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LAW OF Banking notes

Banking and Negotiable Instruments (Makerere University)

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BANK, BANKER AND CUSTOMER In Ladbroke V Todd, A rogue stole a cheque opened
an account with def bank, deposited the cheque and he
Definition of a bank was paid. The bank contended that mere opening of an
Pursuant to Sec 133 and Sec 3 FIA, A bank means any account did not constitute a rogue as a customer. It was
company licensed to carry on financial institution held that he had become a customer when the bank
business as its principal business as specified in the 2 nd agreed to open him an account.
schedule to the Act and includes all branches and In Woods V Martins Bank Ltd, An agreement toopen
offices of that company in Uganda, including an account is sufficient to constitute the person as a
authorized agent. customer of the bank.
In United Dominion Trust V Kirkwood, NATURE OF RELATIONSHIP BETWEEN A
Lord Denning held that for any institution to be BANK AND A CUSTOMER
regarded as a banker, it ought to satisfy 3 characteristics In Joachimson V Swissbank, it was held that the
namely relationship between a banker & a customer is
 They accept money & cheques for their contractual. The contractual nature of the relationship is
customers & place them on their credit understood to be a debtor-Creditor where money once
 Honour cheques for orders drawn on them by paid into a bank, it becomes money of the bank & the
their customers when presented for payment and bank is free to use it as it wishes but it has to be
debit their customer’s account. available on demand by the customers.
 Keep current accounts in which the credits are Much as the case of Foley V Hill suggests that the
debits are entered. contractual relationship between the bank & the
Definition of a customer customer is that of a contract where the banker is a
debtor & the customer is a creditor, the relationship
The determination of whether one is a bank customer may change where a customer acquires a loan.
depends on whether or not he/she has an account or will
have an account with the bank.

In IwaKizito V Equity bank &Anor and Comissioner

of Taxation V English, Scottish & Australian bank
Ltd, A customer was defined as some who has a more
permanent relationship with the bank i.e. having an
existing account with the bank

In Great Western Railway v London & Country

Banking, Plaintiffs never had an account with the
defendant bank but habitually cashed crossed cheques
with the def bank. The issue was whether pltfs were
customers.Itwas held that since the pltfs never
maintained an account with def, they were not bank
customers.

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DUTIES OWED BY A CUSTOMER TO HIS BANK In Stanbic Bank V Uganda Crocs Ltd, The s/court
(DUTIES OF A CUSTOMER) stressed that a bank has a duty to act in accordance with
the customer’s mandate.
a)Duty to exercise reasonable care in executing
his/her mandate. He should not mislead the bank nor In Makua Nairuba Mabel V Crane Bank, Justice
facilitate forgery. Obura emphasized that the duty of the bank is to obey a
customer’s mandate & in obeying it, it ought to do so
In Joachimson V Swissbank, Lord Atkins said among with reasonable care so as not to cause loss to the
others that a customer should exercise reasonable care customer.
in executing his/her written mandate so as not to
mislead the bank or facilitate any forgery. In John Kawanga &Anor V Stanbic Bank, Pltfs drew
2 cheques payable tovarious payees. When the cheque
In London Joint Stock bank V Macmillan & Arthur, were presented for payment, the def bank dishonoured
The HOL held that where a customer does not exercise thempltf sued for wrongful dishonor of cheqes.it was
reasonable care in drawing a cheque & he does so in a held that the bank breached the contract when itfailed to
manner which facilitates fraud, he is liable & pay the monies to the payee even after the pltf had
responsible for any loss by the banker which is a direct confirmed with the def that the cheques were properly
and natural consequence of his breach of duty. drawn & authorized by them.
b)Duty to inform the bank of any forgeries that the b)Duty to exercise reasonable skill & care.
customer is aware of or any fraud and suspicious
transaction. Failure to do so, a customer will be The bank is required to exercise reasonable care in
estopped from contending against the bank. carrying out the customers operations. It ought to verify
customer since failure to do so and occasions loss toa
In Greenwood V Martins Bank ltd, Pltf had an customer, the bank may be -held liable.
account with def bank. He knew his wife had for a
period forged his signature on cheques & draw money In Banex V Cold Trust Bank, if a banker pays &
using them which fact the pltf was aware of but never debits its customers account in reliance on a signature
notified the bank.when the pltf wife committed suicide, being a customer which is not so, he cannot charge
pltf brought an action for recovery of the sum drawn by it’scustomer with the payment inpaying cheques. A
hiswife.it was HELD that if a customer knows of any banker should not be negligent and cannot charge its
forgery on his account and fails to notify the bank, his customer with money lost thantheir (banker’s)
silence amounts to breach of duty to disclose. negligence.

DUTIES OWED BY A BANKER TO THE

CUSTOMER (DUTIES OF A BANKER TOWARDS
A CUSTOMER) The bank must also recognize the person
fromwhomorfor whose account he/she has received
a) Duty to honour a customer’s mandate where money in an account as the proper person to draw it.
a customer gives a bank instructions to honour
his mandate when he has sufficient funds and
the order is drawn from with correct signatures,
it has a duty to honour a customer mandate.

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In Barclays Bank PLC V Quincecare,it was held that

it is an implied term of the contact that the banker will
exercise reasonable care in executing the customer’s
mandate/orders to pay transfer money.

c) Duty of secrecy/confidentiality.

The bankhas a duty not to disclose any information

concerning the affairs ofa customerwithout his/her
consent. It’s a legal duty arising out of a
contractbetween a bank & a customer.

The duty to secrecy does not cease to exist even ifthe

bank. The same was affirmed. In Tournier V National
Provincial & Union bank of England, Pltf whose
account with the def bank was heavily overdrawn failed
to meet repayment demand made by the branch
manager.On one occasion, the manager noticed a
cheque drawn to the pltfs orders was collected for the
account of a book maker. The manager there upon rang
the pltfs employer with a purpose of obtaining his
private address. However in the course of the
conversation, he disclosed that the pltfs account was
overdrawn and he had dealings with book makers. As a
result, when the pltfs contract expired, it wasnot
renewed by his employers.COA HELD that the
bankwas guilty of breach of duty ofsecrecy & court
awarded damages to the pltfs.

C) LIMITATION OF ACTION

Sec 3(2) Limitations Act, An action for an account

should be brought within 6 years.

However, where a debtor acknowledges a claim or

makes payments for the claim in writing, the claimant
may under section 22(4) of limitation Act bring a claim
out of time.

Even under section 21 limitation Act, where a person

was under disability before the expiration of the buyers,
he can bring a claim out of time.

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- Non remittance of premium to the insurer

- Failure to furnish any information required by
IRA
CONDUCT OF BANCASSURANCE BY - Furnishing false information
FINANCIAL INSTITUTION - Contraction of any of the regulations

Bancassurance is provided for under part XII of the FI Problems/Criticism of bancassurance

(Amendment) Act 2016. - Lack of a homogeneous legislation. It has 2
Sec 115D defines Bancassurance to mean using a regulations which are confusing namely the
financial institution and its branches, sales network and insurance (Bancassurance) Regs & F.I (Banc
customer relationship to sell insurance products. assurance) Regulations.
- Customer preference. Preference is mainly
Sec 115D(1) F.I (Amendment) Act 2016), Financial given to corporate customers where the bank as
Institution should do so with prior authorization of an agent is likely to get a higher commission.
central bank. - Branches are not widely circulated they mostly
cover urban areas
How to get a Bancassurance agent license
- Six of the market
- Apply to IRA under insurance (Bancassurance) - On the requirement of letter of no objection
regulations, 2017 using form 1 from BOU, there is no laid down legal criteria
- Attach the following on the application which form a basis for the grant or denial of that
- Resolution of the governing body of the letter.
financial institution authorizing it to conduct - A customer whohasdealt with the bank has to
banc assurance business move to the insurance company in case he wants
- A letter of no objection from BOU tobe indemnified which is a bit tiresome.
- A bancassurance agent between the financial
institution and the Insurer
- Apply to be authorized by principal officer,
specify the persons who will be in charge and
the branch they are to operate from, their CVs as
well as Academic qualifications (Reg 8 & 9)
- A duty filled fit and proper requirements
questionnaire for the principal person.
- Evidence of professional indemnity (At least
100m)
- Evidence of payment of application fees of
500,000/=
- Evidence of office premises.

Grounds for revocation of bancassurancelicense

(Reg 20(2) F.I (Bancassurance) Regulations)

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- Illiterates are covered (Financial inclusion)

- An agent can be an agent of more than one
AGENT BANKING financial institution.
Sec 12 (d) F.I (Amendment) Act 2016 is to the effect - It targets mainly the low income earners
that a F.I may be granted a license to conduct agent - It encourages people to save
banking. Reg 14 Activities that an agent can provide
Sec 3 F.I (amendment)Act 2016 &Reg 4 define agent Reg 15 prohibited activities by an agent.
banking to mean conducting a financial institution
business on behalf of a financial institution with the Challenges/risks associated with Agent banking
approval of the central bank.
- Breakdown of machines when you have
Sec 4 (2a) F.I (Amendment) 2016 gives a person customers
licensed to carry out financial institution business a - Little float (it handles small transaction)
mandate to carry out the licensed business through an - Machines are only limited to work within that
agent. locality)
- Limitation on the withdraw amount
Reg 5 F.I (Agent banking) Reg 2017 prohibits a - Any one whether a company or not can be
financial institution from conducting agent banking licensed to carry out agent banking, there might
without prior written approval by the central bank. be issue of enforcement where a bank makes a
Pre-requisites to be licensed to conduct agent loss.
banking (Agent Banking) reg. - The turn up is still low people have not fully
embraced agent banking due to trust issues
- Applicant has operated an account with the bank
for 6 consecutive months before his/her
application
- Has a licensed business & physical address
- Adequate & secure premises
- Float of ug shs 2,000,000/=
- Security deposits of 1,000,000/=
- Agent with the financial institution

Loopholes/Lacunaes before Agent banking

- Opening and running branches is expensive

- Accessing banking halls is a challenge
- Time of operation
- Financial exclusion to the detriment of illiterates

Why do we need agent Banking

- Easy accessibility and less costs

- Flexibility (open for long hour)
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They are body corporates and so have legal personality

of their own.
SPECIAL CUSTOMERS
Sec 54 companies Act, a company is not based by pre-
a)UNINCORPORATED ASSOCIATIONS incorporation contracts
These include clubs, Associations as well as charitable Companies can open & operate an account & can
institutions. They are non-commercial. contract in their own names can transact on their own
- These funds are usually obtained from names & can sue or be sued in their own
subscriptions and donations In Foss V Hasbottle, it was held that the proper party
- These bodies do not have an independent legal in cases involving companies is the company itself,
personality. however, under sec 20 companies Act 2012, the H/C
- The law relating to unincorporated Association may on application lift the corporate Vail.
was discussed in African continental Bank V
Balogun, the pltf bank sued members of an Copies required for opening a Co Accounts.
unincorporated trading company to recover an
overdraft. The court held they were personally - Certified copies of a certificate of incorporation
liable and severally liable as having received the - Article 7 memorandum of association
money thus case clearly states an - Form 18 (physical location)
unincorporated entity can’t contract by itself. - Form 20 (particulars of directors & their Co
secretary)
Where the association is a club, the liability of members - Board resolution
is generally limited to the amount of their subscription. - TIN Registration Number details
The property of the club/association is vested in the - Recommendation especially from Advocates
council/committee, if the bank is to lend against a - Specimen signatories
charge on behalf of the members.
Company Limited by shares
In Cutts& Co. V Irish Exhibition in London, A
promoter of an unincorporated association opened an Has share capital liability goes to share holders
account with an arranged overdraft. When the Co. was Company limited by guarantee
later incorporated, the promoter proposed to pass
liability to the incorporated Co. which court rejected - No share capital because its non-profit making
and held the promoters were personally liable for the - Has subscribers not shareholders
debts incurred in the name of the association. - Under sec 7(3) companies Act, habits goes
under to the subscribers.
Where a bank accepts an unincorporated body as a
customer, it ought to ask for clear instructions as to who
is entitled to operate the association’s account. The
bank should obtain copy of the constitution.

b) LIMITED COMPANIES

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Sec 41 (1) allows the IGG or DPP by written notice in

the course of proceedings/investigations of an offence
APPLICABILITY OF THE RULEINTOURNIERS by any person employed by a public body to get copies
CASE (Exceptions to the duty of of Accounts from bank.
secrecy/confidentiality)
e) Inspection of companies
A. Where thedisclosure is under the compulsion of
the law. Sec 176 of companies Act 2012

In Bucknell V Bucknell,it was held that a bank may be f) Financial institutions Act ( As Amended ) 2004
compelled bylaw todisclose the state of its customer’s
accounts in legal proceedings. To plead compulsion by Sec 78(2), Disclosing to CRB non-performing loans.
law, the disclosure must derive authority from a statute Sec 118 (1) Revealing to the central bank accounts
or court order which contains funds from the proceeds of a crime.
a)Evidence (Banker Books) Act Sec 119 (4) Advertising with the print media unclaimed
Sec 6 of the Act, any party may apply to court sothat balances on the register.
court orders such as party to be at liberty to inspect & Sec 130 (1) Informing National law enforcement
take copies of any entries in a banker’s book. agencies of any suspected money laundering.
In Bankers Trust Co V Saphira, Two rogues obtained g) Garnishee proceedings
huge sums of money by presenting to the pltf bank in
New York cheques purposely drawn on it by a banker in An order for disclosure can be in form of garnishee
Saudi Arabia. Court granted an order where the pltf proceedings under 0.20 CPR.
sought to trace their funds which they had been
B. Where there is a duty overrides a private duty for
fraudulently deprived.
the sake of combating danger to the public e.g. in
b) The Income Tax Act times of war where the customers dealings indicate
trading with the enemy.
Sec 13(1) of income Tax allows the commissioner or
any officer authorized by the commissioner in writing In Libyan Arab Foreign Bank V Bankers Trust Co,
to have access at all times which may be material in def bank invoked this exception upon the request of the
determining the liability of any person to tax, interest, Federal Reserve Bank of New York of the payment
penal tax or penalty under the Act. instructions which the Def had received from the
plaintiff. The court was of the view that this exception
c) The Leadership Code Act was applicable.
Sec 28 authorizes the IGG or any person under his C. where the interests of the Bank requires
control to inspect any bank account or any safe or a disclosure
deposit in a bank. The person should be in possession
of an order under the hand of IGG or Deputy IGG. Where a bank is suing a guarantor or defending itself
against a suit in court where a customer has sued the
d) Anti-corruption Act, 2009 bank. A bank can disclose the affairs of its customers.

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In Sunderland V Barclays bank ltd, A bank

dishonoured cheques drawn on it by a married woman
because the account had insufficient credit balance. The
wife complained to her husband & the bank in the
course of a telephone conversation between the three,
the husband was told that she was making cheques to
book makers. She sued for breach of duty of secrecy. It
was held that the disclosure was in the interests of the
bank.

D. Where the disclosure is made by the consent of

the customer.

The consent may be express or implied e.g. where a

customer asks for a statement of his account or
answering queries from another bank acting on behalf
of the customer.

In Parsons V Barclays & Co Ltd, it was held that

answering queries is very wholesome & useful habit by
which one banker answering honestly to another
banker, the answer being given at the request & with
the knowledge of the first banker’s customer.

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TERMINATION OFA CUSTOMER BANKER business with the customer except upon reasonable
RELATIONSHIP notice being given to the customer.

In Foley V Hill and Joachimson V Swiss bank, court However, where a customer is using the account for
held that the relationship between the banker and the illegal transactions, the bank is under no obligation to
customer is contractual. Since what is made by give reasonable notice but closure of the account.
agreement may be extinguished by agreement, the bank
& it’s customers may mutually agree to extinguish their b) Death of a customer
rights and obligations under the banking contract. A customer death terminates the contract between the
Circumstances/ways in which a Banker customer bank & such customer and any balance on the account
relationship comes to an end. of such a deceased customer is vested in the execution
administrator as per section 180 of the success Act.
A.Closure of account
c) Bankruptcy of the customer
i).Closure of account by the customer on demand.
Here a customer can close his/her account by simply When a debtor commits an act of bankruptcy under
demanding payment of the outstanding balance on the insolvency law, the creditor may petition court to
account. However, it’s advisable for a bank to obtain appoint a receiver for the protection of the debtor
some evidence from a customer demonstrating his/her interest. If a debtor has an account, the account
intention to close the account since most banks require becomes subject of the receiver protection & the bank
a minimum balance on the account which can’t be can no longer honour cheques drawn by its indebted
given out. customer.

In Wilson V Midland Bank, The Bank manager relied In Ponsford, Baker & Co V Union of London &
on a telephone conversation with the customer which Smith’s Bank, Where a bank has securities of a
conversation the customer could not recollect, to close customer who has committed an act of bankruptcy, the
the customer account. The customer subsequently paid bank is entitled to refuse to surrender the security to
money on his account which was credited on a wrong customer who to their knowledge has committed an act
account. When a customer issued a cheque on his of bankruptcy. The bankruptcy will have an effect of
account, it was dishonoured in words “No credit”. The closing the account.
bank was condemned in damages for breach of contract d) Mental incapacity of the customer
& Libel. The customer has to request the bank to close
the account & pay all balances on the account. In Re Beavan, Daves, banks co V Beavan, A bank
customer became of unsound mind, his family arranged
ii) Closure of account by the bank to continue the account & to draw upon it for his
It is part of a contract between a bank and a customer maintenance & family. At the time of his death, his
that the bank may close the customer’s account but only account was overdrawn. The bank brought an action for
after giving the customers reasonable notice. recovery of the overdrawn amount, interest &
commission. It was held that the bank was entitled to an
In Joachimson V Swiss Bank Corp, it was stated that overdraft around since it was for necessaries but it
it is a term of contract that the bank will not cease to do

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could not recover the interest or commission on the h) Garnishee Order

overdraft.
Under O.20.R.I CPR, the court may upon an expert
e) Winding up of the customer application of a decree holder order for attachment of
customer money through a garnishee order.
Where a customer is a company and the bank gets to
know the company is winding upor has prosecuted a
petition in court to windup, it should not honour any
cheque drawn on the company’s account since the
company ceases to have any legal existence &it’s
contractual right come to an end. The bank should treat
it’s mandate to operate the account as terminated.

In Re Gray Inn Construction Co. Ltd, COA held the

payments into & out of a company’s account during the
period between the date of presentation of the winding
up petition & the date when the winding up order is
made constitutes disposition of the company’s property.

f) Winding up of the bank

Where a bank is wound up, it ceases to have legal

personality and hence its contractual relationship with
its customer isterminated. In such a case, the bank
ceases to exist and its relationship with the customer is
terminated. The customer who has credit balance is
entitled to prove as creditor before the liquidation & get
paid.

g) Legislation stopping the bank customer

relationship.

Legislation may be enacted whose effect is to suspend

or even sometimes terminate contractual relationship
between a banker and its customer.

The FIA under sec 188 gives the control bank mandate
to direct a financial institution to freeze the account of a
customer if it believes the funds on the account are
proceeds of a crime. Also see the case of BOU V
COWE.

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WRONGFUL DISHONOUR OF CHEQUES Where a person is not a trader, he is entitled to recover

only nominal damages as seen in Evans v London &
A)GENERAL PRINCIPLES provincial Bank, where the pltf drew a cheque and it
The general rule with regards to honouring cheques as was wrongfully dishonoured. The pltf was not in
laid down in the case of Indechemists Ltd v National business & never suggested actual damages court
Bank of Nigeria, is that a banker is bound to pay awarded him 2 pounds as normal damages.
cheques drawn on it by a customer in legal form Where a person is not a trader & his cheque has been
provided its tendered in the bank in time & that there is wrongfully dishonoured if he pleads & proves special
enough credit on the customer’s account capable of damages suffered, court may grant them to him/her.
setting the cheque and that the cheque is within the
limits of an agreed amount. A customer whose cheque has been wrongfully
dishonoured can opt for criminal prosecution and can
From the above rule, where a bank without any also sue for deformation or breach of contract.
justification dishonours its customers cheque, its liable
to pay damages for the injury caused to the customer. B) DAMAGES FOR LIBEL

The quantum of damages for wrongful dishonor of When a cheque is dishonoured, its labeled ‘refer to
cheques may depend on whether the person is a trader drawn’ or R/D. it implies that the drawer has no fund.
or not court may award either substantial damages or
nominal damages. In Dogra V Barclays bank, Court held that where a
banker dishonours a cheque & marks on it ‘Refer to
In Robin V Steward, Pltf who was a trader presented 3 Drawer’, those words are not defamatory.
cheques to his bank & the same were dishonoured. He
did not prove court awarded him 200 pounds as In order to determine whether words are defamatory,
substantial damages. the test as held in the case of Smith V Stretch should
be that “The words must tend to lower the pltf in
In a Ugandan case of Patel V Grindlays bank, Court estimation of the right thinking members of society”.
stated that a trader whose cheque is wrongfully
dishonoured need not plead & prove special damages in In Davidson V Barclays bank, the Pltfs cheque was
order to recover substantial damages. The refusal of dishonoured with words ‘Not sufficient’ court held this
payment is injurious to his/her trade,credit& amounted to libel.
commercial reputation & the damages should be In baker V Australia & New Zealand bank, court laid
reasonable compensation for the injury. the criteria for assessing damages as follows;
In John Kawanga & Anor V Stanbic Bank, a. The position and standing of the Pltf
Commercial court held that the pltf being Advocates b. The nature and libel
were engaged in commercial legal business & were c. The mode and extent of publication
entitled to substantial damages for the wrongful d. The absence of a retraction/apology
dishonour of cheques without proving actual damages e. The whole conduct of the Def from the time the
or injury. Court awarded each 5 million for injury done libel was published down to the very moment of
to their reputation. the Verdict

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ELECTRONIC BANKING saving time of both the bank and the

A) Explain the benefits of Electronic Banking, customer.

potential risks associated with E-banking and b) Customers

measures to mitigate those risks.  It saves customers the requirements of

standing in long queues to get sources
Electronic Banking is the provision of banking products from banks hence saving time.
and services through electronic delivery channels.  Bill pay, it makes it easier for customers
Therefore the electronic banking include internet to pay bills.
banking, ATM services, Telephone banking,mobile  Customers can easily access their money
banking services, credit transfers and payments. especially through the ATM.

Benefits of E-banking  E-banking makes it easier for a customer

s to manage and monitor his bank
a) To banks.
account.
 Enables a bank to provide 24/7 banking
 Electronic Banking attracts less charges
services to its customers.
and interests compared to physical
 Helps a bank to save money by not paying
banking in banking halls.
tellers or managing several branches
 Allows customers to compare banks
 Enables banks reach a whole new and wide
services and products hence increasing
market because there are no geographical
competition among banks.
boundaries with the internet
RISKS associated with E-banking
 It increases the customer base
 Efficiency, it provides a bank with almost a a)An Operational /transactional risk .it includes

less paper system as well as enhanced and inaccurate processing of transactions, mistakes ,non-

speedy service to its customers. enforceability of contracts ,compromises in data

 E-banking saves time and enables a entry ,data privacy and confidentiality, unauthorized

customer to be exposed to a wide range of access among others ,break down of machines, lack of

services of the bank which can’t be got from network .

other branches .A customer print In case of mistakes in the transaction, if it’s as a result
of the banks mistakes, the bank is liable and if by
 Out information forms and application customer, the bank is liable.
forms fill them and submit to the bank hence

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b) Legal risks.These arise from violation of, or non- bank encounters problems that cause customers to lose
conformance with laws, rules and regulations. Given confidence in electronic delivery channels as a whole or
the nature of E-banking, rights and obligations in some to view bank failures as a system wide supervisory
cases are uncertain and applicability of laws and rules is deficiencies.Reputational risks also stem from customer
uncertain thus causing the legal risks. There are high misuse of security precautions or ignorance about the
chances of money laundering because of the anonymity need for such precautions.
if affords.
e) Cross boarder risks
Once a customer opens an account, it’s impossible for
Because internet allows services to be provided from
banks to identify whether the nominal A/C holder is
anywhere in the world, there is a danger that banks will
conduction a transaction or even where the transaction
try avoid regulations and supervision. If the bank uses a
is taking place. Due to the nature of e-banking, there is
service provider located in another country, it will be
a high like hood of disputed transactions leading to
more difficult to monitor it thus causing operational
unwanted suits against the bank.
risks.
c) Security risks.
Cross boarder transaction accentuates credit risk, since
Security risk may arise on account of unauthorized it’s is difficult to appraise an application for a loan from
access to the banks critical information stores e.g. a customer in another country compared to a customer
hackers operating via internet could access, retrieve and from a familiar customer base.
use confidential customer information and also can
f) Liquidity risks
implant virus. This may result into loss of data, theft of
or tempering with customers information disabling a This arises out of a bank inability to meet its obligations
significant portion of the bank’s internal computer when they become due without incurring unacceptable
system. This may also lead to loss of reputation, losses. It is important for a bank engaged in electronic
infringement of customer’s privacy and its legal money transfer activities that it ensures that funds are
implications. adequate to cover redemption and settlement demands
at any particular time .Failure to do so, besides
d) Reputational risks.
exposing the bank to liquidity risk, may even raise to
Breaches of security and disruptions to the systems legal action and reputational risk.
availability can damage a bank’s reputation. The more a
bank relies on electronic delivery channels, the greater
the potential for reputational risks. If one electronic

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iv) Legalisation

Measures that can mitigate risks associated with e- New methods for conducting transactions, new
banking instruments and new service providers will require
legal definition, recognition and permission.
i) Security risks
- Customers should keep personal information Keeping regulations update and even following
and their PINs private and not allow any one to them.
use their cards.
v) Harmonization
- Customers should keep accurate records of
banking transactions and immediately notify the Internal harmonization of electronic banking
bank of any unauthorized transactions/entries in regulation must be a top priority .This means
the account. intensifying cross border co-operation between
- Always logout from your online banking session supervisors and coordinating laws and regulatory
and avoid using shared or public computers for practices initially and domestically a cross different
Internet Banking. regulatory agencies.
- Never respond to an email, phone call or
vi). Integration
message asking for your account information.
- Sensitization of customers This is the process of including technology issues
- The bank should have more stringent access and their accompanying operational risks in bank
control measures in place. supervisor’s safety and soundness evaluation.

ii) Operational risks Areas that one has to look at if he is to enact a

law on e-banking.
Banking regulators and supervisions must ensure that
banks have appropriate practices in place to guarantee  Oversight and supervision arrangements
the confidentiality of data as well as the integrity of the  Licensing and authorization
system. Banks security practices should be regularly  Should contain provisions such as
tested and retrieved by outside expert to analyze
The currency in which the e-money shall be
network vulnerabilities and recovery preparedness.
dominated
(iii) Reputational risks
Requirement to have money on trust
Through consumer education
Know your customer (KYC) requirements

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Types of e-money accounts collection, processing, use and holding

of the personal data.
Liquid assets requirements
 Shall observe security safeguard in
Funds isolation requirements respect of the data.

Transaction limits 2). The Authority shall ensure every data collector, data
controller or processor comply to the above principles
 Permissible electronic transactions
of data collection.
 Risk management
 Payment formalities 3). Personal data shall not be collected or processed
 Consumer protection without the consent of the owner.
 Clearing and settlement arrangement of
Exceptions;
transactions
 Insolvency  Where its authorized or required by law.
 Distribution/Agency requirements.  For proper performance of a public duty by a
public body.
 For national security
DATA COLLECTION.  For prevention, detection, investigation,
prosecution or punishment of an offence or
Principles of data protection
breach of law
1) A data collector, data processor or data  For medical purposes.
controller shall,
4). Where the data subjects objects to the collection of
 Be accountable to the data subject for
data save above, the data collector shall stop the
data collected, processed, held or used or
collection or processing of personal data.
shall collect or process data fairly and
lawfully. 5). No collection of personal data which relates to
 Shall retain personal data for the period religious beliefs, political opinion, sexual life of an
authorized by law or for which data is individual.
required.
6) A data collector not to infringe on the privacy of the
 Shall ensure transparency and
person to whom the data relates.
participation of the data subjects in the

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7). before collecting data, the person whose data is

being collected must be informed on the nature of data,
who is responsible consequences of failure to provide
data etc.

9) Security measures (protection of data collected)

9).A data subject has a right to prevent processing of

personal data (Rights of both parties)

10) Rectification, blocking, erasure and destruction of

personal data where the Authority is satisfied that the
data is inaccurate.

11).complaints

12) Offences and penalties.

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BILLS OF EXCHANGE. d).Address to the drawee. Sec 5 Bills of

exchange Act is to the effect that the drawee
Sec2 of Bills of exchange Act defines a bill of
must be named or otherwise indicated in a bill
exchange as an unconditioned order in writing
with reasonable certainty.
addressed by one person to another, signed by the
A bill may be addressed to the two or more
person giving it, requiring the person to whom it is
drawees.e.g. payStanbic and centenary bank is
addressed to pay on demand or at a fixed or
valid a bill of exchange addressed to Joint
determinable future time a such certain in money to or
drawee.
to the order of a specified person or to bearer.
However, where the bill is addressed to alternate
Characteristics of Bill of Exchange. drawees e.g. pay Stanbic or centenary. This is
not allowed and the bill is invalid.
a) Its unconditional
e) The bill must be signed by the person
The purported bill must be both unconditional
giving it. It must be signed by the drawer or by
and an order. It must be a command but not a
a person authorized to sign on behalf of the
request for payment.
drawer.
Where an unconditional order requires Sec 2(2)
A signature which is forged or which has been
an act to be done in addition to the payment of
made without the authority of the drawer is
money e.g. pay 10,000/= and transfer ownership
invalid for purposes of sec 2 BOE Act and such
of goods to X,that is not a valid bill or a cheque.
a bill or cheque bearing such a signature is
The words must require payment and not merely
invalid and unenforceable.
permit it.
f)A bill is payable on demand or at a
b).The document must be entirely in writing.
determinable future time.Sec 9(1) makes it
It can be printed or handwritten or be a
clear that the bill/cheque which does not specify
combination of the two,
a dare for payment is treated as payable
c) The bill should be addressed by one person
immediately, or at sight or on presentation. A
to another. The person giving the order to pay
bill but not a cheque has to first accept and
(the person drawing the bill) is a drawer and he
endorsed for it to be payable on demand. If the
must instruct the other person (the person to
bill is accepted after the date when payment was
whom its drawn or drawee) to pay the sum
due,sec 9(2) is to the affected such a bill is
specified. The drawee may be an individual or a
treated as payable on demand.
company.

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Sec (10(1) is the effect that a bill is payable at KizitoJohn or order which means pay whoever Kizito
determinable future time where it is expressed John authorizes you to pay (iii) the bearer.
to be payable at a fixed period after the
(i). Consideration
occurrence of specified event which is certain to
happen. Much as sec 2(1) does not include/mention any
Sec10 (2) makes it clear that an instrument requirement that to be valid bill/cheque it must be
expressed to be payable on a contingency is not supported by value or consideration. However it should
a bill and the happening of the contingency does be noted that one can’t succeed in suing in respect of a
not cure defect. bounced cheque where he has not provided
Sec12 (2) provides for antedating and post- consideration.
dating. A post–dated cheque would be a valid
Optional stipulations Sec2 (4) which does not render a
bill but since a cheque is not payable on
bill invalid include;
demand, it can’t be regarded as a valid cheque
and it can’t be cashed before the due date. i)Not being dated,

ii) Not specifying the value given,

g).The sum of money payable must be clear and
certain as per sec 2(1) BOE Act. Where the sum iii) Not specifying the place where it is drawn or where
payable is expressed in figures and words and it is payable to the payee.
there is a discrepancy between the two, sections
8(2) is to the effect the sum expressed in words
is the amount payable. However in practice the
bank persecuted with a cheque where words and
figures differ is entitled to return it to the
customer usually marked “words and figures
differ”.

h)To the order of a specific person or to bearer. The bill

or cheque must specify who is entitled to the money
which the drawer authorizes to be paid. A bill or cheque
can be payable to (i) a specified person e.g. pay Kizito
john ,(ii) the order of a specified person e.g. pay

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WAYS OF DISCHARGING A BILL (HOW DOES A waiver has to be in writing, unless the bill is
BILL COME TO AN END) delivered to the acceptor to avoid the bill being
put into circulation.
a) Payment in due course (sec 58)
D )Cancellation (sec 62).
A bill is discharged by payment in due course
Sec62(1) provides for discharge of a bill by
by or on behalf of the drawee or acceptor.
cancellation whereas sec62(2) provides for
Payment in due course means payment made at
discharge of a party from liability on the bill and
or after the maturity of the bill to the holder of it
not the discharge of the bill itself. Where a bill
in good faith and without notice that his or her
is intentionally cancelled by the holder or his or
title to the bill is defective. Partial payment does
her agent and the cancellation is apparent on the
not discharge a bill. The bill or cheque will only
bill, the bill is discharged. The cancellation must
be discharged when the whole amount has been
be intentional and not capable of being put
paid to constitute payment in due course; the
together e.g. if a cheque is torn and its capable
payment must be made at or after maturity of
of being put together using a sole tape ,its
the bill and payment before maturity does not
payable and cancellation cant stand here. Where
discharge the bill.
the bill is a cheque, the cancellation can be by
b)Acceptor the holder at maturity (sec60)
writing the word cancelled in the two lines or
Sec 60 is to the effect that where the acceptor
destroying it in a manner its not possible to
becomes the holder of it at or after its maturity,
reassemble it.
in his/her own right, the bill is discharged. This
Sec62 (3) A cancellation made unintentionally,
is logical in that the acceptor as a holder of the
or by mistake or without authority of the holder
bill can hardly sue the acceptor (himself as the
can’t discharge a bill.
person liable). Where the acceptor becomes the
e). Material alteration of the bill (sec 63)
holder through a person with a defective title,
Where a bill or acceptance is materially altered
the bill cant be said to be discharged unless the
without the ascent of all parties liable on the
acceptor satisfies the requirements under Sec 28
bill, the bill is avoided (will be void) except as
of BOE Act.
against a party who has himself/herself made
c) Waiver by the holder (sec 61).
authorized or assented to the alteration and
A bill may be discharged where the holder of
subsequent endorses(sec 63(1).
the bill at or after its maturity absolutely and
unconditionally renounces his/her rights against
the acceptor.However, the renunciation or the

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Where the alteration is not apparent and the bill

is in the hands of a holder in the due course, the
holder can enforce the bill.

Overman and Co.VRahemutulla, Erasing the name of

the payee and inserting that of another was held to be
material alteration.

In Fakhan stores V London confirmers, the onus on

the put to prove that the Defender was privy to the
alteration.

In Woolatt V Stanley, an alteration is apparent if the

bill is one which will normally be examined by a
potential holder and a reasonably careful scrutiny will
reveal the alteration.

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Sterling Products (Nigeria)ltd Vs Dinkpa,the plaintiff

brought an action for unpaid cheque. The cheque had
been drawn by the defendant. The Defendant led
DEFENCES TO CLAIM ON CHEQUE /BILL. evidence in court to show there was a total failure of
consideration since the goods for which the cheque was
Section 21(1) of the Bills of Exchange Act is to the
issued were returned to the plaintiff while in the same
effect that capacity to incur liability as a party to a bill
condition as they were delivered to the defendant .This
of exchange is co-extensivewith capacity to contract .It
was a valid defense to an action on a bill of exchange.
can be read from section 21(1) of the Bills of Exchange
Act that the relationship of the parties as far as the b) Failure to present a cheque in time.
cheque is concerned is contractual. It is on that basis
Section 44(3)(6) of the Bills of Exchange Act is to the
that most defenses to claim on a cheque are largely to
effect that where the bill is payable on demand,
defuse on a suit in contract.
presentment must be done within reasonable time after
The defenses to claim on a bill/cheque include; its issue in order to render the drawer liable. Under
section 73(a), where a cheque is not presented for
a). Failure or absence of consideration
payment with in a reasonable time of its issue, the
Under section 26 of the Bills of Exchange Act, the drawer will only be discharged to the extent of any
common law rules relating to valuable consideration are actual damage which he/she suffers as a result of such
codified. The general rule is that for one to enforce a failure. Justice Oder in Esso Petroleum V Uganda
contract, he ought to improve that he has furnished Commercial bank exhaustively discussed sections
consideration. However with regard to cheques, section 44,45 and 73 where among other that the duty of the
29(1) of the Bills of Exchange Act is to effect that every banker as an agent for collection is bound to exercise
party whose signature appears on the bill is prima facie diligence in the presentation of a cheque for payment
deemed to have a party therefore for value. it is because and failure to do so makes the bank liable.
of this provision that we have a presumption that a
c).Failure to give a notice of dishonor. Section 47 of
party to a bill of exchange need have to prove
the bills of Exchange Act is to the effect that where a
consideration. However this is a rebuttable
bill has been dishonored by no acceptance or non-
presumption.eg where a party is given a bill and the
payment, notice of dishonor must be given to the
same is not honoured, if he happens to sue on it when
drawer/intended Defendant. In Simba Motors Ltd V
he never furnished consideration or where there was
John Sentongo & Anor, Court stressed that it is
failure of consideration, this defense will apply in
mandatory under the Bills of exchange Act to serve a

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notice of dishonor within reasonable time. Failure to do e).Forged signatures

so, the defendant will be discharged from liability due
Section 23 of Bills of Exchange Act is to the effect a
to the failure and ordinate delay. In Nanji Khodabhai
person cannot be liable where his signature has been
V Sohan Singh, the cheque was dishonored on
forged or placed on the cheque without his authority.
25/4/1995 and the notice of dishonor was served on
29/4/1995.Court held that the defendant was discharged A person in possession of such a cheque has no title to
and stated the notice should have been served on it and therefore no right to retain the cheque or
26/4/1995. discharge the cheque. In Kepitingalla Rubber Estates
V National bank of India, the court held that the bank
d).Material alteration of the cheque.
could not charge the company with the amounts paid
Section 63(1) of the Bills of exchange Act is to the out on forged cheques and the plaintiff were under no
effect that where a bill or acceptance is internally duty to organize their business in such away that
altered without the assent of all parties liable on the bill, forgeries of cheques could not take place..
the bill is avoided, except as against a party who has
Other defenses
himself made, authorized or assented to the alteration.
For alteration to act as a defense, section 63(2) of the Non-fulfillment a condition
Act requires it to be material such as alteration of the
Lack of capacity
date, the sum payable, the place of payment among
others .In Fakhri stores ltd V London confirmers Ltd Fraud, duress, under influence
,the respondent brought an action against the appellants
for recovery of money paid on four bills of exchange
alleging that they had been altered. Court held that the
plaintiff alleging the bill has been materially altered has
the onus of proving that the defendant was privy to the
alteration, the alterations were material and the bill had
become void by virtue of section 63 of Bill of Exchange
Act.

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