CHAPTER 25 - BUSINESSAND BANKING
THE BANK – CUSTOMER RELATIONSHIP
• Relationship between a business and its bank consists of one bank account into which
collect cash from customers and makes payments to suppliers, employees,
government, and owners.
• The bank as debtor and the customer as creditor.
• Bank has fiduciary duty (providing financial advice for customer’s best interest) and
may have additional duties like:
o To provide advice with care and skill
o To disclose any actual or potential conflicts of interest
o To consider the interests of the customer ahead of those of the bank.
Duties of the Bank and the Customer
• Common law and banking practice imply legal duties on both parties. Bank must:
o Honor payment instructions and repay deposits
o Collect payments for the customer
o Provide account information to the customer on a regular basis
o Maintain secrecy of the customer’s affairs. Duty is qualified by legislation.
• Money Laundering – The false reporting of income from criminal activity as income
from legitimate business.
• Customers also have implied duties to the bank:
o Take reasonable steps to provide documentation as to who is authorized to
give instructions to the bank, in order to prevent fraud and forgery
o Keeps authorizations current
o Notify the bank of any suspected problems
o Provide safeguards for electronic communications
The Bank-Customer Agreement
• Standard banking documents are designed to protect the bank, not the customer.
• Banking contract – Acontract that specifies the rights and obligations of a bank and
• Purpose of banking contract is:
o To specify who has the authority to issue instructions to the