Topic 1 - Banker-Customer Relationship Flashcards
What is a sole trader? Advantages and disadvantages of this business set up?
One account holder trading under their own name. Adv: complete autonomy.
Disadv: personally liable for the debts of the business and issues with business continuity if the owner dies.
What is a partnership? Pros and cons?
Two or more people joining together to run a for-profit business. Pros - reduced risk on business continuity; >1 person involved reduces key man risk as well as increased experience. Cons - Partners personally liable for the debts of the business money.
Different types of partnerships? LLPs vs. LPs?
LLP - Hybrid between a Ltd company and Partnership. A distinct legal entity separate from its members/partners therefore Partners have limited liability. Not governed by Partnership act 1980 or limited partnership act 1977 but by LLP Act 2000 and LLP regulation 2001. Same info requirements for reporting as that of a Ltd.
LP - funds set up like this. GP - fully liable for all debts of the Partnership. LP - limited liability and not involved in the full day to day manager of the firm. Registered with registrar of companies. Not a common structure.
What is a Limited Company? What are the two types?
Corporate companies with their own legal identity, separate from its management. Two types - public and private limited companies.
SME segmentation breakdown?
Medium - <250 headcount; >eur50m turnover or >43m balance sheet.
Small - <50 headcount; >eur10 turnover or eur10m balance sheet.
Micro - <10 headcount; >eur2m turnover or eur2m balance sheet.
Bank’s business banking segmentation?
Segmentation allows common experiences to be concentrated within the segment allowing customers to benefit from specialist support. Bankers can also benefit from a broader career as they move across different segments. Allows businesses to develop throughout all stages of their lifecycle.
Segments: business banking - annual to upto £5m; corporate banking - annual to £5m - £25m; large corporate and global banking - to >£25m.
Banker-customer relationship
Contractual in nature; may be informal; bindes by t&cs; relationship like a debtor-creditor depending on whether bank is lending or borrowing; agent-principal relationship as bank acting on your behalf: fiduciary relationship as bank has the obligation to do the right thing for the customer; constructive trustee and beneficiary relationship.
Describe creditor and debtor relationship between the bank and its customer?
When customer deposits money, they become creditors of the bank as deposits are liabilities for the bank which have to be paid back. The trade of the banker is to receive money and use to as it were his own.
Bailor - Bailee relationship
When banks provide safe custody services- a customer gives their cash, or other tangible assets to the bank, the bank has implicit obligation to store those items and return it back to the customer when requested.
Customer - bailor
Bank - bailee
Principal - agent relationship
When the bank performs agency function for the bank; customer gives authority or mandate to the bank to act on certain actions - for example sending payments out, making remittances.
Pawner - pawnee/ mortgagor - mortgagee
When a customer pledges goods (moveable property) or immovable property as security for an advance, the customer becomes the Pawner or mortgagor respectively and the ban becomes the Pawnee or mortgagee.
Banker - customer relationship as a Fiduciary?
Banker as trustee over trust funds; shouldn’t take undue adv over a customer; and avoid conflict of interest between the banker and the customer.
Right to lien
Right to hold onto property unless they have satisfied their debt obligations. No right to realise or convert it to money as this requires court approval. Banks have right of lien on any kind of securities deposited by the bank. Lien only applicable to the extent of the debt - eg if a customer puts security of £10k against a £2k of loan then the lien is only applicable for £2k of the loan.
What are the conditions for exceeds get right of Lien?
1) property of the customer must come into the hand do the banker - have to take possession;
2) no entrustment for special purpose - so doesn’t cover property deposited with the bank for safe keeping - has to be specified it is a lien;
3) banker should obtain procession lawfully;
4) no agreement inconsistent with the right of lien.
Right of set off
This means adjustment debit balances against credit balances for accounts of the same borrower - as long as same tenor and same term.
- legal right if the banker; normally get written authority from the customer in advance so there is no need of notice; for partnerships - partner’s personal account cannot be used to set off the firm account but for sole traders, this can be done hence Partnership is better than sole traders; the balance of the single account cannot be set off any joint account until otherwise agreed by joint account holders.
Clayton case (Devaynes vs Noble) - 1853
Leasing authority for the ‘approximation of payments’. It derived that a) debtor making a payment has a right to appropriate it to the discharge of any debt due to the customer b) if at the time of payment there is no express or implied appropriation by the debtor, then the creditor has the right to make the appropriation c) in the absence of any appropriation of either debtor or creditor, an appropriation is made by presumption of law according to the items of accounts - the first item of the debit side being the item discharged or reduced the first item of the credit side lower. Applies to a banking where all the sims paid in from one blended source - the parts of which have no longer any distinct existence.
Banker’s Duty of secrecy
Banker - customer relationship is confidential so duty of the banker not to disclose any kind to third party. Exclusions - when told to do so by law; duty to public to disclose; in bank’s interests; express or implied consent by the customer; common courtesy to the other banks
Who can be a customer
Should not be a minor; fully capable of making decisions on their own; not have been debarred from entering into any contract with Any law.
Someone becomes a customer when they deposit money and bank accepts it.
Rights of a banker
Right to charge a reasonable commission for banks services; the right to interest; right to set off; right to return any unpaid cheques which could create an unauthorised overdrafts or any cheque
Duties of a banker
Duty to receive money and collect cheques for the customer’s account; duty to pay cheques on demand that has been written by the customer provided drawn properly, verifiable signatures and there are sufficient funds in the account; duty to act in good faith and without negligence when dishonouring cheques; duty to maintain secrecy re customer’s affairs; duty to advise customer re forged signatures; duty to give notices before closing a credit account.
Rights of a customer
Right to draw a cheque; periodic account statements; chequebooks; right to make the bank liable to correct any overcrediting and overdebiting; sue the bank for the cost loss and damages when their cheque is wrongfully dishonoured; Sue the bank if their account secrecy wasn’t maintained.
Duties of a customer
Duty to exercise reasonable care in drawing cheques; advise the bank of any forgery of their signature; duty to pay charges and keep cheque books and Debit card in safe custody.
Death of a customer
Authority to pay ceases; all transactions should be stopped; cheques should be returned marked ‘drawer deceased’; all records to be kept on these unpaid presenter cheques - will be useful for the will executor/ personal rep; solicitors acting as personal rep of the deceased’s estates should be advised of the account position (balance)!and given a list of any docs or securities held on behalf of the deceased noting grants of probate and letters of adminstration; funds and securities release to the personal rep.
Testate vs intestate
Testate - person who dies with a will or intestate - dies without a will.
