Devaynes V Noble - Significance

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applicable in cases of running accounts between two parties, e.g., a banker and a customer, moneys being paid in and withdrawn from time to time from the account, without any specific indication as to which payment out was in respect of which payment in.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 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 EWHC 2771 (Ch) the court elected to not to apply the rule on the fact of the case (sums held in bank accounts derived from victims of Nigerian advance fee frauds).

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.