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BANKER CUSTOMER RELATIONSHIP

Who are the parties to this relationship?


The Bank on the one hand and the customer on the other hand.  The word Bank and Banker and to an extent banking business will be used to mean bank.

What is a Bank?

Section 2 of the Banking Act which defines a Bank as a company which carries on or proposes to carry on banking business.  Banking business in time is defined under the Act to mean
1.            The accepting from members of the public of money on deposit repayable on demand or at the expiry of a fixed period or after notice.
2.            The accepting from members of the public of money on current account and payment on and acceptance of cheques.
3.            The employ of money held on deposits or on current account by lending investment or in any other manner for the account and at the risk of the person so employing the money.

That is the statutory definition

Common law meaning of a Banker, bank?

Is it different from that given under statute?
Is the common law meaning relevant in light of the statutory definition?

Certain statutes refer to the terms banks/bankers/banking business without definition.  In some cases, the definition that one finds in the statutes is different from the statutory definition under Cap 488 (Banking Act)   an example of this is the Bills of Exchange Act Cap 27 of the Laws of Kenya.  Under Section 2 of that Act, the definition of Banker is defined in the following terms
“Banker includes a body of persons whether incorporated or not who carry on the business of banking.  That definition appears on the face of it to be at odds with the definition under the Banking Act Cap 488 Laws of Kenya.  Firstly because the Banking Act refers to a company which as earlier pointed out refers to a company that is a corporate body.

Secondly it is at odds for the reason that section 3 of the Banking Act restricts the carrying on of banking business to institutions which when one looks at interpretation of Section 2 of the Banking Act will again refer  you to a company.  Where under Bills of Exchange a Bank includes a company whether incorporated or not the Banking Act only recognizes an incorporated company.  This could be one of the reason why the common law definition of Banking remains as to who is a customer and who is not a customer.
Another example of the statute which appears to recognize banks or banking business or bankers, outside of the ambit of definition under the Banking Act is the Cheques Act Cap 35 Laws of Kenya.

Cap 35 does not itself define any of those terms bank, banker or banking business but it makes reference to the term banker.  Section 2 (2) of that Act provides that it shall be read, i.e. the Cheques Act shall be read and construed as one with the Bills of Exchange Act.  Which therefore means that the meaning of the word Banker as ascribed under the words of the Bills Exchange Act would apply under the Cheques Act.

Why it is also relevance to examine the common law meaning of a ‘Banker’ according to the authors of Paget on Law of Banking is that a Banker at Common Law has a right of lien and set-off.  Essentially the right to retain until obligations are fully satisfied.

The meaning of the term banker at common law.  Is the meaning different from the statute meaning

In the case of  United Dominion Trust Ltd v. Kirkwood (1966) 1 All 968

This case is a leading authority on the question of the common law meaning of a Banker.  It is a court of Appeal decision and the Judges were Lord Denning, Lord Harman and Lord Diplok and to an extent all three judges differed on the law as well as on the application of that law to the particular facts of that case.

Lord Denning “Lonsdale motors ltd a private company which ran a garage business in a place called Carlisle.  The Defendant Mr. Kirkwood was the MD of that company and that he and his wife were the only shareholders of that company.  The Plaintiff UDT is a large public company which describes itself as bankers carrying on business at United Dominion House somewhere in the city of London. It is an important house and lends big sums of money to various people.  It has a high standard and includes Bank of England amongst its share holders.  It also owns a wholly owned subsidiary called United Dominion Trust Commercial Ltd. which does a lot of financing of hire purchase transactions and those two companies have branches in several towns in England where a single manager acts on behalf of both companies at those branches.  In 1961 Lonsdale Motors desired to buy cars to put those cars in their showrooms for sale and that they did not have money for that purpose and they therefore went to the branch manager of UDT and borrowed that money.  And as security for that borrowing they gave bills of exchange in favour of UDT.  Lonsdale motors then disposed of those vehicles after procuring them to customers who wanted them on hire purchase terms.  They went again to the branch manager who agreed to buy the cars from the company and let them out on hire purchase to the customers.  This case arises from a loan of five thousand pounds which UDT lent to Lonsdale.  The bills of exchange were dishonoured on presentation and UDT sued the Defendant.
The defendant had no defence to that case except that he raised a plea under the Money Lenders Act of 1900.  That defence was to the effect that UDT are unregistered money lenders and therefore they could not recover the five thousand pounds.  UDT in response said “we are not money lenders but we are Bankers and we can therefore recover this money”

If they are Bankers, they can recover if they are money lenders they cannot recover anything.

In answering that question, Lord Denning at pg 74 set out the characteristics of Banking.

Seeing that there is no statutory definition of Banking one must do the best one can to find out the usual characteristics which go to make up the business of banking.  In the eighteenth century, before cheques came into common use, the principle characteristics were that the Banker accepted the money of others on the terms that the person who deposited it could have it back from the Banker when they asked for it.  Sometimes on demand at other times on notice and meanwhile the Banker was at liberty to make use of the money by lending it out at interest or investing it on mortgage or otherwise.

You notice that those characteristics do not mention the use of cheques or the keeping of current accounts.  The march of time has taken us far beyond the cases of the Eighteenth Century.  Money is now paid and received by cheque. 

There are therefore two characteristics usually found in bankers today.

1.            they accept money from and collect cheques for their customers and place them to their credit
.
2.            They honour cheques or orders drawn on them by their customers when presented for payments and debit their customers accordingly.

These two characteristics carry with them also a third namely
3.            they keep current accounts or something of that nature in their books in which the credits and debits are entered.

Lord Denning continues

Page 979  thus far the evidence adduced by UDT would not suffice to show that ….  The usual characteristics are not the sole characteristics there are other characteristics that go to make a banker, soundness and probity parliament would not                     to a ramshackle concern whose methods are dubious.

Reputation is also an additional consideration in this enquiry.

Lord Harman says It is difficult to define banking business and he identifies the principle attribute or characteristic by saying that a banker is one who carries on as his principle business the accepting of deposits of money on current account or otherwise subject to withdrawal by cheque draft or

He differs with Lord Denning on reputation and says that reputation on its own is not enough.

Lord Diplock on his part says that it is essential to the business of banking that a banker should accept money from his customers upon a running account into which sums of money are from time to time paid by the customer and from time to time withdrawn by the customers.  He says the payment in collection of cheque is also essential.

What therefore is the ratio of UDT v. Kirkwood – it is that the 3 characteristics namely conduct of current account, payment of cheques and collection of cheques are essential to the carrying on of banking business and that evidence of reputation is potentially relevant.

 
 
 

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