L.R. The Banker-Customer Relationship: Perspectives on Nigerian Banking Law. B. Definitional Problems: "Banker" and "Customer"6. "Bank" is a term so. The relationship between banker and customer is mainly that of a debtor and creditor. Now-a-days, banks allow e-banking, ATM, mobile-banking, etc. attorney, executor, correspondent or representative of a customer. The general legal relationship of bank and customer is contractual by customer in the known circumstances of its business and banking.
Cranston, Principles of Banking Law, 2nd ed. Oxford University Press, at pp. Sir John Paget observes4: Basically the relationship is that of a mandator the customer and mandatory the bankbut it is nonetheless a relationship which embraces mutual duties and obligations.
It is a relationship peculiar to banking, giving rise to a contract between the two parties. It has been judicially held that a person may become a customer by entering into a contract with the bank by way of opening some sort of account.
Thus, in Woods v. LexisNexis Butterworths, at p. Institute of Bankers of Sri Lanka, at p. Bank-Customer Relationship The relationship of bank and customer is one of contract. Unless contractually bound, banks are generally free to decide whether they will provide particular services to their customers or not. The general contracts between banks and their customers would hardly incorporate all the terms in writing, whereas special contracts may commonly incorporate 7 Foley v.
Hill 2 HL Cas Oxford University Press, at p. Moreover, it would be impracticable to reduce all the terms agreed between the bank and the customer to writing.
Above all, there may be implied terms in the bank-customer contracts, which are peculiar to the banking practice, so that they cannot be displaced without affecting business efficacy. Duties of the Bank The classic exposition of the nature of the bank-customer relationship in Joachimson v. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them.
The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer, except upon reasonable notice.
The customer on his part undertakes to exercise reasonable care in exercising his written orders as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such a contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept.
Butterworths, at p. However, this duty is subject to certain conditions aimed at realities of banking practice and business efficacy. It is an implied term in the contract between the bank and its customer that the bank is not liable to repay the customer until demand is made for repayment. Until then, there is no presently due debt owed by the bank to the customer. Although, an oral demand would be technically sufficient to be termed as a valid demand, the normal practice adopted by banks is to consider a cheque or passbook as a demand, apart from the e- banking and mobile-banking methods.
However, as seen in the present context, banks may contract with its customers so as to enable the customers to withdraw money or make demand for repayment from any branch of the bank. In such circumstances, there would be an added obligation created on the banks to conform to what they have contracted with their customers.
Banker-Customer Relationship Explained in Detail
The bank-customer relationship had been historically held as essentially a debtor- creditor relationship. Even, in the decision of Foley v. Hill, 18 where it was National Provincial Bank Ltd. Lord Justice Bankes reached the same decision as Lord Justice Atkin, whilst adhering to the notion of implied superadded obligations. This would mean repaying by the bank to its customers directly after the customers had deposited the money into their respective accounts. It would also be unrealistic to permit customers, like ordinary creditors, to demand repayment of the deposits from their banks, at any time and any place.
Lord Justice Bankes observed in Joachimson v. When the bank acts outside the authority conferred by the mandate, effects of such acts will not be binding on the customer and therefore, bank alone would be liable for any loss incurred thereby. There should be no legal impediments to the payment of the cheques.
The cheque is also required to be drawn in proper form. Hulls 10 VLR L Weerasooria37 sums up the two courses of action seem to be open to the bank in this context; that is, either dishonor the cheque for want of funds or exercise discretion to grant the customer a temporary overdraft, since drawing of a cheque when funds are insufficient to meet it is equivalent to asking the bank for an overdraft 38 Another important concern for banks is the order of payment of cheques.
Duckworth LR 4 Ex ; Joachimson v. Bank of London 3 F The bank must either pay or refuse the payment by dishonour. The death of the customer terminates the authority given by the customer to the bank and would terminate the bank-customer relationship by operation of law.
It also operates as an automatic countermand of any outstanding cheques. See also, Westminster Bank Ltd. Hilton 43 TLR Punjab National Bank Ltd. See also, Freeman v. Standard Bank of South Africa Ltd.
A request by the bank to re-present the cheque amounts to dishonour and the bank would be liable if the dishonour is wrongful.
Vagliano Bros  AC at Bank of New South Wales  Knox However, the Ordinance is silent on what amounts to countermand and, who is entitled to countermand. Clear, unambiguous, unequivocal and unmistakable instructions of the customer to the bank to stop payment are the prerequisites of an effective countermand. Collecting bank is the bank which collects cheques and receives the payment for the said cheques from the paying bank on behalf of its customer. The first standard [i. It is also essential that the bank should be informed of the countermand properly.
Institute of Bankers of Sri Lanka, at pp. The creditor must make the demand for payment in a proper manner.
Banker Customer Relationship
The demand must be in form of cheques; withdrawal slips, or pay order. Now-a-days, banks allow e-banking, ATM, mobile-banking, etc. Relationship of Pledger and Pledgee The relationship between customer and banker can be that of Pledger and Pledgee.
This happens when customer pledges promises certain assets or security with the bank in order to get a loan. In this case, the customer becomes the Pledger, and the bank becomes the Pledgee. Under this agreement, the assets or security will remain with the bank until a customer repays the loan. Relationship of Licensor and Licensee The relationship between banker and customer can be that of a Licensor and Licensee.
This happens when the banker gives a sale deposit locker to the customer. So, the banker will become the Licensor, and the customer will become the Licensee. Relationship of Bailor and Bailee The relationship between banker and customer can be that of Bailor and Bailee.
Bailment is a contract for delivering goods by one party to another to be held in trust for a specific period and returned when the purpose is ended. Bailor is the party that delivers property to another.
Bailee is the party to whom the property is delivered. So, when a customer gives a sealed box to the bank for safe keeping, the customer became the bailor, and the bank became the bailee. Relationship of Hypothecator and Hypothecatee The relationship between customer and banker can be that of Hypothecator and Hypotheatee.
This happens when the customer hypothecates pledges certain movable or non-movable property or assets with the banker in order to get a loan. In this case, the customer became the Hypothecator, and the Banker became the Hypothecatee. Relationship of Trustee and Beneficiary A trustee holds property for the beneficiary, and the profit earned from this property belongs to the beneficiary. If the customer deposits securities or valuables with the banker for safe custody, banker becomes a trustee of his customer.
The customer is the beneficiary so the ownership remains with the customer. Relationship of Agent and Principal The banker acts as an agent of the customer principal by providing the following agency services: Buying and selling securities on his behalf, Collection of cheques, dividends, bills or promissory notes on his behalf, and Acting as a trustee, attorney, executor, correspondent or representative of a customer.
Banker as an agent performs many other functions such as payment of insurance premium, electricity and gas bills, handling tax problems, etc. Relationship of Advisor and Client When a customer invests in securities, the banker acts as an advisor. The advice can be given officially or unofficially. While giving advice the banker has to take maximum care and caution.
Here, the banker is an Advisor, and the customer is a Client.