The document discusses various ways that a banker-customer relationship can be terminated, including by the customer or bank closing the account, the death or mental incapacity of the customer, and legal actions like garnishee orders. It provides details on the procedures that must be followed when closing accounts with credit or debit balances, as well as when a customer dies. Reasonable notice is generally required when a bank closes a customer's account.
The document discusses various ways that a banker-customer relationship can be terminated, including by the customer or bank closing the account, the death or mental incapacity of the customer, and legal actions like garnishee orders. It provides details on the procedures that must be followed when closing accounts with credit or debit balances, as well as when a customer dies. Reasonable notice is generally required when a bank closes a customer's account.
The document discusses various ways that a banker-customer relationship can be terminated, including by the customer or bank closing the account, the death or mental incapacity of the customer, and legal actions like garnishee orders. It provides details on the procedures that must be followed when closing accounts with credit or debit balances, as well as when a customer dies. Reasonable notice is generally required when a bank closes a customer's account.
The document discusses various ways that a banker-customer relationship can be terminated, including by the customer or bank closing the account, the death or mental incapacity of the customer, and legal actions like garnishee orders. It provides details on the procedures that must be followed when closing accounts with credit or debit balances, as well as when a customer dies. Reasonable notice is generally required when a bank closes a customer's account.
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PRACTICE OF BANKING
COVENANT UNIVERSITY M.SC/ACIB
PROGRAMME Termination of Banker-Customer Relationship
The relationship between the banker and the customer
could be brought to an end by any of the followings: 1) Express or implied closure by the customer 2) In the Interest of the bank 3) Death of a customer 4) Mental Incapacity 5) Garnishee Order 6) Writ of Sequestration 7) Mareva and other injunction (Acton Pillar) 8) Banking (Freezing Account Act) of 1990 9) Other government Directives 10) Bankruptcy of a Customer Closing Account by Customer A customer can call at his bank to close his account immediately. He will only be required to draw out his balance, after the banker has deducted its charges to date or has credited accrued interest to the account and surrender his unused cheque leaves. Where the account is in debit the customer will pay of the debit balance with outstanding interest charges and surrender his unused cheque leaves. Closing Account by the Bank The procedure to close a customer’s account by the bank is not easy and straight forward as if the customer that wishes to close his account The procedure to be taken by the bank will depend on whether the account is in credit or debit, whether the account has been satisfactorily conducted or not, and whether the account is personal or business account. One of the duties of a banker to its customer eas established in the case of Joachimson v. Swiss Bank Corporation (1921) is that the bank will not cease to do business with the customer except upon reasonable notice. From decided cases, what is a reasonable time will depend on the circumstances and the fact of each case. Closing an Account with Credit Balance A bank may wish to cease relationship with a customer whose account has become troublesome or who has become subject of bad publicity even though his account is in credit (like being in habit of stopping cheques, postdating his cheques or leaving out essential details from his cheques so that the cheques will not be paid or the customer may continually draw against uncleared effects or engage in cross firing). Cross-firing is a way to create “virtual” amounts of money (in other words, the money doesn't really exist) by depositing checks back and forth between two banks. Perhaps you use two different banking institutions and find yourself a little short in order to pay your bills this month. It is a type of fraudulent trading in which a company plays lending institutions against each other. For example, a company may send payment checks between its different divisions in order to create the appearance of a healthy, profitable company. Auditors may not readily realize that the company is not making money, which in turn leads creditors to believe that the company is still solvent. It is wrongful trading also called check kiting. The bank in these instances should give notice to the customer to close his account. The notice should be adequate to enable the customer to make alternative banking arrangement. A period of one month is considered adequate for a personal account but for a business account, longer notice will be required depending on the nature and scope of the business. In Prosperity Ltd v. Lloyds Bank Ltd (1923), the court ruled that one month notice was held to be insufficient. (The company was subject of bad publicity because of its method of selling insurance based on a pyramid scheme. The bank which did not want to be associated with the scheme gave the company one month notice to close its account. The company went to court and sued the bank for breach of contract and also sought injunction to prevent the bank from terminating its relationship with the company. Closing an Account with Debit Balance Although it was held in Prosperity Ltd v. Lloyds Bank Ltd (1923) that no notice to close an account that is overdrawn is required, the practice among bankers in order to avoid problems is to give notice to the customer. The banker can call up the account on overdrafts on demand even though the time for review of the facility has not come. This was confirmed in the case of Barnes v. Williams and Glyn’s Bank Ltd (1980) The same applies to loan facilities where the customer breached any of the conditions for the grant of the loan or failed to keep to the repayment terms and schedules. Mental Incapacity of a Customer When a bank receive notice that its customer has become mentally ill and unable to take control of his affairs, the bank should take the following actions: Credit Account: The account should be stopped immediately. Cheques received after the notice will be returned with answer such as “mandate revoked”. The bank will dispose of the credit balance on the instruction of the office of Administrator General or Committee in Lunacy. Debit Account: If the bank wants to take full recourse to the estate of the mentally ill customer, it will break the account immediately it receives the notice and rely on the estate of the mentally sick customer. Articles Deposit for Safe Custody: Any article deposited will only be released on the instruction of the office of the Administrator General or Court Order. Death of a Customer Death determines all mandates. Any cheque that has been issued by the customer and not presented before the bank has notice of the customer’s death will not be paid. Any such cheque which had been received through clearing though stamped paid will be returned to the collecting bank if by Clearing House Rules such cheques are not irrevocably paid before notice of death. The paid stamp on the cheque will be cancelled and the cheque will be returned with the remark “stamped paid in error, Drawer Deceased. A cheque which has been drawn under a cheque guarantee card will be debited to the deceased account even after notice of death as the payment can be deemed to be a contract in the course of completion before the death of the customer. However, the personal representatives will be made to know why the cheque is being debited late. All payments out of the account under standing orders and direct debits are revoked on notice on death. The bank has right of set-off of the deceased account so as to determine the amount due to or from the deceased estate. If there is sufficient fund in the account of the deceased, funeral expenses can be paid and debit to it provided the account of the expenses is rendered directly to the bank by the funeral undertakers. Settlements relating to purchase of stocks and shares which were contracted for, but which were not concluded before death could be made from the deceased credit balance. The bank will have to bring the payments later to the attention of the personal representatives. Credits received in favour of the deceased after notice of death would be placed in a suspense account while credits in respect of pension or annuity should be returned as the right of the deceased to either of them is terminated by death. Where the account of the deceased is in debit, it must be stopped immediately and the bank will bring that fact to the attention of the personal representatives. The bank will disclose to them both the balance including accrued interest and the securities held by the bank. If the deceased customer had stood as guarantor to another customer, the account of the latter has to be stopped immediately on receipt of notice of death of the guarantor if the bank wants to retain his right of claim against the estate of the deceased guarantor. If the deceased (debtor’s) account is allowed to continue unbroken the rule in Clayton’s case will operate against the bank. The bank will promptly bring its claim in respect of the liability of the deceased under the guarantee to his personal representatives. Garnishee Order This is an order from the court obtained by a judgment creditor, directed to attach the money of his judgment debtor which is in the hand of a third party, with the effect that the third party is prevented from paying the money so attached to anybody but to hold it as a custodian for the court until the court gives directives on how the money is to be applied. Garnishee nisi or ex-parte: a temporary injunction without hearing the pleas of the creditor or debtor. Exception to the Rule: By section 84(1) of the Sheriff and Civil Process Act, where money liable to be attached by the garnishee order is in custody or control of a public officer in his official capacity, the order nisi shall not be made until consent to such attachment is obtained from the appropriate officer. The order may be Limited or Unlimited Oder. Rules as to Attachment All credit balances due to the customer are attachable. This include overdraft not fully withdrawn. However, the bank can exercise right of set-off. Money held on behalf of another party or in trust is attached as long as the customer can withdraw it. However this fund can be protected if the beneficiary can prove his interest. The order must correctly identify the bank’s customer otherwise the bank will be entitled to ignore it. Only money owed to the customer at the time of service the order is attached. Only money which could be conclusively said as already paid from the account will not be attached provided the payment of such money or its effective transfer has been completed at the time of serving the order. A garnishee order issued to one party in a joint account does not attach the joint account. However, an order naming a joint account will attach the joint and individual account of the customers. Garnishee order does not protect contingent liabilities. Deposit account, whether fixed or short-term, not withstanding any maturity condition or any notice of requirement is attached. Cheques paid in but not yet cleared are not attached except there operates a standing arrangement under which the customer can draw from uncleared effects. Proceeds from the disposal of assets on the customer’s behalf are not attached in so far the bank has not actually collected the proceeds. Money held in account outside the country is not attached because it is outside the court’s jurisdiction. Money held in account opened under trading name (not incorporated companies) is attachable as much as the name attached is the sole owner of the business. Money held in suspense account of a bank is attached, if it belongs to judgment debtor. Other Issues in Effective Payment If a cheque is presented through special clearing and the bank has issued its own instrument (like bankers payment), to pay it before the receipt of garnishee, the amount of the cheque must be deductible in computing balance to be attached. However, cheque presented through normal clearing should be returned unpaid since it has not been advised by the collecting bank. Cash paid in at other branches of the bank, though not yet received in the branch where the account is kept, but once discovered must be attached.
If a bank confirms through telephone that a particular cheque would be paid and before presentment, an order is served, the account will not be debited. (Since a bill of exchange cannot be paid in proxy). Procedure on Receipt of Orders or Summons Ascertain the order is really against the customer Open a new account for the subsequent credit to be received. Stop the account and advise the customer of the steps taken and its effect on his bank account. The court and the judgment creditor should be informed of the position of the account. The bank should invite the customer to discuss the situation, in order to establish if the reason is due to a special on-off circumstance or pressure from a range of creditors. If cheques have to be returned as a consequence, the customer should be advised of each one. The head office should be advised of the customer’s accounts and their respective balances. The bank should appear in court and pay into the court the amount stated when the order is made absolute. At this stage, the bank is entitled to exercise its right of set-off. What Is a Deceased Account? A deceased account is a bank account, such as a savings or checking account, owned by a deceased person. When a bank receives notice that a customer has died, it will freeze the account(s) while waiting for direction from the authorized court regarding payment to heirs and creditors. What happens when a bank customer dies? Many banks allow their customers to name a beneficiary or set the account as Payable on Death (POD) or Transferable on Death (TOD) to another person. If the account holder established someone as a beneficiary or POD, the bank will release the funds to the named person once it learns of the account holder's death. Will banks release money without probate? In some countries like US, you can add a "payable- on-death" (POD) designation to bank accounts such as savings accounts or certificates of deposit. ... At your death, the beneficiary can claim the money directly from the bank without probate court proceedings. Writ of Sequestration A writ of sequestration is a prejudgment action that allows the court to seize or attach property or assets on behalf of the plaintiff. In an effort to make this process easier, a writ of sequestration bond is often used. The surety bond covers the action, so in the event something goes awry, the bond keeps things together. A writ of sequestration is a legal process which occurs before a final judgment, in which a court orders the seizure or attachment of property to be maintained in the custody of a law enforcement official, under court order and supervision until the court determines a release of the property is appropriate. The purpose of the writ of sequestration is to preserve the named property pending the outcome of the litigation. Surety bonds are commonly used in attachment proceedings. A surety bond expert can always be contacted to determine if your situation would benefit from a surety bond. The terms of a writ of sequestration bond are typically set by the court. There are situations where the defendant can make special requests, but it is up to the court’s discretion. Most commonly, a writ of sequestration bond covers the value of the assets being seized. Securing a bond that protects the assets, proves to the court that the plaintiff has taken the appropriate steps. Where Is a Writ of Sequestration Applicable? For title to or possession of personal property or fixtures to enforce a mortgage, lien or security interest on personal property or fixtures For title to or possession of real property or foreclosure on real property under the same circumstances For title to or possession of property from which the plaintiff has been ejected by violent means In a lawsuit seeking to assess the title to real property, such as to remove a cloud of title, which prevents an owner from selling his or her property Mareva Injunction CASE SCENARIO Mr. Bayo advanced a loan of 50 million Naira to Mr. Sawyer, a Liberian residing in Nigeria. The loan was secured by Mr Sawyer’s landed property located in Lagos. Mr Sawyer failed to repay the loan, and Mr. Bayo sued in the Lagos high court. During the pendency of the suit, Mr. Sawyer put up the land for sale on OLX. If Mr. Sawyer is allowed to sell the land, there would be no way to enforce the judgement that Mr. Bayo may eventually get. What can Mr. Bayo do in order to prevent Mr. Sawyer from selling the land until a judgement is delivered in the pending suit? One big event that has characterized the 21st century is the advent and the development of technology which has impacted nearly all facets of life. As a matter of fact, court processes has had its own fair share of these developments. In some jurisdictions, it has become a possibility to transfer title to properties online. This has in recent times, made the enforcement of court judgements against the assets of judgement debtors a cumbersome process. In the light of the foregoing, litigants are left with empty judgements with no means to enforce them and this definitely has a deleterious effect on litigants causing them to lose faith in the justice system. In response to the obvious injustice occasioned by the unfortunate reality pointed out above, the Mareva injunction was introduced to grant solace to litigants. WHAT ARE INJUNCTIONS Injunctions generally were defined by Karibi- Whyte JSC, in Babatunde Adenuga & 5 Ors v. K. Odunewe & Ors (2001) 2NWLR (Pt 696) 184 at 195 as: “… an equitable order restraining the person to whom it is directed from doing the things specified in the order or requiring in exceptional situations the performance of a specified act”. MEANING OF MAREVA INJUNCTION Mareva injunction aka Freezing order is a form of injunctive order that prevents the dissipating or dealing with the properties (pending the determination of a dispute) that could render the judgment of a court or the resolution of that dispute nugatory. It operates until the substantive determination of the civil rights and obligations of the parties with regard to the subject properties. In order words, the doctrine of Mareva injunction operates to stop a defendant against whom a plaintiff has a good arguable claim from disposing of or dissipating his assets pending the determination of the case or pending payment to the plaintiff. THE LEGAL POSITION ON FREEZING ORDERS BEFORE 1975 Originally, a plaintiff could not obtain any interim injunctive relief intended to prevent a defendant from dissipating the assets or taking his assets outside the jurisdiction in the face of imminent lawsuit or judgement. Cotton L.J puts the position in the case of LISTER AND CO V STUBBS (1970) 45 Ch.D 1 at P.14 thus: “If we were to order the defendant to give security asked for, it would be introducing an entirely new and wrong principle – which we ought not to do, even though we might think that, having regard to the circumstances of the case, it would be highly just to make the order”. This position of the law clearly worked a hardship upon plaintiffs; and, in turn, assisted the recalcitrant defendant to evade possible or anticipated execution of judgment against his assets. POST 1975 The foregoing was the position until 1975 when the doctrine of Mareva injunction was developed by the High Court of Justice in England in two successive cases of Nippon Yusen Kaisha vs. Karangeorgis (1975) 1 w. L. R 1093 and Mareva Compagnia Naviera S.A. v. International bulkcarriers S.A (1980) 1 AII ER 213, from which the doctrine acquired its name. THE MAREVA CASE In the case of MAREVA COMPANIA NAVIERA S.A. V. INT’L BULK CARRIERS S.A. (SUPRA) under a voyage charter, a vessel was loaded with a cargo of fertilizer consigned to India. The Indian High Commission, in accordance with the obligations under the voyage charter, paid 90% of the freight but paid it to a bank in London to the credit of the charterers. Out of that, the charterers paid to the first two instalments by credit transferred to the ship-owners. The third was due on 12 June 1975, but the charterers failed to pay it. The ship-owners treated the charterers’ conduct as a repudiation of the charter. They issued a writ on 20 June. They claimed the unpaid hire, which comes to $US30,800, and damages for the repudiation. Meanwhile, they believe that there is a grave danger that the money in the bank in London will disappear. So they have applied for an injunction to restrain the disposal of those moneys which are now in the bank. INSTANCES WHEN MAREVA INJUNCTION WOULD BE GRANTED Where the defendant against whom the injunction is sought is a foreigner. It is not unusual that foreigners owe debts to Nigerians or Nigerian banks and then go ahead to sell the debt securities or move them out of Nigeria in order to avoid their obligations under the loan agreement. In such cases, an order of Mareva Injunction can be granted to prevent a foreigner from selling or moving such properties out of the country. Where there are indications that the defendant has commenced the sale of the assets, an order of Mareva Injunction can be granted in order to stop the sale and freeze the asset pending the determination of the pending suit or dispute. Mareva Injunction may also be granted against a fraudulent party who has committed fraud with the assets, so as to freeze the property and preclude him from further commission of such fraud. CONDITION FOR THE GRANT OF MAREVA INJUNCTION In DUROJAIYE v. CONTINENTAL FEEDERS (NIG) LIMITED (2001) 14 WRN 141, the court made it clear that by the very nature of the injunctive relief, an Applicant must show that he has a cause of action against the Defendant which is justifiable, that there is a real and imminent risk of the Defendant removing his asset from jurisdiction and thereby rendering nugatory, any judgment which the Plaintiff may obtain, That the Applicant has made a full disclosure of all material facts relevant to the application, that he has given full particulars of the assets within the jurisdiction, that the balance of convenience is on the side of the Applicant, and that he is prepared to give an undertaking as to damages for failure to satisfy the Court in any of the above. That he has given full particulars of the assets within the jurisdiction. That the balance of convenience is on the side of the applicant. That he is prepared to give an undertaking as to damages. LEGAL EFFECT OF MAREVA INJUNCTION A Mareva order takes effect as soon as it is made and served. It does not operate as an attachment to the asset. It merely restrains the owner of the asset from dealing with the assets in a specified manner. Buckley, L. J., in CRETANOR MARITIME CO. LTD. VS. IRISH MARINE MANAGEMENT LTD (1978) W.L.R. 966 AT 974, made this point very clearly when he stated as follows: “…..It is, I think, manifest that a Mareva injunction cannot operate as an attachment. Attachment’ must, I apprehend, mean a seizure of assets under some writ or like command or order of a competent authority, normally with a view to their being realized to meet established claim or held as a pledge or security for the discharge of some claim either already established or yet to be established. An attachment must fasten on particular assets…… A Mareva injunction, however, even if it relates to a particular asset…… is relief in personam…… All that the injunction achieves is in truth to prohibit the owner from doing certain things in relation to the asset…..” EFFECT OF MAREVA INJUNCTION ON THIRD PARTIES A third party that has been given notice of the injunction, if he knowingly assists in a breach of the order, will be guilty of contempt of court, irrespective of the defendant’s knowledge of the injunction. A bank must, therefore, dishonour any cheque or refuse any transfer of money once it has received notice of the injunction. Freezing Order (Post-No-Debit) A Lagos state high court has ruled that Access Bank Plc’s decision to place a post-no-debit (PND) alert on the accounts of Blaid Construction Ltd. and Blaid Properties Ltd. without a court order is unlawful. In a landmark judgement, the court ruled that the accounts were illegally frozen for at least fifteen months outside the period granted the Economic and Financial Crimes Commission (EFCC) in a court order. It asked the bank to pay the sum of N5 million to the companies as damages for breaching banker- customer relationship. The EFFC had been investigating two companies owned by Ochuko Momoh, wife of a former managing director of the Pipelines and Product Marketing Company (PPMC), for wrongdoing and on July 1, 2016, obtained an order from a federal high court to freeze their bank accounts domiciled in Access Bank. Although the order, which was for a period of three months, elapsed on September 30, 2016, the accounts were still frozen prompting a legal tussle between the companies and the bank. In May 2017, the companies filed a suit before the Lagos high court, seeking an order that the continued freezing of their accounts is illegal and that they should be paid damages of N500 million. This judgement has proved that placing PND on customer’s account must receive the blessings of the court otherwise the bank may receive legal rebuke.