Summary on the law on Banking and Negotiable Instruments

DEFINITION OF BANK, BANKER AND CUSTOMER

Bank is defined in S.3 (c) of the Financial Institutions Act 2004 as- any company licensed to carry
on financial institution business as its principal business as specified in 2nd schedule to this Act,
including all branches and offices of that company in Ug.
Bills of Exchange Act Chapter 68 S. 1 defines banker as a body of persons whether incorporated
or not who carry on the business of banking.
S.2 Bank of Uganda Act Cap. 51 defines a financial institution as including a bank, credit institution,
building society and any other institution classified as a financial institution by the bank.
A Bank must be registered under the Companies Act Cap. 110 with prerequisite paid up minimum
capital read Financial Institutions Act S. 7 (1) which provide that none other than a bank shall use;
(a)   Use the word “bank” or an expression or symbol that would suggest it is authorised to act as a
bank;
(b)   Make any representation indicating transaction of business in (a) in any bill head, letter-paper,
notice, advertisement or any other manner.
Hence individuals and firms cannot be bankers which applies mutatis mutandis to the definition of
the word “banker in the Stamps Act Cap 22.
If there is any conflict concerning banks, Financial Institutions Act No. 2 2004 prevails
“Banking business” (look at Banking Act Cap. 51 S. 2) means business carried on as a principle
business of;
-         Accepting deposits of money from the public, repayable on demand/ at expiry of a fixed period
after notice. And withdraw able by Cheque (this may be repealed)- A cheque is a bill of exchange
drawn on a specified banker and not expressed to be payable otherwise than on demand Stamps
Act Cap 342 s. 1 (g)
-         Employing deposits by lending or other means for the account of and at the risk of person
accepting deposits.
-         Presenting to another bank for payment, cheques, drafts/ orders received from customers.

Main Differences with Money Lenders

Enshrined in Money-Lender Act Cap. 273, s. 3 as money lenders not including;
(a)   Any person bonafide carrying on business of banking or insurance, or other not having lending as
its primary objective, for which he lends money;
(b)   Any society registered under the Co-operative Societies Act and
(c)    Any body corporate incorporated or empowered by a special Act to lend money in accordance
with that Act.
Lord Denning in United Dominions Trust Ltd v. Kirkwood [1966] 2 Q.B 431 READ remarked that
defining a bank is very difficult because of the different functions carried out by specialized Banks.
Hence the word bank or banker should only be looked at as a guide rather than an exhaustive/
conclusive one. Hence he used the characteristics. Denning went on to say other characteristics
make a banker ie; soundness, stability and probity and in doubt, one should look at the reputation
of the company among intelligent commercial men. Ie banking community should know banker
when presented with one.
 Re Shield’s Estate, governor and Co of Bank of Ireland, Petitioners (1901) real business of bankers
is to obtain deposits of money to use for profit by lending it out again. Hence under common law, a
banker
(a)   Conducts accounts on which they deposit money from customers, showing debits and credits
(b)   Lending money deposited with it for its profit
(c)    Collecting cheques or orders for customers and
(d)   Paying cheques drawn on the bankers.
Types of Banks [Second schedule (A)]
(i)     Commercial Banks provide:
Acceptance of call, demand, savings and time deposits withdraw-able by cheque or otherwise;
Overdrafts and short to medium term loans;
Foreign exchange facilities
Accepting and discounting of bills of exchange;
Provision of financial investment advice;
Participation in inter-bank clearing systems;
Guarantees, bonds or other forms of collateral and accept and place 3rd party drafts and
promissory notes connected with operations in which they take part.
(ii)    Post-Office Savings Bank provide:
Acceptance of savings and fixed deposits;
Investments in Government Securities;
(iii)  Merchant Banks;
Acceptance of corporate call and time deposits;
Provision of foreign exchange facilities;
Facilitation of trade through the granting of acceptance facilities;
Provision of corporate finance of advisory service through; (a) share issues; (b) rights issues; (c)
mergers and acquisitions and corporate reconstruction; (d) private placement.
Excluding underwriting arrangements;
Issuing bonds, debt obligations and certificates in such loans as they may grant or say any other
instrument traded in the domestic market or abroad according to the regulations Central Bank may
set forth.
Investment portfolio management, investment advisory services and nominee services;
Arranging finance, lending or participating in syndicated loans and acting as grantors.
(iv)  Mortgage Banks provide;
Receiving deposits of participation in mortgage loans and in special accounts;
Granting of loans for acquisition, construction, enlargement, and repair, maintenance of urban /
rural estates and for substitution of mortgages taken out for that purpose;
Giving Guarantees bonds or other form of collateral connected with operations which they may
take part in;
Obtaining foreign loans * acting as intermediary in loans extended in local & foreign currency (with
authorisation from CB for such loans exceeding specified limit).
Non-Banking Financial Institutions
These are also stipulated in the Act in Part (B) of the schedule and include (i) Credit Institutions; (ii)
Accepting Houses; (iii) Discount Houses; (iv) Finance Houses.
CUSTOMER
This also presents difficulty in defining. The major factor in determining whether or not a person is
a customer depends on whether or not they have or will have an account with the bank.
 Therefore, there must be some sort of account, either a deposit, or current account or similar
relationship to make a person a customer of a bank
Great Western Railway Co. v. London and County Banking Co. Ltd a man had for years been in
the habit of getting crossed cheques exchanged for cash at the bank where he had no account and
for which service he was not charged anything. in holding him not a customer of the bank the
House of Lords said:- but he had no account of any sort with the bank. Nothing was put to his debit
or credit in any book or paper kept by the bank.
Therefore casual service by the bank for a person does not make them a customer.
However one need not have an account to qualify as a customer. An agreement to open an
account is sufficient to constitute a person a customer of the bank. Like in all contracts one has to
find a consensus ad idem. In Ladbroke v. Todd it was argued that a person does not become a
customer of a bank until the first cheque is collected. Court said : in my opinion a person becomes a
customer of a bank when he goes to the bank with money or cheque and asks to have an account
opened in his name ad the bank accepts the money or cheque and is prepared to pen an account
in the name of that person; after that he i.e. entitled to be called a customer.
Woods v. Artins Bank Ltd a bank accepted instructions from the plaintiff to collect money, pay part
to a company he was going to finance and retain to his order the balance of the proceeds. He has
no account. It was held that an agreement with the bank however is sufficient to constitute the
person the customer for the bank.
Commissioners of Taxation v. English, Scottish and Australian Bank 1920 AC the word customer
signifies a relationship in which duration is not of the essence
A person having an account has 3 fundamentally legal consequences.
a)      Where the bank collects in good faith and without negligence, cheques remitted to it, it is entitled
to a statutory defence against the true owner.
b)     The bank owes a duty to obey customer regarding collection of cheques and other effects payable
to him and further as regard the making of payments ordered by the customer..
c)      The bank owes incidental duties to its customer i.e. Confidentiality.

Nature of the Banker Customer Relationship

Sudan Commercial Bank v El Sadiq Mohammed El Sadiq the Court of Appeal of Sudan said; the
relationship of banker to customer is one of contract. The relationship consists of a general
contract which is basic to all transactions together with special contracts (such as the contract of
borrowing and lending) which arise only as brought into being by the express or perhaps implied
acts of the parties.
In Esso Petroleum Co. v Uganda Commercial Bank 1992 the Supreme Court of Uganda has held
that the relationship of a banker and a customer is contractual. Hence the respondent was in
breach of his duty emanating from the contractual relationship. The customer if relationship is
breached is entitled to a tracing order.
In Foley v Hill a customer paid an amount of money to the credit of an account opened with his
bank on the understanding it would earn interest at rate of 3% P.A. No interest was credited to the
account for 6 years. He argued that the relationship was fiduciary in nature and it was held that the
customer was not entitled to an account and his correct course was to institute a common law
action in debt for the amount due and the relationship was merely that of debtor and creditor.
Limitation period would start to run from the date of unmet demand not deposit.
Mobil (U) Ltd v. Uganda Commercial Bank 1982 HCB 64 it was held that the banker and customer
relationship was contractual.
 Joachimson v Swiss Bank Corp Lord Atkins stated. The relationship is contractual and that the
bank undertakes to receive money and collect bills for its customer’s account.
The proceeds received are not held in trust for the customer; the bank borrows them and
undertakes to repay them. The promise to repay is to repay at the branch of the bank where the
account is paid and during the banking hours.
It includes a promise to repay any part of the amount due against the written order of the customer,
addressed to the bank at the branch and such written orders may be outstanding in the ordinary
course of business for 2 to 3 days.
It is a term of contract that the bank will not cease to do business with the customer except upon
reasonable notice.
The customer undertakes to exercise reasonable care in executing written orders so as not to
mislead the bank or facilitate forgery.
The bank is not liable to pay the customer the full amount of this balance until he demands
payment from the bank at the branch at which the current account is kept. Hence from Foley v Hill
it can be seen
a)      Demand exists only in the case of current savings account which provided for the payment at call.
For fixed deposits payment only on the designated day.
b)     The amount standing to the customer’s credit becomes payable without demand if this bank is
being wound up or if the banker customer relationship is terminated.
c)      The period of limitation begins to run from the day on which the amount is payable.
d)     Contract exists between banker and customer based on maintenance of the account.
Bank of Baroda (U) Ltd v. Kamuganda (2006) 1 EA 11
Whether he must demand it in writing is not necessary now to determine.
The relationship’s terms are of an implied contract and hence not written but depend on bankers
customs. They may be modified by express agreement between bank and customer. Statutes in
force may also regulate or modify them they are as follows:
1.      Bank account balance is financial position between bank and customer- when account credited,
the banker owes balance, when account overdrawn, customer owes balance to banker.
2.      Bank agrees to pay the customer’s cheques up to the amount standing to credit of the customer’s
account plus any agreed overdraft limit.
3.      Bank may not pay from customers account without a mandate from them (e.g. cheque drawn by
them).
4.      The bank agrees to promptly collect cheques deposited to the customer’s account as agent and
credit proceeds to customer’s account
5.      Bank has right to combine customer’s account- each account is just an aspect of the same credit
relationship.
6.      The bank has a lien on cheques deposited to the customers account, to extent that customer is
indebted to the bank
7.      The bank must not disclose details of transactions through the customer’s account- unless
customer consented, public duty to disclose the bank’s interests require it to or the law demands.
8.      Bank musn’t close customer’s account without reasonable notice since cheques are outstanding
in the ordinary course of business for several days.

The contract has with it superadded obligations which however do not affect the main contract.
They are the duties which arise in the ordinary course of business such as the
-         relationship of debtor and creditor. Because the bank undertakes to borrow money from the
customer as and when the customer lends it to him when he deposits it Foley v. Hill it was stated
 that money paid into a bank ceases to be the money of the principal but of the bakner who is
bound to return it upon demand. Hence the banker is not an agent or a factor but a debtor
A banker can also be creditor and customer a lender- that relationship hence can change. Part of
the bankers business is to borrow and lend money see Act… hence a banker and a money-lender
are the same thing.
Distinguishing feature between bank and any other borrower who undertakes to pay on demand is
that for the bank, demand or repayment is made against a written order or mandate which is
exemplified by a cheque. Clearly stated in the Bill of Exchange Act S. 72- a cheque is a bill of
exchange drawn on a banker payable on demand. It then states that the provisions of this act
except otherwise provided in the Act, the provisions of the Act applicable to a bill of exchange
payable on demand apply to a cheque. and the Stamps Act S. 2? Which states that a cheque is a
bill of exchange drawn on a specified bank and not expressed to be payable otherwise than on
demand.
S. 74 of Bills of Exchange states that the duty and authority of a banker to pay a cheque drawn on
him or her by his or her customer are determined by the; countermand of payment and notice of
the customer’s death.
A cheque can hence not be drawn on any other borrower.
In Joachimson v Swiss Bank Corporation [1921] 3 KB .110 it was stated that having regard to the
peculiarity of that relation there must be, I consider, quite a number of implied superadded
obligations beyond the one specifically mentioned in Foley v. Hill. Unless this is so… in order to
regain his money however, the customer must make an application to the banker for it. This is
different from the general rule where the debtor must look for his creditor and pay him.
-         Money lenders are regulated by the Money Lenders Act Cap … which does not apply to banks.
The Act defines a money lender but says it does not include “any person bonafied carrying on the
business of banking.”

Duties Owed by the Customer to his Bank

Duty of reasonable care in drawing cheques
Joachimson v. Swiss Bank Corporation Lord Atkins stated the customer… undertakes to exercise
reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery.
London Joint Stock Bank v. Macmillan and Arthur “…as the customer and banker are under a
contractual relation in this matter… in drawing a cheque the customer is bound to take usual and
reasonable precautions to prevent forgery… if the cheque is drawn in such a way as to facilitate or
almost an increase in the amount of forgery if the cheque should get into the hands of a dishonest
person.
In Mobil (U) Ltd v. Uganda Commercial Bank a cheque drawn for Shs 10,301 was altered to read
Shs 40,301. High Court held that “a customer and a banker, being under a contractual relationship,
the customer in drawing a cheque is bound to take usual and reasonable precautions to prevent
forgery. If a cheque is drawn in such a way as to facilitate or almost to invite an increase in the
amount by forgery, if the cheque should get into the hands of a dishonest person, forgery is not a
remote but a very natural consequence of negligence of this description.

Duty to inform bank on any forgeries customer is aware of otherwise customer bears loss for the
forgery.
Greenwood v. Martins Bank Ltd the plaintiff had an account with the defendant bank. The wife had
over a period of time forged her husband’s name. on the wife’s request the husband had refrained
from notifying the bank of the frauds. When he threatened to notify the bank, she committed
 suicide. He brought an action against the bank for the amount paid by them on the forged
signatures. Court of Appeal held- if a cheque awe presented to a banker which he rejected as
forged, he would be under duty to report this to the customer and enable him to inquire into and
protect himself against the circumstances of the forgery. This involves a corresponding duty on the
customer.. to do the same if he is aware of his cheques being forged. Hence, in the present case,
silence is a breach of duty to disclose.
p. 5
3
Duties owed by the banker to the customer
To honour the customer’s mandate
The customer gives bank authority to operate the account in accordance with his instructions i.e
the “customer’s mandate” as long as the bank is within the terms of the mandate it may debit the
customer’s account otherwise not. it is the banks duty to ensure no unauthorised changes are
made to the customers documents kept by the bank. Hence banker is to honour cheques given by
customer provided:
a.       They are drawn in the proper form.
b.      Account drawn for credit to has an amount sufficient to pay them, or arrangements have been
made for an overdraft facility and the agreed overdraft limit will not be exceeded.
c.       There is no legal cause (service of a garnishee order nisi which makes the credit balance or the
agreed overdraft limit unavailable.
d.      They are presented during banking hours or within reasonable time thereafter
Baines v. Nation Provincial Bank (1927) 96 KB
Banker has until close of business on day of presentation to decide whether or not to meet a
cheque. If not, it must after close of business return it with some remarks indicating it hasn’t been
honoured.
If dishonour wrongful, customer may sue for damages in breach of contract.
Before Dishonouring Cheque, Holden states bank should follow precautions;
a.       Make sure customer’s account has not been debited by mistake with any cheque drawn on other
accounts.
b.      Make sure no post-dated cheques drawn by the customer has been prematurely debited.
c.       Should make sure no regular credits such as salary are from customer’s account.
d.      Cheque which it proposes to dishonour is not backed by customer’s cheques guarantee card.
Patel v. SCB [2001]
Bank of Baroda (U) Ltd v. Kamuganda (2006) 1 EA 11.

Limit to duty to honour customers mandate.

a)      the bank is not obliged to honour a cheque or meet some other demand if the customer’s balance
is inadequate (Bank of New South Wales v. Laing where the bank had agreed to grant the
customer an overdraft and the amount of the cheque does not exceed the prescribed ceiling.
b)     The demand must be made at the branch with which the account is maintained. The customer is
not entitled to demand payment at another branch Arab Bank Ltd v. Barclays Bank.
c)      Cheques should be paid only if presented during ordinary business hours.
d)     Cheques that have been outstanding for a long period of time may be dishonoured (this is more
than 6 months).
Where the account is overdrawn the bank becomes the creditor and the customer the debtor.

2. Duty of Skill and care.

Owed by the bank in carrying out customer’s operations.. it should be reasonable, this standard
being case by case.
In Barclays Bank OLC v Quincecare [1992]4 ALLER 363 it was held that an reasonable care in
executing customer’s orders to pay or transfer money is implied. This duty may sometimes
interfere with duty to honour customer’s mandate but a banker who executes an order knowing or
suspecting it dishonestly given but ignoring that or acting recklessly in failing to make inquiries is
liable For breach of duty.

3. Services rendered outside the contract (fiduciary relationship) may raise duty of skill and care
A bank may be held liable in tort for negligent advice or statements made to both customers and
non- customers alike because then the bank is taken to act as a fiduciary. It is under no obligation
to give advice but if it takes it upon itself…
Hedley Byrne & Co. Ltd v. Heller & Partners [1964] AC Hedley Byrne were a firm of advertising
agents and they wanted to check the financial position and credit-worthiness of a client and asked
their bank, National Provincial Bank to get a report from their clients bank. Stating “without
responsibility on the part of this bank” that the company was considered good for its ordinary
business engagements. The company soon went into liquidation and the Hedley firm sued for
negligent misstatement occasioning vast losses. Heller & Partners argued no duty in regards to the
statement and liability was excluded.. Before this the notion of a duty of care had been rejected.
House of Lords introduced “assumption of responsibility.
Court held the duty to be “sufficiently proximate” as to create a duty of care.
On the facts, the disclaimer was found sufficient enough to discharge any duty created by Heller’s
actions. There were no orders for damages.
As customer’s agent, the bank has to strictly adhere to mandate. Additional duties of care are
imposed on the bank where it gives advice on financial matters to its customer. The customer, in
turn owed his bank the general duty of a principal to an agent which is to issue orders in a manner
that doesn’t facilitate their falsification.
Woods v. Martin Bank [1955] 1 QB the manager of a bank advised the plaintiff to invest a
substantial amount of money in shares of a company, whose excessive overdraft was of concern.
The branch manager didn’t disclose these facts to the plaintiff. Plaintiff lost the full amount in
invested shares. Bank pleaded that plaintiff had not been a customer hence no duty owed. Salmon
J held that even though bunker-customer relationship hadn’t been established at time the advice
was given, the bank through branch manager had assumed a fiduciary obligation toward the
plaintiff when it agreed to act as his financial adviser.
Lloyds Bank Ltd v. Bundey (1975)
National West Minister Bank LC v. Morgan [1985] AC 686

4. Duty of secrecy/ confidentiality, ie a duty not to disclose any information concerning the affairs of
the customer without his consent.
The banker customer relationship has elements of agency and as a general rule an agent owes a
duty of loyalty and confidentiality of his principle. S. 40 (3) Bank of Uganda Act Cap 51 a banker
shall not publish or disclose any information regarding the affairs of a financial institution or a
customer of a financial institution… unless customer consents.
Parry Jones v Law Society [1965] Diplock stated that the duty of secrecy extended even to a
banker and customer and subject to the contract
Tournier v. National Provincial and Union Bank of England [1924] 1 KB the plaintiff was unable to
meet the payment demands made by tehe branch manager. On one occasion the branch manager
 noticed a cheque drawn to the plaintiffs order by another custodian. The manager then rang the
plaintiffs employees to ascertain the plaintiffs private address but in the course of the conversation
he disclosed the plaintiffs account being overdrawn. The plaintiff’s contract was not renewed
because of this by the employers.
Court of Appeal held the bank guilty of a breach of a duty of secrecy and awarded damages
against it. .it was elucidated, the bank’s duty remains even after the account has been closed. In
this case, it was highlighted that the duty of nondisclosure is a legal one arising out of contract,
highlighted the fact that the duty is not absolute but qualified, hence providing exceptions thereto.

Exceptions to the duty of secrecy.

a)      Where disclosure is under compulsion of law. A bank cannot refuse to answer questions
concerning its relationship with a customer on the ground of privilege. Sec. 2 or S 5 of which Act?
S. 6 Evidence )Banker’s Book) Act Cap 7 – on application of any part of a legal proceeding court
may order that such party may be at liberty to inspect, take copies of any entries in the banker’s
book for any of the purpose of such proceedings. The bank is served with 3 days notice to comply
with courts directive.
This application is similar to an application for a search warrant as the courts are guided by
decisions from inspecting and discovering documents.
Bankers trust Co v. Shapira (1980) two rogues obtained money by presenting to plaintiff bank
cheques purportedly drawn on it by a bank in Saudi Arabia. Court of Appeal held that the order
would be granted where plaintiff sought to trace funds of which evidence showed they had been
fraudulently deprived.
Foley v Hill it was held that a customer’s bank account has been described as a chose in action or
incorporeal right as contrasted with corporeal or tangible things.
Income Tax Act Cap 340 S. 131 (1) allows the commissioner general or any authorized in writing to
access any premise, place, book, record, computer. They may make a copy or seize the record for
evidence in determining liability.
Leadership Code Act Cap 167 the Inspector of Government can authorize anyone under its control
to inspect a bank account or any safe deposit book in an account.
Prevention of Corruption Act Cap 121 S. 13 (1)if DPP is satisfied that there are reasonable
grounds to suspect corruption may authorize any police officer above rank of Assistant
Superintendent to investigate any bank account. And failure to disclose is a punishable offence. S.
14 any court may place restrictions on the operation of any bank account of an accused.
Companies Act Cap 110 Sections 165 – 175 states a duty to officers and agents of the company
whose affairs anre being investigated to produce to the inspector all books of accounts.
S. 176 a company’s banker is not required to disclose affairs to any other.
Standard Bank of West Africa v. AG of Namibia (1927) a police officer wished to inspect books of
the banker and the account of a certain customer in hope of coming upon an offence but without
knowledge what this evidence would help, he laid the information before a magistrate and the
magistrate issued a warrant for the documents. Bank instituted proceedings against being subject
for a search warrant for reasonable grounds of evidence. It was held, search warrant should issue
against a bank only if the bank suspected of having communicated the offence itself or of
harbouring evidence directly connected with a crime and should not issue in any case where an
inspection order might be made under the Bankers Books Act and it is not enough for applicant to
merely hope for evidence along the search- must have a very good reason, hence it was wrong.
A court order in the form of garnishee proceedings.. here money held by a banker to the credit of a
customer who is a judgement debtor may be attached to satisfy the judgement debtor. The bank is
 called upon to show why customers money should not be attached. Here it has to disclose its
customer’s affairs. Civil Procedure Rules O. 20

b)     Where there is a duty to the public to disclose. Described in the Tournier case as where a higher
duty than the private duty is involved. E.g. where danger to the state or public duty may supersede
the duty of the agent to his principal.
Libyan Arab Foreign v Bank Bankers Trust Co (1988) the defendant bank invoked the exception in
relation to disclosure made by it to, and at the request of the Federal Reserve Bank in New York of
payment instructions which the defendant had received from the plaintiff. The court viewed the
exception as applicable.
c)      Where the interest of the bank requires disclosure for example where a customer brings a suit
against the banker. The banker can reveal the customers affairs as part of defence. Or where the
bank sues to recover an amount lent to the customer. In Sunderland v Barclays Bank Ltd (1938)
the bank dishonoured cheques drawn on it by a married woman, because the account had
insufficient credit balance, and the cheques where drawn in respect of gambling debts. When the
husband interceded he was told by the branch manager, most of the cheques were drawn in favour
of bookmarkers. The court dismissed the wife’s action for breach of duty of secrecy as the
disclosure was required in the bank’s own interest. The wife had given implied consent of the
disclosure of the facts to her husband.
d)     Where disclosure is made by the express or implied consent of the customer. The consent may
be implied or express, or general in the sense that the bank can disclose the general state of the
account or special to mean the bank is entitled to supply only such information as is sanctioned by
the custom.
Usually it is in the giving of bank references. This is a well –established practice which authorises
banks to provide such information. Customers will therefore be regarded as having consented to
the giving of such information except if they have specifically indicated that they refuse to allow
their banks to reply such inquiries.
Answering inquiries from other banks and acting on behalf of the customer is within the scope of
banking business and the practice may be regarded as implicitly authorized by most customers of
the banks.
Parsona v Barclays Co Ltd (1910) 2 it was held that answering inquiries is very wholesome and
useful habit by which one banker arrives in confidence and answers honestly to another answers
being given at the request and with this knowledge of the first banking customer.
OTHER RELATIONS BY BANKERS. P 23 HANDOUT.
Intercom Services Ltd & Ors v. Standard Chartered Bank lts (2002) 2 EA
 TYPES OF ACCOUNTS
a)      Demand deposits: which are deposits payable on demand and withdraw able by cheque. Draft or
order or by other means. They are generally referred to as current, mercantile or running accounts.
b)     Time deposits: deposits payable after a fixed period of time, it includes saving account (deposit
account).
Current Accounts
Used by bank customers for regular transactions to discharge personal liabilities. This is done by
drawing cheques or direct debits issued by him to bank.
They operate on the understanding that a banker is bound to pay cheques drawn on him by the
customer and the fact that current account holders may be granted overdrafts.
a)      Banker is bound to pay cheques drawn on him by the customer. Hence customer must have
sufficient funds in the account. The bank must take references and cross-check the identity of the
customer otherwise it looses protection afforded to bankers under Bills of Exchange Act.
A banker has duty to ascertain the names of the customer and his employer in addition to obtaining
references when opening a new account, failure of which is negligent.
Ladbrook v Todd (1914) the bank was considered negligent because they did not inquire about a
proposed customer which is an ordinary precaution that all banks must take. Authorities show the
banker has to show he acted with reasonable care in all material respects in opening the account
or clearing a cheque.
b)     Overdrafts may be granted to customers with current accounts. This is an extension of a credit to
a customer for a defined period of time. Usually short to overdraw on his account. Interest is
calculated on the daily balance.
it may be secured over assets of the customer or unsecured. To protect its interest the bank will
normally include a specific proviso to the effect that the overdraft is repayable at call.
The bank can hence under standard formulation demand immediate repayment if unfav.
developments unfold.
Barclays Bank v LJ Ciss & Sons [1980]1 QBD it was held, when a bank accepts to give money in
excess of that on the account it has impliedly accepted to give an overdraft.
However S. 385 (1) PCA Cap 120 views a cheque issued without sufficient funds as a criminal
offence not as an overdraft. Handout p. 27…
The Penal sanction can be criticised on grounds that it infringes the contractual relationship of bank
and customer.
Benefits to the bank for overdrafts S. 39 (d) BOU Act. Provides that a bank may in consultation with
the minister and by statutory instrument prescribe max and min rates of interest or other charges
within the transactions... but it cannot unilaterally vary the rate of interest without express or implied
agreement of the borrower.
The rate of interest charged on overdrafts varies from customer to customer and transaction to
transaction, the lowest rate being known as prime rate.
Distinguishable from a loan though, a customer is granted a given amount which is credited
forthwith to his current account and stands at his deposal anytime. The amount lent is debited to a
loan account opened in the customer’s name. Interest is charged on the debit balance entered in
the loan account regardless of whether the customer makes use of the proceeds. Repayments
have to be made on a regular basis; a right to make early repayment is usually available to the
customer. The rate of interest charged on a loan is higher than that of an overdraft hence overdraft
is more attractive.
 House v Bradford Banking Co (1894) it was discussed that an overdraft does not prevent the bank
which has agreed to give it from ant any time giving notice that it no longer wishes to continue and
that they must be paid their money… if they have agreed to give an overdraft, they cannot refuse to
honour a cheque as a drafts within limits of that overdraft which have been drawn and put into
circulation before any notice to the person too whom they have agreed the overdraft that the limit is
to be withdrawn.
Bank of Baroda v Panessar [1986] it was held demand means that the customer should be given
adequate time to make arrangements for payment and that adequate time does not include time for
the customer to look for money he does not have.
Bank Statements and statements of Account
Bankers periodically dispatch statements indicating the status of the customers account at the end
of each month. There is no duty to the customer to check on bank statement so as to be able to
notify the bank of any items which may not have been authorized by him or her. Mistakes can
occur in 2 ways
1.      Over crediting- over credited account where the banker honestly believes that the money is his
and alters his position in reliance on the statement, the banker is estopped from recovering the
money from the customer.
Lloyds Bank v Brook Bond Tea (1950) it was held, there was a duty on the banker not to over
credit the customer’s account and there is a duty on the banker not to induce the customer with
representations contained in the statement of account to draw money which they are not entitled
tom.
2.      Over debiting normally occurs as a result of fraud or forgeries. Keptingala Rubber Estates Ltd v.
National Bank of India Ltd (1909) 2 KB the secretary of a company forged cheques drawn on the
company’s account over a period of 2 months. Statements given to the cheques drawn on the co’s
account over 2 months, statements given to the company had not been examined by the directors.
It was held, the bank could not charge the company as the directors were not due to organise their
business in such a way that forgeries of cheques couldn’t take place. The duty owed by the
customer to the banker is limited to the duty to refrain from drawing cheques in such a manner as
to facilitate forgery and inform the bank as soon as he becomes aware of it.
 Question. What are the requisites of a negotiable instrument?
Define negotiable instruments: a document that has legal rights attached to it i.e can be transferred
from one person to another.
Give the main types of negotiable instruments; cheques, treasury bills, bank bonds etc.
It is an instrument with legal rights attached to it.
Types
Bill of Exchange Is a type. Which is a document that proves a debt. A creditor can sue on a bill of
exchange without having to refer back to the original contract to prove the debt. A bill confers a
unique advantage
Characteristics
Title is transferred by delivery
Transferee doesn’t have to give notice of the transfer to the original promisor’s. S.30 Bills of
Exchange Act
The person taking the transfer of the instrument in good faith is unaffected by any defect to the
person transferring the title.

Crouch v Credit Financer Co. ltd. [1873] as per Lord Blackburn.

(a)   The instrument and rights it embodies are capable of being transferred by delivery, whether the
instruments in favour of order or bearer.
(b)   Person to whom it is negotiated can sue on it in his own name.
(c)    A person to whom a current and apparently regular instrument has been negotiated takes it in
good faith and for value obtains a good title to it even though this transferor has defective title.
Difference between a negotiable instrument and contract.
A negotiable instrument can serve to convey value constituting at least part of the performance of
a contract, albeit perhaps not obvious in contract formation, in terms inherent in and arising from
the requisite offer and acceptance and conveyance of consideration. The underlying contract
contemplates the right to hold the instrument as, and to negotiate the instrument to, a  holder in due
course, the payment on which is at least part of the performance of the contract to which the
negotiable instrument is linked. The instrument, memorializing (1) the power to demand payment;
and, (2) the right to be paid, can move, for example, in the instance of a 'bearer instrument',
wherein the possession of the document itself attributes and ascribes the right to payment. Certain
exceptions exist, such as instances of loss or theft of the instrument, wherein the possessor of the
note may be a holder, but not necessarily a holder in due course. Negotiation requires a
valid endorsement of the negotiable instrument. The consideration constituted by a negotiable
instrument is cognizable as the value given up to acquire it (benefit) and the consequent loss of
value (detriment) to the prior holder; thus, no separate consideration is required to support an
accompanying contract assignment. The instrument itself is understood as memorializing the right
for, and power to demand, payment, and an obligation for payment evidenced by the instrument
itself with possession as a holder in due course being the touchstone for the right to, and power to
demand, payment. In some instances, the negotiable instrument can serve as the writing
memorializing a contract, thus satisfying any applicable Statute of Frauds as to that contract.
Qn. What is the effect of a forged endorsement in a bearer instrument?
Define endorsement S. 2 Bills of Exchange Act
Define bearer instrument-
Bearer s. 1 (e) means the person in possession of a bill or note which is payable to bearer.
Effects of a forged endorsement on the instrument
S. 23-
 S. 59 (1), (2)-
R Bank v Ross inoperative if it is visibly forged?

Qn. What are the effects of crossing a cheque?

Define cheque- linking it to a negotiable instruments ie s. 72 a bill of exchange drawn on a banker
payable on demand.
S. 75 Bills of Exchange Act. What crossing is
Crossing of a Cheque: types
        Two parallel transverse lines
        Two parallel transverse lines with “not negotiable” between the,
        Where cheque bears across its face addition of the name of a banker, either with or without the
words “not negotiable” addition constitutes a crossing and the cheque crossed specially and to the
banker.
A drawer may generally or specially cross cheque. S. 76 (1), where uncrossed the holder may as
well s.76 (2). (1) (a) where cheque bears on its face addition of the words “and company”
Generally crossed cheque may be crossed by the holder specially 76(3). Where it has been
crossed in either of the above ways, holder may add the words “not negotiable” 76 (4).
Where 75 (2), the banker to whom it is crossed may again cross it specially to another banker for
collection. 76 (5).
Where uncrossed or generally crossed cheque sent to a banker for collection; they may cross it
specially to self.
S.77. Crossing should not be obliterated or added to or altered.
Effects of crossing a cheque
……….

Qn. What is the difference between crossing and cancelling a cheque.

Qn. A bill is endorsed by John Brown
QUESTION
A clerk who’s duty is to prepare cheque forms for his employer’s signature decides to defraud his
employer. He prepares a cheque form which he makes payable to a purely imaginary person and
he persuades his employer to sign the cheque by falsely representing to him that money is owing
to that person. The clerk then endorses the cheque with the name of the imaginary payee and
passes the cheque to a third party who gives value for it in good faith.
Does the innocent 3rd party obtain a good value to the cheque?
ANSWER
6. (3)
- absence of genuine endorsement does not prevent a 3rd party from obtaining good title to it,
because the cheque was payable to a fictitious person- and the bills of exchange act 6(3) says that
it may be treated as payable to a bearer… hence the obtain good value!