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--------------- Print Magazine --------------
  May 2016
  April 2016
FIFO Method to determine the effects of Payment from a Bank Account (Claytons Case)

Devaynes v. Noble , (1816) 1 Mer 572

The so-called C laytons case was turning point in legal fiction in that, when there is credit balance in a Bank Account, the first amount deposited shall be withdrawn in first instance out of it, and if the account is overdrawn (BOD), then the payment shall be allocated to the first debit into the account that caused the account to be withdrawn.

In this case, Clayton who had an account in a Bank, in which Devaynes was one of the partners thereof, died. Meanwhile Clayton withdrew more than that of the available balance in his account so he created a position of overdraft in Bank. Subsequently he deposited further amount, after repaying the amount of overdraft. Meanwhile Devaynes died but the banking business was not dissolved and after some years the Bank was adjudged Bankrupt.

At such juncture of time Clayton sought to withdraw the money from his account but it was denied for the reason of declaration of bankruptcy. The issue went to a court and Clayton claimed the amount from the properties of the deceased partner, Devaynes. The Court gave the ruling that the first credit in an account would be adjusted towards the first debit in the account and so on. Further in case of partnership, on death of one partner, credit made by a customer in his account would become the liability of the remaining partners, and could not be repaid out of the estate of the deceased partner.

This principle of first in first out (FIFO) followed by the Court in England 1816 is still in operation in the whole world. This case applies in cases of running account of a customer in a Bank where the amount is paid and withdrawn from time to time from the account without any indication that which payment respects to which payment. In closing of such accounts the debits and credits are set off against one another corresponding to their dates, leaving only final balance to be recovered from the debtor to the creditor.

This rule does not apply to any Trust Account because there is possibility of commission of breach of trust by mixing up the personal funds of the trustee with the Trust Fund in utilizing Trust Fund for his personal expenses.

Generally the courts follow this rule in case of insolvency, bankruptcy, death of partner in a partnership firm and death of the customer of a Bank.

Communication of acceptance not necessary for a contract when the conduct manifests an intention to contract

Carlil v. Carbolic Smoke Ball Company , (1893) IQB 256 (CA)

In the words of Justice Lindley, "one who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waives notification of acceptance, if his purpose is to sell as much product as possible.

In such case, the Carbolic Smoke Ball Company was determined to cure influenza. It produced a Smoke Ball as a rubber ball with an attached tube. It had been filled with carbonic acid with a direction that the tube was to be inserted into the user's nose and be squeezed to release the vapours into the user's nose thereby causing the nose to run and flush out the viral infection.

For such product, the company published advertisement in a Newspaper, Pall Mall Gazette in London on 13th November 1891 with a bet that it would pay 100 pounds (the then a great reward) who could get sick with the disease of influenza after using its product, following the directions as per advertisement in Pall Mall Gazette. And the company deposited 1000 pounds in the Alliance Bank, London showing its sincerity in its commitment.

Ms. Louisa Elizabeth Carlil went through the advertisement and used the balls for about three months till she contracted influenza on 17 th January, 1892. Ms. Lousia Elizabeth Carlil claimed 100 pounds from the Carbolic Smoke Ball Company where such company ignored the letters from her husband who was a reputed Solicitor. On the 3 rd letter, company replied that if it would be used properly, the company had complete confidence in the Smoke Balls' cureness and efficiency and requested her to come to the company office in order to be protected from the fraud, to use the ball each day and be checked by the Secretary regularly. But Ms. Carlil filed a suit in the Court claiming that the advertisement of Smoke Ball and its reliability was a complete contract between her and the Smoke Ball Company and so the company must pay. The company argued that it was not a valid contract as an advertisement was a mere invitation to offer.

The company lost at first instance in a Queen's Bench and appealed in the Court of Appeal and this Court also rejected the company's appeal with the observations viz:

1. The advertisement was a unilateral offer to the world at large.

2. The satisfying conditions for using the Smoke Ball constituted acceptance of the offer.

3. The purchasing and using the Ball constituted good consideration, as it was a distinct detriment incurred at the behest of the company and, furthermore, more people buying Smoke Balls by relying on the advertisement was a clear benefit to company.

4. The company's depositing of 1000 pounds in the Alliance Bank showed its serious intention to be legally bound.

This case was based only on the notification of acceptance. As was observed "The person who makes the offer shows by his language and the nature of the transaction that he does not expect and does not require notice of acceptance apart from notice of performance." Hence, Ms. Louisa Elizabeth Carlil received 100 pounds from the company by the order and direction of the Court of Appeal. This case is frequently discussed in such type of contract cases before the various courts as an introductory contract and is the first legal case on Contract for the world of judiciary where Justice Lindley was the judge along with two other judges.



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