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CONTRACT BETWEEN BANKER AND CUSTOMER - Coggle Diagram
CONTRACT BETWEEN BANKER AND CUSTOMER
Appropriation of payments
If there is no specific appropriation by either debtor and creditor, then Rule of Clayton's may apply. The rules state that
If account goes into DEBIT, first payments out of the account are reduced by the first payment in
If account goes in to CREDIT, first payments into the account are reduced by first payments out
If debtor makes no appropriation, creditor/bank may make any appropriation he chooses
May arise in 2 different situations
When customer has one account and he pays/deposit money in to it as well as drawing cheques on it
When customer has 2 or more accounts with the same bank and pay/deposits money in
When a debtor owes a creditor several debts and makes a payment insufficient to clear or settle all the debts, it can be made to clear specific debts
Banking secrecy
Only under following conditions bank can reveal customer's information
Disclosure under compulsion of law
To fulfil of a garnishee order
Disclosure is required in the public interest to prevent fraud and crime
Express and implied consent of customers
Disclosure in the interests of the banks whom a bank sues a customer to repay a loan
Section 133, FSA 2013 provides that all officers of licensed institutions are under legal obligation to keep secret the affairs of its customers
A bank owes a duty of secrecy to its customer and should not reveal details of the account or their financial affairs unless with customer's consent, express or implied
Limitation of actions
Limitation Act 1980 prohibits legal actions in simple contract when the cause of action arose more than 6 years previously
If account in
debit balance
, legal procedures must be taken before 6 years period starting from the last transaction of overdraft made. Bank may not be able to take any action against customer after expiry of 6 years from the date on which the cause of action accrued
If account in
credit balance
, the account must be dormant. First warning or demand letter must be issued 6 years ago
Set Off
A legal right due to a banker to take into account the sum immediately owing to the bank by customer as credit or when determining the net sum due to the customer. Customer must have one account at same branch or other branches of the same bank
Bank can set off his customer's account at any time
Right to set off where accounts are stopped
Death
Mental incapacity
Bankruptcy of customer
Winding up of a customer
On the receipt of a garnishee order
Right to set off accounts are not stopped
Can be set off anytime unless there is an express or implied agreement to the contrary
Conditions to be fulfilled before set off can be done
Debt must be due
Accounts must be of the same right. Saving and current account only
Debt amount must be certain
There must not be implied or express agreement of the set-off will not be done
Accounts cannot be set-off
Deceased credit account and executor's debit balance ad vice versa
Customer's credit account and a contingent liability on bill discounted
Private debt account and trust credit account
Solicitor's direct account and a visitor's overdrawn current account
Standing order
A standing instruction given to the bank by their customer to make regular periodic payments to a third party from the customers' account of the same bank or other banks
Practical considerations
If instruction received from the payee to cancel the order, it must be disregard unless confirmed by the customer
If bank receives an enquiry from a payee asking why standing order has not been paid, he should be advised to contact customers direct to ascertain the reason
If customer's account insufficient to allow payment to be made on the correct date, then bank incurs no liability for failing to obey the order
Bankers opinion
Reports or opinions of bank regarding the financial standing or credit worthiness of customers. Bank provides information about their customers upon request by his customer. Bank normally request customer's consent or approval first
8 practical considerations expected of a bank when giving his Banker opinion
Balance of customer's account must never be revealed unless with permisssion
Reply must in general and not too specific
Bank is under no duty to obtain information from outside sources
A disclaimer must accompany both telephone and written replies
Any debentures must always be mentioned
The authenticity of all telephoned enquiries should be verified and reply give should be recorded
No direct enquiry received from a firm or public be answered unless specific permission from customer
Records of all enquiries received should be maintained
Bank Statement
One of the duties of a bank to send bank statements to customers
There is an implied agreement between bank and its customer that the bank will deliver statements of accounts to customers. This provides opportunity for the customers to verify the balance of his account with the bank
Where discrepancies exist, bank contends that the customer is liable and has the duty to scrutinize or check his bank statements and to inform the bank about the discrepancies