Contract Law: Banker-Customer Relationship

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Questions and Answers

What is a factor that influences the interest rate charged by a bank?

The bank's location

The type of bank branch

The borrower's creditworthiness (correct)

The bank's profitability

What is the nature of the relationship between a banker and a customer?

Statutory

Tortious

Fiduciary

Contractual (correct)

Why do banks adjust their interest rates?

To respond to changes in market conditions or manage credit risk (correct)

To increase their profitability

To comply with regulatory requirements

To attract more customers

What is the basis of the special relationship between a banker and customer?

Principles of trust and confidence Signup and view all the answers

What is the role of a bank when it acts as a trustee?

Holder of legal title to property for the benefit of another Signup and view all the answers

What is the right to set-off typically used for?

To offset debts owed by customers who have defaulted Signup and view all the answers

What is the consequence of a bank dishonouring a cheque when the customer has sufficient funds?

The bank has breached its contractual obligation Signup and view all the answers

Under what circumstances may a bank not be able to exercise its right to set off?

If there is an express or implied agreement to the contrary Signup and view all the answers

What is the relationship between a trustee and a beneficiary?

One of trust and confidence Signup and view all the answers

What type of account may a bank use to offset a debt owed by a customer?

Any type of account owned by the customer, including checking or savings accounts Signup and view all the answers

What is the purpose of the right to set-off?

To enable the bank to recover debts owed by customers Signup and view all the answers

What is the result of a customer entrusting their money or assets to a banker?

The bank becomes a financial adviser or broker Signup and view all the answers

What is a lien in the context of banking?

The right of the bank to retain possession of securities, property or documents Signup and view all the answers

What is the primary goal of a banker's duties?

To provide high-quality financial services to customers Signup and view all the answers

What is the principle behind a banker's duty to follow customer instructions?

The principle of agency Signup and view all the answers

What is implied by the banker and customer relationship?

Both a duty of care and a duty of secrecy Signup and view all the answers

What is the significance of the banker-customer relationship?

It is a relationship based on trust and agency Signup and view all the answers

What is the consequence of a banker not following a customer's instructions?

The bank is liable for any losses Signup and view all the answers

What is a key aspect of a banker's duty of care towards customers?

Providing accurate and timely information about banking products and services Signup and view all the answers

What is the nature of a banker's duty of secrecy in Malaysia?

Both statutory and contractual Signup and view all the answers

What does Section 133(1) of the Financial Services Act 2013 prohibit?

The disclosure of customer information to any person Signup and view all the answers

What is expected of a banker when carrying out a customer's instructions?

To act in the best interest of the customer Signup and view all the answers

What is the purpose of a banker's duty of secrecy?

To maintain the confidentiality of customer information Signup and view all the answers

Who is bound by the duty of secrecy under the Financial Services Act 2013?

Any person who has access to customer information, including the bank and its employees, directors, and agents Signup and view all the answers

What is one of the primary benefits of keeping track of finances and ensuring sufficient funds to cover cheques?

To reconcile bank statements and detect errors Signup and view all the answers

What is a consequence of issuing a cheque without sufficient funds?

The customer may face legal action or criminal charges Signup and view all the answers

What is the importance of using cheque forms supplied by the bank?

It is a regulatory requirement for bank customers Signup and view all the answers

What should customers consider when issuing cheques to avoid dishonour?

The balance in their account and any pending transactions Signup and view all the answers

What is a benefit of keeping a record of all transactions?

It allows the customer to reconcile bank statements Signup and view all the answers

What is the customer's duty regarding cheques and their account balance?

To ensure that they have sufficient funds in their account to cover issued cheques Signup and view all the answers

Study Notes

Banker-Customer Relationship

The relationship between a banker and customer is contractual in nature, with terms set out in account opening documents and agreements.
A banker has a legal and ethical duty to act in the best interests of their customer, based on principles of trust and confidence.

Special Relationship

A special relationship exists between a banker and customer, where the banker becomes a financial adviser or broker to the customer.

Trustee and Beneficiary Relationship

A trustee holds legal title to property for the benefit of a beneficiary, with a relationship based on trust and confidence.
A bank acting as a trustee holds legal title to property or assets on behalf of the beneficiary.

Right to Set-Off

A bank has the legal right to use funds from one account to offset or pay off debts owed by the account holder in another account.
This right is usually outlined in the terms and conditions of a bank's account agreement.

Duties of Bankers

Duties of bankers include managing customer deposits, making loans and investments, and providing financial services.
Key duties include following customer instructions, providing accurate information, and maintaining secrecy of customer affairs.

Duty to Follow Instructions

A banker has a duty to follow instructions made by the customer, acting in the best interest of the customer.
This duty is based on the principle of agency, where the banker acts as an agent for the customer.

Duty of Secrecy

A banker owes a duty of secrecy to its customers at all times, keeping information concerning customer affairs confidential.
This duty is statutory under the Financial Services Act 2013 and is also implied by the banker-customer relationship.

Customer Duties

Customers have a duty to keep track of their finances and ensure they do not issue more cheques than they have funds available to cover.
Customers must also exercise caution when issuing cheques, taking into account pending transactions that may affect their account balance.
Using only bank-supplied cheque forms is also a customer duty.

Consequences of Non-Compliance

If a customer issues a cheque without sufficient funds, they may be liable for fees, charges, and damages, and may face legal action or criminal charges.

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Description

Test your understanding of contract law in the context of a banker-customer relationship. This quiz covers the contractual obligations of a bank to its customer, including the dishonouring of a cheque. Learn about the terms of the contract and how they are set out in account opening documents.