Every person reading this piece will probably have some sort of a relationship with a bank, and will therefore, also be party to a contractual relationship with an institution. However, many readers may not have actually considered the nature and terms of the contract, especially if implied, so hopefully, this piece will provide some basic understanding of a contract between a customer, and a bank.
At its essence, interactions between a customer and a bank can be broken down as actions of borrowing and lending money – despite the use of complex jargon. In Foley v Hill (1848) 2 HLC 28; 9 ER 1002, contractual relationships can be seen through the prism of debtor and creditor. Of course the relationship between a customer and institution has evolved, and so has the refinement of the contractual relationship.
What are the terms of a basic contract?
It may come somewhat of a surprise to some readers, that a basic contract between a customer and an institution in relation to deposit and current accounts are unclear. There of course will be some negotiations undertaken between the parties which will be subject to rules relating to contracts, derived from the common law and statute; however, the terms may not always be reduced to writing. Although, the courts generally have taken the approach of including contractual terms of their understanding of what should be implied in this type of contract.
What are the implied terms of the contract?
In Australia, the five conditions before terms can be implied in the contract must (per BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 16 ALR 363 at 376-377):
- be reasonable and equitable;
- be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
- be so obvious that it “goes without saying”;
- be capable of clear expression; and
- not contradict any express terms of the contract.
We can also look to the comments of Atkin LJ in N Joachimson v Swiss Bank Corp  3 KB 110 at 127 in the providing of further guidance to the types of terms that the courts have been prepared to imply in a contractual relationship between a customer and a banker:
“The terms of that contract involve obligations on both sides, and require careful statement. They appear upon consideration to include the following provisions. The bank undertakes to receive money and to collect bills for its customer’s account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer, addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. The customer on his part undertakes to take reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch where the current account is kept.”
In Aktas v Westpac Banking Corp Ltd (2010) 241 CLR 79 at 85, the High Court of Australia observed the obligation of honouring cheques to the degree of the customer’s credit as “[o]ne of the important conditions in the contract between a banker and a customer who conducts a current account.”
French CJ, Gummow and Hayne JJ further added: “The conduct of an accurate and efficient banking system is a matter of what may be called "the common convenience and welfare of society”.
Additionally, at common law, there is an obligation to maintain the confidentiality of the affairs of customers, except under limited circumstances (per Tournier v National Provincial and Union Bank of England  1 KB 61).
Is the onus on a customer to bear the burden of forgery?
In National Australia Bank Ltd v Hokit Pty Ltd (1996) 39 NSWLR 377, the New South Wales Court of Appeal rejected the contention that a customer should bear the burden of forgery and held: “The limited qualifications to the principle that the bank bears the burden of forged cheques should not be extended to include a duty on the part of the customer either in contract or tort to take responsible precautions in the management of bank accounts to prevent the presentation of forged cheques.”
Clarke JA also said at 406, “...I would conclude that it should be held that there is no duty at common law binding the companies to take reasonable care in the management of their bank accounts to avoid economic loss to a banker.”