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 ----------------------------------------------------------

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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

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(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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