Banking Law: The legal relationship between a bank and its customers
The relationship between banker and customer is one of a contested nature comprising various legal duties, obligations, and customs.
These various obligations and customs came to afore in the matter between Standard Bank of SA Ltd vs. Sarwan (2002) 3 ALL SA 49 (W). The case commenced when Standard Bank of SA (“the Bank”) instituted action against Sarwan (“the Customer”) for R193 220.70, being the overdrawn balance on the Customer’s account held with the bank. It was common cause that the amount consisted out of a cheque in the amount of R180 000.00 deposited and credited to the Customer’s account where after she effected several withdrawals and transfers before the cheque was dishonoured resulting in the amount of the cheque being reversed and a debit reflecting on the Customer’s account.
The Bank based its claim on an alleged oral agreement concluded with the Customer, which agreement was based on bank practice and certain express, implied and tacit terms. In support of its claim the Bank alleged that in the event that a cheque is credited against the Customer’s account, and the cheque not being honoured, the Bank will be entitled to debit the account of the Customer retrospectively, and should the Customer while her account is in credit withdraw against such credit, which is subsequently reversed, the Customer will be obliged to repay the amount to which the account is in debit with the Bank.
The Customer in her plea to the Bank’s claim disputed that such a term was neither expressly or tacitly included in the agreement between her and the Bank nor was it explained to her that such a term will form part of the agreement between her and the Bank.
In coming to a conclusion, the Court needed to determine the relationship between the Bank and the Customer and more, in particular, the terms of the bank-customer contract between them. In coming to its conclusion, the Court referred to various decided cases in which the relationship between Bank and Customer is described. In Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 the Court held:
• The law treats the relationship between banker and customer as a contractual one;
• Reciprocal rights and duties included in the contract are to a great extent based on custom and usage;
• It is now accepted that the basic relationship, albeit not sole, relationship between bank and customer in respect of a current account is one of debtor and creditor.
Similarly, in ABSA Bank Ltd v IW Blumberg and Wilkinson 1997 (3) SA 669 (A) the Court stated that the fact that the appellant (bank) might have permitted the respondent (customer) to draw cheques against uncleared effects, despite there being no agreement in this regard, would not excuse the respondent in law from making payment to the appellant.
The Court went on to hold that the right of reversal must be accepted as an implied term of every contract, such a term is implied by law and banking custom and usage. It is part and parcel of the contract between bank and customer irrespective of the intention and or knowledge of the parties.
In conclusion, the Court further held that the risk of non-payment for whatever reason of a cheque so deposited for collection fall on the customer and not the bank, as it is a substantial principle of banking law developed over a long period by commercial practice, custom, and usage. The Court found that the reversal of the credit and subsequent debit thereof was entirely legal and valid based on either the implied term of the contract or the substantial independent principal based on banking law and therefore granted judgment as prayed for in favor of the bank against the customer.
Similarly, in the matter between ABSA Bank Ltd v Janse van Rensburg 2002 (3) SA 701 (SCA) the Respondent (“the Customer”) instituted a counterclaim against the Appellant (“the Bank”) for rendering and debate of the account. In dealing with the counterclaim the Court went on to hold for the respondent to succeed in such a claim he would have to prove:
• That the respondent and the bank stood in a fiduciary duty between him and the appellant;
• That he had a contractual right to debate his account;
• That there existed a statutory duty obliging the appellant to render the account for debate.
The Court found that neither one of the aforementioned grounds for debate existed between the respondent and appellant nor was the respondent entitled to debate his account with the appellant. By holding that there existed no fiduciary duty between the respondent and appellant the court confirmed that the relationship between banker and customer is that based on debtor and creditor which finds its origin in the contract between the parties.
The Court in Janse van Rensburg emphasis the importance of distinguishing between the Bank’s legal duty not to disclose confidential information to third parties which are found in statutory law and considerations of public policy, and that of a fiduciary duty which does not exist between bank and customer.
It is therefore important to note the importance of the contract between the bank and its customer and that the tacit terms of banking law be taken into account when determining the respective rights and obligations of the parties.