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The Law & You: The Banker-Customer Relationship

There are numerous kinds of relationship between the bank and the customer. The relationship between a bank and a customer depends on the type of transaction; products or services offered by the bank to its customers. The legal relationship between a bank and its customer differs in several important respects from the relationships between most other service providers

It may be generally assumed that anybody with whom a banker has dealings, in the ordinary course of his business, is a customer.

Generally, the legal relationship between a bank and its customer is contractual which starts from the day of opening an account. The legal clarification of the relationship between the bank and the customer has oscillated between that of; 

(a) Debtor and Creditor:

When customer deposits money into his bank account, the bank becomes a debtor of the customer, it is not under obligation to seek out the customer to effect payment. The bank pays only when the customer does demands or directs and there are sufficient funds in the customer’s account.

This is one of the super-added obligations of the relationship. In the case of loans / advance accounts, banker is the creditor, and the customer is the debtor because the customer owes money to the banker. The banker can demand the repayment of loan / advance on the due date, and the customer has to repay the debt.  

(b) Pledger and Pledgee:

This happens when customer pledge (promises) certain assets or security with the bank in order to get a loan in this case, the customer becomes the pledger, and the bank becomes the pledgee. Under this agreement, the assets or security will remain with the bank until a customer repays the loans.

(c) Trustee and Beneficiary:

A trustee holds property for the beneficiary, and the profit earned from this property belongs to the beneficiary. If the customer deposits securities,or valuables with the banker for safe custody, banker becomes a trustee of his customer. The  customer is the beneficiary so the ownership remains with the customer. Also, the relationship between the customer and the banker can be that of Principal and Agent. Agent can be defined as a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done or who is so represented is called “the principal”. In acting on instructions to make periodical payment or transfer money from customer’s account to others, to collect cheques or bills, the bank acted as agent of its customer. Every agent for reward is bound to exercise reasonable skill and care in carrying out the instructions of his principal.

Other miscellaneous banker-customer relationship include:

  • Obligation to Honour Cheques: as long as there is sufficient balance in the account of the customer, the banker must honour all his cheques. The cheques must be complete and in proper order. They must be presented within six month from the date of issue, however, the banker can refuse to honour the cheques only in certain cases,
  • Secrecy of customer’s account: when a customer opens an account in the bank, the bank must not give information about the customer’s account to anyone else.
  • Bank’s right to claim incidental charges: A banker has a right to charge a commission, interest or other charges for the various services given by him to the customer for example an overdraft facility.

Featured image source: Swedish Bankers

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Foluke Akinmoladun

Foluke Akinmoladun is the Managing Solicitor of Trizon Law Chambers. She has been a legal practitioner for 13 years and has experience in a wide range of commercial matters. She is a certified mediator, a member of the Chartered Institute of Arbitrators(UK), holds an Advanced Diploma in Accounting from the Association of Chartered Certified Accountants (UK) and is also a tax consultant. She is a dispute resolution expert, handling commercial disputes from negotiations all the way to litigation (if need be).

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