2.

1 Definition of Banks Customer

The definition of banks customer is important because the law of banking is based on
the existence of a relationship between the bank and its customer. If a person is a
banks customer, then several legal implications will emerge:

1. The bank has statutory protection under Sec 85, Bills of Exchange Act, if an
individual is a banks customer. Pursuant to this section, a bank that collects a
cheque from its customer in good faith and without any negligence has statutory
defence against the true owner.

2. Banks have a duty to comply with the customers mandate for collection of
cheques or payment of customers instruments as well as payments directed by
the customer.

3. Bank has several additional duties to its customer. The most important duty is
the duty of secrecy. Occasionally the bank may have a fiduciary duty of care as
a trustee to the beneficiary of a trust.


In the new FSA 2013, customer includes a participant or user. Refer to sec 2 for the
interpretation of participant and user. This definition is useful in the context of the
payment system and usage of credit cards. However it does not unravel the basis for
the terminology customer.

Since, there is no exhaustive and precise statutory definition of a banks customer;
reference is still made to common law and case judgements.


United States has a statutory definition of banks customer in Sec 4-104(1)(e) Uniform
Commercial Code. Bankers customer is defined as any person having an account
with a bank or for whom a bank has agreed to collect items and includes a bank
carrying an account with another bank.

From the common law perspective, the most important element is Intention. The
relationship of banker and customer will only exist if they intend to form that relation.
Please refer to the case of Robinson v Midland Bank (1925) 41 TLR 402, Court of
Appeal.

Traditionally, the act of opening a bank account indicates that an individual is the banks
customer.

Refer to the case of Great Western Railway Co v London and County Banking Co Ltd
[1901] AC 414.

Should the account remain open for a long duration?

According to the case of Commissioners of Taxation v English, Scottish & Australian
Bank, [1920] AC 683; the duration an account is kept open is irrelevant.

What is the situation if a bank account is opened fraudulently by a third party by using
the name of cheques recipient (payee) or a signature on the cheque is forged?

Kindly refer to cases:

1. Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956
2. Stoney Stanton Supplies (Coventry) Ltd v Midlands Bank [1966] 2 Lloyds Rep
373
3. Oriental Bank of Malaya v Rubber Industry Replanting Board [1957] MLJ 153

Principle:

The mere opening of an account in a persons name does not establish a relationship of
banker and customer between the parties. Both parties must have the INTENTION to
form the relationship of Banker and customer. There is a need for meeting of their
minds.

All the cases discussed emphasize the opening of an account but examine Woods v
Martins Bank Ltd [1958] 3 All ER 166 whereby Woods had become a customer prior to
the opening of an account.