The Banker/Customer Relationship I Flashcards
What are the two main types of banking customer?
Personal & Business
What types of business customer are there?
- Sole traders
- Partnerships
- Limited companies
- Other e.g. clubs, associations, governments etc.
What law pertains to partnerships?
- Limited Partnership Act 1907
- Limited Liability Partnerships Act 2000
- Limited Liability Partnerships Regulations 2001
What is a banker-customer relationship?
What are the basic principles?
In essence a banker-customer relationship is a contractual one based in common law.
The basic principles are:
- A contract imposes legally binding rights and duties (or obligations) on both parties
- The obligations/duties on one party confer corresponding rights to the other
- Non-fulfillment of these obligations/duties may result in civil action being brought by the aggreived party
When is the banker-customer relationship deemed to begin with regard to:
a. An account holder
b. Any other banking service
a. As soon as the bank opens an account for someone with the intention that the relationship is permanent. In Great Western Railway Co v London and County Bank Co Ltd 1901 it was held that the cashing of cheques over a long period of time for a person who had no account with the bank did not make him a customer
b. As soon as the bank agrees to provide that service for example advice on investments in Woods v Martins Bank 1959
What case provides the foundations of the implied banker and customer duties?
Joachimson v Swiss Bank Corp 1921
According to Joachimson v Swiss Bank Corp 1921, what are the bankers duties?
- To receive money and collect cheques for the customer’s account
- To pay customers’ cheques on demand provided that:
- adequate funds/appropriate borrowing arrangements are available
- it’s drawn in the proper form
- payment is demanded at the proper place and during business hours (Baines v National Provincial Bank Ltd)
- There is no legal or other impediment preventing the banker making payment
- To act in good faith and w/o negligence in refusing to pay a cheque (Davidson V Barclays Bank Ltd 1940)
- To maintain secrecy regarding all the customer affairs
- To advise the customer of any forgery of their signature (Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd 1985)
- To give reasonable notice before closing a credit account so that the customer can make other arrangements and have outstanding cheques cleared without damage to their rep
- To provide banker’s opinions when requested
According to Joachimson v Swiss Bank Corp 1921, what are the customer’s duties?
- To exercise resonable care in drawing cheques. Cheques drawn carelessly may facilitate fraud or forgery and mislead the bank (London Joint Stock Bank v Macmillan & Arthur 1918)
- To advise the bank of any forgery of his signature, otherwise they may subsequently be barred from denying the validity of the signature (Greenwood v Martins Bank Ltd 1933)
- To pay charges
- To ensuree there’re sufficient funds in the account, or a suitable overdraft arranged in advance
What are the bankers rights?
What are the customer’s rights?
(as the relationship is contractual, bankers duties (Joachimson v Swiss Bank Corp 1921) confer rights to customer and vice versa)
- The right to charge a reasonable commission for their services. The banker has an implied right to charge a commission for keeping the customer’s account and for other banking services. Bank charges may be imposed on certain current account holders as outlined in the Terms & Conditions of the account.
- The right to interest; e.g. on loans. The banker has no implied right to charge interest on money borrowed by a customer - this is normally decided by express agreement or implied from the usual course of dealings between the banker and customer.
- The right to set off; where a customer has 2 accounts, one in credit and one in debit, the banker can, unless otherwise agreed, set off or combine accounts, thus reducing the amount which the customer owes him or vice versa.
- The right to return unpaid any cheque which would create an unauthorised overdraft or any cheque which would exceed an agreed overdraft limit.
Customer’s rights aren’t specified but it doesn’t seem unreasonable for the customer to expect the bank to abide by its duties.
What case concerns the bank’s duty of confidentiality?
When is disclosure acceptable?
Tournier v National Provincial and Union Bank England 1924
Exceptions are:
-
Under compulsion by law:
- Disclosure under compulsion of a Court Order
- Disclosure to an official who is statutorily entitled to compel disclosure
- Disclosure where there is an onus on the bank to disclose info
- If there is a duty to the public to disclose: e.g. during wartime, if a customer’s transactions helped the enemy, e.g. to combat money laundering.
- With express or implied consent of the customer: This authority should be made in writing e.g. to furnish an accountant with banking details to fill out tax.
- If the interests of the bank require disclosure: Where there is court action between the bank and its customer some disclosure about the customer’s affairs will be necessary. Were this no the case, then any court action against a defaulting customer would fail as the bank would not be able to explain its position to the court.
What is the banker’s lien?
The right implied by law to retain some moveable property belonging to another until some debt due has been paid.
- Special lien: entitles the holder of an article to retain it until payment of the debt which relates to that property e.g. keep a boat that’s been repaired until payment is made.
- General lien: entitles the holder of an article to retain it until some general balance due arising from a series of transactions has been paid, not just the debt to which the property relates.
- Lien of a banker: the banker has a general lien over negotiable instruments (bills, cheques etc.) and securities which have come into their hands in the normal course of banking transactions e.g. if someone borrows £500 from the bank by depositing a security worth £1000, the bank secures a lien of £500 on the security. However the banker does not have lien against articles held in safe custody.
What is the appropriation of payments?
What case concerns the the appropriation of payments?
What is the consequence?
- The allocation of funds deposited by the customer to various debts with e.g. a bank. If the customer doesn’t specify which debt they want paid off, the bank may decide. If neither decide then it is decided on a fisrt in, first out basis.
- Clayton’s case: Devaynes v Noble 1816
- This established the principle of ‘first in, first out’, which is best explained by an example. X contributes £10,000 to a fund containing no other money and the next day Y contributes £10,000 to that fund. If the following day the trustee of the fund wrongfully takes £10,000 from the fund the loss would be borne entirely by X.
What regulation concerns banking conduct?
Who issues it?
What did it replace?
- Banking Conduct of Buiness Sourcebook (BCOBS) & Principles for Businesses
- The FCA
- A Voluntary Banking Code
What BCOBS guidance is there?
Who issued it?
- Industry Guidance for the FCA Banking Conduct of Business Sourcebook
- The British Bankers Assoication, the Building Societies Association & the Payments Council
