CONTRACTUAL NATURE OF BANKER

CUSTOMER RELATIONSHIP

CREDITOR AND DEBTOR

Sir John Paget:

• “the relationship between banker and customer is primarily is that of debtor

and creditor the respective positions being determined by the existing state
of the account. Instead of the money being set apart in a safe room, it is
replaced by a debt due from the banker. The money deposited with him
becomes his property and is absolutely at his disposal. The receipt of
money by a banker from his customer constitutes him merely the debtor of
the customer with the obligation to honour his customer’s cheques drawn
upon his balance in so far as the same is sufficient and available.
• H.P. Sheldon:-
• “The banker when he received money from a customer does not hold the
money in a fiduciary capacity. What really happens is that the money is not
deposited with but lent to the banker, and all that banker engages to do is to
discharge the debt by paying over an equal amount when called upon”.
 CREDITOR AND DEBTOR
Lord Cottenham (1848)

• “Money said his Lordship when paid into a bank, ceases altogether
to be money of the principal; it is then the money of the banker who
is bound to return an equivalent by paying a similar sum to that
deposited with him when he is asked for it.
• The money paid into the bank 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 profits he can, which profit he retains to himself, and
paying back the principal and a rate of interest according to the
custom of the bankers. That being established to be the relative
situation of banker and customer the banker is not agent he is
debtor.
 THE AGENCY RELATION:-

• Another service rendered by a bank to his customer is to collect his

customer’s cheque and other credit instruments. In these
transactions the relationship between the two parties is that of
principal and agent the banker acting as his customer’s agent.
• In the course of business incidental to banking a banker undertakes
to perform many services for the customer such as:
• buying and selling securities on his behalf.
• collection of cheques, dividends, bills or promissory notes on his
behalf.
• acting as trustee, attorney executor, correspondent or a
representative of the customer.
• In the performance of all these functions, the banker acts as an
agent of the customer.
 THE BAILOR – BAILEE RELATION:-

• Section 148 of Contract Act 1872 defines “Bailment”

• ‘A’ bailment is the delivery of goods by one person to another for some
purpose, upon a contract, that they shall, when the purpose is
accomplished, be returned or otherwise disposed of according to the
directions of the person delivering them.
• The person who delivers the goods is called the ‘bailor’ and the person to
whom they are delivered is called the bailee.
• The relationship usually arises when a customer of the bank avails himself
of the “Safe Custody” facility offered by the bank. This relationship is termed
as bailment. This is an arrangement for short period as bailment and in
some of the cases the banker require articles for safe custody to be
delivered in a sealed packet or boxes and he has to retain it with all the
seals intact for the depositor or to one who has his order for the purpose.
• The banker is under no obligation to accept the property of the customer for
the purpose of safe custody.
• It is not even the primary function of the bank. It is also not a basic condition
required to be fulfilled for being a banker.
PAWNER / PAWNEE, MORTGAGOR
AND MORTGAGEE

• When a customer pledges goods and

documents with the bank as security for an
advance he becomes the pawner and banker
becomes the pawnee. Similarly when advance
to the customer is made against security of
immovable property the relationship becomes
that of mortgagor and mortgagee, where the
banker is mortgagee and customer is mortgagor.