AMITY LAW SCHOOL-II

BANKING LAW
PROJECT
RELATIONSHIP BETWEEN BANKER AND
CUSTOMER
MADE BY ABHISHEK SHARMA B.A.LLB
7TH SEMESTER SECTION A
ENROL NO- A11911113010
 TABLE OF CONTENT

S.NO CONTENT PAGE NO

1. INTRODUCTION 3

2. DUTIES AND RIGHTS OF BANKER AND 4-7

CUSTOMER

3. RELATIONSHIP BETWEEN BANKER AND 7-11

CUSTOMER AND ITS CLASSIFICATION

4. TERMINATION OF THE RELATIONSHIP 11-12

BETWWEN BANKER AND CUSTOMER

5. BIBLIOGRAPHY 13

6. PLAGIARISM REPORTRS
INTRODUCTION:-
It is easy the relationship-based banker-customer, nature & definitions & the rights and duties of
both the banker and customer. It must also highlight the responsibilities in case of violation of
rights. It should also discuss the law of cases that have been decided on the banker client
relationship as well as the formation of bank client relationship in this case.

Definitions and nature:

Banker is a person exercising on the banks receiving funds or instruments, which represents
money on current accounts, cheques drawn on this issue honors and collects the proceeds of the
cheques that his client has placed in his hands for the collections.
Article 5 of the Banking Act, 2012

Customer is a person who has voluntarily opened an account in a bank in his name. When a
person deposits money or checks to the Bank, it is considered a contract with the Bank. In the
case of Ladbroke v.Todd (1914) ruled that a person is a customer as soon as the Bank agrees to
open an account and a single transaction is sufficient to establish a client-banker relationship; a
customer is a person seeking investment advice, even if that person does not have such an
account. Article 63 (1) (e) of the Banking Act, 2012 . Once the Bank is committed to providing
investment advice to a person that person is a customer if he has an account or not. And what a
customer is a person who seeks services for custody or custody of their Articles with the Bank.

The banker-customer relationship is contractual. In the case of Foley v. Hill (1848) case HL 2
28, the Court held that the relationship between the Bank and the customer is that of the debtor
and the creditor and the banker is a general obligation to pay cheques drawn by the client, if
there is a credit balance in the account of the customer.

The banker is regarded as an agent of the customer, having the authority to pay cheques from
article 5 of the law on the Agency, 2008. A banker has the obligation to keep the deposits of
money by the customer and reimburses to the true owner upon request. Article 63 (1) (i) of the
Banking Act, 2012.

The banker-customer relationship is a contractual relationship which is governed by the General

rules of the contract, the agency rule and rules of banking practice has evolved in a conventional
way, which are recognized and applied by the courts and supposed to have strength of customary
law, it is held in Intercom services Ltd and 4 others v Standard Chartered Bank [2002] KLR
(High Court civil case No. 761, 1988) has decided under article 3, paragraph 2, of the law on
cheques of Kenya (Cap.35)
The banker-customer relationship is also based in their rights and duties:

Duties of the banker to customer;

1. Duty of custody,

Any bank accepting customer deposits is the duty of a good care of it. If the bank allows that
deposits of themselves to fly, he will be responsible for the breach of contract. Article 63 (1)
(i) of the Banking Act, 2012.

2. Duty to honour cheques

The Bank should not refuse to make a payment which a customer has up to the limit of his
credit balance. The Bank will be liable to the client for defamation if by his refusal not
justified to pay the client's reputation is damaged. The Bank may refuse to pay the client, if
there is insufficient balance in the account of the client, or when the cheques is defective in
some way or there is a legal ban on payments. Damages are awarded for fact illicit cheque
dishonoured by the Bank.

3. Duty to not pay without authorization.

The Bank is expected to make only a payment when authorized by the customer, but must
not make a payment to any person who is not authorized by the customer and if the Bank
does any payment to a third party without permission of the customer, the Bank will refund
that amount to the customer even if the third party used fraud or false documents to deceive
the Bank.

In Lazarus Masayi Onjalla v Kenya Commercial Bank Ltd. (call Civil No. 259 of 2001) the
Court of Appeal ordered the Bank to pay to the appellant the amount of money he had taken
from his account to a third party.

4. Bound to respect the countermands to the customer.

A revocation withdraw the authorisation which had been given. We often stop the check.
only the shooter of the cheque has power of countermands payment of a cheque after that that
it was made or to order that all payments to the account must stop.

It may happen that the licensee or subsequent holder of a cheque which is down or is stolen
by the Transvaal may communicate with the drawee bank which requires that the payment be
rejected. If the incompatible client check by phone the Bank is justified of deferred payment
waiting for written confirmation that it will normally require.
5. Obligation to act on the advice of death.

Death of a client revokes the duty and administration to pay when the Bank has
knowledge of it. This notice must be a reliable report example relatives or news paper. A
bank must require a death certificate or a report of deaths in double.

6. Duty to tell customers of the false documents.

The banker has a duty to inform the customer of the false documents. This obligation
flows from the obligation of not paying without authorization. A false mandate is no
mandate. The Bank must indicate to the customer because of the risk that the other fraud
can be conducted against him. Falsification of check can be the date change, the details of
the recipient or the customer signature.

In the case of Bullion Bank Limited v Fulchanmanck and brothers, the Court held that,
that the cheques in question were fakes, the appellant had no authority or mandate of the
respondent to pay the amount of the cheques in the cheque.

7. Obligation to inform the customer of the status of his account.

There is an implied condition that a customer is entitled to receive a statement of his

account at a certain agreed period especially when the customer requests to know the
status of his account.
It is important to know the legal status of a bank statement regarding a customer reliance
thereon. A customer is not obliged to watch his bank statement as if money was stolen
from his account previously without knowledge of the customer, he can always claim to
it.

When a bank or a client detects an error, you need is often done without dispute. Article
93, paragraph 1, of the Banking Act, 2012. If a bank is in error during the investigation,
it can be stopped to recover the funds paid into this account where the customer relied on
the bank statement and change her situation. An instance would be where the Bank too
credits the account of the customer and the customer in good faith is inspired by this
balance.

8. Duty to collect the checks.

The Bank should collect the cheques according to crossings and within a reasonable time and
a bank cannot refuse any deposit from the customer as long as the account is active, and these
deposits is not at the expense of legal transactions. Article 63 1 a of the Act Bank, 2012
9. Obligation of competence and care.

Too bad for the real owner the opportunity was held in Intercom Services Ltd and 4 others v
standard Chartered bank [2002] 2 ch. 391 A person who provides services for example a
banker has a duty to do so with care of skill.

10. Duty of confidentiality.

The Bank has its customers an implied duty not to disclose their information to a third party;
It must maintain the Affairs of secret of the customer unless under the constraint of the Act.
In Tournier / National Provincial Bank and Union of England Ltd [1924] , he found that
the Bank was liable for breach of the contract ant the applicant was entitled to substantial
damages against the Bank for disclosure of the status of his account and its operations to
third parties. Article 62 of the Banking Act 2012.

Functions of a client when dealing with the Bank:

1. Have to be careful when you draw cheques.
The customer must ensure that it draws cheques in a manner that does not facilitate fraud. A
client should not issue blank cheques or fill out a check pencil or empty sheets on the cheque
that can be filled out fraudulently. The customer must take these precautions in the drawing
of cheques in order to prevent others from fraud on the cheques drawn by the customer.

In London Joint Stock Bank Ltd v Arthur and Macmillan [1918] AC 777 All ER Rep 30

A dishonest clerk submitted to his employer for signing a cheque to the bearer on which 20
were inserted in form of number but while the space was left for another figure in front of
him and no amount in words at all. After the check was signed, the clerk altered 20 and
120 and inserted the amount of words and got the payment. The employers refused the right
to charge the full 1200 to their bank account.

Held: The employer was obliged to take the usual precautions against alterations and failed
in this duty. The Bank has the right to charge the full 120 on behalf of.

2. Obligation to tell the Bank of known forgeries.

If a client knows that the cheques had been forged and didn't tell the Bank, then it stops for
prosecution against the Bank for breach of mandate to grant only upon authorization. When a
bad check has been paid, the Bank can usually debit payment on behalf of the client.
When the forgery is discovered, the flow must be reversed by a credit in the account. He
must notify the Bank as soon as possible to allow the Bank to protect themselves. If the
 customer does not do and the bank suffers harm as a result, the customer can be prevented
from denying to the Bank that his counterfeit signature is authentic.

Greenwood v. Martins Bank Ltd [1933] where the husband found the wife drew his account
through signature check and failed to report it to the Bank and later the wife committed
suicide and the husband claimed 410 paid to the wife of counterfeit cheques. It was
considered that, by its non-disclosure, the husband represented to the Bank that the
counterfeit cheques were authentic, and he ceased to deny that they have been signed by him.

The banker-customer relationship is that of a:

Debtor and creditor whereby a banker is a debtor and a creditor is a client, does not happen after
the customer has opened an account and make deposits first.

The banker-customer relationship is that of Rowen and pledgee. This happens when the customer
agrees to some assets committed to pawn in order to get a loan. Here, the customer becomes
Rowen and becomes creditor pledgee.

The banker-customer relationship is that of the licensor and the licensee. This happens when the
banker gives a record of deposit sale to the customer. The banker will become a donor of license
and the customer will become the owner. Article 15 of the Banking Act, 2012 .

The banker-customer relationship is that of the depositor and the custodian. When a customer
gives a box attached to the Bank to provide care, the customer becomes the depositor and the
Bank becomes the custodian. It can also be that of hypothecator and hypothecatee, trustee and
beneficiary, Agent and principal adviser and a Client. Section 5 of the Act of the Agent, 2008

Classification of the relationship:

The relationship between a Bank and its customers can be classified into general relationship and
special reports. If we look at s 5 b of the law on banking regulation, we notice that bank revolves
around accepting deposits for the purpose of lending business. Thus, the relationships that result
from these two main activities are known as general relationship.

In addition to these two banks are committed also to all activities mentioned in Sec.6 of Banking
Regulation Act relationship arising from the activities referred to in the Act Sec.6 is called
special relationship.
General relationship:

1. Debtor-creditor: when a 'client' opens an account with a Bank, complete and sign the
account opening form. By signing the form, he concluded an agreement/contract with the Bank.
What customer cash deposits in his bank account becomes a debtor of the customer and the
customer a creditor. Money so deposited by the client becomes property of the Bank and the
Bank has the right to use the money as they wish.

The Bank is not obliged to inform the applicant of the way of using funds deposited by him. The
Bank does not give any security to the applicant either debtor. The Bank has borrowed money
and it is only when the applicant application, banker payer. The Bank's position is very different
from the normal receivable.

Banker pays no money on its own, as banker is not required to repay the debt voluntarily. The
request must be made at the branch where the account exists and in an appropriate manner and
during working days and hours of work.

The debtor must follow the conditions of Bank said to have been mentioned in the account
opening form. {If the conditions are not mentioned in the account opening form, but the account
opening form contains a statement that the conditions have been read and understood or
explained.} Indeed conditions are mentioned in the booklet, which is issued to the client until the
account has been opened.}

In the past when opening account, some banks have the practice of giving a leaflet printed
containing the terms and conditions of the account and the account opening form. This practice
has since been abandoned. Convenience and information to potential customers, some banks
have transferred the account opening form and how to open an account, charge rate for various
services offered by the Bank, etc., on their web site.
All by issuing demand draft, Mail / wire transfer, the Bank becomes a debtor is the owner of
money to the recipient / beneficiary.

2 Creditor-Debtor:

loan money is the most important activities of a bank. The resources mobilized by the banks are
used for lending operations. Customer who borrows money from the Bank is the owner of the
money in the Bank. In the case of any account in advance or loan, the banker is the creditor and
the client's debtor.

The relationship in the first case, when a person deposits money with the Bank reverse when it
borrows money from the Bank. Borrower running documents and the security of supply to the
Bank prior to the use of the credit facility.

In addition to the opening of a deposit/loan banks account provide various services, that makes
the broader and more complex relationship. Depending on the type of services rendered and the
nature of the transaction, the banker acts as a custodian, trustee, principal, agent, landlord,
custodian etc.
Special relationship:

1. Bank as trustee: according to 3 of the of Indian Trust Act, 1882' a 'trust' is an

obligation annexed to the ownership of property and arising from a trust was based in and
accepted by the owner, or declared and accepted by him, for the benefit of another, or
another and the owner.
"The trustee holds property on behalf of a beneficiary.
As per 15 sec. of the ' law of trust on the Indians, 1882 "a trustee is bound to deal with
ownership of trust as carefully as an ordinary prudent person would deal with such
property if it was hers; and, in the absence of a contract to the contrary, a trustee so case
is not responsible for the loss, destruction or damage to the trust property. "A trustee is
entitled to the reimbursement of expenses (Sec.32 of Indian Trust Act.).
In the case of trust relationship customer banker is a special contract.

When a person entrusts valuable items with another person with the intention that these
items would be returned on request to the custodian the relationship becomes a trustee
and trustier. Customers keep some objects of value or securities with the Bank for more
than security or deposit some money for a specific purpose (blocked accounts of
guarantee), the banker in this case acts as the trustee. Banks fees for valuables in safes

2. Depositary - Bailor: Sec.148 contract Act, 1872, defines "Yawn" "applicant" and
"custodian". A "deposit" is the delivery of goods by one person to another to achieve a
purpose, a contract that they, when the goal is reached, returned or
If not eliminated in accordance with the instructions of the person delivering.
The person who gives the goods is called the 'applicant '. The person to whom they
are delivered is called, the "custodian".

Banks secure their advances in obtaining tangible securities. In physical possession of

some cases of securities property (collateral), valuables, bonds, etc., are taken. While
taking possession of securities, the Bank becomes trustee and the applicant customer.
Banks also keeps items, valuables, etc, its customers under guard and acts as a custodian
of securities. As a depositary bank is required to take care of the goods released on bail.

3. Landlord and Tenant: Sec.105 of ' transfer of property Act 1882 "sets the lease, lessor,
tenant, premium and rent.". " In accordance with the section "a contract of lease of real
estate is an assignment of a right to enjoy these goods, made for some time, express or
implied, or in perpetuity, for a price paid or promised, or silver, a part of cultures, service
 or anything else of value, to make periodically or at times specified in the transferor by
the transferee who accepts the transfer on these terms."

Definition of lessor, lessee, premium and rental:

(1) the assignor is called the lessor,
(2) the transferee is called the lessee,
(3) the price is called the premium, and
(4) money, sharing, service or anything else to be made is called rent.

Providing safe lockers, it's like an auxiliary service provided by banks to customers.
While installation of safe Vault/trap their customers bank enters into an agreement with
the customer. The agreement is known as the 'Memorandum of leave' and attract stamp
duty.

The relationship between the Bank and the customer is the one of the landlord and the
tenant. Rental (rental of lockers at their clients) banks their estate to the customer and
give them the right to enjoy these goods during the specified period, i.e. during the office
/ store hours and rental costs.

The Bank has the right to trenching of the record in the case where the holder of record
default of rent payments. Banks assume no responsibility or liability for damage to the
content stored in the locker. The banks do not provide the content kept in lockers by
customers.

4. Agent and the principal: Sec.182 of ' The contract relating to wild Bill, 1872 "sets"an
agent"as a person to perform one act for another or to represent another towards third
persons.". " The person for whom this Act is made or who is represented is called 'the
principal'.

Thus an agent is a person who acts for and on behalf of the entity security and under
express this last or implicit authority and acts in this authority are binds his principal and
the principal is responsible for the acts of the agent to the group.

Banks collect the cheques, invoices and payment made to various authorities Viz, rent,
phone, premium insurance bills, etc., on behalf of customers. . Banks also respects the
permanent instructions of its clients. In all cases the Bank acts as an agent for his client
and the fees for these services. According to the Indian contract Act agent entitled to
charges. No fees are collected in the collection of the cheques the through "clearing
house". Only when the cheque is returned in the rights information center are perceived
in.
5. As a keeper: A guardian is a person who acts as a guardian of something. Banks take
legal responsibility for the securities of a customer. At the opening, a dmat account bank
becomes a guard.

6. Bail: banks give guarantee on behalf of their clients and enter in their shoes. Guaranteed
is a potential contract. According to the sec 31, of the Indian contract Act guaranteed is a
"contingent" contract Potential is a contract to do or not do something, if certain events,
collateral to the contract, or is not the case.

It would be therefore observed that banker customer relationship is a transactional

relationship.

Termination of the relationship between a banker and a customer:

The relationship between a Bank and a client ends the:

a death, insolvency, insanity of the customer.
(b) the customer closing the account i.e. voluntary interruption
(c) the liquidation of the company
(d) the closing of the account by the Bank after giving due notice.
(e) the completion of the contract or the target operation

Where the terms of a contract become impossible to perform due to circumstances not in
the contemplation of the parties, the contract is said to have been frustrated. This may
also apply in a banker/customer contractual relationship.

In the case of Diamond Bank vs. Ogochukwu (2008) 1 NWLR (Part 11067), incidences
which may frustrate a contract where listed to include:

where the subject matter of the contract has been frustrated or is no longer available;
due to death or incapacity of a party to a contract;
where the contract has become illegal to perform as a result of a new legislation;
where there is a outbreak of war; or
where the commercial purpose of the contract has failed.

A banker/customer relationship may also be terminated. This maybe by:

The mutual agreement of both parties.

The customer by closing his account.
The bank with reasonable notice to the customer; what constitutes reasonable notice
depends on the character of the account and the special facts and circumstances of each
case.
 The Operation of Law is important this could be as a direct consequence of the:

death of the customer the estate of the deceased could however have access to the
account upon display of the certificate of death and other relevant documents.
mental incapacity of the customer the legally appointed trustees may however access to
his/her account on his behalf.
bankruptcy (individual) or insolvency/winding up (company) of the customer the
trustees in bankruptcy would be the ones to proceed in this instance; a new may be
relationship may be formed between the bank and the trustee in bankruptcy or the
liquidator.
insolvency of the bank - where the bank is itself is declared bankrupt.
order of court e.g. a garnishee order for the amount in the account to be paid in favour
of a judgement creditor, a freeze order, a writ of sequestration issued against a customer
held in contempt, etc.
 BIBLIOGRAPHY

1. Academia
2. Tax Dose
3. Indian kanoon
4. Google

References:-
1. Banking law Avtar Singh