Bank and Customer Relationships

AuthorM.H. Ogilvie
ProfessionProfessor of Law, Carleton University
The legal relationship of bank and customer comes into being when a
customer opens a bank account, that is, enters a legally binding con-
tract with a ban k. The account agreement is typically only the starti ng
point, however, for a long-term relationship dur ing which the bank
will provide var ious services for the customer either encompassed by
the account agreement or subject to additional contracts for those spe-
cif‌ic services, such as loans, safety deposit boxes, mortgages, foreign
exchange trans actions, or credit cards. Thus, there are re ally many re-
lationships in law between a single customer and a bank regulated by
the many contracts into which they might enter during the duration of
their dealings w ith one another. In addition, and in common with other
relationships base d on contract, tortious and f‌iduciary obligation s might
also be implied into the relationship from time to time, such as when
a bank is performing any contractual ser vice for the customer, giving
advice to the customer, or giving a reference to a third p arty in relation
to the customer. The bank and customer relationship is multif aceted 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 t he common
law background of numerous implied terms. However, the account
agreement is now a relatively sophisticated and lengthy 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 f rom three sources:
the express ter ms contained in the agreement executed by bank and
customer, the terms implied by the common law, and the terms i mplied
by operation of the Bank Act, which incre asingly over the past two dec-
ades has made provi sion for the regulation of the contr act in relation to
certain matters of a political origin.
This chapter and the next two chapters (Chapters 7 and 8) will
focus on the account agreement and its operation, and subsequent
chapters will add ress some of the other contractually based ser vices
provided to customers by ban ks but regulated by thei r own contracts,
separate from the account agreement.1
Any person, including a corporate per son 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 that a bank m ay
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 a s relating prim arily to children below
the age of legal majority, but the banking practice of requir ing a parent
to be a joint account holder with a child is contemplated withi n the
permissive use of the word “may” in the section. In fact, it remai ns the
case that banks 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 pa rticular service to anyone with whom they
have an account agreement; and to provide a ser vice only on the pay-
ment of some remuneration for that service.
The fundament al principle of the common l aw that pa rties a re free
to decide with whom they enter into contracts rema ins in the banking
context, notwithst anding the 2001 amendments to the Bank Act requir-
ing banks to open reta il accounts for certain prescribed persons, since
1 See Chapters 9, 10, & 11.
2 The word “customer” continue s to be used in legal literat ure, although increas-
ingly banker s refer to “clients.” For legal purposes, t here appears to be no
distinct ion between the two words, and I w ill continue to use “customer” here.
Bank and Customer Re lationships 177
the regulations continue to per mit banks to exercise their discretion in
this regard. The Bank Act states t hat a bank shall open a ret ail deposit
account for certain individual s3 and shall not require either an initial
minimum deposit or the mai ntenance of a minimum balance.4 In addi-
tion, low fee retail deposit accounts are authorized for such persons.5
These amendments were intended to ensure that low-income individ-
uals would have access to ban king serv ices in Canada.
Although any person, regardless of age or f‌ina ncial value, may be
permitted to enter into an account agreement with a ba nk, banks are
also now required to know their customers for certain statutory pur-
poses, in particular, pursuant to the Proceeds of Crime (Money Launder-
ing) and Terrorist Financing Act.6 The guidelines for implementing the
provision s of this legislat ion place a duty on all f‌in ancial institut ions to
ensure that they get and ma intain accurate in formation records about
their customers and, when required, to disclose such information to
various state authorities on reque st.7
At common law, the def‌inition of who may be a customer of a bank
has also ar isen in relation to other is sues, in addition to legal and f‌ina n-
cial capacity to enter into a contract and identif‌ication 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 is executed, although
there are as yet no tran sactions in the account.8 An overdraft in the ac-
count is immaterial to t he existence of the legal relationship.9
However, the def‌inition of a customer at common law has been
expanded beyond any person who ha s entered an account agreement
to include other persons for whom a bank has prov ided some service,
thereby entailing possible legal liability in relation to that serv ice. In
Woods v. Martins Bank,10 the bank was found liable for breach of a duty
3 Bank Act, S.C. 1991, c. 46, s. 448.1(1).
4 Ibid., ss. 448.1(2) & (3) and Access to Basic Ba nking Service s Regulations, SOR/
2003-184 for the detail s of what is required to open an acc ount and the grounds
on which a bank ma y refuse to do so.
5 Ibid., s. 448.2 .
6 S.C. 2000, c. 17 as am.
7 See generally A lison Manzer, A Guide to Canad ian Money Launder ing Legislation
(Markham: LexisNexis Canada, 2005).
8 Lacave & Co. v. Credit Lyonnais, [1897] 1 Q.B. 148; Ladbroke & Co. v. Todd (1914),
19 Com. Cas. 256; Great Western Railway v. Lond on & County Banking Co.,
9 Clarke v. London & County Banking Co., [1897] 1 Q.B. 552.
10 [1959] 1 Q.B. 55 (Leeds As sizes) [Woods].

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