NEED TO KNOW - BANKER CUSTOMER RELATIONSHIP

Most, if not all of us, maintain bank accounts. Banker-customer relationship begins no sooner the customer opens an account and a banking service is transacted. A remarkable feature of this relationship is its attendant legal rights and obligations on both sides.

It is of interest to note that the relationship between a banker and a customer depends on the activities, products or services provided by the bank to its customers. 

Who is a Bank/Customer?

The relationship between a bank and its customers is a transactional relationship built on trust. Dr H.L Hart, in the Law of Banking defines a bank/banker as “A person or company carrying on the business of receiving money and collecting drafts for customers subject to the obligation of honouring cheques drawn upon them from time to time by customers to the extent of the amount available on their current account.” Section 258 of the Evidence Act 2011 defines a bank/ banker as a bank licensed under the Banks and Other Financial Institutions Act (BOFIA) and includes anybody authorised under an enactment to carry on banking business.


“Banking business” under Section 66 of BOFIA is defined as “The business of receiving deposits or current account, savings account or other similar account, paying or collecting cheque drawn by or paid in by customers? provision of finance or such  other  business as the Governor may, by order  published in the Gazette, designate a banking business”.

 

In the case of S.B.N. Ltd. v. De Lluch (2004) 18 NWLR (Pt.905)341, this “....consist in the issue of notes payable on demand intended to circulate as money when the banks are banks of issue; in receiving deposits payable on demand; in discounting commercial paper; making loans of money on collateral security; buying and selling bills of exchange; negotiating loans, and dealing in negotiable securities issued by the Government, State and National, and municipal and other corporations”.


A person cannot be referred to as a customer of a bank without holding an account with the bank. It is immaterial whether the account is opened in the name of a person in trust for another; the name on the bank’s record will be regarded as the customer.

 

There must be a contractual relationship between the parties; the customer willingly opens an account, entrusting the care and management of his money to the bank and the bank undertakes to maintain the account and provide the attendant services. It is not an assumed relationship; the fact that a person walks into a banking hall to simply cash cheques or deposit money into an account or use an automated teller machine does not automatically make him/her a customer, neither do regular casual transactions, even over a long period of time.


The court in NDIC v Okem Enterprises Limited (2004) 10 NWLR (Pt. 880) 107, Ironbar v FMF (2009) 15 NWLR (Pt. 1165) 506, defines a customer of a bank as any person having an account with a bank or for whom the bank has agreed to collect items and includes a bank owning on account with another bank. Thus, a customer is a person whose money has been accepted by a bank on the undertaken to honour cheques up to the amount standing to his credit. Customers of the bank may include individuals, firms,organisations and other banks.  

 

Legal rights and duties under the Banker/Customer Relationship 
A banker-customer relationship is contractual in nature, imposing certain rights and duties on both parties. It is that of debtor and creditor, with a duty on the bank to comply with existing laws and regulatory directives.  

Flowing from this is an agency relationship between the bank and the customer giving rise to a duty of care; i.e. in addition to obeying the instructions of the customer (the principal), the bank (agent) must also use reasonable care and skill in carrying them out with as view to protect the customer and his money. A bank’s duty of care may arise in tort as well as in contract where it is proven that a bank has been negligent and has failed to carry out the instructions of a customer with reasonable skill and diligence. In particular instances, depending on the nature of the transaction, the bank/banker may owe a customer a higher duty of care than usual; i.e. a fiduciary duty. 

In addition to a bank’s obligations under law, the bank also owes its customers a duty to:

  • receive money and collect bills for credit to its customer’s account;
  • honour customers’ checks - which must be drawn in the proper manner, with the account sufficiently funded, presented during banking hours at a branch of the bank,etc;
  • ensure secrecy and not disclose information regarding the account to a third party;  
  • honour the duty of care owed (protection from fraud in making payment orders, etc);
  • record transactions on the account and provide the customer with any such information;
  • give reasonable notice before closing a customer’s account in credit; and  
  • abide by the instructions of the customer and terms of agreement within the scope of the relationship.
  • Some of the rights of the bank include to:
  • refuse to honour an improperly drawn cheque or instruction on an insufficiently funded or legally frozen account;
  • charge reasonable interest on credit facilities granted to customers and reasonable commission for services rendered;
  • obtain a re-imbursement for expenses incurred on a customer’s behalf and debit the customer’s account in the sum of such expenses;
  • use moneys deposited by a customer at will, bearing in mind however the owed duty of care;
  • combine accounts owned by a customer to pay a balance owed due to another overdrawn account or account in credit belonging to the same customer (right of set off);
  • sell a property over which the customer has created a legal mortgage in favour of the Bank without recourse to court (in line with the provisions of the law in this regard);  
  • retain goods and securities owned by the customer (as a debtor) until the debt due is paid (right of general lien); and
  • retain money or property belonging to a customer and apply the same to the repayment of an outstanding debt; provided that, to the bank’s knowledge, such property is not part of a trust fund or is not already burdened with other debts (banker’s lien).

The customer is not without obligations/duties. These include to:

  • keep his/her/its cheque book safe, issue/execute proper cheques/orders;
  • not mislead the bank, facilitate forgery or operate an illegitimate account;
  • pay the reasonably levied interests and charges on overdraft and credit facilities;
  • inform the bank without delay of suspicious issues/transactions or regarding the loss of a cheque book or leaf(ves).
  • deposit sums properly and in time; and
  • meet other obligations required by him/her/it by law.
  • The rights of a customer include to:
  • be issued a cheque book (depending on account type) and receive periodic statements on account and other account information as requested/agreed;
  • have access to his/her/its account whenever he/she/it so wills, be promptly informed of the fate of his/her/its bills or cheques sent for clearing and to stop cheques before payment;
  • on repayment of a debt, collect collateral documents with which the loans were secured;
  • deposit money, demand repayment and claim interest in an interest bearing account or on delay in crediting the account on receipt of credit advice/deposit;
  • claim damages for loss or damage due to wrongful dishonour of cheques;
  • give standing instruction to the banker which must be followed and to be informed before closure or dormancy of his/her/its account; and
  • have his affairs with the bank kept confidential and where applicable close his account.

Termination of Banker/Customer Relationship

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 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.

Operation of Law – 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 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.

 

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