Bank liabilities

By way of a quick refresher, a bank owes to each customer a duty to honour instructions, repay on demand monies deposited on the account, keep the customer’s affairs confidential and exercise the care and skill of the ordinary reasonable banker.

Banks are never defenceless even when they have breached the implied terms of the contract with the customer. Where the bank has paid a cheque or other written instrument in breach of the contract with the account holder, the bank will escape liability if it can show that the loss was caused by the customer’s own breach of contract in drawing the cheque or other negotiable instrument in a manner which could facilitate fraud.

The bank may also plead the defence of estoppel where it can show that the customer did not notify it of a forgery as soon as he or she became aware of it. The latter does not imply constructive notice on the part of the customer, that is, the court will not ascribe knowledge to the customer that he or she does not actually have.

Where the wrongful payment by the bank discharges a debt legitimately owed by the account holder to the person receiving the payment then the bank is liable to be indemnified by the customer or in other words the account holder would not be entitled to reimbursement of the wrongful payment from the bank.

Attempts have been made to extend the defences available to a bank since no bank actually wants to pay out more money than it has to. In Tai Hing Cotton Mill v Liu Cong Hing Bank Ltd. [1985] 3 W.L.R. 317, the Privy Council gave short shrift to one such attempt to negate the liability of the bank on the premise that a reasonable customer would have taken certain precautions to avoid forgeries and should check his monthly statements so as to be in a position to bring to the bank’s notice any such payments.

The Privy Council found that the duties of the customer are limited only to notification upon actually becoming aware and drawing such instruments in a way that would not facilitate fraud.

Where there are sufficient funds on the account and the bank “bounces” or dishonours the cheque or other instrument then the bank is liable either in defamation (covered in an earlier article) or breach of contract. There is no longer any real distinction between commercial customers and the ordinary personal account holder.

In Kpoharor v Woolwich Building Society [1996] 4 All E.R. 119, the court found that damage should and will be presumed in both cases since “the credit rating of an individual is as important for their personal transactions, including mortgages, hire-purchases and banking facilities, as it is for those who are engaged in trade…” Only the quantum of the damages recoverable may reflect any difference.

Where the bank makes a payment by mistake, such as debiting the account twice and paying the double amount over to the payee, it is for the bank to recover the payment. In the meantime, the customer is not to be deprived of access to his or her money.

The bank cannot hold the customer at bay for however long it takes to recover the mistaken payment from the third party to whom it was paid as doing so amounts to breach of contract on the part of the bank.

The situations we’ve dealt with have been covered by specific principles of law but there are those niggling situations where you know that the bank is trying to rob you but you just can’t quite put your finger on it.

For example, the bank institutes a “back-dated service charge” in relation to an account where the original agreement specified that there would be no charges if the balance is over a specified amount. In the first instance, go to customer service and ask a question. If the answers are unsatisfactory, write a letter to the general manager. If that fails refer the matter to the Fair Trading Commission. All of these options are free of charge.

Consider that overseas there are banks which do not charge ATM fees, have rates of interest on credit cards that are actually reflective of economic conditions and compare it with the banking landscape in Barbados. We’ve been told to tighten our belts, avoid unnecessary spending and mind our money, which includes not allowing the banks and other financial institutions to take advantage.

Truth be told, if the bank’s fees increase any further I may consider keeping my own money under the bed (not quite, but I hope you get the point).

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