Legal Duties of Banker - Coursework Example

Legal Duties of a Banker Student’s Name Instructor’s Name Course Code and Name University Date of Submission Legal duties of a banker The importance of banks in modern economies cannot be underestimated. The position held by banks and the size of activities makes it necessary to study the relationship that subsists between the banker and the customer. This essay will attempt to ascertain the legal nature of customer-banker relationship. A banker is a professional who advises the clients regarding financial matters. He is a dealer in the capital. He is an intermediary between the lender and the borrower. A customer, on the other hand, is a person who maintains a bank account with the bank (Sheinman 2003, p. 60). The role played by a banker to the customer is one of multiple duties. Bankers are of different forms, and each form has their own unique way. Some of the services a banker provides to a customer include savings, taxes, loans, securities and investments. A banker will provide financial assistance according to the needs of a client (Kavitha 2012, p. 30) In general a banker has numerous duties that align in their normal job duties. The banker should ensure that a client’s financial standing is well assessed, and in accordance to that financial standing, he should offer bank’s programs. The banker, after reviewing the financial position of a client, he introduces financial programs that the client needs. The banker should ensure that the financial needs of a customer are solved in each step on the way (Memmel & Schertler 2010, p. 609) While maintaining a current account for a customer, a banker must fulfill legal requirements prescribed by the governing body. Some of the basics that a banker should do while opening a current account for a customer is to verify and record the information of the customer. The bank has a legal duty to ensure that the information supplied by the customer is correct. The banker should also ensure that all relevant information about the account is provided to the customer. This includes any bank charges that are chargeable, and any other such information (DeYoung & Yom 2008, p. 277). The contractual relationship between the banker and the customer entails both express and implied terms. Express terms are the terms that are expressly stated in the contract when the agreement was completed (Singh 2013, p. 10). Express terms are usually approved by all parties to a contract. In the banker-customer relationship, express terms are hardly negotiated. Implied terms are the terms that are not expressly stated in the contract when it was being entered into. In the case of Emerald meat Ltd v AIB Group Ltd, it was decided in the customer’s favor. In his decision, justice Phil LI stated that neither the bankers established usage, nor a generally accepted practice of banks to establish a three day cycle had been established. An implied term or conation could not be assumed to exist on the basis of practice and custom of banks. The court also held that the bank was within the law on charging interest to the customer for the third day. The judge clarified that when he says the bank was within the law, he meant there was no an unlawful act that amounted to breach of contract given the circumstances of that case (Ozdincer & Ozyildirim, 2011, p. 109). The primary responsibility of a bank is to take care of the clients and provide services that are fundamental to the contractual relationship between the customer and the banker. The banking code provides that the bank will provide to customers as part of the general contractual obligation, which it owes to its customers. For instance, the bank will help customers choose the products and services that meet their needs. In cases where a customer has a passbook, the bank is not legally obliged to send a bank statement to such a customer (Grossman 2001, p. 150) The banking code gives guidelines on the means of notification regarding the change in terms and conditions. The code provides that a customer should receive a 30 days’ notice before effecting any intended changes in terms and conditions. If the intended changes in terms and conditions would be advantageous to the customer the code allows such a change to be effected without giving any notice thereof to the customer (Guinnane & Ghatak 1999, p. 201). The implied duties owed by the bank to the customer include the following; honoring customer’s cheques, maintaining the secrecy of customers’ account, to abide by the standing orders of the client while making the specified periodical payments, and the bank has a legal responsibility in case of a garnishee order. A garnishee order is an order of the court. It is a legal duty of a banker to act in accordance to the order of a court and attach the customer’s funds to a creditor who has a court order to his favor. However, it is not a responsibility of the bank to repay the client any amount borrowed from such a customer until and unless the customer demands for the payments officially. This means that a customer cannot have a claim for a debt. This is an implied term that is fundamental to the contractual relationship between the customer and the banker (Le & Ataullah 2004, p. 547). There are other duties owed by the banks to the customers’. Some of them include; the bank has a legal responsibility to safeguard its customers from fraud committed by directors, agents, or partners while making payment orders. However, where there is no negligence in the part of the bank, there are statutory protections (Bedke 2010, p. 100). Nevertheless, it is worth noting that only in very few instances where the bank has been found not to owe a duty of care to customers. In the case of Schioler v National Westminster bank Ltd (1970), it was ruled that the bank did not owe the customers’ a duty of care to advice and warn its clients on the possible repercussions of tax remitting to England for realization of a warrant valued in Malaysian dollars. Recently, it was held by an English appellant court that for the fact that the banker accepts a request for advice would be enough evidence for assuming responsibility, even though an antecedent request for advice is not required where the bank gives advice within the scope of its business (Cole 2011, p. 193). Where a banker assumes a responsibility to exercise due care while giving advice and eventually complies with that duty, it does not assume a continuing obligation to put the advice under review, and if necessary amend it in the light of supervening events. The case of Fenoscadia Ltd v Clarke (1999) demonstrated a very important aspect of duties owed by banks to customers in this regard. The case sought to determine whether a breach of contract existed in a situation where an implied contract between the bank and the customer, where the bank had provided advice on a project. The ruling of the case sets the judicial precedence as to whether a bank has a duty under continuing project to review and correct advice (Dwyer 1996, p. 4). It was held that a banker’s duty of due care to the customers does not extend to events that are supervening and continuous. A duty of care is also owed by the bank to the customers while giving investment advice to clients or when the bank is giving guidelines or explaining security documentation. In the case of Neely v First State Bank Oklahoma, (1998) Neely the plaintiff was a stockbroker at prudential securities, Prudential and him had an employer-employee relationship (Harris, A., 2009, p.175). The defendant’s bank was among Neely’s client. After large losses on the part of the bank, they alleged fraud, misrepresentation and gross negligence on the part of Neely, as a result of these allegations, Neely’s business was negatively affected to the extent that she was forced to file a voluntary bankruptcy. Neely brought a case against the bank for malicious prosecution after the Bank’s civil proceeding against Neely was terminated. Neely’s petition was allowed. The bank argued that Neely filed a voluntary bankruptcy to avoid any possible adjudication against him. They added that because there was no claims adjudicated against him, he should not prevail. But the petition was allowed (Ngk 1988, p. 877). The bank also has a legal duty to provide its customers with regular bank statements and any other relevant information in regard to the running of the customer’s account. For instance, the bank may provide information on how direct debit works or how to deposit or to pay a cheque. Some of the specific duties of the bank include; the bank is the agent of the customer. In this duty, the bank is legally entitled to enter into transactions on behalf of the customer. When the customer deposits money in a bank, that money can be used by the bank to settle the obligations of a customer (Sales et al. 2005, p. 63). In the case of Carr v Carr (1811) a testator while making his bequest included the words… the debt that might be due to him at the time of his death (Alford, 2009, p. 1). The question that arises in this case is whether the cash balance that was due in his bank account could be passed by this bequest. The court held that it did. Sir William Grant argued that a generally deposited money could not have an earmark. He added that when any money is deposited to a bank the banker always opens a creditor and a debtor account. In Sims v Bond (1893) when giving the decision, the chief Justice of the Queen’s Bench stated that, when a customer pays some money in his or her current account, although they are known as deposits, they are in actual sense creditors of the bank (Davidof, Morrison & Wilhelm 2012, p. 533). However, it is not possible to provide an exhaustive list of the duty of care owed to customers and banks, and towards each other, in this regard the court is concerned with details in a particular contract, and in case of a breach of duty of care in tort, the court is concerned with the proximity of parties. It was clearly demonstrated in the case of diamond limited vs PIC & Anor (2009) that if a bank fails to exercise due care in dealing with its customer, this may lead to a successful an action in negligence by a client (Marcoux 2003, p. 22). Conclusion The relationship that exists between banks and customers is complex. At a first glance, it may seems as if the relationship is just the same as that of customers and other business, but this is not true. Bankers have a different kind of relationships to their customers than other businesses do. To a banker, a customer is not just a client whose in the act of consuming his rights should be protected, but rather a customer is a principal on which the bank stands as his agent. Banks change roles as circumstances would allow, they can become creditors, debtors, advisors, or even consultants to the customer. It is clear that banks are of great importance in the economy; they facilitate business transactions, and this is a pivotal role in expanding the economy. Further studies should be carried out to shed more light on this very crucial topic. Customers need to know their rights and obligations so as to enhance smooth relationships between the banks and their customers. 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Available at http://dx.doi.org/10.1023/A:1022500223300 Singh, K 2013, “Asset-Liability Management in Banks: A Dynamic Approach”, AIMA Journal of Management & Research, vol. 7, no. 4, pp. 1-14. Read More