Discusión

Similarly when a debt due fro a customer is guaranteed by another person the banker can disclose the state of the account to the guarantor with a view to recover the amount due to his from such a customer.

A leading case on this point, i.e., disclosure in his own interest is Sunderland V. Barclays Bank Ltd. In this case the customer, a woman issued a cheque to her dressmaker. The cheque was dishonored because of insufficient funds. The bankers did not wish to allow any overdraft because they knew of the customer’s book making transactions. The customer protested about the dishonour to her husband, a doctor by profession, who advised her to take up the matter with the bank. She did so on phone and after a while the husband interrupted the conversation to add his own protest. The bankers then disclosed to him that cheques had previously been drawn by her in favour of bookmakers which led to a suit for damages against the bank for breach of duty. The bank contended that the conversation with the husband was a continuation of that with wife and that they had her implied consent to the disclosure. This was denied by the customer. But the Judge held that on the facts the banks must succeed, the disclosure being in their interest, coming under the third qualification in the Tournier case.

4. With Express or Implied Consent of the Customer: The banker will be justified in disclosing any information relating to his customer’s account with the latter’s consent. In fact the implied term of the contract between the banker and his customer is that the former enters into qualified obligation with the latter to abstain from disclosing information as to his affairs without his consent. The consent of the customer may be express or implied.

Express consent exists in case the customer directs the banker in writing to intimate the balance in his account or any other information to his agent, employee or consultant The banker would be justified in furnishing to such person only the required information and no more.

It is to be noted that the banker must be very careful in disclosing the required information to the customer or his authorized representative. For example, if an oral enquiry is made at the counter, the bank employee should not speak in louder voice so as to be heard by other customers. Similarly, the passbook must be sent to the customer through the messenger in a closed cover. A banker generally does not disclose such information to the customer over the telephone unless he can recognize the voice of his customer otherwise he bears the risk inherent in such disclosure.

In certain circumstances, the implied consent of the customer permits the banker to disclose necessary information. For example, if the banker sanctions a loan to a customer on the guarantee of a third person and the latter asks the banker certain questions relating to the customer’s account, the banker is authorized to do so because by furnishing the name of the guarantor, the customer is presumed to have given his implied consent for such disclosure. The banker should give the relevant information correctly and in good faith.

Similarly, if the customer furnished the name of the banker to a third party for the purpose of a trade reference, not only an express consent of the customer exists for the disclosure of relevant information but he banker is banker is directed to do so, the non-compliance of which will adversely affect the reputation of the customer.

Implied consent should not be taken for granted in all cases even where the customer and the enquirer happen to be very closely related. For example, the banker should not disclose the state of a lady’s account to her husband without the express consent of the customer.

Banker’s Opinions

It is a well established practice of banks to answer status enquires addressed to them by other banks (the only medium recognized by them) with regard to the financial position and business integrity of their customers. This

practice is of mutual business advantage to banks and the business community in making credit facilities available to them by banks. Banks now also respond to status enquires about the customers from certain Government departments for securing supply contracts from them.

The legal implication of this practice should be of interest to banks for if the banker’s report is too favourable, he may have to fact an action for misrepresentation or negligence brought about by the enquirer, and if he speaks too unfavourably, there may be action for libel brought by the customer. However, the customer might have even a cause for complaint if an answer to an enquiry was refused since unwillingness to speak might be construed as derogatory to the customer.

Bankers have either express or implied consent of their customers to answer status enquiries. It is considered that when a customer open an account, it has by implication, authorized the bank to follow the routine practice of responding to status enquiries received from other banks. It is, therefore, not necessary that the banker should not reply to an enquiry without the customer’s agreement. Frequently, customers give their banker’s name as a reference-this is an express consent-but a large number of enquiries are made which are not at the instance of the customer.

The General Rule of Law

A banker should exercise great care in answering all status enquiries and ensure that he is not negligent in this regard which is the only duty incumbent on a banker.

Golden Rule

The golden rule in answering status enquiries is to reply in general terms and allow the enquirer to draw conclusions by inference. For this purpose, the banker should confine himself to general statement and should not disclose the actual state of the account unless specially authorized by he customer to do so. Secondly, he should see that the confines his answers to facts within his knowledge or as disclosed by the account and does not base his opinions on the rumours that may be afloat regarding credit of his customers. Thirdly, he is not bound to make enquiries outside as to the solvency or otherwise of the customer about whom an enquiry is made. Finally, he must take care nto to furnish information which is false.

The only duty of the banker in such a case is that of “common honesty”, which in more precise terms means that he must not be fraudulent. Any misrepresentation as to the customer’s financial position which has been made innocently will not be actionable, and the enquirer can sue the banker only if it can be shown that there was negligence in dealing with the enquiry. To quote Lord Wrenbury in Banbury V. Bank of Montreal (1918), “Innocent misrepresentation is not the cause of action, but evidence of negligence which is the cause of action”. It may be stated here that in the normal way there is no contractual relationship between a banker and the customer of another bank and, therefore, there is no contractual duty and no ground for nay action based on negligence. Each case, however, will depend upon the particular facts.

Accordingly, so long as the banker answers honestly from the knowledge of his customer’s affairs, he cannot be held responsible for any loss the enquirer may sustain in his dealing with the customer. In answering the enquiry, the banker, as has been stated before, need not go out of his way to obtain additional information from other sources.

Where an affirmative answer cannot be given the reply must be couched discreetly, leaving to the enquirer to draw his conclusions very largely by inference. The principle a banker should always bear in mind is that he must not write anything that might be construed derogatory.

Risks of Unwarranted and Unjustifiable Disclosure:

The obligation of the banker to keep secrecy of his customer’s accounts-except in circumstances noted above-continue even after the account is closed. If a banker discloses information unjustifiably, he shall be liable to his customer and the third party as follows:

a. Liability to the customer: The customer may sue the banker for the damages suffered by him as a result of such disclosure. Substantial amount may be claimed if the customer has suffered material damages.

Such damages may be suffered as a result of unjustifiable disclosure of any information or extremely unfavorable opinion about the customer being expressed by he banker.

b. Liability to the third parties: The banker is responsible to the third parties also to whom such information is given, if

-i) the banker furnishes such information with the knowledge that it is false and ii) such party relies on the information and suffers losses.

Such third party require the banker to compensate him for he losses suffered by him relying on such information. But the banker shall be liable only if it is proved that he furnished the wrong or exaggerated information deliberately and intentionally. Thus he will be liable to the third party on the charge of fraud but not for innocent misrepresentation. Mere negligence on his part will not make him liable to a third party.

This point was very clearly decided by the Houses of Lords in Hedley Byrne and Co. V Heller and Partners Ltd (1964). In this case the banker of a company in reply to an enquire from a firm of advertising agents, gave his opinion as follows: “The company was a respectably constituted company, considered good for its ordinary business engagements”. The banker also added that the figure of $100,000 (mentioned by the enquirer) was larger than they were accustomed to see. The banker also stated that the opinion was given without responsibility on the part of the answering banks or its officials. The company subsequently went into liquidation and the advertising firm suffered a loss of $17,000 and sued the company’s banker for the recovery of this amount on the ground that the replies were give negligently and in breach of duty to exercise care in giving them.

The Trial Court held that trough the banker was negligent in his assessment of the position of the company but dismissed the claim on the ground that the banker owed no duty of care to the advertising firm. The House of Lords upheld this decision. Lord Reid stated that in general an innocent and negligent misrepresentation gives by itself no cause of action and that there must be something more than mere misstatement in order to fasten liability on the person making it. Lord Morris observed that the banker, to whom the reference was made, was not expected to make a detailed inquiry and produce a well-balanced report. All that was expected was that he should answer honestly the question put to him from what he knew from the books and accounts before him.

The general conclusions of the Court can be summarized as follows:

1. A banker answering a reference form another banker on behalf of the latter’s constituent owes a duty of honesty to the said constituent.

2. If a banker gives a reference in the form of a brief expression on opinion in regard to credit worthiness, he does not accept and there is not expected of him any higher duty than that of giving an honest answer.

3. If the banker stipulates in his reply that it is without responsibility, he cannot be held liable for negligence in respect of the reference.

Practical Consideration Regarding Disclosure:

The risk of unjustifiable or inadvertent disclosure on the part of the staff in their daily working is always present and the grave consequences resulting from breach of the banker’s duty of secrecy should be brought home to them. For example, if the holder of a cheque for Rs. 1,000 is informed personally by any bank official that there is insufficient balance by, say, Rs. 50 in the drawer’s account and if the holder himself pays in the differences so that he losses Rs. 50 ro so for the sake of Rs. 950. an action would lie against the bank. That would be unjustifiable disclosure and might also constitute a fraud on other creditors of the customers, as was held in Foster V. Bank of London (1862).

Similarly, if on enquiry form the customer, the ladger-keeper, shouted across the counter his debit balance and hearing this the customer’s chief creditor, who happens to be present in the banking hall, stops further credit to him, this might afford a reasonable ground for action against the bank.

With a view to eliminating the risk of unlawful disclosure, banks should be well advised to observe the following safeguards:

i) If there is any doubt whether the disclosure would be protected by the exceptions’ the customer’s authority to disclose should be obtained.

ii) When a customer enquires his balance or wants any information regarding the state of his account on telephone, the banker should always check his credentials before divulging the information. If the customer’s voice cannot be rebognised on telephone, the banker should, instead of rejecting the rejecting the request outright, try to satisfy himself about the proerp identity of the enquirer by other means such as enquirey from him about the approximate balance in his account, or the amount of recent standing orders or items paid in during the past week or so. It is not very sensible to ask for the account number or for debits of recent cheques;m if it is thief with the

customer’s cheque book at the other end of the phone, he will be able to give this information and the banker will then innocently tell him the balance of the account so that he knows how much to draw out on a forged cheque.

iii) Information should be given ot the customer’s agents or messenger only if the custoerm has givebn his express consent to the bank in this regard. If the information is to be passed on to the custoeemr through his messenger, it must always be sent in a closed cover.

iv) There shold be not objection to pass on the information where it is obvious that there is implied authority of the customer as, for example, the statement of account of a company customer may be delivered to its secretary on his request.

LESSON – 16