An Overview of the Bank- Customer Relationship in Nigeria

By Bello Damilola

INTRODUCTION

The importance of the bank-customer relationship in Nigeria cannot be over-emphasized, a great number of people in the country participate in bank related transactions, and this presents a need to understand the essential elements of the relationship. This article will attempt to give an overview of the fundamentals of a bank-customer relationship in Nigeria.

The Banks and other Financial Institutions Act 1991, defines a bank as a bank licensed under the Act. Section 258 of the Evidence Act [1] defines a bank or banker as a bank licensed under the Banks and other financial institutions and includes anybody authorized under an enactment to carry on banking business.

The Black’s law dictionary describes a bank in the context of a financial institution, as an institution of great value in the commercial world, empowered to receive deposits of money, to make loans  and to issue its promissory notes,(designated to circulate as money and commonly called bank-notes or bank-bills) or  to perform any one or more of those functions. It further explains that the term bank is usually restricted in its application to an incorporated body; while a private-individual making it his business to conduct banking operations is generally denominated a banker.

The Black’s law dictionary also defines a customer as one who regularly or repeatedly makes purchases of, or has business dealings with a tradesman or business house. In this context one who has business dealings with a bank.

There is no specific statutory definition of a customer of a bank however a bank customer may be referred to as a person who maintains an account in the bank. It may be deduced from the Provisions of BOFIA that a customer is a person who engages in the business of paying deposits on current account, savings account or other similar account, draws or  pays in cheques, receives finance or such other business as the Governor may, by order published in the Federal Gazette designate as banking business.[2]

THE BANK- CUSTOMER RELATIONSHIP

The Central bank of Nigeria is vested with the power to supervise and regulate banks and other financial institutions in Nigeria. The Banks and other financial institution Act (BOFIA) and the Central bank of Nigeria Act are the principal laws functioning to regulate financial institutions, bank practices, including the bank-customer relationship in the state. The Acts also operate to further empower the legal framework for the regulation of banks and other financial institutions in the country.

The relationship between a bank and its customer is mainly contractual in nature; the Contract primarily appears in the form of a debtor-creditor relationship. However, it must be noted that the bank-customer relationship may also appear in other forms depending on the circumstances of the transaction. According to M.C Okany, the relationship existing between the banker and his customer is that of a debtor and creditor, with the additional feature that the banker is only liable to repay the customer on payment being demanded. This position was further affirmed in the case of Hill v. Foley. [3] Lord Cottenham also explains that:

Money paid into a banker’s is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit he can which profit he retains to himself…he has contracted, having received that money, to repay to the principal when demanded a sum equivalent to that paid into his hands. [4]

In the case of Sani Abacha Foundation for Peace and Unity v.United Bank for Africa Plc. [5] The court also held implying that when a customer pays money to a bank, a contract arises between the parties in which the banker receives the money as a loan from the customer on a promise by the banker to honour the customer’s cheque or other orders made by the customer. However, it should be noted that this role is interchangeable, therefore in some cases, the customer can become a debtor to the bank while the bank, his creditor i.e. where a loan is advanced to a customer by the bank.

The bank may also assume the role of a trustee or an agent of the customer. This may be the case where a customer deposits  some treasury bills with his bank and the latter undertakes to receive the interest upon them or to renegotiate or make sale of them and to credit the customer’s account with the proceeds, the bank may well be in the position of  a trustee and might partly sustain a fiduciary character. Also, where a customer draws on his account with his bank by means of a cheque and the latter honours it, this sustains a relationship of agent and principal. [6]

The bank-customer relationship may be determined or terminated by a written agreement to close the bank account which may be by mutual agreement between the banker and customer, termination may be by death in which the balance may be transferred to the customer’s personal representative, and termination may also be by mental illness or winding up of the bank. A bank- customer relationship may also be terminated by a court order. [7]

DUTIES OF THE BANKER TO HIS CUSTOMER

1. Duty to honour cheques :

A banker is under an obligation to honour his customer’s cheques to the extent that the account is in credit or to the extent of the agreed overdraft. If a banker misleads a customer into thinking that he has sufficient credit to meet a cheque, the banker must honour the cheque. [8]

The obligation of the banker is to pay the creditor when he makes a demand or directs the bank to pay a person nominated by him. The customer deposits money in his current account and the banker undertakes to pay cheques drawn in favour of specified individuals or bearer against such deposits. [9] Where a bank fails to honour a cheque without reasonable cause, a breach of contract occurs and the customer will be liable to damages under the law.

2. Duty to exercise due care in the course of his dealings:

A banker has an obligation to apply reasonable care and skill in the course of its transactions with the customer, where a customer suffers a loss due to negligence caused by the banker, the bank will be liable in damages to the customer. The duty of care extends over the whole range of banking business within the contract with the customer. [10] In the case of Selangor United Rubber Estates Ltd. V Cradrock and ors, [11] the court held inter alia that a bank is under an obligation to exercise reasonable skill and care in carrying out the part of his contract. A bank also has the duty to take care in advising customers correctly on investments to make. [12]

3. Duty not to make unauthorized payments:

This is an important duty which simply implies that a banker must ensure that there is the existence of proper authorization from a customer before money is transferred from the customer’s account for any purpose. Failure to obtain proper authorization from a customer before making a payment out of his account may make the bank liable for negligence in the performance of his duty to the customer.

4. The duty of confidentiality:

A bank has the duty to conduct its business with the customer as private and strictly confidential. Section 37 of the 1999 constitution [13] of the federal republic of Nigeria also protects the right to privacy of citizens.

In Tournier V. National Provincial bank [14] The court also held inter alia that it is a further term of the implied contract that the bank enters into a qualified obligation not to disclose information about the customer’s affairs without his consent. The case also explains that in some exceptional cases, the duty of confidentiality may be set aside where: There is a compulsion of law, there is a public duty on the bank to disclose information about the customer’s transactions, Where it is in the interest of the bank to disclose where the customer has expressly or impliedly given his consent to the bank. [15]

Where it is established that a banker was negligent in the discharge of his duty to the customer and a breach of contract has occurred as a result, an action may be instituted in court, in which the bank in default will be liable in damages to the customer, a court injunction may also be obtained against the bank in order to restrain the bank from continuing an act injurious to the customer.

DUTIES OF A CUSTOMER

The duties of a customer are significantly limited in relation to that of a banker, however they are also of great importance whose breach may adversely affect the customer. Generally, the major duties of a customer to the bank are:

1. The duty to ensure that he draws his cheque or mandate in a careful and diligent manner in order not to facilitate fraud on the banker. In the case of London Joint Stock  bank ltd. V. Macmillan and Arthur, [14] the court upheld the rule that a customer owes a duty to the bank in the drawing of cheques, to take reasonable precautions against possible alteration of the cheque. [15] This implies that while a bank owes a duty to conduct his dealings with the customer with due care and diligence, the bank will not be liable where a breach of the duty of care owed by the banker was caused by the customer’s negligence in drawing his cheque.

However, it should also be noted that this duty which is owed only to the banker is limited to the drawing and signing of cheques, it does not extend to the choice of servants or to the keeping of cheque books. [18] This means that a customer will not be liable to the banker where mere carelessness in keeping his cheque book enables a third party to obtain a cheque leaf and forge his signature [19]

2. Duty to timeously make a report to the bank where a customer reasonably suspects that his account is being used for fraudulent dealings or where he suspects that his cheque or mandate has been or is being forged. [20] Where a customer fails to do so, he cannot rely on the defence that he had suffered a loss or injury due to the bank’s negligence as estoppel will operate to bar him from denying the validity of the fraudulent transaction.

CONCLUSION

The duties stated above have been narrowed down to represent the prevalent duties existing in a bank-customer relationship. The duty of care is not only owed by a bank, the customer must also ensure that he conducts his affairs with the bank with due diligence.

The enactment of laws for the purpose of regulating the bank customer relationship is commendable as the banking sector plays an important role in the day to day lives of many individuals in the state. However, emphasis should be further laid on the need for an exhaustive law covering all aspects of the banking business taking into consideration the new developments and trends in the banking sector.

Damilola is  a law graduate {bellodamilolaesther400@gmail.com}

REFERENCES

1. Evidence Act 2011, No 18, s. 258.
2. Kabiru Garba Muhammad, ‘An Appraisal of the Relationship between Banker and Customer in Nigeria’ [2015] 7(4) European Journal of Business and Management, 233.
3. Hill v Foley (1848) 2H LC28.
4. C Okany, Nigerian Commercial Law (Africana First Publishers PLC 2009) 541.
5. Sani Abacha Foundation for Peace and Unity v United Bank for Africa Plc (1933-1966) 1NBLR 241 at 253.
6. Nwabachili Chudi, ‘Bank-Customer Relationship’ [2015] 3(1) ­International Journal of Business & Law Research,
7. Felicia Olokoyo Omowunmi and others ‘Financial Systems Theory: Banker-Customer Relationship and Nigerian Deposit Money Banks Performance: An Empirical Investigation’ [2020] (15) Wseas Transactions on Systems and Control,
8. Nwabachili Chudi, ‘Bank-Customer Relationship’ [2015] 3(1) ­International Journal of Business & Law Research,
9. C Okany, Nigerian Commercial Law (Africana First Publishers PLC 2009) 545.
10. Olamide Benedicta Abe, ‘An Appraisal of the Legal Relationship between a Banker and its Customer: The Statutory Protection Afforded to Bankers in Nigeria in Paying Cheques’ [2017] 1(2) Unilag Law Review, 124.
11. Selangor United Rubber Estates Ltd. V Cradock and ors [1968] 2ALLER 1073.
12. C Okany, Nigerian Commercial Law (Africana First Publishers PLC 2009) 544.
13. Constitution of the Federal Republic of Nigeria 1999(as amended), Cap C23, LFN 2004, s. 37.
14. Tournier V National Provincial bank (1924) KB 461.
15. Olamide Benedicta Abe, ‘An Appraisal of the Legal Relationship between a Banker and its Customer: The Statutory Protection Afforded to Bankers in Nigeria in Paying Cheques’ [2017] 1(2) Unilag Law Review, 126.
16. London Joint Stock bank ltd V Macmillan and Arthur (1918) AC 777.
17. Olamide Benedicta Abe, ‘An Appraisal of the Legal Relationship between a Banker and its Customer: The Statutory Protection Afforded to Bankers in Nigeria in Paying Cheques’ [2017] 1(2) Unilag Law Review, 128.
18. C Okany, Nigerian Commercial Law (Africana First Publishers PLC 2009) 544.
19. Nwabachili Chudi, ‘Bank-Customer Relationship’ [2015] 3(1) ­International Journal of Business & Law Research,
20. ibid