The
relationship between a bank and a customer under Kenya law 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 under Kenya law 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