Relationship between Banker and Customer.
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The relationship between a bank and a customer exists as from the date when the bank accepts the customer’s instructions even though an account has not been opened until a certain reasonable period of time later. It is a contractual relationship under which an account is to be established.
The relationship of banker and customer does not come into existence unless both parties intend to enter into it. If a person has no account with a bank and is not about to open an account, the fact that a bank renders some causal service for him will not make him a customer.
The banker has the expressed and implied right to charge a customer a reasonable fee for a service.
The banker should supply a customer with either a passbook or a statement recording the item by item transactions and the balance of the accounts held with the banker.
Debtor and Creditor
Principal and Agent
A bank acts as an agent for a customer to collect and process the customer’s cheques and accepts the customer’s instructions in other services such as foreign exchange, buying and selling stocks and shares, payroll management, etc. The customer is the principal in the contract of services.
The mortgagor/mortgagee relationship is established when a bank (the mortgagee) takes a mortgage over securities when granting an advance to a customer (the mortgagor).
The bailor/bailee relationship is established when a bank (the bailee) takes charge of the valuables of a customer (the bailor) for safe custody, and the bank is bound to take reasonable care of the customer’s property.
According to the case Foley v. Hill and Others (1848), the relation between a banker and his customer who pays money into the bank is the ordinary relation of debtor and creditor. Money, when paid into a bank, ceases to be the money of the customer; it is the money of the banker, who is bound to return an equivalent by paying a similar sum to the customer when he is asked for it.
The banker must receive cash and collect the proceeds of such items as cheques, postal orders, money orders and bills of exchange for his customer’s account. The money so received becomes at once the property of the banker, and he is indebted to his customer for an equivalent sum; hence the banker does not hold the money as his customer’s agent or trustee.
The relationship between a banker and a customer may be terminated by mutual consent, or unilaterally by either party.
A customer can close his current account with the credit balance duly withdrawn. If the current account is overdrawn, the bank will nevertheless require the repayment of both the principal and interest accrued before the closure of the account can be duly effected. Any unused cheques of the account should be returned by the customer to the bank for destruction. Then the credit facilities should be immediately deleted and any securities should be returned to the customer.
On the other hand, a bank has to give its customer reasonable notice before the closure of the customer’s accounts, which must be long enough to enable the customer to make alternative arrangements except the customer has performed any unlawful acts.
It is the bank’s duty not to disclose to a third party any information about its customer. Any violation of the duty of secrecy can result in the bank being sued by the customer.
But a bank may disclose information about a customer’s account under the following circumstances :
According to the case Joachimson v. Swiss Bank Corporation (1921), the bank undertakes to receive money for its customer’s account, and that money so received is not held in trust for the customer but borrowed from him with a promise to repay it or any part of it during banking hours at the branch of the bank at which the account is kept, against the customer’s written order addressed to the bank at the branch.
The customer must give clear instructions as to how money of his account is to be repaid. When giving the instructions, the customer must exercise reasonable care so that the bank is not misled and forgery facilitated, e.g. instructions on a cheque.
The bank’s duty of repayment can be overridden under the following circumstances :
The Code of Banking Practice (Code) is issued jointly by the Hong Kong Association of Banks (HKAB) and the Deposit-taking Companies Association (DTCA) and endorsed by the Hong Kong Monetary Authority (HKMA). This is a non-statutory Code issued on a voluntary basis. It is to be observed by authorized institutions in dealing with their personal customers. It covers specifically banking services such as current accounts, savings and other deposit accounts, loans and overdrafts, and card services. However, the principles of the Code apply to the overall relationship between authorized institutions and their customers.