Bank law Essay Example | Topics and Well Written Essays - 2000 words

Bank law - Essay Example The agent in possession of the said Nursing Home sold it and the proceeds were applied to reduction of the credit debt and no surplus accrued to benefit the other creditors and Narni. After the sale, no profit or income was derived by Narni. 2. Narni which runs the Carrum Nursing Home applied for overdraft facility with National Australia Bank. Pending formal approval of the application with limit of $65, 000.00, the Bank nevertheless honored the cheques drawn by Narni even though there were no funds to meet them since the account was regularly in debit. The bank refused to extend the overdraft facility to $100, 000.00 but supported Narni by honoring the cheques drawn despite lack of funds. The Court found that the "Bank and Narni conducted their business and arranged their affairs, from February 1989, on the basis that the approved overdraft of $65,000 was at best a nominal limit and that the Bank would tolerate surges well in excess of that limit in each monthly cycle. The bank ope rated and permitted the account to operate in a very flexible way so that the monthly surges far exceeded any such limit". The court also found that "Narni relied upon this attitude on the part of the Bank in the operation of its business, as the Bank officers knew". It was deduced from the facts that the Bank itself also enjoyed a benefit from this arrangement from the receipt of interest and other fees and by the retention of a satisfied customer. The Court found that it was a "term of this arrangement between the Bank and Narni that the Bank would not refuse to honour cheques drawn by it on the ground that the balance of the account exceeded the approved overdraft limit of $65,000." The correctly held that it was an implied term of the arrangement that the Bank could not terminate or vary it without giving the customer reasonable notice so as to allow time for it to arrange its affairs to comply. Furthermore, they must have regard to the fact that cheques, which had been previous ly drawn and delivered may have to be honoured under the pre?existing arrangement in place at the time they were drawn and delivered. The implication of such a term is an incident of the arrangement between the Bank and its customer because the Bank knew that Narni was dependent upon it. As aptly held by the court, " there was no warning of dishonor from the bank and this act was relied upon by Narni and giving rise to overdraft extension. Narni was dependent for its cash flow upon the accommodation of the bank in excess of the agreed limit given by the Bank." In the case of Joachimson v Swiss Bank Corporation [1921] 3 KB 110 CA, it was held that the following are considered implied terms: a). The bank will receive the customer’s deposits and collect his or her cheques; b). The bank will comply with written orders (i.e. cheques) issued by its customers assuming there is sufficient credit tin the account; c). The bank will repay the entire balance on the customers demand at th e account holding branch during banking hours -as was also held in Libyan Arab Foreign Bank v Bankers Trust [1989] AC 80 PC for the application for the terms in relation to UK banks; d). The bank will give reasonable notice before closing a customer’s account if it is in credit; e). the customer will take reasonable care when writing cheques (Topic 1, n.d.). Implied terms are extra terms read into contracts by the courts in order to give effect to statutory requirements and common law presumptions (Robinson, 2009). Implied