Banks and financial institutions operate accounts for various customers, namely natural

persons, companies, partnerships, sole proprietorship, societies, minors, trustees, lawyers,

agents, and so on. Accounts may be opened for natural persons who are of the age of
majority, for current accounts (savings maybe 12 & above or trust accounts), and not
disqualified by law from contracting.
Opening an account
When opening an account, the bank has a duty to ensure identity of customer. In the case of
Ladbroke & Co.v Todd, The complainant had written a check to the payee, which was then
mailed to the payee. The thief stole the letter and presented it to the defendant, a banker, in
order to open an account with him. As a result, he forged the payee's signature. The defendant
still thought him to be the payee, so he opened the account, the check was cleared at the
thief's order, and the proceeds were taken out the next day. The plaintiff filed a conversion
suit against the defendant after discovering the fraud. The concern was whether the account,
which had been opened by a cheque payment, could be considered payment for a customer.
The thief was now deemed a customer because the bank had acquired the money to set up an
account in the bank, despite the bank's negligence.
In the case of Rubber Industry (Replanting) Board v HSBC, According to the facts,
defendant mailed a cheque to Kok Ann Rubber Estate. Mr Lee, on the other hand, received
the cheque. Lee then used the cheque to open a bank account in the name of Kok Ann Rubber
Estate. The bank, however, was learned later to be a fraud. It was decided that if a person's
money is approved by a bank on the condition that he can draw cheque up to the sum of his
banker's account, he can draw cheque up up to that amount. Even if it was done fraudulently,
Lee is considered a client.
According to the 1995 Code of Good Banking Practice, the bank has the need to verify the
identity of the person seeking to open an account. The banks also must provide prospective
customers details of the identification needed. The BNM’s Know Your Customer Policy
incorporates BCBNS guidelines to combat fraud and money laundering. When opening an
account, a banker takes a mandate from his customer and would require instructions /
authorization. The bank also must take specimen signature, ID, address, references and so on.
Joint accounts
The banker needs to confirm the mandate (authority) and liability of each party to the
account. They need written mandate signed by all parties to the account re signatories, carry
out instructions, mode of operation of account. Without such a mandate a bank cannot pay on
a cheque unless signed by all the parties to the joint account. The mandate given may be
revoked at any time by the parties such as in the circumstance of stopping payment on a
cheque. This mandate is revoked automatically upon death, bankruptcy or mental incapacity
of any of the parties and the banker should stop the account as soon as he has notice of it.
Death Rule is illustrated in Clayton’s case, Devaynes v Noble, where Clayton had an account
with a banking partnership. When one of the bank's partners passed, the bank owed Clayton a
certain amount, for which the deceased partner was jointly responsible, and his debt became
"fixed" at that stage. Clayton and the bank, on the other hand, continued to use the same
account, resulting in more than the initial debt being paid in and dragged out. Clayton
threatened to sue the estate of the deceased partner after the bank collapsed. However, it was
determined that payments made into the account, which surpassed the original debt, had
discharged the debt, and that the ‘new' debts on the accounts were not the fault of the
deceased partner since they were accrued after he died. The bank was the debtor in this
situation, but it's the same when the client is the debtor, which is usually significant. In the
case of joint accounts, this law is extremely relevant to bankers.
A banker should not lend money to the joint account holders without obtaining from all the
account holders concerned an undertaking to be jointly and severally liable to repay any
loans. In the case of New Ace Digital Print Sdn Bhd & Anor v Public Bank Bhd, the
plaintiffs' claimed for a sum RM500,000 wrongfully paid out from a joint account at Public
Bank Berhad (PBB) maintained by Loo Keng Tatt ('LKT') and Lim Chi Wan ('LCW')
through a forged cheque. The PBB had broken the mandate provided by both joint account
holders, which stated that any cheque drawn on the joint account shall carry the signatures of
the two mandatory signatories, namely LKT and LCW, as stated in the terms and conditions
in the opening of account form. The cheque No. 067709, on the other hand, only had one
signature, that of LCW, while LKT's alleged signature was forged and thus null and void.
PBB was negligent in failing to freeze the joint account after learning of LKT's death on July
22, 2009, to avoid any illicit transactions with the funds in the joint account.
The court ruled that the parties' motive takes precedence over the survivorship clause. The
origin of the funds in the joint account, as well as the assumption of resulting confidence in
favour of the joint account holder who supplied the funds, should be valued more highly than
the survivorship clause when inferring popular purpose. While the joint account was opened
in the joint names of LKT and LCW, P1 and P2 presented proof that the account was
established for the benefit and function of P1. P1 and P2 had thus disproved any presumption
of intention in the survivorship clause that beneficial possession of the monies in the joint
account would have to go to LCW. The defendant had breached LKT and LCWs mandate',
the joint account holders, who stipulated in their account opening form that any cheque for
transfer of money out of the joint account would carry both LKT and LCW's signatures.
When the defendant learned of LKT's death on July 22, 2009, it was also reckless in failure to
freeze the joint account. LCW, who was the culprit of the forgery that resulted in an
RM500,000 loss to the joint account, should not be able to profit from his own wrongdoing.
Mental Incapacity
If the banker learns that one of the joint account- holders has become mentally incapacitated,
the banker must not permit withdrawals. Withdrawals can only be permitted on the joint
instructions of the remaining joint account-holders and the guardian ad litem of the account-
holder who is under mental incapacity.
In the case of Prem Singh & ors. Kirpal Singh, This is an application by the applicants for an
order instructing an investigation under section 3 of the Mental Disorders and Treatment Act
to ascertain if the subject person, Madam K, who is also the respondent's wife, is or is not of
unsound mind and incompetent of handling her own affairs. The plaintiffs claim that the
respondent abused the patient from the 1960s to the mid-1970s, and that the patients
experienced mental anguish as a result of the purported violence, leading to schizophrenia.
The court held that Section 3(1) of the Act clearly gives a discretion to the court to decide
whether if a person is alleged to be mentally disordered, an inquiry should be instructed. It is
not necessary to order an investigation in any case where it is shown that the individual is of
unsound mind and incapable of handling her own affairs. There is no claim that the
respondent has physically assaulted the patient since the mid-1970s in this case. There is no
indication that she owns anything other than the two POSB accounts, and nothing has been
said to indicate that these two accounts deserve particular attention. The court's authority
under the Mental Disorders and Treatment Act can be used only to help people who are
mentally ill. It should not approve a treatment that is likely to cause the patient additional
distress as a result of the respondent's bitter feud with some of his children.
In the case of Re Claire, the petition submitted by Mr. Claire's son-in-law, the suspected
lunatic, was opposed by Mrs. Claire, with whom he was living, on the grounds that, though
mentally ill, he did not need the court's protection for himself or his house. The court ruled
that it had authority to provide defence to the person who was alleged to be insane. The court
declined to issue the commission after reviewing the facts and concluding that the lunatic did
not deserve any more defence than what he already had in the attention and care of his wife
and family.
In the case of See Wan Chon v Chua Ka Bu, a collision between the plaintiff's motorcycle
and the defendant's van resulted in serious injuries, including a head injury. The complainant
was in a coma when the lawsuit was filed. The defendant asked for the case to be dismissed.
The plaintiff filed an appeal. For the purposes of the common law, a person who loses the use
of his mental faculties as a result of a "accident" (i.e. some accidental event) is considered to
be of unsound mind. There is no reason to assume that by not describing the term "unsound
mind" in the Act, the legislature intended to assign it a less detailed definition as proposed by
counsel, i.e. that it is just an alternate classification of a lunatic. As a result, the court
determined that if plaintiff's mental state were so compromised as a result of his head injury
that he is unable to handle his own affairs, he will fall beyond the Act's scope for the
purposes of an inquiry.
In the case of Chow Yee Fah & Anor v Choo Ah Pat, prior to his death, the deceased, Loke
Yaik Hoe, had drawn a cheque for RM60, 384.80 and deposited it in a joint account he
created in his and the first defendant's names for the benefit of his common law wife, Chan
Yoke Ying. The issue was posed as to whether the deceased had full mental faculties at the
time his thumbprints were affixed to the said check and records. The court ruled that the
deceased was not mentally competent at the time his thumbprints were affixed, based on the
facts of the case. The appeal to the YDPA was allowed by the Privy Council. The deceased's
purpose was apparent when the funds were moved to a joint account for the benefit of his
common-law wife.
Companies
An incorporated company is a separate legal entity and is not affected by the death of any
shareholder or a change in the shareholders. In its dealings with a company, a bank is
generally concerned with the company’s capacity to maintain an account, borrow and create
security, the authority of persons purporting to act on behalf of the company in relation to
specific transactions, and the form of the company’s cheques.
In the case of Royal British Bank v Turquand, The articles stated that the company could
borrow money up to the amount authorised by a resolution passed at a general meeting. The
business took out a 2000 pound loan from the bank and signed a bond under seal with two
directors. The borrowing was not approved by a resolution. The company went into
liquidation as a result, and Turquand, the liquidator, claimed that the loan contract was
invalid because the directors lacked permission to borrow. The bond was found to be
legitimate, allowing the Royal British Bank to enforce the terms. He said the bank was
mindful that the directors could only borrow up to the limit set by the resolutions. There was
positive note because the articles of association were registered with Companies House.
However, since ordinary resolutions were not registrable, the bank could not be said to know
which ones passed. The bond was valid since no investigation into the company's internal
operations was needed. The indoor management rule states that the company's indoor affairs
are its responsibility.
Partnerships
Partnerships are governed by the Partnership Act 1961. Anyone with legal capacity maybe a
partner. In opening an account for a partnership, the bank has to note that a partnership has no
personality of its own. The identity of the partners, account mandate and account operation
details, specimen of the firm’s rubber stamp. Should conduct a search at the Business
registry. The bank must also take not of Accounts, Liability and Termination. Where a
partnership has been terminated a cause of action could still be maintained so long as the
action accrued before the termination of the partnership.
A guarantee agreement entered into by a partner to answer for debts of the partnership does
not amount to a guarantee. In the case of IAC (S’pore) Pte. Ltd. v Koh Meng Wan, AAC was
a collaboration. D became a partner on February 26, 1970, and left on June 30, 1975. D and
his wife signed a guarantee contract for payment of air conditioners provided to AAC on
September 4, 1975. The air conditioners' price was claimed by P. A guarantee arrangement
entered into by a partner to respond for the partnership's debts does not amount to a
guarantee, according to the court. And if they had not signed the so-called "guarantee," the
partner's responsibility would be the same.
When partnerships are given credit facilities, and sued for the debt, a usual defence for a
partner would be that he had retired. In the case of Malayan Banking Bhd. v Lim Chee Leng
& Anor, The respondents worked for Berjasa Corporation as partners. The respondents were
sued by the appellants under the terms of a trust receipt that matured and became payable on
June 14, 1975. On August 16, 1976, two of the respondents withdrew from the company. The
court decided that the respondents incurred the debt on the trust receipt prior to their
resignations or retirements, and that they could not avoid responsibility by claiming
resignation or retirement.
Third parties are entitled to treat a withdrawing partner as still being a member of the firm
until they receive notice of the change. In the case of Mayban Finance (S’pore) Ltd. v Yap
Thiam Sen & Anor, the plaintiffs are a finance firm, and the defendants were partners in
Fulsoon Enterprise, a motor vehicle dealership. They entered into a master recourse
agreement under which the defendants agreed to indemnify the plaintiffs for any damages
incurred as a result of the plaintiffs entering into hire purchase agreements with parties'
prospective hirers. The first defendant informed plaintiffs on October 5, 1984, that he was
resigning as a partner in a letter dated October 6, 1984. On the 9th of October, the plaintiffs
received the letter and took legal action against the two defendants for sums due and owed by
the defendants under the master agreement in respect of hire purchase transactions entered
into by plaintiffs with hirers prior to and including the 9th of October. The court decided that
a third party could handle a withdrawing partner as though he or she was still a member of
the firm before the third party was notified of the change in the firm's constitution. To put it
another way, the withdrawing partner will also be responsible to the third party for any debts
accrued by the company between his withdrawal and the third party's warning.
Notice of withdrawal must be given to all. In the case of Tan Sin Moh v Lebel Ltd, this was
an appeal to the Supreme Ct against a receiving and adjudication order. The appellant
claimed that the judgement entered against him, which resulted in his bankruptcy, was invalid
under the law because the petitioning creditor-argument respondent's included a material
mistake in the recorded details in the Registry of Businesses. The appellant stated that he
resigned from partnership on February 1, 1976, but that his departure was incorrectly
recorded on August 23, 1978. According to the evidence presented, the respondent was an
individual who had frequent interactions with partnerships and was therefore required to be
expressly informed of the appellant's withdrawal from the relationship, which the latter failed
to do. The respondent creditor was therefore depended on the details held in the Business
Registry to determine if the appellant remained a partner of the company at the time the suit
was filed under Section 6 of the Registration of Businesses Act 1956.