CHAPTER OUTLINE

 Individual accounts
 Minor’s accounts
 Joint accounts
 Partnership account
 Executor and administrator account
 Trust account
 Company’s account
 Club and societies’ account
 Execution of Customer Documentation
Before the bank allows a customer to open an account, the bank must verify
that the customer is:
1. CAPACITY TO OPERATE
• Person who is mentally incapacitated would not have legal
• Capacity to operate an account. Minors has limited capacity to open an
account. Only savings account is allowed for minors. How about OKU ?
2. AUTHORITY TO OPERATE
• Lack of power on the part of the company’s officers to bind the
company to a transaction. The authority to operate an account is
usually found in the customer’s mandate (written intructions) or
resolution which in most cases is found in the bank’s specimen
signature card.
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3. PROPER INTRODUCTION BY ACCEPTABLE THIRD PARTY
• Past cases have revealed that a bank is considered to have
acted negligently if an account holder was not properly
introduced and would suffer losses and damages imposed by
the court.

Case:Ladbroke and Co vs Todd

An account was opened by stranger ( thief ) who claim to be a
payee without introducer. He paid the cheque and subsequently
withdrawn after the cheque was cleared. The court held that the
bank was negligent.
 Individual Accounts
One of the primary concerns of the banker when opening an account
for an individual is to ensure that the person gives his true name.

If he does not, the bank may face liability in conversion to the true
owner of the cheques when collecting cheques that are stolen

The bank should take great care in taking reference when opening a
new account.

The bank is required to satisfy itself about the identity of a customer

and to give him details of the identification needed, including that of
the employer.
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Types of account can be opened:
i. Savings account
ii. Current account
Conditions:
i. Age = 18^
ii. Not bankrupt / insane
iii. Current account – need introducer
iv. Savings account – no need introducer
v. Minimum deposit
 Documents to be submitted to bank:
i. Photocopy IC / passport
ii. Specimen signature. (sign on bank specimen card)
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SOME RULES THAT THE BANKS MUST FOLLOW IN GOVERNING THE
OPERATIONS OF ACCOUNT:
1. When an account is opened for an individual without his permission, on an
application of a third party, the practice may be disapproved.
Case:Robinson v Midland Bank Ltd
Where the new customer is an employer, the bank should consider
opening a separate wages account so that it can make a claim as a
preferential creditor in the event of the customer’s insolvency.

2. A customer may authorize another person to operate his account through

signing a mandate form or by executing power of attorney. An agency is set
up.
i. Via mandate – powers given to agent is set out clearly in broad terms
ii. Via power of attorney – agent must operate the account strictly within the powers
granted
 Minor’s Accounts
 Minors incur no liability on cheques or upon loans.

 If an account is opened for a minor such as an infant, care should be taken to ensure

that the account is not overdrawn.

 In the case where an overdraft is requested by a minor, an indemnity contract should

be drawn up and signed by an adult.

 Conditions:

i. A guarantee would be insufficient.

ii. A minor can only open a savings account with their capacity.
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Case: Coutts & Co v Browne – Lecky (1947)

The repayment of an infant’s overdraft had been guaranteed by

two person, both of whom were of full age. The fact that the
borrower was under twenty-one was known to all parties.

The decision in this case was received by bankers with a certain

amount of resentment. It meant that two people had solemnly
agreed to be responsible for the debts of a third party, whom
they knew to be a minor, were able to escape all liability
 Joint Accounts
A joint account is an account whether savings or current
account which is conducted by two or more persons.

 Bank will normally require to obtain a MANDATE from

joint account holders covering the execution of documents.

A MANDATE is a written instruction given by a customer to

his banker, instructing the banker that a named third party
is authorized to do certain act for the customer.
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 Conducted by two or more persons (not partnership, trustees or personal
representative)

 Usually members of a family (husband and wife, parent and children or brothers and
sisters)

 May also be opened by person who are not related to each other (friends or
businessmen)

 Documents need to be submitted to bank :

1. Photocopy of identity cards or passports of all joint holders.

2. Specimen signatures of all joint holders.

3. Mandate form and method of signing. E.g. either one, all to sign or other
arrangements.
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DOCTRINE OR RULE OF SURVIVORSHIP
1. Death of any joint holder

i. The survivor joint holder is entitled to the whole balance in the account

ii. In practice, bank normally will not pay to the survivor if the amount is
large – the matter will be resolved in court

2. Bankruptcy of any joint holder

i. Bank should stop any withdrawal by the surviving parties

ii. Any withdrawals should be made with the consent of the Official
Assignee & solvent parties.

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 Partnership Accounts
Two or more person can formed a Partnership. Partnership firm does not
have a legal entity of its own. The liabilities of the firm are the liabilities of
the Partners jointly in their personal capacity.
A Partnership Deed is an partnership agreement that spell the powers
assigned to the different partners.
The partners opening the account should sign a mandate authorizing any or
all of their partners to make withdrawals and also stipulate how many
signatures shall be necessary.
The banker should refer to the partnership agreement to find out the
restriction imposed on the authority of the partners.
If the bank is unaware of such restrictions, it can rely on the ostensible
agency of any partner to act for the firm.
Where the partners have private individual accounts at the bank besides the
partnership account, care must be taken to ensure that transfers of money
from the partnership’s account to any individual account are properly made
and authorized.
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CONDITIONS TO BE FULFILLED BY ALL PARTNERS :
1. All partners must not be bankrupt or insane .
2. Business must be registered with CCM
3. Must provide an introducer before opening a current account.
4. To pay minimum RM1,000 as initial deposit.

DOCUMENTS TO BE SUBMITTED TO BANK :

1. Photocopy of identity cards of all partners including sleeping partner. (
maximum 50 )
2. Photocopy of Business Registration Certificate issued by CCM
3. Photocopy of Partnership Deed or any other agreement.
4. Specimen signature sign on signature cards.
5. Mandate form and method of signing,
6. Rubber stamp of the firm.
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THERE ARE SEVERAL WAYS THAT A PARTNERSHIP MAY BE
DISSOLVED:
1. By agreement ( all partners agree to dissolve the partnership )
2. By operation of law ( E.g. Partnership was entered into a fixed term and
the term expires )
3. By death or bankruptcy
4. By a court order ( E.g. One of the partners is of permanently unsound
mind )
Section 11 of the Partnership Act 1961, provides that every partner in a firm
is liable jointly with the order partners for all debts and obligations incurred
by the firm, while as a partner.
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 SOME LEGAL CONSIDERATIONS IN RESPECT OF PARTNERSHIP ARE GIVEN BELOW:
1. Authority Of Any Partner To Stop Or Countermand Payment Of Cheque.
• Under the law, any partner can request the bank to stop payment any cheque BUT if
they decided to cancel the earlier latter of stop payment, all partners must sign the
cancellation letter.
• This also applies to joint account case.
2. Collection Cheque.
• Cheque payment to partnership account such as Syarikat Berjaya Enterprise, should
not paid into the personal account of any partner.
3. Bankruptcy Of Any Partner
• It does not necessarily involve bankruptcy or winding up of the partnership firm, but it
does mean that the partnership is dissolved and the bank may not allow the
partnership account to be operated. Cheque issued by solvent partners can be passed
4. Bankruptcy Of The Partnership ( All Partners Bankrupt )
• Bank is to freeze the partnership and also personal account of the partner if any
5. Death Of A Partner
• When a partner dies, the partnership is deemed to be dissolved. The remaining
partners may be permitted to continue the business temporarily and to operate the
account for the purpose of winding up the business.
 Self-exercise
Final Exam Questions
Discuss the process to open partnership account.
(10 marks)
Discuss the situations in which partnership can be
dissolved. (10 marks)
 Sole – Proprietor’s Accounts
 A sole-proprietor is a business owned by one individual and trading in his own name
or under a trading name.
 A sole-proprietor must be registered with the Registrar of Business and must be
evidenced by a business registration certificate.

 A sole-proprietor has no separate legal entity of its own.

 The liability of the firm is the liability of the proprietor in his personal capacity.
 Can opened Current account only and not savings account.

 Must provide an introducer.

 Documents to be submitted to bank :
1. Photocopy of identity card or passport of proprietor.
2. Photocopy of Business Registration Certificate by CCM
3. Specimen signature.
4. Rubber stamp ( Cop syarikat )
 Executors and Administrators Accounts
 It is the duty of a banker to pay cheques drawn from an account upon instruction of the
customer or accountholder.

 However, this duty and all other operations ceases once notice of the customer’s death is
received.

 The balance remaining in the customer’s account will then be held to the order of the legal
representatives who are named in the will or appointed by the high court in the case where
there is no will.

 Persons named in the will are termed as executors.

 Executors have to obtain a certificate called ‘Probate’ and, together with the will, are then
authorized to administer the deceased’s estates.

 The Executor or Administrator’s account may be opened upon approval of the bank.

 The balance in the deceased’s account is transferred to this new account.

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‘Probate’ refers to the entire process of the court-supervised
administration of an estate, from the initial probate of the will
to the distribution of estate assets, and the official discharge of
your personal representative,

i.e., the executor you named in your will, or the court-appointed

administrator if you didn't have a valid will, or if you didn't name
an executor in your will or if the person you named dies first.
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The banker will also require the mandate which specifies how
the account will be operated and all specimen signatures of the
executor or administrator.

Once payment have been completed, the duty of the executor

or administrator ceases.

However, if there are residual assets from which an income is to

be repaid to the beneficiaries, the Executor or Administrator
becomes a trustee.
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 EXECUTOR
• A person appointed to see a will carried into effect. The person identified in the will and be
issued with Letter of Probate. Immediate power upon deceased of the testator( customer ).

 ADMINISTRATOR
• Who manages or directs – distribution of the personal estate of a deceased person. Died
with no will. One who is empowered to act for a person legally.

• Appointed by High Court and will be issued with Letter of Administration. no power to act
before appointment by court.

 An executor handles the estate of a decedent who died with a will. An administrator handles the
estate of a decedent who die without a will. The difference is the way in which they have been
appointed. An Executor is nominated within the Will of a deceased person. If there is no Will, an
Administrator is appointed by a Court to manage or administer a decedent’s estate.
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Executor Administrator
• Manager of a deceased’s • Manager of a deceased’s
account. account.
• Appointed by the • Appointed by high court.
deceased.
• Not involving any will. A
• The name of an executor person died without a
can be identified in the will.
deceased’s will. A person
died with a will. • Will be given a letter of
• Will be given a letter of administrator. (set out
probate. (set out rights / power of an
rights/power of an administrator)
executor)
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DOCUMENTS TO BE SUBMITTED TO BANK :

1. Photocopy of Executor’s or Administrator’s identity card.

2. Photocopy of Probate or Letter of Administration.

3. Specimen signature.

4. Mandate or method of signing if more than one person.

5. Rubber stamp.
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GENERAL DUTIES OF EXECUTOR AND ADMINISTRATOR:
1. To administer the estates in an orderly and proper manner.
2. To settle and distribute the estates quickly according to the
will.
3. Make an inventory and appraisal of the estates, and then file
the information to the court.
4. Must submit the will to probate court.
 Trust Accounts
A trust may be defined as the relationship which arises wherever a person
called the trustee is compelled in equity to hold property for the benefit of
some persons or the beneficiaries.
It can be in many forms:
1. It may arise out of the remaining properties of a deceased estate after
the Executors or Administrators have executed their duties.
2. It can also be expressly created by a document called Trust Deed. (In a
trust deed, the powers of the trustees are normally clearly defined).
3. Another form of trust may be created by a group of people with mutual
interest or custodian interest in funds or funds to be collected, the
association of which cannot be registered under the Societies Club Act
1966.
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 The funds or property in the possession of a trustee do not belong to him, but are held in trust

of others under an express or implied agreement.

 The law provides that where a trustee has made use of trust funds, he is liable not only for the

repayment of such funds withdrawn but also any profits made through the use of them and

where a loss has occurred instead of profits, he would be liable not only to make good on such

loss but also the profit to which the trust funds could otherwise have made if they had not been

misused by him.

 In handling trustee accounts, bank has to be very cautious as it could be implicated in the breach

of trust by a trustee and be liable for the abetment of that breach.

 Generally, banks would require all trustees to jointly sign the cheques drawn on the trustee

accounts.
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CONCEPT OF TRUSTEE
• A person having a nominal title to property that he holds for the
benefit of one or more others, the beneficiaries.

• A trustee is a person who has the legal possession and

ownership of property intended for the benefit of other
persons, generally with full powers of management over it.
• May be nominated under a will or by a Deed or agreement.
• If there is a Trust Deed , the powers of the trustee are clearly defined.
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DOCUMENTS TO BE SUBMITTED TO BANK :

1. Photocopy of Trustee’s identity card.

2. Photocopy of Trust Deed.

3. Specimen signature of trustee (s).

4. Mandate or method of signing if more than one trustees.

 Company’s Account
When dealing with companies, a banker should pay attention to
the following issues:

 Whether the company has the capacity to enter into a

particular transaction or contract.

 Whether the persons acting on behalf of the company have

the authority to bind the company
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PROCEDURE TO OPEN AN ACCOUNT FOR A COMPANY:
1. Must provide an introducer
2. The company’s certificate of incorporation
3. The company’s trading certificate
4. Memorandum and articles of association
5. A certified copy of the board of directors’ resolution appointing the
bank as the company’s banker
6. Mandate covering all banking operations
7. Specimen signature
8. The bank should also undertake a company search at the registrar
of companies.
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 CLASSES OF COMPANY
1. A Company Limited By Shares
• Liability of members limited to unpaid portion of the nominal value of
shares issued.
2. A Company Limited By Guaranteed
• Not need to pay any capital.
• Liability limited to guaranteed amount.
3. A Company Limited By Share And Guaranteed
• Members are shareholders as well as guarantors.
• Combination of no 1 & 2.
4. Unlimited Companies
• Liability of members are unlimited. If unable to settle company’s debt,
member’s personal asset are also involved.
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WHEN OPENING AN ACCOUNT FOR A COMPANY THE
FOLLOWING DOCUMENTS ARE USUALLY REQUIRED:
1. Photocopy of all directors’ identity cards.
2. A Certificate of incorporation issued by Register of Company ( ROC) @
CCM
3. Memorandum and Articles of Association (M & A)
4. Certified copies of company secretarial documents which provide
particulars of the company directors and shareholders ( form 24 –
number of shares held / form 49 - list of directors )
5. Certified copy of a resolution of the board of directors appointing the
bank as bankers of the company.
6. Mandate or method or signing by directors as authorized in the
company’s resolution.
7. Specimen signature of appointed directors.
8. Rubber stamp.
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 MEMORANDUM OF ASSOCIATION
• It set out the powers and the EXTERNAL activities of the company. It
must state:
1. The name of the company
2. The place or address the company
3. The objects of the company. (what types of business allowed )
4. The liability of the members is limited by shares or guarantee
5. The name, address and occupation of subscribers
6. The amount of share capital AND
7. Its division into shares of a fixed amount
• In practice, the banks will look at the Memorandum and see what
borrowing powers the company has.
• Any act not authorized by the memorandum is ultra vires (beyond the
powers of) the company and is void.
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 ARTICLES OF ASSOCIATION
• It sets out the regulations governing the INTERNAL working and
management of the company. It must state:
1. The duties, rights and powers of board of directors
2. The extent of directors’ borrowing powers
3. The notice and proceedings of meeting
4. The right of different classes of shareholders
5. The authority of the directors
6. How capital may be altered?
7. The issue of shares and the calls on shares

 The Articles of Association set out the directors’ lending power.

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 ULTRA VIRES BORROWING
• Ultra Vires borrowing refers to a loan which is in excess of the director’s
borrowing powers and not consistent with Memorandum and Articles of
Association ( M&A )
• Any act not authorized by the M&A is ultra vires (beyond the power of) the
company and void. The act of borrowing must not “ultra vires” the objects
of the company.
• So, Ultra Vires borrowing:
 Borrowing against objectives (tujuan) as stated in Memorandum of
Association
 Borrowing more than the amount allowed as stated in the Articles of
Association.
• How to rectify?
 Directors of the company can call for an Extraordinary General Meeting (
EGM ) to amend the objectives OR rectify the excess
 Borrowing by issuing new resolution.
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RULE IN TURQUAND
• From case Royal British Bank vs Turquand:
• It states that :
“Persons contracting with a company and dealing in
good faith may assumed that acts within its constitution
and powers have been Properly and Duly performed ,
and are not bound to inquire or ask whether acts of
internal management have been regular “.
E.g. if borrowing power exceeded M & A, bank will
assume that company will amend it by passing a new
resolution to rectify it.
 20m

Sue for repayment

Cannot sue – limit m&a = 10m

Won the case – using statutory protection

(bank act in good faith)

1. Fraud directors – 2
2. Good directors
3. Bank act in good faith
4. High court
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THERE ARE 3 FACTORS THAT MAY DETERMINED COMPANY’S MANDATE :
1. Resolution of Board of Directors
• The mandate will remain in force until a new or amended resolution is
passed.
2. Appointment of Receiver
• A receiver may be appointed by Court or by debenture holder such as
Bank in accordance with powers conferred by the debenture.
3. Liquidation of Company
• Would up of a company, it ceases to have any legal existence and all its
contractual relationships come to an end.
 Self-exercise
Final Exam Questions
Differentiate between memorandum of association
and article of association. (10 marks)

Define ultra vires borrowing. (5 marks)

State 3 factors that may determine company’s

mandate. (10 marks)
 Club and Societies’ Account
When accounts are opened for such unincorporated bodies at
the banks, the accounts should be held in the club’s or societies’
name.
The bank should also request a certified copy of the resolution
of the body stating that it has appointed the bank to operate its
account as well as listing names of persons authorized to make
transactions using the account.
These details should then become a written mandate to the
bank.
Any change in the names listed shall be notified to the bank
immediately which will stop transactions on the account upon
receiving the notice.
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Must registered with Registrar of Societies ( ROS ) under
Societies Act 1966
DOCUMENTS TO BE SUBMITTED TO BANK :
1. List and photocopy of all current board members identity card.
2. Photocopy of Certificate issued by Register of Society
3. The Rules or Constitution to ascertain the power of the society and
the power of the committee.
4. A resolution of the members of the society ( ahli ) .
5. A resolution of the committee members appointing some
committee members to sign on behalf of the society.
6. Specimen signature.
7. Mandate or method of signing.
 Closing Account
Accounts of customers at the banks can be closed in two ways,
by the customer and by the banker.
1. CLOSING OF ACCOUNT BY CUSTOMER
• If a customer wisher to close his or her account at the bank, he or she has
to submit a written letter instructing the bank to do so.
• Withdrawal of the full amount of money from the account does not
indicate intention of the customer to close the account.
2. CLOSING OF ACCOUNT BY BANK
• The bank also has the right to close customers’ accounts under certain
circumstances.
• Sufficient written notice must be given to the customer in order for the
bank to close the customer’s account.
• In the case of customer’s death, insanity or bankruptcy, the bank has the
right to close the accounts and pass the balance to the appointed
executor or administrator.
*PLEASE REVIEW PAST
YEAR QUESTIONS