Structure of presentation

• Introduction
• Personal Accounts
• Joint Accounts
• Minor’s Accounts
• Trust Accounts
• Accounts of Personal Representatives
• Accounts of Limited Liability Companies
• Accounts of Partnerships
• Accounts of Unincorporated Associations
 Introduction
• Bank customers do not constitute a
homogeneous body of persons. They rather
represent different groups and so different
banking considerations and rules may also
apply to them.
• Accordingly, banks have devised different
types of accounts and are constantly
innovating new products to cater for different
needs of their customers.
 Introduction
• In this unit we shall look at personal accounts of
individuals, joint accounts, minors accounts, trust
accounts, accounts of personal representatives,
accounts of limited liability companies, accounts
of partnerships, and accounts of unincorporated
associations.
• A bank account may be either a current account
facilitating paying by cheque or savings accounts
or fixed deposit accounts for a set period of time.
 Personal Accounts
• Any person who can legally enter into a
contract may open a bank account in his or her
name.
• Individual person’s accounts (sometimes called
sole accounts) presumably constitute the
commonest or largest form of accounts in
terms of numbers, in an individual bank and
the banking system as a whole.
 Personal Accounts
• The formalities for an individual to open a
personal account are generally minimal and while
each bank has its own regulations, all banks
require the same basic information to satisfy its
simplest preliminary requirements.
• The major considerations that need to be taken
into account with personal accounts are age,
mental condition of the account holder and
obtaining reliable references and proper
identification of the applicant for the account.
• A joint account Joint Accounts
is any account opened in the names of
two or more persons other than the account for
partnership, personal representatives or trustees. Joint
accounts are commonly seen between husband and
wife.
• The rights and duties of the banker and the customer are
the same whether an account is a joint or an individual
account.
• However, where the account is joint, it is necessary for
the banker to know the mandate and the liability of
each of the parties to the account.
• Joint Accounts
Account’s Mandate
• On the opening of a joint account, the banker should
obtain a written mandate signed by all parties covering
all possible banking operations on the account.
• Of the most important is for the bank to know from the
outset which and how many of the parties (and which
third party if any) would have the authority to sign
cheques or carry out other transactions in connection
with the account.
• Without such mandate the banker is not safe in paying a
cheque unless it has been signed by all the parties to the
account.
 Joint Accounts
• The mandate n this regard may be, “all to sign”,
“anyone to sign,” or “either to sign”.
• Where the mandate allow either party to sign cheques, it
is accepted that either party can stop a cheque, even if
he is not the party that signed the cheque.
• Power to draw cheques on a joint account by one or
more of the account holders does not mean power to
overdraw or create an overdraft. Thus a debt created by
one account holder does not tie the other unless there is
an agreement to that effect.
 Joint Accounts
• The following points should be noted about joint
accounts:
➢ Parties to a joint account are generally jointly
liable on any debt on the account.
➢ If a third party (an agent) is to sign on the
account, all joint account holders must sign the
authority for the agent to do so.
➢ Unless there is an agreement to the contrary, the
mandate may be revoked at any time by any of the
parties to the account.
 Joint Accounts
➢ The mandate is revoked automatically by the death,
bankruptcy or mental incapacity of any of any of the
joint account holders and therefore the bank should stop
the account as soon as it has notice of any of these
events.
➢ If the joint account is stopped because of death of one
of the joint account holders, the balance in the joint
account devolves on the survivor or survivors, that is, it
is transferred to the surviving party(s). Such transfer
does not mean that the money belongs beneficially to
the survivors but is a matter to be resolved between the
survivors and personal representative of the deceased
party.
 Joint Accounts
• Joint Liability and Several Liability
• Joint liability is liability which is owed to a third
party by two or more parties together, for
example, shared liability for a debt or other
obligation.
• It gives the bank or any other creditor a joint right
of action against all those liable on the contract.
• This can be exercised by suing one debtor or a
combination of them all.
• The result of Joint
joint liability is that:
Accounts
➢ If one or some of the account holders is, or are
sued by the bank for the joint debt, the others
cannot be sued afterwards.
➢ The bank cannot set off credit balances if any on
the separate accounts of joint account holders
against their joint debt under the joint account.
➢ Unless the joint holders are partners, death of
one of them will discharge his estate from
liability.
 Joint Accounts
• To avoid the results of joint liability only,
banks include in their forms of application for
joint accounts, a clause establishing joint and
several liability of joint account holders.
• The clause for joint and several liability gives
the bank the right to sue the parties together,
that is jointly, and / or individually, one after
the other, that is, severally.
 Joint Accounts
• Joint and several liability, therefore is
individual and shared liability.
• It means that that, each joint account holder is
individually liable for the whole debt, in
addition to the right of joint action against all
parties.
 Joint Accounts
• Advantages of Joint and Several Liability
• By taking joint and several liabilities from joint
account holders a banker obtains the following
advantages:
➢ The banker may sue the joint account holders
jointly and / or individually (that is severally),
if need be in successive actions, until the debt
is cumulatively satisfied.
 Joint Accounts
➢ Where joint and several liability has been
established, the estate of the deceased will be
used to repay debts under the joint account.
The estate of the deceased is liable only for
debts outstanding at the time of his death.
➢ Any funds held in private accounts in the
names of any parties to the joint account will
also be liable for combination or set-off with
the debt of the overdraft account.
 Minors’ Accounts
• We have learnt from the law of contract that
contracts made by minors are void.
• As a precaution against a minors’ limited
contractual capacity, a minor’s account would
normally be opened under the style ‘A in trust
for B”, with the parent or guardian as a trustee.
In such situation, the banker must ensure that all
withdrawals are made by A.
 Trust Accounts
• A person holding property ay either own it for
his or her own benefit, or hold it in trust for the
benefit of someone else.
• The person(s) who has taken on the duty of
dealing with property over which he or she has
control for the benefit of other persons holds
the property as a “trustee(s)” and the persons
for whose benefit he or she holds the property
are called “beneficiaries”.
 Trust Accounts
• A trust may be an express trust or an implied trust.
• Trustees owe a very strict duty of good faith in
dealing with the property they hold for the benefit of
beneficiaries.
• A trust account can be described as any account
which to the banker’s actual or constructive
knowledge is being operated by a trustee, or a person
acting in some other fiduciary capacity.
 Trust Accounts
• The importance of trust accounts for bankers is
that the banker has a special duty not to
knowingly operate the account against the
interests of the beneficiary.
• The law allows an action against a bank that
intentionally or negligently facilitates the
breach of trust.
 Trust Accounts
• Often, trustees open accounts as joint holders in their
personal names and if there is no notice of trust the
account may be conducted like an ordinary joint
account.
• The banker is under no obligation to inquire whether
the applicants are trustees or not. But if customer
deposits money which the banker knows to be trust
money in his or her name, the banker must not allow
the customer to draw out the money for the purposes
which are inconsistent with his duties as a trustee.
 Trust Accounts
• Where the bank knows that the customer is opening
an account in the capacity of a trustee, it is considered
to be safe for a banker to open the account as a trust
account. For example, the account may be boldly
headed, “Trust Account”.
• The bank should first obtain sufficient references and
a copy or details of the trust deed or governing
document for references though there is no legal
obligation to have sight of those documents.
 Trust Accounts
• Trustees are usually not allowed to delegate
their powers hence all of them must sign on the
account unless the trust deed or the law
governing the trust says otherwise.
• Trustees also have no implied power to borrow.
If a loan is requested, the trust deed must be
examined to see if it gives power to borrow for
the purpose intended and to charge the trust
property as security.
 Trust Accounts
➢ A trust account when opened specifically as a
trust account raises no special duty to the banker.
It is to be regarded as an account of the trustee,
who is the legal owner and the beneficiary is
merely an equitable owner.
➢ The party to the account is the trustee not the
beneficiary who is a third party. In law the banker
is liable only to the legal owner of the account
owner (i.e. the trustee) and the bank has to obey
his instructions under the mandate of the trust.
 Trust Accounts
• The banker must honour cheques drawn by the
trustee except where he bank knows that the
trustee is going to misappropriate the funds, that
is, use the funds against the interests of the
beneficiary.
• It is however not the duty of the bank to find out
how the money is going to be used before it pays
the trustee. The banker’s duty stops at not
knowingly facilitating fraud or allowing improper
conduct of the account contrary to the purposes of
the trust.
 Accounts of Personal Representatives
• The persons appointed to wind up and distribute a
deceased estate are called personal representatives of the
deceased.
• If appointed by a will they are called executors and if
appointed by the court they are called administrators.
• The duties of executors and administrators are substantially the
same, that is, to pay off any debts owed by the deceased,
including any funeral expenses and taxes and then distribute
the remainder of the estate to the beneficiaries according to the
legacies (instructions) laid down in the will, or according to
the rules of intestacy where there is no will.
 Accounts of Personal Representatives

• Both executors and administrators can only

legally act with the authority of the court.
• An executor must have his appointment and
authority confirmed by the grant of probate.
• Probate is the process where the will is
exhibited and proved in court, the original
being deposited in the court registry and a
copy made out under a courts seal delivered to
the executor together with a certificate of its
having been proved.
 Accounts of Personal Representatives

• An administrator is appointed by the court, where the

deceased has not left a will or where no executor is
named in the will or where the named executor is
unwilling to act.
• The court will appoint a relative, a spouse or a close
acquaintance of the deceased as administrator and
grant him or her the letters of administration.
• Letter of administration is the official document
empowering the administrator to administer the
deceased’s estate.
 Accounts of Personal Representatives

• After exhibition of probate or letters of

administration to the banker, the personal
representatives should be allowed to close the
deceased’s account and deal with the deceased
securities, if any.
• An executor’s account can be opened
immediately on the death of the testator (the
person making a will).
 Accounts of Personal Representatives

• Administrators cannot, however open an

account until they have been granted letters of
administration.
• The accounts should be opened in the
following form: “AB executor to the estate of
X deceased” or in the case of administrators,
“AB Administrator /Administrix to the Estate
of Y deceased”.
 Accounts of Personal Representatives

• If an executor or administrator misapplies

money belonging to the deceased’s estate and
the banker is aware of it, it will be held liable
to refund it.
 Accounts of Limited Liability Companies

• A company is an association of persons who

have contributed to finance a common stock
which will be employed in some trade or
business activities and who share among them
the profit or loss (as the case may be) arising
there from.
• The common stock is the company’s financial
capital (share capital) and the contributors of it
are its members or shareholders.
• Trading companies are broadly of two types,
public companies and private companies.
• A public company is one that advertises itself
by prospectus and offers shares to the public.
By this means the company gets the money
necessary to start a business or expand it.
• A private company does not appeal to the
public for funds.