Law of Banking and

Instruments of Payment
LWPYA2-44

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Week 2: Lesson 1
The Bank-Customer Relationship

2.1 Analyse the bank-customer relationship

concerning formation, the underlying
contractual nature of the relationship, rights
and duties of parties and termination.

2.2 Apply the theory, relevant statutes

and case law to a set of facts
concerning the bank-customer
relationships.
The bank as a legal person
The bank as a legal person
It can, inter alia,
A bank is a separate acquire rights and
legal person incur obligations in its
own name

It can own property

It must be represented
and can sue and be
by human beings,
sued

• Banks operate
through separate
branches,
Questions for Discussion
Discussion

Vicarious liability Discuss the bank’s liability in criminal law or delict

Discuss the requirements for the vicarious liability of an

Threefold
employer are threefold

Discuss First National Bank of SA v Rosenblum 2001 (4) SA 189

Case Law
(A)
Who is the customer?
Not defined in the Banks Act 94 of 1990
‘customer’ includes any person who has dealings with a bank in the ordinary course of business whether or not
that person has a bank account

Usually refers to someone who has a bank account with the bank

Customer need not have a habitual relationship with the bank

A person remains a customer even if the account is subsequently overdrawn

Bank accounts may be opened for the following entities: Companies, close corporations, partnerships, trusts,
unincorporated associations
Activity
Discussion

You will go into breakout rooms & look at when you are
determining who the customer of the bank is, what should
be considered
Classification of the Bank-Customer Relationship
The relationship that exists between the bank and its customer is based on contract

The bank-customer relationship is a multi-faceted one that exhibits elements of different types of
contract, e.g. loan for consumption (mutuum) and mandate (mandatum)

It may also involve various other types of contracts depending on the nature of the service that the
bank offers to its customer(s)

E.g. contract of deposit (depositum) = Where the customer deposits certain valuables with the bank for
safekeeping

A bank may act as a representative of its customer(s) - Such as where it concludes a contract on the
latter’s behalf
Questions for Discussion
Discussion

Act as both Discuss

When may the bank act as Di Giulio v First National

both mandatory and Bank of South Africa Ltd
representative capacity 2002 (2) SA 281 (C)
General elements of the bank-customer relationship
• It is generally accepted that the basic relationship
between a bank and its customer
• in respect of a current account is one of debtor and
creditor
• If the account reflects a credit balance, the customer is
Loan: the creditor and the bank, the
• debtor (See slide at the beginning of this slideshow)
• Money deposited by the customer to the credit of the
account is essentially a loan
• given by him/her to the bank
• The relationship between the bank and its customer invariably
incorporates a
• mandate, in terms of which the bank agrees to carry out one
or more banking
Mandate: • services for the customer
• • The naturalia (terms that would normally apply and be
present automatically
• in a contract, but which the parties can change by agreement),
of the contract of mandate apply to some extent but there are
exceptions
Questions for Discussion
Discussion

Discuss when the bank becomes the owner of the money in the
Bank owner
loans

The fact that the bank becomes the owner of the money in its
Consequences
customer’s bank account has the what consequences

What happens to the customer’s money when the bank is

Bank is insolvent
liquidated?

Mandate What laws protect customers in bank transactions?

 Sources of terms:

The parties
frequently
Being a matter of
conclude
contract, the
additional
the agreement parties are free
contracts for
(contract) to settle on
specific dealings,
between the trade usage common law whatever terms
and for banking
parties (express they wish,
services which
or tacit) subject to any
are frequently
statutory
embodied in
restriction
standard-form
contracts
 Bank agrees to open an
account on behalf of a
person and accept him/her
as its customer
A bank manager has Offer and
implied authority to acceptance
represent the

Provided there is Prospective customer

consensus makes an offer by
(meeting of minds) completing and
between the submitting an
parties with regard application form to
to the opening of open an account
the account

Bank decides to accept the

The act of opening the offer, the contract comes into
account indicates acceptance existence when the bank
of the offer, but it is not communicates its acceptance
essential: to the customer
Questions for Discussion
Discussion

Discuss Discuss

What is required to be
Apart from consensus,
proven by a party invoking
there are certain other
an estoppel was articulated
requirements which must
by Corbett JA in Aris
be satisfied for a valid
Enterprises ( Finance) v
bank-customer contract to
Protea Assurance 1981(3)
come into existence:
SA 274 (AD) at 291D-E

Keeping and accounting the
customer’s accounts with the
bank
Specific duties of
the banks
Repaying on Receiving and collecting
demand money payments on behalf of the Furnishing the customer with
standing to the customer whether such statements of account
credit of the payments are made by
customer’s way of cash, cheque, or
account electronic means; and
Either periodically or,
upon the customers
request, can be implied on
the basis of trade usage
 General duties of
the banks

Exercise reasonable care The duty of Act in good faith (bona

secrecy fide)
and skill:

opening bank The duty of secrecy

accounts; paying necessitates that the
cheques,collecting bank must treat as In certain situations, the bank
payment on cheques, confidential any may owe a fiduciary duty
information pertaining towards its customers and is,
to its customer and therefore, obliged to act in good
issuing duplicates of his/her affairs faith (bona fide)
deposit slips; giving
effect to credit
transfers
 To pay
overdrawings,
interest, and bank
charges

To reimburse and Duties of To exercise

indemnify the
bank (when the reasonable care in
drawing payments
applicable)
customer instructions

To notify the bank of

any known or
suspected forgeries
Activity
Discussion

Discuss what each duty of a customer entail.

 Reversal of credit entries
Whenever a customer makes a deposit into his bank account, or a third party
makes a payment into the account, the bank is obliged to pass a credit entry in the
customer’s favour.
Where the credit entry is treated as provisional or conditional, such
as where it is subject to a hold period in terms of standing banking
practices

Where the customer acquired the money by way of theft or

A credit entry can be validly
reversed under the following
circumstances:
fraud
Where the drawer's signature on a cheque has been forged, or
where banknotes deposited in the amount were forgeries; and

Where the money was erroneously transferred

Questions for Discussion
Discussion

Discuss Explain

What happens if one of

the parties’ estate is
What is meant by
What is a set-off sequestrated within a
Payment from
between banks? period of 6 months
accounts?
after set-off have taken
place?
 Banker’s lien

• a bank has no general right of retention over negotiable instruments

SA Law
and other securities belonging to the customer

• A lien cannot attach to the credit balance of a customer's account, as

Cannot
this is a debt owed by the bank to the customer

• The bank is the owner of the money in the account and a person
Owner
cannot have a lien over his own property

• There is nothing that precludes a customer from pledging a negotiable

Pledge
instrument or other document to the bank as security for a loan
 Trust accounts
‘trust account’ is used here to denote an account maintained at a bank by a person (a ‘trustee’ or ‘fiduciary’)
who holds the funds in the account on behalf of, or for the benefit of, another person or persons (‘the
beneficiary/beneficiaries’)

either obliged by law to open and operate such an account

authorised to administer the proprietary interest of the beneficiary, generally or specifically in relation to that
account

This does not change the nature of the bank-customer relationship, which remains one of debtor and creditor

Trust accounts are governed by special rules

Termination of the bank-customer relationship
• Expressly or tacitly agree to
1. Agreement
terminate
• Customer has summary
2. Notice of termination
termination powers
3. Death or dissolution of the
• Self explanatory
customer
4. Sequestration/liquidation • Insolvency does not
(winding-up) of the customer automatically terminate
• Must have no contractual
5. Insanity of the customer
capacity
6. Dissolution of the bank
7 . Effluxion of time (in the case of a
fixed deposit)
Questions for Discussion
Discussion

Trust account Discuss the special rules that governed trust accounts

Aquilian action Who can use this action and for what?

Discuss the circumstances in which the bank-customer

Termination
relationship terminates

Consequences What is the consequences of termination?

 Payment

Chapter 6 (only 6.1 – 6.5.2, 6.7 –

6.17)

Section 10(3) of Prescription Act

68 of 1969

South African Reserve Bank Act

90 of 1989: Section 17

Regulation 3(1)(c) of the

Exchange Control Regulations