Bank and Customer Relationships

AuthorM.H. Ogilvie
ProfessionChancellor's Professor and Professor of Law, Carleton University
The legal relationship of bank and customer comes into being when a
customer opens a bank account, that is, enter s a legally binding con-
tract with a bank. The account agreement is typically only the star ting
point, however, for a long-term relationship during which the bank
will provide various services for the customer either encompassed
by the account agreement or subject to additional contracts for those
specif‌ic serv ices, such as loans, safety deposit boxes, mortgages, for-
eign exchange tran sactions, or credit cards. Thus, there are really many
relationships in law between a si ngle customer and a bank regulated by
the many contracts into which t hey might enter during the duration of
their dealings w ith one another. In addition, and in common w ith other
relationships based on contract, tort ious and f‌iduciary obligations might
also be implied into the relat ionship from time to time, such as when
a bank is performing any contractual serv ice for the customer, giving
advice to the customer, or giving a reference to a third par ty in relation
to the customer. The bank and customer relationship is multifaceted in
law and in practice.
Until the late twentieth centur y, the contract opening a bank ac-
count was found as much in the common law as on paper. Historically,
account agreements were simple and understood against the common
law background of numerous implied terms. However, the account
agreement is now a relatively sophisticated and lengt hy standard form
contract, in contrast to the earlier contracts consisting of eight or nine
short terms replicated on the “signature c ard” or even on a chequebook
cover. The terms of the contract today are drawn from th ree sources:
the express ter ms contained in the agreement executed by ba nk and
customer, the terms implied by the common law, and the terms implied
by operation of the Bank Act, which increasingly over the pa st two dec-
ades has made provis ion for the regulation of the contract i n relation to
certain matters of a political origin.
This chapter and the next two chapters (Chapters 7 and 8) wi ll
focus on the account agreement and its operation, and subsequent
chapters will addre ss some of the other contractually based services
provided to customers by banks but regulated by their own contracts,
separate from the account agreement.1
Any person, including a corporate pers on in law, has the potential to
be a “customer”2 of a bank, and the absence of legal capacity to enter
into contracts generally is not a bar to enter ing into an account contract
with a bank. Sect ion 437(1) of the Bank Act provides t hat a bank may
without the intervention of any other person accept a deposit from any
person whether or not qualif‌ied by law to enter into contracts. This
provision is widely regarded as rel ating primarily to children below
the age of legal majority, but the banking practice of requiring a parent
to be a joint account holder with a child is contemplated within t he
permissive us e of the word “may” in t he section.3 In fact, it remains the
case that ban ks are free in law to decide whether or not to enter into
an account agreement with anyone so applying; to determine whether
or not they will provide a part icular service to anyone with whom they
have an account agreement; and to provide a service only on the pay-
ment of some remuneration for that service.
The fundamental principle of the common law th at parties are free
to decide with whom they enter into contracts remains in the banking
context, notwithsta nding the 2001 amendments to the Bank Act requir-
1 See Chapters 9, 10, & 11.
2 The word “customer” continues to b e used in legal literature, a lthough increas-
ingly banker s refer to “clients.” For legal purposes, ther e appears to be no
distinct ion between the two words, and I w ill continue to use “customer” here.
3 A bank has t he same rights against a m inor as it would have against an adult i n
relation to an account a greement. Bank of Nova Scotia v. Passero (1990), 74 O.R.
(2d) 78(Dist. Ct.).
Bank and Customer R elationships 185
ing banks to open retail accounts for certain prescribed persons, since
the regulations continue to per mit banks to exercise their discretion in
this regard. The Bank Act states that a bank shall open a retail deposit
account for certain individua ls4 and shall not require either an initial
minimum deposit or the maintenance of a minimum balance.5 In addi-
tion, low fee retail deposit accounts are authorized for such persons.6
These amendments were intended to ensure t hat low-income individ-
uals would have access to bank ing services in C anada.
Although any person, regardless of age or f‌inancial value, may be
permitted to enter into an account agreement with a bank, banks are
also now required to know their c ustomers for certain statutory pur-
poses, in part icular, pursuant to the Proceeds of Crime (Money Launder-
ing) and Terrorist Financing Act.7 The guidelines for implementing the
provisions of this legi slation place a duty on all f‌inancial institutions to
ensure that they get and maintain accurate information records about
their customers and, when required, to disclose such information to
various state author ities on req uest.8
At common law, the def‌inition of who may be a customer of a bank
has also ar isen in relation to other issues, in addition to legal and f‌inan-
cial capacity to enter into a contract and identi f‌ication for the purpose of
detecting criminal activities. Any person with whom a bank has entered
into an account agreement is clearly a “customer,” and the contractual re-
lationship comes into existence when the contract i s executed, although
there are as yet no trans actions in the account.9 An overdraft in the ac-
count is immaterial to the existence of the legal relationship.10
However, the def‌inition of a customer at common law has been
expanded beyond any person who has entered an account agreement
to include other persons for whom a bank has provided some service,
thereby entailing possible legal liability in relation to that service. In
Woods v. Martins Bank,11 the bank was found liable for breach of a duty
4 Bank Act, S.C. 1991, c. 46, s. 448.1(1).
5 Ib id., ss. 448.1(2) & (3) and Access to Ba sic Banking Serv ices Regulations,
SOR/20 03-184; SOR /2009-49 for the deta ils of what is required to open a n ac-
count and the ground s on which a bank may refuse t o do so.
6 Bank Act, ibid., s. 4 48.2.
7 S.C. 2000, c. 17 as am.
8 See genera lly Terence D. Ha ll, A Guide to Canadian Money La undering Legislation
(Markham, ON: Lex isNexis Butterworth s, 2009).
9 La cave & Co. v. Credit Lyonnais, [1897] 1 Q.B. 148; Ladbroke & Co. v. Tod d (1914),
19 Com. Cas. 256; Great Western Railway v. Londo n & County Banking Co., [1901]
A.C . 414 (H .L.).
10 Clarke v. London & Count y Banking Co., [1897] 1 Q.B. 552.
11 [1959] 1 Q.B. 55 (Leeds A ssizes) [Woods].

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