LEARNING UNIT 1 – THEME 4 - THE BANK-CUSTOMER RELATIONSHIP
THE BANK:
• The bank is a separate legal person
• It can therefore in its own name, inter alia, acquire rights and incur obligations; own
property; and sue and be sued.
• However, as a bank has no physical existence, it must be represented by human beings,
such as its managers or other officials, to conclude contracts and perform other juristic
duties. Banks operate through separate branches but the branches themselves are no
separate legal entities; they are merely agencies of one banking corporation.
• Thus, even though a person may only have dealings with a specific branch pf a particular
bank, any underlying contract that may exist is between him and the bank as a whole
rather than with the specific branch concerned.
THE CUSTOMER:
• On a wide interpretation, the term “customer” includes any person who has dealings
with a bank in the ordinary course of business whether or not that person has a bank
account.
• However, it is generally accepted that the term “bank-customer relationship” refers to
“the specific legal relationship generated by the opening and operating of a bank
account”.
• The term “customer” in this context, is normally reserved for a person who has an
account with the bank.
• It is not required that the person must have habitual dealings with the bank before he
can be regarded as a customer: there mere opening of the account suffices.
• The duration for which the account is opened is also irrelevant.
• Once the bank account is opened, a person remains a customer of the bank even after
the account is subsequently overdrawn.
CLASSIFICATION OF THE BANK-CUSTOMER RELATIONSHIP:
• The relationship that exists between the bank and its customer based on a contract.
• However, it is difficult to identify the exact type of contract that exists as it does not fit
comfortably into any single category of contract recognised in Roman and Roman-
Dutch law.
• In essence, the bank-customer relationship is a multi-faceted one that exhibits
elements of different types of contract, most notably those of loan for consumption
(mutuum) and mandate (mandatum).
• The bank-customer relationship, however, is a complex one and may involve various
other types of contracts depending on the nature of the service that the bank offers to its
customer.
• Where the customer deposits certain valuables with the bank for safekeeping, the
relationship between the parties is governed by a contract of deposit (depositum).
However, where the customer hires a safety-deposit box from the bank for the purposes
of storing such valuables, the relationship may be one of lease.
, • The bank may also act as a representative of its customer, such as where it concludes a
contract on the latter’s behalf.
• In other instances, the bank may act as both a mandatary as well as a representative
such as where it furnishes investment advice to its customer and also enters into an
investment contract with a third party on behalf of that customer.
• Due to its complexity, the bank-customer relationship is often classified as a contract
sui generis.
• The better approach is not to attempt to find a particular pre-existing characterisation
but rather to examine the specific legal relationship that exists between the bank and its
customer in any given case.
• This approach certainly has merit if one considers that the parties are free to vary the
terms of their contract with each other and that they may also conclude special
contracts to regulate specific transactions and banking services.
FORMATION:
• The bank-customer relationship is formed when a bank agrees to open an account on
behalf of a person and accept him as its customer.
• The contract is normally concluded by way of offer and acceptance.
• The prospective customer makes an offer by completing and submitting an application
form to open an account and the bank may either accept or reject this offer.
• If the bank decides to accept the offer, the contract comes into existence when the bank
communicates its acceptance to the customer.
• The act of opening the account indicates acceptance of the offer but it is not essential:
provided there is consensus between the parties with regard to the opening of the
account, the contract will come into existence even before the account is opened.
• Apart from consensus, there are certain other requirements which must be satisfied for
a valid bank-customer contract to come into existence:
,RIGHTS AND DUTIES:
• The bank-customer contract is founded on a comprehensive mandate, which obliges
the bank to render one or more services to its customer.
• The duties of the bank typically include:
- keeping and accounting the customer’s accounts with the bank;
- repaying on demand money standing to the credit of the customer’s account by
honouring his payment instructions;
- receiving and collecting payments on behalf of the customer, whether such payments
are made by way of cash, cheque or electronic means; and
- furnishing the customer with statements of account.
RIGHTS AND DUTIES OF THE BANK:
Specific duties of the bank:
• The bank may extend the range of its duties to a customer by agreeing to undertake
other services.
• This may include providing its customer with electronic banking facilities, issuing the
customer with debit, cheque or credit cards; and giving effect to its customer’s payment
orders by other means such as by paying his stop orders, debit orders and carrying out
his credit transfers.
• There are also three specific duties:
1. THE DUTY TO PAY CHEQUES
2. THE DUTY TO COLLECT PAYMENT ON CHEQUES
3. THE DUTY TO FURNISH STATEMENTS OF ACCOUNT
GENERAL DUTIES OF THE BANK:
1. THE DUTY TO EXERCISE REASONABLE CARE AND SKILL
• The bank is under a duty to exercise reasonable care and skill in performing its mandate.
• This duty requires the bank to inter alia correctly ascertain and interpret its customers
instructions and to ensure that any applicable legislation is complied with.
• The duty extends to the whole range of banking services that the bank may provide to its
customer.
, • Thus, for instance, the bank must exercise reasonable care and skill in performing the
following functions:
- Opening bank accounts;
- Paying cheques;
- Collecting payment on cheques;
- Issuing duplicates of deposit slips; and
- Giving effect to credit transfers.
• In assessing the conduct of a mandatary who is a professional, the court has regard to
“the general level of skill and diligence possessed and exercised at the time by the
members of the branch of the profession to which the mandatary belongs”.
2. THE DUTY OF SECRECY
• The bank owes its customer a duty of secrecy.
• There is clearly a practical need for a bank to maintain secrecy regarding its customer
and his affairs and the duty of secrecy may be justified by considerations of public
policy.
• It has been argued that, however, that contract alone cannot be the basis for the duty as
it does not explain why a bank is obliged to keep information confidential even if it
relates to a prospective customer or a past customer.
• In essence, the duty of secrecy necessitates that the bank must treat as confidential any
information pertaining to its customer and his affairs, which it may acquire in the course
of its dealings with him.
• The duty to maintain secrecy is not absolute.
3. THE DUTY TO ACT IN GOOD FAITH
• In certain situations the bank may owe a fiduciary duty towards its customer and is,
therefore obliged to act in good faith.
RIGHTS AND DUTIES OF THE CUSTOMER:
The main duties that the customer owes to the bank are:
• To pay overdrawing, interest and bank charges;
• To exercise reasonable care in drawing payment instructions;
• To notify the bank of any unknown or suspected forgeries;
• To reimburse and indemnify the bank.
TERMINATION OF THE BANK-CUSTOMER RELATIONSHIP
This can be done by:
• Agreement
• Notice of termination
• Death or dissolution of the customer
THE BANK:
• The bank is a separate legal person
• It can therefore in its own name, inter alia, acquire rights and incur obligations; own
property; and sue and be sued.
• However, as a bank has no physical existence, it must be represented by human beings,
such as its managers or other officials, to conclude contracts and perform other juristic
duties. Banks operate through separate branches but the branches themselves are no
separate legal entities; they are merely agencies of one banking corporation.
• Thus, even though a person may only have dealings with a specific branch pf a particular
bank, any underlying contract that may exist is between him and the bank as a whole
rather than with the specific branch concerned.
THE CUSTOMER:
• On a wide interpretation, the term “customer” includes any person who has dealings
with a bank in the ordinary course of business whether or not that person has a bank
account.
• However, it is generally accepted that the term “bank-customer relationship” refers to
“the specific legal relationship generated by the opening and operating of a bank
account”.
• The term “customer” in this context, is normally reserved for a person who has an
account with the bank.
• It is not required that the person must have habitual dealings with the bank before he
can be regarded as a customer: there mere opening of the account suffices.
• The duration for which the account is opened is also irrelevant.
• Once the bank account is opened, a person remains a customer of the bank even after
the account is subsequently overdrawn.
CLASSIFICATION OF THE BANK-CUSTOMER RELATIONSHIP:
• The relationship that exists between the bank and its customer based on a contract.
• However, it is difficult to identify the exact type of contract that exists as it does not fit
comfortably into any single category of contract recognised in Roman and Roman-
Dutch law.
• In essence, the bank-customer relationship is a multi-faceted one that exhibits
elements of different types of contract, most notably those of loan for consumption
(mutuum) and mandate (mandatum).
• The bank-customer relationship, however, is a complex one and may involve various
other types of contracts depending on the nature of the service that the bank offers to its
customer.
• Where the customer deposits certain valuables with the bank for safekeeping, the
relationship between the parties is governed by a contract of deposit (depositum).
However, where the customer hires a safety-deposit box from the bank for the purposes
of storing such valuables, the relationship may be one of lease.
, • The bank may also act as a representative of its customer, such as where it concludes a
contract on the latter’s behalf.
• In other instances, the bank may act as both a mandatary as well as a representative
such as where it furnishes investment advice to its customer and also enters into an
investment contract with a third party on behalf of that customer.
• Due to its complexity, the bank-customer relationship is often classified as a contract
sui generis.
• The better approach is not to attempt to find a particular pre-existing characterisation
but rather to examine the specific legal relationship that exists between the bank and its
customer in any given case.
• This approach certainly has merit if one considers that the parties are free to vary the
terms of their contract with each other and that they may also conclude special
contracts to regulate specific transactions and banking services.
FORMATION:
• The bank-customer relationship is formed when a bank agrees to open an account on
behalf of a person and accept him as its customer.
• The contract is normally concluded by way of offer and acceptance.
• The prospective customer makes an offer by completing and submitting an application
form to open an account and the bank may either accept or reject this offer.
• If the bank decides to accept the offer, the contract comes into existence when the bank
communicates its acceptance to the customer.
• The act of opening the account indicates acceptance of the offer but it is not essential:
provided there is consensus between the parties with regard to the opening of the
account, the contract will come into existence even before the account is opened.
• Apart from consensus, there are certain other requirements which must be satisfied for
a valid bank-customer contract to come into existence:
,RIGHTS AND DUTIES:
• The bank-customer contract is founded on a comprehensive mandate, which obliges
the bank to render one or more services to its customer.
• The duties of the bank typically include:
- keeping and accounting the customer’s accounts with the bank;
- repaying on demand money standing to the credit of the customer’s account by
honouring his payment instructions;
- receiving and collecting payments on behalf of the customer, whether such payments
are made by way of cash, cheque or electronic means; and
- furnishing the customer with statements of account.
RIGHTS AND DUTIES OF THE BANK:
Specific duties of the bank:
• The bank may extend the range of its duties to a customer by agreeing to undertake
other services.
• This may include providing its customer with electronic banking facilities, issuing the
customer with debit, cheque or credit cards; and giving effect to its customer’s payment
orders by other means such as by paying his stop orders, debit orders and carrying out
his credit transfers.
• There are also three specific duties:
1. THE DUTY TO PAY CHEQUES
2. THE DUTY TO COLLECT PAYMENT ON CHEQUES
3. THE DUTY TO FURNISH STATEMENTS OF ACCOUNT
GENERAL DUTIES OF THE BANK:
1. THE DUTY TO EXERCISE REASONABLE CARE AND SKILL
• The bank is under a duty to exercise reasonable care and skill in performing its mandate.
• This duty requires the bank to inter alia correctly ascertain and interpret its customers
instructions and to ensure that any applicable legislation is complied with.
• The duty extends to the whole range of banking services that the bank may provide to its
customer.
, • Thus, for instance, the bank must exercise reasonable care and skill in performing the
following functions:
- Opening bank accounts;
- Paying cheques;
- Collecting payment on cheques;
- Issuing duplicates of deposit slips; and
- Giving effect to credit transfers.
• In assessing the conduct of a mandatary who is a professional, the court has regard to
“the general level of skill and diligence possessed and exercised at the time by the
members of the branch of the profession to which the mandatary belongs”.
2. THE DUTY OF SECRECY
• The bank owes its customer a duty of secrecy.
• There is clearly a practical need for a bank to maintain secrecy regarding its customer
and his affairs and the duty of secrecy may be justified by considerations of public
policy.
• It has been argued that, however, that contract alone cannot be the basis for the duty as
it does not explain why a bank is obliged to keep information confidential even if it
relates to a prospective customer or a past customer.
• In essence, the duty of secrecy necessitates that the bank must treat as confidential any
information pertaining to its customer and his affairs, which it may acquire in the course
of its dealings with him.
• The duty to maintain secrecy is not absolute.
3. THE DUTY TO ACT IN GOOD FAITH
• In certain situations the bank may owe a fiduciary duty towards its customer and is,
therefore obliged to act in good faith.
RIGHTS AND DUTIES OF THE CUSTOMER:
The main duties that the customer owes to the bank are:
• To pay overdrawing, interest and bank charges;
• To exercise reasonable care in drawing payment instructions;
• To notify the bank of any unknown or suspected forgeries;
• To reimburse and indemnify the bank.
TERMINATION OF THE BANK-CUSTOMER RELATIONSHIP
This can be done by:
• Agreement
• Notice of termination
• Death or dissolution of the customer
