Explain the banker is a privileged debtor

Explain the banker is a privileged debtor

Explain the banker is a privileged debtor

Relation of Debtor and Creditor

As Sir John Pagét aptly remarks that “the relation of banker and customer is primarily that of debtor and creditor, the respective positions being determined by the existing state of the account”. On the opening of an account the banker assumes the position of a debtor. He is not a depository or trustee of the customer’s money because the money deposited with the banker becomes a debt due from him to the customer.

In other words, the banker does not keep it as it is and to give back the same notes or coins deposited by the customers. The understanding is that the money once deposited, it becomes the property of the bank and the banker is allowed to deal with the money in any manner he thinks it proper. As long as the  customer’s account shows a credit balance, the banker would be a debtor and in case the customer’s account shows a debit balance, the banker would be a creditor.

This point of view was confirmed in the case of the Official Liquidator, Hanuman Bank Ltd Vs K.P.T Nadar and others . In this case it was held that “the mere fact that a banker invites deposits, and is prepared to pay interest on them, is proof enough of his intention to make use of it as he likes, and earn interest therefrom, so as to earn profits for himself. But even if the banker pays no interest on the money deposited, he is the customer’s debtor and hot a bailee , because he undertakes to repay on demand a sum, equivalent to the amount deposited with him and the customer has no right whatsoever to claim
the identical coins or notes deposited by him with his banker.The later can pay the amount in any kind of legal tender”.

Explain the banker is a privileged debtor

Though the relation between a banker and his customer is mainly that of a debtor and creditor, it differs from similar ordinary commercial transactions of debtor-creditor relationship in the following respects :
(a) It is not at all necessary for the debtor-banker to go to the creditor-customer to repay the amount. This is normally expected in the case of commercial transactions. But, here, in the case of banker and customer relationship, demand is necessary from the customer. In the case of Joachimson Vs . Swiss Banking Corporation (1921), it was held that in the case of a debt due from a bank, an express demand for repayment by the customer is necessary before the debt becomes “actually and accruing due”, on the ground that, otherwise, the banker, by offering the money due to his customer, would summarily
close his customer’s account without notice and possibly injure his customer’s credit by dishonouring cheques.

(b) Further the demand by the customer must be made in the prescribed form as required by the banker; otherwise the banker has every right to refuse payment.

(c) The demand by the creditor-customer must be made at the proper place and in proper time, i.e., at the place of the bank where the customer’s account is maintained and on working days during working hours. The above point of repayment at the proper place was expressly raised and decided in Clare & Co Vs Dresdner Bank in 1915.

From the above points, it is clear that the banker is a privileged debtor.

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Explain the banker is a privileged debtor

Explain the banker is a privileged debtor

Explain the banker is a privileged debtor

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