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BANKING LAW - BANKER CUSTOMER RELATIONSHIP.docx - EXTENT OF...

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EXTENT OF LEGAL RELATIONS BETWEEN BANKER AND CUSTOMERThebanker – customerrelationship will vary according to the types of transactions thatthe bank carries out for the customer. There are situations in which the bank mayoperate as anagentof its customer e.g. when it collects proceeds of a cheque and creditsto the customer’s account. In some cases abailor-baileerelationship exists e.g. where acustomer deposits valuables with the bank for safe-keeping.Mortgagor-mortgageerelationship may arise when the bank gives out money to a third party in return forsecurity that the customer may deposit. The more accepted way of looking at thebanker-customer relationship is to look at it asa creditor-debtorrelationship in that as L.C.Mather says, a banker is basically one who receives money on deposit from customersand lends part of the money to other customers. To be able to do this, the assumption isthat the bank must have full control over the money that is deposited with it. Therefore,it cannot hold it asagentortrusteebecause in the case of a trustee he has to use themoney entrusted to him with regard to instructions given. Because of this consideration,the relationship that is created between the two is that of creditor-debtor with thecustomer being the creditor and the banker being the debtor.It is a contractual relationship but its turns keep changing which makes it a specializedcontract and not an ordinary contract.Firstly, the terms keep changing in accordancewith banking practice, case law and legislation.Secondly, the relationship that is createdis one of a debtor and creditor. This was first considered in in full inFolley –vs-Hill(1848) 2 HC 281where it was stated that when a customer deposits money with a bankthe money becomes that of the bank who then becomes the debtor to the depositor whois a creditor. The bank may use the money, deposited with him in any way he choosesand he is only bound to return the equivalent amount on demand.Lord Cottenham –LC-observed that this relationship is not one oftrustee and beneficiaryin the strict sense nor isit oneagent and principalnor is it one ofbailee and bailor.These matters were well observed inJoachimson –vs- Swiss Bank Corporation [1921] 3KB 110where it was restated that the relationship of banker and customer is one ofdebtor and creditor.Lord Artkinobserved;“I think there is only one contract made between the bank and its customer. Theterms of that contract involve obligations on both sides. They include thefollowing; the bank undertakes to receive money and to collect bills for itscustomer’s account. The proceeds so received are not held in trust for thecustomer but the bank borrows the proceeds and undertakes to repay them. Thepromise to repay is to repay at the branch of the account where the money is keptand during working hours. It includes a promise to pay any part of the amountdue upon a written order of the customer. The customer on his part undertakesto exercise reasonable care in executing his written orders so as not to mislead thebank or to facilitate forgery.”Page1of13

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Term
Fall
Professor
NoProfessor
Tags
Cheque, banker

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