BANKING 1.2 BANKER CUSTOMER RELATIONSHIP
Who Is A Banker?
:: The layman defines a banker as a person that works in a bank. This is CERTAINLY NOT the legal position.
:: In Akanle V Reginam, the court noted that “banker” refers to the company licenced to carry on banking business. The conviction of the manager for granting illegal loans was quashed on the ground that the banker rather than the manager ought to have been sued since the banker customer relationship was that of debtor-creditor.
:: Section 2 Bills of Exchange Act 1954 defines a banker as a body of persons whether incorporated or not who carry on the business of banking. This definition is faulty as Section 2 of the Banks and Other Financial Institutions Act makes it a condition precedent for persons carrying on banking business to be incorporated.
:: By Section 2 of the Evidence Act, a person, partnership or company carrying on the business of banking. Similar definition given by Section 41(1) of the Banking Decree.
:: A banking business has been defined in Section 66 BOFIA as the business of receiving monies… granting loans… acceptance of credits, bills, cheques, purchase and sale of securities… others as the minister may designate.
Therefore, a banker refers to a company that has been incorporated and licensed to carry on banking business. E.g. Stanbic IBTC, GTB, UBA and so on.
Who Is A Customer?
:: In ordinary terms, he is regarded as a person buying the goods or employing the services of another. It is however important to know the strict legal meaning of a customer in order to decipher whom the bank legally owes a duty.
:: In Ladbroke and Co V Todd, the court held that to qualify as a customer, one must have an account with the bank. Same position was followed in Commissioners of Taxation V English Scottish and Australian Bank, where it was held that duration was irrelevant provided there was an account with the bank. In Woods V Martins Bank, the court noted that a finalised agreement to open an account could suffice notwithstanding that no actual deposit has been made. In Robinson V Midland Bank, where A opened an account in B’s name. The court held that the banker-customer relationship was between A and the bank notwithstanding that the account was opened in B’s name since the bank only knew A. In Great Western Railway Company V London and County Banking Co, one Huggins had been cashing cheques over the counter at the defendant bank for almost 20 years. The court held that since Huggins had no account with the bank, he was not a customer. Similarly, in Ademiluyi and Lamuye V ACB, A and B (prominent members of a ruling party; NCNC) opened an account with ACB. ACB believed that the account was opened on behalf of NCNC whom they regarded as their customer. “A” sought to cash money from the account but NCNC countermanded the cheque. The court held that the countermand by NCNC was ineffective because the banker-customer relationship existed only between ACBank and AandB who were the account holders.
A SHIFT IN POSITION: The cases of Hedley Byrne Co V Heller and Partners and Agbonmagbe Bank V CFAO Ltd the courts drawing from the decision of Donoghue V Stevenson, have held that a bank can be liable in negligence to a person notwithstanding that he does not have an account with the bank so long as it is reasonably foreseeable that they shall be affected by the bank’s negligence.
In conclusion, every case must be determined on its own merits. The courts may impose a duty of care on a banker depending on the nature of the transaction and the demands of justice and equity notwithstanding that a person does not have an account with the bank.
The earliest banking with goldsmith seemed like bailment until the goldsmiths realised that the coins could be lent out. After concluding that a banker-customer relationship exists, the next question to ask is: how should such relationship be regulated? What are the rights and obligation of the parties based on their relationship?
- It has generally been accepted that they stand in a debtor-creditor relationship.
- Where the bank receives deposits of cash from the customer. (Here the bank is the debtor of the customer and should pay on demand).
- Where the bank loans money to its customer. (Here, the banker is the creditor and the customer is the debtor).
In Foley V Hill, the appellant claimed that his bank should render accounts and profits on how his money was being used. lord Cottenham noted that the relationship is debtor-creditor rather than bailment. To this effect, the bank can utilise customer’s money without prior permission of the customer… subject to the condition that it shall be repaid on demand. The court in Joachimson V Swiss Bank Corporation followed the above position… Atkin J added that the bank should only pay on demand during working hours and in the branch of initial payment (technology now makes payment flexible). The customer owes a duty to take proper care in executing his order so as not to mislead the bank or facilitate forgery. The debtor-creditor position has also been maintained in the following cases: Osawaye V National Provincial Bank Ltd; Carr V Carr; Sims V Bond, Yusuf V Co-operative Bank Ltd to mention a few.
Little wonder Lord Goddard once said that the only person that has money in a bank is the bank itself.
Due to the intricacy and diversity of banking business the following relationships may arise:
- Bailment: where the bank accepts an item (like certificate) for safe custody.
- Agency: The bank is regarded as an agent where it collects cheques for and on behalf of its customers-Agbonmabe Bank V CFAO… Where it buys shares, treasury bills and the likes for and on behalf of its customers-Hall V Fuller.
- Fiduciary relationship: In Hedley Byrne V Heller and Partners Co, the court noted that the bank would be regarded as being in a fiduciary relationship where it gives advice to customers with the knowledge that it is being relied upon. A fiduciary duty may also be construed in other deserving circumstances.
- Trusteeship/Executorship: where the bank executes a person’s will or is asked to administer trust property. The trusteeship/executorship relationship could exist.
Here we are looking at the various rights and obligations which flow from the banker-customer relationship.
According to Lord Atkin in Joachimson V Swiss Bank Corporation; the bank undertakes to receive money and pay on demand while the customer on the other part should take care in executing his orders so as not to mislead the bank or facilitate forgery-.
- To collect deposits: of cash, valuables, cheques and the likes from, for and on behalf of customers-in Dike V ACB ltd, the bank was compelled to collect deposit from the customer being its duty.
- To pay on demand and honour customer’s cheques: Generally, a bank should not dishonour its customer’s cheque or demand (Conditions for a dishonour shall be discussed later). A wrongful dishonour may amount to a breach of the contractual relationship-Marzetti V Williams entitling the customer to damages. In Roline V Steward, the court held that damages is presumed where the customer is a trader. In Ejimofor V UBN however, the court held that delay in payment without more would not amount to wrongful dishonour. In this case, the customer payee got impatient and left after waiting for several hours in the bank. The court held that the delay by the bank does not necessarily amount to a dishonour.
The duty to pay on demand does not prevent the bank from making enquiries and exercising due care and skill before making the payment-Karak Rubber co V Burden and Others.
- Duty of secrecy: to treat its customer’s information and affairs as private and strictly confidential. The right of privacy is preserved by Section 37 of the 1999 constitution subject to certain legal justifications.
In Tournier V National Provincial Bank, the banker disclosed certain confidential information relating to the customer’s account and credit worthiness. The customer’s employers acted on the information and refused to renew his employment. The court held that the defendant bank had failed in their duty of secrecy and were liable to pay damages.
The duty of secrecy shall be dispensed with/ignored in the following situations:
- Legal compulsion: Section 45 of the 1999 constitution provides for derogation on reasonably justifiable law. Section 7 Bankers Books Evidence Act 1879 empowers the courts to order for the inspection of a bank’s books of account, may be for judicial evidence or other legitimate need to disclose. The CBN Act and BOFIA also contain certain provisions for the inspection of bankers books and information in the interest of investors and the public.
- For overriding public interest. like during war where customer is suspected to be dealing with enemy. Section 45 of the 1999 constitution allows for certain derogations.
- Where disclosure is made with the express or implied consent of the customer.
- Where the interest of the bank requires disclosure. For example where it is suing the customer on an overdraft.
- To inform the customer on developments and (or) suspicious activity in relation to his account.
- To act as collecting banker to the customer: receive all amounts payable to the customer and clear with other banks. The account of the customer shall be credited to that effect. The banker should act expediously-Foreman V Bank of England.
- To exercise due care and skill-Agbomagbe Bank V Hedley Byrne and co V Heller and Partners Co. In Imersel Chemical Co ltd V National Bank of Nigeria Ltd, the plaintiffs, relying on the statement of the bank (that the defendant was credit worthy) suffered some detriment in dealing with the defendant. The court held that this could be actionable negligence. In Woods V Martins Bank, imprudent advice given by the manager of the bank to a customer grounded liability.
- To give reasonable notice before closing the customer’s account.
- To use deposited money without seeking approval from the customer-Joachinson V Swiss Bank Corporation.
- To charge interest on credit facilities.
- To refuse a payment order where there is a legal or reasonable justification. (shall be discussed later).
- To obtain reimbursement from customer for reasonable expenses incurred on his/her behalf.
- To exercise a right of lien over the customer’s property in its possession.
- Combination of accounts: right of a bank to generally retain a credit balance in a customer’s account against a debt due to the bank from the customer’s other account. Provided the debt is due-Co-operative Bank V Joe Golday Co. ltd. Although there has been several arguments against this right. Mr A has two bank accounts in ACB. His first account is overdrawn (owes the bank 1million), the other account has credit (2million). The bank can refuse to pay more than 1million from the second account.
- To seek out the bank whenever he wants to withdraw his money rather than the bank to seek him out.
- To draw his cheque (or make his withdrawal order) with due diligence and care so as not to facilitate misrepresentation or fraud-Joachimson V Swiss Bank Corporation. In London Joint Stock Bank V Macmillan and Arthur, a cheque (E12) was drawn payable to the bearer and the amount in words was not written. The clerk altered the cheque to show E120 (by adding a “0” behind the E12) and reflected same in words. Held that the customer was not careful in drawing his order as his failure to stipulate the amount in words facilitated the fraud.
Although the customer is to exercise due care in making his order, he may not be liable where the cheque book, seal, stamp and other items that can give the forger access to the customer’s money is used. In Bank of Ireland V Evans Charities Trustees, the secretary of the defendants used their seal (which was in her possession) to forge a cheque. The court held that the customer was not liable. In Kepitigalla Rubber Estate V National Bank of India, a secretary forged the signature of the customer on cheques. The bank cashed the cheque. The court held that the customer was entitled to a refund. Same position was followed in Nigerian Advertising Services Ltd V U.B.A ltd upon similar facts. It all depends on the facts of each case.
- To inform the bank of any suspicious dealings in his account which comes to his knowledge. Failure may translate into acquiescence and may estop a customer from claiming refund or reliefs in the event of any loss resulting therefrom-Brown V National Westminster Bank Ltd. In Greenwood V Martins Bank, the appellant discovered that his wife was in the habit of obtaining money from his account by forged cheques. Eight months after this discovery, he sought to recover all the monies obtained by his wife through the forged cheques. It was held that since he delayed for 8 months before informing the bank of such, his action for recovery should fail.
- To repay borrowed funds with reasonable interest and re-credit his account where overdraft facilities have been granted to him. In Ojikutu V Agbonmagbe Bank, the customer noted that the interest rate was arbitrary. The court noted that this cannot excuse the customer from repaying the loan.
- To ensure that his account is in credit to meet cheques and other payment instructions.
- The right to have his deposit accepted by the bank: the courts, in Ladbrooke V Todd, and the case of Joachimson V Swiss Bank Corporation (Per Lord Atkin) have noted that a bank must collect deposits of cash and cheques from its customers.
- Appropriation of Payment. This is the right of the customer (who has more than one account with a bank) to choose the account that would be credited by his deposit-Bradford Old Bank V Sutcliffe.
- Right to be paid on demand.
- Right to obtain information relating to his account. Like balance, statement of transactions that have occurred on his account, and so on.
The banker-customer relationship may be terminated by:
- Mutual agreement between the banker and the customer. Provided obligations on both sides have been performed (like repayment of overdraft).
- Death of customer. Section 75 BOEXAct.
- When the banker is notified of the customer’s insanity-Younge V Toynbee.
- Where the customer is adjudged bankrupt, withdrawal requests from the account would be dishonoured. Conversely, where the bank is wound up, the NDIC then takes control to couch the effect of failure… during this period, the banker customer relationship would be suspended.
- The outbreak of war keeps the relationship in abeyance.
What court has the jurisdiction to entertain disputes between a bank and customer?
:: The Federal Revenue Act 1973 stipulated the jurisdiction of the FHC (then FRC) but the 1979 constitution failed to succinctly stipulate the jurisdiction of the FHC.
:: Luckily, the 1999 Constitution clearly enumerated the jurisdiction of superior courts.
For the sake of this topic, only Section 251(1D) and 272 of the 1999 Constitution are “really” relevant.
Section 251 provides:
- Notwithstanding anything to the contrary contained in this Constitution and in addition to such other jurisdiction as may be conferred upon it by an Act of the National Assembly, the Federal High Court shall have and exercise jurisdiction to the exclusion of any other court in civil causes and matters–
(D) Connected with or pertaining to banking, banks, other financial institutions, including any action between one bank and another, any action by or against the Central Bank of Nigeria arising from banking, foreign exchange, coinage, legal tender, bills of exchange, letters of credit, promissory notes and other fiscal measures:
Provided that this paragraph shall not apply to any dispute between an individual customer and his bank in respect of transactions between the individual customer and the bank;
Section 272 provides:
- Subject to the provisions of Section 251 and other provisions of this Constitution, the High Court of a State shall have jurisdiction to hear and determine any civil proceedings in which the existence or extent of a legal right, power, duty, liability, privilege, interest, obligation or claim is in issue or to hear and determine any criminal proceedings involving or relating to any penalty, forfeiture, punishment or other liability in respect of an offence committed by any person.
:: The court in ACB V Jamal Steel Structures was of the opinion that since the High Court has unlimited jurisdiction, it has jurisdiction over banker-customer disputes. Similar position was maintained in Federal Mortgage Bank of Nigeria V NDIC where the court noted that banker-customer disputes go to the High Court.
The court gave a sound interpretation of the above Sections in the case of NDIC V Okem Enterprises thus: By Section 251; the FHC shall have exclusive jurisdiction in matters relating to banking. Except the matter relates to an issue between a customer and his bank.
In essence, both the FHC and HC can entertain banker-customer disputes. Then other banking disputes are within the exclusive jurisdiction of the FHC. In other words, the FHC exclusively entertains all banking disputes (CBN versus First Bank, UBA versue Stanbic IBTC, and so on). But when the dispute is one between a bank and its customer, then both the FHC and HC can adjudicate.
In Europe the judicial ambivalence has been settled by the Financial Ombudsman Scheme 2000. Nigeria needs legislative intervention because the Supreme Court may overrule the sound decision of NDIC V Okem Enterprises.
 Where the owner of gold coins keeps them in the possession of the goldsmith.
 That the customer’s account was overdrawn and he was suspected of betting.
 A bank which receives a cheque on behalf of its customer for clearing and collection before placing the value on customer’s account.
 Where a customer withdraws more than what he had put in his account with the permission of the bank.
 The relationship is on hold. Till the war ceases.
 Thus FHC and HC have concurrent jurisdiction in banker-customer disputes.
 Like that between a bank and another bank or where the CBN is a party to the case.