The relationship between a bank and a customer embraces mutual duties and obligations and it is therefore necessary to know what in law is a customer. The statutes do not define who a customer is. For example under the Banking Act we have seen an attempt to define who a bank is but not who a customer is. Other statutes like the Bills of Exchange Act or the Cheques Act do not define a customer. The ordinary meaning of the word customer is a person who buys goods or services from a shop or business.
In the context of banking, it is difficult to define with exactness who a customer is. The main criteria as to whether a person is a customer or not or as to whether the relationship of a banker and customer exist is whether there exists in relations to that person an account with the bank through which transactions are passed. In the case of
THE GREAT WESTERN RAILWAY CO. V. LONDON & COUNTY BANKING CO. LTD. H.L A.C. 414
The case involved the question of who is a customer for purposes of the Bills of Exchange Act and Lord Davey at page 420 had this to say
“ it is true that there is not definition of customer in the Act. But it is a well known expression and I think that there must be some sort of account either a deposit or a current account or some similar relation to make a man a customer of a bank.”
Lord Brampton in the same case said at page 422
“it is not necessary to say that the keeping of an ordinary account is essential to constitute a person a customer of a bank. For if it were shown that cheques were habitually lodged with a bank for presentation on behalf of the person lodging them and that when honoured the amount was credited and paid to such person, I would not say that such transactions might not constitute such a person a customer.”
For a person to be a customer it matters not that the duration of the relationship is short or protracted in other words the duration when an account has been held is immaterial to the question of whether the status of the customer has been achieved and that is according to another English position in the case of Commissioners of Taxation v. English Scottish and Australian Bank Limited. (1920) A.C. 683
Their Lordships expressed themselves in the following language. Their Lordships are of the opinion that the word customer signifies a relationship in which duration is not of the essence. A person whose money has been accepted by the bank on the footing that they undertake to honour cheques upto the amount standing to this credit is in the view of their Lordships a customer of the bank irrespective of whether his connection is of short or long standing. The contrast is not between an habitué and a new comer but between a person for whom the bank performs a casual service such as for instance cashing a cheque for a person introduced by one of their customers and a person who has an account of his own at the bank.
Effectively even if all a person has is one transaction, it does not disqualify the person from being a customer of the bank in the case of
Landbroke v. Todd (1914) Vol 30 T.L.R
Single first transaction
Woods v. Martins Bank
Makes the point of explaining who a customer of a bank is and it is also relevant to the question of the responsibility a banker assumes when it advises customers. The other point made by this case is that it is not a matter of law but a question of fact as to whether any class of business amounts to banking business. It is not a matter of pure law to determine whether a firm at common law is a bank doing banking business it is a matter of interpretation. It is a matter of interpretation to see whether a person is a customer and who is not a customer.
WHAT ARE THE RESPECTIVE RIGHTS & OBLIGATIONS OF THE PARTIES
The nature of the bank customer relationship is contractual. It is a relationship based on contract and if you were to apply contract law to this question.
Foley v. Hill (1848) Vol H.L
There is an argument that the relationship of a banker and customer consists of a general contract which is basic to all transactions together with special contracts which arise in relation to the specific transactions or services that the Bank offers. The nature of the contract is described in a leading case of
Joachimson v. Swiss Bank Corporation. 1921 Vol. 3 A.B. 110
Lord Atkin in this case described that contract at page 127 in the following terms
“I think that there is only one contract made between the bank and its customer. The terms of that contract involve obligations on both sides and require statements. They appear upon consideration to include the following provisions. The bank undertakes to receive money and to collect bills for its customers account. The proceeds so received are not to be held in trust for the customer but the bank borrows the proceeds and undertakes to repay them. the promise to repay is to repay at the branch of the bank where the account is kept and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank, at the branch. It is a term of the contract that the bank will not cease to do business with a customer except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payments from the bank at the branch at which a current account is kept.
The debtor creditor relationship emerges in this quote.
Demand is necessary before the obligation by the part of the bank to pay becomes due.
The passage sums up the nature of the relationship on the contract.
The relationship entails mutual obligations as covered in Joachimson Swiss Bank Corporation