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BANKING & LENDINGPRACTICE

Week3

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Banker/Customer Relationship

[201-224] The banker/customer relationship is a

contractual relationship and is covered by the

general rules of contract law It is the relationship of debtor and creditor.

Once the customer deposits funds there is adebt owed by the bank to the customer

When the relationship is subject to specialarrangements such as a joint account etc aspecial authority is taken as it is necessary tohave written consent to vary the relationship.

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Banker/Customer Relationship Some other banking situations are

covered by the rules of:

Principle/agent

Trustee/beneficiary

These areas require separate documentdocumentation setting out the rules of therelationship

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Termination of Banker /

Customer Relationship Termination by mutual agreement [334

& 433]

Termination by customer [334 & 433]

Termination by banker [334 & 433]

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Termination of Banker /

Customer Relationship Termination by mutual agreement

Termination by mutual agreement iswhen both the customer and bankagree to close the account. In this casethe bank will pay out any creditbalances.

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Termination of Banker /

Customer relationship Termination by Customer [335]

The customer is not obliged to give notice toa banker where the account is in credit. Thecustomer demands payment of the creditbalance

A credit balance is closed by paying theoutstanding balance in full plus fees andcharges owing provided they have satisfiedall the terms and conditions of the account.

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Termination of Banker /

Customer Relationship Termination by banker [334]

The banker can terminate the banker/customer relationship and close thecustomers account that has a creditbalance provided notice is given allowing areasonable time to set up to enable thecustomer to set up new bankingarrangements. See Prosperity Ltd v LloydsBank Ltd (1923)

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Bankers Duties Duty of care [205-211]

Duty to issue statements [223 & 433]

Duty of confidentiality / Secrecy [301-312]

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Bankers Duty of Care Legally the duty of care is judged on

what an ordinary reasonable person

would do, or on what is normally donein similar circumstances. Lloyds Bank Ltd v EB Savory & Co (1933)

Saving Bank of South Australia v Wallman(1935)

L Shaddock & Assoc Pty Ltd v ParramattaCity Council

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Bankers Duty to Issue

Statements [223 & 433] S 14.1 Code of Banking Practice states

that personal customers must receive astatement of their account at least atsix monthly intervals.

Except when it is a passbook account or

that there have been no transactions onthe account fort the past six months.

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Bankers Duty of

Confidentiality [301-312] The duty of confidentiality relates to:

Details of the customers account

Information derived from the customersaccount

Information acquired in the course of the

banker/customer relationship The duty of confidentiality extends beyond

the duration of the account.

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Bankers Duty of

Confidentiality Continued Exceptions to duty of confidentiality:

Where the disclosure is under compulsion of

law Where there is a duty to the public to

disclose

Where the interests of the bank requiredisclosure

Where the disclosure is made by express orimplied consent of the customer

Where disclosure is to the tax department

Tournier v National Provintial & Union Bankof En land 1924

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Bankers Rights

Right of set-off accounts [313-315]

Right to charge fees and interest [320]

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Bankers Right of Set-Off

[313-315] The following conditions must apply:

The account must be held by the customer

in the one capacity, eg cannot combineaccounts if one is a personal account theother a trust account

There must be no contract precluding the

right to set off The customers indebtedness must have

been incurred to it as a banker not undersome other service

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Bankers Right of Set-Off Cont.

Banks tend to cautious about combiningaccounts without notice and in theabsence of the customers expressauthority to do so.

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Bankers Right to Charge Fees

& Interest [320] The banks right to charge fees & Commission

is based on universal custom and is an

implied term of the banker/customer contract The right to charge interest on unauthorised

overdrafts and debit interest to the account isalso an implied term of the contract. Bank of

New South Wales v Brown (1982-3)

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Bankers Obligations [213] A bankers obligation to pay cheques to the

value of the credit balance of the account or

to the arranged overdraft limit of the accountprovided: The cheque is an effective instrument drawn

in proper form

There are sufficient funds to meet the valueof the cheque

There are no legal impediments to the bankshonouring the cheque