett had given as security for a loan. When
Barnett couldn’t repay, the bank sold those goods to recover the money owed. The court
supported the bank, stating it had the right to not only keep the goods but also sell them to get
back the debt. This case established that banks have an "implied pledge," meaning they can
sell assets given as security without needing a specific agreement if the borrower defaults.

⚫ Krishna Kishore Kar v. United Commercial Bank

In this case, Krishna Kishore Kar had a specific contract with United Commercial Bank
detailing how the bank could get its money back. When the bank tried to use a general lien to
keep Krishna’s assets, the court decided that the written agreement between them was more
important. This meant that a general lien doesn’t apply if there’s a clear contract that says
otherwise, following Section 171 of the Indian Contract Act.

⚫ Brahmaiya v. K.P. Thangavelu Nadar

In Brahmaiya v. K.P. Thangavelu Nadar, Brahmaiya had given the bank securities as
collateral for a loan. Even after repaying the loan, the bank tried to hold onto other securities
not linked to the original debt. The court ruled against the bank, saying that the lien only
applied to assets directly tied to the specific loan. The bank couldn’t hold onto unrelated
assets after the main loan was settled.

CLAYTON’S RULE

Introduction
The concept of appropriation of payments is significant in banking transactions, especially
when a customer owes multiple debts to a banker but makes a payment insufficient to cover
all the debts. This raises the question of which debt should be reduced or settled. In England,
the foundation of this concept was laid in the Rule in Clayton's Case, which has been
influential in shaping both English and Indian banking law. The principle is specifically
relevant to current accounts with no specific appropriation of payments by the customer or the
bank, guiding the chronological application of credits and debits.
Clayton’s Case
The Rule in Clayton’s Case was established in the early 19th century in Devaynes v. Noble,
commonly known as Clayton's Case. The central principle is that in a running account, where
no specific appropriation is made by either the debtor or creditor, payments are applied in
chronological order: the first payment in will discharge the earliest debt.

Devaynes v. Noble (1816), also known as Clayton’s Case.

In Clayton’s Case, as payments were made into the account, they were presumed to settle
debts in the same chronological order they were incurred. The principle, as articulated by Sir
William Grant M.R., reflects the practical and straightforward approach that "the first sum
paid in is the first sum drawn out," which is commonly applied in the case of current accounts
where there is no specific directive on how payments should be appropriated.

The case involved a partnership firm where one partner, Devaynes, died leaving an ongoing
current account. The surviving partners continued to operate the account without closing or
separating the previous transactions. A creditor, Clayton, sought to claim repayment from the
deceased partner’s estate, arguing that the balance at the time of the partner's death should be
covered by the estate.

Key Arguments by Clayton:

⚫ The amount existing at the time of Devaynes' death should be the estate’s liability.
⚫ Withdrawals made post-Devaynes' death were from funds deposited after his demise.
⚫ Since the firm was solvent at the time of Devaynes' death, his estate should cover the
debts.

The court rejected Clayton’s arguments, ruling that the appropriations follow the
chronological order of credits and debits in the account. As the balance had been altered after
Devaynes' death due to ongoing transactions, the earlier debts were deemed to have been
settled first, thereby limiting the estate's liability.

Conditions for the Application of the Rule in Clayton's Case

⚫ Continuing Current Account: The account must still be active. If a new and separate
account is opened, the rule does not apply to the old account.
⚫ Absence of Contradictory Agreement: There must be no specific agreement between the
debtor and creditor on a different method of appropriation.

Related Case Laws

1. Croft v. Lumley (1858):
This case emphasized that a debtor has the right to specify which debt a payment should
cover. If the creditor does not agree with the payer’s allocation, they must refuse the payment;
otherwise, they are bound to follow the payer's instructions.

2. Dealy v. Lloyd Bank Ltd. (1912):

This case reinforced the rule that, without specific directions from the payer, payments should
be applied to debts in the order they were incurred, starting with the oldest. This is in line
with the chronological principle established in Clayton's case.

3. Royal Bank of Scotland v. Christie:

In this case, Clayton’s rule was applied, showing that payments in a running account without
specific instructions should be used to pay off the earliest debts first, following a first-in, first-
out order.

Exceptions
⚫ Multiple Separate Transactions: When multiple distinct transactions exist, the rule does
not operate in the same way.
⚫ Trust Money Exception: If an account contains both trust funds and personal funds,
withdrawals are attributed first to personal funds and only afterward to trust funds. The
reverse applies to deposits.
⚫ Contracting Out of the Rule: In Westminster Bank v. Cond, the court ruled that if the
intention of the parties was to bypass the chronological order, the rule would not apply.

Special Considerations
(a) Death or Insolvency of a Partner/Joint Account Holder
Upon the death or insolvency of a partner, the firm’s account should be closed, and any
liabilities up to that point are settled using Clayton’s rule. Continuing the same account
without closure implies that the deceased or insolvent partner's estate remains liable only up
to the time of their death or insolvency.
(b) Determination of a Guarantee
As per Section 130 of the Indian Contract Act, a continuing guarantee can be revoked by
notifying the bank. If not terminated, Clayton’s rule may reduce the guarantor’s liabilities
over time, depending on the order of credits and debits.

Notice of Second Charge

In cases involving second charges, it is essential to maintain proper documentation. Any
subsequent credits into an account, if not properly appropriated or if the account continues
without segregation, could fall under the Clayton’s rule.