INTERPRETING THE ACCOUNTS OF CUSTOMERS

1.0 INTRODUCTION

In the previous Unit, we introduce the student to a major activity of banks which is Lending-its principle and cannons. In this Unit, we shall now unveil the Bank Customer and discuss further the Banker-Customer relationship. The types of accounts kept with the bank by the customer shall be briefly mentioned.

2.0 OBJECTIVES

1. Differentiate a ‘bank’ from a ‘banker’ 
2.  Define a bank customer 
3. Explain the relationship that exist between a customer and a bank 
4. Explain the different types of deposits in the banking system 

3.0 MAIN CONTENT

3.1 Meaning of ‘Bank and ‘Banker’

The word bank or banker has been defined by various authorities like Perry, F.E. and Gilbert G. W. Perry F. E. Describes a bank as an establishment which deals in money, receiving it on deposits on demand, collecting cheques for customers and lending or investing the surplus until it is required. G. W. Gilbert defined a banker as a dealer in capital or more properly, a dealer in money. He is an intermediate party between the borrower and the lender. He borrows from one party and lends to another.

Similarly, section 61 of Bank and other Financial Institutions Decree (BOFID) 1991, describes a bank as a bank licensed under BOFID which is authorised to carry on banking business. The same section of the Decree also defines banking business, as the business of receiving deposits on current account or other similar accounts, paying or collecting cheques, drawn by or paid in by customers, provision of finance or such other business as the Governor of the Central Bank of Nigeria may by order publish in the gazette, designated as banking business.

In a simple language, a bank or banker is described as a company licensed by the Central Bank of Nigeria to carry on banking business like: acceptance of deposits, granting of loans, providing clearing facilities and duly recognised as a bank or a banker by other banks or bankers in Nigeria.

Self-Assessment Exercise: 

Differentiate between a bank and a banker.

3.2 Meaning of a Bank Customer

There is no statutory definition of a bank customer but an acceptable meaning of a bank customer was arrived at from a few celebrated cases in the United Kingdom which will be mentioned here.

Basically, for someone to become a bank customer an account either a deposit or current account must be opened with the bank. For example, in Great Western Railway co. v. London and County Banking Co. Ltd. (1901), it was held that the cashing of cheques over a long period for a person having no account with the bank did not make such person a customer of the bank. This means if one goes to the bank to cash a cheque, buy banker’s draft, perform other banking transactions without
maintaining as account one is not recognised as a bank customer. So also the length of time as which one maintains an account with the bank coupled with continuous operation of the account is not a yardstick in determining whether one is a bank customer.
Ladbrok v. Todd (1914)
Commissioners of Taxation v. English Scottish and
Australian Bank Ltd. (1920)

Conclusively, someone becomes a bank customer as soon as the bank opens an account or agrees to provide banking services to him; with the intention that banker and customer relationship be a permanent one irrespective of the time when the relationship began.

In Woods v. Martins Bank Ltd. (1958), a manager of Martins Bank advised a customer W. to invest in private company which maintained an account at the same branch. W. did invest in the company and after one month of receiving the investment advice opened an account with M. Bank. No sooner the investment made thus the company wound up and W. lost money.


HELD: The bank was vicariously liable for the negligent advice, which had been given by their manager. From this case Woods was regarded as becoming the customer of the bank from the moment he was advised to invest on the company and did make investment, though he opened his current account with the bank one month after he had received the advice.

3.3 Banker and Customer relationship

The relationship that exists between a banker and customer is basically a contractual one and it is a special one in that it is an implied and unwritten contract.

Primarily, the general relationship between a banker and a customer is that of a debtor and creditor respectively. The bank becomes a debtor and customer creditor, when he receives deposit from customer and when the customer withdraws his account he becomes a debtor and the bank becomes a creditor.
This established relationship between a banker and a customer was first brought into existence in the case of Joachinson v. Swiss Bank Corporation (1921). The facts and judgement in this
case can be summarised as follows:

1. The basic relationship between banker and customer is that of debtor and creditor respectively but the rules may sometimes be reversed when the accounts of the customer is overdrawn. 
2. A banker is not a trustee for deposited by a customer and is free to use the money the way he likes. 
3. A banker is not acting as an agent in accepting deposit from the customer and can regard the money as his own until customer makes demand for his money. It follows that the customer has no right of action against his banker in respect of money deposited until after a demand has been made and the bank defaults. 
4. Money deposited in the bank is not for safe custody. Hence a customer is not expected to be repaid with the exact notes and coins paid in. 
5. A bank is expected to give a reasonable notice to a customer before closing his account. 

The important thing is to note that while performing other banking functions, the relationship can be that of: Agent and Principal: When banks collect cheques paid in by customer.
Bailee and Bailor: When bank receives customer’s valuable items for safe custody.Trustee: When bank acts as executor of a will or administrator of a trust. Self-Assessment Exercise: Discuss the relationship that exist between a bank and a customer.

3.4. Deposits

Deposits can be classified according to the conditions of their use. In general, the access the depositor has to his or her funds determines the interest rates paid on deposits. By and large, deposits are money too, because they can be converted into money and because they can be used to settle debts. The following are some the types of deposits available to the customer. 

3.4.1. Demand deposit- Current account: Demand takes the form of current of personal cheque accounts. This form of deposit is almost as liquid as money.

 
3.4.2. Savings or Notice Deposits: Here the depositor may officially withdraw funds only after giving notice to the financial institution. In practice, most banks waive the right to require such notice. Notice deposits typically pay a higher rate of interest but limit or exclude cheque writing. This distinction, however, has lost its relevance in most countries, as newly introduced saving
accounts have become as accessible as chequing accounts
3.4.3. Term Deposits: This is another form of deposit that entitles the holder to a higher rate of interest. A contractual condition of placing funds in a term deposit is that the depositor does not withdraw from that account for a specific period of time.