Termination of Bank-Customer relationship The relationship of a bank and its customers is one which is rooted in contract and, along

with relevant legislation and regulations e.g. The Banking Act; it is this contract which governs not only the operation of the account but its termination. The classic description of the banking contract can be found in the case of Joachimson v Swiss Bank Corporation It was said: a bank undertakes to receive money and to collect bills for its customers accountthe bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. Generally, the relationship of banker and customer is commenced by the customer signing the bankers standard form of contract as it relates to the operating of the clients account. This agreement should set out the provisions which govern the operation as well as the termination of the contract and which when signed by the customer, becomes a contractually binding agreement. A banking contract can be terminated in the following ways(1) By agreement between the parties or;
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The customer and bank both agree to close the account. The bank will pay out any credit balances

(2) By a unilateral act, that is, where the customer or the banker gives notice to terminate; A customer can decide to close the account if he moves to another area or because the relationship has encountered some difficulties.If the customer wants to terminate the relationship:

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He is not obliged to give notice he demands payment of the credit balance A credit balance is closed by paying outstanding balance in full plus fees and charges owing.

The bank should obtain an express statement in writing that this is the case so as to avoid misunderstanding regarding outstanding cheques. Wilson v. Windland Bank Ltd. Conflicting testimony between the bank manager and the customer as to whether there had been a telephone conversation in which the customer stated that he was closing his account. The bank took an action to close the account and this led to confusion and dishonour of a cheque drawn by the customer and returned by the bank with the remarks no account. He sued the bank for breach of contract and libel. It was held that the bank was liable on both counts. The customer was defamed in the eyes of people who believed him since they thought that he had no money or no account with the bank. They closed the account without establishing fully that this was the customers intention. If the bank decides to close the account it must give the customer reasonable notice of its decision. Buckingham and Co. V. London and Midland Bank Ltd. B had a credit balance of 160 pounds on the current account and a loan account in debit for the amount of 600pounds which he had given security for. The bank informed the customer of the decision to close the account immediately because it had become anxious about the amount of security and told the customer it would no longer honour its cheques or pay his accepted bills of exchange. The following day, 2cheques and 2bills were dishonoured. It was held that the bank was not entitled to withdraw without notice the established facility by which the current account, which was in credit, was to be kept separate from the loan account. B was awarded substantial damages for breach of contract as the bank closed his account without reasonable notice.

For an individual customer whose account is merely intended for credit of his salary and then withdrawal, the individual customer is entitled to a reasonable notice of well over a month to close the account. The same applies if the account is a business account whether belonging to an individual, a partnership or a limited company, the customer is entitled to a reasonable notice of well over a month to close the account. The period of notice is intended to give the customer sufficient time to notify his business customers and also enable him to make alternative arrangements to move his account elsewhere. Outstanding cheques must be properly processed before the bank closes the account. If not, the customer could sue for: i. ii. Breach of contract under the banker-customer relationship. Damages for libel where the cheque bounces.

Prosperity Ltd v Lloyds Bank (1923) 39 TLR 372.

In this particular case, a month's notice was considered insufficient.

A banker can close the account of the customer on the following grounds:(1) If a customer repeatedly presents cheques after the business hours, or does not have sufficient balances but draws cheques on the account, the banker may after giving due notice to him, close his account. (2) On the receipt of notice of insolvency of a customer, the bank cannot honor the cheques drawn by the customer. (3) If a company is wound up by the Order of the Court, the banker then cannot honor the cheques of its customer. (4) When a customer assigns his total credit balance to a third party and this intimation is received and implemented by the bank, the relationship between the banker and the customer is then terminated. On transfer of the assigned account, the banker enters in a new relationship with his new customer. (5) Garnishee order for the whole account. If a bank receives garnishee order (court order) for the whole amount of a customers account the bank shall make whole payment to the party in favor of which the garnishee order has been received Under such circumstances, the relationship between the customer and the banker is automatically terminated.

(6) Changes in the constitution of the firm. If the constitution of a firm company trust undergoes a change the customers of these institutions may also undergo a change. The relationship stands terminated until further instructions are received by the bank on behalf of the new authorized authorities.

(3) Termination by law a) Death of the customer; This takes effect once the bank receives notice of it. If there are cheques issued to 3rd parties that are yet to be processed or paid, they should be returned to the 3rd party with the remarks customer deceased Cheques to be credited into the account of the deceased customer should be processed in the usual way but proceeds should be placed in suspense account by the bank. The bank then awaits production of a grant or upon receipt or other specific orders of the court. b) Death of a joint account holder. Legal ownership of proceeds in the account is concentrated on the surviving joint account holder. c) Mental incapacity of the customer. The mandate of the banker is terminated until a guardian is appointed by the court to manage the customers affairs. d) Bankruptcy or insolvency of bank or customer. The bank operates the account on the instructions of the trustee. Even if there is no express term in relation to termination in the contract, it is accepted that there is an implied term in every banking contract that the contract can be terminated in these ways. There are a number of criteria which should be considered when determining what is reasonable in any given situation. Examples of these criteria are:

o The kind of customer (i.e. whether personal or commercial);

o The nature and frequency of the transactions associated with the particular account; and

o The ease (or difficulty as the case may be) by which the customer can reasonably be expected to make alternative banking arrangements.

In other jurisdictions regulations specifically provide that unless there are exceptional circumstances such as fraud, a bank should not close a customers account without giving at least 30 days notice, there is no such requirement here, however, but at least 30 days notice seems to be an acceptable standard. When it comes to the procedure that should be followed upon giving notice, at the most basic level the notice should be in writing and sent by means that would satisfy a discerning person that the notice would have reached the customer. The actual date of the closure of the account should be made clear in this notice.