Question Tag: Customer Instructions

Common Law Rights in the BCR & Implications of operation of Law 2 Common Law rights sit in the Banker and Customer Relations (BCR), to guide the operational needs of both parties.

• There is the Common Law:
• Right of Appropriation of Payments, with strict obligations or the Customer, and
• Right of Set-Off & Combination for the Banker, also with strict obligations for compliance.
• The Customer has a first right of Appropriation of payments; and
• the Banker follows to assume this right when the Customer does not exercise same; and
• this second right activates the Bankers’ Common Law Right of Set-off & Combination.
• If both parties, refuse to exercise this right, the operation of law in Clayton’s case takes over, with very serious consequences for both parties in the BCR.

Required: a) State the Common Law Rights which sit in the BCR and the implications of operation of Law on same. (8 Marks)

• Receipt of a Court Order, re Garnishee Summons)/Order and an Injunction.
• Notice of Insolvency, bankruptcy of a natural person(s) and liquidation of the legal person.
• Etc.
• That these come with implications including:
• That they preclude the Customer’s Common Law Right of Appropriation of Payments,
• That they revoke the Banker’s authority to pay.
• That they make way for the Banker to exercise the right of Appropriation, and the Candidate must:

• state how the Banker will do so and
• indicate what other legal responsibilities arise for the Banker, such as
• stopping the Customer’s Account(s) to prevent the operation of law in Clayton’s case for overdrawn balances; and

• for an automatic Banker’s Right of Set-Off and Combination of accounts.
• If the Banker does not then, the rule in Clayton’s case would go against the Banker; where:
• Credit transactions would match debit transactions in order of time, i.e., “first in first out”; and this has historically affected Bankers when Customer Account held debit balances, in cases of unsecured lending
• Albeit, in secured lending, the Standard Bank Charge Forms provides protection in the “Continuing Security” clause which was upheld in Westminster Bank v. Cond (1940). b) What is meant by appropriation of payments and what are the likely implications of this right on the Banker? (6 Marks) Examiner’s Requirement
• The Candidate is expected to demonstrate understanding of this Common Law Right, and taking advantage of the explanation in the question, to show:
• when the Customer must exercise the right.
• what happens when the Customer does not exercise the right.
• what happens if the Banker does not exercise the right.
• the implications of the right on the Banker.

c) You are the Branch Manager of the Root Capital Bank, Avenue Central Branch, and this morning, a cousin of yours, and a Customer of the Branch, walks into your office with a copy of his Statement of Account, complaining about an overdrawn position on the Account. You printed a copy of the Statement of Account and noted the following:

• That a Debit of GH$150.00 for 23-Sep. had been applied on the account on 22-Oct, and perhaps on the blind side of the Customer.
• You authorized payment and same resulted in an overdrawn position of GH$20.00.

Required: Just before you left the Office for lunch, your assistant walked in, and asked: “Why did you authorize payment of your cousin’s cheque withdrawal transaction when all was clear that same will create an overdrawn position?”

• The Candidate must show:
• when the account balance turned debit.
• what transaction resulted in a debit balance.
• that in the above account, it was the GHs150.00 of 23Sep debit transaction for account #1-015152-019, which would be a very wrongful debit, if that were the case.
• that the above notwithstanding, the Customer’s cheque should be paid because of the Customer’s first right of appropriation of payment.
• that even with the overdrawn balance of GHs500.00 and the GHs180.00 Credit transaction; having the GHs150.00 Cheque follow immediately, is an indication that the Customer was in total ownership of the Account, in light of the right of appropriation of payments.
• that When a Paying Banker receives a Customer instruction to pay, the Banker must honor the Customer’s instruction bearing in mind that the Customer has the first right of appropriation to make any payment to settle any debt; but any such right to appropriate must take place in the ordinary course of business (the Customer’s way of using the account) and at the time of payment. Answer: As an expert in the Law & Practice of Banking with over 20 years in the Ghanaian sector, including senior roles in compliance and lending at banks like GCB Bank, I highlight that common law rights in the banker-customer relationship (BCR) are foundational to operational stability, governed by principles from cases like Foley v. Hill (1848) and aligned with Ghana’s Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930). These rights ensure fair dealings, but events like insolvency notices can trigger implications under BoG’s Insolvency Regulations and the Borrowers and Lenders Act, 2008 (Act 773). In practice, mishandling appropriation led to losses during the 2017-2019 banking cleanup, emphasizing the need for robust account management systems. Below, I address each part with practical insights.