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    The banker customer relationship is a contractual relationship. A contract is avoluntary,

    deliberate, and legally bindingagreementbetween two or morecompetent parties.

    Contractsare usually written but may be spoken or implied. A contractual relationship

    is evidenced by an offer,acceptanceof the offer, and a valid (legaland valuable)

    consideration. Each party to a contract acuires rightsand duties relative to the rights

    and duties of the otherparties. A contract creates for each party a duty to do something

    (e.g., to provide goods at a certain price according to a specified schedule) or a duty not

    to do something (e.g., to divulge an employer!s trade secrets or financial status to third

    parties).A banker customer relationship is no e"ception it also yield right and

    obligations for both parties.

    Bankers lien:#n the creditor and debtor relationship between the banker and

    the customer, the banker is the creditor and the customer is the debtor. This

    relationship arises when an amount remains due by the customer (debtor) to the banker

    (creditor). The banker can e"ercise his right of general lien by retaining the properties of

    the customer till all the dues are paid by the customer. #n the absence of any agreement

    to the contrary, the banker can retain any goods and securities for general balance of

    accounts. $owever, the banker cannot e"ercise this right over the goods or securities

    which he has received in the capacity of agent or trustee of the customer.

    Rights ofAutomatic set- off:The right of set%off is a right to ad&ust the

    accounts between two parties% creditor and the debtor. 'n the basis of right of set% off,

    the banker can ad&ust the credit balance in the customers account against the amount

    due to the banker i.e. any debit balance in the customers account. hen a customer

    maintains two accounts in the same capacity, the right of set% off enables the banker to

    combine the two accounts and ad&ust the amount due from the customer. The banker

    can e"ercise this right if there is no agreement to the contrary between them. #n

    e"ercising this right, the banker must serve a notice to the customer.

    A banker has the automatic right of set%off in the following circumstances

    (a) 'n death, insanity or insolvency of the customer.

    (b) 'n the insolvency of partner of a firm or on the winding up of a company.

    http://www.investorguide.com/definition/voluntary.htmlhttp://www.businessdictionary.com/definition/legally-binding.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://www.investorwords.com/13076/competent_party.htmlhttp://www.investorguide.com/definition/contract.htmlhttp://www.businessdictionary.com/definition/contractual-relationship.htmlhttp://www.investorguide.com/definition/offer.htmlhttp://www.businessdictionary.com/definition/acceptance.htmlhttp://www.businessdictionary.com/definition/valid.htmlhttp://www.businessdictionary.com/definition/legal.htmlhttp://www.investorguide.com/definition/consideration.htmlhttp://www.businessdictionary.com/definition/right.htmlhttp://www.investorguide.com/definition/duty.htmlhttp://www.businessdictionary.com/definition/party.htmlhttp://www.businessdictionary.com/definition/legally-binding.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://www.investorwords.com/13076/competent_party.htmlhttp://www.investorguide.com/definition/contract.htmlhttp://www.businessdictionary.com/definition/contractual-relationship.htmlhttp://www.investorguide.com/definition/offer.htmlhttp://www.businessdictionary.com/definition/acceptance.htmlhttp://www.businessdictionary.com/definition/valid.htmlhttp://www.businessdictionary.com/definition/legal.htmlhttp://www.investorguide.com/definition/consideration.htmlhttp://www.businessdictionary.com/definition/right.htmlhttp://www.investorguide.com/definition/duty.htmlhttp://www.businessdictionary.com/definition/party.htmlhttp://www.investorguide.com/definition/voluntary.html
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    (c) 'n receipt of a *arnishee 'rder. The banker on receipt of a garnishee order can

    e"ercise the right of set%off and surrender only the surplus to the &udgement creditor

    (d) 'n receiving notice of assignment of a customer!s credit balance and

    (e) 'n receiving notice of second mortgage over the security charged to the bank.

    Although the banker has the statutory right of set%off, yet by way of caution he obtains

    from the customer a letter of set%off duly signed in the presence of a witness to protect

    the banker from any possible future ob&ection to the e"ercise of his right of set%off.

    Right of appropriation:hen a debtor (customer) makes payment to a creditor

    (banker), the debtor can instruct the creditor to ad&ust the amount for discharge of a

    particular debt. #f the debtor does not give any instruction to the creditor regarding the

    ad&ustment, the creditor has the right to appropriate the amount against any debt. The

    creditor must inform the debtor regarding such appropriation.

    Right to Charge Interest and Commission+ A banker has an implied right

    on the customer to charges for various services rendered to them. uch charges are

    known as bank charges-commission. These are reuired to be reasonable.

    Rights under Garnishee Order:*enerally a banker has the obligation to

    honour the cheues of his customer. ut in case a garnishee order is issued by the court,

    the banker cannot make any payment from the account of the customer. The obligation

    of the banker to honour the cheues stand suspended in that case.

    /et us see how a garnishee order can affect the relationship between the banker and the

    customer. uppose 0r. A is the customer of #. $e has taken a loan from his friend 0r.

    . ut 0r. A fails to repay the loan to 0r. and as a result 0r. files a case against 0r.A. 1ow 0r. reuests the court to issue an order on the bank of 0r. A directing the

    banker (#) not to make any payment from the available balance in the account of 0r.

    A. #f the court issues such an order, it is known as 2*arnishee 'rder. $ere, 0r. A

    (debtor) is known as 2&udgement debtor, 0r. (creditor) is known as 2&udgement

    creditor and the # is known as 2garnishee.

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    The garnishee order is issued in two phases. 3irst, 2order nisi is issued directing the

    garnishee (banker) not to make any payment from the account of the garnishee debtor.

    The garnishee is asked to give his reply in the court whether the funds in the account of

    the garnishee debtor can be appropriated towards the payment of the particular debt in

    uestion. #f the garnishee has no ob&ection then in the second phase the court issues the

    2order absolute i.e. the garnishee order, to make the payment to garnishee creditor to

    satisfy the debt from the account of the &udgement debtor. Then the bankers obligation

    to the customer (garnishee debtor) is discharged to that e"tent.

    There are a number of duties of banks. ome relate to the basic business of banking such

    as+

    4uty to collect cheues

    4uty to honour cheues

    4uty not to pay a cheue without authority

    4uty to obey customer!s countermands of cheues

    4uty to tell customer of forgeries

    4uty to inform customers of the state of the account

    4uty to act on notice of death

    $owever the duties of care and skill and of confidentiality reuire particularconsideration.

    Banker's Right of Automatic Set-O: A banker has th automatic right of set-o in the

    following circumstances(a) On death insanit! or insol"enc! of the customer

    (b) On the insol"enc! of #artner of a $rm or on the winding u# of a com#an!%

    (c) On recei#t of a &arnishee Order% he banker on recei#t of a garnishee order can

    eercise the right of set-o and surrender onl! the sur#lus to the udgement creditor

    (d) On recei"ing notice of assignment of a customer's credit balance and

    (e) On recei"ing notice of second mortgage o"er the securit! charged to the bank%

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    Although the banker has the statutor! right of set-o !et b! wa! of caution he

    obtains from the customer a letter of set-o dul! signed in the #resence of a

    witness to #rotect the banker from an! #ossible future obection to the eercise of

    his right of set-o%

    *+% Right to ,harge nterest and ,ommission: A banker has an im#lied right on thecustomer to charges for "arious ser"ices rendered to them% Such charges are known

    as bank charges.commission% hese are re/uired to be reasonable%

    Banker customer relationship,is just a special contract where a person entrusts valuable items

    with another person with an intention that such items shall be retrieved on demand from the

    keeper by the person who so entrust.

    Thus the banker is the one who is entrustd with the above mentioned valuable items,whie the

    person who entrust the items with a view to retrieving it on demand is called the customer.

    The relationship is thus based on contract.It is based on certain terms and conditons.For

    instance,the customer has the right to collect his deposit on demand personally or by proxy.Thebanker too is under obligation to pay, so long the proxy is duly auhorised by the customer

    It has a semblance of creditor debtor relationship.Thus the customer is the creditor who has the

    right of demand on the money from the banker.!s long as the banker is keeping the customer

    items,the banker is indebted to the customer.

    The elationship is also fiducial.The terms and conditons governing the relationship should not be

    leaked to a third party,particularly by the banker.!lso the items kept should not be released to athird party without due authorisation by the customer.

    Banker-Customer Relationship

    The relationship between banker and customer is mainly that of a debtor and creditor. However, they also share other

    relationships.

    Some of the important relationships they share are depicted below.

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    The banker-customer relationship is that of a:

    1. Debtor and reditor,

    !. "led#er and "led#ee,

    $. %icensor and %icensee,

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    &. 'ailor and 'ailee,

    (. Hypothecator and Hypothecatee,

    ). Trustee and 'eneficiary,

    *. +#ent and "rincipal,

    . +dvisor and lient, and

    . ther miscellaneous relationships.

    Discussed below are important banker-customer relationships.

    1. Relationship of Debtor and Creditor

    /hen a customer opens an account with a bankand if the account has a credit balance, then the relationship is that

    of debtor 0banker bank2 and creditor 0customer2.

    3n case of savin#s fi4ed deposit current account 0with credit balance2, the banker is the debtor, and the customer is

    the creditor. This is because the banker owes money to the customer. The customer has the ri#ht to demand back his

    money whenever he wants it from the banker, and the banker must repay the balance to the customer.

    3n case of loan advance accounts, banker is the creditor, and the customer is the debtor because the customer

    owes money to the banker. The banker can demand the repayment of loan advance on the due date, and the

    customer has to repay the debt.

    + customer remains a creditor until there is credit balance in his account with the banker. + customer 0creditor2 does

    not #et any char#e over the assets of the banker 0debtor2. The customer5s status is that of an unsecured creditor of

    the banker.

    The debtor-creditor relationship of banker and customer differs from other commercial debts in the followin# ways:

    1. The creditor 0the customer2 must demand payment. n his own, the debtor 0banker2 will not repay the debt.

    However, in case of fi4ed deposits, the bank must inform a customer about maturity.

    !. The creditor must demand the payment at the ri#ht time and place. The depositor or creditor must demand

    the payment at the branch of the bank, where he has opened the account. However, today, some banks allow

    payment at all their branches and +T6 centres. The depositor must demand the payment at the ri#ht time 0durin#

    http://kalyan-city.blogspot.com/2011/02/what-is-bank-introduction-definition.htmlhttp://kalyan-city.blogspot.com/2011/02/what-is-bank-introduction-definition.html
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    the workin# hours2 and on the date of maturity in the case of fi4ed deposits. Today, banks also allow pre-mature

    withdrawals.

    $. The creditor must make the demand for payment in a proper manner. The demand must be in form of

    che7ues8 withdrawal slips, or pay order. 9ow-a-days, banks allow e-bankin#, +T6, mobile-bankin#, etc.

    2. Relationship of Pledger and Pledgee

    The relationship between customer and banker can be that of "led#er and "led#ee. This happens when customer

    pled#es 0promises2 certain assets or security with the bank in order to #et a loan. 3n this case, the customer becomes

    the "led#er, and the bank becomes the "led#ee. nder this a#reement, the assets or security will remain with the

    bank until a customer repays the loan.

    3. Relationship of Licensor and Licensee

    The relationship between banker and customer can be that of a %icensor and %icensee. This happens when the

    banker #ives a sale deposit locker to the customer. So, the banker will become the %icensor, and the customer will

    become the %icensee.

    . Relationship of Bailor and Bailee

    The relationship between banker and customer can be that of 'ailor and 'ailee.

    1. Bailmentis a contract for deliverin# #oods by one party to another to be held in trust for a specific period

    and returned when the purpose is ended.

    !. Bailoris the party that delivers property to another.

    $. Baileeis the party to whom the property is delivered.

    So, when a customer #ives a sealed bo4 to the bank for safe keepin#, the customer became the bailor, and the bank

    became the bailee.

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    !. Relationship of "#pothecator and "#pothecatee

    The relationship between customer and banker can be that of Hypothecator and Hypotheatee. This happens when

    the customer hypothecates 0pled#es2 certain movable or non-movable property or assets with the banker in order to

    #et a loan. 3n this case, the customer became the Hypothecator, and the 'anker became the Hypothecatee.

    $. Relationship of %rustee and Beneficiar#

    + trustee holds property for the beneficiary, and the profit earned from this property belon#s to the beneficiary. 3f the

    customer deposits securities or valuables with the banker for safe custody, banker becomes a trustee of his

    customer. The customer is the beneficiary so the ownership remains with the customer.

    &. Relationship of 'gent and Principal

    The banker acts as an a#ent of the customer 0principal2 by providin# the followin# a#ency services:

    o 'uyin# and sellin# securities on his behalf,

    o ollection of che7ues, dividends, bills or promissory notes on his behalf, and

    o +ctin# as a trustee, attorney, e4ecutor, correspondent or representative of a customer.

    'anker as an a#ent performs many other functions such as payment of insurance premium, electricity and #as bills,

    handlin# ta4 problems, etc.

    (. Relationship of 'd)isor and Client

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    /hen a customer invests in securities, the banker acts as an advisor. The advice can be #iven officially or unofficially.

    /hile #ivin# advice the banker has to take ma4imum care and caution. Here, the banker is an +dvisor, and the

    customer is a lient.

    *. +ther Relationships

    ther miscellaneous banker-customer relationships are as follows:

    o +bligation to honour che,ues: +s lon# as there is sufficient balance in the account of the customer, the

    banker must honour all his che7ues. The che7ues must be complete and in proper order. They must be presented

    within si4 months from the date of issue. However, the banker can refuse to honour the che7ues only in certain

    cases.

    o ecrec# of customers account: /hen a customer opens an account in a bank, the banker must not #ive

    information about the customer5s account to others.

    o Bankers right to claim incidental charges: + banker has a ri#ht to char#e a commission, interest or other

    char#es for the various services #iven by him to the customer. ;or e.#. an overdraft facility.

    o La/ of limitation on bank deposits: nder the law of limitation, #enerally, a customer #ives up the ri#ht to

    recover the amount due at a banker if he has not operated his account since last 1< years.

    So, these were some important banker-customer relationships.

    Read more: http://www.businessdictionary.com/definition/contract.html#ixzz2O3pEoRh

    A party's failure to honour a contract allows the other party or parties to bring an action for DAMAGES in a

    court of law, thoughARBITRATION may also be pursued in an effort to keep the matter confidential. In

    order to be valid, a contract must be entered into both willingly and freely. A contract that violates this

    principle, including one made with a legal minor or a person deemed mentally incompetent, may bedeclared unenforceable. A contract also must have a lawful objective

    !ype of char"ethat "ies a ban$ automaticclaimoer a borrower%spropertyor assetsthat come in ban$%spossessionin

    the normal course of itsbusiness. &an$ers%lienis both apossessory lienandspecial lien: the ban$ has the ri"ht to seize

    andsellthe defaultin" borrower%s property in its possession' after "iin" a reasonablenoticebut without "oin" throu"h the

    foreclosureprocedure.Enforcementof a ban$er%slien' howeer' may depend on the type of the property and the reason it

    was handed oer to (or came in possession of) the ban$. &ills of exchan"e'creditcash*balances' ne"otiable securities

    (such as clearedchec$sand drafts)' and promissory notes' may be claimed under this lien. &ut it is not applicable where

    http://www.businessdictionary.com/definition/contract.html#ixzz2O3pEHoRhhttp://www.merriam-webster.com/concise/damageshttp://www.merriam-webster.com/concise/damageshttp://www.merriam-webster.com/concise/arbitrationhttp://www.merriam-webster.com/concise/arbitrationhttp://www.merriam-webster.com/concise/arbitrationhttp://www.businessdictionary.com/definition/charge.htmlhttp://www.businessdictionary.com/definition/charge.htmlhttp://www.businessdictionary.com/definition/automatic.htmlhttp://www.businessdictionary.com/definition/claim.htmlhttp://www.businessdictionary.com/definition/claim.htmlhttp://www.businessdictionary.com/definition/borrower.htmlhttp://www.businessdictionary.com/definition/property.htmlhttp://www.businessdictionary.com/definition/property.htmlhttp://www.businessdictionary.com/definition/asset.htmlhttp://www.businessdictionary.com/definition/asset.htmlhttp://www.businessdictionary.com/definition/bank.htmlhttp://www.businessdictionary.com/definition/bank.htmlhttp://www.businessdictionary.com/definition/possession.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/lien.htmlhttp://www.businessdictionary.com/definition/lien.htmlhttp://www.businessdictionary.com/definition/possessory-lien.htmlhttp://www.businessdictionary.com/definition/possessory-lien.htmlhttp://www.businessdictionary.com/definition/special-lien.htmlhttp://www.businessdictionary.com/definition/special-lien.htmlhttp://www.businessdictionary.com/definition/sell.htmlhttp://www.businessdictionary.com/definition/sell.htmlhttp://www.businessdictionary.com/definition/reasonable.htmlhttp://www.businessdictionary.com/definition/notice.htmlhttp://www.businessdictionary.com/definition/notice.htmlhttp://www.businessdictionary.com/definition/notice.htmlhttp://www.businessdictionary.com/definition/foreclosure.htmlhttp://www.businessdictionary.com/definition/procedure.htmlhttp://www.businessdictionary.com/definition/procedure.htmlhttp://www.businessdictionary.com/definition/procedure.htmlhttp://www.businessdictionary.com/definition/enforcement.htmlhttp://www.businessdictionary.com/definition/enforcement.htmlhttp://www.businessdictionary.com/definition/enforcement.htmlhttp://www.businessdictionary.com/definition/banker.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/negotiable-security.htmlhttp://www.businessdictionary.com/definition/check.htmlhttp://www.businessdictionary.com/definition/check.htmlhttp://www.businessdictionary.com/definition/draft.htmlhttp://www.businessdictionary.com/definition/promissory-note.htmlhttp://www.businessdictionary.com/definition/contract.html#ixzz2O3pEHoRhhttp://www.merriam-webster.com/concise/damageshttp://www.merriam-webster.com/concise/arbitrationhttp://www.businessdictionary.com/definition/charge.htmlhttp://www.businessdictionary.com/definition/automatic.htmlhttp://www.businessdictionary.com/definition/claim.htmlhttp://www.businessdictionary.com/definition/borrower.htmlhttp://www.businessdictionary.com/definition/property.htmlhttp://www.businessdictionary.com/definition/asset.htmlhttp://www.businessdictionary.com/definition/bank.htmlhttp://www.businessdictionary.com/definition/possession.htmlhttp://www.businessdictionary.com/definition/business.htmlhttp://www.businessdictionary.com/definition/lien.htmlhttp://www.businessdictionary.com/definition/possessory-lien.htmlhttp://www.businessdictionary.com/definition/special-lien.htmlhttp://www.businessdictionary.com/definition/sell.htmlhttp://www.businessdictionary.com/definition/reasonable.htmlhttp://www.businessdictionary.com/definition/notice.htmlhttp://www.businessdictionary.com/definition/foreclosure.htmlhttp://www.businessdictionary.com/definition/procedure.htmlhttp://www.businessdictionary.com/definition/enforcement.htmlhttp://www.businessdictionary.com/definition/banker.htmlhttp://www.businessdictionary.com/definition/exchange.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/negotiable-security.htmlhttp://www.businessdictionary.com/definition/check.htmlhttp://www.businessdictionary.com/definition/draft.htmlhttp://www.businessdictionary.com/definition/promissory-note.html
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    the borrower%s property was handed oer to the ban$ for a specific purpose' such as for safecustody(as in the ban$%s safe

    depositboxes) or for salethrou"h a departmentof the

    Read more: http://www.businessdictionary.com/definition/ban$er*s*lien.html#ixzz2+,3lnR-

    *0% Banker's 1ien: A banker has the right of general lien in res#ect of the dues to

    him b! the customer% 1ien is the right to retain #ro#ert! belonging to another until a

    debt due from the latter is #aid% n other words it is the right of the creditor to

    retain the goods and securities in his #ossession belonging to the debtor until his

    debt due is #aid% 1ien howe"er does not gi"e right to sell unless such right is

    e#ressl! conferred b! statue or b! custom or usage% he right of lien ma! ba (a)

    #articular or (b) &eneral%

    *2% Right of A##ro#riation: n case of se"eral debts outstanding b! the

    debtor(customer) to the bank /uestion arises as to which of the debts is to be

    discharged when #a!ment is made b! the debtor and the amount is not su3cient to

    discharge all the debts%

    *4% Banker's Right of Set-O: A banker has the right to set-o% his right entitles him

    to adust a debt balance in some account of a customer against an! credit balance

    in his other account(s)% Accounts of a customer can be combined.set-o subect to

    the following conditions namel! (a) f the dierent accounts are held b! the same

    #arties in the same right debit balance in his own account can not be adusted with

    the credit balance of trust account in his own name (b) he debt must ha"e become

    actuall! due% he right can not be eercised against further or contingent debt and

    (c) here is no e#ress or im#lied agreement to the contrar!%

    *5% Banker's Right of Automatic Set-O: A banker has th automatic right of set-o inthe following circumstances

    (a) On death insanit! or insol"enc! of the customer

    (b) On the insol"enc! of #artner of a $rm or on the winding u# of a com#an!%

    (c) On recei#t of a &arnishee Order% he banker on recei#t of a garnishee order can

    eercise the right of set-o and surrender onl! the sur#lus to the udgement creditor

    (d) On recei"ing notice of assignment of a customer's credit balance and

    (e) On recei"ing notice of second mortgage o"er the securit! charged to the bank%

    Although the banker has the statutor! right of set-o !et b! wa! of caution he

    obtains from the customer a letter of set-o dul! signed in the #resence of a

    witness to #rotect the banker from an! #ossible futur obection to the eercise of his

    ritht of set-o%

    *+% Right to ,harge nterest and ,ommission: A banker has an im#lied right on the

    customer to charges for "arious ser"ices rendered to them% Such charges are known

    as bank charges.commission% hese are re/uired to be reasonable%

    http://www.businessdictionary.com/definition/safe.htmlhttp://www.businessdictionary.com/definition/safe.htmlhttp://www.businessdictionary.com/definition/custody.htmlhttp://www.businessdictionary.com/definition/custody.htmlhttp://www.businessdictionary.com/definition/deposit.htmlhttp://www.businessdictionary.com/definition/deposit.htmlhttp://www.businessdictionary.com/definition/for-sale.htmlhttp://www.businessdictionary.com/definition/for-sale.htmlhttp://www.businessdictionary.com/definition/department.htmlhttp://www.businessdictionary.com/definition/department.htmlhttp://www.businessdictionary.com/definition/banker-s-lien.html#ixzz2NF3lnRDqhttp://www.businessdictionary.com/definition/safe.htmlhttp://www.businessdictionary.com/definition/custody.htmlhttp://www.businessdictionary.com/definition/deposit.htmlhttp://www.businessdictionary.com/definition/for-sale.htmlhttp://www.businessdictionary.com/definition/department.htmlhttp://www.businessdictionary.com/definition/banker-s-lien.html#ixzz2NF3lnRDq
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    TOPIC 1 - BA!"R - C#$TO%"R R"&ATIO$'IP

    (efinition of a Bank

    #mportance of the definition+

    (i) Certain rights and obligations attach to bank!s in particular5

    (ii) A bank is entitled to a statutory protection when paying and collecting cheues.

    The 3inancial ervices and 0arkets Act 6777 establishes a framework whereby the3inancial ervices Authority authorises institutions to refer to themselves as banks.8nder the Act the definition of a bank is simply an institution authorised under the Act.

    Therefore to assess what constitutes a bank, especially for the protection of the ills ofE"change Act 9::6 and the Cheues Act 9;9;??@ 6 B9 CA

    The essential characteristics of a banking business are+

    a) collecting cheues for customers5

    b) paying cheues drawn by customers5

    c) keeping current accounts for customers.

    $owever under the anking Act 9;:= a business can only use the name DbankD if it haspaid up capital and undistributed reserves of more than < million.

    (efinition of Customer

    A person becomes a customer when an account is opened and at the same time acontract is formed as held in Commissioner for Taxes v English, Scottish andAustralian Bank>9;67@ AC ?: FC.

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    Eually well a person can only become a customer of the bank when a contract has beenformed with the bank. This includes investment advice as well as opening an account.The contract is formed as soon as the bank accepts the customer!s instructions oods v!atins Bank>9;

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    final response and within ? years of the event, giving rise of the complaint or within years of when the complainant ought to have become aware of the relevant facts. The3inancial ervices and 0arkets Act 6777 established the 3', which has compulsory&urisdiction over institutions that are acting in the capacity of authorised personsperforming regulated activities under the Act e.g. banks. #t hears complaints form bank

    customers and non%customers who are guarantors of loans, payees of cheues backed bycheue guarantee cards recipients of bankers references etcM

    The 3' will determine a complaint by reference to what it considers fair andreasonable in all the circumstances of the case and taking account of the law, regulatorsguidance Codes and good practice. #t may make an award of up to 977,777 based uponthe complainants financial loss, pain and suffering or damage due to loss of reputationor distress or inconvenience. #t may also reuire disclosure of documents and reuirethe bank to take such action as the 3' consider &ust and appropriate.

    The complainant can choose whether or not to accept the determination. #f thecomplainant accepts, the determination becomes final and is binding on both partiesthere is no appeal e"cept by &udicial review by either party, which is an appeal to a the$igh Court on a point of law %( v )inancial Services *m+udsman>677@ 9 All EK(Comm) ?

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    #ndividuals have a right to a description of and data concerning them, the purpose forwhich it is processed and of any potential recipients of the data

    The Contra)t

    The relationship is essentially one of contract. #n)ole# v "ill(9:B:) 6 $/ Cas 6: $/ itwas held that when a customer pays money into his account the bank becomes a debtorto the customer who is the creditor. Therefore the money becomes the property of thebank5 the bank has borrowed the money from the customer GBalmoral Suer market&td v Bank of -ew .ealand>9;=B@ 6 1N/K 9

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    Bank v Bankers Trust>9;:;@ AC :7 FC for the application for the terms inrelation to 8I banks

    o The bank will give reasonable notice before closing a customers account ifit is in credit

    o The customer will take reasonable care when writing cheues.

    #t was also held that although a bank may offer a variety of different services to acustomer the relationship is contained in one contract. There is not a contract for eachservice.

    #n Tai "ing Cotton !ill &td v &iu Chong "ing Bank>9;:?@ AC :7 FC an implied termwas held to be+

    o The bank must only act on its customers valid instructions and not on any

    forgery of those instructions

    hereas it was held in&ondon /oint Stock Bank v !acmillan and Arthur>9;9:@ AC ===$/ and in 0reenwoods v !artins Bank>9;@ AC

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    o hen dealing with a business customer on its standard written terms ofbusiness a bank cannot e"clude or restrict liability for a breach of contractnor is it be able to render a performance substantially different from thatwhich was e"pected of it % 8nfair Contract Terms Act 9;== s

    o

    #n contracts which are into individually negotiated any term which,contrary to the reuirement of good faith, causes a significant imbalancein the parties rights and obligations to the consumers detriment is notbinding on the consumer. G 8nfair Terms in Ponsumer ContractsKegulations 9;;;. This does not apply to the main sub&ect matter of hecontract or to the adeuacy of the price. #t appears for this that the interestrate of a loan cannot be challenged under this provision. #nDirector0eneral of )air Trading v )irst -ational Bank>6776@ 9 AC B:9 $/ a termin a consumer loan agreement that made the borrower liable for interestup to any beyond the time of a court &udgement was held not to beconcerned wit the adeuacy of the price as it was unlikely to affect the

    price. #n the event the clause was found to be fair.

    o The bank must carry out its service to the customer with due care and skill% upply of *oods and ervices Act 9;:6 s9. Any attempt to e"clude thiswill be sub&ect to the 8nfair Contract terms Act 9;== and the 8nfair Termsin Consumer Contracts Kegulations 9;;;

    The anking Code reuires contracts between banks and personal (consumer) and smallbusiness customers to be fair.

    "*press terms

    'ver the years the banking relationship has become established and it is not thoughtnecessary to have an e"press contract and the agreement relies upon implied terms.Although there is nothing to prevent an e"press contract being made between the bankand its customer, which can take precedence over the implied ones, nevertheless it hasbeen held that any e"press terms must be made clear to the customer %Tai "ingCotton!ill v &iu Chong "ing Bank>9;:?@ AC :7 FC.

    1otwithstanding that usually terms are implied there are occasions where e"press termsregulate specific aspects of the banking service and customers are given special notice ofthese terms. The provision of the anking Codes now reuire that certain matters aremade clear to customers in writing which in effect means that banks are includinge"press terms e.g. tariffs of charges for banking services.

    anks obtain a signed mandate from customers, which often set out a number of basicterms. 'n signing the customer is bound by the terms of the mandate whether or not heor she has read and understood them %&1Estrange v 0rauco+>9;B@. $owever theterms of such mandate may not be effective if there is any misrepresentation and anyambiguities will be construed strictly and against the bank. Also any e"clusion of thebank!s liability will be seen in the light of the 8nfair Contract Terms Act 9;==.

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    #n relation to electronic banking there may be an e"press provision that the bank willnot be liable where the customer allows an unauthoriHed person to get access to the F#1number or password.

    The bank will usually have e"press terms to deal with #nternet banking and for banking

    with large companies.

    $owever the e"press provisions must come within the anking Code both in the way theare presented and in their content e.g. in relation to consumer%activated cards the Codestates that the customer is only liable for a ma"imum of

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    There are a number of duties of banks. ome relate to the basic business of banking suchas+

    4uty to collect cheues

    4uty to honour cheues

    4uty not to pay a cheue without authority

    4uty to obey customer!s countermands of cheues

    4uty to tell customer of forgeries

    4uty to inform customers of the state of the account

    4uty to act on notice of death

    $owever the duties of care and skill and of confidentiality reuire particularconsideration.

    (ut+ of )are and skill

    .9 upply of *oods and ervices Act 9;:6 ualifies the customer as a DconsumerD andso entitles him or her to the benefit of an une"cludable implied term of the Act the bankwill carry out its services for the customer with reasonable care and skill.

    The customer has a duty to take reasonable care to prevent forgery and alteration ofcheues. $owever if a cheue is altered without the customers authorisation the cheueis worthless % s?B ills of E"change Act 9::6. Therefore the bank will be liable if thebank pay out on a cheue where the sum is altered or the name of the payee is changedor added to without the authorisation of the customer %Smith v &lo#ds TSB Bank>6777@ 6 All EK (Comm) ?; CA

    hen a bank pays or collects a cheue it does so as agent for its customer and as such itowes a duty of care. #t was held in&ikin 0orman v Karnale &td>9;:;@ 9 /K 9B7CA J >9;;6@ 6 AC 9;;6@ B All EK ? where aloan was granted to a customer for the purchase of a number of chemist shops. 8nichemguaranteed the loan. The monies were transferred to the solicitor acting for thecustomer who, on the instructions of the customer transferred them to an account in the

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    8A from where it was never recovered or repaid. The bank sued 8nichem on theguarantee. #t was held that the bank were not liable as ther had been no suspicionscircumstances to alert the bank to fraudulent behaviour.

    'ther issues concerning the ank!s liability+

    Box v !idland Bank>9;=;@ 6 /loyds Kep ;9 % A customer asked for a loan to finance ane"port contract and was told erroneously that permission would be a formality. Thecustomer arranged the contract but was refused the loan. The bank was liable fornegligent misstatement under"edle# B#rne v "eller

    (edmond v Allied 3rish Banks>9;:=@ 6 3T/K 6?B % A customer paid in endorsedcheues marked not negotiable for a third party to his bank. The customer receivedpayment for the cheues, which he handed to the third party who absconded. /ater thecheues were dishonoured because they were obtained by fraud and the customer didnot obtain good title to them due to the not negotiable crossing. There was not duty onthe bank to warn the customer of the risks of accepting not negotiable cheues that hadbeen endorsed.

    4erit# and Sindler v &lo#ds Bank(9;;

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    a) receives trust funds with actual or constructive notice that they are trust funds andthat the transfer of the funds to the bank is a breach or trust, or

    b) knowingly assists a trustee of the trust to dishonestly misapply trust funds.DInowinglyD includes+ actual knowledge, wilfully shutting one!s eyes to the obvious,

    wilfully failing to make inuiries, knowledge of circumstances would indicate the facts toan honest and reasonable person or would put such person on inuiry.

    Knowledge

    #t is important to know what knowledge is reuired for a stranger to incur liability.Agi6Africa8 &td v /ackson>9;:;@ /K 9?=. #n(e !ontagu >9;:=@ Ch 6?B it was heldthat a stranger will not be liable where he or she had knowledge of facts which he or shegenuinely forgot at the relevant time or receipt.

    There are several degrees of knowledge, which have been classified by *ibson L inBaden v Societe 0enerale>9;:@ C/C 6< as being of < types+

    9. actual knowledge5

    6. wilfully shutting one!s eyes to the obvious (turning a blind eye)5

    . wilfully and recklessly failing to make such enuiries as an honest and reasonableperson would make5

    B. knowledge of circumstances which would indicate the facts to an honest andreasonable person5

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    was enough to make somebody a constructive trustee. $e also warned against usingcomparisons with the doctrine of notice.

    #n addition Sinelott L inEagle Trust %lc v SBC Securities &td>9;;6@ B All EK B::submitted that B. and 9;;6@ B All EK =?; cott /L took theview that the categories were not rigid and that they demonstrated possible degrees ofknowledge and that the key uestion was should the stranger have been suspicious.

    #n&ikin 0orman v Karnale &td>9;:;@ 9 /K 9B7 CA J >9;;6@ 6 AC 9;:;@ /K 9?= 0illet L held that to be a constructivetrustee the person receiving the trust property must have done so for his or her own useand benefit. The uestion arose as to whether a bank would be a constructive trustee ofmoney in one of its accounts, which a trustee had placed there in breach of trust. 0illet Lheld that if the bank used the money itself e.g. to pay off an overdraft then it wasbenefiting and so could be a constructive trustee but if the money was merely being heldpassively in the account it could not be a trustee.

    Trust Property

    The stranger must have received trust property in breach of trust to be held to be aconstructive trustee.

    Dishonest

    here a stranger dishonestly assists in the breach of a trust then the stranger will beliable as a constructive trustee.

    efore(o#al Brunei Airlines Sdn Bhd v Tan >9;;9;;

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    efore the case it was believed that the solicitor would not be liable because the trusteewas not fraudulent. $owever since the case the solicitor as the stranger would be liableas a constructive trustee as he has dishonestly assisted even though the trustee mightescape liability by not being fraudulent or dishonest.

    $offman /L in%oll# %eck 3nternational %lc v -adir and *thers (1o 6) >9;;6@ B All EK=?; distinguished between knowing receipt and dishonest assistance as follows+

    DAlthough both knowing assistance and knowing receipt give rise to the euitableremedy of accountability as a constructive trustee, the two causes of action are verydifferent.

    /iability for knowing assistance is based upon wrongful conduct namely knowingparticipation in a fraudulent breach of trust or fiduciary duty. #ts common law analogy isconspiracy to defraud.

    /iability for knowing receipt is restitutionary, based upon the beneficial receipt ofmoney or property known to belong in euity to somebody else. The euitable remedydepends upon the e"istence of a trust or fiduciary duty but the breach of trust or dutyneed not have been fraudulent. The nearest common law analogy is money had andreceived.D

    3our Keuirements of 4ishonest Assistance+

    9. #t is enough for there to a be a fiduciary relationship there does not have to be aformal trust.

    6. ince the(o#al Brunei Airlines Sdn Bhd v Tan >9;;

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    #nBarcla#s Bank &td v 2uistclose 3nvestments &td>9;=7@ AC

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    6: Froceeds of Crime Act 6776 % #t is an offence for someone to enter into or becomeconcerned in an arrangement which knows or suspects facilitates the acuisition,retention use or control of criminal property. 4isclosure must be made to the 1ationalCriminal #ntelligence ervice (1C#)

    = statutory protection given if

    a) #nformation came to the person making the disclosure in the course of his professionbusiness or employment

    b) The information caused the to know, or suspect or gives reasonable grounds forknowing or suspecting that another person is engaged in money laundering

    c) The disclosure is made as soon as practicable after the information comes to thediscloser

    d. %here the law compels the bank to disclose in#ormation and it is ano##ence not to do so

    7 Froceeds of Crime Act 6776

    #t is an offence to fail to report a person!s engagement in any kind of illegal money%laundering wen the information is acuired in the course of business if the defendanthas knowledge or suspicion or reasonable grounds for knowledge or suspicion.

    1o offence is committed if the information is disclosed as soon as is reasonablypracticable after the information came to the person!s knowledge or there was areasonable e"cuse for non%disclosure. #t is also a defence for legal advisers if theinformation arose in privileged circumstances.

    /, (ut+ to the Pu0li) to (is)lose

    1ot a clear application G&i+#an Ara+ )oreign Bank v Bankers TrustJ%haraon vBCC3

    , (is)losure in the Banks Interest

    This e"ception was successfully claimed inSunderland v Barcla#s Bank &td(9;:). Thebank dishonoured cheues of customer because there were insufficient funds in heraccount and because the bank were also concerned about the customer!s gambling. Thebank told husband and claimed that it was in its interest to do so. #t was held the bankwas entitled to do so.

    2, (is)losure ith the Customers Consent

    #t is now common for banks to reuest customers for permission to give a reference.

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    Rights of The Bank

    Interest

    here a customer has an overdrawn account the right of the lending bank to interest on

    the debt may be e"pressed or may be implied from the customer!s acuiescence in thedebiting of interest.

    The bank will compound interest on a longstanding debt i.e. it will add the interest tothe capital at intervals so that interest is charged on unpaid interest. The right tocompound is also implied form the customer!s acuiescence and survives the demand ofthe bank for payment and the closing of an overdrawn account.

    The anking Codes oblige the banks to publish their interest rates n the on their ebsite and helpline and customers affected by the changes must be notified within 7 daysof the alteration.

    avings account customers must be informed of the interest rates and also details of theprovisions relating to superseded accounts. The Codes have e"tensive reuirements forinterest rates.

    Charges

    Charges tend to be an e"press term of the contract. The Codes reuire customers to begiven details of charges for the day to day running of accounts including the charge foran unauthorised overdraft, e"ceeding an overdraft limit and loan repayment arrears.here a tariff has been provided this will form an e"press term of the contract. The codereuires that where charges are made available on the banks web site and helpline.Customers should be advised of any charges for services that do not relate to day%to%dayrunning before the services are provided. 9B days notice should be given of any chargesto be deducted in respect of standard account services on savings and current accounts.

    4etails of charges in relation to using automated teller machines (AT0) must be givenwhen the card is issued. The AT0 must inform the card user in adance of thetransaction what charge will be made and by whom.

    .9< upply of *oods and ervices Act 9;:6 establishes an implied term in the absenceof an e"press term that the bank may make reasonable charges for its services.

    Repa+ment on (emand

    here a bank permits a customer to borrow by overdrawing his or her current accountthe bank is entitled to reuire payment on demand Titford %roert# Co v Cannon StreetAccetances &td(9;=

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    here however the bank has e"pressed the facility is available for a specific period thenthe bank will not be able to demand repayment before this period has e"piredilliams$ 0l#n1s Bank v Barnes>9;:9@ Com /K 679;;B@ 9 All EK (Comm) 9?9 CA

    &imitation

    The /imitation Act 9;:7 provides that a cause of action in contract becomes statutebarred after ? years. Therefore following the demand by the bank for repayment of anoverdraft the bank have ? years within which to sue.

    Appropriation of Pa+ment

    Appropriation of payments may arise in two situations+

    9. here a customer has two or more accounts with the same bank and heor she pays money in the money will be appropriated to one of theaccounts.

    6. here a customer has one account and he or she pays money into it aswell as drawing cheues upon it appropriation will settle the issue of whichpayment in relates to which payment out.

    *enerally it is the balance on the combined accounts or the final balance of a singleaccount that matters and so usually appropriation is not an issue.

    $owever there are some occasions when a customer may have several overdrawnaccounts and the bank may prefer to keep a lower overdraft on one than another. E.g. ifa customer has a wages account then under insolvency law if this is overdrawn when thecustomer goes into liuidation or is declared bankrupt then the liuidator or trustee inbankruptcy is obliged to settle this account from the realisation of the assets inpreference to other accounts. Therefore the bank will prefer to reduce the overdraft onother accounts rather than the wages account as that account will be the first debt to besettled on insolvency.

    ith a single account when a customer pays money in he or she has the first right toappropriate money paid in. This means that the customer of an overdrawn account may

    prevent the bank from using a payment in to reduce the overdraft by appropriating thepayment by a payment out.

    #f the customer does not appropriate the bank may make an appropriation. #f the bankdoes not appropriate then if it needs to be decided which payment in relates to whichpayment out the Kule in Clayton!s Case applies which states that the first payment inrelates to the first payment out. 1oteDeva#nes v -o+le,Cla#ton1s Case (9:9?) JDeele#v &lo#d1s Bank &td(9;96) $/.

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    The limitations on the rule are+

    a) The rule only applies to running accounts5

    b) The Kule in"allett1s Case(9::7) applies where personal funds are in the same

    account with trust funds and it is deemed that the personal funds are withdrawn first.

    Com0ination of A))ounts

    here a customer has two different accounts with same bank the bank has a commonlaw right to combine them without giving notice to the customer. This is so even if theaccounts are with different branches G 0arnett 4 !c Kewan(9:=6) /K : E"ch 97.

    #f there are more than two accounts the bank is free to combine any accounts of itschoice and to leave others intact.

    $owever a customer has no right to instantly combine accounts.

    A bank!s right to combine accounts is limited+

    a) here the debit balance is not yet due, e.g. the due date for a loan hasnot yet passed G/effr#s v Agra !asterman:s Bank(9:??) /K 6 E ?=B.

    b) here the debit balance of a loan account is due there is no right tocombine an account instantly as there is an implied agreement to keepaccounts separately (Bradford *ld *ffice v Sutcliffe>9;9:@ 6 I : CA)and a customer in these circumstances is entitled to notice before his orher cheues are dishonoured. $owever this does noto apply to an alreadyfroHen overdrawn account G"alesown %resswork and Assem+lies &td vestminster Bank>9;=6@ AC =:< $/

    c) An e"press agreement not to combine accounts will negate the banksright to do so.

    d) #f an account is held that contains trust funds this cannot be combinedwith an account with personal funds.

    "3uita0le Right of $et Off

    #nBhogal v %un;a+ -ational Bank>9;::@ 6 All EK 6;? CA and 8ttamchandani vCentral ank of #ndia >9;:;@ 1L/K 666 CA the banks held two accounts, one in thename of R which is in credit and one in the name of which is overdrawn eh bankbelieved both the accounts were nominee accounts operated by N. The banks set off thebalance of one account against the other and refused to honour Rs cheues. The bankwas unsuccessful because+

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    o The bank has a duty to pay all cheues properly drawn by its customerwithin a reasonable time. Therefore #n order to be in a position todishonour the cheues drawn by R it should have obtained a mandatee"pressly permitting Rs account to be used as security for s account.

    o

    An euitable set off is only permitted if there is indisputable evidence thatthe accounts were nominee accounts and that they were both operated byN.

    $et Off folloing Insol4en)+

    #f either the bank or the customer is insolvent then the following principles apply+

    a) A statutory set off may be applied to accounts on insolvency under.6 #nsolvency Act 9;:? (individuals) or the #nsolvency Kules 9;:?(companies).

    b) The statutory set off is automatic and une"cludable therefore anyagreement not to set off or combine is void.

    c) Any right to e"tend set off is void.

    d) 4ebts, which were not yet due and payable, become due and payable assoon as the customer or bank are insolvent and are therefore sub&ect tostatutory set off.

    e) 4ebits on a customers account after the bank had notice of insolvency of

    the customer will not b sub&ect to set off and credits on a customersaccount after the customer has had notice of the banks insolvency will notbe sub&ect to set off.

    f) here the customer has or more accounts the statutory set off willcombine all of them but note preferential accounts (wages accounts)

    g) Fart S## of the Companies Act 9;:; sets up an insolvency regime forwhen a recognised investment e"change (tock E"change) becomesinsolvent.

    Banker5s &ien

    A lienis a type of security, which carries the right to retain property belonging toanother pending satisfaction of a debt owed by the owner of the property. The goodsremain the property of the owner but the creditor has the right to retain them until thedebt is paid. #n K v Turner the owner of a car who removed the vehicle form the garagewhere it was being repaired without paying the bill and without permission could beguilty of theft. The lien does not carry the right to sell the goods to satisfy the debt (seepledge). $owever a the Torts (#nterference with *oods) Act 9;== enables a person to sell

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    goods in his or her custody and use the funds to satisfy any monies owed provided aspecified procedure is followed.

    A pledgeis a different type of security, which carries the right to retain the propertyuntil the debt is paid or if unpaid after a certain time, carries the right to sell the

    property to satisfy the debt.

    A0anker5s lienis a special kind of lien that is the euivalent of the pledge in otherwords the bank may retain the property until the debt is paid however if it becomesapparent that the debt will not be paid then the property may be sold to satisfy the debt.

    Froperty that is sub&ect to the lien includes securitiesBrandao v Barnett(9:B?) 96 Cl J3in =:= $/ such as insurance policies(e Bowes , Earl of Strathmore v 4ane(9::?) ?Ch4

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    #f the reference is adverse the bank may be liable by reason of breach of the bank!s dutyof confidentiality or for libel

    $afe Custod+

    ank!s have an established service of accepting items for safe custody incorporated intotheir contract with the customer. This arrangement is known as+

    6oluntar+0ailment,

    This type of bailment is subdivided into

    Gratuitous 0ailmentfor which the bailee does not receive any payment and

    Bailment for reardfor which the bailee is paid

    here the bank is a bailee of property it is treated as a bailment of reward irrespectiveof whether payment is actually made for eth service as it is part of the contract betweenbanker and customer. As a result the bank has a duty to take proper care of the itemsdeposited and will be liable for breach of contract if it negligently allows them to bestolen or gives them to the wrong person. #t is possible for a bank to e"clude liability fornegligence G Coldman v "ill>9;9;@ 9 I BB but the e"clusion must be reasonableunder the 8nfair Contract Terms Act 9;==.

    #f two or more bailors deposit property &ointly then it should not be delivered e"cept onthe authority of all bailors GBrandon v Scott(9: