It is undoubtedly a modern concept to own and operate a bank account for several reasons, some of which include less risk in carrying bulk cash and seamlessly engaging in high volume of transactions across different platforms without touching money through the instrumentality of using banking services.
Sometimes bank account holders complain about unauthorized, illegal and fraudulent transactions carried out on their accounts operated in bank and when issues of this nature arises, many banks reluctantly handle such cases unprofessionally leading to the customer getting frustrated with the banking system, the result of which is institution of cases in court to seek redress over the bank’s handling of their deposited funds.
In this article, the legal perspective of bank’s liability over fraudulent and unauthorized transactions carried out on a customer’s account is well addressed and readers are encouraged to pay attention to the duties that the bank owe them and send feedback, questions or inquiries regarding cases of similar experiences with banks.
Definition of a Bank
The word “bank” is not defined in the Constitution nor in the Interpretation Act. In its ordinary grammatical meaning, the word “bank” means an organization or place that provides financial service. Thus, a ‘bank’ is a quasi public institution, for the custody and loan of money, the exchange and transmission of the same by means of bills and drafts and issuance of its own promissory notes (cheques) payable to bearer, as currency, or for the exercise of one or more of these functions, not always necessarily chartered but sometimes so, created to serve the public ends. It is a financial institution regulated by law.
A bank is wholly the creation of statute to do business (for profit) by legislative grace and the right to carry on a banking business through the agency of a corporation is a franchise which is depended on a grant of corporate powers by the State. See the cases of Standard Trust Bank Limited v. Anumnu (2007) LPELR-CA/A/51/2006 per Awala JCA, Wema Bank Plc v Osilaru (2008) 10 NWLR (Pt.1094) 150 at 182 paras. A – C (CA) Per OGUNDARE, J.S.C. p. 33, paras. B-D.
Meaning of “a Customer”
Black’s Law Dictionary, 6th Edition at page 386 defines a customer in relation to a bank is as follows:-
“In banking, any person having an account with a bank or for whom a bank has agreed to collect items and includes a bank carrying an account with another bank. As to letters of credit, a buyer or other person who causes an issuer to issue credit or a bank which procures issuance or confirmation on behalf of that bank’s customer.” See the case of Ecobank Nigeria Plc. v. Intercontinental Bank Plc & Ors. (2011) LPELR-CA/L/371/2009 per Oguntade, J.S.C. at pp. 36-37, paras. G-B.
In NDIC v. Federal Mortgage Bank of Nigeria (1997) 2 N.W.L.R. (Pt.490) 755 at 756 the court had interpreted the words “individual customer” to include a bank where that bank places money in another bank to yield interest, where per Uwaifo JCA (as he then was) has this to say:
“It must be taken, I think, that by depositing money with the bank for a given period so as to earn interest payable by that bank, the customer created the relationship in respect of the transaction of an individual/customer and its bank.” See also the case of FCMB Plc. v. Nyama (2014) LPELR-CA/K/283/2011.
Law Governing Bank/Customer Relationship
It is settled law that the relationship between a banker and its customer is governed by the ordinary principles of contract as espoused in the case of D Stephens Industries Ltd v. Bank of Credit and Commerce (1999) 11 NWLR (Pt.625) 29.
It is therefore open to the customer to give an oral instruction to have his account closed at once although he would not be able to take out whatever remains as credit therein until a proper settlement of obligations on both sides is carried out. But the banker is entitled to act on the notice without delay. It is when it is the banker who decided to have the account of the customer closed that he must give the customer reasonable notice in case there are outstanding cheques to be cleared or some business the customer intends to conclude through the bank account. See the case of Joachimson v. Swiss Bank Corporation (1921) 3 K.B. 110 at p. 127, Fidelity Bank v. Onwuka (2017) LPELR-CA/E/661/2013.
Nature of a Banker and Customer Relationship
The Court per Okoro JCA (as he then was) held in the case of Union Bank v. Idowu & Anor. (2016) LPELR-CA/I/186/2008 that: “It is now settled that the relationship between a banker and customer where a bank accepts money either in current or deposit account from its customer is a relationship of debtor and creditor. The relationship is essentially contractual.”
Also, Nkiru-Nzegwu Danjuma described a banker at pages 108 – 109 of her book titled: “The Bankers’ Liability”, revised edition, 2014 as follows:
“As regards money deposited by the customer in an account with the banker, the nature of the banker and customer relationship is that of contract of debtor and creditor. The position becomes clearer when the customer asks for his money. As a result of an implied undertaking by the banker to repay the customer all or part of such deposit, the banker is a debtor for an amount deposited. If a valid repayment demand of the customer is not met by the banker, the customer may bring an action against it for breach of contract. The action will be against the bank and not against the bank manager.”
Additionally, courts have described the relationship between a debtor and creditor in the case of Osawaye v. National Bank of Nigeria Ltd. (1974) NCCR 474 thus:
“The relationship between a banker and customer is one of debtor and creditor with the additional feature that the banker is only liable to repay the customer on payment being demanded. There is no obligation on the part of the banker or debtor to seek out his creditor, the customer and pay him: obligation is only to pay the customer or some person nominated by the customer, when the customer makes a demand or gives a direction for payment.”
In essence, it is the receipt of money either from or on account of its customer that constitutes a banker into debtor of the customer. Thus, when a banker credits the account of a customer with a certain sum of money, the banker becomes a debtor to the customer to the extent of the credit. It is to be noted that the ordinary customer rank as an unsecured creditor in the liquidation of the bank. The concept of debtor and creditor in the banker and customer relationship are not static. The banker may in certain cases become the creditor, while the customer assumes the position of a debtor. For instance, where a banker grants overdrafts to its customer and debits the customer’s account with sum or value of the overdraft, the customer becomes a debtor to the bank to an amount equal to the credit.
Accordingly, after the reconciliation of the banker and customer’s account, which party is the creditor, can sue if demand for payment is not complied with. See the case of FCMB v. Action Alliance (2018) LPELR-CA/A/292/2009. The nature of a banker/customer relationship in respect of the money deposited in a bank is akin to that of a debtor and a creditor; because where a customer asks for his money, the bank ensures payment on demand of any cheques drawn out by the customer. See the case of Yesufu v. African Continental Bank Ltd (1981) LPELR-3524-SC, Diamond Bank Ltd. v. Ugochukwu (2007) All FWLR (Pt. 384) 290 at 304, paras. F – H (CA), Nigerian Maritime Administration and Safety Agency v. Stephen Adi Odey & Ors. (2012) LPELR-CA/C/45/200.
Duty of a Bank under its Contract with its Customer
It is settled law that a bank has a duty under its contract with its customer to exercise reasonable care and skill in carrying out its part with regard to operations within its contract with its customers. The duty to exercise reasonable care and skill extends over the whole range of banking business within the contract with the customer. See the case of New Improved Mainbannc Ventures Ltd. First Bank of Nigeria Plc. (2009) LPELR-CA/C/138/2007, Mai v. STB Ltd. (2008) ALL FWLR (Pt. 399) 552 at 567.
Duty on a Bank in a Banking Transaction to honour a Customer’s Cheque
A bank is bound to honour a cheque issued by its customer if the customer has enough funds to satisfy the amount payable on the cheque in respect of the relevant account and the refusal to honour a customer’s cheque will amount to a breach of contract which would render the banker liable in damages. The moment a bank places money to the customer’s credit, the customer is entitled to draw upon it, unless something occurs to deprive him of that right, for example, a cheque which has not been cleared, where clearance is necessary does not put the account in funds. See the cases of Allied Bank (Nig) Ltd v. Akubueze (1997) 6 NWLR (Pt. 509) 374 and Union Bank of Nigeria Ltd v. Nwoye (1996) 3 NWLR (Pt. 435) 135, Owena Mass Transportation Company Ltd v. Enterprises Bank Ltd (2014) LPELR-CA/B/132/2005.
While it is the business of the bank to get grant credit facilities to a customer, the customer is also bound to pay interest to the bank. See the case of STB Ltd v. Inter Drill Nigeria Ltd (2007) All FWLR (Pt. 366) pg. 756 at 761, U.B.N Ltd v. Salami (1998) 3 NWLR (Pt. 543).
What Determines the Interest rate on Loan/Overdraft Facilities?
The law is trite that bank’s rate of interest is dependent on the agreement between the parties or established custom or consent of the customer. Also it is the duty of a banker claiming a particular rate of interest to prove it. See the case of Alhaji Aminu Ishola (1997) 2 NWLR (Pt. 488) 405, Suberu v. A.I.S.L. Ltd (2007) 10 NWLR (Pt.1043). An interest on bank loans/overdraft is not a taboo; nor out of place, since it is a usual practice. Banks have been empowered to impose interests on loans/overdraft facilities. By virtue of section 15 of the Banking Act Cap 28 Laws of the Federation 1990, the Central Bank of Nigeria is empowered to regulate and control banking activities in Nigeria. In the exercise of this power it controls by law the interest rate chargeable by any bank and dictates the facilitation in the rate of interest. See the cases of Union Bank of Nigeria v. Albert Ozigi (1994) 3 SCNJ pg. 42, U.B.N. v. Sax Nigeria Ltd. (1994) 8 NWLR (Pt. 361) Pg. 150, Union Bank of Nigeria Plc v. Alhaji Adams Ajabule & Anor (2011) LPELR 8239 (1994) 3 SCNJ Pg 42. Flowing from the above position, it must be noted that interest rates chargeable on loans vary depending on the economic and market conditions.
Whether a contractual transaction of a banker/customer relationship is distinct from the general contract governed by laws of contract?
A contractual transaction of a banker/customer relationship is not distinct from the general contract governed by laws of contract among other regulations. There must be offer and acknowledgement of the acceptance of the terms specifically set out in the contract document for ease of reference. This is commonly because parties are bound by their agreement. A party who enters into an agreement is clearly bound by the terms of the agreement and he cannot seek for better terms midstream or when the agreement is a subject of litigation, when things are no longer at ease. Although a party may seek for better terms, the court is bound by the original terms of the agreement and will interfere them only in the interest of justice. See the case of Idoniboye-Obu v. NNPC (2003) 4 MJSC 131 at 168 para G, Sergius Onyekwelu. v. Ele Petroleum Nigeria Ltd (2009) All FWLR (Pt. 469) 438 paras D-E.
An offer is an expression of willingness to contract on certain terms by a person to whom it is made with the intention that it shall become binding as soon as it is addressed. Once the offer is unconditionally accepted, a valid contract has come into existence. See the case of UNIC Ltd. v. FADCA Ind. (Nig.) Ltd (2000) 4 NWLR (Pt. 653) 4006 at 417, Innih v. Ferado Agro & Construction Ltd. (1990) 5 NWLR (Pt. 152) 604; Sona Breweries Plc v. Peters (2005) 1 NWLR (908) 478 at 488, Pan African Bank Ltd. v. Ede (1998) 7 NWLR (Pt. 558) 442, Ezenwa v. Ekong (1999) 11 NWLR (Pt. 652) 55, FBN Plc v. Ndoma-Egba (2006) ALL FWLR (Pt. 307) 1012 at 1033 para D-E.
Principle Governing Banker/Customer Relationship Where an Overdraft Facility is Granted
There is no doubt that in a banker/customer relationship, a customer when in short of cash and there is an urgent need to execute some transactions, can apply for a loan/overdraft facilities. The reason for this is not farfetched; nobody at all times has the money in all cases of one form of business transactions or the other. However, such banking transactions are strictly documented and the terms explicitly stated. In case of overdraft facility, there must be a letter of offer defining the terms, bonds and conditions of the facility granted i.e. interest rate, the duration of the facility, and security for the facility and there must be acceptance by the applicant of the terms and conditions of the offer. See the case of Alhaji M. U. & Sons Ltd v. L.B.N. PLC (2006) 2 NWLR (Pt. 964) 288, Owena Mass Transportation Company Limited v. Enterprises Bank Limited (2014) LPELR-CA/B/132/2005.
Can a Bank be Held Liable for Fraudulent and Unauthorized Transaction on a Customer’s Account?
The law of contract clearly requires that both parties to a contract must fulfill their contractual obligations. The contractual nature of bankers and customers relationship was dealt with in the case of Wema Bank Plc v. Alhaji Idowu Fasasi Solarin Osilaru (2008) 10 NWLR pg. 170, where the court asked: What was the duty of care owed by a bank to its customer? and stated thus:
“A bank has a duty to exercise reasonable care and skill including interpreting ascertaining and acting in accordance with the instructions of the customer”. See also the case of Agbanelo v. Union Bank of Nigeria (2000) 4 S.C (Pt.1) 243, Heritage Bank Plc & Ors v. Percy Okorie (2017) LPELR-CA/OW/24/2013.
In the case of STB Ltd. v. Anumnu (2008) 14 NWLR pg.154, the Court per Adekeye JCA, held:
“A bank has a duty under its contract with its customer to exercise reasonable care and skill in carrying out its part with regard to the operations within its contracts with its customers. This duty extends to the whole range of banking business within the contract with the customer. This duty applies to interpreting, ascertaining and acting in accordance with the instructions of the customer.” See the case of Tom Total Nigeria Ltd. v. Skye Bank (2017) LPELR-CA/L/456/2007.
It is now well settled that generally in law a bank in its dealings with its customers owes to them a duty of care and thus negligence if proved is a ground for liability against a Bank by its customer. It follows therefore that between a bank and its customer, negligence will arise where the bank breaches the implied duty to observe the standard expected of a reasonable banker in respect of dealings with the customer’s account and the onus of proving that it is not negligent lies on the bank.
There is no gainsaying that where in handling as customer’s account it is shown that there was manifest negligence of the duty of care is clearly breached or broken, then the bank will be held liable. See the case of I.T.P.P. Ltd. v. U.B.N Plc. (2006) LPELR-SC.342/2001.
The duty imposed on a bank is clear in law. It is a duty to exercise reasonable care and skills and which extends over the whole range of banking business within the contract with the customer. See the cases of Standard Trust Bank Ltd. v. Anumnu  14 NWLR (PT.1106) 125, UBA Plc v. Uzochukwu (2017) LPELR-CA/E/339/2007.
It is beyond controversy that one of the principal duties of a banker to its customer is to maintain a complete secrecy/confidentiality of the information about a customer’s account from the day the account is closed and is no longer operated. It is one of the implied terms of contract between the customer and the banker which is not restricted to the account alone but also to any other information which comes to the knowledge of the banker about the customer in the course of their contractual relationship. However the duty of the banker to maintain secrecy/confidentiality of the status of the account and any other information relating thereto is not absolute. It is a qualified duty.
In other words, it is subject to a number of exceptions which were established by the English case of Tournier v. National Provincial And Union Bank of England (1924) 1 KB 461 AT 472 as follows:
(a) Where disclosure is under compulsion of law,
(b) Where there is a duty to the public to disclose,
(c) Where the interests of the bank require disclosure,
(d) Where the disclosure is made by express or implied consent of the customer.
Apart from the above laid down principles of law, any unauthorized or fraudulent disclosure or transaction on a customer’s account would amount to a ground for liability of breach of duty of care and negligence if proved in court against a Bank.