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Banker-Customer Relationship Question

The banker-customer relationship is governed by agency law, contract law, tort law and equity. These legal frameworks establish duties for customers including acting in good faith, avoiding misrepresentation, maintaining account balances, reporting suspicious activity, and avoiding unjust enrichment. Customers must understand their duties to contribute to a secure financial partnership with their bank.

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16 views

Banker-Customer Relationship Question

The banker-customer relationship is governed by agency law, contract law, tort law and equity. These legal frameworks establish duties for customers including acting in good faith, avoiding misrepresentation, maintaining account balances, reporting suspicious activity, and avoiding unjust enrichment. Customers must understand their duties to contribute to a secure financial partnership with their bank.

Uploaded by

domoniquebernard25
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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The banker and customer relationship is underpinned by complex rules of agency law, contract

law, tort law and equity.

The landmark case of Foley v Hill states that the nature of the relationship between a bank and its
customer is one of a debtor, creditor relationship and that the bank’s duty to the customer is to
repay the principal, when demanded, a sum equivalent to that paid to him. This principle was further
elucidated in the case of Joachimson v Swiss Bank Corporation. However, in the intricate tapestry of
the banker-customer relationship is woven with threads of diverse legal principles. Agency law,
contract law, tort law, and equity each play a vital role in defining the duties owed by the customer
to the bank. This essay delves into these legal frameworks, exploring how they shape the customer's
responsibilities in this crucial financial partnership.

Agency Law: A Framework for Trust and Loyalty

At the heart of the banker-customer relationship lies the concept of agency. When a customer
entrusts the bank with financial tasks, such as managing investments or executing transactions, an
agency relationship is established. This instils the customer with certain duties, the most
fundamental being the duty to act in good faith. This translates into a requirement for the customer
to be honest and transparent in their dealings with the bank, disclosing all material information and
avoiding actions detrimental to the bank's interests. Additionally, the agency relationship imposes
the duty to follow instructions. Customers are obligated to comply with any specific directions
provided by the bank regarding their accounts, ensuring the smooth and efficient execution of
financial activities. Furthermore, in certain circumstances, the duty to account may arise, where the
customer must provide accurate records and documentation of all transactions conducted on their
behalf.

Contract Law: A Binding Agreement

The banker-customer relationship is further cemented by the underlying contract, whether explicit
or implied. This contract defines the specific rights and obligations of both parties, outlining the
customer's duty to perform contractual obligations. This includes maintaining sufficient funds in
their accounts, making loan payments on time, and adhering to any agreed-upon terms and
conditions. Additionally, the duty to avoid misrepresentation requires customers to provide accurate
information to the bank, preventing harm caused by misleading statements or omissions. The cases
of Foley v Hill and Joachimson v Swiss Bank are authorities on the bank’s contractual relationship
with its customers. There can also be implied contractual duties flowing from the customer to the
bank. A customer has a duty to disclose forgeries, and where there is silence in the face of his
knowledge amounts to a representation that there is no difficulty with his account. The bank will rely
on the implied representation to its detriment. Therefore, it is a question of fact whether the
customer has knowledge, see National Westminster Bank Plc

Tort Law: A Standard of Care

Beyond the contractual realm, the law of torts imposes a duty of care on the customer. This
necessitates acting with reasonable prudence to avoid causing harm to the bank. Customers must be
vigilant in protecting their account information and promptly report any suspicious activity, thereby
safeguarding the bank from potential losses incurred through negligence. Furthermore, the duty to
avoid negligence requires customers to abstain from actions that could result in financial losses for
the bank, such as writing bad checks or engaging in fraudulent activities. The customer has a duty of
care in drawing cheques as seen in commonwealth bank of Australia.
Equity

The principles of equity add another dimension to the customer's obligations. In certain situations,
the customer equitable duties to the bank. One such duty is the duty to avoid unjust enrichment
which prevents customers from exploiting any loopholes or technicalities in the law to gain an unfair
advantage at the expense of the bank.

The intricate interplay of agency law, contract law, tort law, and equity underscores the complex
nature of the banker-customer relationship. By understanding and fulfilling their duties, customers
can contribute to a mutually beneficial and secure financial partnership. In doing so, they ensure
that the intricate web of trust and responsibility remains woven strong, safeguarding the integrity of
the financial system for all.

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