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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