Banker customer relationship banking law and practice

banker customer relationship banking law and practice

As such, the relationship existing between banker and customer cannot be . 1 L . Afolabi, Law and Practice of Banking, (Heinemann Educational Books Nig Plc. The practice followed by banks in the past was that for opening account there has However, the personal relationship between the bank and its customers is the long . principle in the law governing the relationship of banker and customer. Banking Law and Practice from the Hong Kong Institute of Bankers outlines and explains Chapter 1: Contractual Relationships in Law and Practice Conduct of Accounts for Various Customers · Definition of Different Types of Authorities.

Banking is a trust-based relationship.

banker customer relationship banking law and practice

There are numerous kinds of relationship between the bank and the customer. The relationship between a banker and a customer depends on the type of transaction. Thus the relationship is based on contract, and on certain terms and conditions. These relationships confer certain rights and obligations both on the part of the banker and on the customer.

However, the personal relationship between the bank and its customers is the long lasting relationship. Some banks even say that they have generation-to-generation banking relationship with their customers.

The banker customer relationship is fiducial relationship. The terms and conditions governing the relationship is not be leaked by the banker to a third party. The relationship between a bank and its customers can be broadly categorized in to General Relationship and Special Relationship. Thus the relationship arising out of these two main activities are known as General Relationship. In addition to these two activities banks also undertake other activities mentioned in Sec.

Relationship arising out of the activities mentioned in Sec.

Banking Law and Practice

When a 'customer' opens an account with a bank, he fills in and signs the account opening form. When customer deposits money in his account the bank becomes a debtor of the customer and customer a creditor. The bank is not bound to inform the depositor the manner of utilization of funds deposited by him. Bank does not give any security to the depositor i. The bank has borrowed money and it is only when the depositor demands, banker pays. Banker does not pay money on its own, as banker is not required to repay the debt voluntarily.

The demand is to be made at the branch where the account exists and in a proper manner and during working days and working hours. The debtor has to follow the terms and conditions of bank said to have been mentioned in the account opening form. In fact the terms and conditions are mentioned in the passbook, which is issued to the customer only after the account has been opened. This practice has since been discontinued.

For convenience and information of prospective customers a few banks have uploaded the account opening form, terms and conditions for opening account, rate charge in respect of various services provided by the bank etc.

Lending money is the most important activities of a bank. The resources mobilized by banks are utilized for lending operations. Customer who borrows money from bank owns money to the bank.

The relationship in the first case when a person deposits money with the bank reverses when he borrows money from the bank.


Borrower executes documents and offer security to the bank before utilizing the credit facility. Depending upon the type of services rendered and the nature of transaction, the banker acts as a bailee, trustee, principal, agent, lessor, custodian etc. Bank as a Trustee: In case of trust banker customer relationship is a special contract.

When a person entrusts valuable items with another person with an intention that such items would be returned on demand to the keeper the relationship becomes of a trustee and trustier. Customers keep certain valuables or securities with the bank for safekeeping or deposits certain money for a specific purpose Escrow accounts the banker in such cases acts as a trustee. Banks charge fee for safekeeping valuables 2.

A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

banker customer relationship banking law and practice

The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee". Banks secure their advances by obtaining tangible securities.

In some cases physical possession of securities goods Pledgevaluables, bonds etc. While taking physical possession of securities the bank becomes bailee and the customer bailor. Banks also keeps articles, valuables, securities etc. 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.

banker customer relationship banking law and practice

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.

banker customer relationship banking law and practice

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.

banker customer relationship banking law and practice

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.

Banker Customer Relationship for SBI clerk 2018

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. Bank of England 17 CB ; Jones v. Gordon [] 2 AC ; Baker v.

Barclays Bank [] 1 WLR The bank would be deemed to have acted without negligence where it has acted reasonably. See for instance, Karak Rubber Co. Bank of Ceylon 59 NLR Midland Bank [] 2 All ER Apart from the legal requirement, the banking practice also jealously guards confidentiality of the customer accounts. National Provincial and Union Bank of England. See also, Tournier v. The duty remains even after the closure of the account and the termination of the bank-customer relationship.

National Provincial and Union Bank of England [] 1 KBitself identified that the duty is not absolute and recognized certain exceptions to the duty. Accordingly, a fiduciary duty could arise; 1. When the bank provides investment advice or financial advice to the customer,74 2.

When the customer pledges an asset or signs a guarantee to secure the debt of another customer,75and 3. When the bank acts as an agent or trustee for the customer. Hooley, Modern Banking Law 4 th ed Oxford: Oxford University Press, ; J. Blair ed Banks, Liability and Risk 3rd ed. Morgan [] 3 All ER 8. A fiduciary duty shall arise only under very special circumstances, such as where relations of special proximity between the parties exit, where the customer places his trust and confidence in the bank and relies on its advice [Barclays Bank plc v.

Banking & Insurance

Hooley, Modern Banking Law 4th ed Oxford: Martins Bank [] 1 QB Oxford University Press, at Bundy [] QB 76 J. LLP at p. The termination of the bank-customer relationship could be done by either party, i. Weerasooria82 submit that even in the case of debit accounts reasonable notice ought to be given. This view seems to be sensible and therefore should be accepted, since it accords with the rationale of imposing such a duty on the bank.

London and Midland Bank Ltd. Holden, The Law and Practice of Banking, 5th ed. Pitman, at p. Circumstances reveal that the State also has an important stake in regulating the bank-customer relationship. In such situations the State acts as a surrogate for the customers and compels banks to meet standards purportedly in the interest of the customers.

Though these regulations may vary with the type of the customer, the underlying objective is to broaden the scope of challenging the conduct of banks in performance of their duties.

Further, certain contractual terms, such as exclusion clauses and variation clauses, incorporated into contracts between the bank and the customer, more often disfavour the interests of the customers. Goode, Consumer Credit Legislation London: Variation clauses are employed to vary the existing terms in the contract. If the document does not appear to be contractual or, though it appears to be contractual if the customer is affected by fraud, misrepresentation, undue influence and unconscionability, then, the customer would not be bound by it.