Relationship between banker & customer

COMMENCEMENT OF LEGAL RELATIONSHIP

 Contractual relation begins - When a person asks the banker to open an account, though cash/cheque yet to be deposited. Actual transaction strengthens the relationship  Banker-Customer contract is an exception to the rule that a debtor should find his creditor. Creditor (customer) has to make demand on the debtor (Banker)  Money deposited becomes Banker's property, absolutely at his disposal, acknowledges receipt of money as `debtor` with the obligation that the same is sufficient and available to honor customer's cheques

General Relationship  Debtor and Creditor:

1. The true relationship between banker and customer is primarily of a debtor and creditor. 2. When customer deposits money with a bank, the bank then is the debtor and the customer is the creditor.

 The customer expects from the bank that

1. His money will be kept safe by the bank 2. It will be returned on demand within business hours 3. The money will be intact and safe and will give something by the way of return (interest).  The position is reversed if the customer is advanced loan then the banker becomes creditors and the customer is debtors.

Special Relationship  Principal and agent:

1. The special relationship between the customer and the banker is that of principal and agent. 2. The customer (principal) deposits checks, drafts, dividends for collection with the bank. 3. He also gives written instructions to the bank to purchase securities, pay insurance premium, installments of loans etc on his behalf. 4. When the bank performs such agency services, he becomes an agent of his customer.

Relationship between banker & customer

Pawner and Pawnee:

1. When a customer Pledge goods and documents as security for an advance he then become Pawner (Pledger) and the bank becomes the Pawnee (pledgee). 2. The pledged goods are to be returned intact to the pawner after the debt is repaid by him.

Mortgager and Mortgagee relationship:

1. Mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan. 2. When a customer pledges a specific immovable property with the bank as security for advance, the customer becomes mortgager and banker is the mortagee.

BANKER AS A TRUSTEE;
 Main relation between Banker and Customer Debtor and Creditor [reversal when bank grants OD facilities]  Remittances made to bank to purchase shares, before buying stipulated no. of shares, bank failed- unspent money bank holding in trust  Banker received money from one party on behalf of another (later not a customer), bank enquired about purpose and intimated money meanwhile being kept in suspense, banker is a trustee  Banker must not be party to appropriation of funds inconsistent with the character in which customer holds them

AGENCY RELATION:
 When created 1. Buying and selling securities of customer 2. Collection of cheques, dividends, B/E or P/N 3. Acting as Trustee, Attorney, Executor, correspondent or a representative  Banker in fiduciary capacity for moneys received for a specific purposed, erroneously credited to suspense account 1. Banker as an agent bound to carry out directions of his principal conduct business of agency with such skill as is generally possessed by persons engaged in similar business BAILOR BAILEE RELATION  `Safe custody ` facility offered by the bank
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Relationship between banker & customer

 Bank is under no obligation to accept the property of the customer for safe custody, it is not primary function of bank  Wrong delivery of the articles kept with banker for safe custody to an unauthorized person is conversion (putting goods for ones own use)  Banks take charge of goods, articles, securities as bailee not as trustee or agent  Distinction between bailment and Agency  bailee does not represent bailor,  bailee has no power to make contracts on bailers behalf  He cannot make the bailor liable, for any acts he does

ADVISORY RELATIONSHIP:
 Banks are specialized agencies of the financial sector, persons seek banks advice on      Wealth management Project appraisal Loan syndication Financial engineering Portfolio management

 In case of securities market operations, registration and holding of valid certificate from SEBI, a prior condition  Lessor-Lessee Relationship- when owns a building and lets it out to a customer