RELATIONSHIP OF

BANKER AND CUSTOMER

1. Definition Of Bank And Banking Business
2. Definition Of Customer
3. Rights & Duties Of Banker & Customer
4. Types Of Relationship
5. Contract Between Banker & Customer
 Limitation of action
 Set-off
 Banking secrecy
 Appropriation of Payments
 Standing orders
 Banker’s opinion
 Bank statement
 Termination of banker/customer relationship
 Mareva Injunction
 Garnishee Order
 Financial Institutions Financial Markets
Banking System Money & Foreign Exchange
•Bank Negara Malaysia (BNM) FIN 360 •Money Market
•Banking Institution (LEGAL) •Foreign Exchange Market
 Commercial Bank
 Finance Bank
 Merchant Bank
•Others Capital Market
Discount House •Equity Market
Representative Office of Foreign •BondMarket
Banks •Public Debt Securities
Offshore Banks in Labuan IOFC •Private Debt Securities

Non-Bank Financial Intermediaries

•Provident and Pension Funds Derivative Market
•Insurance Companies •Commodity Future
•Development Finance Institution •KLSE CI Futures
•Saving Institution •KLIBOR Futures
National Saving Banks
Co-operative Societies
•Other Non-Bank Financial Cagamas Berhad Offshore market
Intermediaries Credit Guarantee Corporation •Labuan International Offshore
Unit Trust Leasing Companies Financial Centre
Pilgrims Fund Board Factoring Componies
Housing Credit Institution Venture Capital Companies
Under Section 2 (BAFIA 1989), defines:

Bank a person which carries on banking business which includes the business of:-

• Receiving deposit (money) in any currency or deposit account. Deposit

accounts are current account , fixed deposit account, savings account or other
similar account

• Paying or collecting cheque drawn by or paid in by customers

• Providing loans and advances to customers

• Any provisions allowed by the Ministry of Finance

In Malaysia, no person is permitted to carry on the business of
banking unless:-
1. It is a public listed company
2. It holds a valid license issued by Ministry of Finance

Case: United Dominion Trust Ltd vs Kirkwood (1966)

It was held that the definition of the banks as follow:-
 Accepting money and collecting cheque for their customer
and credited it into their accounts
 Accepting cheques and makes payment on behalf of their
customer
 The keeping of some form of current or running accounts in
their books in which the credits and debits are entered.
No statutory or legal definition.

Common law gives the definition of customer as “ a person who has an account
with the bank”. Widely used in Malaysian Banking System.

There are other 5 definitions of customer based on the following case:

A. Case 1: Woods vs Martin Banks (WVM)

B. Case 2: Ladbroke & Co vs Todd (LVT)

C. Case 3: Great Western Railway vs London & Country Banking Co Ltd. (GVL)

D. Case 4: Oriental Bank vs Rubber Industry (OVR)

E. Case 5: Hedley Byrne vs Heller (HVH)

 KEYWORD:
a) CASE 1: Woods vs Martin Banks (1959) SERVICE + INTENTION

The relationship of banker and customer existed as from the date when the bank
accepted the instructions contained in the letter even though an account was not
opened until three weeks after that date. A customer is a person who has been
provided with a specific service by a bank and who intends to open an account. E.g.
Customer seek bank advice on several loan products but he has no account with the
bank.
KEYWORD:
b) CASE 2: Ladbroke & Co vs Todd (1914) APPLICATION

A person is a customer of bank when an application to open an account has been

accepted and opened; length of time the account is open is not important. E.g. Bank
opens saving accounts for 1,000 factory workers. Workers fill in the application forms
but bank needs 1 week to key in all data into bank computer system
 KEYWORD:
ACCOUNT
c) CASE 3: Great Western Railway vs London & Country Banking Co Ltd. (1901)
A person is a customer only if he has an account with the bank. E.g. a walk in customer who go to
encash/withdraw a cheque in ABC Bank is not necessary has an account with any particular bank
and as such is not a customer. This definition is the same as Common Law definition and used in
Malaysia banking system

KEYWORD:
d) CASE 4: Oriental Bank vs Rubber Industry (1957) TRANSACTION

A single transaction would suffice to make a person a customer of the bank. E.g. Choong opened
saving account and paid in initial sum of RM 1,000. He then migrated to Australia and he did not
perform any other transactions after that.

KEYWORD:
ADVICE
e) CASE 5: Hedley byrne vs Heller (1963)
When a person accepts advice from a bank, that person can be considered as a customer of that
particular bank. E.g. Ali seek bank’s advice on how to send money oversea to his son in England.
 Example of Final Exam Questions

1. Discuss the definition of bank. (5 marks)

2. Elaborate five definitions of customer based on legal cases.
(10 marks)

HOW TO ANSWER?
MEE

MAIN POINT + EXPLANATION +

EXAMPLE
Banker Customer
Rights Rights
• Charge Statement
• Set-off Withdraw
• Use Interest
• Indemnified
Appropriate
• Repaid
• Expect
• Lien

Duties Duties
• Collect Care
• Pay Notify
• Notice Cheque
• Secrecy Record
• Care/ Skill
Sufficient funds
• Statement
• Garnishee Order
a) The right to charge a reasonable remuneration/charges for its services such as
interest on loans.

b) The right to set-off or combine accounts but cannot set off debit balance in
loan account against a credit balance in deposit account.
CASE: Buckingham & Co vs London & Midland Bank Ltd (1895)
Bank was liable for setting off current account against loan account unless
there is an express/implied agreement to the contrary.

c) The right to use money with it as it wishes such as giving loan.

CASE: Foley vs Hill (1848)

d) The right to be indemnified for loss incurred when carrying out a service for a
customer. Bank are protected from being sued by customer in case of
mistakes.
e) The right to be repaid on demand for an overdraft unless any
written agreement specifies otherwise E.g. Ali’s overdraft are
automatically renew every year by bank.

f) The right to expect the customer to take due care when issuing
cheques.
CASE: London joint Stock Bank vs MacMillan & Arthur (1918)
Customer was bound to exercise reasonable care when
drawing/issuing cheques to prevent the bank from being
misled/mistake.

g) The bank may claim a right of lien over the customers’ property
coming into its hand in the normal course of business and
including cheques lodged for collection. Bank has right to sell
property charged such as housing loan if borrower fail to pay
a) Collect the money and cheques that a customer has paid in.

b) Pay on demand all cheques and written orders during banking hours and at
account holding branch provided that:
i. Customer has sufficient funds in his account or within the limits of the
agreed overdraft.
ii. There are no legal bars to payment such as no stop payment.
iii. There are drawn in the proper form. E.g. no alterations on the face of
the cheque.

c) Give notice of closure of a credit account so that a customer can make

suitable alternative arrangements.
d) Secrecy of customer account must be strictly observed with the
exception of certain instances where information can be
revealed such as court order.

e) Exercise care and skill when dealing with customers.

f) Send regular statement of accounts usually monthly basis

g) Duty with regard to Garnishee Order, this order are given by the
Court only.
*Garnishee order – a court order instructing a garnishee (a bank) that funds held on behalf of a debtor
should not be released until directed by court. The order may also instruct the bank to pay a given sum
to the judgment creditor from these fund.
 Example of Final Exam Questions
1. Explain the two (2) duties and rights of a banker. (10 marks)
2. Describe four (4) duties of the banker. (8 marks)
3. Describe four (5) rights of the banker. (10 marks)

HOW TO ANSWER?
MEE

MAIN POINT + EXPLANATION +

EXAMPLE
a) Right to be supplied with a statements or passbook and to
maintain a high degree of accuracy in their book keeping.

b) Right to be repaid the balance standing to the credit of the

customer’s account. Customer can withdraw his money
without bank intervention.

c) The customer has right to gain interest on his deposit accounts

but not on current account. Only some government agencies
such as schools where bank pay interest on their current
account.

d) Where a customer has two or more accounts, he has the right

to appropriate payments made to any of the accounts as he
chooses. E.g. Visa & Mastercard
a) Customer must exercise reasonable care in drawing his cheque as not to misled his
banker or to facilitate forgery. No blank in front of word.
CASE: London joint Stock Bank vs MacMillan & Arthur (1918)

b) Duty to notify bank promptly of any forgeries.

CASE: Greenwood vs Martin Bank (1933)
A customer should inform the bank immediately of any false alteration of a cheque.

c) Customer should only use the cheques forms supplied by the bank for issuing cheques.
E.g. EON bank customer cannot use Affin cheque.

d) Customer should maintain proper records of all cheques issued.

e) Customer undertakes not to issue any cheques unless he has sufficient funds in his
account to cover or pay the cheque.
 Example of Final Exam Questions

1. Explain the two (2) duties and rights of a customer. (10 marks)
2. Describe four (4) rights of the customer. (8 marks)
3. Describe four (5) duties of the customer. (10 marks)

HOW TO ANSWER?
MEE

MAIN POINT + EXPLANATION +

EXAMPLE
 Trustee and
Contractual in
Beneficiary Special Relationship
Nature
Relationship (Bank as adviser)
(Based on contract)
(Bank as trustee)

Debtor and Creditor Principal and Agent

Relationship Relationship
(Bank as debtor) (Bank as agent)
 A relationship BASED ON CONTRACT
 The relationship between a banker and customer is limited to what stated in an
agreement.

 It is controlled according to 4 factors:

i. Rules of general contract. Involve min 2 parties.
ii. Rules of agency of which may be applied. To follow special arrangement as
agreed. E.g. account to be used for specific purpose and specified time frame.
iii. Generally banking practices. Fill in standard form
iv. Different type of relationship formed based on transactions. E.g. Ahmad was
advised by bank to open account for easy transfer of money from his father.

CASE: Bunnet vs Westminstar Bank Ltd (1966)

Bank must forward new terms and regulations or conditions suggested for
customers’ attention as well as agreed upon by the customers. Bank also need to
inform guarantor if any.
 Bank may become as constructive trustee. When this trust duty exist, it require good faith for the
relationship to exist. This relationship is independent of the contractual relationship between the bank
and customer.
 Bank has fiduciary duty to the guarantors who are also its customers.
 For example, bank has a duty to properly advise its customer (who is also a guarantor) before he sign
the guarantee form.
 Bank has duty to exercise reasonable care and skill in transacting its customer’s banking business,
including making inquiries in given situation whereby the authorized signatories were misusing their
authority for the purpose of fraud.

CASE: Lloyds Bank vs Bundy (1975 )

Bankers’ fiduciary duty to guarantors who are customers at the bank. A fiduciary duty is based on
trust.

CASE: Karak Rubber Co Ltd vs Bundee & others ( 1972 )

Directors using company funds to purchase company’s share in contravention of section 67
Companies Act. The court held that the Bank was liable on the ground that it has a constructive
trustee. Bank failed to advice the customer about this irregularity
 The relationship that the bank and customer may enter into during the course of their
dealing such as become Financial adviser or broker

Concept of Undue Influence

It is an influence that prevents someone from exercising an independent judgement

with respect to any transactions. To avoid this, customers are advised to obtain

independent legal advice from lawyers before signing any important documents.

E.g. A father forced his son to become guarantor for his business loan.
 When customer (borrower) borrows money from the bank. So the other customers i.e depositor
become creditor and bank become debtor.

 Bank will use whatever money that the customers deposit to provide services.

 Bank owns the money once it is deposited by customer to the bank, but the bank is obliged to
return the same amount of money when requested by the customer.

 This relationship is regard as any money deposited by the customer with the banker and as
regards any money lend to the customer by the banker

CASE: Foley vs Hill (1948)

Stated where it is that of debtor and creditor, with the roles reversed where the customer is relying
on loan from the banker. The bank here is not to be regarded as a trustee of the monies deposited
with it and is not accountable for the use of the monies but only for the actual sums borrowed /
used.
 CASE: Joachimson vs Swiss Bank Corp (1921)

i. Bank is under no obligation to repay the money of the customer

unless the customer makes a demand. E.g. Customer fill in
withdrawal form or using cheque to withdraw money
ii. Bank’s obligation to pay is conditional upon the cheque being
issued in proper form. E.g. no alteration on the cheque.
iii. Bank’s promise to repay is at the branch where the account is
kept. E.g. Customer cannot withdraw money at any other
branches
iv. Customer must have sufficient funds in his account for the bank to
make payment. E.g. Customer cannot withdraw amount more
than what he has in his account.
 Happens when the customer gives the banker a mandate
/instruction to perform certain transaction such as to buy or sell
shares.

 So, customer is a principal and bank is an agent or act as Broker.

Customer need not have to maintain saving or current account with
the bank
 Example of Final Exam Questions

1. Discuss five (5) types of relationship between bank and customer.

(10 marks)

HOW TO ANSWER?
MEE

MAIN POINT + EXPLANATION +

EXAMPLE
1. Limitation of Action 2. Set-off 3. Banking Secrecy

4. Appropriation of
5. Standing orders 6. Banker’s Opinion
Payments

9. Interference By
8. Termination of
3rd Parties On Bank
7. Bank Statement Banker/Customer
& Customer
Relationship
Relationship
The Limitation Act 1980 statute prohibits legal actions in simple contract when
the cause of action arose more than SIX years previously.
If plaintiff wait after 6 years to start legal action, the plaintiff will lose the case
because of “statute barred”.
Statute barred = legal action is prohibited from being started. The law barred the
legal action.

CASE: Joachimson vs Swiss Bank Corp

A 6 years period under limitation of action does not begin to runs against the
customer until he/the bank has made the demand ( sent letter)

Two different situations:-

A. Account in CREDIT balance
B. Account in DEBIT balance
1. If the account in CREDIT balance.
a) The account must be dormant.
b) First warning or demand letter must be issued 6 years ago.
NO DEMAND LETTER STILL CAN START LEGAL ACTION
CANNOT COUNT 6 YEARS
Year 1 2 3 4 5 6 7

YES DEMAND LETTER CAN COUNT 6 YEARS LEGAL ACTION IS STATUTE

BARRED
(CANNOT SUE)

2. If the account in DEBIT balance.

a) Action such as legal procedures must be taken before the 6 year period starting from the last transaction of
overdraft made. Bank may not be able to take any action against customer in respect of debit balance after the
expiry of 6 years from the date on which the cause of action accrued.
LAST OVERDRAFT TAKE LEGAL ACTION WITHIN 6 YEARS – CAN
TRANSACTION SUE
Year 1 2 3 4 5 6 7
LAST OVERDRAFT
TRANSACTION
NO LEGAL ACTION TAKE LEGAL ACTION AFTER 6 YEARS –
STATUTE BARRED
(CANNOT SUE)
 It is 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

 The right of set-off arises when the customer has more than one account at the same
branch of a bank or at two or more branches of the same bank

 A bank can set off it customer’s account ( other than loan account) at anytime unless there
is an express or implied agreement to the contrary.

 Example:

Mr. A has two account with the same branch of a bank. One account is in credit account has a
balance of RM500, while the other in debit has a balance of RM300. Mr. A draws a cheque
RM250 against the account with credit balance, the bank is entitled to combine both
accounts and rejected the cheques since the net credit balance is only RM200
Loan account cannot be set off anytime – bank must give reasonable time to the
customer

Two situations when the rights to set off arise:-

A. Right to set off where accounts are stopped.
a. On the death, mental incapacity or bankruptcy of customer.
b. Winding up of a company.
c. On the receipt of a garnishee order.

B. Right to set off when accounts are not stopped

Can be set off anytime unless there is an express or implied agreement to the
contrary.

CASE: Buckingham & Co vs London & Midland Bank ( 1895

Bank was liable for setting off current account against loan account because
there is an exist of express/implied agreement to the contrary.
Reasonable notice has to be given to a customer when closing a current and loan
account.

Conditions to be fulfilled before any set off can be done:-

a) Debts amount must be certain.
b) Debt must be due.
c) Accounts must be of the same right.
d) There must not be an implied or express agreement of the set-off will not be
done.

The following accounts cannot be set – off:-

a) A private debt account and trust credit account.
b) A deceased credit account and executor’s debit balance and vice versa.
c) A customer’s credit account and a contingent liability on bill discounted.
d) A solicitor’s direct account and a visitor’s overdrawn current account (client’s
account).
 A bank owes a duty of secrecy to its customers and should not reveal details of the account or their
financial affairs even though the account has been closed UNLESS with customer’s consent, express or
implied

CASE : Tournier vs National Provincial & Union Bank of England.

 The secrecy duty could be overridden in 4 main circumstances:-

i. Disclosure under compulsion of law. Court order. E.g. court order

ii. Disclosure is required in the public interest to prevent fraud and crime. E.g. money laundering

iii. Disclosure in the interests of the banks whom a bank sues a customer to repay a loan, certain
information like the balance outstanding may be disclosed in the court. E.g. bank sues customer
to repay loan

iv. Express and implied consent of customers where customer expressly authorizes his bank to
disclose his affairs to a third party such as Bank to Bank.
 When a debtor (customer) owes a creditor (bank) several debts and makes a payment
insufficient to clear or settle all the debts, then an

 Appropriation of payments may be made to clear specific debts.

 Appropriation of payments may arises in two different situations:

A. When a customer has 2 or more accounts with the same bank and pays/deposits
money in. The money will be appropriated to one of the accounts.

B. When a customer has one account and he pays/deposit money in to it as well as

drawing cheques on it. Appropriation will settle the issue of which payment in relates
to which payment out.

 If the debtor makes no appropriation, the creditor/bank may make any appropriation he
chooses provided that the debtor has a genuine opportunity of appropriating and failed to
take it.
RULE OF CLAYTON’S may apply when there is no specific appropriation by either
the debtor or creditor.

The rule states that:

A. If the account continues or goes into CREDIT, the first payments into the
account are extinguished or reduced by the first payments out. ( C – FIFO )

 Account – credit = C-FIFO (1st in settle 1st out)

B. If the account continues or goes into DEBIT, the first payments out of the
account are repaid or reduced by the first payment in ( D – FOFI)

 Account – debit = D-FOFI (1st out settled by 1st in)

 C – FIFO
IN OUT BALANCE.
■ 3/1/06 +1,000 Cr
■ 4/1/06 200 * +1,200 Cr
■ 5/1/06 300 ^ +1,500 Cr
■ 6/1/06 150” +1,350 Cr
■ 7/1/06 100 ‘ +1,250 Cr

■ * First In 200 will settle “ First Out 150

■ ^ Second in 300 will settle ‘ Second Out 100
 D – FOFI
■ Date IN OUT Balance
■ 2/1/06 + 100 Cr
■ 3/1/06 600* - 500 Dr
■ 4/1/06 400^ - 900 Dr
■ 5/1/06 600” - 300 Dr
■ 6/1/06 500’ + 200 Cr

■ * First Out 600 will be settled by “First In 600

■ ^ Second Out 400 will be settled by ‘ Second
in 500
 It is a standing instructions 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.

 The customer however must sign standing order form according to the account mandate.

E.g. A customer request in writing to a bank to remit insurance premium payment to his
insurance company AIA.

 Practical considerations:

i. If the customer’s account is insufficient to allow payment to be made on the correct date, then
the bank incur no liability for failing to obey the order.

ii. If instruction received from the payee to cancel an order, it must be disregard unless confirmed
by the customers.

iii. If a bank receives an enquiry from a payee asking why standing order has not been paid, he
should be advised to contact the customers direct to ascertain the reason.
 Reports or opinions of bank regarding the financial standing or credit worthiness of customers.

 Bank provides information about their customers to third party upon request. Bank normally request
customer’s consent or approval first before releasing the information to third party such as MARA,
Embassy of US, Universities

CASE: Parsons vs Barclay & Co ( 1910 )

It was held that a bank giving his opinion to another bank was an established practice among banks.

CASE: Hedley Byrne & Co Ltd vs Heller & Partners Ltd ( 1964 )

It was accepted that a banker is under a duty to exercise care when giving a reference on his own
customer to a third party if he knew or ought to have known that a third party would rely or act on such
information given.
8 practical considerations expected of a bank when giving his Banker Opinion.

i. The balance of customer’s account must never be revealed unless with permission.

ii. The reply must in general and not too specific.

iii. Bank is under no duty to obtain information from outside sources.

iv. A disclaimer must accompany both telephone and written replies.

v. Any debentures must always be mentioned. E.g. Housing loan.

vi. The authenticity of all telephoned enquires should be verified and reply given
should be recorded.

vii. No direct enquiry received from a firm or public be answered unless specific
permission from customer.

viii. Records of all enquiries received should be maintained.

 2 Possible Liabilities/ Responsibilities/ Obligations When Give BO
Possible Liability to own Customer
i. Breach Of Contract
 Breach duty of secrecy except bank to bank. Bank is
to obtain express consent from customer before it
provides an opinion.
ii. Libel or Slander
 gives unfavourable opinion of customer position
which can cause decline in customer’s credibility.
Possible Liability to Inquirer
i. Fraudulent Misrepresentation
– giving wrong or inaccurate information either
intentional or unintentional.
ii. Negligence
– it arises where a banker’s opinion was given
resulting in a loss to the recipient. Bank normally
will incorporate a disclaimer of liability in its
opinion, which makes it clear that the bank does
not want to assume responsibility for its statement.
CASE: Hedley Byrne & Co Ltd vs Heller Partners (1963)
It was held that bank is under a duty to exercise care
when giving a reference on his customer to a third
party, if he knew to have known that a third party
would reply on such information
 It is one of the duties of a bank to send bank statements to customers. It shows the
number and debit and credit entries in a customer’s account.
 There is an implied agreement between the 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, the 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.
 If both parties do not raise any objections to the account, the statements will be
considered or would be constitute a settled account.
 In the absence of an express agreement between the banker and his customer, there is no
duty on the part of the customer to check his bank statements.

CASE: Kepitigalla Rubber Estates Ltd vs National Bank of India Ltd (1909)
It was held that in the absence of any express agreement between the banker and his
customer, there is no duty on the part of a customer to check his bank statements. Bank
cannot force every customer to check his or her bank statement.
 Termination of contract means, the contract between banker and customer cease to exist.
 Even if the contract is no longer in effect, the duty of secrecy on the customer’s account will be still
maintained.
 A contract between a banker and customer can be terminated/stop under the following conditions:
a) By mutual agreement
b) Unilaterally
i. Termination by bank
ii. Termination by customer
c) Closure by operation of law
i. Customer liquidation
ii. Bankruptcy
iii. Death
iv. Mental incapacity
v. Garnishee order
a) By mutual agreement. Both parties must agree to end the account.

b) Unilaterally – where one party close the account without other party approval.
i. Termination by bank
Bank must give a reasonable notice before closing a customers’ account which is in CREDIT
balance. E.g. Dormant Account
CASE: Prosperity Ltd vs Lloyds Bank Ltd
It was decided that the customer were entitled to reasonable notice before their account could
be closed by bank. Customers may sue the bank if the bank fails to provide sufficient notice to
them. It was held that one month notice is not sufficient to close customers account.

ii. Termination by the customer

Customer is not obligated to give the bank any prior notice of his or her intention to close an
account.
CASE: Wilson vs Midland Bank Ltd
Bank must get written confirmation from the customer whenever he intends to close account.
c) Closure by Operation Of Law
i. Customer liquidation
• Company may enter into liquidation i.e. winding up either compulsorily (ordered by court) or voluntarily (under
resolution of a company).
• When the company has been wound up, the relationship between banker & customer come to an end.
ii. Bankruptcy
• Check status confirmation with official assignee office.
• When customer has been adjudicated as bankrupt, the bank may requested to close the account.
• When the account is closed, the relationship between banker & customer is terminated.
iii. Death
• Check status confirmation by asking death certificate from family/relative
• When a customer died, it terminates the authority given to the banker and thus has the effect of terminating the
relationship between banker & customer.
iv. Mental incapacity
• As soon as the banker knows that a customer is mentally incapacitated, the banker should stop the customer’s
account.
• When the banker stops the customer’s account, the relationship between banker and customer is terminated.
v. Garnishee order
• If bank receive GO, bank must stop all operations on his customer’s account.
• During the period, the relationship between banker and customer is being terminated.
i. Mareva Injunction

• A third party cannot properly intervene without legal process. They can intervene by
obtaining an injunction restraining the customer from withdrawing the money pending
the court’s decision on the ownership of the money. If the bank is notified that such an
injunction has been granted, the bank should dishonors cheques subsequently
presented with the answer ‘ injunction granted’.

• So, a Mareva Injuction is an ex parte ( by one party in the absence of the other )
granted by court to restrain the defendant from removing assets from the jurisdiction
pending trial. It may take in the form of a general order freezing all the assets of the
defendant with a particular bank or it may take the form of a maximum sum order.
ii. Garnishee Order ( GO )

• A garnishee order is a court order served by the Judgement Creditor ( person who lend money )
attaching the funds and property belonging to the Judgement Debtor ( person who owe money )
in the possession of a third party ( the bank ) forbidding him ( the bank ) from releasing the fund
attached until a direction as to their disposal is received from the court.

• The court must be served on the Judgement Debtor to be effective.

• A bank on being served a GO must stop all operations on his customer’s account and hold the
balance to the order of the court, except where the order is for a limited amount in which case
the bank will pay the said sum to the court and allow the account to continue.

• An account which has been attached by the GO may be subsequently released by the court by
notice in writing or 4 months from the date of service if no letter from court.
Rules Relating to Garnishee Order (GO)

 The funds must be in the same name or names as GO

 The funds must be immediately owing or accruing due to customer. Subsequent funds paid into the
account after the receipt of GO are not attached.

 Funds held by subject of a GO in trust for others are also attached.

 GO will not attach joint account and partnership account moneys unless all parties name appear in
GO.

 Uncleared cheques paid in earlier than date of GO but not yet cleared by paying bank are not
attached. If the cheque is cleared, then the amount will also be attached too.

 Cheques drawn by the judgement debtor but not yet cleared by the bank on the day of receipt of GO
should be return unpaid, unless there are sufficient funds ( after deducting the amount stated on GO
and cost )
Steps in GO

i. Freeze those accounts connected to the judgement debtor or customer concerned EXCEPT Joint
account ( joint account with another party), Partnership account and Limited company account

ii. Stopped the following accounts by bank upon receiving the garnishee order including Personal
saving account (credit only), Personal current account (both debit or credit) and Trust account
(cannot be used to pay the garnishee amount to avoid breach of trust)

iii. Set – off or deduct any withdrawals from personal savings and current accounts before garnishee
order was received by bank. Time and date are important

iv. Add the balance of BOTH saving and current account which must in CREDIT balance and the total is
used to pay the garnishee sum or judgement costs. Any cheques deposited but not yet cleared such
as outstation cheque, the amount will be excluded in the calculation

v. The balance after deducting the debt from both savings and current accounts can be utilized to pay
other withdrawals if balance is sufficient. Trust account can only be continued after GO is done

vi. Other accounts ( partnership, joint and limited company ) operate as usual before and after paying
GO
 Example of Final Exam Questions
1. Write short notes on limitation of action. (5 marks)
2. Write short notes on set-off. (5 marks)
3. Write short notes on banking secrecy. (5 marks)
4. Write short notes on appropriation of payment. (5 marks)
5. Write short notes on standing order. (5 marks)
6. Write short notes on banker’s opinion. (5 marks)
7. Discuss three ways relationship between bank and customer can be terminated. (10 marks)
8. Discuss five situations relationship between bank and customer can be terminated due to operation by law. (10
marks)
9. Differentiate between mareva injunction and garnishee order. (4 marks)
10. Write short notes on the following; HOW TO ANSWER?
a) Mareva injunction (5 marks) MEE
b) Garnishee order (5 marks)
MAIN POINT + EXPLANATION +
EXAMPLE
*PLEASE REVIEW YOUR PAST YEARS*