Bank and Customer Relationship – Chapter 2

These flashcards cover key definitions, seminal cases, forms of banker–customer relationships, and principal rights and duties of both bankers and customers discussed in Chapter 2 of the lecture on Bank and Customer Relationship.

Under Malaysian law, what two basic requirements must an entity meet before carrying on banking business?

(1) Be a publicly-listed company and (2) hold a valid licence issued by the Ministry of Finance.

How does the Financial Services Act 2013 define a “bank”?

As a person who carries on banking business (referring to s.2(1) of the Central Bank of Malaysia Act 2009).

Name four common types of deposit accounts a bank may accept.

Current account, savings account, fixed-deposit account, and other similar deposit accounts.

What is the significance of being recognised as a bank’s customer?

The bank owes the person legal duties (e.g., confidentiality) and enjoys statutory protections (e.g., for cheque collection) in relation to that person.

What main criterion did Great Western Railway v London & County Banking Co. establish for someone to be a ‘customer’?

The person must maintain an account with the bank; casual cheque-cashing alone is insufficient.

Which case showed that a customer relationship can arise before an account is opened if specific services are provided?

Woods v Martins Bank Ltd.

According to Ladbroke & Co v Todd (1914), when does a person become a customer?

When the bank accepts and opens the application to open an account; the length of time open is irrelevant.

What did Importer Co Ltd v Westminster Bank Ltd clarify about the term ‘customer’?

A non-clearing bank that regularly sends cheques to a clearing bank can itself be a customer of that clearing bank.

List the five forms of banker–customer relationship.

(1) Contractual, (2) Special relationship (fiduciary/adviser), (3) Trustee & beneficiary, (4) Debtor & creditor, and (5) Principal & agent.

Which 1966 case confirmed that the banker–customer relationship is contractual in nature?

Bunnett v Westminster Bank Ltd.

What fiduciary case held a bank liable for poor investment decisions as trustee?

Karak Rubber Co Ltd v Bundee & Others (1972).

In Joachimson v Swiss Bank Corp (1921), what is the first condition for a bank’s obligation to repay a depositor?

No obligation to repay arises until the customer makes a demand.

State the second Joachimson condition that can limit a bank’s duty to pay.

The demand (e.g., cheque) must be made in proper form—free of alterations or irregularities.

What is the third Joachimson condition regarding place of repayment?

Repayment is limited to the branch where the account is kept.

What is the fourth Joachimson condition concerning account balance?

The customer must have sufficient funds in the account to cover the amount demanded.

Give an example of the principal–agent relationship in banking.

When a customer authorises the bank to pay utility bills or manage an investment portfolio on the customer’s behalf.

Name the six principal rights of a banker outlined in the lecture.

(1) Commission/service charge, (2) Interest, (3) Set-off, (4) Repayment of loan, (5) Utilise deposited money, (6) Expect due care in drawing cheques (plus lien right).

What authority sets out standard service charges among Malaysian banks?

The Association of Banks in Malaysia (ABM).

Define the bank’s ‘right of set-off’.

The right to transfer funds from one of the customer’s accounts to settle debts owed on another account held by the same customer.

Which 1895 case confirmed banks may set off a current account against a loan account?

Buckingham & Co v London & Midland Bank Ltd.

List two situations where a bank cannot exercise set-off.

(a) Between a private debt account and a trust credit account; (b) Between a deceased’s estate credit account and the executor’s personal overdraft.

What is meant by the bank’s ‘right to lien’?

The right to retain possession of a customer’s securities or documents until the customer’s debt to the bank is paid.

Which case underpins the bank’s right to expect due care from customers when drawing cheques?

London Joint Stock Bank v MacMillan & Arthur (1918).

What statutory provision in Malaysia codifies the banker’s duty of secrecy?

Section 133 of the Financial Services Act 2013.

Name the four Tournier exceptions to banker’s duty of secrecy (also reflected in Malaysian law).

(1) Disclosure under compulsion of law, (2) Public duty to disclose, (3) Bank’s own interest, (4) Customer’s express or implied consent.

What criminal penalty may apply for breach of secrecy under FSA s.133(4)?

Imprisonment up to 5 years and/or fine up to RM10 million.

What is a garnishee order and what duty does it impose on banks?

A court order freezing or redirecting a debtor’s funds; banks must comply with its terms or face legal consequences.

List the five main duties of a banker identified in the lecture.

(1) Follow customer instructions, (2) Honour cheques, (3) Exercise care & skill, (4) Maintain secrecy, (5) Comply with garnishee orders.

Which case illustrates liability for failing to follow customer instructions, leading to cheque forgery?

Chairman, Sarawak Housing Developers’ Association v Malayan Banking Bhd.

State three pre-conditions a bank must check before honouring a cheque.

(a) Sufficient funds/within overdraft limit, (b) No legal bar (e.g., stop-payment), (c) Cheque drawn in proper form.

What are the four principal rights of customers under the lecture?

(1) Receive statements/passbooks & keep accurate books, (2) Be repaid balance on demand, (3) Receive interest on deposit accounts, (4) Appropriate payments among multiple debts.

Which types of accounts in Malaysia typically do NOT earn interest for customers?

Current accounts.

Explain the customer’s ‘right to appropriate payments’.

When paying less than total debt, the customer may direct which debt the payment should reduce; if silent, the creditor can decide but must notify the customer.

Which case established that debtor intention guides appropriation of payments?

Deeley v Lloyd’s Bank Ltd.

Summarise the Rule in Clayton’s Case (Devaynes v Noble, 1816).

In running accounts, first credits are applied to discharge earliest debits (FIFO) when account is in credit; when overdrawn, earliest debits are repaid by earliest credits (FOFI).

List the five key duties of customers mentioned.

(1) Exercise reasonable care in drawing cheques, (2) Promptly notify bank of forgeries, (3) Maintain proper cheque records, (4) Ensure sufficient funds, (5) Use only bank-supplied cheque forms.

What did Greenwood v Martin Bank (1933) establish about customer notification?

Customers must inform the bank immediately of any forged or altered cheques.

Why must customers use only the cheque forms supplied by their bank?

Different banks embed unique security features; using other forms may lead to rejection or non-payment for lack of authenticity.

What is the banker’s principal source of profit described in the notes?

Earning a net interest margin: lending out deposited funds at higher rates than those paid on deposits.

Define ‘net interest margin’.

The difference between interest income earned on loans and interest paid on deposits.

Give two examples of ‘providing finance’ services other than lending listed in the notes.

Leasing business and factoring business (also purchase of bills of exchange or guaranteeing liabilities).

What penalties can the bank impose for late repayment of loan under its right to repayment?

Late-payment interest or other contractual penalties expressly stated in the loan agreement.

Under what conditions can a bank lawfully divulge customer information to protect its own interest?

When initiating legal action to recover debts and necessary details appear in demand letters or pleadings.

Explain how deposit insurance protects the customer’s right to repayment if a bank becomes insolvent.

Government-backed insurance (e.g., PIDM in Malaysia) compensates customers up to prescribed limits for balances standing to their credit.

What is the legal concept underlying the banker’s duty to follow customer instructions?

Agency: the banker acts as the customer’s agent when executing instructions.

Identify one regulatory body that may fix or influence bank service-charge structures in Malaysia.

The Association of Banks in Malaysia (ABM).

Why must banks exercise care & skill when offering products to customers?

To ensure customers understand risks and are not exposed to undue loss, fulfilling the banker’s duty of care and avoiding negligence.