Explained: Banker’s special relationship with the customer

[This article explains the relationship between the bank and the customer like a creditor and the debtor, Lessor and the Lessee, Trustee and beneficiary, bailor and bailee, Principal and the agent, assigner and assignee, etc. according to the type of service rendered by the bank. The responsibilities of the banker acting upon the mandate and power of attorney are also explained ]

A banker’s special relationship with a customer starts from the moment a customer opens his account in the Bank and the bank becomes obliged to the customer regarding specific rights and responsibilities. These rights and responsibilities are known as the banker’s special relationship with the customer. The following are the special relationships between the banker and the customer.

When a customer deposits money with a bank, they essentially entrust the bank with their funds. The bank acts as a trustee in this context. The customer, in turn, is the beneficiary of this trust relationship. They expect the bank to safeguard their funds and make them available for withdrawal or use as needed. Here the position of the bank is a trustee and the customer is the beneficiary. As such, the banker has to employ the funds for a specific purpose for which it is meant.

The customer may authorise the bank to operate his account by a certain named person by way of mandate and power of attorney. Similarly, the Banks are conferred with the right to retention of goods or security (such as cheques, bills of exchange, deposits, etc.)  By way of general lien until some claim attaching to it, is satisfied or discharged. The lien extends to all such documents under which money will or may be payable to the customer. Further, the banker has the right of appropriation and right of set-off when the money owed to the bank is a certain sum, which should be due at the time of set-off and there shall not be an agreement, express or implied to the contrary.

To know them in detail read the following articles.

The relationship between banker and customer is contractual. Since the bank offers a variety of services to the customer, the relationship between the bank and the customer varies according to the type of service rendered by the bank.

Relationship of Debtor and Creditor

The banker accepts deposits of money from his customers for lending and investment and repays it on demand as per the terms of the contract of deposit. A deposit accepted by the bank is technically money loaned out to the bank from the depositors. Therefore, the general relationship between a depositor and a banker is the relationship between the debtor and the creditor. The depositors are creditors and the bank is the debtor. However, the relationship between the banker and the customer is directly opposite when the bank lends money to its customer. The bank becomes the creditor and the customer becomes the debtor.

Relationship of Trustee and Beneficiary

When a banker accepts items like securities or documents for safe custody or maintains escrow accounts of the customers,   the relation between the banker and customer is a Trustee and the Beneficiary (Trustier). The bank is the Trustee and the customer is the beneficiary. Read: Explained: Bank as a Trustee

(Escrow is a separate type of bank account generally opened for various business deals like acquisition, transfer of shares, and debentures of a company, where money deposited in banks will be released only under fulfillment of certain conditions of a contract).

Relationship of Lessor and Lessee

Similarly, when a customer hires a safe deposit locker from the bank, the relation between the bank and the customer is lessor and lessee. The bank is the lessor (licensor) and the hirer of the safe deposit locker is the lessee (licensee/tenant).

For details read: Relationship of Lessor and Lessee

Relationship between Principal and Agent

When a bank collects cheques, bills, and other instruments for customers, the relationship between the bank and the customer is that of the Principal and Agent. The bank also makes regular payments of insurance premium rent etc. as per standing instructions received from the customer. In the above cases also the relationship between the bank and the customer is between the Principal and the agent. The bank acts as the agent and the customer the principal. For details read: Relationship between Principal and Agent

Relationship of Assigner and Assignee

An assignor is a person who transfers his security rights to a lender as collateral for the money borrowed by him. The transfer of   Life Insurance Policies, National Saving Certificates, Supply bills, etc. in the name of the bank is an example of an assignment.  The bank on whose name security rights are transferred by the assignor is called an assignee. On full payment of dues to the assignee, the assignor can get the security re-assigned in his name.

Relationship of Bailor and Bailee

Bailment refers to the delivery of goods by one person to another for some purpose under the condition that the goods be returned to the depositor when the purpose is accomplished or otherwise disposed of according to the directions of the person while delivering the goods (Sec 148 of contract act). The person delivering the goods is known as the bailor and the person to whom goods are delivered is called the bailee. For more details read: Relationship between Bailor and Bailee

Some examples of bailment are;

1. A car parked in a parking area where parking charge is collected. The car owner is the bailor and the contractor who collected the charge is the bailee. As a bailee, the contractor has to take care of the car parked in his parking area.
2. The articles, valuables, and securities deposited in the safe deposit vault of the bank are also examples of bailment. In this case, the customer and banker relationship is bailor and bailee, besides their relationship as trustee and beneficiary. The bailor is still the rightful owner of the item though the item is in Bailee’s possession. As a bailee, the bank has to take care of the goods bailed.
3. The relationship of Pledger and pledgee is also a type of bailment in which goods are delivered by one person to another as a security for payment of a debt or performance of a promise (Sec 172, Contract Act, 1872). For example, the borrower delivers the gold jewel to the bank as a security for the loan granted by the bank. In this case, the borrower who pledged the gold to the bank is the bailor (pledger) and the bank is the bailee (pledgee).

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