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Client’s rights
12/09/2006 The Star ARTICLES OF
LAW by BHAG SINGH
IN BUSINESS dealings, it is said that the customer is king. Those who handle
customers are advised to be helpful and to treat them well. However, this
may not always be the case.
An example is when dealing with a bank, which would include financial
institutions, here the customer is usually in a ‘take it or leave it’
situation. Of course, this may not necessarily apply where the customer is
asking for a very large loan or owing the bank a very large amount.
However, does this then mean that the customer must always give in to the
bank officer? Very often the customer does so in order that a particular
transaction can be carried out and proceed quickly.
An example is a situation where a customer has misplaced his cheque book and
then writes a letter to the bank on the company letterhead signed by the
authorised signatory and with the company’s rubber stamp duly affixed, and
authorising another person to collect a new cheque book.
One such customer found the bank or rather its official refusing to issue a
new cheque book because the request was not on the cheque request slip that
is included in the cheque book. The officer required the signatory to come
to the bank to verify his signature on the letter.
The question that arises is whether the bank is legally correct in acting in
this manner?
On this subject the position will depend on the nature of the contractual
relationship between the bank and the customer.
In the absence of specific contractual arrangements the common law and
ordinary principles that govern and underly banking law will no doubt apply.
In this connection the Bills of Exchange Act 1949 is relevant.
Whether the bank officer is acting in an appropriate manner will have to be
determined by examining these principles as well as the contractual
arrangements that govern the banker-customer relationship.
The law on cheques is contained essentially in the Bills of Exchange Act
1949 (Revised 1978) which is an act that declares itself as “relating to
bills of Exchange, cheques and Promissory Notes.”
The word “cheque” is not even defined in the Act but it comes within the
meeting of a Bill of Exchange as set out in Section 3 (1) of the Act where
it is described as: “An unconditional order in writing, addressed by one
person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future
time a sum certain in money to, or to the order of, a specified person, or
to bearer.”
However, various other aspects of the law have to be looked at in the
broader context in order to appreciate and fully understand the
banker-customer relationship.
With regards to issuing cheques on a current account, the relationship
between the banker and the customer revolves around the mandate given by the
customer to the banker on which the banker acts. It is in the context of
this mandate that cheques issued by the customer are honoured. Such
transactions are carried out on the basis that the bank will make payment if
it receives a cheque signed by the customer.
Whilst it is the responsibility and indeed the duty of a bank officer to
verify the signature on the cheque before authorising payment, verification
certainly does not mean that each time the customer signs a cheque he must
come to the bank personally to confirm that it is indeed his signature!
Verification is carried out by comparing the signature of the customer with
the specimen signature kept by the bank. If the signature varies from the
specimen, the bank officer would indeed be justified in rejecting payment.
At the same time the bank usually, if not always, has the customer’s
telephone number to call up the customer or signatory to clear any doubts.
It would thus appear to be unusual that an authorisation in writing to
collect a cheque book should be treated in this manner.
However, if such a situation should arise and a customer is made to go to
the bank personally to apply for a cheque book, it would certainly not be
according to normal practice unless an exception applies.
An exception would be where the bank has contractually provided as a term
for operating the bank account that a cheque book will only be issued if the
slip in the cheque book is used. And that otherwise the signatory must come.
Indeed banks do require as a matter of contractual requirement that where
giving an order to pay in accordance with Section 3 (1) the bank cheque book
be used. By advising customers to use the proper forms, bankers ensure, as
far as possible, that they will not be confronted with Sir Alan Herbert's
problem of a cheque written on the back and side of a cow.
But where there is no such requirement it is difficult to understand the
need for a signatory to personally appear for the purpose of collecting a
cheque book.
I have myself have come across a situation where the officer said that he
was merely following house rule even though there was no doubt about the
signatory’s signature.
If such a situation were to develop then it can only be said that there is
unwillingness on the part of the officer to exercise his discretion. If such
discretion is not exercised it can only perhaps be atributed to changing
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