United Dominions Trust Ltd v Kirkwood - Assignment Example

THE CURRENT ACCOUNT STUDENT NAME PROFESSOR’S NAME COURSE TITLE DATE The most accepted definition of a bank was adopted in the case of United Dominions Trust Ltd V Kirkwood1whereby Lord Denning Mr stated that “there are three characteristics of a bank that is they accept money and collect cheques from customers and place them to credit, they honour cheques or order drown by their customers and thirdly, they keep the current accounts or something of that nature in their books where credits and debits are entered”2. The current account is therefore considered as being part of functions done by the bank in regards to keeping its customers money as deposited in the bank accounts. This paper discusses the current account in regards to banking practice and to the nature of the bank-customer relationship that is created by the arrangement. The foundation of the relationship between the banker and the customer is the current account that is operated by the bank.3The customer deposits money to the current account and the amount becomes part of the funds of the bank and once this is done, the customer has a chose in action against the bank and may legally reclaim the debt from the bank by demanding a repayment or giving instructions to the bank to pay the sums in the bank. If the bank honours the request to pay, then it discharges its duties as discharging the debt of the customer to the pay and obeying the mandate of the customer.4However, the opening of a current account creates certain uncertainties especially when the customer opens a joint current account, which is entitled to draw Cheques, who is liable to pay debts and whether the debts due to various account holders jointly or jointly and severally. 5 Are there requirements on how banks should treat the customer’s account held by a particular bank or a branch? In Garnett v M’Kewan6the court held that the bankers are to treat its customers’ accounts as a single sum without notice of certain purposes. In the case in point, there was no prior arrangement between the customer and the bank in regards to combination, set-off or consolidation as the banker’s lien7. In Direct Acceptance Corp v Bank of New South Wales8 the court stated that a bank may indeed combine the accounts of its customers, but there is no general obligation imposed on the banks to do so. The rights of a banker to combine a customer’s account are lessened when they combine two different accounts.Accounts must be held by the customer in a single capacity. One consequence of this is that the Bank has no right to combine the customer’s account with an account which the Banker knows to be a trust accountBarclays Bank Ltd v Quistclose Investments Ltd9. In practice, the current account in regards to the bank-customer relationship is used for making third party payments. Lord Atkin in Joachimson v Swiss Bank Corporation10stated that the bank is not at liberty to pay the customer the full amount of his balance unless the customer demands the amount from the bank where the amount is paid11. Generally, a current account may be viewed as a form of a deposit account that allows the account holder to make payments by way of cheques and in modern day a customer can access funds in their current accounts through use of automatic teller machines (ATMs). The types of current accounts that can be opened by an individual include a personal current account or a joint current account where two or more individuals are signatories to the account. The relationship between the bank and the customer gives rise to certain duties on both the customer and the bank. For instance as stated in the case of Joachimson v Swiss Bank Corporation12 the bank is supposed to collect the cheques of the customer and a failure to honour such duty may amount to a breach of contract. On the other hand, a customer is obliged to accept any normal incident of a payment mechanisms for instance delay in making certain payments or that the bank cannot pay until all the payments are cleared. Further the bank must make a payment on the request of a customer and if this fails, then the bank is liable for dishonour because it has the duty to pay the customer on demand when it comes to current accounts. In the case of Arab Bank v Barclays Bank (DOC)13 the court held that a bank may dishonour the cheque drawn by its customer on one account and that the funds are held in another account. Moreover, the bank may also pay the cheque on the assumption that it is an overdraft on the account.14Conversely a bank is allowed to make a payment to meet the demands of the customer only if the customer has sufficient funds in their current accounts to cover the sums demanded15. Further common law directs that a bank should not combine current accounts of a customer held at different banks. The characteristics of a current account are such that the account is payable in demand either through withdrawal or where the customer clearly requests the bank to make payments to a named third party and that it can be overdrawn through an overdraft.16 Another unique characteristic of the bank is that it can be served by a creditor who has an execution decree to settle the debts of a third party that is by attaching the current account of the customer or debtor. This relates to third party debts or garnishee order that the bank pays the decree holder of the judgment creditor rather than the customer that the bank owes.17 How can one distinguish the current account from other types of accounts opened by a bank? The traditional way of distinguishing a current account from an interest bearing account was discussed in the decision of Lopes LJ in Re Head, Head v Head (No. 2)18 that an interest bearing account bears an interest while a current account does not yield an interest to the customer. Secondly, a current account can be withdrawn by a cheque however, traditionally this did not apply to interest bearing accounts and it was rare to find a cheque issued for an interest bearing account.Despite the fact that cheques are not generally drawn on interest bearing accounts it is not uncommon to have cheques collected for the benefit of interest bearing accounts. In Barclays Bank Ltd v. Okenarhe19the current account can be either in credit or overdrawn with the consent of the bank however, an interest bearing account cannot be overdrawn because the law does not recognise such practice.20 A current account can have a debt balance which is normally considered as being an overdraft. In any instance a customer makes an unauthorised drawing this is considered as being a request for an overdraft facility and when the bank meets the request it constitutes an acceptance of the offer of the customer and the customer agrees to the terms of the bank.21 The terms applicable to the overdraft facilities may not bind the customer if they are unreasonable, they do not conform to banking practice or extortionate.22In the case of Cuthbert v Robarts, Lubbock & Co23 the court held that the drawing of a cheque on an overdrawn account is an implied request for the banker to grant an overdraft facility. Once a customer makes a request for an overdraft, the bank is entitled to charge an interest and to capitalize interest on an overdrawn account without having to formalize the arrangements in giving the overdraft facilities. Where a bank consistently honours a request for overdraft then it is bound by its conduct and may be found in breach if in one occasion it without notice it refuses the request of the customer24, however the bank is allowed to charge compound interests on any outstanding amount on the current account of the customer.25 What happens when a person intends to close the current account? Normally, the general principles applicable in the termination of bank-customer relations are viewing the relationship as that of a debtor-creditor relationship.26Thecircumstance in which a current account may be closed is where the customer holding the account gives a request to the bank in order to close the account27. The request to close a current account must be written and the customer must return all the unused cheque leaves for the bank to cancel it. The closure of an account requires notice that shows that indeed the bank intends to end or terminate its relationship with the customer and therefore reasonable and sufficient notice mus be given. In Buckingham & Co v London and Midland Bank28the customer had both loan account and a current account in the defendant bank and the sum of $160 in the current account and the bank informed him that the account was closed and could not honour any more of his cheques. Two more cheques and bills were issued and the bank dishonoured. The bank in finding in favour of the customer stated that a customer is entitled to drawn on the current account without making any reference to the loan account and hence was entitled to a reasonable notice to discontinue the account. The court awarded the customer $500 in damages against the bank29. The instance when a bank is not required to give notice is when the customer uses the bank account in order to carry out an unlawful purpose.30The bank has discretion to close the bank current account of its customers if the customer issued dishonoured cheques, the account becomes inactive. The closure of such an account is done once the bank gives sufficient notice in writing to the customer and a notification is sent to the customer once the bank closes the particular account31. REFERENCES Cases Bank of New South Wales v. Laing [ 1954] AC 135, 154 (PC) Barclays Bank Ltd v Okenarhe [1966] 2 Lloyd’s Rep 87, 97 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] 1 QBD 699 Buckingham & Co v London and Midland Bank(1895) 12 T.L.R. 70 Cuthbert v Robarts, Lubbock & Co [1909] 2 Ch 226 Direct Acceptance Corp v Bank of New South Wales (1968) 88 WN (Pt 1) NSW 498 Garnett v M’Kewan (1872) LR 8 Ex 10 Joachimson v Swiss Bank Corporation [1921] 3 KB 110 National Bank of Greece SA v. Pinios Shipping Co. (No l)[ 1990| 1 AC 637 (HL). Re Head, Head v Head (No. 2) [1894] 2 CH 236, 238 Société Exam Shipping Co. Ltd. v. Cie Internationale de Navigation [20011 EWCA Civ. 1317, [2001J 2 AllER(Comm) 721 (CA). United Dominions Trust Ltd V Kirkwood [1966] 2 QB 431 (CA) Books/Articles/ Journals Cranston Ross, Principles of Banking Law 2nd ed, (2002) Oxford, Oxford University Press. Ellinger E P, Lamonicka, E & Hare C, Ellinger’s Modern Banking Law (2011) Oxford, Oxford University Press Hapgood M, Pagets Law of Banking, 11thed , (1996) London, Butterworth’s, 104 Hong Kong Institute of Bankers, Banking Law and Practice, (2012) Hong Kong, John Wiley & Sons Oakley A, 'Proprietary Claims and their Priority in Insolvency' (1995) 54 CLJ 377, 416-20 Read More