SPECIAL FEATURES OF RELATIONSHIP OF BANKER AND CUSTOMER
The special features of relation between banker customer give rise to certain rights and obligations which are mutual in character. The rights of the banker are the obligations
of the customer and vice versa.
Rights of a Banker
Following are some of the statutory- rights wtìich are entrusted upon a banker against the customer:
The important featured the relationship between a banker and a customer is that a-banker may, in the absence of an agreement to the contrary, retain as Šeairity fm a general
balance of accounts any goods. and securities bailed to him (Section 17 of Indian Contract Act, .1872)
(1) Right of General Lien
Lien has been defined as” the right to retain or detain the property of another person for non-fulfillment of certain obligations”. Thus, lien may be called the right of a person in possession of goods to retain them until the debts due to him have been paid. Lien confers upon the creditor the right to retain the security and not to sell or use it. Once the obligations are cleared, it is an obligation on the pait of the creditor to return back his goods immediately.
There are two kinds of lien viz., (a) General lien and (b) Particular lien. General lien enables a person to retain possession of goods belonging to another person for a general balance of account. Here the goods are not specific or particular.
This right of general lien can be exercised only by persons such as bankers, factors, wharfingers and attorneys of high courts. A banker has a general lien which confers upon him
the right to retain securities deposited with him by a customer unless there is an express contract or unless there are circumstances showing an implied contract inconsistent with
the lien (Brando Vs Barnett, 1864).
Particular lien is a specific lien which confers a right to retain those goods for which the amount is to be paid.
Craftsman and mechanics enjoy specific lien. For example, a tailor has a particular lien for his stitching charges.
The banker’s right of general lien is an implied pledge and can be exercised in respect of the following:
(j) Bills, notes, cheques, bonds, coupons and dividend warrants belonging to the customer deposited for collection.
(ii) All properties and securities belonging to a customer in the hands of the banker, except the title deeds of immovable property which cannot be sold. But a banker has a right to
retain even the title deeds.
Exceptions to the Rights of Lien
However, a banker cannot exercise his rights of lien in certain cases:
(a) If the goods and securities have been entrusted to him as a trustee or as an agent of the customer, the banker cannot daim the right of lien on those properties.
(b) When a customer sends a cheque or a bill with clear instruction to utilise its proceeds for a specific purpose, the banker cannot exercise his right of lien on them.
(c) When some securities or documents are left with the banker by mistake or negligently, he cannot exercise the right of lien over such securities or documents.
(d) The banker has no lien on the credit balancç in the personal account of the partner for a debt due from the partnership firm . The reason is that credit balance on the one hand and debit balance on the other do not exist in the same capacity.
No Agreement for Creation of Lien Necessary : No agreement to create the right of general lien for a banker is necessary under the Indian law because such an agreement is implied under the terms of Section 171 of the Indian Contract Act, 1872 so long as the same is expressly excluded. In order that the lien should arise, the following conditions should
have been fulfilled:
(a) The property must come into the hands of the banker in his capacity as a banker.
(b) There should be no entrustment for a special purpose inconsistent with the lien.
(c) The possession of the property must be lawfully obtained in his capacity as a banker and
(d) There must be no agreement inconsistent with the lien.
The above position is confirmed in the case Of Halesown Vs Westminster Bank Ltd, (1970).
What conditions should be fulfilled to exercise the right of set-off?
It is s statutory right which enables a banker to combine two accounts in the name of the same customer and to adjust the debit balance in one account with the credit balance of the
other account. A banker may exercise the right of Set-off or combine the two accounts of a customer not only in the same branch of the bank but also in the case of two or more accounts of the same customer in different branches of the same bank, as was decided in the case of Garnett Vs Mckervan (1872). However, this right of Set-off may be exercised subject
to the fulfillment of the following conditions:
(a) Both the accounts of the customer must be in the same name and in the same right. The same right means that funds belonging to someone else but standing in the name of the account holder should not be made available to satisfy his personal debts.
(b) The fuñds in a Trust account are deemed to be in different rights and therefore, a debit balance in a personal account cannot be set-off against the credit balance in the Trust account which may be in the name of the customer.
(c) This right of set-off may, however, be applicable to existing debts due from the customer and not to contingent debts or liabilities falling due at a future date.
(d) It may be exercised by a bank only if there is no agreement to the contrary.
(e) The right of Set-off would be exercised better if the banker had given due notice of his intention to set-off in order to avoid inviting the trouble of returning a cheque drawn on the credit balance of one of them as was decided in the case of Greenhaigh Vs Union Bank of
Manchester (1924). Though the judgment in the above case is not considered as a binding judgment, it is better a notice of intention to set-off is given by the banker in support of his action.
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3. Right of Appropriation: (Clayton’s Rule)
This is the right of a banker to appropriate the money paid
by the customer to any one of the loans including a time-
barred debt. But, however, once the customer gives specific
directions regarding appropriation, the banker has no right to
alter them. It is his bounden duty to carry out the instructions
of the customer. In the absence of any such direction from the
customer, the banker shall have the right to appropriate the
payment to any debt or account according to his discretion.
But the banker should inform the customer accördingly.
In case both the banker and the customer have not used
their powers, the rule given in Clayton’s case would be
applied. In this case, it was laid down that if no specfic
appropriation is made, whether by the’ debtor -or the creditor,
the law appropriates the payment by discharging or reducing
the first item on the debit side of the current account by the
first item on its credit side. Thus under this rule the sum first
paid in is the sum that is first paid out. This rule is popularly
known as the Rule in Clayton’s case and vitally affects current
a accounts, especially when overdrawn. The facts of the case are
it as follows :
Clayton’s Case IDevaynes Vs Noble (1816)].
A firm of bankers known as Devaynes, Davies, Noble &
Co. has five partners. Devaynes, one of the partners died and
the surviving partners carried- on the business of banking
under the same name. The executors of the deceased partner
objected to the continuance of the name of the Devaynes in the
firm’s name. After a year the firm became insolvent and all the
customers (creditors) of the firm made their claims against the
estate of Devaynes, the deceased partner. –
N. Clayton was one of the creditors who continued to deal
with the surviving partners by making payments to and
receiving payments from the firm. At the time of death of
Devaynes, Clayton’s balance was £ 1713. During the next few
days he withdrew several times and made payments and thus
the balance was only £ 453 at the time of bankruptcy of the
firm. A summary of the transactions between the firm and