ASSESSING BANKS-CUSTOMERS’ OBLIGATIONS IN CONTRACTS OF BANKING IN NIGERIA
Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: Eliot Oseighe Okosun
Banker-customer relationships in Nigeria have embedded in them fundamental rights, privileges and obligations. Some of these must be considered as a result of the critical role they play in the Nigerian economy and their significant impact on the lives of individuals, businesses, and the country as a whole.
The relationship between a bank and its customer is mainly contractual; the contract primarily appears in the form of a debtor-creditor relationship. However, it must be noted that the bank-customer relationship may also appear in other forms depending on the circumstances of the transaction. In Nigeria, banks have several responsibilities to their customers, ranging from ensuring financial security to providing excellent customer services, etc. In this article, we will look at the mutual obligations of banks and customers to each other in Nigeria[1] [1].
Who is a banker?
There is no uniform or satisfactory definition of what it means to be a “banker”, just as the spectrum of what makes a banking firm is very broad. [2] [1]
In Akwule and 10 Ors v. Reginam,[3] [2] it was held that the word banker does not refer to any individual employee of a bank. The court further held that the word “banker” referred to any company licensed to carry out banking business and not the employee of the bank or a director or shareholder of the bank.
Who is a customer?
In defining who is a customer, the court held in Ekpeyong v The State[4] [1] that to be a customer, a person must have an account with the bank or have agreed to open one.
An Overview of the Contractual Obligations of a Banker to a Customer
The modern-day position on the contractual obligations owed by the banker to a customer in the ordinary course of business requires careful restatement along the following lines:[5]. [1]
I. Duty to receive cash and collect cheques for customers
The most fundamental obligation of the banker to his customer is the implicit undertaking to borrow any excess money that the latter chooses to lend and to repay it upon demand.[6] [2] It is today the law, that bankers worldwide, including Nigeria, collect cheques for customers in order to credit their account with proceeds. Thus, in Balogun v. National Bank of Nigeria[7] [3], the Supreme Court made it clear that the banker is responsible for the receipt of monies into current or deposit accounts, and the payment and collection of cheques paid in by customers.
II. Duty to honour customer’s cheque
Following the requirement to demand as a condition imposed on the customer, a reciprocal duty was also imposed on the banker, namely a duty to honour such demand once made. The customer’s demand is often made in the form of a written order called a ‘cheque’. This obligation is however subject to two major conditions. Firstly, the obligation to honour the customer’s cheque is subject to the availability of funds in the customer’s account. Secondly, where the banker has granted the customer an overdraft facility, then he is obliged to honour cheques drawn by the customer within the limit of the agreed overdraft[8] [4].
In Balogun v. National Bank of Nigeria[9] [5], the appellant drew a cheque on her client’s account which was dishonoured. At the time of the dishonour, the appellant had sufficient assets to cover the cheque. In an action for damages arising out of breach of contract, the Supreme Court held that:
It has long been established that refusal by the banker to pay a consumer’s cheque when he holds in hand an amount equivalent to that endorsed on the cheque belonging to the customer, amounts to a breach of contract for which the banker is liable for damages.
III. Duty to pay only according to the customer’s mandate
A banker is in contract, bound to obey the customer’s mandate once found to be in order, and there is no legal disability stopping him from obeying the mandate given. When a banker acts contrary to the mandate, he will be acting in breach of his contractual obligation and at his peril. An insufficient mandate, on the other hand, commands no force and a banker cannot be held liable for treating an insufficient or improper mandate as mere Brutum Fulmen[10] [6].
In Union Bank v. Adediran[11] [7], the banker paid out money from funds belonging to the respondent’s church account on the strength of an unauthorized signature and was held liable for paying without a valid mandate.
Other obligations are;[12] [1]
i. Duty not to pay countermanded cheque.
ii. Duty to keep customer’s account accurate.
iii. Duty not to cease to do business with customer except upon reasonable notice.
iv. Duty to demand repayment of overdraft.
v. Duty of secrecy.
vi. Duty to give reference on customer’s credit and standing.
vii. Advise on investments.
viii. Safe custody of valuables.
An Overview of the Contractual Obligations of a Customer to the Banker.
Upon the decision of a customer to utilise the services of a particular bank, he is obligated to perform certain duties within the context of the banker-customer relationship, some of which are underlisted.
I. Make Demand in accordance with the Requisite Procedures
In the course of setting out the terms of the reciprocal implied agreement between banker and customer, Atkin, L.J in his epochal judgement in Joachimson v. Swiss Bank Corporation, observed as follows:
I think it is necessary for a term of such a contract that the bank is not liable to pay the consumer the full amount of his balance until he demands payment from the bank, at the branch at which the current amount is kept. Whether he must demand it in writing, it is not necessary now to determine[13] [1].
whether a demand is necessary before the banker becomes liable is important. At common law, the general rule is that the debtor’s obligation to repay his creditor involves the duty of seeking him out and tendering payment.
Today, the position is well settled that the presentation of the customer’s cheque at the paying banker’s place of business constitutes a valid demand. The development of modern technology has made it possible for bankers to go ‘online’ with the result that a customer can obtain payment at a branch other than that at which his account was kept.
II. Duty not to mislead the banker to facilitate forgery
This involves a duty to draw his cheque with care and diligence and in a manner that will not facilitate fraud, forgery or unauthorized alteration[14] [2]. It was held in the case of London Joint Stock Bank Ltd. v Macmillan & Arthur[15] [3] that in drawing a cheque, the customer owes a duty to the bank to take reasonable precautions against possible alteration of the cheque.
III. Duty to repay any overdraft granted
The grant of an overdraft facility is entirely at the discretion of the bank. Neither in the contract nor in duty is the banker obliged to honour every request for an overdraft. However, when the facility is given, the beneficiary becomes duty-bound to repay the sum lent. It was established in the Joachimson case that demand is a condition precedent before the customer can issue a writ against the bank, so also does the decision in Johnson v. Sobaki[16] [4], which established that a banker who has lent money on overdraft must first call on the customer to repay. In addition to making a demand, the bank must also allow the customer reasonable time to repay.
IV. Duty to pay bank charges for service rendered
The decision of Ayoola, JCA, in First Bank of Nigeria Ltd v. African Petroleum Ltd[17] [5] where his lordship stated:
In whatever manner the obligation is defined, that law seems certain that generally, the banker can only part with the customer’s money in his hands on the order of the customer. In terms of loan relationship, the banker can only validly repay the loan or such part thereof as demanded by the customer or on the customer’s order. This general statement is subject to apparent exceptions as when the banker deducts charges and commissions from time to time. The authorization to do so is implied either in usage or as a term of the contract implied in normal practice.
The judgement quoted above recognizes the banker’s right to charge for service well rendered as a commission, based on an implied authority found in usage or as a term of the contract. Holden, while considering the legal basis for charging commission, listed four grounds;
a. The customer may have entered into an express agreement with his bank, allowing for commission charges.
b. In the absence of an express agreement, an implied agreement may be inferred from previous dealings between the bank and the customer.
c. The right in the absence of an express agreement or acquiescence resulting from previous dealing, may be anchored on principles that where one person requests another to perform professional service, the law implies a promise on the part of the first person to pay a reasonable sum for service rendered.
d. It may be desirable to obtain the customer’s consent to charging of commission when, for instance, owing to rising costs the bank desires to make a charge on services previously rendered free of cost[18] [6].
IMPROVING BANKER-CUSTOMER RELATIONSHIP IN NIGERIA: THE WAY FORWARD.
i. In light of the complex and multifaceted nature of the relationship between banks and customers in Nigeria, it is crucial for both parties to clearly understand their rights and obligations. Banks should invest in comprehensive customer education programs to ensure that their clients are aware of the terms and conditions governing their accounts, loans, and other banking services.
ii. Financial institutions should continually update their staff’s knowledge about banking laws and regulations. This will enable bank employees to provide accurate and reliable information to customers, ensuring that they are well-informed about their rights and responsibilities.
iii. It is imperative that customers read and understand the terms and conditions of their banking agreements thoroughly.
iv. Customers should adopt secure banking practices, such as protecting their account information and promptly reporting any discrepancies or unauthorized transactions to their respective banks.
Conclusion:
The relationship between banks and customers in Nigeria is rooted in a complex web of legal obligations and mutual responsibilities. Banks serve as custodians of individuals’ and businesses’ financial assets, making it essential for them to uphold the highest standards of professionalism, transparency, and customer service.
In conclusion, a harmonious banker-customer relationship is pivotal for a thriving economy. By adhering to their contractual obligations, banks and customers can contribute to a stable and trustworthy financial system. Continued education, open communication, and mutual respect are the cornerstones of a successful partnership between banks and their valued customers.
[1] Ajibola Olaosebikan [8] ‘Responsibilities Of A Bank To Its Customers In Nigeria’ 2023 https://trustedadvisorslaw.com/responsibilities-of-a-bank-to-its-customers-in-nigeria/ [9]
[2] Olamide Benedicta Abe (2017) ‘An Appraisal of the Legal Relationship between a Banker and its Customer: The Statutory Protection Afforded to Bankers in Nigeria in Paying Cheques’ Unilag Law Review 1(2)
[3] (1963) All NLR 193.
[4] [1967] 1 All NLR 285.
[5] LJ Irokalibe-Goldface LAW OF BANKING IN NIGERIA 2nd EDITION (2020)
[6] Ibid.
[7] (1978) 3SC 155
[8] Ibid.
[9] (1978) 3SC 155 at 164, Salami v. Savannah Bank (1990) 2NWLR (pt 130) 160 CA, Allied Bank v. Akubueze (1997) 6 SCNJ 116 at 132 SCN
[10] Ibid.
[11] (1987) 1 NWLR (pt 47) 52 also Imarsel Chemical Co Ltd v. ABC Ltd (1976) 1 CCHCJ 33
[12] Ibid.
[13] (1921) 3 KB 110 at 127
[14] Ibid.
[15] (1918) AC 777
[16] (1968) NCLR 53; All NLR 657,3 ALR Comm 241.
[17] (1996) 4 NWLR (pt 443) 438 at 445.
[18] Ibid.