Contract of agency is a legal relationship where one person (called the principal) appoints another person (called the agent) to act on his behalf. The agent has the authority to do things on behalf of the principal and to bind the principal to contracts with third parties.
Contract of agency in banking is a specific type of agency relationship where a bank is appointed as the agent of a customer to perform certain tasks on the customer’s behalf. These tasks can include:
- Opening and managing bank accounts
- Depositing and withdrawing funds
- Making payments
- Negotiating loans
- Investing funds
- Providing financial advice
The terms of the contract of agency in banking will be set out in a document called a banker-customer agreement. This agreement will typically specify the duties and responsibilities of the bank and the customer, as well as the limits of the agent’s authority.
Here are some MCQs on contract of agency in banking:
- Which of the following is not a characteristic of a contract of agency in banking?
- The bank is appointed as the agent of the customer.
- The bank has the authority to do things on behalf of the customer.
- The bank can bind the customer to contracts with third parties.
- The contract of agency must be in writing.
- The answer is (d). The contract of agency does not need to be in writing. It can be oral or implied from the conduct of the parties.
- A customer opens a bank account with a bank. The customer gives the bank a power of attorney that allows the bank to withdraw funds from the account without the customer’s signature. Is this a valid contract of agency?
- Yes, it is a valid contract of agency.
- No, it is not a valid contract of agency because the power of attorney must be in writing.
- The answer is (a). The power of attorney is a form of contract of agency and it does not need to be in writing.
- A customer asks a bank to invest his funds in a particular stock. The bank invests the funds in a different stock. Is the bank liable to the customer for the loss?
- Yes, the bank is liable to the customer for the loss.
- No, the bank is not liable to the customer for the loss because the bank acted in good faith.
- The answer is (a). The bank is liable to the customer for the loss because the bank did not act in accordance with the customer’s instructions.