129 CHAPTER 9 BANKER-CUSTOMER RELATIONSHIP Banker + The essential features of banking business are clearly known to the people; yet so far the term ‘Banker’ has not been fully defined. Various legislations in various parts of the world have, however, attempted to describe broadly only the functions performed by the bankers. JW. Gilbert in his ‘Principles and Practice of Banking’ de- fines a ‘banker’ in these words: __ “A banker is a dealer in capital, or more properly, a dealer in money. He is an intermediate party between the borrower and the lender. He borrows of one party and lends to another.” In ‘Law of Banking’ (4th ed; p. 1) Dr. Herbert L. Hart de- fines ‘banker’ or ‘bank’ as: : “A person or company carrying on the business of receiving Moneys, and collecting drafts, for customers subject to the obli- ation of honouring cheques drawn upon them from time to time by the customers to the extent of the amount available on their Current accounts.” Therefore, according to this definition accep- fance of deposits of funds withdrawable on demand is the essen- tial function of a banker, Sir John Paget, a great authority on banking law, defines banker in these terms: “that no ed or body corporate or oth- Q) ee be a banker who does not (1) take deposit accounts, lects op cuTent accounts, (3) issue and pay cheques and (4) cot Law (heques crossed and uncrossed for his customers” (The * Banking by Sir John Paget, page 51). >n BANKING IN PAKIsTay The American: sense as under: “By ‘Banking’ we mean the business of dealing in credits, and by a ‘bank’ we include every person, firm or company hay. ing a place ‘of business where credits are opened by deposits or collection of money or currency, subject to be paid or remitted on cheque or order, or money is advanced or loaned on stocks, bonds, bullion, bills of exchange, or promissory notes, or where stocks, bonds, bullion, bills of exchange, promissory notes are received for discount or sale.” (Indian Finance and Banking by Findlay Shirra, p. 336). In Britain, Bills of Exchange Act, 1882, and the Stamp Act, 1891, attempted to define a ‘banker’ as “any person who carries on the business of banking.” The Finance Act, 1915, also defined banker as “any person carrying on a bonafide ‘banking business’ in the United Kingdom.” Both of the above expressions do not define banking at all. However, the Ceylon Companies Ordinance of 1938, defined a ‘banking company’ as one which “carries on as its principal business accepting of deposits of money on current accounts or otherwise subject to withdrawal by cheque, draft or order, not- withstanding that it engages in addition in any one or more of the following forms of business...” In India and Pakistan: The earliest attempt at defining @ ‘banker’ in India was made in the Negotiable Instruments Act, 1881, wherein under Section 3 (b), a ‘banker’ has been defined in these words: s defined the term banker in a very broag ; “Banker means a person transacting the business of accept- ing, for the purpose of lending or investment, of deposit of money from the public, repayable on demand or otherwise an withdrawable by cheque, draft, order or otherwise, and includes any Post Office Savings Bank.” : So far the same definition has beer i istan 08 Pakistan well—even after the amendments ii Novant le ments Act by an Ordinance in 1962. nthe Nezotable Tair Almost the same definitior jon ° n_ has been given under section (b) of the Banking Companies Ordinance, 1962, which rea!BANKER-CUSTOMER RELATIONSHIP “Banking” means the accepting, for the pu i pose of ler investment, of deposits of money from the publi oyun or demand or otherwise, and withdrawable by cheques, aa ye en or otherwise.” y , order Functions of the Banker In order to understand the functions and duties of a banker, reference is very necessary to the following decision given by Lord Atkin in the case of Jaochimson v. Swiss Bank Corporation in 1921: “The bank undertakes to receive money and collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch; and as such written order may be out- standing in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do busi- ness with the customer except upon reasonable notice. The cus- tomer on his part undertakes to exercise reasonable care in exe- cuting his written orders so as not to mislead the bank or to fa- cilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept.” The above exposition covers only a very limited aspect of banking, because modem banking companies perform much more functions all over the world. The (Adopted) Banking Com- panies Act, 1913, laid down the legal framework for the forma- tion, registration and operation of banking companies in Paki-, Stan, but later on this Act was amended and promulgated in the form of Banking Companies Ordinance, 1962. Section 5 (b& °) of this Ordinance defines ‘banking’ and ‘banking company’ !n the following terms: (b) “Banking means the accepting, for the purpose of lend- ing or investment, of deposits of money from See repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise;3 BANKING IN PAKISTAN (c) “Banking company” means any company which trans- acts the business of banking in Pakistan.” uoted Section, and Section 3 (b) of the Nego- tiable Instruments Act, 1881, have stated that receiving money from its customer, and investing, and advancing that money to others are the principal functions of a banker. However, Section 7 of the Banking Companies Ordinance, 1962, authorises bank- ing companies to engage in various forms of business, including the following: 1. Borrowing and lending of money. Discounting bills of exchange and other Negotiable In- struments. 3. Collecting Negotiable Instruments on behalf of the cus- tomers. Buying and selling bullion and foreign exchange. Granting of letters of credit to the customers. Receiving valuables for safe custody. Underwriting and dealing in stocks, shares, debentures and other securities on behalf of the customers and oth- ers. 8. Acting as agent to customers; undertaking and execut- ing trust. 9. Carrying on guarantees and indemnities business. 10. Dealing with any property that may come to it as secu- Tity in satisfaction of its outstanding claims. 11. Acting as Modarba Company. 12. Undertaking the administration of estates as executors, trustee or otherwise. The above qI Nays Customer Nowhere in the law we find the definition of th : Nowhere f je term ‘cus- tomer’, yet it is generally believed that anyone conducting bank- ing transactions with a bank is a ‘customer’. Therefore, it pre- sents some difficulty in defining it exactly. , The only reference to the term ‘C i ‘ ‘ustomer’ has been made in ee pelt the Negotiable Instruments Act, 1881, ‘wherein ct i , : ion has been given to a banker collecting cheques on be-BANKER-CUSTOMER RELATIONSHIP, 133 half of his ‘customer.’ However, some learned writers on bank- ing, and some eminent jurists have attempted to define the term ‘customer.’ The first attempt in this regard was in Matthew v. William Browns & Company (in 1894) where the court decided that the stranger who stole the cheque had no title to it. As such, a thief was not a ‘customer’, as this implied a course of dealing or a habit of calling at the bank from time to time for banking ser- vices. In Great Western Railway Company y. London and County Banking Co. Ltd. (1901, A.C 414) Lord Davey remarked that a customer is a person who has “some sort of account, cither deposit or current account or some similar relation” with a banker, It implies that any person or body corporate is a cus- tomer when it is opening a current or deposit account, or when negotiates on advance on his account, or a loan account. According to Sir John Paget, “to constitute a customer, there must be some recognisable course of habit of dealing in the nature of regular banking business.” The most important point that establishes relationship is “duration” according to Sir John Paget; but it was ruled off in the case of Landbroke v. Todd (1914, 130 TLR 433) by the judgement of Justice Bailhache who declared that “In my opinion a person becomes a customer of a bank when he goes to the bank with money or a cheque and asks to have an account opened in his name, and the bank accepts the money or cheque and is prepared to open an account in the name of that person; after that he is entitled to be called a customer of the bank.” He further adds, “I think such a person becomes a customer the moment the bank receives the money or cheque and agrees to open an account.” Therefore, neither the number of transactions nor the period during which business has been con- ducted between the parties is of importance to determine whether Or not a person is a customer. . This was confirmed by the Privy Council in the appeal of Commission of Taxation v. English, Scotish and Australian Bank (1920, A. C, 683) when Lord Dunedin delivered the judgement. {t Was pointed out that the word ‘Customer’ signifies a relation- ship in which duration is not of the essence. “A person whose money has been accepted by the bank on the footing that they undertake to honour cheques upto the amount standing to hisiM BANKING IN PAKISTAN credit is, in the view of their Lordship, a customer of the bank in the sense of the statute, irrespective of whether his connection jg of short or long standing.” Thus it is clearly established that the word “customer” gen- erally denotes a relationship resulting from habit or continued dealings, but for a bank customer this habit of dealing is not es. sential, A person becomes a customer as soon as he opens an ac- count with the bank. On the other hand a person may come to the bank for encashment of cheques daily and pay regular visits to the bank yet not be a customer of the bank. According to the current banking practice, only those per- son are said to be ‘customers’ who maintain a regular bank ac- count, without taking into consideration the duration and fre- quency of operation of their accounts. Qualifications of a Customer The relationship of the banker and the customer is purely a contractual one. Therefore, any person who is capable of enter- ing into a contract according to Section 11 of the Contract Act, 1872, can be a customer. He must, nevertheless, have the follow- ing basic qualifications: 1. He should not be a minor and must have attained the age of majority, because a minor is not competent to . contract. Therefore, a contract entered into by a minor is of no effect. However, exception has been allowed in the practice of banking in case of a minor who is al- lowed to become a customer. According to Section 3 of the Majority Act, 1875, a person is deemed to have at- tained majority when he has completed his age of 18 years. He should be a person of sound mind. If not so, he is in- competent to contract. Section 12 of the Contract Act says that “a Person is said to be of sound mind for the purpose of making a contract if at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests.” He shall not hav ing i coe et ca ae from entering into any 7 like i » proclaimed offender, and alien ee pamBANKER-CUSTOMER RELATIONSHIP 135 Like any other valid contract the depositor, as fers money and the banker offers to accept his deposite ard the depositor in acceptance of this offer deposits his money and be- comes a customer. Rights and Duties of a Customer Towards the Banker RIGHTS: The customer has the following universally ac- cepted rights: (a) to draw cheques against his credit balance, or in the ab- sence of credit balance, there are arrangements for ac- commodation made with the banker earlier to this ef- fect; (b) to receive a Pass Book or a statement containing a copy of his account with the banker. In case he finds any over-crediting or over-debiting in his account he has a Tight to get it corrected; (c) to sue the bank for the cost, loss and damages when his cheque is wrongfully dishonoured; (d) to sue when the banker has not maintained the secrecy of his account, (©) to claim for and receive the profit / return on his depos- its as promised by the bank. DUTIES: The customer has the following duties towards his banker; (i) Section 72 of the Negotiable Instruments Act, 1881, lays down that the customer must present the cheques for payment and collection within the busi- ness hours of his banker. (i) Section 84 of the Negotiable Instruments Act, 1881, lays down that the customer should see that the cheque and other instruments are presented for payment within a reasonable time from the date of their issue. (iii) He should keep his cheque book under lock and key so that no unauthorised person gets access to it. Ifa customer fails in this duty, he is to be held respon- _136 BANKING IN PAKISTAN sible for his negligence in leaving his cheques un- protected. (iv) He should draw the cheques very carefully and in such a way that there is no room left for any fraudu- lent alterations and additions. In London Joint Stock Bank v. Macmillan and Arthur —(1918-A.C. 77) Lord Findlay said: “A cheque drawn by a customer, is in point of law, a mandate to the banker to pay the amount according to the tenor of the cheque. It is beyond dispute that the customer is bound to ex- ercise reasonable care in drawing the cheque to pre- vent from being misled. If he draws a cheque in a manner which facilitates fraud, he is guilty of a breach of duty to himself and the banker, and he will be responsible to the banker for any loss sus- tained by the banker as a natural and direct conse- quence of this breach of duty.” General Relationship The relationship between banker and customer is in fact that of a debtor and creditor. When the banker receives money froma customers he does not hold it in a fiduciary capacity, but/it wa generally believed that by accepting deposits from she’ depositor the banker assumed the responsibilities of his agent. This belief was corrected by Sir William Grant M.R. in Deyanes V. Noble (1816, Mer 529) when he held that ‘money paid into a banker’s becomes immediately a part of general asset; and he is merely a debtor of the amount’. This decision was further explained in Sims V. Bond (1833, 5B) by the Chief Justice of the Queen’s Beench that ‘sums which are paid to the credit of customer with a banker, though usually called deposits, are in truth, the loans by the customer to the banker’. This relationship of debtor and creditor was for the first time recognized by the court of law in 1848. In the case of Foley v. Hill (1848, 2 H.L.C 28, a customer brought an action against banker to account for money received, claiming that the relationship was equitably akin to that of Prin- cipal and Agent, and that he was entitled on that basis to know what had happened to this money and what profit had been de- rived from it. The court decided that the relationship was that of a debtor and creditor, and not that of Principal and Agent. That decision enabled the bankers to use the money according to theirBANKER-CUSTOMER RELATIONSHIP 137 own wishes, When a customer deposits money in his account, he has the right to withdraw it; but he cannot enquire from ‘the banker about its utilization. But this relationship is that of special debtor and creditor in the sense that when the banker is the debtor, and customer is the creditor, the demand is always to be made by the customer; and the Law of Limitation will operate from the date when demand is made. First Schedule Item No. 60 of Limitation Act, 1908, reads: “For money deposited under an agreement that it shall be pay- able on demand, including moncy of the customer in hands of his banker so payable, the period of limitation is 3 years which starts from the time when demand is made”, and in case of the cus- tomer being the debtor, and the banker being the creditor, the Law of Limitation operates from the date of advance made to the customer. Item No. 59 of the First Schedule of the Limitation Act, 1908 reads: “For money lent under an agreement that it shall be payable on demand, the period of limitation is of 3 years which runs from the date the loans is made.” We do not find such a peculiarity in the case of ordinary debtor and creditor. In the case of term deposits, the law of limitation begin to run from the date at which the depositor is entitled to be paid. Other relationships 1. Bailor and Bailee: Section 148 of the Contract Act de- fines that ‘a bailment is delivery of goods by one person to an- other for some purpose, upon a contract.” When the banker pro- vides safe-custody facilities to his customers for their valuables, the relationship becomes that of Bailor and Bailee, where the customer is the bailor, and the banker is the bailee. It is an old re- lationship of banker and customer which started from the days of earlier bankers i.e. goldsmiths. The goldsmiths used to keep the belongings and valuables of public for safe-custody with them- selves, although later they started lending a part of that deposit, which was nothing but a breach of bailment. The present-day banker is a bailee for reward and not gratuitous bailee, as a very small amount is recovered from the customer as service charges. 2. Principal and Agent: When a banker performs agency Services he becomes agent of his customer. These services in- Clude collection of cheques and other negotiable instruments etc., and payment of premium to insurance companies or subscrip-138 BANKING IN PAKISTAN tion, collection of utility bills and fees to clubs and associations on behalf of his customer under his standing instructions, 3. Pawner/Pawnee, Mortgagor and Mortgagee: When a customer pledges goods and documents with the bank as security for an advance, he becomes the Pawner, and the banker becomes the Pawnee. Similarly, when advance to the customer is made against security of immovable property, the relationship becomes that of Mortgagor and Mortgagee, where banker is the Mort- gagee and customer is the Mortgagor. Besides these, the banker also acts a Trustee, Executor, Attorney and Guarantor etc, Special Features of Relationship The banker has special relationship with his customer in the following aspects: (a) Obligation to honour cheque: It is a statutory obligation to honour the cheques drawn on him by his customer as long as his balance is sufficient, provided that the cheque is not stale or post-dated and that there is no prohibiting order of any court against the account of the customer. In Joachimson v. Swiss Bank Corporation judge Lord Atkin said, “The promise to repay the customer is to repay at the branch of the bank where the account is kept, and during banking hours.” According to Section 31 of the Negotiable Instruments Act, 1881, a wrongful dishonour makes the banker liable not only to the actual pecuniary losses sustained by the customer but also for the loss of credit or of injury to Tepu- tation. The Madras High Court has held in New Central Hall v. United Commercial Bank (C.C. Vol. 29, Page 78) that if a banker having sufficient funds of a customer in his account, dishonours even by mistake, has to compensate the customer for damages. HoweVer, the amount of damages and loss does not depend merely upon the size of the amount of the dishonoured cheque, as the courts give due consideration to the finan cial position and business Teputation of the customer and other factors in assessing the damage for injury to the customer,BANKER-CUSTOMER RELATIONSHIP 139 (b) Right to Lien: Lien is the right to retain the Property be- longing to another until the debt due from the latter has been paid. According to Section 171 of the Contract Act, 1872, a banker’s general lien is of peculiar type, for it extends to all the securities placed with him by his customer. In Brando v. Bernett (1864), it was decided that, “bank- ers must undoubtedly have a general lien on all securi- ties deposited with them as a banker by a customer unless there be an express contract or circumstances that show an implied contract inconsistent with lien.” The general lien of the banker is regarded as something more than an ordinary lien: it is an implied pledge. It gives the banker the right to sell the pleged goods for the recovery of its dues, after a notice to the debtor (P.L.D. 1966, SC 684) Nevertheless, the following conditions must be fulfilled before exercising this right: (i) The property of the customer must come into the hands of the banker as a banker of the customer. (i) There should not be any entrusement for special purpose. (iii) Banker should obtain possession lawfully. (iv) There should be no agreement inconsistent with the right of lien. Following are subject to a banker’s lien, and as a matter of Practice the bankers generally obtain a letter of lien duly signed by the customers when loans or such other facilities are given to them against these: 1 2. 3 . 4. Promissory Notes, Bills of Exchange, Treasury Bile Bills, cheques and documents for collection (this is in ordinary course of business). 7 Bearer bonds and coupons which are left for collection. Coupons only where the bond is in safe custody. Coupons and Bonds, deposited with the bank without any particular intention. - Securities left after adjustment of an advance or loan. (Lucas V. Dorrein, 18R, 480)140 BANKING IN PAKISTAN 6. Dividends, Interest Warrants or Stock and Debenture Certificates issued in the name of the bank under in- structions of the purchaser. 7. Share certificates purchased by the bank for the cus- tomer. Following are not subject to Lien: 1, When it is not the property of the customer: If the banker is unaware, the lien is not affected. 2. Bills of exchange and other securities deposited for a specific purpose. (Culbert v. Robert, 1909, Ch 226 C.A) 3. On credit balance in respect of contingent liability of bills not yet due (Bills Purchased). 4. Over bonds when customer himself cuts the coupons for collection, presumption being that the bonds are for safe custody. (Leese v. Martin, 1873, LR 17 Eq 224 and (Bank of Africa v. Colien, 1909, Ch 129) 5. Over articles or deposits left for safe custody. 6. Over securities for sale. C. Right of Set-off: Set-off means adjusting debit balance against credit balance in other account or accounts of the same borrower. Set-off is a statutory right of bankers. The Institute of Bankers in London expressed its view in its Journal (Vol XIV, p238) in 1924, in these words: “The right of set-off has, however, long been recognized as being subject to limitations which in many circum- stance deprive it or much of its value to the banker. Once something has occurred to stop the account, as for ex- ample, the death of the customer or the commission of an available act of bankruptcy by him, the bank’s right of set-off comes into operation without restriction; but so long as the accounts are active, the bankers cannot set- off the debit balance of one account against the credit balance of the other except after reasonable notice given to the customer, unless either (a) there is a definite agreement giving the banker the right or (b) such a right can be inferred from the course of business between theBANKER-CUSTOMER RELATIONSHIP 141 bank and its customer. From the ordinary course of busi- ness, it would be a matter of great difficulty to establish such a right. It would, therefore, usually be unwise to rely on any right of set-off except subject to a reasonable notice; and it is very obvious that the necessity of giving notice would deprive the right of most of its value.” Therefore, in order to establish an immediate right of set-off in the operative account, the banker should obtain a written au- thority from his customer, giving banker the permission to trans- fer the credit balance of the account to the debit balance at any- time without the necessity of giving notice. However, a debt which is not yet due cannot be the subject of a set-off because it is always in respect of an actual and immediately recoverable debt. When a customer has Personal Account, and another as a Trust Account, the credit balance in the Trust Account cannot be subjected to set-off to a debit balance in the Personal Account. On the other hand the credit balance in the Personal Account can be used as a set-off to the overdrawn Trust Account giving a rea- sonable notice before doing so. A credit balance in the customer’s account in one bfanch may, if not contrary to customs or agreement, be taken as a set- off against a debit balance by the same customer at another branch after giving a reasonable notice. In British Guinea v. Of- ficial Receiver (1911), it Was held that “where an agreement ex- isted between a bank and its customer that money standing to the credit of one account should not be appropriated in reduction of a debt due to the bank on another account without the customer’s knowledge and consent, it is held that the agreement is termi- nated by the liquidation of the customer.” In Watt v. Christie (1849) it was held that the credit balance on a partner’s personal account cannot be taken as a set-off to a debit balance in the firm’s account, but if the customer is the sole proprietor, then his Personal Account balance may be set-off against debit balance in the firm's account. Generally, the right of set-off cannot be exercised between a customer's individual account and any other account in which142 BANKING IN PAKISTAN his name appears. However, if the parties to the joint-account have agreed to joint and several liability of debt on that account, a credit balance in the personal account will be subject to a set-off, Due to the special nature of relationship with the customer, the banker may set-off a customer’s credit balance against a debt due to him from the customer, provided that the account is in the same name and right, and there is no contract to the contrary, ‘This right can be applied when: 1. The customer is running the account and that he has been issued the cheque book. Before using the right of set-off in this case, the banker must give an advance no- tice to this affect to his customer. 2. When operation on an account is stopped, as in the case of death, bankruptcy etc, the banker need not give the notice in advance, for, the right then accrues automati- cally, Moreover, in case of death of the customer having two accounts, the banker can transfer the credit balance to the account having a debit balance before paying the amount to the legal heirs of the deceased. The following accounts can be subject to set-off: (i) Debit balance of Trust Account can be set-off against the credit balance of trustee's private account after the trustee is found to be personally liable. (ii) A deposit account can be set-off against an overdraft account. (iii) If all the joint account-holders have given individual guarantees, a joint account can be set-off against indi- vidual account. Right to charge for their services Bankers have a right to charge for the services they provide to their customer. This right is backed not only by an express agreement with but an implied consent of the customer concem- ing the charging of commission, postal and telegram expenses etc. from him, and the customer has been paying these charges. Thus right to charge for the services arises also from the course of dealing between the banker and the customer,BANKER-CUSTOMER RELATIONSHIP 143 this right is also based upon the principle “that where one person requests another to perform services of a pro- fessional or business nature, the law implies a promise on the art of the first person to pay a reasonable sum for services ren- dered. This right of bankers has been confirmed in Rouse V. Bradford Banking Company Ltd. (1894, AC 586). THE BANKER’S DUTY OF SECRECY ‘A bank is the trustee for its customer, therefore, the rela- tionship between banker and his customer is obviously confiden- tial, and thus, a banker must maintain secrecy about the state of his customer’s account. In 1924 in Tournier v. National Provin- cial and Union Bank of England (1.K.B. 461) it was decided that the banker “must not disclose the condition of his customer’s ac- count except on reasonable and proper occasion and the obliga- tion to observe secrecy does not end even with the closing of the customer’s account.” Section 33-A of Banking Companies Ordinance, 1962, has made it obligatory for each banker in Pakistan to maintain com- plete secrecy and fidelity relating to the operations of the cus- tomers’ accounts except in permitted situations. The Banks (Na- tionalization) Act, 1974, has also made it obligatory for every Pakistani banker to do so. Section 12(1) of the act lays down, “The chairman and members of the Council, every bank, mem- bers of its Board of Management and Chief Executive by what- ever named called, shall observe, except as otherwise required by law, the practices and usage customary among bankers and, in Particular, shall not divulge any information relating to the af- fairs of its constituents except in circumstances in which it is, in accordance with the law or practice and usage customary among bankers, necessary or appropriate for a bank to divulge such in- formation.” Besides, This obligation of secrecy, may not be considered essential on the following five occasions: 1. Under Compulsion of Law law, ‘ banker may be asked to give an evidence in a court of - A court order should be served to the banker before a com- | nace Petent court desires inspection of the books. Section 6 of theLa 144 BANKING IN PAKISTAN Banker's Books Evidence Act, 1891, permits the banker to pro- duce certified copies of the relevant parts of the entries etc. from the ordinary books of the banker; and the courts will be pleased to accept the evidence so produced. Section 165 of Pakistan Criminal Procedure Code author- ises an investigating police officer to search the records of a bank or call for any information relating to certain offences, pro- vided prior permission has been obtained from a Session Judge. Similarly, with the prior approval of the Income Tax Com- missioner, an Income Tax Officer may inspect the books of the banker or call for information required by him in accordance with Section 144 of the Income Tax Ordinance, 1979. 2. Duty to Public to Disclose Sometimes it becomes the banker’s duty to disclose the na- ture and operation of the account maintained by his customer, in the interest of public during national emergencies. Bankers may make suitable disclosures about the unsatisfactory and suspicious nature and operations of a customer’s account, but the banker should make himself very sure before venturing on such disclo- sures. 3. In the Interests of the Bank Sometimes bankers sue their customers to recover the amount due in their loan or overdraft accounts. In such a case, the banker may have to disclose some aspects of the customer’s account. It is also possible that sometimes the banker may have to disclose the nature of account in order to defened against the charges brought against him. In Sunderland v. Barclays Bank (1938) disclosure in the in- terest to bank was interpreted as a valid ground. 4. Express or Implied Consent of Customer A customer may Bive standing instructions to the banker to supply certain information about his account for the preparation of balance-sheet or send periodic state n ments of account to some professional adviser for a Certain period of time. This was con irmed by Justice Atkin in Tournier case (1924, 1KB).BANKER-CUSTOMER RELATIONSHIP 145 While answering to inquiries on telephone the banker has to be very careful. He should not under any circumstances pass any information about his customer’s account to any unauthorised n, In the case of Sunderland v Barclays’ Bank (1938), the banker was taken to the court of law on the basis of having dis- closed the operation of the wife’s account to her husband. i 5, Common Courtesy to Other Bankers Besides these unusual occasions bankers have an estab- lished practice of giving confidential opinion on their customers to fellow bankers when requested to do so. It is not a breach of professional responsibility, because it is.an established practice based on reciprocal grounds. However, while replying to enquir- ies the banker should not disclose the actual position of the ac- count of his customer, and should confine his opinions only to causal expressions like ‘fair’, ‘good’, ‘satisfactory’ ete. At the same time, the information should be carefully worded, and it should not be signed. The forwarding letter accompanying the opinion must clearly state that the opinion is strictly for private use of the banker, without any responsibility; and that it should not be passed’on to any third party. TERMINATION OF RELATIONSHIP Since banker-customer relationship is a contractual one, it may be terminated by any one of the two by serving notice on the other. Notice by a customer: Since a regular operative account is the basis of the banker-customer relationship, a customer may terminate this relationship by closing his account on any of the following grounds: (i) Due to change in the address the customer may not be able to conveniently operate his account from the new place of his residence or job. He may, therefore, request the banker to Close the account. (ii) A customer may not be satisfied with the service offered y the banker. The impoliteness of the staff members, undue de- ays in encashment of cheques, unsatisfactory manner of sendingPAKIS I 146 BANKING IN PAKISTAN him periodical statements and other informations ete, are some of the grounds on which a customer may close his account with the banker. In such a situation the banker must take stock of his position and should take immediate steps to improve upon his performance so that the customer may not close his account, (iii) Account may also be closed due to the death of the cus- tomer. The law does not authorise the heirs to operate the ac- count of the deceased customer. ‘Therefore, the account is closed and the credit balance available in the account of the deceased customer is paid to the heirs according to the legal requirements in the specific case. Notice by a banker On the other hand the banker may like to close the account of his customer for a number of valid reasons; but this cannot be done without giving reasonable notice to the customer so that he may make such arrangements as are necessary to protect his reputation. The length of such notice will depend largely on the character of the account and the circumstances of the case. In Prosperity Limited v. Lloyds Bank Limited (1923), Lord Atkin held that, “In the absence of a special stipulation, a banker can close his customer’s banking account in credit on giving him reasonable notice, depending on the nature of the account and the facts and circumstances of the case.” . ___ The bankers give formal intimation to the customer that he wishes to close the account after a specified period. He may also request his customer to withdraw all the credit balance in his ac- count and return the unused cheques, They serve the notice generally on the following grounds:- (i) When despite repeated reminders to th (i) \ 1¢ account holders on this issue he does not stop presentation of cheques for pay- ment without having sufficient funds in the account. (ii) When a customer is i it balance in his account. An oan eS 1 his accour account is unrem ive when the Customer is maintaining a very small balance. — (iii) A regular i usual business Pe lel of cheques for Payment after PaBANKER-CUSTOMER RELATIONSHIP 147 If the customer does not respond to the notice served on him, the banker may close his customer’s account for the follow- ing reasons: 1 2 Obstinacy of the Customer: When the customer does not close his account even after the expiry of reasonable notice given to him, the banker may close his account by returning to him the entire credit balance in his ac- count and asking him to return the unused cheques held by him. Death of Customer: As soon as the banker receives the intimation about the death of his customer, he must stop payment of cheques drawn on him by the deceased cus- tomer, because, under Section 122-A of the Negotiable Instruments Act, 1881, the notice of death revokes his authority to pay such cheques. The heirs or the execu- tors of the deceased customer are not authorised to op- erate on the account, but can act only in accordance with the provisions mentioned in the letter of probate is- sued by a competent court. Customer’s Insanity: The principle established in Young v. Toynbee (1910) states that the mental disorder or insanity of customer automatically terminates the banker’s authority to act as his customer’s agent. Since the banker-customer relationship comes to its end, in such a situation it is usually considered that the banker’s authority to pay his customer’s cheques is revoked by notice of insanity. However, the bankers treat their cus- tomers as sane unless a fairly conclusive evidence of any customer’s insanity is available to them. Customer’s Insolvency: Insolvency is ‘civil death.’ Therefore, the insolvent loses his rights; and his affairs are transferred to the Official Assignee, Receiver or Liquidator. As soon as the banker receives the notice of insolvency of his customer or a petition filed for ad- judging a customer insolvent, his authority to pay cheques or to accept or honour bills or to take other ac- tion on behalf of his insolvent customer comes to an148 BANKING IN PAKISTAN end. He must, therefore, transfer the credit balance in the insolvent customer's account to the Official As. signee or the Receiver. Under Section 28 of the Provin. cial Insolvency Act, “An order of adjudication shall ‘re. late back’ to, and take effect from, the date of the pres- entation of the petition on which it is made.” Therefore, the banker cannot deal with such a customer’s property or honour his cheques if he is in the know of the peti- tion or an act of insolvency on the part of his customer, Order of Court: A court of law may serve a banker with an order in garnishee proceeding in execution of a decree, prohibiting him form honouring a customer's cheques. The order may be absolute when it refers to the entire amount of the customer in the banker’s hand, or it may be partial as relating to a specified sum only. The banker must act according to the terms of the order served on him; and his relationship with the customer automatically comes to an end accordingly. Assignment of Account: The customer may assign his entire credit balance to a third party and give the notice of assignment to the banker, asking for payment to the assignee. As soon as the banker acts upon the assign- ment instructions, the banker-customer relationship comes to an end. Unsatisfactory Operation: A banker may close his customers account after serving a notice if he fails to maintain the account satisfactorily. The banker deter- mines an account as ‘unsatisfactory’ if the customer has been in the habit of drawing cheques without adequate funds to his credit or maintains an unremunerative a¢- count or has been in the habit of forging cheques, which ultimately brought him to the books.