Banker-Customer relationship by Nish

”Because it is a contract , the banker-

customer relationship can be terminated
in ways applicable to ordinary contracts
with the qualification that there may be
other ways to determine it that are
particular only to this relationship''
Discuss this statement taking into account
the various modes of determining the
baker-customer relationship.

In Green Boat entertainment v Kampala

city council JUSTICE YOROKAMU
BAMWINE was of the view that in law,
when we talk of a contract, we mean an
agreement enforceable at law.  For a
contract to be valid and legally enforceable
there must be: capacity to contract;
intention to contract; consensus and idem;
valuable consideration; legality of purpose;
and sufficient certainty of terms.  If in a
given transaction any of them is missing, it
could as well be called something other than
a contract.

Define a bank
Bank means any company licensed to
carry on financial institution business as its
principal business as specified in the second
schedule to this Act and includes all
branches and offices of that company in
Uganda.1[1] Financial institution means a
company licensed to carry on or conduct
financial institutions business in Uganda and
includes a Commercial Bank, Merchant
Bank, Mortgage Bank, Post Office Saving
Bank, Credit Institution, a Building society,
1[1] S 3 of the Financial Institution Act as at 31 st October 2005. See also S1 of the Bills of
Exchange Act Cap 68, S1 1 of the Evidence (Bankers Books) Act, and the Stamps Act.
An Acceptance House and a Discount
House.2[2] It is however highly remarked and
recognised that like many other beings a
banker is easier to recognise than to define. 3
[3]
This is so because of the different
functions performed by specialised banks
hence making it difficult to give a general
definition of the word bank or banker in that
the definition should only be looked at as a
sort of guide rather than an exhaustive one.
In the case of United Dominion Trust Ltd v.
Kirkwood (1966) 1 All 968

This case is a leading authority on the

question of the common law meaning of a
Banker. Lord Denning propounded that
2[2] Meaning as per the Financial Institution Act as at 31st October 2005.
3[3] See the remarks of Lord Denning in the case of United Dominions Ltd v.
Kirkwood(1966)2QB 431.
 there are therefore two characteristics
usually found in bankers today.

1.                  they accept money from and collect

cheques for their customers and place them
to their credit
.
2.                  They honour cheques or orders
drawn on them by their customers when
presented for payments and debit their
customers accordingly.

These two characteristics carry with them

also a third namely
3.                  They keep current accounts or
something of that nature in their books in
which the credits and debits are entered.

Define a customer
When it also comes to defining the word
customer the dilemma is still the same and it
is not easy to define it with exactness. It
seems that the major factor determining
whether or not a person is a customer must
depend on whether or not such a person has
or will have an account with the bank.4[4]
Duration is not of the essence when
determining the relationship between a
banker and customer.
In GREAT WESTERN RAILWAY CO V
LONDON COUNTY BANKING CO.
LTD (1901) AC 414
If a person has no account with the bank and
is not about to open on account with the
bank the fact that the bank renders some
casual service to or for him does not qualify
him as a customer. However an agreement
to open an account is sufficient to constitute
a person a customer of a bank.
4[4] Read the case of Great Western Railway Co v. London and County Banking Co ltd
(1901)AC 414.
Court held that a person need not have a
series of dealings with the bank before he
acquires the status of a customer. He
becomes a customer the moment the bank
receives money/cheque and agrees to open
an account for him

In Landbroke v. Todd (1914) Vol 30

T.L.R
The court said; “in the opinion a person
becomes a customer of a bank when he goes
to the bank with money or cheque and asks
the bank to open an account in his name, and
the bank accepts the money or cheque and is
prepared to open an account in the name of
the person; after that he is entitled to be
called a customer.”

The Relationship of a Banker and a

Customer:
In Foley v. Hill (1848) Vol H.L
There is an argument that the relationship of
a banker and customer consists of a general
contract which is basic to all transactions
together with special contracts which arise
in relation to the specific transactions or
services that the Bank offers. The nature of
the contract is described in a leading case of
Joachimson v. Swiss Bank Corporation.
1921 Vol. 3 A.B. 110

Lord Atkin in this case described that

contract at page 127 in the following terms

“I think that there is only one contract made

between the bank and its customer. The
terms of that contract involve obligations on
both sides and require statements. They
appear upon consideration to include the
following provisions. The bank undertakes
to receive money and to collect bills for its
customers account. The proceeds so
received are not to be held in trust for the
customer but 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. It is a term of the
contract that the bank will not cease to do
business with a customer except upon
reasonable notice. The customer on his part
undertakes to exercise reasonable care in
executing his written orders so as not to
mislead the bank or to facilitate forgery. I
think it is necessarily a term of such contract
that the bank is not liable to pay the
customer the full amount of his balance until
he demands payments from the bank at the
branch at which a current account is kept.

Ways in which an ordinary contract can

be terminated
In Mobil (u) ltd v U.C.B, it was noted that
the relationship between a banker and
customer is contractual. It’s an implied
contract whose terms are in much dependent
on the custom of bankers. Because it is a
contract the banker customer relationship
can as well be discharged or terminated
thereby determining the relationship.
The banker-customer relationship can be
determined on ways applicable to ordinary
contracts. There are four methods of
discharging contractual obligations in an
ordinary contract; these include
performance, agreement, impossibility or
frustration and breach. However as per the
banker-customer relationship the only
applicable and practical methods are
agreement and frustration also known as
impossibility.
The banker-customer relationship will be
determined by agreement through mutual
agreement where the both the banker and
customer agree to extinguish the rights and
obligations under the he banking contract.
This can be enlightened by the latin maxim
translated as “what has been created by
agreement can be extinguished by
agreement”
However in usual banking practice, such
cases of mutual termination are rare.
Frustration or impossibility will also apply
in instances where the customer is using the
account for illegal transactions. The bank
can close the account of the customer
without giving reasonable notice to such
customer. This is applicable to an ordinary
contract where illegality is deemed to be
impossibility. This is in line with the bank’s
superior public duty not to aid an illegality.
That’s why in Banex limited v Gold Trust
Bank ltd Platt J.S.C noted the bank’s duty
is to act in accordance with the lawful
requests of the customer in the normal
operation of the customer’s account.
Frustration just like in an ordinary contract
will determine the banker-customer
relationship where the banker’s right to
transact a banking business will be
terminated once the central bank revokes its
license as under section 17 of the Financial
institutions Act No 2 of 2004. In ordinary
contracts this can be seen as frustration by
government intervention. This is because a
banker-customer relationship can be
determined by the central bank which is a
government body.
Legislation stopping the banker-customer
relationship can frustrate the relationship
hence determining it. An example would be
legislation during time of war against
trading with the enemy. This is similar to
that of an ordinary contract whereby
government interventions through
enactments can frustrate a contract. This was
the case in Twentsche Overseas Trading
case where court noted that the contract had
been frustrated following an outbreak of war
and legislation that followed in its wake.
In banker-customer, where there is
legislation very often confiscate credit
balances of an enemy customer thus
effectively terminating the bank-customer
relationship. In criminal enactments like the
penal code Act targeting the offences of
corruption, the courts will be empowered to
place restrictive orders that appear
reasonable if an application is made by the
DPP.
Mental incapacity is encompassed under
frustration and may determine the
relationship of a banker-customer as well as
that of an ordinary contract. Section I (f) of
the Mental Treatment Act defines a person
of mental incapacity as a person of unsound
mind as an idiot or a person who is suffering
from mental derangement. In Jackson v
union marine Insurance co. ltd an ordinary
contract to write a book was frustrated by
the supervening insanity of the author.
Death also arises under frustration as to
determination of an ordinary contract. The
common law rule is that upon the death of a
party to a contract there is automatic
assignment of the rights and liabilities of the
deceased to his personal representatives but
this law doesn’t apply to relations of
personal nature where the banker-customer
relationship falls therefore where a bank
receives notice of the customer’s death its
duty and authority to pay a cheque drawn on
the bank by the customer is determined as
per section 71 of Bills of Exchange Act.
This will however depend on the question of
facts. The customer’s death thus terminates
the contract between a banker and such
customer. The balances on the account are
vested on the legal representative of the
deceased customer as appointed under the
succession Act and where the customer dies
intestate; the administrator first obtains
letters of administration.

Other ways determining a banker-

customer relationship
1. Closure of account by the
customer on demand. By demanding
payment of the outstanding balance on
the account. However withdraw of funds
on the account doesn’t mean the end of
customer-banker relationship. In Wilson
v Midland bank ltd the bank manager
relied on a telephone conversation with
the customer, which conversation the
customer would not recollect, to close
the customer’s account. The customer
subsequently paid the money into his
account which the bank credited to a
wrong account and it was dishonored in
the words of the account. The bank was
condemned for breach of contract and
libel. It is also prudent for the bank to
obtain written evidence that the
customer is closing the account upon
settlement of the overdraft hence that
requirement that the customer surrenders
all unused cheque forms as a good
safeguard for the bank.
2. Closure of account by the bank
with an exception to illegality. This can
be done through giving reasonable
notice to its customer. In
JOACHIMSON V SWISS BANK Atkin
L.J pointed out that it is a term of the
contract that the bank will not cease to
do business with the customer except
upon reasonable notice.
3. Bankruptcy of a customer.
Bankruptcy means a state of a person
who has been adjudged to be insolvent.
Bankruptcy will have the effect of
closing the account.
4. Winding up of the customer. A
company is seen as an individual
because of its legal existence. Section
211 of the companies Act, a company
may wind up by either court, voluntarily
or as a subject to the supervision of
court. IN RE RUSSIAN
COMMERCIAL AND INDUSTRIAL
BANK, it was held that a relationship is
 terminated when the legal personality of
a body corporate ceases to exist.
5. Garnishee orders. This is the order
that makes determination of a banker-
customer relationship. Garnishee order is
the order served on the garnishee
attaching a debt in his hands. The
garnishee order is under order 20 rules
of the civil procedure rules. The
garnishee may be commanded to appear
before court to show cause why he
should not pay the decree holder the due
from him to the judgment debtor. The
order issued attaching the debt is at this
stage called nisi. A customer whose
account is thus attached should be
informed of the receipt of the order. in
Rogers v whitely, it was held that un
restricted garnishee order completely
immobilizes the destroyed account.