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By Akin Olawale Ogundayisi
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AN APPRAISAL OF BANKER CUSTOMER RELATIONSHIP IN
NIGERIA
By
AKIN OLAWALE OGUNDAYISI LL.B, B.L, ACIArb.
ABSTRACT
The law of banking is concerned not only with the legal framework of
banking business but also with the peculiar legal relationship which subsists
between bankers and their customer. To the average Nigerian bank customer
i . e an ordinary account holder, the relationship between him and his bank
or banks begins and end with paying in and withdrawing from his account
But in actual fact ,and in law, the relationship is more complex than that but
he appears to feel unconcerned or does not wish to bother himself with so
complex a web of relationship which to remain confusing and difficult to
comprehend .In order to fully understand and appreciate this phenomenon in
law, it is essential for one to fully understand the meaning significance of the
term ‘bank’ or ‘banker’ and ‘customer’ in law.
The relationship which subsist between a banker and his customer
contractual and fundamentally that of debtor and creditor. It consists of
general and special contracts arising from particular requirement of the
business of banker. So to a large extent the major thrust or thematic concern
1
of work will be a working definition of the work ‘bank’ and ‘customer,’
their duties ,peculiarities of banker and customer, contractual relationship
and its relationship concerning the customer account and type of account.
TABLE OF CONTENTS
Title Page -------------------------------------------------
Dedication ------------------------------------------------
Certification ----------------------------------------------
Acknowledgments --------------------------------------
Table of Abbreviations ---------------------------------
Table of Statutes ----------------------------------------
Table of Cases -------------------------------------------
Abstract --------------------------------------------------
Table of Contents ---------------------------------------
CHAPTERISATION
CHAPTER ONE: INTRODUCTION
1.1. Introduction
1.2. Definition of Terms
1.3. Types of Banks
2
CHAPTER TWO: LEGAL FRAMEWORK FOR THE OPERATION
OF BANKING SYSTEM
2.1. Registration Under Companies and Allied Matters Act
2.2. Licensing
2.3. Legal Control of Bank Staff
CHAPTER THREE: BANKER CUSTOMER RELATIONSHIP
3.1. The Nature of the Relationship
3.2. The Rule in Foley v. Hill
3.3. The Rights of a Banker
3.4. Duty of Customer to is Banker
3.5. Termination of Banker-Customer Relationship
3.6. New Development in Banker Customer Relationship
CHAPTER FOUR: RECOMMENDATIONS AND CONCLUSION
5.1. Recommendations
5.2. Conclusion
References ----------------------------------------------------------
3
CHAPTER ONE
INTRODUCTION
One of the extended areas of contractual relationship which, exist is
that of banker and customer relationship. It shares a major characteristic of
any contractual transaction which exist between; principal and agent, bailor
and bailee, buyer and seller, hirer and hireree, and debtor-creditor
relationship.
Generally, the fundamental principle of the law of banking is that of
debtor and creditor relationship1. Even where the most obvious implication
of the service is that it is rendered on an agency basis, it is still often
regarded as negatively by the overriding implication of debtor/creditor
aspect. Thus, in Midland Bank Ltd v. Conway Corporation2 where the
banker agreed with his customer to accept rents from her tenants, and pay
1 M.C. Okany (2001) Nigerian Commercial Law; African-Fep Publishers Limited at .4152 (1965) 1 W.L.R. 1165
4
over to the council amount due in respects of rates, it was nevertheless held
that they had acted simply as bankers, not as agents3.
The relationship is therefore that of debtor and creditor, with the
additional feature that the banker is only liable to repay the customer on
payment being demanded4, while the ordinary debtor is under an obligation
to pay without any demand being made. This was the rule that was
established in 1948 in the case of Foley v. Hill5.
However, it is important to stress that this rule of relationship does not
apply in are cases where a banker and customer are involved in a
transaction. In the recent case of Integrated Timber and Plywood Products
Ltd v. Union Bank Nigeria Plc6 delivered on Friday 19th Ma 2006, it was
made clear that a confirmation of a telex establishing the letter of credit and
not ipso facto establish a banker-customer relationship between them as
claimed by the appellant. According to Niki Tobi J.S.C.,
I do not agree with learned counsel that there exist or existed
banker and customer relationship in this matter…
Thus, the motive behind this research is to look critically into the rule
guiding banker and customer relationship and possibly suggest where
3 See Chorley and Holden, Law of Banking (1974), 6th edn. p.254 See Nigerian Farmers Bank Ltd v. Oladipo Moore (1959) LLR 46 5 (1848) 2 H.L. Cas. 286 Suit S.C. 342/2001 delivered on 19th day of May 2006; See also www.nigeria-law.org/integrated%20Timber%20and%20Plywood%20Products%20Ltd%v%20Union%20BankNigerian%20Plc.htm as retrieved on 6th March 2008.
5
necessary so as to make the law of banking relevant and updated with the
dynamic nature of Nigerian economic reforms in the banking sector.
History and Development of Banking in Nigeria
The history of banking in Nigeria started with the activities of African
Banking Cooperation [ABC] which was established in 1982.The activities of
the bank was short lived with the emergence of First Bank of Nigeria Ltd.
The First Bank had its origin as a trust in 1893 by Sir Alfred Jones supported
the colonial governments and managed by Elder Delms – star merchant with
the support of the colonial government. The Bank was registered as Bank of
British West Africa (BBWA) as a limited liability and commenced business
on 31st of march 1893 in Liverpool England. Its Lagos office was opened in
the same year in Lagos.
In 1899 another Bank was established known as Anglo Bank the
authority of the bank was also short lived as the Bank for British West
Africa absolved its operation in 1912 the Bank of British west Africa
(BBWA) was renamed Bank for West Africa in 1956 to reflect the
independent status of west Africa countries served by the Bank.
The story of indigenous banking in Nigeria began with the
establishment of the National Bank of Nigeria Limited in February19337.
7 http.//www.centbank.org/AboutCBN/history.asp
6
This story followed by the Agbonmagbe Bank Limited8 1945who survived
all odds remain and later changed its name to Wema Bank. In another
development, Dr Nnamidi Azikiwe bought Tinubu’s property Limited and
changed Tinubu Bank .in 1950s the Bank handled by the then eastern
regional government and it survived the odds of war crisis.
Definition of Terms
The following words appear to be words commonly used but yet have
deep meaning in the field of banking and law. There is therefore need to
define them and point out their relationship to the subject matter of this
research.
Bank
According to Dr H .L Hart, a Briton in his book ‘Law of Banking,
defines a bank/banker ‘as a person or company carrying on the business of
receiving money and collecting drafts for customers subject to the obligation
honoring cheques drawn upon them from time to time by customers to the
extent of the amount available on their current account.
This definition is no doubt, no exposition of the deposit collection
and chequery services of commercial banks and this is similar in conception
to Sir John Pagets definition of a bank in his book ‘Law of Banking’ where 8 now known as Wema Bank
7
the learned author sees a bank as ‘corporation of persons who accept money
on current account and collect cheques for customers”9.
Notwithstanding the variety of definition, the overriding with
regards to the definition of a bank is that in as much as the body is legally
recognized as a bank, it is not subject to the provision of the provisions of
the money Lenders Act10.
Some statutes also helped to define the word ‘bank’ in their various
interpretative sections .For instance, Section 2 of the Bill of Exchange Act
199011 defines banker as to include a body of persons whether incorporated
or not who carry on the business of banking. Similarly Section 2 (1) of the
evidence Act12 defines Bank /Banker to mean “any person partnership or
company carrying on the business as Banker and also includes any savings
bank established under the savings Bank ordinance and also any banking
company incorporated under any ordinance hereto, before, or hereafter
passed relating to such incorporation.
Meanwhile, Section 61 of Banking and Other Financial Institution
Act13 define the word “bank” as ‘banks licensed under this decree’. In the
same manner, ‘banking business’ is aptly defined thus:
9 See United Dominion Trust Ltd v. Kirkwood (1966) 2 K.B. 410 See alo Money Lenders Law Cap.7 Laws of Lagos State11 Cap. B8 L.F.N. 200412 Cap. 112 L.F.N. 1990 now Ca. E14 L.F.N. 200413 Decree No 25 1991 now Cap. B3 L.F.N. 2004
8
The business of receiving deposits on current account,
savings account or other similar account, paying or
collecting, cheques drawn by or paid in by customer,
provision of finance or such other business as the
Governor may by order published in the Gazette,
designate as banking business14.
Banker
Most often, the two words ‘bank’ and ‘banker’ are used
interchangeably without a careful meaning of what they stand for. The Black
Law Dictionary15 defines it as any person conducting the business of a bank,
that is, a person who keeps a bank16.
These definitions seem to be a layman definition of a banker in the light
of judicial decisions on the definition of the word. Thus, the Supreme Court
in Akwale v. R17 held that the word banker refers to a company carrying on
banking and not the individual employees. In his words, Ademola C .J .N.
said to the following effect:
‘The word banker does not in our view include a person
who is merely employee of a bank. The relationship
14 Ibid; See Ojikutu v. Agbomagbe Bank & 2Ors (1966) 2 ANLR 4415 7th Edition16 See Oxford African Encyclopedia for Schools and Colleges; (1974), Oxford University Press at p.76 where banks is defined as “organizations that handle people’s money 17 R v. Akwale (1963) 1All NLR 193; Federal Mortgage Bank of Nigeria v. NDIC (1999) 2 NWLR (Pt. 591) 333 at 362-363
9
between a banker and customer is that of a debtor and
creditor in respect of the money deposited with the
banker by the customer. This position is clear hen a
customer asks for his money if the amount is not paid,
the customer can sue the bank. The action will lie against
the bank and not the bank manager. The 1st appellant is
more an official of the ban carrying out the bank’s
instruction as to the method of its business and how it
should be carried out18.
Again, Lord Denning while distinguishing between a money lender
and banker points out three characteristics features of a banker in United
Dominion Trust Ltd v. Kirkwood19 as follows:-
i) A banker accepts money from and collects cheques from their
customer and place them to their customer;
ii) She honours cheques or orders drawn on her by her customers when
presented for payment and debit her customer account accordingly;
iii) Keep current accounts in which the credits and debits are entered.
Banking Staff
18 Ibid.
19 (1966 2 K.B. 4
10
Flowing from the above definition of terms (bank and banker), it is
clear that an individual working for the banker or bank as the case may
could only be a member of staff of the bank. Therefore, bank staff is those
who operates or direct the operation of the bank. They include the directors,
managers, principal officers of the bank through which the activities of the
banks is carried out.
Customer
Section 2 of the Bill of Exchange Act20 give meaning to the word bank
customer as any person whether incorporated or not who has a sort of
account with a banker/bank. The United States Uniform Commercial Code
defines a customer as any person having an account with a bank or for
whom a bank has agreed to collect items, and it includes a bank having an
account with another bank.
This definition was held in the Court of Appeal case of Oku v.
Banigo21 per Akpiroroti J.C.A. that:
“To say that where there is a dispute between two banks,
thee form of or the resolution of the dispute is the Federal
20 N0 20 0f 1964 now Cap. B8 L.F.N. 200421 (2003) FWLR (Pt. 175) p.422
11
High Court is to read into section 230 (1) (d) what is not
there. A lot depends on the transaction between the
customer and the banks. The mere fact that a bank takes
an action against another bank, does not make such
action triable exclusively by the Federal High Court
under section 251 of 1999 Constitution. It must depend
on the nature of the transaction and the capacity in which
one of the banks dealt with the other. There is therefore
the need to examine such transaction between an
individual customer and his bank to ascertain its
applicability22.
Flowing from the above, the learned Justice of Court of Appeal is
saying in essence that a bank can be a customer to other or another bank
where it operates or has some sort of relationship with the said other bank23.
At a time, it was assumed that the existence of an account was an
essential feature of a person being confirmed as a customer24. But in the case
of Woods v. Martins Bank25, Salmond J. held26 that the plaintiff became a
22 Ibid at p. 43023 See R v. Grossman (1981) 73 Cr. App. Rep. 302; Crim. LR 396, CA.24 See Great Western Railway Corporation v. London and County Bank Ltd (1901) AC 44 where it was held that there must be some sort of account either a deposit or current account or some relation to make a man a customer of a bank.
25 (1959 A.C. 2526 Ibid at p.137
12
customer of the bank from the time the bank accepted instructions and also
to obtain some money from a building society and to make an investment
although, these instructions were given before the account was opened.
It is significant to note that the word “customer” as used I common
parlance is different from its meaning I the law of banking. Thus, a man
whose only connection with the bank at the material date and tune was the
payment in of a single cheque for collection was a customer of the bank27.
Lord Davy in Commissioner of Taxation v. English, Scottish and Australian
Bank Ltd28 held that:
“It is true that there is no definition of customer in the Act, but it is
a well settled or known expression and I think, there must be some
sort of account either a deposit or current or some similar relation
to make a man a customer to a bank.”
Relationship:
The word relationship simple means links, contacts, or dealings
between people, group or countries29. In this sense, the type of links and
contact that exist between the customer and banker is what constitute the
thrust of this research.
Cheque:
27 See Commissioner of Taxation v. English Scotish and Australian Bank Ltd (1920) A.C. 68328 Ibid; See Ademiluyi & Lamuye v. ACB Ltd (194) NMLR 13729 Oxford Advance Learners’ Dictionary Special Price Edition at p.986.
13
According to Lord Chorley and J . M. Holden, a cheque could be
defined as;
“An unconditional order, in writing, drawn by one person
upon another, who must be a banker signed by the
drawer, requiring the banker to pay on demand, or at
sight or at presentation, or expressing no time for
payment, a sum certain in money to or t the order of a
specified person or to bearer30.
This definition appears to be more comprehensive and descriptive than what
is contained in the bill of exchange. Section 73 of the Bill of Exchange Act31
defines a cheque as a bill of exchange drawn on a banker and payable on
demand32. Expect it is otherwise specifically provided, the provision of the
Act relating to bill of exchange payable on demand apply to cheques33.
Bill of Exchange:
Section 3(1) of the bill of Exchange Act defines bill of Exchange as
an unconditional order in writing addressed by one person to another, signed
by the person giving it requiring the person giving it requiring the person to
30 Lord Chorley and J.M. Holden: Law of Banking, 1974, 6th Edition, p.4431 Cap. 35 L.F.N. 199032 See the case of Carara Marble Company Ltd. V. Bolado Ltd (1972) 2 ANLR 89 at 93.33 See A.C.B. Ltd v. Alao (1994) 4 NWLR p.59; See also North and South Insurance Co. v. National Provincial Bank (1936) 1 K.B. 328. There a cheque from wall filed up ‘pay cash or order’, the word ‘cash’ being in writing and ‘or order’ printed. It was held that, it was not a cheque, because it was not payable to a specified person or to bearer, but a direction to pay cash to bearer, the printed ‘or order’ being neglected in favour of the written word ‘cash’ See also Bavins v. London and South Western Bank (1900) 1 Q.B. 270.
14
whom it is addressed to pay on command or at a fixed or determinable future
and time, a sum certain in money to or to the order of a specified person or
to the bearer. A cheque is a type of a bill of Exchange, but does not in its
entirely equal to a bill of Exchange34.
Types of Banks in Nigeria
Banking institutions in Nigeria can be classified as follows;
i) The central bank of Nigeria
ii) Commercial Banks
iii) Development Banks
iv) Merchant Banks
v) Federal Mortgage Banks
(1) THE CENTRAL BANK OF NIGERIA
The central bank of Nigeria [CBN] is at the head of Nigeria’s Banking
system. The Bank owned by the Federal Government. It was established by
the CBN Act of 1968.The Bank is presently regulated by the CBN Decree
24 of 1991 as emended by Decree 4 of 1997.The CBN is a banker to other
Banks and it supervises the lending activities of other Banks in the following
ways:
(a) The CBN puts a limit on the aggregate credit facility that a
commercial Bank can expand to its customers.34 Okany M.C. (2001) Africana-fep publishers Limited at p.414.
15
(b) The CBN is also authorized to determine the percentage of total credit
facilities that will be allocated to particular sectors of the economy.
(c) The CBN through its periodic money policy fixes the interest rate
chargeable by Commercial Banks in various transactions, such as
interest on loan deposit, discounting bill of Exchange and treasury
bills issued.
(d) The CBN exact credit by providing the minimum share of the
indigenous borrowers of each bank loan and overdraft compared with
total lending.
COMMERCIAL BANKS
Commercial Banks are financial institutions that receive money on
savings ad deposit accounts and also act as authorized dealers in foreign,
thereby assisting in financial interractional trade particularly in import and
export from where they earn the bulk of their income by way of commission
and other Bank charges. Commercial Banks perform three major functions
which are –
[a] Save keeping of money
[b] Transfering money
[c]Providing loans and overdraft
16
(3) DEVELOPMENT BANKS
Development Banks are special Banks and they defer substantially
in operation from both in commercial banks. I addition to the facts that they
provide medium and long term financee to enterprises in different sectors of
the economy, they also provide managerial advice. The following are some
of the Development Banks in Nigeria –
(a) The Nigeria Industrial Development-
Bank – The NIDB was established in January 20th 1984 by restructuring and
re-naming a pre-existing industrial Finance Corporation of Nigeria Ltd. The
Bank was formally known as ICON which had been incorporated in October
1959.
The initial objective as contained in the memorandum was to assist
enterprises engage in industry, commerce agriculture and the exploitation of
natural resources. In Nigeria from the beginning of NIDB had been
providing medium and long term loans between 5 to 15 years to both
indigenous and foreign owned enterprises in Nigeria.
( b) Nigeria Bank for Commerce and Industry.
Another type of Development Bank in Nigeria is the NBCI. The Bank
was established in 1973 in anticipation of the larger term financing problems
that the indigenization Decree might pose. Since the transfer of the affected
17
industries to indigenous entrepreneurs might involve financial commitment
beyond the financial resources it was thought a loose policy to establish this
bank in other to provide equity capital and loan to Nigerians for the
provision of financial interest in industrial and commercial ventures. The
bank does not provide short term credit facilities. The bank is to provide
equity capital and loans by way of loans to indigenous persons, institutions
and organizations for medium and long term investment in industry and
commerce. The Bank is presently regulated by the Nigeria Bank for
Commerce and industry Act35.
4. MERCHANT BANKS
Merchant Banks means any person in Nigeria who is engaged in
wholesale banking, medium and long term financing equipment leasing,
debt factoring, insurance and acceptance of bills and the management of unit
trust.
In addition to the activities listed in the above definition, merchant
banks perform some common activities for other Banks. The most important
activity of merchant bank in Nigeria has been the granting of loans and
advances of medium and long term nature. Other forms of financial
assistance given by the merchant banks are the following:
35 Cap. 290 Laws of the Federation of Nigeria 1990.
18
(a) Syndicated Loans:- this type of loan is provided by two or more banks.
Sometimes the size of the loan required is large and individual bank is
unable to provide it all because it might amount to putting all its eggs in one
basket or the sum required cannot legally be provided to a single borrower
by it. For instance, a bank shall not without the prior approval in writing
grant to any person any advances loan or overdraft facility or give any
financial guarantees or bear any other liability on behalf of any person so
that the total value of the advance loan credit facilities, financial guarantee
or any other liability in respect of that person is at any time more than 20%
of the shareholder funds unimpaired by loses or in the case of a merchant
bank more than 50% of the shareholder’s fund unimpaired by loses36.
(b)Bankers Acceptance – These are forms loans provided by merchant
Banks by accepting primary notes from the client in return for the loan. The
loan is attractive to the bank because it can be used as a ladder to climb
above his lending limit.
5. THE FEDERAL MORTGAGE BANK
The Bank was established in 1975 to mobilize resources for housing
development and to control the growth and development of mortgage
institutions and also invest on building materials including materials
36 See Sec. 13 BOFID 1991 Decree No 25 now Cap. B3 L.F.N. 2004
19
industry as a way of ensuring the availability of this input and stabilizing
their prices.
20
CHAPTER TWO
LEGAL FRAMEWORK FOR THE OPERATION OF BANKING
SYSTEM IN NIGERIA
The most significant legislation to affect banking transactions in
Nigeria was the Banking Act 1952 as amended by the Banking Act 1969 and
subsequently in 199137 and 199738. The current law is the Banks and Other
Financial Institutions Decree No 25 of 199139. The Provisions of the
Banking Act made it mandatory for a valid licence to be obtained before any
banking business could be transacted in Nigeria. An application for a licence
shall be forwarded to the Governor of the Central Bank of Nigeria and all
licences to be issued shall be with the prior approval of the Minister of
Finance40.
The Company and Allied Matters Acts is also relevant in the sense
that the proposed person must first of all register as a company before
applying for a banking licence. In other words, no person shall carry on
banking business in Nigeria except it is a company duly incorporates in
Nigeria under the Act41. The Central Bank on Nigeria nowadays is
responsible for issuing the Nigerian currency and maintaining the country’s
37 Cap 28 LFN 199038 BOFA No 4 of 199139 Now designated as Cap. B3 LFN 200440 See Sec. 3 Subsection (5) of BOFA as amended.41 Section 2(1) Ibid.
21
external reserves is also the sole licensing authority for banks and other
financial institutions.
The Act that established the Central Bank of Nigeria (CBN) is another
statute that governs banking regulation42. The Act vest on the central Bank
of Nigeria (CBN) extensive regulatory and supervisory power over the
operation of licensed banks and financial institutions. Apart from the power
to issue and revoke banking licences, it can also carry out periodic
inspections into the affairs of any bank, sanction banks which violate
banking regulations (as imposed by it) and assume control and management
of failing banks. For instance, to date, in a bid to sanitize the financial
industry, the CBN has revoked the licenses of many banks.
Registration Under Companies and Allied Matters Act (CAMA) 1990
Any organization desirous of carrying on banking in Nigeria must first
be incorporated under CAMA 199043 as a limited liability company. As it
was held in the case of Akinwale and Ors v. R44, only a company or
corporate body can operate a bank in Nigeria. An alien or foreign or foreign
company subject to the provisions of any law regarding the rights and
capacities to engage in trade or business in Nigeria45. By Section 54(4)46
42 The CBN Act No 24 of 1991 as amended by Act No 3 of 1997 now Cap. C4 LFN 200443 Cap. 51 L.F.N. 1990 now Cap. C20 L.F.N. 200444 (1962) ANLR 193 at p.20045 Sec. 20(4) of CAMA46 Ibid
22
every foreign company intending to carry on business in Nigeria must take
all steps necessary to obtain incorporation as a separate entity.
Hence, any foreign bank wishing to carry on banking business in
Nigeria must undergo another set of registration procedure except where the
law provides to the contrary. By Section 35 of CAMA the following
documents must be submitted to the C.A.C.-Corporate Affairs Commission:
i. Memorandum and Articles of Association
ii. Address of the registered office
iii. Particulars of Directors
iv. Statement of authorized share capital, signed by at least a Directors
v. Statutory declaration of compliance signed by a legal practitioner.
Where the C.A.C. refuses, the applicant must be notified within 30
days. By Section 56 of CAMA, the National Council of Ministers may
exempt foreign companies from complying with the provision requiring
foreign companies to register in Nigeria before they can operate. Foreign
companies operating in Nigeria before the Act should have the word
“Nigeria” on their names.
Licensing
23
After incorporation as a company in Nigeria, the company must
obtain a banking licence from the minister of finance after consultation with
the Central; Bank. The applicant must submit a coy of the memorandum of
understanding and articles of association as well as the certificate of
incorporation. The Bank and Other Financial Institution Act47 provides that
no banking business shall be transacted in Nigeria except by a company duly
incorporated in Nigeria which is in possession of a valid licence granted by
the Ministry of Finance authorizing it to do so and unless before its
incorporation in Nigeria the objects of the company as defined n it MoA
shall have been submitted to the minister in writing through the CBN for its
consideration and approval accordingly.
By Section 5(3)48, if the applicant is already carrying on business
outside Nigeria, a copy of its latest audited accounts and balance sheet must
be submitted. By Section 8 of the Act, the minister may by order revoke any
licence for the following reason:
i. if the holder ceases to carry on business in Nigeria or is in
liquidation;
47 Cap. B3 L.F.N. 200448 Ibid
24
ii. where the bank operation is detrimental to the interest of the
depositors or creditors or has insufficient assets to cover its
liabilities.
The minister may however take any of the following steps prior to
revocation;
a. Appoint an expert to advise the bank on the proper conduct of
the business;
b. The minister will report the circumstances to the Federal
Executive Council who may order the revocation;
c. The minister must give the bank reasonable notice of its
intention to revoke and allow the bank to reply with a written
statement.
A banking licence granted under the Act is not within the contemplation of
civil rights under the constitution. Thus, in Merchant Bank Ltd v. Federal
Minister of Finance49 the Minster made an order revoking the licence of the
plaintiff for breaching regulations regarding liquidity ratio and other
conditions and the proper running High Court sought a declaration order that
the order was void and different from injunction to be granted to restrain the
minister from winding up the bank. The counsel to the Bank argued that the
49 (1961) ANLR pt. 4598
25
licence can only be revoked by the court or other tribunal established by the
constitution.
The bank further argued that it is only the court that has the power to
deter mine the civil rights of any citizens including a corporate body. The
Federal High Court dismissed the action and the Supreme Court it was held
that a licence to engage banking business can be revoked by the Minister. It
was further held that a licence was a privilege and it was for the minister and
not the court to exercise the powers. The function of the court begins when it
is alleged that the powers have not been exercised in accordance with the
provisions of the law.
It must be noted that where there is any dispute relating to breach of
or non-compliance with certain formulates required by law for the lawful
operation of banking business, the Federal High Court is the appropriate
court50 for the action because it involves government measure except the
federal government is a necessary party.
Requirements as to minimum-paid-up capital
By Section 6 of the Banking and Other Financial Institution Act 1990, no
bank shall be granted a licence unless the following conditions are fulfilled:
50 See Jamal Steel Structures v. African Continental Bank Ltd (1973) 1 All N.L.R. (part 3) 28; See also the Federal Revenue Court Act No 13 of 1973; Sec.228-230 of the 1979 Constitution and Sec. 249-252 of 1999 Constitution of the Federal Republic of Nigeria.
26
(a) As regard a bank which is not directly or indirectly controlled from
abroad, its paid-up share capital is not less than N600,000 (now
N20,000,000,000)
(b) In respect of a bank which is directly or indirectly controlled from
abroad, its paid up share capital is not less than N1.5 million.
(c) In respect of a Merchant Bank its paid up share capital is not less
than N2 millions
The position above however changed with the amendments of BOFIA by
Decree No. 3 of 1997. The minimum paid up capital for any of the
categories is not less than N500 million. The bank is deemed to be
controlled from abroad if-
(i) The Board of Directors is composed of mainly foreigners;
(ii) Where the majority voting are held by foreigner.
In an effort of the government of Olusegun Obasanjo to reform the
economy, the CBN announced a N25 billion minimum paid capital for all
banks in Nigeria in 2006. This exercise led to merger and acquisition
activities in the banking sector in a bid to consolidate the sector51.
51 Bullion; A Publication of CBN of Nigeria, “Banking Sector Reforms and Bank Consolidation in Nigeria”, Vol. 29 No.2 2005
27
Opening and Closing of Branches
Before any licensed bank in Nigeria can open a branch office
anywhere or outside Nigeria, consent in writing of the Central Bank of
Nigeria must be sought. This control has become necessary in other to avoid
too mush rivalry or competition between banks in citing their various branch
offices.
A bank is only one entity despite any number of branches it may have.
Therefore, a single ban is one person in law.
Legal Control of Banking Staff
Bank as a legal entity operates via the activities of some people such
as managers, Directors a principal officers. It is therefore important to
consider the legal control of these staff with respect to banking business and
operations.
Section 18(1) of BOFIA provides that bank staffs must disclose
interest with regard to loan and advances. Staffs are further prohibited from
having personal interest in any loan, credit or advances and if he has, shall
declare it52. Thus in the case of Obanta Commercial Bank Ltd v. Ajayi53, the
Court of Appeal held as follows:
52 Section 18(b) and (c) of BOFIA (as amended)53 (2002) FWLR (pt. 92) at p. 1716 Per TABAI J.C.A.
28
Where in the course of his duties and using the bank facilities, an official
of the bank receives money from the customer which he either uses or
fraudulently converts to his won use; the bank is liable to the customer
notwithstanding the fact that it had adopted all necessary measures to
prevent the officer from doing so. In the like manner, where the official of
the bank fraudulently withdraws money from the account of customers,
the bank is liable to the customer.”
The above quotation from the learned Justice of Court of Appeal elucidates
the responsibility of the bank to its customer even though the bank staff is
responsible for such injurious act done to its customer. This principle has a
bearing with the tortuous law of vicarious liability54.
Section 19(1)(a)-(b) further provides that a person who is bankrupt or
has suspended payment or compounded with his creditors or fond of
profession misconduct shall be managed by agent except as approved by
C.B.N55. Subsection (2) prevents a director of another bank or company who
has a voting right above 100 percent from being a director of the bank, while
subsection (3) prevents a director of another bank o company not being a
subsidiary of the bank or who is engaged in another vocation.
54 See Kodilinye: The Nigerian Law of Torts; 1990; Spectrum Law Publishing at p.229-249; Dola v. John (1973) 3 ECSLR 302; Attorney General v. Dadey (1971) 1 E.L.R. 228; Popoola v. Pan African Gas Distributors Ltd (1972) 1 All N.L.R. (part 2) 395; James v. Mid Motors (Nigeria) Ltd (1978) 2 L.R.N. 18755 Subsection (1) paragraph (a)-(b)
29
Every staff of a bank is expected to sign a code of conduct upon the
prescription of C.B.N. from time to time56. Similarly, the Chief Executive
Officers (CEO) of the bank shall cause the officers to sign its own code of
conduct approved by the Board of Directors of the bank57.
Section 29 provides for the appointment of approved auditor whose is
to provide annul information of the bank to stakeholders on the bank
account, balance sheet, profit and loss account and every such other report
and information as may be requested by C.B.N. section 30 make provision
for the appointment of directors of banking and examiners. In other to
compliment this, Section 32 provides for special examination and
investigation of the books and affairs of the bank where it is satisfied that in
the interest of the public, depositors and customers, the bank has a no
sufficient assets to cover its liabilities of its banking business is seen
detrimental to the public.
Although Section 41 gives the president of the Federal Republic of
Nigeria power to declare a trade union not to exist where its members
employed in banking industry tends to distraught the activities of the
banking sector and Nigeria economy via a publication of official gazette,
56 Subsection (4)57 Subsection 5
30
yet, this provision is contrary to the Fundamental Human Rights of
individual to join association granted under the constitution58.
Section 43 deals with the act of corruption of banking officials. It
states that:
Any director, manager, officer or employee of a bank or nay
person receiving remuneration from the bank who ask for,
receives, consents or agrees to receive any gift, commission,
employment, service, gratuity, money, property or thing f value
for his own personal benefit or advantage or for that of any of
his relations, from any person-
(a) for procuring or endeavoring to procure for any person any
advances,
loans or credit facility from the bank; or
(b) draft, note, cheque, bill of exchange or other obligation by that
bank;
(c) for permitting any person to overdraw any account with that
bank without proper authority or compliance with rules and
guidelines for the purpose, is guilty of an offence and liable on
conviction to a fine of N10,000 or to imprisonment for 3 years
or both such fine and imprisonment and in addition any such 58 Section 40 1999 Constitution
31
gift or any other commission shall be forfeited to the Federal
Government.
The above provision shall not derogate from any other similar law
promulgated fro same purpose and shall without prejudice be applicable suo
motto59. Owing to the provision of Section 44 of the Act, certain person such
as people of unsound mind, convicted of serious crimes, with professional
disqualification, declared of bankruptcy e.t.c. are not allowed to be bank
officers.
It is important to point out that all the above provisions on bank staff
regulations are put in place to ensure a level of sanity and to repose
confidence in the banking sector.
CHAPTER THREE
BANKER AND CUSTOMER RELATIONSHIP59 Section 43(2) BOFIA 1991
32
The Nature of the Relationship
Earlier, we have defined a customer as a person who has some
account either deposit or current account or some similar relationship with
the bank60. In the same manner, the Bills of Exchange Act defines a banker
to include a body of persons whether incorporated or not to carry out the
business of banking. The business of banking according to the Act generally
must include a major part of the business apart from lending the acceptance
of deposits and collection of cheques and other orders of payment.
The relationship between a banker and customer is essentially
contractual but fundamentally is that of debtor (banker) and creditor
(customer) with the roles reversed. It may also be the relationship between
the principal and the agent. Also, it may be the relationship between the
bailor and the bailee61. Generally speaking, the relationship between a
banker and customer is governed by the following:
(a) The General Rule of Contract
The relationship between a banker and customer is contractual in nature
and there is no comprehensive definition of duties and obligation specified
of the parties involved. Therefore, every thing is implied. In Johnson
(Liquidator of Merchant Bank) Ltd v. Odeka62, he court held that where a
60 Oku v. Banigo (2003) FWLR (pt. 175) p. 422 and Section 2 Bils of Exchange Act Cap. 38 L.F.N. 200461 See Steven Industries v. Bank of Commercial Credit International Nig. Ltd (1999) 7 SCNG 23862 (1968) 3 A.L.R. 41
33
bank lends money to a customer, no action accrues until the banker make
notice or demand the return of money. Hence, the bank cannot sue without
express demand for the money.
Similarly in Wema Bank Ltd v. Okotwo63, the court held that the
relationship between a banker and customer constitutes a specialty contract.
The relationship between a banker and its customer is that of a debtor and
creditor. The relationship between a banker and its customer is that of a
debtor and creditor. When a person has an account which is in credit, the
bank is deemed to be his debtor to the extent of the credit balance64. In Chief
Festus Yesufu v. Cooperative Bank Ltd65, the Supreme Court held that the
relationship between a banker and its customer is that of a debtor and
creditor and is founded in a simple contract. A banker is under an obligation
to pay his customer the amount standing to the customer’s credit on his
account.
(b) The Rule Of Agency
The rule of agency can be identified where the banker acts as agent for its
customer in collecting or paying cheques on its behalf. In this case, that
63 (1980) 3 CCSCJ 219 at 22264 See Expeyoung v. State (1967) 1 All N.L.R. 285 at 287; Braimoh v. C.O.P. (1968) 1 NMLR 272 at 277.65 (1994) 9 SCNG 6 at 81
34
banker is the agent while the customer is the principal. The agent (banker) is
bound to accept and pay the order made by the principal (customer) in the
cheques. This is however, subject to certain rules of exceptions66. According
to Layi Afolabi67:
The acceptability of cheques as a medium of payment in a society depends
on a number of factors which include, the development of banking habit,
the legal provision against the issuance of dud cheque could be converted
into cash and some specific protection the cheque guarantee card
systematic… offered.
Thus, in Bavins v. London and South Western Bank68, the plaintiff received
an instrument in the form of a cheque reading “pay to J. Bavins the sum of
sixty-nine pounds provided the receipt form at the foot hereof is duly signed,
stamped and dated.” This document was stolen from the plaintiffs, the
receipt form being then unsigned. Afterwards, it was paid into the defendant
bank for collection bearing an endorsement and with the receipt form signed,
these signatures were forged. In an action, it was held that the instrument
was not a cheque.
(c) The Rule of Bailor and Bailee
Where the banker retains its customers deeds and documents for safe-
keeping, it is said to be acting as a bailor for the customer(bailee) the 66 See Barins v. London and South Western Bank (1900) Q.B. 27067 Layi Afolabi: Law and Practice of Banking ; Heinemann Educational Books Nig. Plc. (1999) p.13168 Supra
35
principal business of a banker is to receive money form customer either a
current account or deposit account ad in the former case to pay cheques
drawn by the customer. A banker also discounts bills and promissory notes
and makes advances by way of loans and overdraft.
A banker sometimes undertakes agency of other foreign banks, effect
purchases and sales of securities collect cheques, dividends, coupons and
foreign bills, make periodically and other payment, pay customers
acceptances, issue drafts and letters of credit, conduct foreign exchange
business, accept bills for customers takes charge of securities and other
valuables for customers.
The Rule in Folley v. Hill69
The debate over the relationship between a banker and customer
became conspicuous in the locus classicus case of Folley v. Hill70. It was
clearly stated that money once paid into a bank ceases altogether to be the
money of the customer. It is the money of the banker who is bound to return
an equivalent by paying similarly fund to hat deposited with the banker
wherever he asks for that amount.
The fact of the case was that the plaintiff sued the defendants in
chancery for an account of money received by them as his bankers. The
69 (1848) 2 H.L. Cas. 2870 Lord Chorley and J.M. Holden, Law of Banking (1974), 6th edn p.24
36
account being so simple as not to be a matter for a court of equity, the
plaintiff shifted his ground and claimed that the relationship was equitable
like that of principal and agent, and that he was entitled to an account on that
basis. The defendants had received the money in question many years before
the suit was brought, and had agreed to pay 3 percent interest, but no interest
has been paid or credited for over six year. The plaintiff claimed that the
relationship being of a fiduciary nature the statutes of limitation did not
apply to it.
It was held that the relationship was the ordinary relation of debtor
and creditor. According to Lord Cottenham:
Money paid into a banker’s is money known by the principal to be placed
there for the purpose of being under the control of the banker; it is then the
banker’s money; he is known to deal wit it as his own; he makes what
profit he can, which profit he retains to himself… he has contracted,
having received that money to repay to the principal when demanded a
sum equivalent to that paid into his hands71.
The above case no doubt, confirms that this debtor and creditor
relationship is the basic principle of the law of banking72. What then is the
complication of the rule in Folley v. Hill? It means that the bank deposit is a
loan of money to the bank by the depositor. Once the bank is in possession
71 Ibid72 See Midland Bank Ltd v. Conway Corporation (1965) 1 W.L.R. 1165
37
of it, it becomes the property of the bank to use it as it pleases. This was
explained by the Supreme Court in the case of Ekpenyong v. R. where
Braiman J. said to the following effect:
When a person has an account which is n credit, the bank is its
debtor to the extent of the credit balance and when he draws
money in his account, the money he is paid, is the money of the
bank.
In other words, the customer’s right to be paid the outstanding in his account
is contractual. Where the right is denied, his remedy is to acclaim for the
repayment of the debt. As it has been pointed earlier on, the contract
between a banker and customer lacks original formality. This lack of
formality means that the contract is made by oral rather than written
agreement, completion of largely administrative forms, the sending of brief
letters are on the basis of banking custom and practice.
Another implication of the rule is that demand is conditional precedent that
must be complied with before there could be a liability on the part of the
bank. Thus, in Joachimson v. Swiss Bank Corporation73 Atkins L.J.
reiterated that:
The bank undertakes to receive money and collect bills for its customers
but the bank borrows the proceeds and undertakes to repay them. The
73 (1921) 3 K.B. 110
38
promise to repay is to repay at the branch of the bank where the account is
kept and during banking hours. It includes the 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 orders may be outstanding in the
ordinary course of business for 2 or 3 days. It is a term of the contract that
the bank will not cease to do business except upon reasonable notice. The
customer, on his part, undertakes to exercise reasonable care in executing
the written orders so as not to mislead the bank or to facilitate 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
repayment from the bank at the branch.
The issue emphasized here is whether demand was necessary to create the
cause of action against the banker and it was held on the affirmative.
From the foregoing, the relationship between a banker and customer
apparently creates obligations and duties for the parties involved. While the
banker owes the customer certain duties, the customer on other hand has
obligations to perform. Thus, for there to be an actionable suit, the party
acclaiming must have kept his own side of this duty to shift the liability on
the other party.
Duties of a banker to a customer
The duties of a banker could be many owing to the dynamism in business
world and changes in technological advancement, the duties of a banker to a
39
customer can be an omnibus one encompassing various aspects of banking
business. However, there are major duties which are fundamental. They
include:
(i) Duty to honour customers’ cheques
A banker owes it an obligation to honour customer s cheques once there
is sufficient credit in his favour to meet up the demand. If the amount is not
paid, the customer can sue the bank74. The law is that a banker is bound to
pay a cheque drawn on him by a customer in legal form provided he has in
his hands sufficient and available funds for the purpose or provided the
cheques are within the limit of an agreed overdraft and may so pay them
within a reasonable margin after the banks advertised closing time.
In the case of cheques and other documents, the banker is entitled to a
reasonable time for clearing or collecting according to their respective
nature. Mere crediting as cash is not sufficient to entitle the customer to
draw against the cheque before clearing. These must be an agreement
express or implied to permit the customer to withdraw75.
74 See Akwale & Ors v. Queen (1963) All N.L.R. 193 at 200; Allied Bank Nig. Ltd v. Jonas Akubueze (1995) 4 N.W.L.R. pt. 390, p.43975 Onyech v. NBN Ltd (1977) 1 All N.L.R. 296 at 303
40
In Aderibigbe v. NBN76, Savage J. identified two important conditions
which must guide a bank in distinguishing the primary duties to honour
cheques of customers.
- the first is that the account of the customer is in credit or there has
been an overdraft facility granted to warrant same; and
- secondly that there is no legal reason or excuse to the contrary.
Where originally there is a restriction the moment the bank becomes aware
of the lifting of the embargo, it must allow the customer to draw on the
account.
A customer of a bank whose cheque was wrongly dishonored can bring
claims for defamation and breach of contract together in one single action77.
The imputation of wrongful dishonour of cheque from either the very act of
unlawful dishonour of the cheque where the customer has enough funds to
meet the amount on the cheque or the endorsement “R/D” thereon is that the
customer is dishonest and untrustworthy78.
In Adeleke v. NBN Ltd79, an action on libel was however successful
instituted where the plaintiff, an army officer issued a cheque which the
defendant bank on receipt erroneously presented for payment to one of its
76 (1977) All N.L.R. at 40177 Balogun v. NBN (1978) 3 Sc 155 at 17378 Ibid.
79 (1978) 1 L.R.N. p.157
41
own branches. In consequence, the cheque was returned unpaid though the
plaintiff had ample fund in his bank account. A senior officer was given
notice of the dishonour. It was held that the notice of dishonour constituted a
libel to the plaintiff.
Exceptions to the duty to honour cheque
The rule that a banker is bound to accept and pay the cheque drawn by a
customer is not sacrosanct. There are instance where it can reject a cheque.
These constitute exceptions to the rule. The instances include:
(a) Countermand of payment:- This is an official instruction by a
customer to the banker to ignore the order to pay or simply not to
honour a cheque issued by the customer. The instruction of
countermand of payment given to the banker must be in writing clear
and in an unambisous term dully signed by the customer. The correct
number of the cheque and amount must be stated. Notification of the
stoppage must come directly for the bank80. Thus, in Nwandu V.
Barclays Bank D, Co81, the plaintiff issued a post-dated cheque for E
1320. Before presentment he made a valid countermand of the
cheque. The bank negligently honoured the cheque on presentment
and the plaintiff demanded for the refund of the sum paid by the bank
80 See Nwandu v. Barclays Bank D, Co, (1962) 2 All N.L.R. Part 2-4, p.21881 Supra
42
to be re-credited t his account. The court held that the countermand
was valid and that the bank was liable. The learned trial judge
maintained that the bank having disregarded the express direction to
dishonour, the subsequent payment cannot n law be a valid discharge
of the banks’ duty.
(b) Notice of customer’s death:- If such notice comes from a valid
quarter, the bank must stop such. Here, the spouse of the deceased;
next of kin or parent, could be regarded as valid quarter.
(c) Notice of customers’ mental Incapacity:- Where the bank is informed
or aware of the mental incapacity of the customer, it could stop the
payment of a cheque ordered by him.
(d) On service of a garnishee order:- This is an order from the court
obtained by a judgement creditor ordering that a debit owned or
accruing due by a third party to the judgement debtor at the time of
service of the order be paid to the judgement respect creditor. Where
the order is served on a bank in respect of money held in a customer’s
bank, account, the bank is the third party (the garnishee). The bank’s
customer is the judgement debtor and the party that obtains the order
is the judgement creditor.
43
(e) The cheque must be properly drawn and not state:- A cheque is state
when it has been in circulation for a considerable period of time,
usually more than 6 months.
(f) Where there is an insolvency order made against the customer, such
cheque or any cheque ordered by him would be rejected.
(ii) Duty not to pay without authority
Liability of the bank arises in any of the following ways:-
(a) Where the cheque has been countermanded82. In Curtis v.
London City & Midland Bank83, a cheque drawn on the
same day and countermanded on the same day by telephone
but due to delay it some days before the countermand of
payment order was received by the manager. The court held
that the countermand was still effective.
(b) Where the drawer’s signature is forged. Sec. 24 of Bill of
Exchange Act provides that where a signature on a bill is
forged or placed thereon without the authority of the person
whose signature it purports to be, the forged or unauthorized
signature is wholly inoperative84.
82 See Adeleke v. NN Ltd Supra83 (1908) 11 K.B. 29384 See Chief Victor Ndoma Egba v. African Continental Bank Plc Suit No. S.C. 40/2001 decided on 15th Day of July, 2005; (2005) FWLR (pt. 283) p. 152 at pp.180-182.
44
(iii) Duty of Secrecy
The bank and its staff are obliged to keep secret information regarding the
business and account of customers. For the above reason every bank official
is required to sign a declaration of secrecy in respect of the bank’s business.
The duty of the bank to keep secret every information regarding the
customer’s account is not without exception. These exceptions are:
(a) Where disclosure is required by law. In any proceeding before
the court of law any of the parties may make an application to the
court under the Banker’s Book. Evidence Act 1879 which is a
statute of General Application in Nigeria provide for an order to
the court permitting him to inspect and take copies of the entries
in a banker’s books for any of the purposes of such proceedings.
By virtue of Sec. 7 of the Act, the order may be made either with
or without suing the bank or any other party and shall be served
on the bank three (3) days before the same is to be obeyed unless
the court or judge otherwise directs.
By Section 97(1)(a) of the Evidence Act85, evidence may be given
of the existence of the content of an entry in a banker’s book. A
police officer may obtain information pertaining to the account of
an accused in a criminal proceedings but such officer must obtain 85 Cap. 112 L.F.N. 1990 now Cap E8 L.F.N. 2004
45
an order of the court to do so. It is advisable that where a police
officer failed to comply with the procedure such permission should
be refused otherwise the bank will be liable for a breach of the
duty of secrecy. Section 317 of CAMA86, empowers inspectors of
companies during investigation to inspect all books and documents
relating to the company or as the case may be in their custody or
power. Section 318 also empowers inspectors to call for Director’s
Bank Accounts.
(b) Where the bank has a duty to the public to do so:- the extent
of this duty is uncertain and certainly seldomly invoked. It
could probably apply in war times if the bank discovers that
one of its customers is trading with the enemy.
(c) Where the bank’s own interest requires disclosure:- This
occur for example where legal proceedings are required to
enforce the repayment of an overdraft or where a surety has
to be told the extent to which his guarantee is being relied
upon.
(d) Where the bank has the express or implied consent of its
customer to do so;- where he supplies a reference to its
86 Cap. 59 L.F.N. 1990
46
customer or where it replies to a status inquiry from another
bank.
(iv) To render statements of accounts to its customers periodically or
upon request.
(v) The bank has a duty to collect cheques and normal banking
instruments for his customers and to credit the amount collected
to the account.
(vi) Duty to exercise proper care and skill in carrying out any
business it has agreed to transact for his customers.
(vii) Duty to give reasonable notice before closing a credit account.
There are two reasons behind this. First of all, it gives the customer time to
make other arrangement. Secondly, it means that the bank does not have to
return cheques already issued by the customers. This saves administrative
effort and prevents an allegation that the ban damages its customer’s
reputation by returning the cheque unpaid.
The Rights of a Banker
The rights of a banker include the following:
(i) To change his customers reasonable commission for services
rendered to them and to charge interest on loans given to them.
47
(ii) To be indemnified by his customers for expenses and liabilities
incurred while acting for them.
(iii) To exercise a lien over any of its possession other than those
deposited for safe keeping for any money owing to it.
(iv) To dispose of his customer’s money as it pleases provided it
honours the customer’s values cheques.
(v) To combine or set off accounts where a customer has more than
one account with a bank. The bank is entitled to settle an
overdrawn balance on same accounts by transferring money from
the credit balance. The right would arise where the bank for
example, received the notice of the death or mental incapacity of
his customer or where his customer has a bankruptcy made against
them.
Duties of a Customer to his banker
A customer owes his banker certain duty. This is the corresponding effect of
banker/customer relationship. Such duties include but not limited to the
following:
(a) A customer has a duty to exercise reasonable care in drawing cheques
to guide against alteration and from being misled. London Joint Stock Bank
48
v. Macmillan & Authur87, a clerk was influenced by the respondent to
prepare cheques. He prepares a cheque payable to a firm to the bearer
showing the sum of two pounds in figure only but not in words. One of the
parties signed the figure of 120 pound and wrote the amount n words and
cashed the cheque at the London Joint Stock Bank. The House of Lord held
that the plaintiff action must fail because the customer holds a reasonable
duty to take care in drawing the cheque.
(b) The customer has a duty to notify the bank of cheques in his name
which he knows are forged. Where a customer discovers that his signature is
being forged and such forgery appears as genuine, he is obliged to inform
his bankers immediately. His failure will estop him from claiming from his
bankers payments made on such forged signatures88.
A banker on being notified of the forgery cannot debit his customer’s
account on the basis of a forged signature since he has no mandate from the
customer89. A bank who collects for a customer an amount stated on a forged
cheque will be liable for money it has received for conversion at the instance
of the true owner unless the bank did so in good faith and was not negligent.
In the case of Standard Bank v. Bank of America90, a bank mistakenly pays
87 (1918) A.C. 97788 See The Nigerian Advertising Services Ltd v. UBA Ltd (1965) L.L.R. 84 at 11489 UBA Ltd v. Savannah Bank Ltd (1977) 10-12 C.C.H.J. 255 at 25990 (1976) 1 F.N.L.R. 112 at v114
49
out money in honour of a cheque which was later discovered to be a forged
document; such money is recoverable at the instance of the bank.
(c) The customer must indemnify the bank for services rendered on his
behalf.
Termination of Banker-Customer Relationship
The contractual agreement between a banker and customer can be
determined by either the customer, the bank or by the operation of law.
(a) Termination by the customer occur where customer demand full
payment of his credit balance. This was the rule in Joachimson v.
Swiss Bank91 where it was held an overdraft together with associated
charges must first be replied before an account can be closed.
(b) Termination by the bank can be effected by giving reasonable notice
of the termination of the relationship to the customer if the account is
in credit and immediately, if the account is overdrawn.
(c) Termination by Operation of law can occur by either or all of: death,
mental incapacity and insolvency.
New Development in Banker and Customer Relationship
Owing to recent recapitalization and consolidation policy in the
banking sector complied with the rapid growth of information technology,
the duty of banker and obligation of customer is wearing a new look. There 91 Supra
50
is a generating debate that banks should be compelled to re-invest into the
community as part of their corporate social responsibility. This according to
the proponent would affect the social well-being of their customers thus
encourage them to continue in the relationship which exists between them.
The effect of this has argued would strengthen the banker-community
relationship (that is the relationship between a bank and the environment
where it operates).
Another significant area which calls for reform of the rule of banker
and customer relationship is the use of credit card, Automated Machine
Transaction, online transaction e.t.c. which now form part of business
interaction between a banker and customer. Definitely, this new area has not
been covered by law especially in Nigeria. The circumstance surrounding
the use of information technology could definitely alter or add to or subtract
from the position of law, or originate a new principle which will guide the
banker-customer relationship. Therefore, the concluding chapter is wholly
dedicated to recommending solutions to this and other issues arising from
the relationship as discussed above.
51
CHAPTER FOUR
RECOMMENDATIONS AND CONCLUSIONS
Recommendations
Without prejudice to either the legal or banking profession on the
view regarding banker/customer, the recommendations made underneath are
general and of useful importance in strengthening the relationship and
reforming the rules that guides it. Although many of the recommendations
are not new to either of the profession, yet, they are often overlooked and
jettisoned. Thus, it is believed that the rule guiding customer/banker
52
relationship cannot be properly appreciated if the recommendations are not
taken into consideration and fully applied in every transaction between the
profits involved. It is therefore my recommendation:
I. that a thorough and reformed study be carried out from time on the
topic banker-customer relationship as to update and appreciate the
rule that provides for same.
II. that a comprehensive compilation and definition of terms be made and
published on banking which will accommodate most of the terms
defined in the search work.
III. There should be public awareness on most of the relevant provisions
of the law guiding banking establishment and practice. This will
clarify the customers of thorny issues and assist them take appropriate
legal step where the need arise.
IV. that in most local community where customers are ignorant of the law
guiding banker and customer’s relationship, banks should be made to
enforce the rule and fulfill their contractual obligation. This can be
achieved by making law that would ensure compliance and in default,
provides for remedy
V. that the common law rule as it applies to the relationship is adopted by
virtue of a local legislation. Hence its application should therefore
53
follow the qualifications in its subsection which says as local
legislations allow it.
It is my submission that the debtor /creditor relationship as well as other
implications of the rule should be applied subject to the circumstance
generally established in the transaction.
i. That the duties of a banker to a customer and that of a customer to
a banker are subject to new developments and as such not
exhaustive.
ii. That the rule on banker and customer relationship be expanded to
cater for new transactions not apprehended by the rule in Folley v.
Hill and subsequent once. This can best be done through judicial
interpretation.
iii. That a special law report should be carried out on cases decided by
court of appeal and supreme court by interested individual or
government so as to help further studies and research on
banker/customer relationship.
Conclusion
In conclusion, this work has successfully explored and discussed all
necessary ingredients of banker and customer relationship. No doubt, the
relationship existing between a banker and his customer is that of debtor and
54
creditor, with the additional feature that the banker is only liable to repay the
customer on payment being made92. This conception as painted out involved
a departure from the original objective of the depositor which was simply
the safe custody of his money, an aim which he probably shared with the
majority of his descendants since the average customer at a bank has not the
least idea that he is lending his money to a banker to do what he likes with
it93.
Thus, the introductory part of this work had related the necessary terms
used in banking law and practice as far as it affects banker/customer
relationship .It is discovered that the operation of banks today can be traced
back to its history especially in Nigeria. Although there are different kinds of
banks established for different purposes and functions, their core duty does
not leave out the concept of banker/customer relationship. It therefore
believed that this project would go a long way in reshapening and
restructuring the use and misuse of terminologies as well as appreciating the
lessons of the past n forecasting the future development in the banking law
and practice.
92 M.C Okany, Nigeria commercial Law’,2001,African Fep Publishers Limited at pp 415-43793 Op cit.
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To buttress the above, the legal framework of any contractual transaction
cannot be underestimated in the operation of such transaction or business.
This is true in the operation of banks. Bankers and customers, though freely
involved in a contractual agreement s of different sorts are confined within
the specification of law. In Nigeria therefore, the appropriate laws and
legislations such as; common law, company and Allied matters Act 1990,
central Bank Act, Banking and other Financial Institution Act, Banking and
other Financial Institution And money laundering Act, Economic, Financial
and Crime Commission (Establishment) Act among others serves as
regulatory mechanism for proper shapening of the relationship that exist
between banker and customer.
These legislations does not only stipulates what should be done, within
the contractual agreement, but also regulate the activities of the bank most of
which favours the customer for example, it was explained how relevant
sections of the relevant Acts compel registration of the banks before they
can be licensed to operate. Such grant of license could even be revoked
where appropriate by the appropriate authority (i.e. the central Bank
Governor). Other provisions include the require of law as to minimum- paid-
up capital; opening and closing of branches of a bank, legal control of
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banking staff etc .These regulations are put in place to ensure the integrity of
financial institution as well as promote the use of banks by customers.
Consequently, banker and customer relationship is adequately guided
by law. But the attendant question is how effective or efficient are the
number of local legislation in Nigeria as far as the issues between bankers
and customers are concerned, obviously, the advert of technological
advancement globally which had major impact on the banks has not yet been
catered for by our legislation. Also, the question whether or not the common
law doctrine should always be applied without any cote of reservation as far
as banker and customer relationship is concerned begs for answer.
As reiterated above, the basic target of the banker/customer
relationship is debtor–creditor relationship; this is the general rule as firstly
discussed in the chapter three of this work. In simplifying the concept, three
different rule apply ipso fact .This include the general rule of contract, the
rule of agency and the rule between a bailor and bailee /customer
relationship therefore, is a combination o these three. These rules where
considered in the locus classicus case of Folley v. Hill94 and Nigerian case of
Wema Bank Ltd v. Okotwo95
94 (1848) 2 H.L. Cas .28
95 (1980) 3 CCSCJ 219 and 222
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Following these precedents are the reciprocal duties and obligation a well
explained here that the duty of a customer to a banker is important in order
to ensure a corresponding adherence to the contractual agreements. Where
either of the party wants to discontinue the relationship, the law provides the
termination which has pointed out can be;
iv. by death i.e. by operation of law
v. by the banker, or
vi. by the customer
Certainly, the new development in the banking sector call for modification
on the banker customer relationship. With the use of Automated Machine
otherwise known as ATM, online transfer, e- banking, and use of credit card,
the scope of banker customer relationship might be extended to cover new
issues or grounds as they arise.
Thus, research work will not be completed without suggested solutions
to some of the visible problems that features in the application of the rule
that guides the relationship-more so, that various sector of Nigeria legal
system is witnessing updated reformation, It is believed that the banking
sector should not be left behind.
In addition to the recent bank reform, witnessing recapitalization,
consolidation, restructuring and sanitization exercise recently carried out by
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the Governor of Central Bank of Nigeria, Sanusi Lamido Sanusi, issues
involving banker and its customer will definitely need a more
comprehensive legal regime.
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