Special Classes of Customer

In one line

Every rule about who may contract, and in what capacity, arrives at a bank counter as a question about whose signature operates the account.

In the wording a student can write in an exam: a bank must satisfy itself of the capacity and authority of every customer, because it pays only on a valid mandate; a minor's agreement is void under section 11 of the Indian Contract Act, 1872 read with the rule in Mohori Bibee, though he may be supplied with necessaries under section 68 and may lawfully hold a credit account; a joint account is operated according to the mandate the holders give; a partnership account binds the firm only where a partner acts within his implied authority under the Indian Partnership Act, 1932; a company's account is operated by the persons its board resolution authorises; and a trustee's account is confined to the powers in the instrument.

Why capacity is a banking problem, not just a contract problem

Because the bank pays on a mandate, and chapters 310 and 330 both turned on that. A mandate given by a person who lacks capacity, or who lacks authority to bind the account holder, is no mandate at all, and a bank that acts on it pays with its own money.

The bank's exposure is therefore at two moments. When the account is opened, it must establish who the customer is and in what capacity he acts. When an instruction arrives, it must satisfy itself that the person giving it is authorised.

The commercial pressure runs the other way. Every enquiry costs time and irritates a customer, so the law has settled on a small number of precautions for each class, and it is those that an examiner asks about.

Minors

The rule. By section 11 of the Indian Contract Act, 1872 a person who is not of the age of majority is not competent to contract, and an agreement with a minor is void and not merely voidable. The minor attains majority at eighteen, or at twenty-one where a guardian has been appointed by a court.

What follows for a bank. A minor cannot be a debtor, so a bank must not allow his account to be overdrawn and cannot recover an overdraft from him. The apparent exception is section 68, under which a person who supplies necessaries suited to the minor's condition in life is entitled to be reimbursed from the minor's property, not from him personally.

But a minor may be a creditor. There is nothing to prevent a bank taking a deposit from a minor and repaying it, because the contract that is void is one that would impose liability on him. A minor may therefore hold a savings or fixed deposit account, and banks open such accounts routinely, in three forms: operated by the natural or legal guardian; opened in the minor's own name and operated by him where he is above the age the bank prescribes and can sign; or a joint account with the guardian.