CHAPTER ONE

GENERAL INTRODUCTION

1.1 BACKGROUND TO THE STUDY

A lot of appraisal both legal and otherwise has been done on the relationship of the

banker and the customer. 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. 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 .To the average Nigerian bank customer that is, 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 the law appears to feel unconcerned or does not wish to bother himself

with so complex a web of relationship which to him, continues 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 is contractual and

fundamentally that of debtor and creditor. It consists of general and special contracts arising

from particular requirement of the business of banker. No doubt, the relationship existing

between a banker and his customer is that of debtor and creditor, with the additional feature

that the banker is only liable to repay the customer on payment being made.

1
 So to a large extent the major thrust or thematic concern of this work will be a working

definition of the work bank, banker and customer, their duties ,peculiarities of banker and

customer, contractual relationship and the legal relationship that exists between the banker as

relating to the customers’ account and type of account.

Thus, the motive behind this research is to look critically into the rule guiding banker and

customer relationship and possibly make suggestions where necessary so as to make the law of

banking relevant and updated with the dynamic nature of Nigerian economic reforms in the

banking sector.

1.2 STATEMENT OF THE PROBLEM

The strength of the relationship between two people in a business relationship goes a long

way in determining the success of such a business. Likewise, the strength of the relationship

between the banker and its customer goes a long way in determining how successful the Nigerian

Banking industry will be. 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.

The recent developments in the Banking Industry have changed people’s understanding

of the banking system, hence it’s important that the players in the banking sector be reminded

constantly of their obligations and their correlative duties. However, most bank customers are

confused of the web of relationship between him and his banker.

It has also been noticed that the banker and its customers are unaware of the various laws

regulating their daily transaction with each other and the legal effects of their transaction with

2
each other. The thrust of this research therefore is to examine the legal effect of the baker

customer relationship in Nigeria.

1.3 AIMS AND OBJECTIVES OF THE STUDY

The primary aim of this study is to clarify the customers and bankers on thorny issues as

regards their relationship with the bank/banker and assist them to take appropriate legal steps

where necessary.

The specific objectives of this work are:

i. to seek to trace the historical background of banking in Nigeria and its development over

the years;

ii. to examine how effective or efficient the number of local legislation in Nigeria are as far

as the issues between bankers and customers are concerned;

iii. to examine the legal rights and duties of a banker and a customer;

iv. to examine the nature, legal effects and consequences of the relationship between the

banker and its customer; and

v. to make appropriate recommendations and conclude the work.

1.4 METHODOLOGY

This study will rely on both primary and secondary sources of information. The primary

sources would include the constitution, evidence act, statutes and conventions; while the

secondary sources would include journals, articles, books, newspapers, and other relevant

materials from the internet.

3
 The secondary information sources will be critically perused to determine their

usefulness and relevance. Thereafter, the study will also examine and undertake a content

analysis of decided cases, and other publications on the legal relationship of the banker and

customer. The researcher will also embark on one on one interactions with bankers and their

customers where and when necessary and peruse closely information derived from then be

subjected to content analysis.

1.5 JUSTIFICATION OF THE STUDY

The study is significant and of essence, because it would help to enlighten the operators

in the banking sector that is, the banker and the customer on their rights and correlative duties to

each other. The research shall basically identify the circumstances wherein the legal rights and

duties owed to a customer by his banker and vice versa are waived and suggest appropriate legal

measures.

1.6 SCOPE OF THE STUDY

In pursuance of the objective of the study, attention shall be focused on the legal

relationship between the banker and the customer. In order to conduct an empirical study in the

legal relationship of the banker and its customer in Nigeria, this study shall examine the nature of

the banker customer relationship as a whole in Nigeria. Appropriate information may however be

borrowed from other countries when necessary.

4
1.7 STRUCTURE OF THE STUDY

This study shall contain six chapters; chapter one would contain the general introductory

part that is, the background to the study, the statement of the research problem, objective(s) of

the study, research methodology, scope, justification, and the structure of the study.

Chapter two would deal with the evolution of the banking industry, origin and growth of

the Nigerian banks, definition of a bank, its nature and scope also, the definition of a banker and

a bank customer. Chapter three would contain the nature of the banker and customer relationship.

Chapter four would deal with the legal rights and correlative duties of a banker and a bank

customer. Chapter five would consist of the termination of the banker and customer relationship.

Chapter six would contain identified gaps and suggested reforms

5
 CHAPTER TWO

INTRODUCTION

2.1 Evolution of the Banking Industry

Banking which dates back to the era of goldsmith in England has always played a

fundamental role in a country economic development. The origin of banking can hardly be

pinned down to a precise period or place. In the ancient world, coinage, exchange, and lending

were treated in a way which had many recognizable features of banking business. even the Holy

Bible sates of Abraham weighing unto Ephron 400 shekels of silver, current money with the

merchant, a phrase which implies that the money was different from that in ordinary use 1.Bullion

was superseded by coin, and each nation had a coin of its own. In the Holy Bible we read of

money- changers who had tables in the Temples of Jerusalem2. There is also indication that the

exchangers allowed interest for money lodged in their hands3

In Greece, the first banks were temples. The modern term ‘bank’ derives from the

merchant’s bench, or banco in the market places of medieval Italy. The Jews in Lombardy

preferred to set up their own dealing benches rather than permanent stalls or shops, for the

exchange of money and bills. When a banker fails, his bench was broken by the populace; and

from these circumstances we have the world bankrupt.

The Romans, great builders and administrators in their own right, took banking out of the

temples and formalized it within distinct buildings. During this time moneylenders still profited,

as loan sharks do today, but most legitimate commerce, and almost all governmental spending,

1
Genesis 23:16 The Holy Bible
2
Matthew 21:12 The Holy Bible
3
Matthew 25:27 The Holy Bible

6
involved the use of an institutional bank. Julius Caesar, in one of the edicts changing Roman law

after his takeover, gives the first example of allowing bankers to confiscate land in lieu of loan

payments. This was a monumental shift of power in the relationship of creditor and debtor, as

landed noblemen were untouchable through most of history, passing debts off to descendants

until either the creditor's or debtor's lineage died out.The Roman Empire eventually crumbled,

but some of its banking institutions lived on in the form of the papal bankers that emerged in the

Holy Roman Empire, and with the Knights of The Temple during the Crusades. Small-time

money lenders that competed with the church were often denounced for usury.

Eventually, the various monarchs that reigned over Europe noted the strengths of banking

institutions. As banks existed by the grace, and occasionally explicit charters and contracts, of

the ruling sovereign, the royal powers began to take loans to make up for hard times at the royal

treasury, often on the king's terms. This easy finance led kings into unnecessary extravagances,

costly wars and an arms race with neighboring kingdoms that lead to crushing debt. In 1557,

Phillip II of Spain managed to burden his kingdom with so much debt, as the result of several

pointless wars, that he caused the world's first national bankruptcy, as well as the second, third

and fourth, in rapid succession. This occurred because 40% of the country's gross national

product (GNP) was going toward servicing the debt. The trend of turning a blind eye to the

creditworthiness of big customers continues to haunt banks up into this day and age.

The development of banking spread from northern Italy through Europe and a number of

important innovations took place in Amsterdam during the Dutch Republic in the 17th century

and in London in the 18th century.

7
In 1602, the Dutch East India Company issued the first shares that were made tradable on

the Amsterdam Stock Exchange, an invention that enhanced the ability of joint-stock companies

to attract capital from investors as they now easily could dispose of their shares.

During the 20th century, developments in telecommunications and computing caused major

changes to banks' operations and let banks dramatically increase in size and geographic spread.

2.2 ORIGIN AND GROWTH OF THE NIGERIAN BANKING INDUSTRY

The business of banking was formally introduced into the West African sub-region and

invariably into what is now known as the Federal Republic of Nigeria with the establishment of

the African Banking Corporation in 1892. The establishment of this bank or commencement of

banking business in Nigeria was not backed up by any formal legislation. The African banking

Corporation was merely given administrative mandate by the colonial authorities to commence

banking business. Prior to 1892, there was no indigenous banking system in Nigeria. The

economy of the entire Western African sub-region survived by trade by barter. Though the

concept of banking was unknown to native laws and customs, the cowrie was generally

acknowledged as a means of exchange within the sub region.

The evolution of the banking industry in Nigeria can be said to have commenced during

the second half of the nineteenth century, when Elder Dempster started the movement of money

in specie from one part of the country to another in other to boost its shipping business 4.In 1893,

the Bank of British West Africa was introduced in Lagos by George Williams Neville and

registered in London the next year 1894 because there was no local legislation under which the

bank could be incorporated. In 1899 the Bank of Nigeria was established by prominent Nigerian

4
Danjuma N.N (1993)The Bankers’ Liability 1st Ed, Heinemann, pg 1

8
Merchants. The bank was officially known as “Anglo-African Bank Ltd” and thereafter named

“Bank of Nigeria Ltd.” The Bank of Nigeria was later acquired by Bank of British West Africa

in 1912. So at the time of the amalgamation of the Southern and Northern protectorates into one

entity- Nigeria in 1914, the Bank of British West Africa was undisputedly the only bank existing

in Nigeria. The year 1916 witnessed the emergence of another bank known as the Colonial Bank

with branches in Lagos and Zaria and later extended its branches to Port-Harcourt, Jos and Kano.

The Colonial Bank constituted a very strong competitor to the Bank of British West Africa. The

name of Colonial Bank was subsequently changed to Barclays Bank. It resisted all attempts of

the Bank British West Africa to acquire it.

As time went on other banks started emerging, such as the British and French Bank for

commence and Industry5. In 1961 the Nigerian branches of the bank were named United Bank

for Africa, which still exists up till now. Other expatriate Banks that entered Nigeria were Bank

of America and later became Savanna Bank of India later known as Allied Bank. Due to the

banking consolidation exercise in 2005 some of these banks were merged or acquired by other

banks and have ceased to exist.

Nigerians wanted to own and operate banks distinct from European ownership and

control. Concerted efforts were made which resulted in the establishment of banks by Nigerians.

The first of its kind was the Industrial and Commercial Bank which was apparently incorporated

in England in 1914, but by 1929 it was wholly owned and managed by Africans. Unfortunately

in 1930 the bank went into compulsory liquidation.

Upon the demise of the first indigenous bank, the Nigerian Mercantile Bank came up in

1931 and wound up in 1936, hence the establishment of National Bank of Nigeria in 1933. The
5
later known as British and French Bank.

9
performance of the bank was impressive. In 1955 the Western Region started patronizing the

bank and eventually owned considerable shares in it. The National Bank of Nigeria became a

successful competitor to the expatriate banks. Another indigenous bank that came into lime light

was the African Continental Bank, which started operation in 1948. The bank’s progress was

said to be slow but steady. The bank was patronized by Eastern Region government and its

agencies. Other indigenous banks began to increasingly emerge. They include Agbonmagbe

Bank which later became Wema Bank. It was established in 1945. The Western Region

patronized and owned shares in the bank. It became strong and constituted a second indigenous

challenger of the expatriate banks.

Although several banks emerged within this period, their existence was however short-

lived as a result of the distress, which bedeviled the sector due to the fact that there was no

banking business in Nigeria. This was one of the reasons attributed by the Patron Commission of

Enquiry report in 1946 into bank failures and distress in Nigeria.The result of the Patron

Commission of Enquiry report in 1946, laid down the foundation for the first banking legislation

in colonial Nigeria in 1952.

The Banking Ordinance of 1952 was the first banking legislation enacted in Nigeria.

Before 1952, the laws applicable in relation to banking in Nigeria were the principles of common

Law and Statues of General Application to the British Colonies of which Nigeria was prominent.

The Banking Ordinance of 1952, which was later amended by the Banking (Ammendment) Act

of 1958. The Banking Ordinance though now repealed, was significant because of some of its

provisions which were regarded as novel and unique in the terrain of banking in Nigeria.Also,

the Central Bank Ordinance of 1958 which established the Central Bank as the apex regulatory

body of the Nigeria Banking system and was assigned specific functions, which have been

10
developed over time. This legislation has however been repealed by the Central Bank of Nigeria

Act no 24 of 1999 as amended.

With the advent of globalization, business has become internationalized and Nigeria has

promulgated laws that would encourage foreign business in Nigeria to attract foreign capital e.g.

the Nigerian Investment Promotion Commission Act to give equal opportunities to both

Nigerians and Non-Nigerians to establish business enterprises under the relevant laws in Nigeria.

The above situation made so many banks to be established in Nigeria.

Prior to 2005 there were about eighty nine banks in Nigeria. Many of those banks were

weak in share capital base which posed grave danger to the economy. Consequently the Central

Bank of Nigeria ordered increased capital base up to N25m to consolidate banking business in

Nigeria.At the end of the consolidation exercise through mergers and acquisitions, only25 banks

emerged, while 14 banks that could not merge or be acquired were deemed asdistress banks and

accordingly liquidated. Nigerian banks have become strong to compete internally. Some of these

banks have branches in foreign Countries.

2.3 The Definition of a Bank Nature and Scope.

The word bank has no acceptable definition. it has been defined in its functional sense as

a lender of money. In defining the word ‘bank’ various definitions from authors, scholars,

statutes and judicial authority will be considered. A bank has been defined as a corporation

empowered to deal with cash, domestic and foreign, and to receive the deposits of money and to

loan those monies to third-parties6.It has also been defined as the business activity of accepting

6
http:// www.duhaime.org/Legal Dictionary/B/Bank.aspx. accessed July 18, 2013

11
and safeguarding money owned by other individuals and entities, and then lending out this

money in order to earn a profit.7

According to the Blacks Law Dictionary8, a bank is defined as

“A quasi public institution, for the custody and loan of money, the

exchange and transmission of the same by means of bills and

drafts, and the issuance of its own promissory notes, payable to

bearer, as currency, or for the exercise of one or more of these

functions”.

It can be gleaned from the above that the definition of a bank developed out of its historical and

traditional functions as a borrower and lender of money.

Since, the search for the definition of banking or legal meaning of banking is not peculiar

to Nigeria9. Foreign authors view has also been examined. Dr. Heber Hart in his book Law of

Banking, defined a bank to be a;

“a person or company carrying on the business of receiving

monies and collecting drafts for customers subject to the

obligation of honoring cheques drawn upon them from time to time

by customers to the extent of the amount available on their current

account”.

7
http://www.investorsword.com/16222/business_activity/html . accessed July 18, 2013
8
St. Paul, (1999), 7th Ed, Minn: West Group pg. 139
9
Ryder F.R (1965) “The Legal Meaning of bank” Journal of Business Law p.34.

12
 This definition is no doubt, no exposition of the deposit collection and ‘chequery’

services of commercial banks and this is similar in conception to the definition of Professor

Kent10The term bank and banking according to Professor Kent, do not lend themselves to precise

definition, for the reason that a great variety of financial institutions participate fulfilling one or

more of the operations generally regarded. Professor Kents definition is similar to Sir John

Pagets definition of a bank in his book: Law of Banking when he said a bank is

“a corporation or person(s), who accepts money on current

account and collect cheques for customers”.

However the court in Branbury v. bank of Monteral11acknowledging the difficulty in

formulating an acceptable legal definition of a bank stated that

“The limits of a bankers business cannot be laid down… it cannot

be treated as if it were a matter of pure law”

The same position was held by the court in Woods v. Martins Bank Limited12by Salmond J.

therefore following the position that a bank can only be defined based on the facts of each case,

the courts began to distinguish the characteristics of a bank in various cases so as to define it. It

should however be noted that in as much as the bank is legally recognized as a bank, it’s not

subject to the provision of the money lenders act13

The difference between a bank and a daily money collector or savings organization was

brought out clearly in the case of Attorney General of the Federation v. Umohekpa 14when the

10
Professor Raymond Kent Money and Banking 3rd Ed New York: Rinehart & Co. Inc. p.102.
11
(1918) A.C. 626, 652.g
12
(1959) 1 Q.B. 55
13
Chief Abdul Yekini Ojikutu V. Agbonmagbe Bank & 2 ors.(1966) 1 ALL NLR 140
14
(1976) NCLR

13
Federal Revenue Court sitting in Port Harcourt stated inter alia that collecting money from

market women and paying into bank(as daily collectors do) does not constitute banking business.

InThe Privy Council of England in Bank Chettinical Limited of Colombo V. Income Tax

Commissioner15a bank was described as a company which carried on as its principal business the

acceptance of money on current accounts or otherwise, subject to withdrawal by cheques, draft

or order.

Some statutes have also helped in defining the word bank. Section 61 of Banking and

Other Financial Institution Decree16define the word “bank” as “banks licensed under this

decree”. However, the Nigerian Banking Act 1969 which attempted the definition of banking left

it open-ended17. The act defines a bank as any institution, person, company who carries out

banking business. The same section of the Act 18 went further to define banking as the business of

recurring moneys from outside sources as deposit irrespective of the payment of interest or the

granting of money loans and acceptance of credit of the purchase and sale of securities. Section 3

(1) Negotiable Instrument Act 1881 states that the term banker includes a person or persons

corporate or a company acting as a banker.

A major flaw in earlier statutory definitions was the penchant to always define a bank

with reference to ‘banking business’, the ‘business of banking’ or the ‘business of bankers which

definition is not always provided for.Subsequently in Nigeria, bank means a corporate body

licensed or otherwise authorized by the state to operate as a financial institution with the word

‘bank’ as part of its business name and transact business as defined by its enabling statute or

15
(1948) A.C.378
16
Decree No 25 1991 now Cap B3 L.F.N. 2004
17
Section 41(1)
18
id

14
regulations19This definition covers both statutory and licensed banks, and it is also in accordance

with provision that a bank is a company duly incorporated under the Companies and Allied

Matters Act and has obtained banking license pursuant to Section 3(1) of Bank and Other

Financial Institutions Decree as amended,20 and carried on banking business generally.

19
Ehi Oshio .P (2001) The Legal Meaning of Bank, Lagos: Learned Publishments Limited, pg.466.
20
Decree No 4, 1997

15
NATURE

One of the natures of banking is that it is both a trade and a profession; a trade involving

mainly the buying and selling of services and the main input which is the professionalism of its

human resources.

A bank in any market-oriented economy like that of Nigeria is influenced by two basic

classes of forces which includes economic and legal. The legal forces refer to the scope of

banking regulations through legislations and guidelines issued by regulatory agencies. The

economic forces are reflected and represented by the extent to which the demand for banking

products and services influence or determine the number and sizes of banks. Both legal and

economic forces can affect each other, and it’ their combination that determines the nature or

structure of the banks in any country.

The regulation of the Nigerian bank industry is monolithic, in that there is only one level

of government that is, the federal government that has the right to and is involved in licensing,

supervision and examination of banks in Nigeria. Nonetheless, branch banking operates in

Nigeria because a single bank can have branches all over federation. The advantages of branch

banking include an efficient and safe mobilization and management of funds which makes room

for funds to be moved from areas where there is excess fund to areas where funds are scarce.

SCOPE

Section 1 of the Nigerian Banking Act,1990 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 license granted by the minister.

16
A company must possess its own Memorandum of Association before it can be validly

incorporated in Nigeria. This Memorandum serves as the company’s constitution. Having been

incorporated based on the business stated in its Memorandum of Association, it shall not go

outside the business stated therein.

Since, there are various banks with different businesses, a bank should only operate the

business(s) for which it has been incorporated so as not to go out of the scope of its licensed

operation.

2.4 DEFINITION OF A BANKER AND A BANK CUSTOMER

The law of banking is the law of the relationship between a banker and his customers. In

essence, the Nigerian law of banking focuses on participants in the banking industry namely the

banker and the customer. It is therefore essential that both terms i.e the banker and the bank

customer be defined.

We are aware of the futility, which often results from the wasteful argument that usually

precedes an attempt of the definition of legal terms and concepts21. Like almost every legal

concepts in law, it is very hard to provide an all-encompassing and generally acceptable

definition of the word banker. So in trying to present a functional definition, which will serve the

purpose of a foundation to finding a definition to the term banker, definitions offered by textbook

writers, statutory and case law definitions, will be looked into. C.B. Drover and R.W. Bosley

commenting on the arduous task of providing an acceptable definition to the term banker had this

to say:

21
Awa Kalu U.(august 1990) “A legal meaning and regulations of banking in Nigeria’ justice” A Journal of
Contemporary Legal Problems vol.4 Pg.30.

17
 “The term banker is very difficult to define. There are no statutory

definitions of any value.”

H.L Hart in his book Law of Banking also defined who a banker is22. According to Sir

John Paget, no person or body corporate or otherwise can be a banker who does not take deposit

accounts, take current accounts, issue and pay cheques and collect cheques crossed and

uncrossed for hiscustomers.

A reflection on the above definitions from educated scholars shows that such definitions offer

only an insight and not a functional but a descriptive definition of a banker.

The statutory definitions of a Banker will now be considered. In Indian context, the term

“banker” has been defined by the Banking Regulation Act, 1949 as

“Any company which transacts the business of banking in India”

Section 2 of the Nigerian Bills of Exchange Act23 provides that

“banker includes a body of person whether incorporated or not

who carry on the business of banking”

The above statutory provision can best be said to be an attempt to define the term

‘banker’. These attempts like all others are however not without their own shortcomings. A

critical analysis of the Nigerian Bills of Exchange Act shows that the definition is unsatisfactory

in the Nigerian context because no individual, partnership or any unincorporated body can carry

on banking business in Nigeria.

22

23
Cap 35 LFN 1990

18
 The Banks and Other Financial Institution Act24 in an attempt to cure the inadequacies of

the already stated definitions ends up compounding the problem by stating that, Banker means a

bank licensed under the Act25. This definition is however too restrictive because it obviously

excludes other categories of bank such as statutory Bank which do not need formal Banking

licenses to operate. Such banks are banks established under specific statutes and they include;

Central Bank of Nigeria, the Federal Mortgage Bank of Nigeria, the Federal Saving Bank just to

mention a few.

What appears to be the most elaborate definition of the term is the Banking Decree of 1969 26.

Section 41(1) of the Decree defines bank as

“any person who carries on banking business, and includes a

commercial bank, an acceptancehouse, discount house and

financial institutions.”

The above definition can best be said to have attempted to define the terms. These attempts, like

all others some of which have been given in this essay are however not without their own

peculiar shortcomings. The statutory provision stated above appears to be a list of services or

functions that a bank or banker usually performs in the area where I operates in this modern age.

The list can however not be said to be an exhaustive on.

Definitions gleaned from case law authorities will now be looked at, with the hope that a detailed

and wider definition of the term ’banker’ will emerge.

24
No 25 191
25
Bank and Other Financial Institution Act
26
Decree No. 1 o 1969

19
 In the case of Commercial Banking Company of Sydney V Federal Commissioner of

Taxation27, the High Court of Australia held that the banks main business was the lending of

money. This assertion emanates from the historical and industrial function of the bank as

borrower, lender of money. This definition is fraught with some lapses one of which is that, not

every lending institution or individual will qualify as a bank and again the money lender is not a

bank although it may perform one the function of the bank.28

However, the judicial decision in the case of United Dominion Trust LTD V Kirkwood 29,

provides a well encompassing definition of the term ‘banker’. The decision in this case is one

which is widely accepted as a precedent in the legal definition of banking and banker. The main

determination in this case was whether the plaintiff was carrying on business of banking so as to

be exempted from the provision of the English Money Lender Act of 1900.

In that case, the garage company for which the plaintiff was the managing director had

money through stock loans to finance the purchase of cars for his garage company from the

appellant company as securitygave Bills of Exchange endorsed by the defendant. The bill was

dishonored and the garage company went into liquidation. United Dominion Trust then sued the

managing director of the liquidated company who then stated that United Dominion Trust was an

unlicensed money lender and therefore not entitled to receive the debt.

But United Dominions Trust stated that they were bankers and produced evidence to

show they were carrying on banking business and that other bankers knew them to be bankers.

The court entered judgement in favour of the plaintiff, the defendant then appealed and the lower

27
(1950) 81 CLR 263
28
Chief Abudu Yekini Ojikutu v. Agbonmagbe Bank&2 ors.
29
(1966) 2 Q.B. 431

20
court decision was upheld. Lord Denninng delivering the judgment and stating the characteristics

of a banker stated;

“there are therefore two characteristics usually found in bankers

today they accept money from and collect cheques from their

customer. They honourcheques or order drawn on them by their

customers; Accordingly these two characteristics carry with them

a third, they keep current account or something of that nature in

their books in which the credit and debit are entered”.

The judicial decision of Lord Denning quoted above appears to provide a list of services

or functions that a banker usually perform in the area where it operates in this modern age. This

list cannot however be said to be an exhaustive one. Countless other services performed by

bankers exist. Examples of these other functions not mentioned in the definitions given above,

but nevertheless practiced in Nigeria today include discounting bills, giving financial advice and

status opinions and acting as a customer’s bailee for safe custody of valuable articles and

documents inter alia.

However, given the difficulty of getting a final and absolute definition of any legal term, a

banker could then be said to be whom the law of the land or country says he is.

WHO IS A BANK CUSTOMER?

In the course of its daily business transactions a banker will come in contact with quite a

number of people who have different motives for coming into the bank. Some come to deposit

money, some just to make one inquiry or other, some to cash cheques. Some of these people

maintain subsisting relationship with the bank, while in some cases it is a ‘one off affairs’

21
perhaps never to be repeated again. The question is can all these people be called customers to

the bank?

While banks may be few, the persons with whom they transact business are

immeasurable; hence there is a need to attempt to define who a bank customer is. The word

‘customer’ has not been statutorily defined neither can it be defined with exactness. In general

parlance, the word ‘customer’ implies a course of dealings or transactions as it brings to our

imagination accustomed or repeated patronage continued over a period of time. This fact

necessarily presupposes that an isolated dealing or transaction would not be enough to make a

person a customer of a bank. The question that has to be answered is how much dealings must a

customer have had with a bank before he can be said to be a bank customer? What are the

criteria he must he must comply with before he can qualify as a customer of a bank.

One view of this question is that a person does not become a bank customer unless and

until he opens an account with a bank. Cases disclose that a customer of a bank is a person who

has entered into a contract with a banker for the opening of an account in his name. One judicial

authority that supports this view is that in the case of Great Western Railway Company Limited

V. London Country Banking Company Ltd 30. In this case one of the questions for determination

was whether a person who had no account with a bank but for whom the bank normally help by

cashing for him a crossed cheques over the counter was a customer of the bank. It was held by

the court that before a person could be regarded as the customer of bank, he must have an

account with the bank. It seem from the foregoing that the criteria for deciding whether one is a

bank customer is the keeping of an account with the bank and duration of such account is not the

essence of the relationship before one can be regarded as a customer. This was the view of the

30
(1901) A.C. at page 414

22
Privy Council in Commissioner of Taxation V English, Scottish and Australian Bank Limited 31

where Lord Dunedin stated that one’s account need not be for a specified duration before one

becomes a customer. Also, the rendering of casual services on regular basis by the bank does not

make one a customer.-great western railway supra.

Thus, for general purposes, a person becomes a customer of a bank when he opens an

account with it. It is immaterial that the account is overdrawn 32 or whether the bank account is of

the current type or of some other type such as savings or a deposit account. However in New

Nigeria Bank Limited V. Odiase.33 The Court of Appeal held inter alia, that generally, a customer

is someone who has an account with a bank or without having an account the relationship of

banker and customer exists; in the latter case, some money transactions must connect banker and

customer, but must arise from the nature of the contract.

31
(1920) A.C. page 683
32
Clarke v. London & County Banking Co (1897) 1Q.B. 552
33
(1993)8.N.W.L.R. pt. 310 at page 235
23
 CHAPTER THREE

THE NATURE OF THE BANKER CUSTOMER RELATIONSHIP

The law of banking is concerned with not only with the legal framework of banking

business but also with the peculiar legal relationship, which exists, between the banker and their

customers. To the average Nigeria bank customer, i.e an ordinary account holder, the

relationship between him and his bank or banker begins and ends with paying in and

withdrawing from his account. But in actual fact in law, the relationship is more complex than

that, it is a relationship that is well grounded in law with all the duties and obligations, which in

all cases are justitiable34

Having attempted to define who the banker and the customer is, it is germane that we

examine the nature of the relationship that exists between the two, before we can appreciate the

duties of the parties to such contract, the nature of the relationship giving rise to such a duty

needs to be analysed.

The relationship arises between a banker and a customer with the opening of an account

by the customer with a banker. The application for opening an account is considered as a letter of

agreement for establishing the banker-customer relationship. The nature of the relationship

depends upon the type of services rendered by the banker, which has two aspects: one is legal

and another is behavioral.

It is worth mentioning that the behavioral relationship is important from the view point of

humanity, particularly for the customers who do not maintain account with the banker but buys,

miscellaneous services like Demand Drafts, Mail Transfer of money or payment of electric bill,

34
Ariyo Ajaja“Banking and the law’ Nigerian Tribune Newspaper Tuesday 5th of March 2002 page 26-27

24
gas bill, opening and renewal of licenses of Television, and Radio. For example, a bankers’ good

manners, courtesy, kindness, sympathy, and cooperation in helping to solve a customer’s

problem, undoubtedly makes a good impression on the customer. The roads to progress and

prosperity can easily be made through friendly behavior with the customers. If the bankers wish

to develop their organizational image, they have to offer better services and cooperation, coupled

with courteous service to gain a competitive edge.

However, the primary relationship between the banker and the customer is founded on

contract35 which arises the moment the parties agreed to enter into contractual relationship with

each other subject to conformity with the legally recognized requirements of a valid contract.

Generally, the contract is unwritten but where special obligations are contemplated, the

contractual relationship will be well defined and committed into writing.

The contract between the banker and his customer is basically an unwritten one and as

such, its terms are implied. Its scope cannot be stated with certainty. It follows therefore then that

each time a dispute arises out of an relationship between a banker and his customer, the facts of

such a case must be examined to decide on it 36. In Allied Bank (Nig.)Limited v. Akubueze37, the

supreme court held interalia that the relationship between a banker and its customer is founded

on a simple contract, which, in the absence of an express agreement between the parties to the

contrary, is implied from the course of business between them. The Court of Appeal in Nwonye

& Sons Limited v. Co-operative & Commerce Bank of Nig. Plc 38held that this contractual

relationship involves a kind of special usages peculiar with monetary or commercial transactions.

35
Royal Petroleum Co. Ltd v. First Bank of Nigeria Ltd, (1997) 6 N.W.L.R pt.510 pg584
36
Bank of the North Limited v. Yau (2001)6 S.C.M. 1
37
(1997) 6 N.W.L.R. (Pt. 509) 374
38
. (1993) 8 N.W.L.R. (Pt.310) 210

25
 The relationship is also fiducial. The terms and conditions governing the relationship

should not be leaked to a third party, particularly by the banker.Also the items kept should not be

released to a third party without due authorisation by the customer.

The general view is that the banker-customer relationship is mainly that of a debtor and a

creditor with certain special features.

However, today the range of banking services is more extensive, and indeed is expanding all the

time, so it must be expected that other relationships will arise besides that of debtor and creditor.

Such other relationships are; Bailor-Bailee Relationship, Principal-Agent Relationship, Trustee-

Beneficiary Relationship and Debtor-Creditor relationship etc. These various forms of

relationship will be examined hereunder.

3.1 BAILOR – BAILEE RELATIONSHIP

This relationship dates back to the goldsmith banker who accepted gold and valuables for

safekeeping. The nature of the banker customer relationship may be regarded as that which exists

between he bailor and the bailee. Then, the goldsmith could not let out customers’ gold at

interest or for use in any way without the approval of his customer. Similarly, the customer who

seeks to safeguard his valuable by depositing them with a bank is entering into a contract of

bailment39.There are two types of contract of bailment and they are; Gratuitious bailment and

Bailment for reward. The distinction in the types of bailment is necessary for the assessment of

their liabilities. For example, the degree of duty of care which is expected of a bailee for reward

is higher than that of a gratuitious bailee because, he is deemed to be a professional and would be

39
Danjuma N.N (1993) The Bankers Liability Nigeria, Heineman Educational Books pg104

26
assessed in accordance with skills he claims to have. A gratuitous bailee on the other hand, could

be liable for gross negligence.

The property in the goods in a bailment transaction is not intended to and does not pass

on delivery, and in fact remains with the bailor 40. Bailment is a contract for delivering goods by

one party to another to be held in trust for a specific period and returned when the purpose is

ended. Bailor is the party that delivers property to another.Bailee is the party to whom the

property is delivered. So, when a customer gives a sealed box to the bank for safe keeping, the

customer becomes the bailor, and the bank the bailee. The banker being the bailor, while the

customer is the bailee. This position had been acknowledged by the Nigerian Courts in the case

of Johnson v. sobaki41 and also in The Official Receiver & Liquidator of Nigerian Farmers&

Commercial Bank Ltd v. Moore42.

With the definition given supra in mind, it can be seen that in relation to money, the

bailor-bailee relationship is actual

]ly irrelevant to the banker-customer relationship because the bailee has no legal right to

make profit from the goods bailed since he has been renumerated. Relating the bailor-bailee

relationship to the banker customer relationship, the relationship between both bailee and bailor

breaks down at the point where the goldsmith banker lends out at interest the property in his

possession. This situation is obviously not reconciliable to that of the banker and his customer.

Banking would practically be impossible if the bailor-bailee relationship were to be applied to it.

As we have it today, banker reserve the right to do what they please with the customers deposits

without obtaining permission from them, so long as there is an express agreement between both
40
Okany M.C (1992) Nigerian commercial law Lagos: Africana-Fep Publishers Limited page 232
41
(1968)2 ALL NLR 282
42
(1959)LLR 46 at page 48.

27
parties that the customer could draw on his account with the bank provided he has sufficient

funds in such an account.

A contract of bailment is created when a customer delivers to the bank and the bank

accepts an item for safe-custody. Here the bank is not a debtor but a bailee. This arises where the

customer keeps valuable with the bank. t is a common practice for banks to keep for their

customers, valuableitems like Will, Certificates, precious jewelries etc and this way a contract of

bailment is created, the banker being the bailee and the customer, the bailor. The bank is to deal

with the property in accordance with the instruction of the customer (bailor) and shall exercise

the standard of care required in bailment.

Banks secure their advances by obtaining tangible securities. In some cases physical

possession of securities goods (Pledge), valuables, bonds etc., are taken. While taking physical

possession of securities the bank becomes bailee and the customer bailor. Banks also keeps

articles, valuables, securities etc., of its customers in Safe Custody and acts as a Bailee. As a

bailee the bank is required to take care of the goods bailed.

The banker is therefore not a bailee of moneys deposited with him but he can however be

said to be a bailee of valuables deposited with him by his customers. During certain

circumstances banker becomes bailee. When he receives gold ornaments and important

documents for safe custody he takes charge of it as bailee and not trustee or agent. He cannot

make use of them as he is bound to return the identical articles on demand.

28
3.2 PRINCIPAL – AGENT RELATIONSHIP

In a limited sense, a banker is an agent of the customer with regard to the banker’s duty

to pay money to the amounts specified by a customer of the bank in favour of third parties.

Agency relationship has been described as arising when one person performs certain tasks on

behalf of another person43. An agency has been defined as

The relationship that exists between two persons when one, called agent, is considered in

law to represent the other, called the principal in such a way as to be able to effect the pricipal’s

legal position in respect of strangers to the relationship by the making of contracts on the

disposition of property44. The basis of the agency relationship has also been said to be the

endowment by the principal on the agent with the power to act in place of the principal. Usually

this power arises by consent. Agency is most frequently a consensual relationship arising from

agreement between the principal and the agent.45

The banker acts as an agent of the customer (principal) by providing the following agency

services:

a. Buying and selling securities on his behalf.

b. Collection of cheques, dividends, bills or promissory notes on his behalf.46

c. Acting as a trustee, attorney, executor, correspondent or representative of a customer.

43
Fayokun K.O (2011) “Commercial Law” Concise Law Series
44
Fridman (1971) The Law of Agency, London: Buttersworth Pg.8
45
Fayokun K.O op.cit
46
See Capital Counties Bank Ltd v. Gordon (1903) AC 243 HL

29
 The banker as an agent performs many other functions such as payment of insurance

premium, electricity and gas bills, handling tax problems, etc. 47 it has also been held that the role

or predominant business of bankers is the business of banking which consists mainly in the

receipt o monies on current deposit account and the payment of cheques issued by a customer.48

A relationship of principal and agent has also been said to exist where the banker acts as

a collecting banker for cheques paid in by customers 49. According to Ayoola, J.S.C in Bank of

the North v. Yau50. The collecting bank is an agent of the customer for the purpose of receiving

payment of…cheques from the banker on whom they are drawn

The analogy of the banker as the agent and the customer as principal is however fraught

with with so many problems due to the fudiciary relationship expected from an agent. The agent

in agency relationship is bound to account for profit, he must not make secret profit. The

question whether or not the banker as an agent to the customer is entitled to renumeration would

have arisen if the banker customer relationship is to be likened to the agency relationship. 51 all

these characteristics of agency relationship would have impeded the development of the banking

system as known today.

It should also be notedthat the scope of the agency relationship is measured by the length

of authority possessed by an agent to affect the legal position of his principal in relation to a third

party. In a banker customer relationship, the only authority the customer that is, the principal

possess is the authority to order for payments of cheques drawn on him and by him. The

authority of the principal in an agent principal relationship is to an extent absolute. A principal in

47
See Afribank Nigeria Plc v. Aminu Ishola Investment Ltd. (2002) 7 NWLR pt. 765 40
48
id
49
First Bank of Nigeria Ltd. V. African Petroleum Ltd (1996) 4. N.W.L.R. Pt.443,438
50
Op. cit pg 26
51
Okany M.C op cit pg 32

30
an agent principal relationship is also bound by the acts of his agent, but in a banker customer

relationship, the customer is in no way bound by the acts of his banker on the money/valuable he

deposited with him that is, his banker.

It is submitted from the foregoing that the relationship that exists between a banker and

his customer though shares some similarities with the principal agent relationship, it’s not the

same with the latter. This is so because the customer cannot dictate to the bank how the bank will

deal with the money he deposits in his account. Although the bank charges interest for services

rendered for the customers, this is not the same thing with remuneration such as salary and

wages as we have in an agency relationship.

3.3 TRUSTEE - BENEFICIARY RELATIONSHIP

Section 3 of the Trusts Act defines a trustee as one to whom property is entrusted to be

administered for the benefit of another called the beneficiary.In case of trust, banker customer

relationship is a special contract. When a person entrusts valuable items with another person with

an intention that such items would be returned on demand to the keeper the relationship becomes

of a trustee and trustier. Customers keep certain valuables or securities with the bank for

safekeeping or deposits certain money for a specific purpose, the banker in such cases acts as a

trustee. A banker becomes a trustee under special circumstances. When a customer deposits

securities or other valuables with the banker for safe custody, the banker acts as trustee of

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

A trustee holds property for the beneficiary and the profit earned from this property

belongs to the beneficiary.

31
Bankers do act as executors of will and if the exercise is prolonged, the bank becomes a trustee.

In some instances, a bank may be asked to administer trust property. In that situation, the bank

also becomes a trustee.

However, the attempt to equate a banker to a trustee of moneys deposited in his care By

his customers have failed because of the existence of some factors which are not compatible with

the equitable doctrine of trust. The banker is not a trustee for money deposited in his care and is

therefore not accountable to the customer for its use. On the one hand, to allow the trust

proposition to stand would have greatly constrained the banker as a trustee in the use to which he

can put the money deposited with him. Asides from this, the provision of the law in relation to

trusteeship, provides for some classes of securities and investments which a trustee is barred in

law from engaging in. this obviously does not augur well for the banker who is always on the

lookout for the most viable project in which he invests to generate profit.

3.3 DEBTOR - CREDITOR RELATIONSHIP

A learned author52 writing on the relationship between the bank and its customer had this

to say

“The basic relationship between banker and customer is

that of debtor and creditor. Where a banking account is in

credit, which we may regard as being the normal case, the

banker is the debtor.”

The opinion of Perry was upheld by the court in the case of Midland Bank Ltd v. Conway

Corporation53where Sir John Paget remarks,

52
Perry Law and Practice Relating to Banking 3rd ed. at page 7
53
(1965) 1 W.L.R. 1165

32
 ‘the relation of a banker and a customer is primarily that of

debtor and creditor, the respective positions being determined by

the existing state of account. Instead of the money being set apart

in a safe room, it is replaced by the debt due from the banker. The

money deposited with him becomes his property, and is

absolutely, at his disposal, and, save as regards the following of

the trust funds into his hands, the receipt of money by a banker

from or on account of his customer constitutes him merely the

debtor of the customer with ‘super added’ obligation to honour

his customer’s cheques drawn upon his balance, in so far the

same is sufficient and available’.

When customer deposits money in his account the bank becomes a debtor of the customer and

customer a creditor. The money so deposited by customer becomes bank’s property and bank has

a right to use the money as it likes. The bank is not bound to inform the depositor the manner of

utilization of funds deposited by him.

On the opening of an account a banker assumes the position of a debtor. The money

deposited by the customer with the bank is in legal terms lent by the customer to the banker who

makes use of the same according to his discretion. The creditor has the right to demand back his

money from the banker, and the banker is under an obligation to repay the debt as and when he is

required to do so.

33
A depositor remains a creditor of his banker so long as his account carries a credit balance. But

he does not get any charge over the assets of his debtor/banker and remains an unsecured creditor

of the banker

In Folley v. Hill54 the relationship of a banker and a customer was defined as that of

debtor-creditor with the obligation on the banker to honour the customers cheques when there is

sufficient credit balance. 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 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 with 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 hands’

Lord Atkin also speaking on the relationship in Folleys’ case said;

54
(1848) 2H.C. CAS. 28

34
 ‘The question seems to turn upon the terms of the contract made

between banker and customer in the ordinary course of business

when a current account is opened by the bank. It is said to be on

the one hand that it is a simple contract of loan; it is admitted

ther is added or super added, an obligation to the bank to honour

the customers cheques to any amount not exceeding the credit

balance at any material time; but it is contended that this added

obligation does not affect the main contract. The bank has

borrowed the money and is under the ordinary obligation of a

borrower to repay. The lender can sue for his debt whenever he

pleases…I think that there is only one contract made between the

bank and its customer. The terms of that contract involves

obligation on both sides, and require careful statement. They

appear upon consideration to include the following provisions.

The bank undertakes to receive money, and to collect bills for its

customer’s account. The proceeds received are not to be held in

trust for the customer, but the bank borrows the proceeds and

undertakes to repay them…’

As a result of an implied undertaking by the banker to repay the customer all or part of

such deposit, the bank is a debtor for the amount deposited. However, there is no obligation on

the part of the bank to seek out the customer so as to repay him. 55 This position was restated in

the case of Osaiwaje v. National Bank of Nigeria Limited56. Where the court stated that;

55
Joachimson v. Swiss Bank Corporation (1921) 3KB 110.
56
(1974) NCLR 474

35
 ‘The relationship between a banker and customer is one of debtor

and creditor with the additional feature that the banker is only

liable to repay the customer on payment being demanded. There

is no obligation on the part of the banker or debtor to seek out his

creditor, the customer and pay him: obligation is only to pay the

customer or some person nominated by the customer, when the

customer makesa demand or gives a direction for payment.’

If a valid repayment demand of the customer is not met by the banker, the customer may

bring an action against the banker for breach of contract as affirmed by Alexander J. of the Lagos

High Court in the case of National Bank of Nigeria v. Maja and 2 ors(Trading as Lagos Fishing

Company57. However, such an action will be against the bank and not the banks manager.58

The creditor must demand the payment at the right 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 ATM centres. The

depositor must demand the payment at the right time (during the working hours) and on the date

of maturity in the case of fixed 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

cheques; withdrawal slips, or pay order. Now-a-days, banks allow e-banking, ATM, mobile-

banking, etc.

However, in light of the effect of the Limitation Statute see section 7(1) (a) which renders

statute barred and irrecoverable a debt after the expiration of a period of six years from the date

57
(1967) NCLR
58
Akwuile&ors v. Queen (1963) AWLR 191 at 198.

36
the debt becomes due, the question has been asked as to what happens to the credit balance in the

current account of a customer? Does it become irrevocable after six years going by the statute? It

has been stated in answer to the question supra that the Limitation Decree has no application

until there is a debt actually due and recoverable. Therefore, the case of a credit balance on

current account, the statute does not begin to run against the customer until demand for payment

is made and is not complied with59

The concepts of debtor- creditor in the banker- customer relationship is not static. The

banker may in certain cases become the creditor, while the customer assumes the position of a

debtor. For instance, where a banker grants overdrafts to its customer and debits the customer’s

accounts with the sum or value of the overdraft, the customer becomes a debtor to the banker to

an amount equal to the debit. The statutory limitation in this case runs from the date of each

advance, even when the advances are guaranteed. Thus, where the bank grants an overdraft

facility to a customer which remains outstanding for six years, it becomes statute barred

thereafter.60 Also, where the customer assumes the position of a debtor, he is under the

compulsion to seek out his banker so as to repay such debts.

The ordinary customer ranks as an unsecured creditor in the liquidation of the bank 61. As

the loans and advances granted by a banker are usually secured by the tangible assets of the

borrower, the baker becomes a secured creditor of his customer.

It should however be noted that the banker(debtor) is not at liberty to give out any information

relating to the state of his customers account.62

59
Re- Footman Bower & Co. Ltd.(1863) I MACPH.(CT. of Sess.) 228
60
N.B.N. Ltd v. Adewale Thompson (1962) ANLR (pt. 2-4) pg.36
61
Space Investments Limited v. C.I.B.C. Crust Company (Bahamas) Limited (1986) 3 ALL ER 75 at 76.
62
Tourneir v. National Provincial & Union Bank of England (1924) 1 K.B. 461.

37
Finally, it is submited that the debtor-creditor relationship is not a definition to end all definitions

and as such, recourse should be had to the facts of each relationship to determine its nature.

3.5 OTHER FORMS OF RELATIONSHIPS

 Licensor and Licensee

The relationship between banker and customer can be that of a Licensor and Licensee. This

happens when the banker gives a sale deposit locker to the customer. So, the banker will become

the Licensor, and the customer will become the Licensee.

 Hypothecator and Hypothecatee

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

This happens when the customer hypothecates (pledges) certain movable or non-movable

property or assets with the banker in order to get a loan. In this case, the customer becomes the

Hypothecator and the banker becomes the Hypothecatee.

 Advisor and Client

When a customer invests in securities, the banker acts as an advisor. The advice can be given

officially or unofficially. While giving advice the banker has to take maximum care and caution.

Here, the banker is an Advisor, and the customer is a Client.

 Custodian Relationship

A custodian is a person who acts as a caretaker of something. Banks take legal responsibility for

a customer’s securities. While opening a dormant account bank becomes a custodian.

38
39
 CHAPTER FOUR

THE LEGAL RIGHTS AND CORRELATIVE DUTIES OF BANKER AND CUSTOMER.

The banker and customer relationship has been identified as one primarily based on

contract though an unwritten one, since the account is opened by verbal agreement without any

precise statement as to terms and conditions (though there may be a mandate giving signing

instructions). It is therefore, an implied contract based on the duties and rights of both parties as

established by both banking practice and case law.The terms of the contract have gradually been

determined and modified as banking practice developed over the years 63. In First Bank of

Nigeria Limited v. African Petroleum Limited 64 the Court of Appeal held that the contractual

relationship between a banker and its customer gives rise to several rightsand obligations on both

sides and require careful statement. Invariably, these rights and duties are correlatives, so that a

right in one becomes a duty in the other party and vice versa.

4.1 DUTIES OF A BANKER AND CUSTOMER

The duties of a banker could be many owing to the dynamism in businessworld and

changes in technological advancement, the duties of a banker to acustomer can be an omnibus

one encompassing various aspects of banking65. Among the duties of the customers are: (i) duty

to pay cheque and other withdrawal authorities of the customer; (ii) duty not to pay customer’s

money without authority; (iii) duty to inform the customer about cheques suspected to be forged;

(iv) duty to maintain secrecy; (v) duty not to combine the accounts of the customer; (vi) duty to

receive money, cheques, etc. and credit into the customer’s account; (vii) duty to exercise

63
Orifowomo (2011) “BUL 303 Law of Banking and Negotiable Instrument” Lecture Note Series
64
Op.cit pg 31
65
Akin Olawale “An Appraisal of Banker Customer Relationship in Nigeria”

40
reasonable care and skill; (viii) duty to provide periodic statement of account; (ix) duty not to

close account of the customer except with reasonable notice.

The duties of the customer to the banker include the following: (i) duty to exercise

reasonable care in drawing cheques and other withdrawal authorities so as not to facilitate

forgery and (ii) duty to inform the banker of forgery; (iii) duty to make demand for money in his

account before such becomes payable; (iv) duty to pay a reasonable charge for contractual

services rendered by the banker.

4.1.1 Duties of a Banker to a Customer

(i) Duty to honour customers’ cheques and other withdrawal authorities.

Perhaps the most outstanding of the banker’s duties to the customer, is to pay cheques

and other withdrawal authorities of the customer, if it holds sufficient funds for the customer and

available for that purpose. This is because the relationship between the parties is that of mandant

and mandatory, the customer being the mandant, the banker the mandatory and the cheque or

payment instruction the mandate.66

The bank is under a duty to honour his customer’s cheques if the funds in the account are

sufficient and this obligation extends to any agreed overdraft 67. Provided that such an instrument

is properly drawn by the customer and presented during banking hours at the branch where the

account is kept or elsewhere as may be agreed. Therefore, the banker must honour his customers’

cheques without delay provided there is sufficient funds in the account or if it is within the limits

66
Orifowomo op cit pg 40
67
Rause v. Bradford Banking Company (1848) A.C. 586

41
of an agreed overdraft and there is no legal bar prohibiting payment. Salvage J. in Aderibigbe v.

N.B.N. Ltd68stated that;

“It is well known that the primary function and duty of any

bank is to honour the cheques of his customer provided

that the state of the customer provided that the state of the

customer concerned is such as to warrant the bank doing

so, and there is no legal reason or excuse to the contrary.

The obligation of the bank to pay therefore is only subject

to the condition that there are funds of the customer

sufficient and available for the purpose.”

The Court of Appeal also held in Royal Petroleum Co. Limited v. First Bank of Nigeria

Limited69that a banker is bound to honour all the cheques issued by its customers unless there are

no sufficient funds to honour such a cheques in the customer’s account.

. There are however circumstances where a banker may be justified in not paying a customer’s

cheques. Such circumstances are;

a. If there is a notice from the customer to stop payment,

b. Knowledge of any defect in the title of any person presenting the cheques;

c. If the account is countermanded by one of the signatories to the account

d. Where there is a directive from the government freezing the account of the customer.

68
(1977) 7CC 1401/1404
69
(1997) 6 NWLR Pt. 510

42
 e. Where the bank dishonours a cheques in obedience to a court order based on the instance

of the judgement creditor or a writ of fifa.

f. Notice of a garnishee order.

Where a banker wrongfully dishonours a customers cheques inspite of the fact that there

is sufficient funds in the customer’s account, the bank will be liable for breach of contract or

libel in tort. This action is predicated on the principle that the bank cannot without any valid

reason dishonor a cheques drawn by his customer. Damages awarded are generally nominal

except in the instances which the law has come to regard as exceptional.

As a general rule, in action for breach of contract, the plaintiff will only be awarded

nominal damages except where he actually alleged and proved special or actual damage; only

then can he claim special damages which may be substantial. As an exception to the above rule

however, there are authorities to the effect that whether or not a customer whose cheques(s) has

been wrongfully dishonoured would be entitled to nominal or special damagesdepends on if he is

a trader or a non-trader. Where he is a trader, he will be entitled to special damages without the

proof of actual damage while if he is a non-trader, he will receive only nominal damages. The

rationale behind this is that the act of a banker dishonouring his customers cheques in the case

where such a customer is a trader, is that there is the likelihood of considerable danger to the

reputation of a customer and generally to his business if he is engaged in one. Afterall, people

generally whether or not in business do not want to deal with a person whose cheques are not

paid and it is the more damaging for a person in business.

However as it is always extremely difficult to have an accurate estimate of the extent of

damages, it has therefore been laid down by a line of authorities that damages in such cases are

43
‘at large’. This is to say that a judge or jurist may within reason award such sums as they

consider reasonable. In Rolin v. steward70. The plaintiffs who were merchants and ship owners

sued the defendant, a public officer of the company carrying on the trade and business of bankers

for the wrongful dishonor of three cheques and a domiciled bill due to the inadvertence of the

clerk in the office of the bankers. No evidence was given that the plaintiffs actually suffered

injury. A jury nonetheless awarded them 500 pounds. It was held that the jury was entitled to

give substantial damages though 500 pounds was in the circumstances excessive, 200 pounds

was eventually agreed upon.

(ii) Duty not to pay out the customer’s money without his authority

Where a banker wrongfully dishonours a customers cheques inspite of the fact that there

is sufficient funds in the customer’s account, the bank will be liable for breach of contract or

libel in tort. This action is predicated on the principle that the bank cannot without any valid

reason dishonor a cheques drawn by his customer. Where the banker pays out the customers

money without due authority, the account may not be properly debited. When cheques,

apparently drawn by the customers, are presented to the banker for payment, he must ensure that

the customers signature is not forged or that the customer has not otherwise stopped or deferred

payment, for example, through a countermand.

The duty not to pay out the customer’s money without due authority, is an implied one.

In this wise, the banker may not lawfully pay a cheque which has been validly countermanded

before the time of presentment and payment. For a countermand to be effective, it must not only

be brought to the notice of the banker but its terms must also not be ambiguous71

70
14 CB 595 or 139 ER at pg 245.
71
Curtis v. London City & Midland Bank Ltd (1908) 1 KB 293

44
 Only the drawer has the authority to countermand payment. In the case of joint accounts

or the accounts of trustees, partners, executors etc anyone of the signatories may countermand

payment. If a cheque is drawn by a company and the signatories are not immediately available,

the company secretary may give instruction for the countermand of payment. An attempt by the

payees of the cheque to stop payment to cheque when stolen or misplaced is usually not

acceptable to the banker; the proper procedure is for many payees to notify the drawer who

would in turn instruct the banker not to pay the cheque on presentment. However, in practice,

banks in Nigeria give recognition to a stop order given by a payee especially when the drawer

cannot be contacted.

Every payment by the bank to the customer and a third party must be authorized by the

customer except such a payment is countermanded. In Nwandu V Barclay Bank D.C.O72 the

plaintiff had effectively countermanded a cheque before it was presented for payment. The bank

still went ahead and paid on it. The plaintiff then sued the bank. It was held inter alia that the

defendant bank was liable for wrong fully debiting the Plaintiff’s account despite the fact that the

payment had been countermanded. It must be noted that before a bank could rely on a notice of

countermand, it must have been in writing and expressed in clear and unambiguous words 73. In

Bank of the North v Lake Chad Research Institute 74, it was held that a document in cheque form

to which the customers name as drawer is forged or placed, without authority, is not a cheque but

a mere nullity, and unless the banker can establish adoption or estoppels, he cannot debit the

customer with any payment made on it.

72
(1962) 6 ENLR 191
73
Section 75 of The Bills of Exchange Act Cap 35 Laws of The Federation 1990

74

45
 It held further that by virtue of Section 24 of the Bills of Exchange Act, where a signature

on a bill is forged, the unauthorized forged signature is totally inoperative and that Section 24 of

the Bills of Exchange act lays down the principle of law that a bank who honours a document

purporting to be a cheque but on which the customers signature as drawer has been forged is not

entitled, in the absence of estoppel to debit his customer with the money that he has paid away.

Thus, the banker must exercise diligent care in paying cheques drawn on him, to ensure

as best as he can, that the signature is genuine and put on the cheque with the authority of the

customer. However, inUnited Bank of Africa Limited V. Savannah bank of Nigeria Limited 75 it

was held, inter alia, that it is not correct to say that as between a banker and his customer, a

banker is under a duty to know his customers signature.

As it was painted out earlier, the duty of the; banker to pay cheques and other withdrawal

authorities of the customer is determined by a countermand of payment by the customer. To be a

valid countermand, the stop order must be brought to the actual notice of the banker, since

constructive notice is not known in mercantile matters. Its terms must not be ambiguous and it

must give detailed particulars of the cheque. This will include the cheque number, the amount

and the name of the payee.

In Westminster Bank Limited v. Hilton,76 the plaintiff, seeking to stop payment of a post-

dated cheque number 117285, ordered the bank to stop payment of cheque number 117283,

giving the payee and the mount of cheque number 117285. In fact, the bank had earlier paid

cheque number 117283 which the customer issued to another payee, and for another sum.

Cheque number 117285 was eventually presented, the supposing that it had been drawn in place

75
(1979) 10-12 C.C.H.C.J
76
(1926) 135 LT 358

46
of the one stopped, ostensibly numbered 117283, paid the cheque. The plaintiff sued of

negligence and lost. On final appeal to the House of Lords, it was held that, as the one certain

item of identification was the number of the cheque, the bank was not liable for negligence 77.

The stop order must be directed to the branch at which the account is kept and not to another

branch of the bank. If the countermand was initially made by telephone, it must be followed by a

written order. The countermand must be brought to the banker’s notice before payment on the

cheque is made, for it to be stopped. In case there is a need to remove or withdraw stop order,

such instructions must be signed by all the authorized signatories. If a bank carelessly pays a

stopped cheque, it cannot debit the customer’s account.

(iii) Duty to inform the Customer about cheques suspected to be forged ‘where the banker

rejects or dishonours a cheque on the suspicion that it is forged.’

There is a duty on the banker to inform the customer of such circumstances. In

Greenwood v. Martins Bank Limited78Scrutton, L.J., expressed the rationale for this thus:

“It seems to me that the banker, if a cheque was presented to him

which he rejected as forged; would be under a duty to report this

to the customer to enable him inquire into and protect himself

against the circumstances of the forgery”

It is surprising then that a court would readily lend its protection to a banker who rejects a

cheque which he reasonably suspected to be a forgery. In Babalola v. Union Bank of Nigeria

Limited,79 the plaintiff issued 3 cheques that were dishonoured by the defendant on the basis that

77
See generally Curtice v. London city & midland Bank (1908) 1 k.b. 293
78
(1932) 1KB 371
79
(1980) N.C.L.R. 201

47
the signatures on them differed from the plaintiff’s specimen signature on the mandate. It was

held that the bank was justified in refusing to honour the cheques pending further investigations,

since there was an obvious disparity between the signature on the cheques and the specimen

signature. It held further that even if the disparity had not been obvious, the bank would still be

justified for its actions if it had an honest doubt as to the authenticity of the signature.

(iv) Duty of secrecy

This duty is also referred to as duty of non-disclosure. The banker has an implied duty to

maintain secrecy in respect of the customer account. It is an implied term of the contract between

a banker and his customer that the bankers will not divulge to any person the state of the

customer account, not even the customer spouse.

The duty evolved from the case of Tournier V National Provincial Board Union Bank of

England80. In that case the plaintiff’s account with the defendant has been continually overdrawn

and he under took to pay off the overdraft in installments. When he failed to meet the schedule,

the bank manager obtained his personal address through his employees

In the course of their discussion, the bank manager disclosed that the plaintiffs account

was over drawn and that the miming of the account indicated that the plaintiff was betting

heavily and dealing with bookmakers. As a result of this information, the plaintiff’s employer

refused to renew the plaintiff employment agreement the plaintiff sued the bank inter for breach

of duly not to disclose to third party the state of his account or any transactions concerning the

account

80
(1924) 1 KB 461

48
 The court of appeal held that there is an implied term of a bankers contract with its

customer that the banker shall not disclose any information relating to the customer’s account or

transaction concerning the account. It was also stated by the court in this case that this duty

extends to period when the account of the customers is closed or cease to be an active account

but it does not extend to information obtained after he had ceased to be a customer.

However the duty of secrecy is subject to certain qualification. This was stated by Lord

Bankers L.J when he stated thus----

‘The duty is not absolute but qualified led, it is not possible to

frame any exhaustive definition of the duty--- on principle I think

that the quantization can be classified under 4 heads, (a,) where

disclosure is under compulsion of law (b) where there is a duty to

public to disclose (c) where the interest of the bank requires

disclosure (d) where the disclosure is made by the express or

implied consent of the customer’.81

The qualifications shall now be discussed in detail.

(a) Compulsion by Law: A bank may be compelled by law disclose the state of its customer

account in a legal proceeding82.The disclosure may be based in a statutory obligation or any

directive issued by the regulatory agencies of the industry.

(b) Disclosure under duty to the public: What amount to public duty was summed up by Lord

Funlay in Weld-Blundell v. Stephen83 as situations where duty to the State or public supersedes
81
Tournier V National Provincial Board Union Bank of England supra
82
Bucknell v. Bucknell (1969) 1 WLR 1204
83
(1920) AC 956, 965. 75

49
the duty of agent to his principal. For instance, where the bankers is aware that the customer is

using the account with the bank for purposes detrimental to public good or the society as a

whole.

(c) Disclosure under bank interest: The disclosure may be made for the protection of the banker s

own interest. Where a customer is indebted to the bank and if despite persistent pressure, the

customer fails to repay, bank may be compelled under the circumstance of the situation to

divulge the customer’s information to a third party. In Sutherland V Barclays bank Ltd.84the

customer a woman issued a cheque to her dressmaker. The bank dishonoured it ‘as there were

insufficient funds in the account. The customer protested about the dishonour to her husband,

and he told her to take the matter up with the bank. She did so by telephone and after a while, the

husband interrupted the conversation to add his own protest. The bank then disclosed to him that

there were insufficient funds in the wife’s account.

The wife brought an action against the bank. The court held that from the circumstances of the

case, it was in the interest of the bank to disclose the state of the customer account.

(d) Authorized Disclosure: A banker may disclose the state of the customer is account where he

is authorized to do so by the customers either expressly or impliedly. The consent of the

customer may be implied when for example the customers refers to the name of his bank in the

context of a business transaction or enquiry.

The consent may be issued expressly when the customer writes a letter directing the bank to

disclose all relevant information sought by a third party with regard to a relevant issue.

84(
1938) TIMES NOV. 25

50
(v) Duty to receive money, cheques and credit into the customers account.

There is an unwritten but implied duty on the part of the banker to receive money,

cheques and other instrument for collection from or on behalf of the customer. The bank is

deemed to have discharge this responsibility only when the cheque or other instrument of

payment is physically delivered to the branch of the bank. When the bank collects cheques and

other instrument for a customer, the Banker acts essentially as a mere agent or conduct pipe to

receive money for the customer

In Aeroflot Soviet Airlines v. United Bank of Africa Limited 85the customers paid a sum of

money into a branch of the bank through a cashier of the bank who sampled and initialed the

teller. The money was not reflected in he customer’s statement of account, and indeed, the bank

denied ever receiving it. It contended that the stamp listed on the teller had been reported

missing. The Supreme Court held that payment of money into an account can be established

either by the oral evidence of the man who actually paid the money or by producing a receipt

from the bank showing on the face of it that it received the payments.

It held further, that a teller duly started with the bank’s stamp and initialed, constitutes

prima facie proof of payment valid that a customer, after producing such receipt, need not go

further to show that it was in fact an official of the bank who actually stamped and initialed the

teller, and that he had authority of the bank to do so. This same ratio was re-emphasized by the

Supreme Court in Ishola v. SocieteGenerale Bank (Nigeria) Limited86

Also, the banker may act as a collecting banker for the customer, by receiving cheçues,

bills, etc., on his behalf the proceeds of which would be collected from another bank — the

85
(1986) 2 N.W.L.R. (Pt. 27) 188
86
(1997) 2 N.W.L.R. (Pt. 488) 405

51
paying banker and then credited into the customer’s account. The banker thereby acts as agent of

the customer. According to the Supreme Court, in Bank of the North Limited v. Yau 87, the

collecting bank is an agent for the customer for the purpose of receiving payment of the cheques

from the banker on whom they are drawn.

In First Bank of Nigeria Limited v. African Petroleum Limited, supra the Court held that

the law is settled that in collecting cheques for a customer, a banker acts basically as a mere

agent and conduit pipe to receive payment of cheques from the bank on whom they are drawn

and to hold the proceeds at the disposal of his customer.

(vi) Duty to render statement of account

The banker has an implied duty to render statement of account to the customer

periodically or upon request and more importantly, to keep such as accurate as possible. The

nature of the customer account will determine how the notice is communicated to him.

Where the banker mistakenly over credited the account of his customer, the money is the account

of his customer, the money is in irrecoverable if the customer had acted in good faith and placed

reliance on such money and thereby alter his position.

In Holland v Manchester & Liverpool District Banking Co 88the plaintiff examine his

passbook on Sept. 21, 1907 and it showed a credit balance of 70 pounds, 17 shillings and 9

pence, where upon he issued a cheque for 67 pounds, 11 shillings in payment of a trade debt to a

company. This cheque was dishonored because prior to its presentation, the bank discovered that

an item for 10 pounds, 11 shillings had been entered twice in error in the passbook. As a result of

the dishonour, the company declined further credit to the plaintiff and the fact when it became
87
supra
88
(1909) 25 TLR 386

52
known made other creditors to refuse him credit. Damages were assessed at 100 pounds in

favour of the plaintiff. It was held that although the bank was entitled to have the wrong entry

ultimately adjusted, the plaintiff, not being negligent or fraudulent was entitled until the

correction was made to act upon the banks statement in the passbook.

The court stated further that the passbook was prima facie evidence against the bank of

the amount standing to the credit of a customer upon which that customer, in the absence of

negligence or fraud on his part was entitled to rely. If a customer is aware that a wrong credit

shown in his passbook or statement does not relate to his account, he cannot withdraw the money

and plead that he was medaled by the banker.

Therefore, a customer cannot contend that he had been misled by an entry when in actual fact, he

has not seen the passbook. Such entries will not bind the banker until they had communicated to

the customer.

In British & North European Bank v. Zalstew 89a fictitious entry increasing the credit

balance of a customer’s account was made by a member of staff of the bank with a view to

concealing facts from the banks auditor. Meanwhile the customer had not seen the entry but later

sought to rely on it. It was held that the entries were book entries merely and that the defendant

was not entitled to claim the benefit of the credit.

In relation to a bank customer who is a business man, he is presumed to keep books of

account at all times. It would therefore be more difficult for such a customer to prove that he had

acted on the wrong credit especially if it was for a substantial amount over credited.

(vii) Duty to keep separate accounts

89
(1992) 45 TLR 386

53
 Where the customer maintains two or more accounts with the banker, there is an implied

duty on the latter to keep them separate unless there is an agreement or arrangement whether

express or implied to the contrary. For example where a customer maintain a current account and

a loan account at the same branch of a bank, the banker is not entitled to merge the two accounts

so as to use the money in one to satisfy the debit in the other.

In Ogundeji v. International Bank for West Africa 90 the court of appeal held that a bank

has no right to transfer money, be it asserts or liabilities, from one account to the other, without

prior notice to and asset of the customer, since the very basis of its agreement with the customer

is that the two accounts shall be kept separate 91. In Akubueze’s. it was held, inter alia, that where

a customer opens two accounts with a banker, one in the customers own name and the other in a

business name, there is, in the absence of any express agreement to the contrary, an implied

agreement that the accounts are to be kept distinct and separate. In Ogundeji v International

Bank for West Africa it was held, inter alia, that a bank is not entitled in law to appropriate any

sum paid into the bank by the director of a company in his personal capacity for a purpose not

connected with the company, to offset the liability of the company to the bank.

In British & French Bank Ltd. v Opaleye92, the respondent had two accounts with the

appellant bank, one in his own name and the other a business account. The private account was

in credit of 2 pounds and the business account was overdrawn to the tune of 500 pounds when a

cheque for 350 pounds was paid into the private account. The bank without notice to our consent

90
(1993) 2 N.W.L.R (pt. 278) 690
91
See also Adejunwon v. Coperative Bank Ltd, (1992) 3 .N.W.L.R. (Pt. 228) 251

92
(1962) 1 ALL NLR 26

54
of the respondent proceeded to utilise the credit of the private account to reduce the overdraft of

the business account and told the respondent he could draw on his private account.

The respondent sued the appellant bank and got judgement, on appeal to the supreme court, it

was held that

1. In the absence of an express agreement, an agreement regulating the relationship of

banker and customer is implied from the course of business between them.

2. There is an implied agreement to keep multiple account of a customer distinct and

separate from each other in the absence of an agreement to the contrary

3. If a banker agrees with a customer impliedly or expressly to open multiple accounts,

all the accounts must be kept separate and the banker without the assent of its

customer has no right to move the assets or liabilities from one account to another.

It has also been held that a banker has no right to combine or transfer assets of an account

opened in the person’s personal name with another opened in his business name unless the

consent of the customer had been obtained.

(viii) Duty to exercise a duty of care and professional skill in his dealings and relationship

with his customer.

The law expects a bank to exercise a duty of care and professional skills in his dealings

and relationship with his customer. There services many sometimes extend beyond that of

55
normal banking business e.g. the rendering of financial or investment advice, the giving of

references to customers and the keeping of customer valuable.

In executing these services, the law sets and expects from a banker a reasonable standard of care

in the conduct and performance of his activity. Where there is a short fall from this standard in

the course of executing a service the tort of negligence becomes relevant.

Thus a banker owes his customer a further duty to carry out his function or services with

a reasonable standard of professional care and skill. If the banker is found carelessly in dealing

with the affairs of his customers, he is liable for breach of his contractual duty. Thus, in Akwara

v IBWA Ltd93,the court of appeal awarded the customer 4.5 million Naira as damages for

negligence misstatement on a sum of 21,717.48 naira lodged with the bank.

4.1.2 Duties Of A Customer To His Banker

(I) Duty Not to Facilitate Forged Cheques

The first obligation a customer owes his banker is to take proper care of the cheque book

issued to him by his banker. The customer has an implied duty in law to exercise reasonable care

93
(2000) FWLR part 11, 1766.

56
in order to prevent forgery. Lord Atkin in Joachimson v. Swiss Bank Corporation94 stated inter

alia that

“…the customer on his own part undertakes to exercise

reasonable care in executing his written order so as not to

mislead the bank or facilitate forgery”

In London Joint Stock Bank Ltd v. Macmillan &Arther 95; Macmillan &Arhter were a firm

of stockbrokers and were customers to the plaintiff. A confidential clerk, who had a duty to

prepare cheques for signature, drew a cheque payable to the firm leaving a blank in the space for

the word “of amount” and in the space of figures, the number “E 2.00” with a gap between the E

symbol and the 2 and between 2 and the first 0.

He obtained the signature of one of the partners to his instrument and then added the words E170

in writing and altered the 2 to read 120 by including 1&0 on the either side of the 2. He then

presented the cheque at the bank and recovered E120 over the counter. The bank consequently

debited the customers account.

Lord Finley while delivering the lead judgment and holding that the customer must bear

the loss stated that;

‘It is beyond dispute that the customer is bound to exercise

reasonable care in drawing the cheque to prevent the banker from

being misled. If he draws the cheque in a manner which facilitates

fraud, he is guilty of a breach of duty between himself and his

banker and he would be responsible to the banker for any loss

94
supra
95
(1918) AC 777

57
 sustained by the banker as a natural and direct consequence of

this breach of duty’.

where there is negligence on the part of the customer in relation to the drawing or keeping of his

cheque book or control over the same, the banker can use it as a defense to an action for

wrongful debiting by the customer/. but if the forgery occurred in the normal course of the

customers bank business and the customer had taken all reasonable care, the bankers shall be

liable.

(ii) Duty to Notify The Bank of Existence of Forged Cheque

There is a duty on the part of the customer to inform the bank of forgery. if a man knows

or has reasonable ground for believing that his name or signature has been forged on a bill or

cheque, he is bound with reasonable dispatch to warn the drawee bank of the fact. The customer

is bound to inform his banker without delay when he discovers that his cheques have been forged

and these were purported to have been signed by him. This duty is popularly referred to as THE

GREENWOOD DUTY.96

In Greenwood v Martins Banks97(1932) 1 KB 371 a wife forged her husband’s signature

to cheques which she cashed and the proceed of which she applied to her own use. when the

husband discovered the forgery, he did not at once inform the bank and more forgeries were

made. He later decided to tell the bank and the wife committed suicide. it was held that the bank

was not liable for the forgeries made to the knowledge of the plaintiff since the plaintiff had

breached his duty to inform the bank of the forgeries and that therefore he was estopped from

asserting that the signature to the cheques were forgeries.

96
Paget Law of Banking 10th ed. p.223
97

58
 However, in order to set up an estoppel, it must be proved that the customer had

knowledge of the forgeries of his signature, and acted negligently by failure to inform his bank

promptly.

(iii) Duty to pay for services rendered by the banker.

There is an implied duty on the part of the customer to pay reasonable commission for the

services rendered to him by the banker. The commission payable are fixed by the bank within the

central bank’s guideline in bankers’ tariff.

Thus in Spencer v Wakerfield98 the plaintiff obtained an advance from the defendant

bank and was issued a passbook in when they enter yearly, charges and commission. the plaintiff

pays his money from time to time into his account and even acknowledge that the account was in

order. Two years later, after her had closed the account, he sued the bank to recover the

commission charged by the bank.

Even though there is no agreement between the banker and the customer, the payment of a

commission can be implied based on the principle that where a person asks the other to perform

services to him which of a professional nature, the law implies a promise by the first party to pay

a reasonable sum for the services rendered to him by the other.

(iv) Duty to repay loan and other facilities

The customer has a duty to repay the principal sum and interest accruing on the loan he

obtains from the banker. The payment must be made at the time agreed by both parties, unless

the bank shall exercise his right of lien on any form of security provided by the customer for a

98
(1887) 4 TLR 194

59
reasonable period of time. the customer also has an implied duty to repay an overdraft facility

granted by his banker on a demand.

4.2 RIGHTS OF A BANKER AND CUSTOMER

4.2.1 RIGHTS OF A BANKER

i. Right of lien

A lien is the right of a creditor in possession of goods, securities or any other assets

belonging to the debtor to retain them until the debt is repaid, provided that there is no contract

express or implied, to the contrary. It is a right to retain possession of specific goods or securities

or other movables of which the ownership vests in some other person and the possession can be

retained till the owner discharges the debt or obligation to the possessor. It is a legal claim by

60
one person on the property of another as security for payment of a debt. A legal claim or

attachment against property as security (right) for payment of an obligation.

In Halsbury’s Laws of England ,it is stated:

"Lien is ,in its primary sense ,a right in one man to retain that

which is in his possession belonging to another until certain

demands of the person in possession are satisfied. In its primary

sense, it is given by law and not by contract."

The nature and character to a banker’s lien was succinctly explored by Umezinwa J. in Co-

operative Bank of Eastern Nigeria Limited v. Maria Eke99thus:

‘A lien is the right to retain property belonging to a debtor until he

has discharged a debt due to the retainer of the property. A lien

may be either particular or general lien. A particular lien arises

from the particular transaction connected with the property

subject to the lien; a general lien arises not only out of the

particular transaction but also out of the general dealing between

the two parties in respect of other transactions of a similar

character. Bankers’ lien is a general lien and covers all securities

deposited with them as bankers by a customer, unless there be an

express contract, circumstances that show an implied contract

inconsistent with lien. A general lien does not derive from the

common law. It has arisen from judicial decisions recognizing the

99
(1979) 2. F.N.L.R

61
 usuage of trade. It usually arises, not only from special agreement,

but out of the business relations between the parties; a general

lien, nevertheless may be created by special arrangement.’

Thus, a lien can be said to be the right of a person holding a property, which belongs to

another to hold on to that property until the owner has fulfilled certain obligations or paid off

specified debts to the holder. A banker has lien on all securities and valuables of his customer,

which come into his hands in his capacity as banker in the ordinary course of business 100. The

general lien on the banker is regarded as something more than an ordinary lien; it is an implied

pledge, the banker is entitled to the exclusive possession of the property until the debt is repaid.

This right coupled with rights under the Negotiable Instruments Act, 1881 permits bills, notes

and cheques, of the banker, being regarded as a holder for value to the extent of the sum in

respect of which the lien exists can realize them when due; but in the case of the other negotiable

instruments e.g. bearer bonds, coupons, and share warrants to bearer, coming into the banker’s

hands and thus becoming liable to the lien, the character of a pledge enables the banker to sell

them on default, if a time is fixed for the payment of the advance ,or, where no time is fixed

,after request for repayment and reasonable notice of intention to sell and apply the proceeds in

liquidation of the amount due to him .The right of sale extends to all properties and securities

belonging to a customer in the hands of a banker ,except title deeds of immovable property

which obviously cannot be sold.

100
Currie v. Misa (1867) App. Cas.554(H.L.)

62
 In Delalu v. Akpappo&Anor101,the court held inter alia that though bankers have a general

lien upon a customer’s securities deposited with them, to secure an overdraft, this lien does not

attach to securities deposited by a customer and known to the bank to belong to another and to

have been deposited for a special purpose.

It is now well settled that the bankers lien confers upon a banker the right to retain the

security, in respect of general balance account. The term general balance refers to all sums

presently due and payable by the customer, whether on loan or overdraft or other credit

facility102. In other words, the lien extends to all forms of securities deposited ,which are not

specifically entrusted or to be appropriated.

ii. Right Of Sett-off

The right of set off is also known as the right of combination of accounts .A bank has a

right to set off a debt owing to a customer against a debt due from him.

A legal set-off is where there are mutual debts between the plaintiff and defendant, or if either

party sue or be sued as executor or administrator one debt may be set against the other 103. From a

commercial standpoint, a right of set-off is a form of security (right) for a lender. It is an

attractive security because its realization does not involve the sale of an asset to a third party.

A set-off must be in the form of a cross claim for a liquidated amount and it can be

pleaded only in respect of a liquidated claim. Both the claim and the set-off must be mutual

debts, due from and to the same parties, under the same right A claim by a person in a

representative capacity cannot be set off against a personal claim. Even a claim against the estate

101
(1967) 1 A.N.L.R (comm.) 201
102
Re European Bank (1872) 8 Ch App 41
103
S.13 Insolvent Debtors Relied Act 1728

63
of a deceased customer cannot be set off against a debt, which was due to the customer from his

banker, during the former’s lifetime, whether the accounts are with one or more offices of the

banker, it does not materially affect the position in any way.

As a general rule, a banker has the right of set-off against his customers in appropriate

circumstances. This right arises where the customer maintains two or more accounts with the

banker, one which is in credit, with the other in debit. In the exercise of this right, the banker, in

effect, combines two or more accounts of the customer and uses the credit in one to offset the

deficit in another account. It does not matter that the accounts are at different branches of the

bank. In Garnett v. Mckwan104, a customer drew cheques against his credit balance at one branch

of a bank. At another branch, he was indebted to an account almost as great as the credit balance

at the first branch, and the bank, without notice to him, combined the balances and dishonoured

his cheques. It was held that the bank was entitled to do so.

However, the right of the banker may be circumscribed by the agreement, earmarking (as

indicative of a trust), course of business or the like, indicating an obligation to keep the accounts

separate. In Halesowen Presswork & Assemblies Limited v. Westminister Bank Limited 105. Lord

Denning opined that a banker is entitled to combine two accounts unless there is an agreement to

keep them separate.

Where the banker rightly exercises his right of set-off and thus combines two or more

accounts of his customer, he may do so without giving any notice of his intention to the customer

. Kelly C.B. in Garret v. Mckewan106 supports this proposition thus:

104
(1872)L.R.8 Ex 10
105
(1971) 1 Q.B.1
106
(1872) LR 8 EX 10.7

64
 “In general it might be proper or considerate to give notice

to that effect, but there is no legal obligation on the

bankers to do so, arising either from express contract or

the course of dealing between the parties.”

The bankers’ right of setoff usually crystalizes in the following circumstances; instances of

death, bankruptcy and mental incapacity of the customer, on the bankruptcy of a firm or when a

company is put into liquidation, on the receipt of a garnishee order.

iii. Right To Charge Interest On Lending Rates

The banker is entitled to charge interest on loans and overdrafts made out to the

customer, as an incident of their relationship. The major aim of entering into a business

transaction is profit making. The banker being a businessman therefore is desirous to make

profit, hence the charging of interest. The banker has the right to charge reasonable interest on

credit facilities granted to the customers and reasonable commission for some other services

rendered.(it shall be the duty of the bank to display at its office its lending and deposit interest

rates payable by and to the customer. The amount to be charged as interest may be fixed or as

agreed upon by the parties. In the absence of any prior agreement, the rate of interest to be

charged may be calculated according to the practice and custom among bankers but this is

unconditional upon the ability of the bank to establish beyond doubts the existence of such a

custom. For example in the case of Missiri v.bank of Nigeria Ltd107 the court held that when a

bank, trying to justify the modification of the rate of interest charged on an overdraft, alleges that

there was no specific agreement as to the rate, the burden is on the bank to prove; the allegation,

that the customer agreed to the modification or that there is a custom to this effect. This serves
107
(1967) 1 ALR Comm. 427

65
the purpose of discouraging bankers from unilaterally varying the rate of interest to the

disadvantage of the customer.

Where there is a fixed rate of interest on abank overdraft, receipt of the statement of

account by the borrower without protest is deemed to be an acceptance of the fixed rate.108

iv. Right To Demand For Payment of Cheques

The banker has the right to refuse payment on anycheque or other payment order not

properly drawn to refuse payment if there is any legal bar towards payment whether or not the

customer is aware. The legal bar may be as aresult of the freezing of the customers bank account

on instruction from the presidency or any other presidential delegate.109

4.2.2 RIGHTS OF A CUSTOMER

(i) Right to Draw Cheques

Arguably, the most important right a customer of a bank has once an account is opened

for him in a bank is the right to draw on such account. The only caveat to this right is that there

must be sufficient funds in the account to cover the amount he ordered to be paid.It is an implied

term of the Banker and Customer relationship that a customer shall have the right to draw

cheques up to the amount of any credit balance on his account110

A cheque is a bill of exchange drawn on a banker payable on demand 111. It follows

therefore that the bankers is under a duty to pay the customer his money on demand by the use of

108
Nwonye and sons Ltd v. Cooperative & Commercial Bank Nigeria Plc (1993) 8 NWLR part 310. P.210
109
section 1 Banking (Freezing of Account) cap 29 L.F.N. 1990
110
Joachmison v. Swiss Bank CorporationOp cit.pg 37
111
section 73 bills of exchange act cap 35 volume II L.F.N 1990

66
a cheques provided that there is sufficient funds or credit standing to his account. Refusal to pay

money drawn out of an account that has enough funds at least to cover the sum demanded,

affords the customer a right of action against his banker, and where judgement is found for the

banker, the bank bears the wrath of the law.

(ii) Right to Repayment

As noted earlier, the banker customer relationship has been linked to a debtor and

creditor relationship whereby the banker promises to repay the customer sum equivalent to that

paid into his hand by the customer.

It is an implied term of the contract that a customer has a right to be repaid his money deposited

with his banker on demand. As a result of an implied undertaking by the banker to repay the

customer all or part of such deposits, the banker is a creditor for the amount deposited. If a valid

repayment demand of the customer is not met by the banker, the customer may bring an action

against it for breach of contract.

(iii)

Right to Demand For Statement of Account

A customer has the right to ask for a statement of his account kept with his banker. This

right accrues to the customer as aresult of the duty of the banker torender statement of accounts

to customers periodically and upon demand for the customer.

The statement must show in great details and precise terms all entries whether credit or debit

made in the account of the customer for the period covered by the statement.

67
4.3 The Relationship Between a Banker and a Third Party

In some cases where a person who is not a party to the contract subsisting between a

banker and his customer suffers an infringement of his own personal rights by the banker, he

may have a remedy of common law for any damage occasioned by such infringement of his

personal rights. The rationale behind this can be explained by the maxim ubijus, ubi remedium

meaning where there is a right there is a remedy.

First, where a banker negligently gives a status report or confidential opinion banker’s

reference to a customer of another bank knowing fully well that such customer of another bank

wishes to place some reliance on said status report, confidential opinion or banker’s reference,

and damages to ultimately occur to the customer of another bank which places reliance on the

advice, the banker will be liable to compensate the customer of another bank for any economic

loss he might have suffered. This rule of law was laid down in the famous case of Hedley Byrne

& Co. Ltd. v. Heller& Partners112where the court held that where a banker replies t a credit

inquiry, it may be liable for negligence unless he includes an express disclaimer in the

recommendation. This he may do by simply entering a sans recourse.

Second, a bank could be open to liability to a noncustomer where he acts negligently as a

collecting banker, for example, in the case of Agbonmagbe Bank Ltd. V. C. F. A. O113 a customer

of the respondent gave them a number of cheque drawn on the appellant bank in settlement of

her account with them. The cheques were sent to the appellant bank by the respondent bank for

clearance. They were not cleared and a notice of dishonor was not given within reasonable time.

The respondent bank thinking that the cheque had been cleared continued to grant credit to the

112
(1964) A.C. 465
113
(1966) 1 ANLR p.40

68
customer who issued those cheques. Two months later, the cheques were all returned as

dishonored. The respondent obtained judgment against their customer for the full amount owed

to them but they were only able to recover a small portion of it. They then sued the appellants to

recover the balance contending that they had suffered loss by reason of the appellant’s

negligence in not sending prompt notice of dishonor of the cheques. The appellants contended

they owed no duty of care to the respondents. The supreme court rejected the appellant’s claim

and held that a person must take resonate care to avid acts or omissions reasonably foreseeable

(by his) as being capable of causing injury to persons so closely and directly affected by such

acts or omissions that he ought to have them in contemplation. It was further held that bankers

may in certain cases be liable to persons who are not their customer for negligence which causes

them pecuniary damage. The appellants were thus held liable to the respondents.

Third, a banker any also be held liable for the financial loss suffered by a prospective

customer if such a loss is derived out of the banker’s negligence. In Woods v. Martins Bank

Ltd114a bank was held liable for the financial loss suffer3ed by a person who relying on the

advice given to him by the bank’s manager regardless of the fact that he was not yet a customer

of that bank i.e. he had not opened is paid in to a bank without the bank assuring itself of the

person’s reputation and respectability, such a bank who so negligently acts may be liable to the

owner of the stolen cheque even when he is not his customer115

4.4 Legal Relationship of Banker and Customer under Accounts and Instruments

114
(1959) 1 QBD 55.
115
Ladbroke v. Todd(1914) 30 TLR 433 Nigerian Breweries O. Ltd. v. Muslim Bank of West Africa Ltd(1963) LLR

69
 As we have already seen, one of the basic conditions for the existence of a banker-

customer relationship is the opening and maintenance of an account in a bank. There are various

types of accounts which a customer can open in a bank.

Before an account is opened for any customer, the bank must obtain a reference

preferably in most instance form old customer of the bank guaranteeing the standing and general

uprightness of the person who intend to have a account opened in his name. a minor, a married

person, a trustee, an executor or administrator, and incorporated body, a limited liability

company, a government, a government department or a local authority are all capable of opening

an account in a bank provided they satisfy the banking rules and regulations guiding the type of

account they desire to open. With the opening of an account, they become a customer of the

bank.

As stated above, the first duty a banker has to do is to demand for proper

identification of the intending customer and also, he must obtain proper introduction or reference

about the prospective customer. The rationale behind this legal requirement is in two folds. It is

intended to protect both the banker himself and any member f the general public who might enter

into negotiations with the customer on the existence of the account.

This view has been recognized and enforced by courts. For example, Lord Wright shed

more light on this when he said

‘It is now recognized to be the usual practice of bankers not to

open an account for a customer’s standing, a failure to do so at

the opening of an account might well prevent the banker from

establishing his defence under. S.82 Bill or Exchange Act (1882) if

70
 a cheque were converted subsequently in the history of the

account…’116

In United Insurance Co. v. Muslim Bank,117 the defendant bank neglected to make

enquires about the prospective customer’s identify or character before opening a saving account

for him. The bank later collected a cheque on behalf of the customer. The bank was held to have

been negligent for failing to obtain satisfactory references before opening the savings account for

failing to observe the standard expected of a reasonable banker.

In pursuance of this, such prospective customer should make a formal application to

open an account which should be properly referenced by the required number of existing

customers or those of other banks. There is usually a standard form of application which each

bank supplies to its prospective customers. The customer’s full names, address and occupation

should be supplied in the application form. These should be supplied in the application form.

These should if and when the account is opened be written boldly above his or her account in the

appropriate ledger. It is advisable also t include particulars of other accounts maintained in other

branches or banks and also all the other persons with authority to operate the account. A

specimen of the customer’s signature together with those of other persons authorized to sign on

the account should be kept in the bank’s signature book or card.

These steps are safeguards in the case of bank or branch where manual accounting

system is in use. Where computer system is in operation, a proper card system suitable for the

types of computer employed is essential.

116
See the case of Lloyds Bank v. Savory & Co.(1933) A.C. 201. This case has been approved and applied by the
Supreme Court in United Insurance Co. v. Muslim Bank (1972) 4. S.C. 69. Note that S.82(mentioned in the above
quotation) of the English Bill of Exchange Act 1882 has been replaced by S.2 of the Nigerian Bill of Exchange Act
1964.
117
(1972) 2 ANLR 89 at 93

71
 If the prospective customer is a limited company, it is the normal banking practices to take up

references of the directors of the company. The production of the certificate of incorporation

4.4.1 Cheque

 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 bearer118

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 Act 119 defines a cheque as a bill of

exchange drawn on a banker and payable ondemand120

Except it is otherwise specifically provided, the provision of the Act relating to bill of exchange

payable on demand apply to cheques121.

4.4.2 Bill of Exchange

Section 3(1) of the Bill of Exchange Act defines bill of Exchange asan unconditional

order in writing addressed by one person to another, signedby the person giving it requiring the

118
Lord Chorley and Smart (1974) Law of Banking, 6thEdition, p.44
119
Cap. 35 L.F.N. 1990
120
See the case of Carara Marble Company Ltd. V. Bolado Ltd (1972) 2 ANLR 89 at 93
121
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 infavour
of the written word „cash‟ See also Bavins v. London and South Western Bank (1900) 1 Q.B. 270.

72
person giving it requiring the person towhom it is addressed to pay on command or at a fixed or

determinable futureand time, a sum certain in money to or to the order of a specified person orto

the bearer. A cheque is a type of a bill of Exchange, but does not in its entirety equal to a bill of

Exchange122

4.4.3 Promissory Notes

Section 83(1) of the Bills of Exchange Act 1917 defines a promissory note as an

unconditional promise in writing made by one person to another signed by the maker, engaging

to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the

order of a specified person or to bearer.

A promissory note shares almost all the constituent elements of a bill of exchange. The

major features of a promissory note is that it makes for the deferment of money owed and due to

a favourable time while at the same time it serves as a guarantee of payment to the person owed.

A promissory note like other forms of bills of exchange can be endorsed to another person and as

such, the holder is not deprived of the opportunity of spending. Promissory note is lighter and

122
Okany M.C. (2001) Africana-fep publishers Limited at p.414.

73
less cumbersome to carry than large sums of money which could be unsafe to carry about by a

person.

CHAPTER FIVE

Termination of Banker Customer Relationship

Like all other forms of relationships, the type of relationship existing between a banker

and a customer can be terminated by either of the two parties (subject to prior arrangement if

need be) at any point in time. In theory, the relationship between banker and customer may like

any other contractual relationship be terminated by mutual agreement. In practice, however, it is

nearly always the one party or the other who wishes to put an end to the relationship, and so the

contract is usually terminated unilaterally.Although the bank has the legal obligation to give

74
sufficient notice before it can terminate its relationship with the customer, there does not appear

to be a corresponding duty on the part of the customer.

The major effect of the termination of the relationship between a customer and his banker

is that the banker is discharged from his duty to pay when ordered to do so by his customer. In

addition to this, every incidence or aspect of the relationship as had been analysed earlier in this

work is summarily terminated either temporarily or permanently depending on the circumstances

of each case.

The various ways in which the contract between banker and customer may be terminated, shall

be discussed hereunder.

5.1 Mental Incapacity or Death of Customer

If somebody is so mentally deranged that he does not appear to know what he is doing it

will not be equitable to allow him to continue to conduct his affairs, as a fraudulent person who

is aware of his state of mind may take advantage of the incapacity and bring him into unfair

contract. Likewise, such a customer lacks the capacity to continue in the banker customer

relationship based on the ground that the validity of every contract is based on the presumption

that either of the parties have the capacity to enter into the contract.123

123
Catherine Elliot and Frances Quinn (1999), Contract Law 2nd England: Addison Wesley Longman Singapore pg.50.

75
 The safest course of action is for the bank to secure a directive from the court that

following the state of health of the customer, a receiver has been appointed to take charge of his

assets. That in effect is a confirmation that the court is satisfied about the customer’s mental

incapacity and the person to be appointed will usually be a close relative who, in case of intestate

death, could be appointed an administrator. The bank will then from that time conduct the

account according to the receiver’s mandate.The bank may have notice of the customer’s mental

problem through confirmed sources like a duly authenticated medical report from a mental home

where the customer is detained.

The law being desirous of protecting the interests of an insane person stipulates that while

such a customer is still in the state of lunacy, his affairs should be conducted for him in a

Committee in Lunacy. The bank may then request a close relative to apply to the court for

appointment as a receiver, but as that may take time, a close relative, duly certified by the

medical officers in charge of the mental home as the person taking care of the customer, may be

allowed to withdraw from the customer’s account if in credit, to buy drugs, food and other

necessities.

However, the customer will take over the account once he is sufficiently well, and if he

dies in the mental home, the receiver will have to hand over to the deceased’s personal

representatives.

Actually, there are really no reported cases in which the effect of the customer’s death

upon the contractual relationship between banker and customer has been fully investigated,

therefore what obtains in practice shall be made use of.

76
 In a situation where the customer dies, the general rule of contract subject to some

exceptions, is that the rights and liabilities under a contract pass, on the death of a party to the

contract, to his personal representative. There are certain exceptions to the general rule; for

example, contracts of personal service (banking included) expire with the death of either of the

parties to them124. In d customer a banker customer relationship, death cancels all mandates and

authorities given by the dead customer as well as his rights and liabilities. Notwithstanding, the

account of the customer does not pass automatically to the personal representative as they must

open their own account as Executors or Administrators for the purpose of winding up the estate.

Immediately the bank is aware of the customer’s death, withdrawals on the account

must stop even if cheques presented have been signed by the customer before his death. Such

cheques must be returned marked ‘drawer deceased’. Notice of death may be brought by a

deceased’s relation but the bank will want to see the death certificate. Publication in reputable

newspapers may also be taken as evidence of death, though in all cases, the bank must duly

establish the credibility of its information. When the banker receives notice of the death of a

customer the account must be closed immediately until either a probate or letter of administration

is produced. However, subject to the confirmation of the survivors, a cheque signed by the

deceased but presented after his death, shall become payable.

The customer’s personal representatives can derive their title from either of two

sources:

(i) If the deceased leaves a valid will in which executors are appointed, his bank

balances and other assets are vested in the executors but the executors must obtain a

grant of probate of the will which is usually granted at the High Court Probate
124
Farrow v. Wilson (1869) L.R.4 C.P.744

77
 Registry as an official testimony to the validity of the will and confirmation of the

executor’s right to administer the estate.

(ii) However, if the customer dies intestate, that is, without leaving a valid will, or where

the will fails to mention any executor (and this is most unlikely) or the executors are

unable or unwilling to perform, the properties are vested in the Probate Registrar until

administrators are appointed. Some relations like the spouse, children, parent or

brothers and sisters of the deceased may apply to the Probate Registry for

appointment as administrators but no more than four persons may be appointed, and

once appointed, they take over the administration of the estate from the date of the

probate letter, creditors may be appointed administrators where the estate is insolvent.

5.2 Bankruptcy or Assignment

Generally, the fact that one of the parties to a contract becomes bankrupt does not of

itself determine the contract125. The right under a contract usually passes on the bankruptcy of a

party to the contract, to his trustee.

125
Re Sneezum, Ex parte Davis (1876) 3 ChD. 463.at 473.

78
 Since the intention of the Bankruptcy Act 126is to prevent the person against whom a receiving

order is made from handling his affairs by himself, the effect on the different relationship the

bankrupt has with the bank would be of great importance and unless the bank takes immediate

action to safeguard its interest, the trustee in bankruptcy may be in a position to take certain

actions against the bank which will inevitably lead to losses.

Despite the above, the impact of the law relating to bankruptcy upon the contractual

relationship between banker and customer is not as sudden and immediate as is the customer’s

death. A customer is alive one day and dead the next, whereas the legal process which leads, or

may lead, to a customer’s bankruptcy is a lengthy one.

When a bank receives an order from the court appointing subsequently a trustee to take

over the account of such a customer, the account, if in credit must be stopped immediately and

the balance remaining must be transferred to the receiver or the trustee. On the other hand, where

the account is overdrawn or in debt, it must be stopped as soon as the banker receives the notice

of an act of bankruptcy or on the presentation of such a petition. It must be noted however that

only debts incurred prior to the date of the receiving order and without such notices are

recoverable. As a result, the banker is generally protected even if he continues to pay cheques

darwn upon him by a customer until he learns that a bankruptcy petition has been presented

against his customer. The only caveat to this is that such payments must have been made before

the actual date on which the receiving order was made and the payment must either be pursuance

to the ordinary course of business or otherwise bonafide.

Assignment on the other hand indicates that the customer could assign the money in his

account to a third party. This has the effect of transferring his interest in the account to the
126
Cap 30, LFN 1990

79
assignor. After the assignment the relationship between the customer and his bank comes to an

end, while the relationship between the bank and the assignor comes into existence.

5.3 Garnishee Order or Closure of Account

Garnishee Order is a court order obtained at the instance of the judgment creditor

directing the money in the account of judgement debtor to be attached. By way of illustration, B

owes money to C. C obtains judgement against D in respect of the debt. B fails to pay the

judgement debt. B has a credit balance with his bank; C may obtain a garnishee order attaching

B’s credit balance at the bank. In this way, C will obtain payment of the judgement debt, either

in whole or in part as the case may be.

The order can only put the banker-customer relationship to an end if all the money in

the account is attached; but if not it could only suspend the bank’s duty to honour cheques drawn

by the customer. No matter what, if a customer’s account is attached by such an order, then the

bank is obliged to pay the judgement creditor.

The order may be limited or unlimited. It is said to be limited when it specifies the

amount to be attached with the costs such that the bank can know through the order, the amount

to be provided for should the customer’s balance exceed the sum of the amount claimed and

costs. The order is unlimited if no amount is specified in which case the bank must block the

entire balance until the court gives further directives.

The bank will, in case of unlimited order, be acting to its own peril if it accepts any

pressure from the customer for withdrawal of some money even if the customer is able to

provide a proof as to the amount of his indebtedness which led to the service of the order.

80
5.4 Winding Up

The termination of the banker-customer relationship could be either from the customer

(if a company customer) or the bank, in relation to winding-up.

When a company is wound-up, it ceases to have any legal existence and all its

contractual relationships come to an end. In such a situation, the winding-up of a company may

be likened to the death of an individual.

Winding-up, however is a procedure which may take months, or in complicated cases,

several years. It is during the intermediate period between the commencement of the winding-up

and the final dissolution that certain problem may arise. During that period, the company remains

in being, and any existing relationship of banker and customer will continue, there will come a

time when the control of the company and of its bank account will pass from the directors to the

liquidator. In such an event all the company’s contractual obligations will come to an end

including banker-customer relationship. Thereafter, no cheques drawn would be paid without the

consent of the liquidator and such cheques would be returned unpaid with the answer ‘refer to

drawer, resolution to win up passed’.

The winding-up of a bank will likewise put an end to the relationship between banker

and customer. In this instance, the onus lies heavily on a customer to prove to the satisfaction of

the liquidator or court that he had funds standing to his credit before he can be allowed to recover

the same.

However, in the case of Re Russian Commercial and Industrial Bank 127, where a bank

was incorporated in Russia, which also carried on business at an English branch, was dissolved

127
(1955) 1 Ch. 148

81
under Russian law in 1918; yet the English branch continued for a time to carry on banking

business. A petition for the compulsory winding-up of the bank in England was presented in

1922, and a compulsory order was made. A customer who at all material times had a credit

balance on current account of 36,430 roubles with the English branch, sought to prove in the

winding-up by convering the roubles into sterling at the exchange rate (360 roubles to 1 sterling)

current at the date of the dissolution of the bank in Russia on the ground that the debt became

due at that date. The English court held, however, that although in general the relationship of

banker-customer ceased and the debt became payable at that date, yet for purposes of the

distribution of assets among the creditors in a winding-up in England, he previous dissolution of

the bank in Russia had to be ignored.

Evidently, therefore, the winding-up of a bank may be ignored by the courts in certain

circumstances, in order for the banker-customer relationship to continue.

In addition, a Writ of Sequestration may end the banker-customer relationship. This writ

is usually used when a body of persons or group acts in a manner that could be interpreted to

mean contempt of court. A good example of such a situation is when a fine is levied on a trade

union and it is not paid and the party levying the fine issue a sequestration order 128. In the case of

a union had been fined 500 for failing to comply with an order of the industrial relations court.

the fine was not paid, and a writs of sequestration were issued. the sequestrators wrote to the

union’s Bankers, Midland Bank Limited and Will, Samuel and Company Limited, but the banks

refused to pay the balance of the union’s accounts to the sequestrators asked the industrial

relations court to make the appropriate order, and this was duly made. The bank eventually paid

the balance of the union’s accounts to the sequestrators.

128
Eckman and others v. Midland Bank Limited and Another (1973) ALL ER. 609.

82
5.5 Closure of Account

The relationship between a banker and a customer can be effectively brought terminated

when the customer elects to close his account with the banker. He may do this without giving

any prior notice to his banker other than issuing a cheque requesting for all balance due in his

account, less than accrued bank charges against him. The usual practice is for the customer to

draw a cheque for the balance made payable to ‘self to close account’. Mere withdrawal of the

balance does not ordinarily signify an intention to close account.129

The usual practice in closing a deposit account is to request the customer to write an

application to that effect, after which he would recover his balance and interest while the banker

will equally take away from his passbook. The account is then deemed to have been satisfactorily

closed by the customer, and the bank can now safely dishonor cheques drawn by the customer on

such account with the answer ‘Account Closed’.

Where however it is the banker that wishes to close the customer account, the banker

must give the customer a reasonable notice enough to allow the customer to make alternative

arrangements and put his business in order.

Also, Outbreak of War could go a long way in the banker-customer relationship. This

was reflected in Lord Reid’s speech in the case of Arab Bank Limited v. Barclays Bank

(Dominion, Colonial and Overseas)130, when he said

‘With certain exceptions, the outbreak of war prevents the further

performance of contracts between persons in this country and

129
For instance, a customer could have issued the cheque without knowledge of the actual balance in his account. He
may not want to close the account but merely intend to draw the maximum amount of money he could from the
account.
130
(1954) A.C. 495

83
 persons in enemy territory. It is not merely that an enemy cannot

sue during the war, and that trading and intercourse with the

enemy during the war are illegal. Many kinds of contractual rights

are totally abrogated by the outbreak of war and do not revive on

its termination. On the other hand, there are other kins of

contractual rights which are not abrogated; they cannot be

enforced during the war, but war merely suspends the right to

enforce them and they remain and can be enforced after the war.’

In other words, the ordinary performance of the contract between banker and customer

is prevented by the outbreak of war, with the result that banking services cannot be performed.

Thus, no items may be paid into the account, and no cheque drawn on the account may be

honoured. However, a customer’s right to be paid a credit balance on a current account is a right

which survives the outbreak of war, since the right was merely suspended and not destroyed.

In Nigeria however, there has been no major outbreak of war, except for the biafran

war. In such circumstances, there were banking contracts which could not be revived after war

and some were actually revived.

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 CHAPTER SIX

SUMMARY, IDENTIFIED GAPS AND SUGGESTED REFORMS

6.1 SUMMARY

An attempt has been made in this work to examine the relationship between a banker and

his customer and the nature of the relationship with all the factors appurtenant thereto. No doubt,

the relationship existing between a banker and his customer is that of debtor and creditor, with

the additional feature that the banker is only liable to repay the customer when the request for

payment is made.131 Conversely however, the customer becomes the banker’s debtor when he

overdraws on his account.

131
Okany M.C (2001) Commercial Law, Lagos: African-Fep Publishers Limited pg 415-437

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 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 it. Conversely however, the

customer becomes the banker’s debtor when he overdraws on his account.

A brief historical background of the banking sector was made in the second chapter. The

various types of securities and investments common to banking were also examined. In

conclusion, the various instances in which an account can be closed and thus bring the

relationship between the banker and a customer to an end were discussed.

6.2 IDENTIFIED GAPS

During the course of carrying out this research, some gaps were identified in the nature of

the relationship between the banker and the bank customer, and the general relationship both

parties exhibit towards each other. Although the banking practice has developed tremendously

from the days of both Barclays Bank D.C.O. and Agbonmagbe Bank, there is still a long way to

go in the banking industry in order to bring banking practice and its legal undertone up to the

standard of its counterparts in the developed countries. Some of such identified gaps are the

discussed in subsequent paragraphs.

The uncertainty in the definition of the key players in the banking industry is A major

problem facing the banking industry. As seen earlier, there is no widely acceptable meaning of

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the words banker, bank, and the bank customer. Different authors have come up with different

definitions. Legal writers have also propounded conflicting and contradictory definitions of the

key players in the banking sector. Some authors use the word banker and bank customers

interchangeably while some say there is a difference between both. The law and the court are

also of little help as the words used in defining the key player in the banking sector in the

relevant precedents, laws and statutes are often couched in ambiguous terms which the ordinary

layman who has an account with a bank can’t comprehend.

Also, owing to the recent recapitalization and consolidation policy in the banking sector

and the rapid growth of information technology, the duty of banks and obligations of customer is

wearing a new look. There is a generating debate that banks should be compelled to re-invest

into the community as part of their corporate social responsibility. It was discovered during the

course of carrying out this research work that banks rarely contribute to the social and economic

wellbeing of its customers out the banking arena. This ought not to be so because as the saying

goes ‘happy customer, happy bank’

The emergence of Credit Cards, Automated Teller Machine, online transactions and the

current electronic reforms going on in the banking sector, which now forms part of business

interaction between a banker and a customer, is an area that is yet to be covered by law. 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.

One other gap identified in the course of carrying out this research work is the fact that

most bank customers and bankers are not aware of the legal rights and responsibility they owe to

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each other. The average Nigeria sees the bank as a security house where he can keep his money

and valuable, and is unaware of the duties he owes to his banker and the legal rights the banker

owes him and vice versa.

The duty of secrecy is one of the duties a banker owes its customer. However, this duty

has exceptions to it and this raises the question of how enforceable this duty is since it is riled

with exceptions thereby making the rule/duty ineffective. It seems the customer has been

stripped of his right to privacy because of the exceptions to the rule.

The unavailability of a legal frame work through which aggrieved parties can enforce

their rights is also one of the issues identified during the course of carrying out this research. It

should be noted that the banks and bankers are aware of their duties and rights to its customers.

However more often than not, the banker and the banks are quick in enforcing their rights against

its customer without carrying out its duties and responsibilities to its customer. The customer

seems to be at the receiving end as he’s not aware of his rights and even when he’s aware there is

no effective legal frame work through which he can enforce such rights.

During the course of carrying out this research, it was also observed that there is no check

and balances from the Central Bank as to the relationship between the banker and its customers.

The banks and bankers are free to do whatever they please while relating to the customers and

get scot free with it because more customers are not aware of their rights as far as banks are

concerned.

One other gap identified during the course of carrying out this research is the unresolved

complaints of the bank customer. One of the salient duties of a banker to its customer is prompt

delivery of service and resolve of complaints. Most banks in Nigeria oare guilty ofnot observing

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this duty to their customers. It takes days and weeks at times to get a complaint resolved in banks

and this is not supposed to be so.

The bank customer the right of prompt payment of money whenever he makes a request

for it provided he has sufficient funds in his account. It was however discovered during the

course of carrying out this project that the banker is lagging behind in carrying out this duty to its

customers. Poor internet services is one of the reasons always given by the bank for failing to

carry out this particular duty to its customer.

Ineffective channel of communication was another gap identified during the course of

carrying out this research. Individuals open bank account almost every day and many a times, the

terms and conditions for the opening of an account are not always properly spelt out thus giving

rise to complaints from the customers end and at times quarrels and fights in the banking

premises.

It is also worthy of mention that there is no special laws/ rule that governs the bankers

relationship with illiterates. Banks are not meant only for the learned and as such the lack of a

special provisions or exceptions in favour of illiterates creates a lacuna in the banker customer

relationship. Forty percent of a banks customer is illiterates who can neither read nor write. The

account was either opened by a relative on their behalf or by the banker himself. Even when he 132

is aware of his right, he probably does not know how to enforce it.

It was also discovered during the course of carrying out this research that the scope of the

banker customer relationship is limited. As discussed earlier, it can be said that the scope of the

banker and customer relationship is limited only to the banking hall. The scope of the banker

132
The illiterate

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customer relationship does not also make sufficient provisions for the illiterates as discussed

supra.

The banking staffs play a major role in the relationship between the banker and its

customer. There is a need for banks to organize special training for their banking staffs in order

to equip them with the knowhow of customer relationship. It was observed during the course of

carrying out this research that majority of the banking staffs do not have a good customer

relationship with their customers.

Finally, there are laws guiding the banker customer relationship. But the question is

effective/efficient are the laws guiding the banker and customer relationships. Moreover, the

current laws backing the regulations of the banker and the bank customer are insufficient in

ensuring strong legal relationship between the banker and his customer. The current laws also

need to be repealed in accordance with the needs of the jet-age.

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 CONCLUSION

Generally, the banking industry in Nigeria is one which has really come a long way.

Going through the history of its development in Nigerian, it will be observed that from the

regulations, that the age of the usage of cowrie shells has passed through monopoly of foreign

banks to the establishment of indigenous banks and it has finally gotten to the stage of

regularized banking system.

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 It is a fact that some Nigerians still don’t know the importance of a bank as some

villagers still make use of daily contributions for their savings. As stated earlier, there is a need

for public enlightenment on the importance of banks in some parts of the country.

Also, the various banking regulations in the country tend to lend evidence to the banking

system operations in the sense that the banks know what to do, when and how to do it by the

guidance of law. However, issues involving banker and its customer will need a more

comprehensive legal regime. New development calls for modifications on the banker customer

relationship. There is a need to extend the scope of the banker and customer relationship to cover

new issues or grounds as they arise.

6.3 SUGGESTED REFORMS

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 relationship cannot be

properly appreciated if the recommendations are not taken into consideration and fully applied in

every transaction between the profits involved. In view of the issues raised by this research, I

hereby make the following recommendations.

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 Firstly, 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 such relationships.

Also, a comprehensive compilation and definition of terms be made and published on banking

which will accommodate most of the terms defined in the search work133

There should also be a massive 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 steps where the need arise.

It has also been noticed that in most local government, customers are ignorant of the law

guiding banker and customer’s relationship. In situations like this, 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.

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.

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. The rule on banker and customer relationship be

expanded to cater for new transactions not catered for in the rule of Folley v.Hill and subsequent

ones.. This can best be done through judicial interpretation.

Banks should also be encouraged to embark on community projects. The effect of this is

that the banker customer relationship would be strengthened which will in turn streghten the

bank-community relationship that is, the relationship between a bank and the environment in

which it operates.

133
Banker, bank customer

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 If the suggestions made supra are employed, it is my belief that the legal relationship

between bankers and bank customers in Nigeria will be greatly improved.

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 BIBILOGRAPHY
BOOKS:

Ehi Oshio. P (2001) The Legal Meaning of Bank, Lagos; Learned Publishments
Limited.

Elliot. C and Quinn F. (1999) Contract Law, 2nd Ed. England; Addison Wesley Longman
Singapore (Pte Limited)

Fridman (1971) The Law of Agency, London; Buttersworth

Layi Afolabi (1999) Law and Practice of Banking

Nkiru-Nzegwu Danjuma (1993) The Bankers Liability, Ibadan; Heineman Educational Books

Okany M.C. (1992) Nigerian Commercial Law, Lagos; Africana-Fep Publishers

Limited

Perry E. Law and Practice Relating to Banking, 3rd Ed.

Paget Law of Banking 10th Ed

Professor Kent R. Money and Banking, 3rd Ed, Newyork; Rinehart & Co. Inc

St Paul, Minn (1999) Blacks Law Dictionary, 7th Ed. West Group

JOURNALS:

Awa Kalu U. (August 1990) “A Legal Meaning and Regulations of Banking in Nigeria” A
Journal of Contemporary Legal Problems Vol. 4

Ryder F.R (1965) “The Legal Meaning of Bank” Journal of Business Law

UNPUBLISHED ARTICLES:

Shamsul Bahrin Bin Baharuddin “Duties of a Banker Towards His Customer”

Fayokun K.O (2011) “Commercial Law” Concise Law Series

Orifowomo (2011) BUL 303 “Law of Banking and Negotiable Instrument” Lecture
Note Series

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NEWSPAPERS:

Ariyo Ajaja (2002) “Banking and The Law” Nigerian Tribune Newspaper Tuesday
5th March

INTERNET SOURCES:

Definition of Bank http://www.duhaime.org/Legal Dictionary/B/Bnak.aspx.

accessed July 18, 2013

Definition of Bank http://www.investorsword.com/16222/business_activity/html.

accessed July 18, 2013

The relationship between a banker and its customer www.scribd.com/dod/86975803/an appraisal of

banker customer relationship in Nigeria. Retrieved June 26, 2013

History of Banking http://www.wikipedia.com/history of banking. Retrieved June

26,2013

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