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The relationship between a bank and its customers is one which is rooted in contract and,

along with relevant legislation and regulations, it is this contract which governs not only

the operation of the account but its termination. A customer terminating a contract with a

bank and 'switching' bankers is an everyday occurrence, but there are occasions when the

bank-customer relationship ceases to exist.

The classic description of the banking contract can be found in the case of Joachimson v

Swiss Bank Corporation:

"…a bank undertakes to receive money and to collect bills for its customer's account. the

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 banker's standard form of contract as it relates to the operating of the client's

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.

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.

A customer bank relationship can be terminated in the following ways:

Notice by a banker: A banker may like to close the account of his customer for the

number of valid reasons; but this cannot be done without giving reasonable notice to the

customer so that he may make such arrangements as are necessary to protect his

reputation The length of such notice will defend largely on the character of the account

and the circumstances of the case. In prosperity limited V Lloyds Bank Limited (1923).

Lord Atkin held that “In the absence of a special stipulation, a banker can close his

customer’s banking account in credit on going hi reasonable notice, depend on the nature

of the account and the facts and the circumstance s of the case”.

The banker should give the format intimation to the customer that he wishes to close the

account after a specific period. He may also request his customer to withdraw all the

credit balance in his account and return the unused cheques.

They serve the notice generally on the following grounds: -

• Presentation of the customer’s cheques for payment without having sufficient

funds in the account.

• When a customer is unable to keep a remunerative credit balance in his account.

An account is remunerative when the customer is maintaining a very small


• A regular presentation of cheques for payment after the unusual business hours.
A client’s account can also be closed under the following circumstances:

Obstinacy of the Customer: When the customer does not close his account even after

the expiry of reasonable notice giving to him, the banker may close his account by

returning to him the entire credit balance in his account and asking him to return the

unused cheques held by him.

Winding up: A winding up order terminates the bank-customer relationship and any

ancillary agreement dependent on that relationship.

In the case of National Westminster Bank Ltd Vs Halesowen Presswork and assemblies

Ltd (1972) A.C 785 it was held that the banker- customer relationship terminated with the

ending of the agreement and the company winding up. It confirmed that the banker has,

in absence of agreement express or implied to the contrary, a long established common

law right to combine accounts of a customer that this right is not strictly lien and that it

can be exercised without notice to the customer, again unless the contract provides

otherwise. Therefore the decision reached established that an agreement ancillary to the

bank –customer relationship is terminated when the relationship is ended by a winding up


Mental disorder: The principle established in Young V. Toynbee (1910) states that the

mental disorder and Insanity of a customer automatically terminates the banker’s

authority to act as the customer’s agent. Since the banker-customer relationship comes to

it’s end, in such a situation it is usually considered that the banker’s authority to pay his

customer’s cheques is revoked by notice of insanity. However, the banker treats his

customer as sane useless a fairly conclusive evidence of any customer insanity is

available to them. When a banks customer becomes mentally challenged, then his

contract terminates with a bank. It was also illustrated in he case of Scarth Vs National

Provincial Bank ltd, where Judge Humphreys J, applying the equitable principle stated by

Wright J in Liggett’s case decided in favour of the bank on the grounds that a large sum of

the money had been used in paying the husbands debts.

Insolvency: Insolvency is ‘civil death’ Therefore, the insolvent customer loses his

rights; and his affairs are transferred to Official Assignee, Receiver or Liquidator. As soon

as the banker receive the notice of insolvency of his customer or a petition field for

adjudging a customer insolvent, his authority to pay cheques or to accept or honor bills or

to take any other action on behalf of his insolvent customer comes to an ends. He must

therefore transfer his credit balance in insolvent customer’s account to the Official

Assignee or Receiver. Under section 28 of the Provincial Insolvency Act, “An order of

adjudication shall ‘relate back’ to, and take effect from, the date of presentation of the

petition on which it is made”. Therefore the banker cannot deal with such a customer’s

property or honour his cheques if he is in the know of the petition or an act of insolvency

on the part of his customer. This was seen in the case of Re Wigzel, Ex P Hart (1921) 2

KB 835. where the payments on an account before the banker has notice of the making of

a bankrupt order where the court of appeal held that the bank had to concede that their

transactions with their customer were on all fours with the other transactions of the debtor

in the period between the act of bankruptcy and the advertisement, an to allow the appeal

made would have had the result that those other transaftions would also escape so that
“this court would be in substance be ignoring that necessary conditions for protection

which was imposed

Order of court: A court of law may serve a banker with the order in garnishee

proceeding in execution of a decree, prohibiting him from the honouring a customer’s

cheques. The order may be absolute when it refers to the entire amount of the customer in

the banker’s, hand or it may be partial as relating to a specific sum only. The must act

accordance to the terms of the order served on him, and his relationship with customer

automatically comes to an end accordingly. In the case of Re consumers and industrial

press limited (1988) B.C.L.C.C 177, Peter Gibson J set out the conditions to be met by a

court in setting up an admistrative order. Its purpose was to facilitate the rescue

operations of an ailing company. Its effect is to freeze the companies position so that

actions against the company are suspended, there can be no winding up petition and no

fresh legal proceedings can be instituted on the company.

Death of a customer: As soon as the banker receives the intimation about the death of

his customer, he must stop his payment of cheques drawn on him by deceased customer

because, under section 122-A of the Negotiable Instruments Act 1881, the notice of the

death revokes his authority to pay such cheques. The heirs of the executors of the

deceased customer are not authorized to operate on the account, but can act only

accordance with the provisions mentioned in the letter of probable issued by a competent


Assignment of an account: The customer may assign his entire credit balance to a third

party and give the notice of assignment to the banker, asking for the payment to the
assignee. As soon as the banker acts upon the assignment instruction, the banker-

customer relationship comes to an end.

Unsatisfactory operations: A banker may close his customer’s account after serving a

notice if he fails to maintain the account satisfactorily. The banker determines as act

account as ‘unsatisfactory’ if the customer has been in the habits of drawing cheques

without having adequate funds and to the credit or maintains unremunerative account or

has been in the habits of forgoing cheques, which ultimately brought him to the books.