Summary

This document provides an overview of banking principles, including the nature of banker-customer relationships, debtor-creditor relationships, and agent-principal relationships. It also covers fiduciary duties and constructive trusts within a banking context. Cases and legislation are referenced to illustrate concepts.

Full Transcript

NATURE OF BANKER-CUSTOMER RELATIONSHIP BANKER Accept money on current account, pay cheques drawn upon such account on demand on demand and collect cheques for customers. o An individual, partnership or corporati...

NATURE OF BANKER-CUSTOMER RELATIONSHIP BANKER Accept money on current account, pay cheques drawn upon such account on demand on demand and collect cheques for customers. o An individual, partnership or corporation whose sole or predominating busines is banking. o Money paid and received by cheques to such an extend that a person who handles it as freely as cash is a banker. o Sabah Development Bank v SKBS Sdn Bhd & Ors: A banker takes current account, pay cheques drawn on himself & collect cheques for customers. o 2 Financial Services Act 2013: Bank is the business of accepting current, deposit and savings account or other similar account, paying or collecting cheques drawn by or paid by customers & finance provision. INTRO o 2 Bills of Exchange Act 1949: Includes a body of persons, whether incorporated or not, who carry on the business of banking. CUSTOMER Financial Services Act 2013 [ depositer ]: A person entitled to the repayment of a deposit, whether the deposit was made by him or ay other person. o Commissioner of Taxation in English Scottish & Australian Bank Ltd: A short-term relationship with a bank still qualified as a customer relationship as long as the bank accepts the deposit an agrees to pay out checks based on account balance. o Barclay Bank Ltd v Okenarke 1966: Someone cashing a cheque without a bank account isn’t a customer and the bank is simply a one-time service. General: All banking transactions are based on contract law. Contract terms: Implied by opening an account / Express by customer borrows money. NATURE OF o Robinson v Midland Bank Ltd 1925: Exists if the parties ( banker and RELATIONSHIP customer ) have the intention to create the relationship. o Joochimson v Swiss Bank Corporation 1921: Bank holds deposit and collects payment, while customer borrows it back and repay with interest. DEBTOR-CREDITOR Customer Debtor, Bank Creditor o Money deposited by customer with the bank. Customer Debtor, Bank Creditor o Money lent to the customer by the bank. TYPES OF Joochimson v Swiss Bank Corp: The customer must make a demand to RELATIONSHIP withdraw their deposited funds. Foley v Hill 1848: Banker can use the customer’s deposited money like their own for business. They’re still responsible for repaying them the full amount on demand. They’re contracted to hold money safely and return it when asked. AGENT-PRINCIPAL Principal ( Customer ): A customer can give the bank mandates to manage their account. o Setting up standing orders. o Collecting checks on their behalf. Agent ( Banker ): The bank act on the customer’s behalf as an agent and carries out the mandates. o Westminster Bank Ltd v Hilton 1926: When a customer writes or cashes a cheque the bank acts as an agent to handle the transaction. FIDUCIARY A party places trust and confidence and reliance on another. As a trustee: manage special accounts like trust funds with high level of responsibility for your money. As an advisor: recommend investments based on needs but not pressure into anything. Equity: Avoid taking undue advantage and avoid conflicts of interest. Woods v Martin Bank Ltd & Anor 1959: Bank gave a large overdraft to a company then recommends customers to invest to that company. There was a breach of trust as the bank benefits when the company repays the loan with the invested money. CONSTRUCTIVE TRUSTEE & BENEFICIARY If you hold money in trust for someone else and deposit it in the bank, the bank cant use that money for anything that goes against the trust. o Barnes v Addy 1874: Elements to establish bank as constructive trustee: ▪ Bank offered assistance. ▪ Bank had actual or constructive knowledge. ▪ There was dishonest and fraudulent intention or act. o Lipkin German v Karpnale Ltd & Lloyd’s Bank: Bank wasn’t liable as they didn’t provide knowing assistance. o Tan Kok Ming, Philip v Royal Brunei Airlines 1994: ▪ Existence of trust ▪ Dishonest and fraudulent design on the trust ▪ Assistance of stranger in that design ▪ Knowledge of the stranger’s dishonesty. RIGHTS AND DUTIES Right to charge a customer commission and service charges for keeping the BANKER’S RIGHT account, clearing cheques and others. TO COMMISSION / Fixed by Association of Bankers, for deposit account no service charge or SERVICE CHARGES commission. Banks can charge interest on loans and advances. o Agreed-upon interest: This is set clearly in a contract between BANKER’S RIGHT customer and the bank. TO INTEREST o Implied interest: This can arise from everyday banking activities, like overdrafts when customer spend more than they have in your account. When customer, in one account, amount in credit and in another accounts, owes money to the Bank. The Bank may set off or combining accounts as in they may reduce is liability to repay customer by setting off the amount owed. The condition is that the sumowed is certain, due and there’s no express or implied agreement to the contrary. o Rahimah bt Abdullah v Bank Bumiputra Malaysia Berhad 1994 ▪ Rahimah deposited money in a fixed deposit (FD) with BBMB bank. BANKER’S RIGHT ▪ BBMB also gave a loan (overdraft) to a company called Malrich TO SET-OFF Holdings. ▪ To secure the loan, Rahimah signed a document (Letter of Set- Off) allowing BBMB to use her FD if Malrich didn't repay the loan. ▪ Malrich defaulted on the loan, so BBMB took the money from Rahimah's FD to cover the debt. ▪ The court ruled in favor of the bank. ▪ Banks are generally allowed to hold onto customer's valuables (like the FD) as security for loans if the customer agrees to it (like Rahimah signing the Letter of Set-Off). ▪ So, the bank's actions were valid. 133 FSA: Financial institutions and their staff cannot share information about customer accounts with anyone else. Includes documents, account details, and information about past and present directors, officers, or agents. Together with 133(3): Duty of confidentiality involves a person who isn’t a bank officer but also 3rd party and ex-banker. 133(4): Penalty if someone breaches their duty of secrecy. Imprisonment

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