Aspects of banker liability : disclosure and other duties of bankers towards customers and sureties

Abstract

Suretyships given in favour of banks are being challenged in the courts on the basis of equitable doctrines of unconscionable conduct, undue influence, or statutory provisions dealing with unfair conduct or unfair contract terms.

This thesis is an enquiry into a bank's duties of disclosure or advice to an intending surety. Such an investigation also necessitates a study of the relationship between banker and customer, as the surety is quite often a customer of the bank as well, and, as a surety's obligation to the bank is an accessory obligation, the obligation is dependent on a valid principal obligation between the bank and the principal debtor - the customer.

The face of modern banking has, however, changed dramatically and most major banks have become multi-functional. As a result, the banker-customer relationship may often be seen as a fiduciary relationship. A major problem brought about my multi-functioning banks is that of conflicts of interest between the bank and its customer. Furthermore, the banker-customer relationship is providing much more scope for lender liability than in the past.

Various factors are currently having an impact on the law of contract, and this is expected to affect the legal policy makers in their assessments of whether a duty of disclosure of material facts exits or not.

A surety has long been a favoured debtor in the eyes of the law, and the courts have developed a plethora of technical principles on which a surety can be relieved of his obligation. The escape routes of the surety, especially if he is a consumer as well, on the new grounds of public policy, unconscionability, good faith or unreasonableness, are growing. The results of these trends is the expected demise of suretyship as an acceptable, cheap form of debt security in the banking sector.