2.

1) BANK AND CUSTOMER RELATIONSHIP

Definition of Banker and Customer:

-in S2 FSA2013, Bank as defined in subsection 2(1) of the Central Bank of Malaysia Act
2009,(act701) it means a person who carries on banking business.

-a person can include an Individual, corporation, society, statutory body or any other group of
persons
-in Malaysia, no person is permitted to carry on the business of
banking unless:
a) it is publicly listed company
b)it holds valid license issued by Ministry of Finance Malaysia

Banking Business:

1) Receiving Deposit
-receive deposit money in any currency or deposit account

2) Cheque Issuance/Collection
-pay or collect cheque drawn by or paid in by customer

3) Providing of Finance
-lending money,leasing, factoring, bills of exchange , acceptance or guarantee of any
liability

4) Allow By Ministry
-any provision allowed by Ministry of Finance

Definition of Customer:

-the significant of a person be a customer is bank owes a person a number if legal obligation
which includes duty of confidentiality
-thus, bank have certain privileges specifically statutory protection when the collection cheque
on the behalf of customer
-there's no statutory definition of customer in Malaysia,Spore, or UK,the definition of
customer are rely on court cases for the judicial guidance

● Great Western Railway v London and County Banking Co. Ltd

-a person must have some form of account with the bank to be a customer

-this definition is the same as Common Law that being used in Malaysia banking system
 ● Woods v Martins Bank Ltd
-the relationship of customer and banker existed as from the date the bank accepted the
instructions contained in a letter even though the account was not opened until 3 weeks
after that date

● Ladbroke & Co vs Todd (1914)

-based on the case Ladbroke & Co vs Todd 1914, a person is a customer of bank when
the application to open an account has been accepted and opened; length of the time
the account is open is not important

● Importer Company Ltd vs Westminster Bank Ltd

-a bank may be another bank’s customer
-in Imported Company Ltd vs Westminster Bank Ltd, it was urged that the term customer
does no refer to another bank
-however, Atkin Lj said that if non-clearing bank regularly send cheques to a clearing
bank for clearing, the former is a customer of the latter
-Lj- refer to Lord Justice which is a judge in the Court of Appeal

2.2) FORMS OF RELATIONSHIP

5 Forms of Relationship:
1. Contractual in Nature
-based on the legal binding agreement between two parties
-when a customer opens an account with a bank, they enter into a contract with the bank
that outlines the terms and conditions of the relationship
-typically includes provisions regarding the types of accounts available, the fees and
charges associated with the accounts, the interest rates on loans and deposits, and the
rights and responsibilities of both parties in the relationship
-also includes provisions related to confidentiality, privacy, and data protection

2. Special Relationship
-special relationship between banker and customer refers to the legal and ethical duty of
banker to act in the best interests of their customer
-it based in the principle of trust and confidence and its created when customer entrust
their asset or money to a banker for safekeeping and investment
-the bank become the financial advisor or broker to customer

3. Trustee and Beneficiary Relationship

-a trustee is a person or entity who holds legal title to property for the benefit of another
person or entity who known as beneficiary
-in the case of a bank acting as a trustee, the bank holds legal title to property or assets
on behalf of the beneficiary
-the relationship between a trustee and a beneficiary is one of trust and confidence
 4. Debtor and Creditor Relationship
-when a customer deposits money in their account, the bank becomes a debtor and the
customer becomes a creditor
-the bank owes the customer the amount deposited, and the customer can demand
payment from the bank any time

5. Principal and Agent Relationship

-refer to when banker acts as an agent on behalf of the customer, who is the principal
-the principal and agent relationship may arise in a number of banking contexts for
example whe customer authorize a banker to act as their agent in executing transaction
or managing their assets

2.3) RIGHT AND DUTY OF BANKER

1) Right to commission or service charge

-bank has right to charge their customer certain amount of fees upon rendering services
to them either by commission or service charge
-the commission is permitted for other banking services generally fixed or outline by
Associations of Bankers

2) Right to interest
-the bank's right to charge interest is the fundamental aspect of its business model
-bank earns profit by receive deposit from customer, then lending out those funds at a
higher interest rate to borrowers
-the difference between the interest earned on loans and the interest paid on deposits
is known as the net interest margin, which is a key measure of a bank's profitability

3) Right to set off

-refer to legal right of a bank to use funds from one account to offset or pay any debt
owed by account holder in another account
-it means a customer owed the bank money on one account, the bank can use the funds
from another account owned by same customer to pay of the debt
-this right is usually outlined in the terms and conditions of a bank's account agreement,
and it is typically used in cases where a customer has defaulted on a loan or credit card
debt owed to the bank
-in certain situations, a bank may not be able to exercise its right to set off an
account to recover a debt owed by a customer.
-this may be due to legal or regulatory restrictions or because the customer has
protections in place that prevent the bank from taking the funds.
-the following accounts cannot be set-off:
1 .a private debt account and trust credit account.
2. a deceased credit account and executor’s debit balance and vice versa.
3. a customer’s credit account and a contingent liability on a discounted bill.
 4. a solicitor’s direct account and a visitor’s overdrawn current account (client
account)

4) Right to repayment of loan

-based on the agreed and stipulated contract between both of the parties, the bank is
said to
-have the right of repayment of the said loan, when it is due for the customer to repay
-in financing a certain banking transaction, the bank has right to penalize the customer
for any late payment, which in practice, usually there is an express term for late payment
provided under the said loan contract

5) Right to utilize the deposited money

-when a customer deposits money into a bank account, the bank has the right
to utilize that money in order to earn profits for the bank
-this is a fundamental aspect of banking and is often referred to as the "right of set-off."
-the bank can use the deposited funds to make loans to other customers or invest the
money in other financial instruments such as bonds, securities, or other assets

6) Right to expect due care by the customer in drawing cheques

-the right to expect due care by the customer in drawing cheques is important right of the
banks
-when a customer writes a cheque, they are directing the bank to pay a specific amount
of money from their account to the recipient named on the cheque
-to ensure that, this process is carried out efficiently, banks expect their customers to
exercise due care when writing cheques

7) Right to lien
-the right to lien is a legal right granted to banks that allows them to retain
possession of a customer's property or funds until a debt or obligation is
satisfied
-in banking, a lien refers to the right of the bank to retain possession of any securities,
property or documents deposited by the customer with the bank as security for a loan or
credit facility

DUTY OF BANKERS

1) Duty to follow instructions made by customer

• The duty of a banker to follow instructions made by the customer is important in
the banker-customer relationship, and the banker should always act in
accordance with the customer's instructions to the best of their ability, while also
fulfilling their legal and ethical obligations
 •While a customer gives instructions to a banker, the banker has a duty to follow
those instruction
•This based on the principle of agency, where the banker acts as an agent for the
customer
•The banker expected to act in the best interest of the customer and to carry out
their instructions accurately
•In the case of Chairman, Sarawak Housing Developers’ Association V. Malayan
Banking Bhd, the failure of the bank to strictly follow the instruction of the
customer leads to the forgery of several cheques by the customer’s employee,
which can be avoided if the bank takes a further inquiry as to the drawing of the
cheques

2) Duty to honor cheques drawn by customer

•The duty to honor cheques is important inbanking system and helps to facilitate
transactions between individuals and businesses
•When a customer writes a cheque, they are giving the bank an instruction to pay
a certain amount of money to a specific recipient
•The bank must then fulfill this obligation, provided that the cheque is properly
authorized,has sufficient funds, and not subject to any legal restrictions
•However, banks also have a duty to exercise reasonable care and diligence
when processing cheques,
This includes:
[Link] has sufficient funds in his account or within the limits of the agreed
overdraft
[Link] legal bars to payment such as no stop payment
[Link] are drawn in the proper form. E.g. no alterations on the face of the
cheque

3) Duty to exercise care and skill when dealing with customer

•The duty to exercise care and skill means that banks must act in the best
interests of their customers and take reasonable steps to ensure that their
customers are not exposed to undue risks or losses
•Including the providing accurate and timely information about banking
products and services, ensuring that customers understand the risks
associated with these product services and provide appropriate advice and
guidance

4) Duty of secrecy
•A banker's duty of secrecy in Malaysia is statutory as it is clearly provided under
the Financial Services Act 2013 ("FSA"). Banker owes a duty of secrecy to its
customers at all times, including a duty to keep information concerning its
customers affairs confidential
•This duty is also contractual in nature and is to be implied by a banker and
customer relationship.
 •Under Section 133(1) of the FSA stipulates that no person who has access to
any document or information relating to the affairs or account of any customer of
a financial institution, including the financial institution or any person who is or
has been a director, officer or agent of the financial institution, shall disclose to
another person any document or information relating to affairs or account of any
customer of the financial institution
•The banker's duty to maintain secrecy and confidence not only encompasses
information and facts that he learns from the state of the customer's account but
includes and extends to all information gained from other sources than the
customer's actual account by virtue of the banking relationship

5) Duty as regard to garnishee order

•Garnishee order is a court order instructing a garnishee (a bank) that funds held
on behalf of a debtor should not be released until directed by court. The order
may also instruct the bank to pay a given sum to the judgment creditor from
these fund
•Key duties of banks in relation to garnishee orders is to act in accordance
with the terms of the order, means that banks must comply with any
instructions provided in the order and take all necessary steps to freeze or seize
the relevant funds in a customer's account
•Fail to comply with a garnishee order can result in legal and financial
consequences for the bank

2.4) RIGHT AND DUTY OF CUSTOMER

1) Right to supplied with statement or pass book and to maintain high degree of
accuracy in their bookkeeping

-Under this right, customers have the right to receive periodic statements or passbooks
that accurately reflect their account balances, transaction history, fees charged, interest
earned, and other relevant details
-These statements or passbooks should be provided on a regular basis, usually monthly
or quarterly, and should be accurate and complete
-Customers have the right to maintain a high degree of accuracy in their own
bookkeeping, which means that they should keep accurate records of their financial
transactions and reconcile them with the statements or passbooks provided by the
bank or financial institution

2) Right to be repaid balance standing to the credit of the customer's account

-This right ensures that customers have the ability to withdraw their funds at any time and
that their funds are secure
-When a customer deposits money into an account with a bank or financial institution,
they become a creditor of the bank or financial institution
-Means that the bank or financial institution owes the customer the amount of money
deposited, and the customer has the right to withdraw that money at any time
-In the event that the bank or financial institution becomes insolvent or is unable to meet
its obligations, customers have the right to be repaid the balance standing to the credit
of their account
-Typically done through the use of deposit insurance or other government-backed
programs that protect customer deposits

3) Right to receive interest on their deposit account

-Customers have the right to receive interest on their deposit accounts, include savings
accounts, fixed deposit accounts, and other similar types of accounts that designed to earn
interest on the deposited funds
-It is typically paid by the bank or financial institution as a reward for the use
of the customer's funds, and the rate of interest may vary depends on the type of account, the
amount deposited, and the prevailing market conditions
-However, customers don't have right to receive interest on their current accounts
-Current accounts typically used for day-to-day transactions such as paying bills and making
purchases, and they are not designed to earn interest on the deposited funds
-Instead, current accounts may be subject to fees and charges for certain transactions,for
example as ATM withdrawals, check writing, and overdrafts

4) Right to appropriate payment

-It is when a customer owes multiple debts to a creditor, for instance a bank or financial
institution,and makes a payment that is less than the total amount owed, the creditor has the
right to apply the payment to any of the debts owed
-However, the customer has the right to request that the payment be applied in a specific
way, such as to the debt with the highest interest rate or the oldest debt
-The right to appropriate payments is essential for ensuring that customers are being treated
fairly and not penalized for making payments less than the total amount owed.
-By exercising this right, customers can ensure their payments are applied in a way that is most
beneficial to them and helps reduce their debt burden

DUTIES OF CUSTOMERS
1) Duty to exercise reasonable care in drawing cheques
•In order to fulfill this duty, customers should take care when drawing their cheques,
ensuring all spaces are filled in correctly and that there are no blank spaces that could
be filled in by third party
•Customers have to be vigilant for any signs of fraud or unauthorized activity on
their accounts, and report any suspicious transactions to the bank
 •With doing these duties, customers can help to maintain the integrity of the banking
system, prevent fraud, and protect their own financial interests
• In the case of London Joint Stock Bank v Macmillan & Arthur (1918) is a landmark case
in English law that established the principle that customers have a duty to exercise
reasonable care in drawing their cheques to prevent fraud and protect the bank
from liability

2) Duty to notify the bank promptly if aware of any forgeries or unauthorized

transactions on accounts

•Arises from the principle of good faith and fair dealing that governs the
relationship between customers and banks
•A customer have to inform the bank immediately of any false alteration of a
cheque
•Prompt notification of forgeries and unauthorized transactions is important
because it can limit the potential losses that can result from such activities.
•Also enables the bank to take appropriate action to prevent further fraud and
protect the interests of its customers
•In the case of Greenwood v Martin Bank (1933) established that customers have a
duty to inform their bank immediately of any false alteration of a cheque

3) Duty to maintain proper record of all cheques issued

•Arises from the principle of good faith and fair dealing that governs the
relationship between customers and banks
•Maintain proper records of cheques issued including keeping a record of the
cheque number, the date the cheque was issued, the name of the payee, and the
amount of the cheque
•The record keeping is important because:

1. First, it allows customers to keep track of their finances and ensure that they do not
issue more cheques than they have funds available to cover
2. Second, it provides a record of all transactions that can be used to reconcile bank
statements and detect any errors or discrepancies. Finally, proper record keeping can
help to prevent fraud by allowing customers to detect any unauthorized or fraudulent
cheques

4) Duty to ensure there are sufficient funds in their account to cover issued cheques

•Customers must ensure that they have a clear understanding of the balance in their account
and any pending transactions that may affect it
•Also they must exercise caution when issuing cheques, taking into account any
outstanding bills or expenses that may be deducted from their account in the future
•If customer issues a cheque without sufficient funds, they may be liable for any fees or charges
that result from the dishonor of the cheque, as well as any damages that the payee may suffer
•In extreme cases, a customer may also face legal action or criminal charges for
issuing a cheque without sufficient funds

5) Duty to only use cheques forms supplied by the bank for issuing cheques

•It is important for bank customer to use only the cheque forms provided by
the bank for issuing cheques
•It’s because each bank has its own unique cheque format and security features designed to
prevent fraud and protect the interests of both the customer
and the bank
•By using a different bank's cheque form, may result in the cheque being rejected or
dishonored by the bank
•It’s because the receiving bank may not be able to verify the authenticity of the
cheque, and may not be willing to accept it as a valid form of payment