Bank and Customer Relationship – Chapter 2

Definition of Banker and Customer

• Banker: any person carrying on banking business; must be a public company with valid MOF licence under FSA\ 2013 & Act\ 701.

• Banking business core functions:

  • receiving deposits (current, savings, fixed, etc.)

  • cheque collection/ payment

  • financing (lending, leasing, factoring, guarantees, purchase of bills)

• Customer (case-law based):

  • Must maintain, or be accepted for, an account (Great Western Railway; Ladbroke v Todd).

  • Relationship may arise once bank accepts mandate even before account opened (Woods v Martins Bank).

  • A non-clearing bank can be customer of a clearing bank (Importer Co v Westminster Bank).

Forms of Banker–Customer Relationships

• Contractual (Bunnett v Westminster): rights & obligations stem from account agreement.

• Special (advisor/broker) – duty to act in customer’s best interest.

• Trustee–Beneficiary – bank holds assets for customer; fiduciary duty (Karak Rubber v Bundee).

• Debtor–Creditor – deposits create debt owed by bank; repayment conditions set in Joachimson v Swiss Bank (demand, proper form, correct branch, sufficient funds).

• Principal–Agent – banker executes transactions authorised by customer.

Rights of Banker

• Commission / Service Charge – express or implied, fixed by Association of Banks.

• Charge Interest – profit via net interest margin.

• Set-Off – offset balances in different accounts (Buckingham v London & Midland); NOT allowed for:

  • trust vs private accounts

  • executor vs deceased balances

  • credit vs contingent liability

  • solicitor’s client account vs personal overdraft.

• Repayment of Loan – may impose late-payment penalty if in contract.

• Utilise Deposited Money – lend or invest to earn income.

• Expect Due Care in Drawing Cheques – customer must complete cheque correctly (London Joint Stock Bank v MacMillan).

• Lien – retain customer’s property/securities until debt settled.

Duties of Banker

• Follow Customer Instructions – act promptly & accurately (Sarawak Housing Dev. Assoc. v Maybank).

• Honour Cheques provided:

  • sufficient funds / agreed overdraft

  • no legal bar (e.g. stop order)

  • cheque in proper form (no alterations).

• Exercise Reasonable Care & Skill – accurate info, suitable advice.

• Maintain Secrecy – statutory under s133(1)\ FSA\ 2013; breach penalty \le 5 years jail or \le RM10 million. Disclosure permitted by:

  1. court order/law

  2. protecting bank’s interest

  3. public interest

  4. customer consent.

• Comply with Garnishee Orders – freeze/pay funds as directed by court.

Rights of Customer

• Receive Statements/Passbook & keep own records accurate.

• Repayment of Credit Balance on Demand; protected by deposit insurance if bank insolvent.

• Earn Interest on deposit accounts (savings, FD); no right on current accounts.

• Appropriate Payments – may instruct how part-payments are applied; if silent, Rule of Clayton’s (Devaynes v Noble) applies:

  • Account in credit: FIFO

  • Account in debit: FOFI.

Duties of Customer

• Exercise Reasonable Care when drawing cheques – fill fully, prevent alteration.

• Promptly Notify Bank of forgeries/unauthorised transactions (Greenwood v Martin Bank).

• Maintain Proper Records of issued cheques (number, date, payee, amount).

• Ensure Sufficient Funds before issuing cheque – avoid fees, legal liability.

• Use Only Bank-supplied Cheque Forms – preserves security features.