LEGAL PRINCIPLE: BANKING LAW – Banker-Customer Relationship – Duty of Care – Bank’s Duty to Exercise Reasonable Care and Skill in Issuing and Honouring Bank Drafts
PRINCIPLE STATEMENT
A bank has a duty under its contract with its customer to exercise reasonable care and skill in carrying out its part with regard to operations within its contracts with the customer. The duty to exercise reasonable care and skill extends over the whole range of banking business within the contract with the customer. Thus the duty applies to interpreting, ascertaining and acting in accordance with the instructions of the customer.
RATIO DECIDENDI (SOURCE)
Per Ayoola, JSC, in Agbanelo v. Union Bank of Nigeria Ltd. (2000) NLC-201997(SC) at pp. 7–8; Paras A–B.
"A bank has a duty under its contract with its customer to exercise reasonable care and skill in carrying out its part with regard to operations within its contracts with the customer. The duty to exercise reasonable care and skill extends over the whole range of banking business within the contract with the customer. Thus the duty applies to interpreting, ascertaining and acting in accordance with the instructions of the customer."
EXPLANATION / SCOPE
A bank owes its customer a contractual duty to exercise reasonable care and skill across all banking operations. This duty applies to interpreting, ascertaining, and executing customer instructions accurately. Breach occurs where the bank fails to act with due diligence, causing loss. The duty is not limited to specific transactions but extends to the entire range of services contracted. Banks must ensure instructions are correctly understood and implemented. Negligence in these functions renders the bank liable for resultant damages.