THE BANKER – CUSTOMER RELATIONSHIP

Definitions
1. Bank or Banker – it is defined
(a) Statutorily – (i) Bills of Exchange Act [Cap. 215] s.2:
“It includes a board of person whether incorporated or not who
carries on the business of banking”.
The statute does not describe the phrase “carries on the business
of banking”.
(ii) BoT Act, 2006. S.3 – “a bank except when used …… a financial
institution authorized to receive money in current account
subject to withdrawal by cheque”.
(i) FOREX 1992 S.4 – “banks within the meaning of s.3 of BFI
1991”.
Banking and Financial Institutions Act 1991 S.3: “financial
institution authorized to receive money subject to withdrawal
by cheque”.
Banking and Financial Institutions Act 2006 s. 3: “bank
means an entity that is engaged in the banking business”. It
also defines “banking business” as the “business of receiving
funds from the general public through the acceptance of
deposits payable upon demand or after a fixed period or after
notice, or any similar operation through the frequent sale or
placement of bonds, certificates, notes or other securities, and
to use such funds, in whole or in part, for loans or investments
for the account of and at the risk of the person doing such
business”

(b) By case law:

Cases: - United Dominions Trust Bank v. Kirkwood [1966] 2QB
431 of
[1966] 1 ALLER 968
“a bank or banker is a corporation of person or group of
persons who accepts money on current accounts, pay
 cheque drawn upon such accounts on demand and
collect cheques for customers”.
(c) By textbooks:
Sheldon’s Practice and Law of Banking”
“a term banking can be defined according to purpose and function
or context according to which t he definition is required”.
− No agreed definition.
− There must be the following functions of bank:
(i) receiving money from customer.
(ii) repaying it when cheques are honoured.
Dr. Hart, Law of Banking, 4th Ed.
“a banker/bank is a person of company who or which carries
on the business of receiving money from customers, collecting
drafts for customers and honouring cheques drawn by
customers provided there’re sufficient funds in the customer’s
account to meet the cheque”.

Paget’s Law of Banking

− its definition is the same as what has been held in the
United Dominion case.
− Bank/Banker should:
(i) Accepts money on the current accounts.
(ii) Pay cheque on such accounts on demands
(iii) Collects cheques for customer.

Common features of definition:

(1) Accept deposits.
(2) Open current accounts.
(3) Honour cheque.
(4) Act as bank for collection.
− Cheque began during the 17th century.

In a broader view, the definition of banking can be viewed as

follows:
 Initially people kept their money for safe custody. With the
development of money, the banking institutions were established
to handle huge sums of money. Huge financial banks were
required to deal with financial matters. The definition of
bank/banker cannot currently accommodate the expanded
financial affairs of the world.

2. Customer:
There’s no standard definition of a customer.
(i) Cases:
(a) Great Western Rly Co. V. London & County Banking Co. Ltd.
[1899] 2QB or [1901] AC 414
− Customer: must have some sorts of account either
deposit or current some similar relation with the bank.
− Discounting by itself does not make a person a
customer.

(b) Ladbroke & Company v. Todd [1914] 30 TLR 433

− “a thief who uses a stolen cheque to open an account
becomes a customer”.

(c) Woods v. Martins Bank Ltd [1959] 1QB 55 or [1958] ALL ER

166
− A certain person contacted a bank for advice to invest
money with a certain company or not to invest. He
directed to transfer his money from another association
to make investment and the rest money to open an
account. He suffered loss from the investment and he
filed a suit.
issue: was it proper to call this person a customer so as
to hold a bank liable?
hold: “to make a person a customer it is not necessary
that an account be open, a mere likelihood that an
account may be opened is enough to make a person a
 customer of that bank provided that be it agreed to
provide services to such person”.

(ii) Text books

(a) Sheldon – “a bank account is a must”.
“one becomes a customer as soon as money or cheque is paid
and the bank accepts it and is prepared to open an account.
People with no accounts but who keep valuable items with the
bank either directly or through a customer would seem to be
customers”.

RATIONALE FOR THE DEFINITION:

(i) for regulatory purposes.
(ii) There’re certain jurisdictions that provides privileges and
protection for bank – therefore if a bank has those features,
it will enjoy the privileges provided.
(iii) To ensure that payment obligations are fulfilled.

NATURE OF BANKER – CUSTOMER RELATIONSHIP

− It is a contractual relationship

* How to conclude a banking contractual relationship:

It is by opening of an account with the bank. This is done by the
following formalities:
(a) General procedural requirements:
(i) What a bank should do before accepting a person a new
customer? It must make a diligent search relating to
the integrity and responsibility of the intending
customer.

(ii) Why such search? It is important for the bank to

inquire in order to get the introduction if such customer
is reliable or not.
 Why important to know that? (a) The use of banking
facilities has become wide spread with great
development in the commodity production.
(b) since the use of bank facilities especially cheques
has become wide-spread there’s a possibility of
accepting dishonest customers.

(iii) A new intending customer

(a) must be introduced to a bank by a customer of a
bank i.e. a referee.
(b) Must have his specimen signature taken
(c) Name must be taken in full and sometimes in block
letter
(d) Hs address must be taken
(e) His occupation
* where he intending customer is not an individual e.g.
non-business organizations such a clubs.
Case: Peterson Waigum Kariuk v. National Bank of
Kenya Ltd [1969] High Court of Kenya.
Procedure for opening current account with the NBK
are:
(i) Formal request must be completed and signed by
the intending customer.
(ii) The intending customer must declare that he is
ready to comply with the rules that governs current
account of the bank.
(iii) Statement of account must be made to him.
(iv) Occupation must be supplied to the bank.
Procedure for crating contractual relationship in UK:
In most cases, the new customers are required to record
their signatures, full names and occupation along with
one or two referees.

(b) When is the contract formed?:

Case: Great Rluy v. London & Count Co. [1901] AC 414
To make a person a customer there must be either current
or deposit account or some similar relationship. More
discounting cheques for 20 yrs with a certain bank does not
make a person a customer of that bank.
Case: Ladbroke case [1914/5] ALL ER 114
“relationship starts as soon as a customer deposit money or
hands in a cheque and the deposit money or hands in a
cheque and the bank accept to open up an account for the
customer”. The relationship begins as soon as the first
cheque is handed to the banker for collection and not when
it is paid.
From the two cases the emphasis is on existing on an
account in order to establish the relationship.

Case: Wood v. Martins Bank Ltd. [1959] 1 QB

Issues: (i) whether the bank was liable for company’s loss
of
investment in the company.
(ii) whether the relation of bank account was
established
When the Bank gave company the advice.

Second issue: certificate said that the relationship began

when the Bank accepted to and advised him on investment
of his capita.
Centre of decision:
(i) Acceptance and willingness of Bank to give the advice.
(ii) Acceptance by the bank to act on instructions given to
him by W.
Relationship (according to this case) begins the moment
when the two either the negotiations which are to be part of
the contract between the two.
(c) Nature of the relationship:
(i) Is it of trustee – beneficiary?
− Whether B is required to give an account to customer
to last sentence.

− A trustee isn’t supposed to deal with the money

entrusted to him as his own money because that
money belong to the beneficiary.

− Trust is a relation between one person and another

based on confidence by which property of one person
is vested in or held by another person on behalf of an
for benefit of the one vested in him.

− Trustee must account to the beneficiary to the last

cent (including all profits from the investment).

* Banker deals with the customers money as its

own money.
* Banker isn’t obliged to account to the customer to
the last sentence (bank is not obliged to give
interest to customer)
Case: Joachimson v. Swiss Bank Corporation [1921] 3
KB 110 “proceeds so received by a bank of a customer
are held not in trust for a customer but the bank
borrows the money from the customer”.

(ii) Is it of Principal – Agent relationship?

− Agency: ”it is a contract of employment to bring the
principal into legal relations with a third party”.

Elements of Principal – Agent relationship:

− An agent is bound to conduct the business of the
principal according to the principal’s directions.
 S.163 LCO – requirements of the principal’s
mandate.
− An agent is obliged to render proper account to his
principal on demand (S.165 LCO).
Duties of an agent (ss.163 – 173)
* Whether B/C relationship is of P/A relation:
General rule: B/C is not of P/A relationship;
because Banker doesn’t take directives from
customers on how to deal with the money
deposited with the banker.
− The Banker isn’t supposed to render proper
account to its customers on demand.

Exceptions to general rule

− When a Banker acts as a bank for collection (it
becomes an agent of a customer with the drawing
bank a third party). Once the money is credited to
the customer account that relationship ends.

− In case of fund transfers. This is process by which

an instruction is given to a bank to transfer amount
of money into a customer’s account. (transfer of
account) e.g. electronic funds transfer. Here again
the principal –agent relationship starts.

(iii) Is it of Bailor – Bailee relationship?

Bailment: is the delivery of goods by one person to
another for some purpose, upon a contract purpose is
accomplished (s.100(i) LCO).
Whether customer is bailor and bank a bailee
The relationship is not of bailor-bailee because the
banker is not obliged to pay the very same thing (i.e.
money) as it (bank) took.
 What kind of relationship exist between a bank and the
customer for keeping valuables with banks for and safe
custody? (is Bank obliged to return the same items to
the customer? If yes, then the relation is of Bailor-
Bailee)

(iv) Is it of creditor – Debtor relationship?

− The exact relationship of bank account is that of
Creditor – Debtor relationship.
− Why?
− Normally, where the account of the customer is in
credit the customer is regarded to be the creditor
while the bank is regarded to be debtor (but no other
way round).

What type of Debtor is a bank

− Bank is a debtor who is under a duty to repay
customer but only when the customer instructs it
(bank) to do so, i.e. the demand of a customer is a
condition precedent for having repayment from a
bank.
− In case of demand from a customer the bank is under
full control of customer’s money. It can do business
with that money the way it likes.
− The debt is limited to amount deposited. The bank
isn’t obliged to pay interests to a customer unless
there’s an agreement to do so.
Case: Foley v. Hill (1848) IER 1002
− The House of Lords held that the B/c was a debtor
creditor relationship.
− This case was a historical breakthrough. Such
relationship enabled the bank to treat the money
deposited as its own money. What the bank is
 obliged to do is to return the equivalent amount
when required to do so.
Joachimson’s case: (Lord Atkin) – “The bank
undertakes to collect bills for its customers accounts
the proceeds so received aren’t to be held for the trust
for the customer but the bank borrows the proceeds”.

− Banker is not an ordinary debtor because it has got

an obligation to seek out the creditor to repay the
debt. The customer must demand the money.

Judicial Basis of this characterization

− It is because of business practical necessity.

− Debtor creditor relationship is based on contract.

OBLIGATIONS ARISING OUT OF CONTRACT

(A) Obligations to repay creditor customer on demand according to his
instructions: (Foley v. Hill)
− Instructions appear in the cheques. The bank had fund
obligation to obey this mandate.

− If payment is made according to the customer’s mandate, the

bank has discharged its obligation.

− Right to debt is conditional upon the banker to obey the order of

the customer exactly.

− Regulation of demanding money:

(i) Demand must be made in an acceptable order.

(ii) There must be sufficient funds in the customer’s account or
if there’s overdraft facilities extended to the customer.
(iii) There should be no legal impegment or bar e.g. if there’s
garnishee order i.e. order from the certificate directing the
bank not to repay the customer any money from his
account.
 (iv) The customer will be paid in the branch of his account.
(v) Customer will be paid during office hours.

Case: Joachimson v. Swiss Corporation

(B) Obligation to guard against forgeries:

(1) Duty to disclose forgeries:

Either party to a banking contract who knows or has reason to
suspect that there is /will be forgery is under a duty to inform
other about it. Failure of the customer to do the above, will
release the banker from the liability.

Case: Greenwood v. Martins Bank Ltd.

(2) Duty to exercise care when drawing and handling cheques:

− This is the duty of the customer. If he is negligent/careless
in drawing his orders and forgery is committed because of
that, and the bank pays, such bank won’t be held liable to
pay customer.

Case: Joachimson v. Swiss Corporation

(C) Duty to advise on investment:

(Trust Company v. Shapira & Other (1980) 1 WLR 1274)
− General rule: the bank is under no duty to advise the customer
on investment. However, if he chooses to advise the customer on
investment, then he must exercise reasonable care and skill to
advise the customer on investment.

− If the bank advises negligently, the bank shall be liable:

Case: Banbury v. Bank of Montreal (1918)
 − The court held that: “The banker’s business can not be limited.
But if he undertakes to advise he must exercise reasonable care
and skills in giving the advice”.
Case: Woods v. Martins Bank [1959] 1 QB55
− Court: if advice is within the scope of business, the bank is
under duty to exercise care and skills, and failure to do so.

(D) Appropriation of Payments

Appropriation means application of funds paid in by a customer. This
presupposes when the customer owes a liability to a bank.

Rules relating to appropriation of payments s.59 (of Law of Contract

Act Cap 345 R.E 2019) states clearly that “when a debtor owing
several distinct debts to one person makes a payment to him either
with express intimation or under circumstances impling that the
payment is to be paid in discharge of a particular debt, then the
payment if accepted must be applied accordingly”.

− It implies that if a customer owes several debts to the bank, and

specify clearly that the payment he has made discharge a
particular debtor and the bank accepts, that rule must be applied
accordingly.
− If a debtor omits to intimate and are no other circumstances
indicating to which debt the payment is to be applied, the creditor
may apply it to his own discretion. And that the creditor at
discretion may discharge that debt (s.60 of Law of Contract Act
Cap 345 R.E 2019).
− It entails that a creditor has a second right to appropriate where
the debtor has not …….. And he may apply the payment to any
debt even the time-barred debts.
− “where a banker appropriate as a creditor he must inform the
customer about such appropriation an notification of such
appropriation makes it irrevocable”.

Case: Simpson v. Ingham (1823) 2 BEC 65

Position whereby neither creditor nor banker appropriates:

− The law comes in to appropriate. Rule in Clayton’s case regulates

appropriation of law. It was decided in the case of Devaynes v.
Noble (1866) 1 MER 529, popularly known as the Clayton’s Case.
“if in the case of current account or running account payments in
are in the absence of any express indication to the contrary by the
customer then it is presumed to have been appropriated to the debt
item in order of debt. Money first paid in is money first paid out
i.e. it is first item in the debt side that is discharged or reduced by
the first item in the credit side.
How to apply Clayton’s rule in Credit Account:

Example:
CREDIT ACCOUNT
Date Debit Credit Balance
1 May - 5,000/= 5,000/=
3 May - 2,000/= 7,000/=
5 May 3,000/= - 4,000/=
7 May 2,000/= - 2,000/=
9 May 2,000/= - 0

Assumption:

Withdraw of 3,000/= on 5th May is presumed to have come from

the credit of 5,000/= of the 1st May. Withdrawal of 2,000/= on
the 7th May is presumed to have come from the balance of
2,000/= of 1st May deposit. Withdrawal of 2,000/= on 9th May is
presumed to have come from the credit of 3rd May.

Importance of the rules of Clayton’s case and the appropriation:

(1) Where debtor doesn’t appropriate than the creditor is allowed

to appropriate. The creditor is at liberty to apply the credit to a
debt even if is time barred (s.60 LCA).
(2) Proper use of the rule may protect the banker’s interests.
 Overdraft Account
Date Debit Credit Balance on Balance %
which to Debt
draw
10 May 20,000/= - 80,000/= 100,000/=
11 May 30,000/= - 50,000/= 100,000/=
12 May Guarantor dies Guarantee determining
13 May - 50,000/= 50,000/= 50,000/=

On 12th May when the guarantor died a debtor had drawn 50,000/=
and that amount was secured by guarantor. Payment of the 13 th May
wiped out the debt of 10th May. Even if the guarantor is going to die,
the rule continues to operate unless otherwise that account is going to
be broken or closed. Normally in these circumstances the bank closed
the account.

Circumstances for applying Clayton’s case rule:

(i) The account must be the running account and if the account
has been broken the rule can’t apply.

Case: In re Sherry, London and County Banking Co. v. Terry

(1884) 25 Ch.D. 692.
(ii) In order for the rule to apply it must be the same account and
not different accounts.
Case: In Bradford Old Bank v. Sutcliffe [1918] 34 TLK
There were two account, loan account and current account. It
was held: that the two accounts could be considered as one and
payment to the credit of current account can’t be taken in
reduction of a loan account.

(iii) The rule doesn’t apply where a person has mixed trust money
with his own money.
“The money which he first withdraw from that account is
deemed to have been his own money if he actually used it for
his own uses”.
 Case: Re Hallets Estate, Knatchbull v. Hallet [1897] is Ch. D.
656
− This principle above (iii) is not absolute; there’s an
exception:
Case: Re Stenning, Wood v. Stenning [1895] 2 Ch. 433
− A solicitor kept a trust money in his private account the
money was deposited on behalf of several clients or different
dates. The solicitor used to draw from this account. At the
time of his death he had drawn so much money that the
balance could not satisfy the repayment of trust moneys of
all clients. The first trust money to be deposited is the first
money to be withdrawn.

(iv) Rule of Clayton case on the joint account in case of overdraft.

If the joint customers are indebted to the bank and there’s a joint
and severe liability clause and if it happen that the joint holders
die the bank will actually be interested to recover the debt from
all the joint debtors including an estate of the deceased. If the
account is left to run payment in will defray the overdraft so that
the deceased estate won’t be involved in the repayment of the
overdraft. The bank will thus break the account so that the rule
doesn’t apply.

OBLIGATIONS AND LIABILITIES ARISING OUT OF THE OPERATION

OF CUSTOMER’S ACCOUNT

Passbook/Bank of Statement:

− Is normally referred as a book kept by the bank showing the

statement of account of a customer. Normally passes this book
to a customer who is expected to examine all the entries and
return it to bank.
− The aim of using passbook is to protect the bank’s interest in
case of mistaken wrong entries. If a customer discovers there’s
mistake on entries he should inform the bank on such a
mistake otherwise the transactions between the banker and
customer ought to constitute a conclusive and unquestionable
record and it should be recognized as such, and the ban shall
recognise an account affected i.e. the account representing true
statement of affairs.

Case: Devayness v. Noble [1816]

− The certificate of chancery directed an inquiry into the nature and

effect of passbook. In the report of the inquiry it was stated that
on delivery of passbook to a customer he examined it and if
appears no error or omission he sends it back to be rectified or if
not, his silence is regarded as if his admission is correct.

− However in the case of Charterson v. London Bank [1895] the

times, the certificate said that “there is no implied term in the
banking contract that imposes a duty on customer to examine
his passbook. Because there’s no such duty, then such customer
need not examine any degree of care if he decided to examine a
passbook”.

“If the bank wishes that the duty be imposed on the customer to
examine the passbook then there should be an express
agreement imposing such a duty”. Case: Tai Hing Cotton Mill v.
Lin Chong Hing Bank ltd. & Others [1985] 2 All ER 947. Why a
customer isn’t under duty?

(1) The banker is the one who keeps and render to the customer
the detailed account of all payments received from or on his
behalf and all payments made to him or to his order.
 (2) The banker and customer are in many cases not of equal
professional standards. Normally the banker’s has workers
who professional and the customer does rely on the banker’s
does rely on the banker’s accuracy.

− If a customer acts upon a banker’s mistake in bona fide

so as to alter his position the bank would be stopped
from claiming that mistake to be rectified.

CIRCUMSTANCES UNDER WHICH THERE’S OVER CREDITING:

Case: Skyring v. Greenwood [1825] 4 B & C 281

− The banker had credited a military customer a certain sum of
money to which they thought he was entitled while he was not.
They credited him for five years and he was drawing money all
this time. The Bank discovered that mistake and sought to
recover that amount. The certificate held that the banker wasn’t
entitled because the entries to credit were representations by the
bank to the customer that money was the customer’s and that
customer relied on that representation and altered his position
by spending that money.
− This case implies that over crediting may be regarded as the
representation binding the bank and if at all the customer can
show that he has altered his position but relying thereon.

Case: Lloyds Bank Ltd. v. Hon Cecily K. Brooks [1950] It was observed
that the bank is under duty to keep the customer correctly informed as
to the position of his account. Likewise the bank has a duty not to over
credit the customer’s statement of account and not to authorize or
induce the customer by faithful representation contained in her/he
start of account to draw money from his/her account to which he/she
is not entitled.

Case: Holland v. Manchester & Liverpool District Banking Co. Ltd.

(1909) 25 TLF 356
A cheque was drawn on a banker by a customer whose account had a
wrong entry and remained uncorrected. After discovered that mistake,
the Bank decided to dishonour that cheque. The customer successfully
sued the banker for damages. The certificate said that the bank had
no right to dishonour cheque drawn on the faith of it so long as it
remains incorrect. The bank had the right to have the entry
subsequently corrected. The passbook was prima facie evidence
against the bank on which the customer relied on.

Case: Commercial Bank of Scotland v Rhend (1860) 3 Magna Carta 643

The certificate said that it is possible to rectify the mistake done by the
bank within reasonable time and it has to be proved that it do not
altered the position of the customer.

Mistakes to the customer’s detriment (i.e. under crediting):

− The same principles which apply to the over crediting also apply
here.

− “Normally the bank doesn’t refuse to correct the mistaken entry

to the detriment of the customer even if that customer appraised
to that”.

Case: Commercial Bank of Scotland Rhend)

LEGAL EFFECT OF JOINT LIABILITY:

− Any liability will be joint only. The liability is not joint and
several. Holders are jointly liable.
(1) There is only one cause of action. If one or some of the
account holder is or are sued afterwards.

Case: Kendal v. Hamilton [1879] 4 A.C. 504

(2) It limits the right of set – off. The bank can’t set-off credit
balances on the separate accounts against joint debt.
 (3) Effect of death. Unless holders are partners, death of one of
them will discharge his estate from liability.

JOINT RIGHTS
− Any rights are joint unless there’s an element of joint and
several rights.
Case: Brewer v. National Westminister Bank (1952) 2 AK ER 68
− A joint account with requirement to have mandate by all joint
customers for a cheque to be honoured one of them forged
signatures of others and presented the cheque to the bank and he
was paid out money. Innocent customers brought an action
against the bank for wrongful debitness of their account by the
bank Held: Bank was not liable because the guilty and innocent
account holders had a joint right against the bank (i.e. the right of
action against the bank could be enforced by all of them against
the bank). Since their right was joint and since the guilty party
could not rely on his misconduct to sue the bank, the innocent
account holders could not sue the bank.

Case: Catin v. Cyprus Finance Corporation (London) Ltd. (1983) QB

759, (1983) 1 ALL ER 809
− Joint account of husband and wife. A cheque had to be signed
by all of them for it to be honoured. The banks transferred a
sum of money from this account to husband’s personal account.
A wife brought an action against the bank claiming damages for
breach of mandate. Issues:
(i) Whether a bank owed duties to account holders jointly or
severally
(ii) Whether failure by the wife to join the husband as a party
to that claim was fatal to her claim.
Held : the bank’s agreement to honour only instructions signed
by both account holders carry with it a duty not to honour
instructions which were not signed in that manner. The duty
was owed to account holders severally and so where breach of
 mandate occurred it could be enforced by the innocent account
holder alone and operate account in the firm’[s name, etc. a
partner isn’t allowed to open an account on behalf of the firm in
his own name. (s.201 (2)(b) LCA, Cap 345).

Case: Alliance Bank v. Kearsley 1871 LR 6 CP 433

There’s implied authority to entitling partner to open an account in
his own name so as to bind a partnership.
− In practice, the partnerships are formed and run their business
in accordance with the articles of partnerships. Such article
indicate the powers of partners to operate the bank account. It
is advisable for the bank to demand and inspect each article of
partnership. The law doesn’t require the bank to do so.
− Application for partnership must be withheld. Any act done by
any partner in relation to that account shall be deemed done for
carrying out the business of the firm in its ordinary course. Any
partner can negotiate an overdraft.

LIABILITY

− Not limited. Each partner is full liable i.e. the bank is entitled to
proceed even with the private account of partners. The liability
to the banks is joint and several. Normally the partners agree
that in the Declaration form.

Advantages of such unlimited liability:

(i) The bank may sue the partners jointly and severally.
(ii) Estates of the deceased can be sold to recover the debt of the
deceased.
(iii) The bank may have the recourse to set-off against the deceased’s
other personal account.

AUTHORITY TO OVERDRAFT:
− It is implied on trading firm that authority to run account implies
this also. But if the authority is expressly drawn and the bank
knows that, no overdraft should be done (i.e. overdraft).
− Non – trading partnerships have no authority to overdraw or
borrow

REVOCATION OF AUTHORITY

By dissolution of the partnership.

JOINT ACCOUNT OF HUSBAND AND WIFE

Husband and wife might open a joint bank account. Instruction must
be given to the bank that either may sign. If wife signs as an agent for
the husband and vice versa it should be shown. If no such instruction,
both must sign.

LIABILITY:

At common law, liability of husband and wife or any other joint account
holders is joint. Either one or joint may be responsible for repayment
but the bank has only one right of action. If it sues one party to
judgement, that discharge the other even if the bank has not been able
to recover the whole debt. To protect itself from the result of joint
liability, the bank has included i.e. the application form of joint account
a clause establishing joint and several liability for any overdraft. This
gives the bank the right to sue the parties jointly or severally. The
parties are individually and jointly liable.

DOCTRINE OF SURVIVORSHIP:

− At common law, joint ownership carries with it a presumption that

the proposed will, or the death of one party pass to the survivor.
− The bank account is the property. While both parties are alone
they together make up the owner. Unless evidence is brought to
show up that one party provided the money, then the question of
 how much the balance belongs to one and how much to the other
doesn’t arise since they are joint owners.

Rebuttle of presumption of survivorship:

− Personal representatives of deceased party may rebut presumption

by proving the following:
(a) That it was the deceased who paid in the money to make the
joint account.
(b) It was not the intention of the deceased that on his death the
property should devolve to the survivor.

Case: Foley v Foley (1911) 1 IR 281

The husband expressly stated when opening the joint account that
it was to provide for his wife should he pre-decease her. This in
fact happened. So the widow was held to be entitled to the balance.

Case: Marshal v. Crutwell [1875] LR 328

An account was opened in joint made et L & W. the husband’s

health wasn’t good. All money paid into the account was proved
belonging to the husband. The wife was drawing on the household
necessaries only. The husband died. Held: presumption of
survivorship was rebutted hence the widow was not entitled to the
balance. The balance went to the executors.

Problems of Doctorine of Survivorship:

(1) Doctrine can lead to ….. problems or conflicts.

(2) The bank may be implicated to pay the money to either party. To
avoid these implications, the following measures are used by
banks:
(i) Banks have included in the application form that the balance
is to be held for the survivor. By paying the survivor, the bank
complies with the provisions signed by the holders.

Where husband and wife have separated or are in conflict:

− There’s a possibility of one party to withdraw all the money to
the detriment of other party.
− The banker may advise the account holder, that it won’t obey
the instructions signed by one party only.
− The matter may be referred to the certificate for legal solution.
− The banker can stop the account but that should be the
temporary measure and the matter should be referred to the
certificate so that the certificate can decide the legality of the
banker to stop that account.

Case: Chatwan v. P. Patel and LDC Civ. Case 43 [1976] LRT

The joint account is in law simply a debt owed to the account

holders jointly. What if the bank wrongful pays the other account
holder(s)?

Case: - Brewer’s case

- Catin’s case

OVERDRAFT IN A JOINT ACCOUNT:

The general rule is that the power to draw cheque in a joint account
doesn’t mean a power to overdraw i.e. to create an overdraft.
Therefore any debt created by one account holder does not tie the
other unless there is agreement to that effect.

Normally in application forms for joint account power to overdraw

is provided. In such situation one or more joint holder may create
on overdraft that will bind other joint holder(s). the bank sure that
the joint account holders are jointly and severally liable for an
overdraft.

PROBLEMS ARISING OUT OF JOINT LIABILITY ONLY

(1) There is only one cause of action. It is immaterial that the
judgement is not enough to clear the debt so far the bank has
decided to proceed against one holder:
 Case: Kendall v. Hamilton (1879)

(2) Joint liability limits the night of set-off.

(3) Effect of death of one or some account holders.
(4) Bankruptcy of one or some of the holders. Here the banker-
customer relationship is suspended.

Advantages of Joint and several liability:

(1) Banker can sue them jointly or severally.

(2) Right of set-off is available.
(3) Estate of the deceased can be used to pay the debt of the
partnership. The doctrine of survivorship doesn’t arise here.
His right.

OBLIGATIONS IN RESPECT OF ACCOUNTS FOR TRADING

COMPANIES

− Companies governed by Cap.212.

− Types of companies and their liabilities.
− Rights, obligations and limitations of these companies.
− Concept of legal personality.
− Certificate of incorporation.
− Legal status of memo and articles.
− Legal result of corporate personality.
− A company can enter into contracts including opening of accounts.

BORROWING ON OVERDRAFT

− Should be done in accordance with the memo and articles;

contrary to that the act will be ultra-….., hence the bank can lose
its money if it is not able to sue the person who took the money
personally. It is difficult because in the view of the law of agency
where a contract has been expressly made on behalf of another,
such agent is not liable on it personally nor can he enforce it
personally for his own personal benefits.
DURATION AND TERMINATION OF ACCOUNT

− The banker-customer relationship is established by the banking

account. Duration and termination of the account means also the
duration and termination of the bank account is a contractual
relationship. The banking contract continues until it is either
terminates by a customer, a banker, or both or by operation of law.

− The termination may take place under any of the following ways:

(a) Mutual agreement – i.e. the parties meet and agree that the
relationship should be terminated.
(b) Proper notice by one party to the other.
(i) Termination by customer:
He can terminate the relationship any time provided
that the communication is given on that effect to the
banker. In a case of current account, a customer need
not give any notice, because he can draw all the
money; this means the automatic closure of account.
The bank that maintains an account with nothing has
to inquire what is going on in a customer but not to
close it.

(ii) Termination by a banker:

It has to give reasonable notice before closing any
account of any customer. This duty was discussed in
the case of Joachimson v. Swiss Corporation

In this case it was observed that the banker must not suddenly
close the account of any customer account giving reasonable
notice. Why such duty upon the banker? A customer might
have issued a cheque which is yet to reach the bank, so if the
account is closed …………. reasonable notice the cheque will be
dishonoured. Under this situation the banker will be held liable
 for damages for loss that the customer must suffer because of
such act.

When the account is properly closed, any cheque for drawing

from that account must be returned. But any cheque in favour
of the customer must be deposited in a suspense account till ex-
customer is informed and collects it.

(c) Death of a customer/natural person

− It terminates the authority he gave to the bank to operate the
account. Once bank gets notice of death of a customer it
must stop the account.
− Under s.75(2) of Bills of Exchange Act [Cap. 215] – notice of
death revokes the authority to pay cheques. The account is
stopped and not closed. The bank will keep the outstanding
balance in an account of deceased customer for any person
entitled to receive it. Once a balance has been paid, the
account is closed.

(d) Mental disorder of a customer

It renders him incapable of entering into contract. Once it is
discovered that a customer is suffering from mental disorder, the
relationship is automatically. It is very difficult to decide whether
a person is so mentally disturbed as to be deprived of a
contractual capacity. It is advised that the bank should not pay
when he is insane. But when he looks sane the bank must pay.
If the bank doesn’t pay believing him to be insane while it is not
true, he can successfully take action against the bank for
wrongfully dishonour his cheques; and the bank can be held
liable for it. It is more safe when there’s an appointed legal
guardian/trustee since the bank can pay such appointed on the
benefit of such mentally unfit customer.

(e) Bankruptcy/winding up
 Where bank learn of a bankruptcy of a customer it must stop the
account and keep the balance with the trustee of bankrupt. It
can exercise the right of set-off before closing the account one the
balance is given to a trustee in bankruptcy the account is closed.

Bankruptcy of Bank:
The relationship with its customers also comes to an end. The
customers who are creditors of that bank will divide among
themselves whatever is available.
In case of a limited company; the bank must stop the account as
soon as it get the notice of voluntary liquidation or w.n. order.

(f) Termination by operation of law:

Occurs where there’s garnishee order served to the bank or any
other certificate order that affects the account. Under this
situation the account must be stopped.

(g) Notice of assignment of balance in account to a third party:

The bank must stop payment to the original customer and
becomes the trustee of the assignee. So as against the original
customer the account is closed.