RELATIONSHIP

BETWEEN BANK &

CUSTOMER

Chapter 3
 LECTURE OUTLINES

•Definition of bank
•Definition of banking business
•Definition of customer
•Nature of banker-customer
relationship
LEARNING OUTCOMES
• At the end of the topic students should be
able to:

• Define the term bank, banker, customer

and banking business
• Understand the principles related to
relationship between bank and customer
• Identify the nature of relationship between
banker and customer.
DEFINITION
S2 BAFIA

BANK A person who carries

on banking
business
DEFINITION
• FSA?

BANK • IFSA?
DEFINITION
S2
Bill of Exchange
Act 1949

BANKER Includes a body of

persons whether
incorporated or not, who
carry on the business of
banking
DEFINITION

• FSA?
BANKER
• IFSA?
DEFINITION S2
BAFIA

1. The business of:

•Receiving deposit on current
BANKING account, deposit account, savings
BUSINESS accounts or other similar accounts
•Paying or collecting cheques
drawn by or paid in by customers
•Provision of finance

2. Such other business as the Bank

with the approval of the Minister
may prescribe
DEFINITION

• FSA?

BANKING
BUSINESS • IFSA?
 CHARACTERISTICES OF BANKING
BUSINESS

• The conduct of current

accounts
United Dominions
Trust Ltd v Kirkwood • The payment of
[1966] 1 All ER 968 cheques drawn on
bankers
• The collection of
cheques for customers
 CHARACTERISTICES OF BANKER

• They accept money from, and collect

cheques for, their customers and
place them to their credit
United Dominions
• They honour cheques or orders
Trust Ltd v Kirkwood drawn on them by their customers
[1966] 1 All ER 968 when presented for payment and
debit their customer accordingly

• They keep current accounts or

something of that nature in their
books in which the credits and debits
are entered
DEFINITION

CUSTOMER No statutory definition of

customer
DEFINITION

• FSA?

CUSTOMER
• IFSA?
 JUDICIAL PRINCIPLES
The relationship of banker and customer does not
come into existence unless both parties intend to
enter into it.

A person must have some form of account with the

bank to be a customer.

A person may be regarded as a customer of the bank

even before opening an account with the bank.

A person becomes a customer immediately once he

opens a n account with a bank. Duration of the
relationship is not of the essence

A bank may be another bank’s customer.

 NATURE OF THE BANKER-
CUSTOMER RELATIONSHIP

NATURE OF
RELATIONSHIP

Contractual Fiduciary Constructive Bailor – bailee

relationship relationship trustee and relationship
beneficiary
relationship
Debtor-
creditor

Agent-
principal
 CREDITOR/
DEBTOR

BANKER •Money deposited by the

customer with the bank

•Money lent to the

CUSTOMER customer by the banker
 AGENT
PRINCIPAL

•Customer gives mandate to

the bank to do certain acts

BANKER •Bank carries out standing

instruction or orders

•Collection of bills and other

trade transaction
CUSTOMER

•Collection of proceeds of
cheques for his customer
 FIDUCIARY
RELATIONSHIP

BANKER
•Fiduciary duties of a
trustee over trust funds

CUSTOMER •Financial adviser

 CONSTRUCTIVE
TRUSTEE AND
BENEFICIARY

BANKER The bank has knowledge that

its customer holds money in
trust, the bank should not part
with the money for any purpose
which is inconsistent with the
CUSTOMER trust even on the instruction of
the customer
 BAILOR
BAILEE

A legal relationship in common

BANKER
law where physical possession
of personal property (chattels)
is transferred from one person
(the 'bailor') to another person
CUSTOMER (the 'bailee') who subsequently
holds possession of the
property.