TERM- WEEK 2

WORK SHOP 1

CORPORATE AND COMMERCIAL

FIRM C6 MBARARA
PART A

BRIEF FACTS

Born-rich Enterprises Ltd (“BEL”) involved in the business of buying and

selling produce in Uganda and the East African region, opened up a current
account with Centenary Bank (Uganda) Ltd in 2020. BEL negotiated with
Centenary Bank for its employees to open up bank accounts. The employees of
BEL would exclusively receive their salaries through Centenary Bank. The
Bank and BEL signed a memorandum of understanding (MoU) under which
they agreed that employees of BEL would be given salary loans at a preferential
rate of 12% compared to the market rate of 19.5%. Bank would be availed
personal identification records of the employees of BEL (by BEL), as well as
their Tax Identification Numbers but will not be liable to the employees for
sharing any information with URA or any government agency.BEL will ensure
that it notifies the Bank in the event of change in employment status of any of
its employees just in case they have outstanding bank loans with the Bank.

ISSUES.

1. What is the nature of the relationship between centenary bank, Born -

Rich Enterprises and the employees?

2. What are the salient features of the standard terms and conditions
(hereon attached).

3. What potential liability could arise from the documents?

4. What is the legality of the M.O.U between BEL and Centenary Bank?

LAWS APPLICABLE

1. The Financial Institutions Act, 2004 (as amended)

2. The Bank of Uganda Act, Cap 51.
3. The Bank of Uganda Consumer Protection Guidelines, 2011.
4. Case law.

RESOLUTION

Issue one: What is the nature of the relationship between centenary bank,
Born -Rich Enterprises and the employees?
From our facts Centenary Bank is the banker or bank. A Bank is defined under
Section 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 Uganda.In United Dominions Trust
Ltd v Kirkwood [1966]2QB431, it was noted that there are three
characteristics usually found in bankers today;

1. They accept money from and collect cheque for their customers and
place them to their credit

2. They honor cheques for orders drawn on them by their customers when
presented for payment and debit their customers accordingly,

3. They keep current accounts or study of that nature in their books in

which the credit and debits are entered.

Not all persons who approach the bank for services will be considered
customers .The first requirement of establishing bank-customer relationship is
that an individual must be classified as a customer. In Great Western
railways co. ltd v London and county Banking co. Ltd (1901) ALLER Rep
1004, a rent collector who regularly cashed his cheques at the bank was not
considered as a customer since he did not maintain an account with the bank.
Therefore, casual service by the bank for a person does not make them a
customer.

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.

Mark Hapgood QC ‘Paget’s Law of Banking’ 12th edition at 110, where it

is stated that is impossible to define the term customer with exactness, but the
chief criterion is that there exists an account with a bank through which
transactions are passed.

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.
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 Relationship

Generally, the nature of relationship between banker-customer is a contractual

one governed by the principles of contract such as offer, acceptance, and
consideration. In Mobil (u) ltd v UCB(1982) HCB 64, it was held that the
banker-customer relationship is contractual in nature.

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. This relationship gives rise to a
number of duties and obligations as seen hereunder.

 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 it can be seen that:
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.
1. Debtor-creditor relationship

In Foley v Hill(1848) 2 HLC 28, the question was whether the relationship
between a banker and a customer was that of a creditor and a debtor or
whether it was that of a principal and agent, the House of Lords in relation to
the fundamental nature of a bank account. Lord Cottenham L.C held that
banker does not hold the sums in a bank account on trust for its
customer. Instead the relationship between them is that of debtor and
creditor.

Therefore, upon the customer depositing money on the account he holds with
the bank, he/she becomes a creditor and the banker becomes a debtor.
The banker is liable to pay the customer his money upon demand of the
payment. The banker accepts the deposits with an obligation to honor
his customers’ cheques. The creditor must demand payment at the proper
time, place and in the proper manner with reasonable care.

It is further a 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. In Foley v. Hill it was
stated that money paid into a bank ceases to be the money of the
principal but of the banker 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 debtor where the customer
borrows money through loans and overdrafts. That relationship hence can
change.

2. Agency relationship

The bank acts as an agent for the customer in performing the following
functions: payment and collection of subscription, dividends, salaries,
pensions etc. A banker makes payments and receive money on behalf of their
customer in the following ways: payment of insurance premium.

In Indechemist ltd v National Bank of Nigeria ltd (1976) 1 ALR

comm 143, court held that one of the principal function of the banker
is to receive instruments including cheques from its customers in order
to collect proceeds hence the existence of a principal (customer) –
agent(banker) relationship.

3. Trusteeship and beneficiary.

This is not an appropriate relationship for a banker and customer, this
is because a trustee is usually restricted in the use of funds, however,
we have to note that this does not exclude the possibility of a banker acting as
a trustee for its customers in some aspects. Furthermore, in ordinary
depositing collecting transaction, there is no fiduciary relationship and debtor
creditor relationship is applied. However, there are four circumstances where a
fiduciary relationship might arise between a banker and customer;

1. When it’s giving advice in a position of conflict of interest.

2. When it’s receiving or transferring the customer money.

3. When the bank is holding confidential information of its customers.

4. Where the money is mistakenly paid or credited.

In Woods vs. martins’ bank ltd (1959) 1 QB 55 court held that there was a
fiduciary relationship as the manager had chosen to give the advice and he
was advising the claimant in a position where there was conflict of duty and
interest.

Ways in which the bank –customer relationship can be terminated

In Mobil (u) ltd v U.C.B, it was noted that the relationship between a banker and
customer is contractual. It’s an implied contract whose terms are in much
dependent on the custom of bankers. Because it is a contract the banker
customer relationship can as well be discharged or terminated thereby
determining the relationship.

The banker-customer relationship can be determined on ways applicable to

ordinary contracts. There are four methods of discharging contractual
obligations in an ordinary contract; these include performance, agreement,
impossibility or frustration and breach. However as per the banker-customer
relationship the only applicable and practical methods are agreement and
frustration also known as impossibility.

The banker-customer relationship will be determined by agreement through

mutual agreement where the both the banker and customer agree to extinguish
the rights and obligations under the he banking contract. This can be
enlightened by the Latin maxim translated as “what has been created by
agreement can be extinguished by agreement”. However, in usual banking
practice, such cases of mutual termination are rare.
ISSUE TWO
Examine the standard terms and conditions (hereon attached), relate
them to your understanding of a banker-customer relationship and
explain the salient features thereof.
Since the banker customer relationship is contractual, paragraph 2.1 of the
terms provides that these terms together with the application made by the
client and as accepted by the bank shall form the contract between the client
and centenary bank. Further under paragraph 17.2, by signing the centenary
bank internet banking services application from(s) the customer undertakes to
abide by the terms and conditions.
Confidentiality paragraph 4.3 is to the effect the customer will maintain an
effective and reliable access controls to ensure confidential information is kept
in a secure manner
Paragraph 4.4 of the terms provide that any notice shall be sufficiently served
on the officers of the bank who shall be communicated to the customer in
writing from time to time.
Paragraph 13.1 of the terms provides that the customer or bank may
terminate this agreement at any time on written notice to the other party.
Therefore the bank shall not cease to do business with the customer except
with notice.
The bank undertakes to honor the customer’s mandate. Paragraph 6.1 the
customer accepts that information on account balances on the banking day of
access is comprised of the balance as at close of business on a banking day
and all cheques due for value on the banking day of access. However the
customer is under an obligation to draw these cheques carefully to avoid fraud
and where cheques don’t comply with the procedures they maybe dishonored.
These mandates are only honored 24 hours a day, seven days a week except
during maintenance periods as provided for under paragraph 6.2. Further
paragraph 1.4 of the terms provides that’s banking day means a period of time
in any one day during which the bank is open for business in Uganda.
The bank undertakes to exercise skill and care by taking all security
precautions of communication between the bank and customer. (Paragraph
16.1 of the terms)

BANKERS LIABILITY

Liability is the state of being legally responsible for something. When we are
looking at liability of the bank, we shall look the paragraphs under terms and
conditions that create liability for the bank.
Paragraph 8(1)c) of the Bank of Uganda consumer protection guidelines
provides that the information is written in plain English and in a font size of
not less than 10 points, so that it is clear and readable.

However, if we are to look at the term and condition, we have at hand the size
of the words is small which makes it unbearable to read thus making it hard
for the customer which creates liability for the bank of unclear information and
in violation of the guidelines.

Technical issues. These can generate loses if their system crash or if there are
bugs in the banks code. A single technical issue can cause a bank to be down
for a day which could cause loss of funds or data due to crash of something.

Under the terms and conditions for cente online banking paragraph 4.0(e) it
provides for the risk of financial loss where the users password is comprised.
This is unfair to the customer who entrusts the bank with their money to be
kept safely. Thus, the bank should be held liable.

Cyber hacking.

Cyber criminals simply need to ascertain certain personal information to break

into a person s account and steal their money. It can be done anonymously.

Under paragraph 4and 16of the terms and conditions provide for security.
Under paragraph 4.2(a) its provides that the bank will provide the customer
with a password to use at the beginning of each online session which will be
verified at the bank data center before access to the internet banking service.
This means that the bank has full control over the system so what happens if
there is a hack and the customer’s money has been stolen. The bank should
be held liable for the losses because they ought to create firewalls which are
not accessible by hackers because this is foreseeable. Further Paragraph 8.0
stipulates limited liability of the bank.

CUSTOMERS LIABILITY

Consumer negligence.

Consumer liability places accountability on the consumers to prevent

negligence in their consumption activities

Under paragraph 16.1 of the terms and conditions it provides that where all
reasonable security precautions have been taken by the bank the nature of
communication is that the bank can only guarantee security between it and
the customer but where there is carelessness loss/theft of login information of
the customer it not covered by the bank.

This implies that in case the customer acts negligent or careless he/she will be
held liable in case of any losses. This is still stipulated under paragraph 9 of
the terms and conditions.

ISSUE 4

What is the legality of the Memorandum of Understanding between Born-

rich Enterprises Ltd and Centenary Bank?

In Olanya Hannington v Acullu Hellen (Civil Appeal) No. 38 of 2016, the trial
court observed that whether a memorandum of understanding is an
enforceable contract depends both on the intent of the parties and on
whether the terms contain the necessary certainty and definiteness to be
enforced. The key is intent. If the parties intend the memorandum of
understanding to reflect their agreement, a contract exists.

There is a common misconception that memorandum of understanding is

always non-binding. This is because they are usually written statements
detailing the preliminary understanding of parties who plan to enter into a
contract or some other agreement preliminary to a contract. Most often a
memorandum of understanding is used in cases where parties do not imply a
legal commitment, in which case it is considered as a document of good will
made before a formal contract is entered into.

It is therefore a question of fact and the party seeking to rely on the

memorandum of understanding has the burden of persuading the court that
such an agreement exists and was in the circumstances binding. The test is
an objective one that is to say that if a reasonable person would consider that
there was an intention so to contract, then the promisor will be bound.

The enforceability and binding nature of the memorandum of understanding

between BEL and Centenary Bank depends upon the contract, nature of
agreement, language and intention of the parties to it. In the same vein, if the
agreement is described as memorandum of understanding but in substance
and from all indications is an enforceable contract, the courts will enforce the
apparent memorandum of understanding as a contract with its attendant legal
consequences.
 A) Salary Loans.

The provision for salary loans at a preferential interest rate for BEL employees
appears to be legal. It is common for employers and banks to have agreements
to provide financial services to employees. The condition that the interest rate
would rise to the market rate if an employee violates the agreement or leaves
the employment of BEL seems enforceable, as long as it is clearly stated in the
MoU and does not violate any current laws or regulations.

B) Personal Identification Records and Tax Identification Numbers.

The Financial Institutions (Anti Money Laundering) Regulations, 2010 which

were developed by the bank of Uganda under the Financial Institutions Act,
2004 and the Anti-Money laundering Regulations, 2015 which were developed
by Ministry of Finance under the Anti Money Laundering Act, 2013. Whilst
both Regulations deal with the same subject matter, the former appears to
allow banks to accept any form of identification for purposes of opening bank
accounts. The latter on the other hand requires that only the National Identity
Card may be accepted. It is important to note that both regulations are in
force.

Therefore, the sharing of personal identification records and Tax Identification

Numbers (TINs) as part of Know Your Customer (KYC) requirements is
generally allowed, especially in banking relationships. However, it is essential
to ensure compliance with data protection and privacy laws. The employees of
BEL should be informed and provide their consent for their personal
information to be shared with the bank.

C) Liability for sharing information

The provision that the bank would not be liable to the employees for sharing
information with the Uganda Revenue Authority (URA) or any government
agency for criminal or tax investigations seems reasonable. Banks often have
legal obligations to share customer information under certain circumstances,
such as when required by law or for regulatory compliance.

D) Change in Employment Status

The requirement for BEL to notify the bank in the event of a change in
employment status of any employee who has outstanding bank loans is a
common practice. This allows the bank to take appropriate action and manage
the loan accordingly. It is generally enforceable, as long as it is clearly stated in
the MoU and complies with applicable laws.

 What are the obligations and rights of the parties involved?

Section 3(a) of the Financial Institutions Act as amended, defines agent

banking to mean the conduct by a person of financial institution business on
behalf of a financial institution as may be approved by the Central Bank
Regulation 4 Financial Institutions (Agent Banking) Regulations 2017
defines a principal to mean a financial institution that contracts an agent to do
any act for him or her to represent him or her in dealing with a third party.
An agent means a person contracted by a financial institution to provide
financial institution. business on behalf of the financial institution.
Regulation 9; Agent banking is governed by the principal agent relationship
Section41 of the Bank of Uganda Act provides for financial institutions as
agents of the central bank and it states that the bank may appoint any
financial institution as its agent for the issue, reissue, exchange and
withdrawal of notes and coins or for any other purpose on terms and
conditions that may be agreed upon by the bank and the institution appointed
agent.
Approval of agent banking.
Regulation 5 of the Regulations, provides that A financial institution shall
not conduct agent banking in Uganda without the prior written approval from
the Central Bank.
Regulation 6 of the Regulations provides that are eligible to undertake the
business of agency banking to include, a sole proprietorship; a partnership; a
company; a cooperative society; a microfinance institution; or an entity
approved by the Central Bank. A financial institution is called upon not to
conduct agent banking with its employees, affiliates or associates. (Regulation
(2)

 OBLIGATIONS OF THE PARTIES.

1. THE BANK (PRINICIPAL) Centenary Bank and MML
Regulation 9(2) of the Financial Institutions (Agent Regulations) Regulations,
2017 The duties of the bank include,
(a) Assign each agent or agent outlet a unique identification number;
(b) Assign each agent or agent outlet to a specific parent branch, regulation
4 defines a parent branch as the branch responsible for the operations of an
agent or agent outlet;
(c) Display a list of agents at the agents’ respective parent branch;
(d) Ensure that the technological infrastructure supporting agent banking
runs effectively;
(e) Put in place adequate and secure technological infrastructure capable of
processing all transactions in real time, regulation 4 defines real time to
mean the electronic processing of instructions instantaneously upon data
entry or receipt of a command;
(f) Ensure that agents have appropriate equipment to carry out agent
banking, including the ability to generate hard copies of transaction
receipts;
(g) Ensure that agents receive appropriate training and are provided with
the necessary manuals and supporting tools and procedures;
(h) Ensure appropriate management and supervision of all agents;
(i) Set limits and monitor compliance within such limits;
(j) Ensure that all agents provide services in accordance with consumer
protection requirements determined by the Central Bank;
(k) Compensate agents for the services rendered as per the contract;
(l) Update the Central Bank periodically on its agent network in accordance
with regulation 19;
(m) Ensure that all agents comply with the requirements of these Regulation

2. Bank Agents (BEL)

1. Bank agents are bound by the agency agreement into between
themselves and the principal.
This agency banking is guided by the Agency agreement that is provided for
under Regulation 10(2) of the Regulations. The various requirements of this
agreement are provided for under Regulation 10(3) of the Regulations that
provides that this agreement shall;
(a) Specify the liability of any acts or omissions of the agent to the extent of the
agent’s express or implied authority, to be born by the financial institution;
(b) set out the services to be provided by the agent;
(c) Set out the activities the agent is prohibited from engaging in;
(d) Provide for the remuneration arrangement;
(e) Set out the anti-money laundering and countering the financing of terrorism
arrangements including a requirement for an agent to report suspicious
transactions to the financial institution;
(f) Provide the responsibilities and liabilities of the agent and the financial
institution;
(g) Require that all information or data the agent collects in relation to agent
banking is property of the financial institution and subject to data protection
requirements;
(h) Provide for the power of the Central Bank to access any information,
systems and premises related to the agent;
(i) set out transaction limits of the agent;
(j) Specify the terms and conditions of termination of the agent agreement;
(k) provide that the Central Bank can direct the termination of the agreement
as it deems
Appropriate;
(l) Set out transitional clause on rights and obligations of the financial
institution- and the agent upon termination or cessation of the agency
agreement;
(m) Specify that employees of the agent shall not be treated as employees of the
financial institution.
Having set out the various rights and obligations under the contract, in case of
a breach of the terms of this contract, then their guarantee rights to parties
and can go ahead to enforce them as against the agent.

Regulation 11(1) an agency agreement shall not prohibit an agent from

conducting agent banking with other financial institutions.

1. > Bank agents are obligated not to perform any prohibited activities
Regulation 15 of the Regulations provides for Prohibited activities, in case
where any of
These prohibited activities are done by Agent they will accord a right to sue the
agent for their activities.
(1) An agent shall not—
(a) Offer financial institution business on its own accord, except where it is the
agent’s principal business as at the time of engagement;
(b) Continue with the agency banking where it has a proven criminal record
involving fraud, dishonesty, integrity or any other financial impropriety;
(c) Provide, render or hold out to be providing or rendering any banking service
which is not specifically permitted in the agency agreement;
(d) Operate or carry out a transaction when the system is down or when there
is any communication failure in the system, or in the customer’s absence;
(e) Carry out a transaction when a system generated receipt or
acknowledgement of the transaction cannot be generated;
(0 charge fees directly to customers;
(g) Undertake cheque deposits or encashment of cheques;
(h) Distribute cheque books;
(i) distribute debit cards, credit cards or PIN mailers;
(j) Conduct foreign exchange transactions;
(k) Subcontract other persons to provide agency banking services; provide
agency banking services at a location other than the physical address of the
agent;
(m) Open accounts, grant loans or advances or carry out any appraisal
function for purposes of opening an account or granting of a loan or any other
facility except as may be permitted by any other written law to which the agent
is subject; or
(n) Be a guarantor to the financial institution’s clients.

2. > Agents have an obligation to protect its consumers

Regulation 17(1) provides that a financial institution granted approval to
conduct agent banking under these Regulation shall put in place adequate
policies and procedures to address financial consumer protection; and ensure
that all its agents conduct business in accordance with consumer protection
requirements applicable to the financial institution.

CUSTOMER OBLIGATIONS. Katono Rashid

The customer has an obligation to disclose forgeries against the bank in
relation to his account. In relation to the facts, On the 8th day of July 2022,
the Managing Director received a complaint from Katono Rashid a customer
who allegedly deposited UGX 4,000,000/- (Shillings Ten Million) with BEL but
never reflected on his account.
A customer has an obligation to keep the financial services provider
informed of any change in his or her postal address, physical address, e-mail
address or telephone number. This is provided for under Regulation 7(1) of
the Financial Consumer Protection Guidelines, 2011
RIGHTS OF THE BANK (PRINCIPAL)

1. Right to assess the Agent.

Regulation 11(3) of the Financial Institutions (Agent Banking) Regulations,

2017. A financial institution shall assess the capacity of an agent to manage
transactions for different financial institutions under sub regulation (2)(b) in
terms of space; technology; and adequacy of funds or float of the agent.

2. Right to supervise agent.

Regulation 18(1) of The Financial Institutions (Agent Banking) Regulations,

2017 provides for Supervision. A financial institution shall ensure that all its
agents comply with these Regulations and other relevant regulatory provisions.

3. Right to property in Data and information received by agent

Regulation 10(3) (g) of The Financial Institutions (Agent Banking) Regulations,

2017.Agency agreement shall require that all information or data the agent
collects in relation to agent banking is property of the financial institution and
subject to data protection requirements; Section 147 Contracts Act Accounts of
an agent. An agent shall render proper accounts to a principal on demand

4. Right to repudiate transaction.

Section 149 of Contracts Act Right of principal to repudiate when agent deals
without consent of principal

5. Right to approve agent in case of change of location of place of

business, closure of business, business hours

Section 116 (3b) of Financial institutions Act 2004(as amended) For the
avoidance of doubt, the approval of change of location of place of business of
an agent, closure of place of business of an agent or change of business hours
of an agent shall be determined by the financial institution retaining the
services of the agent.
6. Right to terminate the agency.
Section 135 of contracts act 2010.provides for termination of agency in given
circumstances.
RIGHTS OF AGENTS

1. Right to be assigned unique identification number.

Regulation 9(2)(a) of The Financial Institutions (Agent Banking)
Regulations, 2017.A financial institution shall assign each agent or agent
outlet a unique identification number.
2. Right to technological support
Regulation 9(2)(d) A financial institution shall ensure that the technological
infrastructure supporting agent banking runs effectively.
3. Right to enjoy non-exclusivity & Right to deal with other financial
institutions.
Article 40(2) of the constitution provides for every person has right to
practice his or her profession and to carry on any lawful occupation, trade or
business.
4. Right to Remuneration
Regulation 10(3)(d) of The Financial Institutions (Agent Banking) Regulations,
2017.agency agreement to specify and provide for the remuneration
arrangement between Agent and financial institution

5. Right to be indemnity.
Section 156(1) Contracts Act 2010 provides for Indemnity of agent that a
principal shall indemnify an agent against the consequences of all lawful acts
done by the agent in exercise of the authority conferred upon that agent

RIGHTS OF A CUSTOMER
1. Right to enjoy consumer protection
Regulation 17 (1) of The Financial Institutions (Agent Banking) Regulations,
2017 provides Consumer protection that a financial institution granted
approval to conduct agent banking under these Regulation shall— (a) put in
place adequate policies and procedures to address financial consumer
protection.

2. Right to have complaints heard.

Regulations 17(2)(d) of The Financial Institutions (Agent Banking)
Regulations, 2017 complaints are handled by the financial institution in an
appropriate and effective manner, such that— (i) information about procedures
for handling complaints is easily available at an agent’s location or its outlet;
(ii) every agent is trained on receiving complaints and handling their resolution
or escalation; (iii) a dedicated toll free telephone line for complaint resolution is
provided; and (iv) all records are kept for each complaint lodged

3. Right to receive notice in case of termination of agency

Regulation 12(3.) Where an agency agreement is terminated, the financial
institution shall cause a notice of the termination to be published within the
locality of the premises where the agent was operating or in any other way or
manner as to inform the general public of the cessation of the agency
agreement.

 ADVISE THE BANK ON ITS LIABILITY IF ANY, TO;

i) BEL

LIABILITY OF THE BANK TO BEL, THE AGENT.

The financial Institutions (Agent Banking) Regulations are provided for in

the Financial Institutions Act which was amended in 2016 to provide for
agent banking.
The relationship between and Centenary bank is a principal agent relationship.
An agent is defined in Section 118 of the contracts act 2010 as a person
employed by a principal to do actions for that principal or to represent in
dealings with a third party.
Generally, a principal is liable for the actions of an agent unless;

1. There is no authority from principal

2. Entered the contract personally
3. The agent is undisclosed or partially disclosed.

A principal is thereby liable for tortious acts done by the agent in the course of

his/her employment as per the doctrine of “respondent superior”.

This principle was laid down by David Sejjaka v Rebecca Musoke Civil

appeal 12 of 1985) where it was discussed that the acts of an agent are taken
to be the acts of the principal thus a principal is to be held liable where the
agent does actions in line with his everyday employment.
This principle is reiterated in Regulation 9 (1) Financial Institutions (Agent
Banking) Regulations that the Bank shall be liable for actions of the agent so
long as the agent does acts pursuant to the acts of the bank.

Generally, from the above principle, the Bank thereby becomes liable to

indemnify the liability of an agent on a condition that it arose out of the usual
or everyday course of employment.
Regulation 9 (2)(m) of the Financial Institutions (Agent Banking)
Regulations further states that it’s the obligation of the bank to ensure that all
agents provide services in accordance with consumer protection
requirements determined by the central bank and are also under a duty to
supervise its agents to ensure compliance with consumer protection.
Therefore, if a principal fails to supervise his agents and a customer suffers
due to his negligence, the bank will its self will still be liable. The
agent will have to indemnify the bank for the losses suffered.
In conclusion, Centenary Bank is vicariously liable for the acts of the agent
thus has to pay back the money to the customer however they also reserve a
right to recover from the agent.

ii) Mr. Clever Mutoni

It appears from the facts that Katono Rashid  holds an account in the Bank

and it is also not contested by the bank that he  is a customer. In the case
of Woods V Martin’s Bank [1959] 1 QB 55 it was held that a person may
become a customer by entering into relations or negotiations with the bank
which are considered part of the contract concluded by opening an account.
The banker customer relationship is regarded as a contractual one, this was
the position of court in the case of Joachimson V Swissbank Corporation
(1921) 3 KB 110.Being a contractual relationship, it gives rise to certain rights
and liabilities;
The bank has a duty to act only on the instructions of the customer or by court
order.
According to the facts, Mr. Opok acting on a hunch decided to check the
personal bank account of Mr. Clever Mutoni. He established that Mr. Clever
Mutoni had deposited a sum of UGX 3,500, 000 on his personal bank account
and this was within minutes of the transaction involving Katoni Rashid and
BEL. Mr. Opok placed a hold and blocked the bank account of Clever Mutoni
and also placed a hold on the account of BEL until the matter is resolved.

In Arim v Stanbic Bank (U) Ltd (Civil Appeal 101 of 2013) noted that there
must be a court order before a customer’s account is frozen. Since the bank
acted contrary to this, they breached their duty to the customer and are liable
to the customer for breach of contract.

Pursuant to Section 165 of the Contracts Act, 2010, it provides for the joint
liability of agent and principal to a third party and stipulates that where an
agent is personally liable, a person dealing with the agent may hold the agent
or principal or both of them liable.
Where the third party suffers any loss or injury caused by the wrongful act or
omission that violates the rights of another by the agent while acting on behalf
of the principal, the agent is personally liable to the third party.

 What remedies are available to katono Rashid in the circumstances

 Refund of the transaction from the bank to which an agent is

attached, therefor katono can go to centenary bank kajjansi branch to
seek a refund of 3,500,000
 Suspension of the agent.

Regulation 20 of the Financial Institutions ( agent banking )

regulations 2017 provides that an agent can be suspended for acting
contrary to the agency agreement. Section 82 (2) (b) of the Financial
Institutions Act provides for removal or suspension of any person from
the management of the affairs of the financial institution

 Have the agent examined. Regulation 18 of the Financial

Institutions (agent banking) regulations 2017, notify the central bank
to examine the agent
 File a suit for recovery of his money under Order 36 of the CPRS

PART C (ii) (1)

 TYPES OF NEGOTIABLE INSTRUMENTS.

A negotiable instrument is a document that has rights attached to it and can

be and can be transferred from one person to another, simply by delivering of
the document, and some cases it may require endorsement. The different types
of negotiable instruments;

1. Bills of exchange e.g. Cheques

Is a customer’s mandate to his banker to pay. According to section 72(1) of

the Bill of Exchange Act defines a cheque as a bill of exchange drawn on a
banker payable on demand. And section 2(1) of the Bill of Exchange Act
defines a bill of exchange as an unconditional order in writing, addressed by
one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay and demand or a fixed or to or the order of a
specified person or to bearer.
Therefore, the definition is possible if certain requirements of section 2 are
combined with section 72(2). So it is unconditional order in writing drawn by
one person upon another who is a banker to pay on demand a sum certain in
money to or to the order of a specified person or to bearer.

The characteristics cheques.

i. There are 3 parties to a cheque. A drawer (draws the cheque), drawee

bank /paying bank (banker on whom the cheque is drawn) and the
payee (supposed to receive the cheque). Under section 6(1) of the Bill of
Exchange Act provides that where a bill is not payable to bearer, the
payee must be named or otherwise indicated with reasonable certainty.
ii. The order must be unconditional.
iii. A cheque must be addressed by one person to another, being the
banker as drawee. Section 3 of the Financial Institutions Act defines a
bank to mean any company licensed to carry on financial institution
business as its principal business and includes all branches and offices
of that company in Uganda. Therefore, drafts drawn by one person to
another are not cheques or bills of exchange.
Section 4(2) of the Bill of Exchange Act provides in part that where in a
bill the drawer or drawee are the same person, the holder may treat the
instrument as a bill exchange or promissory note.

iv. A cheque must be payable on demand.

Although cheques are negotiable instruments, a crossed cheque with the words
not ‘negotiable’ ceases to be a negotiable instrument.

2. Promissory notes

Section 82(1) of the Bill of Exchange Act is to the effect that a promissory note
is an unconditional promise in writing mad by one person to another signed by
the maker, engaging to pay, on demand or at fixed or determinable future time,
a sum certain in money, to, or to the order, a specified person or to bearer.

In Lombard Banking v Vithaldas Gordlands [1906] EA 345, that

documents were worded; ‘at one hundred and twenty days after day 1 to pay
M/S Ghusal Revji & Sons Ltd K’la the sum of shs. 5,000/= for value received as
per invoice No. 45’. It was argued that because the usual words, ‘I promise to
pay’ were not used in these documents were not promissory notes. The court
held that no particular for of words is essential to validate the note provided
the requirement of section 82 of the Bills of Exchange Act are fulfilled.
 3. Treasury bills

Are a short term (1 year or less) debt instruments issued by Government (BOU)
regularly to the investing public and with maturities of 3 months, 6 months,
and 12 months. When the bill matures, the holder can receive the amount on
it. It is negotiable and can be endorsed and transferred.

Steps to participate in Treasury bill auctions.

a) Complete the Bid Application form

b) Deliver the bid to your bank before the scheduled auction
c) Pay for the bid. If the bid is successful, your bank account is
automatically debited by your bank with the cost of investment.
d) BOU issues advices and statements from the CSD to acknowledge
investors ‘Treasury bills holdings on the CSD.

4. Bearer Bonds

Are unregistered bonds issued by the Government, the bondholder is entitled

to get a coupon and principal payment thereon. The issuer does not keep a
record of the original bond owner. Whoever has physical possession is treated
as the legal owner.

5. Money orders

Is a substitute for cheques, used for making payment on demand. In the order,
the amount is specified. To process the money order, the payer has to pay a
financial institution beforehand and a small processing fee. In return the
financial institution issues the money order. It is the best mode of transfer for
those without bank accounts.

Part c (2) > Cheque Limits.

The circular from the deputy governor, BOU to the CEOs of commercial banks
(14/07/21) in line with Rule4.3 Uganda clearing house rules &procedures
provides for the revision of the cheque value limits for the currencies currently
handled by the clearing house as follows;

(1) Ug shs 10,000,000as the new value limit /previously being Ugshs
20,000,000

(2) USD2,750 as the new value limit, previously at USD5,500

(3) EUR2,250 as the new value limit, previously at EUR4,500

(4) GBP2,200 as the new value limit, previously at GBP 4,400

(5) KES300,000 as the new value limit, previously at KES600,000

The new cheque limit thresholds took effect on 17 th January 2022 as per the
circular to CEOs of commercial banks from Bank of Uganda.

3. Assuming the estates officer of Born-rich enterprises Limited accessed

the document marked B from the managing director’s desk. He appended
the second mandatory signature on the document. He also completed the
document and filled in the details Kaka Hardware Limited for cement
supplied to his site in Kawuku. He wrote the amount on the document as
UGX 5,900,000/= (Uganda Shillings Five Million Nine Hundred Thousand)
The document was honoured.

ISSUES

1. What is the potential liability of DFC(U) to Born-rich enterprises Limited?

2. What recourse does DFC(U) have against Kaka Hardware Limited
3. What recourse does DFC(U) have against the Estates Officer of Born-rich
enterprises?
LAW APPLICABLE

1. Bill of Exchange Act

2. Case law

RESOLUTION

ISSUE 1: What is the potential liability of DFC(U) to Born-rich

EnterprisesLimited?

Under this we shall focus on S.23 of the Bills of Exchange Act which
provides in part that where a signature on a bill is forged or placed thereon
without the authority of the person whose signature it purports to be; the
forged or unauthorized signature is wholly inoperative and no right to retain
the bill or to give a discharge for it or to enforce payment of it against any party
to it can be acquired through or under that signature, unless the party against
whom it is sought to retain or enforce payment of the bill is precluded from
setting up the forgery or want of authority; but nothing in this section shall
affect the ratification of an unauthorized signature not amounting to a forgery.

Where a bank pays and debits its customers in reliance on a signature being
its customer’s, which is found not to be so, it cannot charge its customer with
the payment as per the court in the case of Barclay’s Bank PLC v Quin-acre
Ltd & Another (1992) 4 AllE.R 331. This therefore means that a banker who
pays out on a customer’s cheque which has been forged must credit the
customer’s account with the amount paid if the forgeries are not due to the
customer’s negligence as was noted in the case of Silayo v CRDB Ltd [2002] 1
EA 288

A person in possession of a cheque on which the drawers or endorser's

signature has been forged or placed there on without authority has no title and
therefore no right to retain cheque or discharge the cheque. In Kepitingalla
Rubber Estates Ltd V National Bank of India LTD (1909) 2 K.B. 1010, court
held that the bank could not charge the company with the amounts paid out
on forged cheques and the plaintiffs were under no duty to organize their
business in such a way that forgeries of cheques ought not take place.

The banks are also under a requirement to get reference from the drawer before
paying on a cheque and this was articulated by supreme Court Stanbic Bank
(U) Ltd V Uganda Crocs Ltd SCCA No.4 of 2004 wherein the Supreme Court
stated that legal principles which govern the relationship between a bank and
customer are well settled. The duty of a bank is to act in accordance with the
lawful requests of its customer in normal operation of its customer's account.
Consequently, a banker who had paid a cheque drawn without authority or in
contravention of the customer's orders or negligently, cannot debit the
customer's account with the amount. The banker is under duty of care to its
customer which may require him to question payment.

In the instant facts therefore, DFC(U) bank is liable to its customer Born-rich
enterprises Ltd since paid on a forged mandate and acted negligently in
cashing out the money without conducting due diligence as to the authenticity
of the document.

ISSUE 2: What recourse does DFC(U)Ltd have against Kaka Hardware

Limited?

DFC(U) Ltd can sue Kaka Hardware Ltd and seek an equitable remedy to
prevent the unjust enrichment of Kaka Hardware Ltd.
 The principle of action on money had and received was expounded in the case
of Dr. James Kashugyera Tumwine and Anor v Sr. Willie Magara and Anor
(HCT-00-CC-CS-0576 OF 2004) [2005] UGCOMMC 35 (27 June 2005);
where court explained that in the action for money had and received, liability is
based on unjust benefit or enrichment; i.e. the action is applicable whenever
the Defendant has received money which, in justice and equity, belongs to the
Plaintiff under circumstances which render the receipt of it by the Defendant a
receipt to the use of the Plaintiff.

Therefore, DFC(U) has the recourse of suing Kaka Hardware Ltd on the basis of
the unjust enrichment of Kaka Hardware Ltd.

ISSUE 3: What recourse does DFC(U)Ltd have against the Estates Officer of
Born-rich enterprises Ltd?

The bank’s recourse is to sue the estates officer individually for forgery to
recover the sum paid out to him for Section 23 of the Bill of Exchange Act
provides that a forged or unauthorized signature is wholly inoperative and no
right to retain the bill or give discharge therefore or to enforce payment thereof
to a party thereto can be acquired through or under that signature. It thus
follows from this that if a prior essential signature was forged or unauthorized
no one can thereafter become a holder.

The banker therefore is entitled to a right to sue the party who perpetuated the
forgery and, in this case, therefore DFC(U) can sue the estates officer of the
Born-rich enterprises Ltd company

On the other hand, DFC(U) can sue the estates officer of Born-rich Enterprises
Ltd for fraud. Fraud was defined by the supreme Court of Uganda in Fredrick
J.K Zaabwe V Orient Bank & Others SCCA 04/2006, as an intentional
perversion of truth with the purpose of inducing another in reliance upon it to
part with some valuable thing belonging to him or to surrender a legal right. A
false representation of matter of fact, whether by words or by conduct, by false
or misleading allegations, by concealment of that which deceives and is
intended to deceive another so that he shall another so that he shall act upon
it to his legal injury.

In the instant facts, the act of the estates officer of Born-rich enterprise Ltd
appending the second signature yet he wasn’t a signatory to the account and
filling in the cheque was fraudulent. His actions misled DFC(U) and led to the
bank’s injury since they honored the cheque which therefore gives a right to
DFC(U) Ltd to sue the officer for both forgery and fraud.
PART D

Brief facts

KAKA Hardware Limited presented the Cheque to Centenary bank which

allowed to immediately withdraw the Sum of UGX 5,900,000. Two days later,
Centenary bank called KAKA Hardware Ltd and advised them to refund the
money immediately because Born-rich Trading Co.Ltd managing director called
the bank and reported that the Cheque was lost and asked the bank not to
honor it if presented. Within an hour he followed this up with written
instructions not to pay. Centenary bank insists that UGX 5,900,000 should be
paid by KAKA hardware with an interest of 15% per annum. When KAKA
refused to refund, Centenary bank wrote to it threatening to recall the loan
facility which KAKA has been running for 5 years and also to foreclose the
mortgage on KAKA hardware’s property.

Issues

Whether centenary Bank can legally demand for a refund of UGX 5,900,000
withdrawn by KAKA Hardware?

Whether centenary bank can legally demand for an interest of 15% p.a from
KAKA hardware?

Whether centenary bank can legally recall the loan facility and foreclose the
mortgage?

Laws applicable

1. Bills of Exchange Act Cap 68

2. The Bank of Uganda Consumer Protection Guidelines, 2011.
3. The Uganda Clearing House Rules & Procedures, 2018
4. The Contracts Act No. 7 of 2010
5. Case law.

Resolution

Whether centenary Bank can legally demand for a refund of UGX

5,900,000 withdrawn by KAKA Hardware?

The relationship between centenary Bank and Kaka is a customer- banker

relationship therefore it is contractual in nature.

However, under this arrangement, the bank was acting as a collecting bank for
Kaka which is permissible under the Uganda Clearing House Rule&
procedures, 2018 but the bank has to carry out the necessary due diligence in
order to be at loss and to be sure that they are not dealing with a forged
mandate.

As per the facts, the bank due to the good working relationship with Kaka
didn’t take the necessary precautions before remitting the money to KAKA thus
they can’t claim for reimbursement from DFCU bank, the paying bank/ drawee
but claim for a refund from KAKA. paying bank/ drawee but claim for a refund
from KAKA.

Section 58(1) of the Contracts Act 2010, provides that, where a person
lawfully does anything for another person or delivers anything to another
person, not intending to do so gratuitously and the other person enjoys the
benefit, the person who enjoys the benefit shall compensate the person who
provides the benefit in respect of or to restore, the thing done or delivered.

Section 60, further provides that, a person to whom money is paid by mistake
or to whom anything is delivered by mistake shall repay or return the money or
thing delivered.

In the case of Obed Tashobya Vs DFCU Bank HCCS 742 of 2004, Justice
Geoffrey Kiryabwire (as he then was); The law on this point is that if a person
pays money to another under a mistake of fact which causes him to make the
payment, he is prima facie entitled to recover it as money paid under a mistake
of fact and the payment will not successful where the payer intends that the
payee shall have the money at all events whether the fact be true or false; or it
deemed in so to intend or the payment is made for good consideration, in
particular if the money is paid to discharge, and does discharge, a debt owed to
the payee; or the payee has changed his position in good faith, or is deemed in
law to have done so.

The bank has a cause of action called Money had and received against Kaka
Hardware Ltd.

In order for money paid by mistake to be recoverable, the following conditions

must apply;

i) Payment to the payee must not be made under mandate from the
customer
ii) The mistake must be one of fact not law
iii) The established principle of law of liability of money had and
received is based on the principle of unjust enrichment.
In the case of Bank of Uganda vs Clive Musisi & Others HCCS No. 152 of
2007, money which is paid by one person to another rightfully belongs to the
person who paid where there is failure of consideration. Liability is based on
unjust enrichment or benefit and its applicable whenever the defendant has
received money which in justice belongs to the plaintiff.

Therefore, the bank can legally demand for a refund of the money.

Issue 2: Whether Centenary Bank Ltd can legally demand for a 15%
interest per annum from Kaka Hardware Ltd.

Interest refers to an amount or commission that is paid to a lender for a loan of

money or an extension of credit. The interest is added to the balance due and
calculated periodically. Usually monthly or annually.

Grace Tumwine – Mukubwa, in his Essays in African Banking Law and

Practice (1998) at P. 126, states that

“The position seems to be that simple interest can be charged by banks as a

matter of course. But compound interest is only chargeable when the customer
has expressly or impliedly agreed to it or when a trade usage or charging
compound interest has been proved or is so notorious that courts take judicial
notice of it”.

In Obed Tashobya v DFCU Bank (HCT-00-CC-CS-742-2004) The claim of

interest failed because the defendant failed to show that the plaintiff expressly
or impliedly consented to the charging of the interest.

Therefore, the bank can’t levy the interest unless it was consented to by the
customer.

Issue 3: Whether Centenary Bank Ltd can legally recall the loan facility to
KAKA and foreclose the mortgage?

A mortgage is an agreement between a mortgagor and mortgagee to put the

mortgagor’s property as security for a loan. A mortgage is a contract on its own
and it is therefore governed by the Mortgage Act and Contracts Act. Therefore,
any rights and duties that arise must be in strict compliance with the mortgage
deed.

Recall of a loan is only permissible where there has been default in payment. In
relation to the instant facts, Centenary Bank advanced a loan to kaka
hardware limited and kaka never defaulted in payment, therefore centenary
bank can't threaten to recall the loan facility agreement.
Sections 19 and 20 of the Mortgage Act provide for the instances when a
mortgagee has to exercise his remedies and the remedies available. where
section 19 clearly states that the only circumstance is where the mortgagor
has failed to pay the mortgage loan the notice is given and section 20 also
gives the instance that upon failure to pay the loan, the mortgagee can affect
remedies such as foreclosure.

Keen attention should be given to the wording which is non-payment of the

loan. Therefore, unless KAKA has defaulted or contravened any of the
conditions in the deed, the bank can’t legally recall the loan facility or foreclose
the mortgage.