PART A

BRIEF FACTS
Josrich Trading Co. Ltd a duly incorporated company is involved in the business of real estate.
The company wishes to open a current account with Centenary Bank Ltd. The bank availed
several forms with the terms and conditions to the company. (Copies of the same are attached
and marked A).
On the 1st day of July 2022, the company opened the account and with 2 signatories being
Josephine Koinage the Managing Director and Emmanuel P’Okello Dombo the secretary
signing jointly. The company asked its employees to open salary accounts with the bank.
Nabirye Salma opened an account with the bank for that purpose.
ISSUES.
1. What is the nature of the relationship between centenary bank, Josrich Trading Co. Ltd
and the employees?
2. Whether there are any duties arising out of the banker-customer relationships?
3. Examine the standard terms and conditions (hereon attached), relate them to your
understanding of a banker-customer relationship and explain the salient features thereof.
4. What potential liability could arise from the documents?
LAWS APPLICABLE
1. The Constitution of the Republic of Uganda 1995 (as Amended)
2. The Financial Institutions Act, 2004 (as amended)
3. The Bank of Uganda Act, Cap 51.
4. The Financial Institutions (Foreign Exchange Business Amendment) Rules 2013
5. The Anti-Money Laundering Regulations 2013
6. The Companies Act, 2012
7. The Financial Institutions 63/2004.
8. The Financial Institutions (Licensing Regulations) 2005
9. The Financial Institutions (Ownership Control) Regulations, 2005
10. The Financial Institutions (Anti Money-Laundering) Regulations, 2010
11. The Financial Institutions (Revision of Minimum Capital Requirements) Instrument,
2010.
12. The Financial Institutions (Capital Adequacy Requirements) Regulations No.21 of 2018
13. The Financial Institutions (Consolidated Supervision) Regulations, 2010
14. The Financial Institutions (Corporate Governance) Regulations, 2005
15. The Financial Institutions (Credit Reference) Regulations, 2005
16. The Financial Institutions (Insider Lending Limits) Regulations, 2005
17. The Financial Institutions (Liquidity) Regulations, 2005
RESOLUTION
ISSUE ONE:
What is the nature of the relationship between centenary bank, Josrich trading co. ltd and the
employees?
Bank is defined in 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 Dominion 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.
From our facts Centenary Bank is the banker or bank.
WHO IS A CUSTOMER?
The first requirement of establishing bank-customer relationship is that an individual must be
classified as a customer. Not all persons who approach the bank for services will be considered
customers.
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 RELATINSHIP
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
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
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. hence a banker and a money-lender
are the same thing.
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
Whether there are any duties arising out of the banker-customer relationship

Duties Owed by the Customer to his Bank

1. Duty of reasonable care in drawing cheques. In Joachimson v. Swiss Bank Corporation 

Lord Atkins stated that the customerundertakes to exercise reasonable care in executing h
is written orders so as not to mislead the bank or to facilitate forgery.
2. Duty to inform bank on any forgeries customer is aware of otherwise customer bears loss
for the forgery. In 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 wi
fe’s request the husband had refrained from notifying the bank of the frauds. When he thr
eatened 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
was presented to a banker which he rejected as forged, he would be under duty to report t
his to the customer and enable him to inquire into and protect himself against the circums
tances of the forgery. This involves a corresponding duty on the customerto do the same i
f he is aware of his cheques being forged. Hence, in the present case, silence is a breach o
f duty to disclose.
Duties owed by the banker to the customer
1. To honour the customer’s mandate. They are drawn in the proper form, account drawn fo
r credit to has an amount sufficient to pay them, or arrangements have been made for an o
verdraft facility and the agreed overdraft limit will not be exceeded, there is no legal caus
e (service of a garnishee order nisi which makes the credit balance or the agreed overdraft
limit unavailable, they are presented during banking hours or within reasonable time ther
eafter(Baines v. Nation Provincial Bank (1927) 96 KB). the bank is not obliged to honou
r 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). 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.Cheques should
be paid only if presented during ordinary business hours.Cheques that have been outstand
ing for a long period of time may be dishonoured
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 [19
92]4 ALLER 363 it was held that an ireasonable care in executing customer’s orders to p
ay or transfer money is implied. This duty may sometimes interfere with duty to honour c
ustomer’s mandate but a banker who executes an order knowing or suspecting it dishones
tly given but ignoring that or acting recklessly in failing to make inquiries is liable For br
each of duty.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 fiducia
ry. 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 aske
d their bank, National Provincial Bank ti get a report from their clients bank. Stating “wit
hout 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 n
o 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 acti
ons. There were no orders for damages.
3. Duty of secrecy.The banker customer relationship has elements of agency and as a genera
l rule an agent owes a duty of loyalty and confidentiality of his principle. In Tournier v.
National Provincial and Union Bank of England [1924] 1 KB the plaintiff was unable t
o 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 manage
 r then rang the plaintiffs employees to ascertain the plaintiffs private address but in the co
urse of the conversation he disclosed the plaintiffs account being overdrawn. The plaintif
f’s contract was not renewed because of this by the employers.Court of Appeal held the b
ank guilty of a breach of a duty of secrecy and awarded damages against it. .it was elucid
ated, the bank’s duty remains even after the account has been closed. In this case, it was h
ighlighted that the duty of nondisclosure is a legal one arising out of contract.
Exceptions to the duty of secrecy.
a) Where disclosure is under compulsion of law. 
b) Where there is a duty to the public to disclose. Libyan Arab Foreign v Bank Bankers T
rust 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 instructi
ons which the defendant had received from the plaintiff. The court viewed the  th excepti
on as applicable.
c) Where the interest of the bank requires disclosure. In Sunderland v Barclays Bank Ltd
(1938) the bank dishonoured cheques drawn on it by a married woman, because the acco
unt 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 che
ques were drawn in favour of bookmarkers.  The court dismissed the wife’s action for br
each of duty of secrecy as the disclosure was required in the bank’s own interest. The wi
fe 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 informati
on as is sanctioned by the custom.
ISSUE THREE
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 customer bank 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 those terms and conditions.
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 4.3 of the
current/cheque/savings account and fixed deposit terms provides for cheque books through
which a customer can access funds in the bank. However the customer the customer is under an
obligation to draw these cheques carefully to avoid fraud, paragraph 4.6 provides for the
measure to take to avoid fraud. And where cheques don’t comply with these procedures they
maybe dishonored.
Important to note is that 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)
ISSUE FOUR
What potential liability could arise from the documents?
Under paragraph 4.3 (d), a customer is under a duty to notify the bank in instances where the
customer suspects or becomes aware that the security devices have become known or available
to an unauthorized person. This is supposed to be through written notifications or a telephone
call to the bank without any delays, where the customer defaults, the customer will be liable for
any losses or damages that may arise therein.
According to paragraph 8.1 of the terms, the bank (centenary bank) is only liable for any
delays, interruptions, errors or failures in the provision of the services within the reasonable
control of the bank.
According to paragraph 13.1 of the terms, the customer and bank are liable for termination of
the agreement without prior notice to either party. However under paragraph 13.2 the bank is
not liable for termination of the agreement on the death, bankruptcy, or upon any other act of
insolvency of the customer or in the event of the customer having failed security checks in a
manner which the bank deems unacceptable.
Under paragraph 7.0 of the terms, the bank is liable if it does not notify the customer in writing
of any alterations of the terms and conditions. Failure to do so, the terms become ineffective.
PART B

BRIEF FACTS

Assume the company applied and was appointed as banking agent for Centenary Bank Limited
and has since been operating as its agent in Kajjansi area. On the 8th day of July 2022, the
Managing Director received a complaint from Nambafu James a customer who allegedly
deposited UGX 10,000,000/- (Shillings Ten Million) with Josrich Trading Co. Ltd a Bank agent
of centenary Bank to be deposited on his account a/c No. 010735002956176 with Centenary
Bank Entebbe Road Branch. It was discovered that money was not deposited although the
customer was in possession of a deposit slip issued by Mugisha Moses the operator at the
company’s office at Kajjansi.

The Managing Director suspected the money to have been deposited on Mrs. Serah Mugisha the
wife of Mr. Mugisha Moses, he then put a temporary halt onto her account. When Mr. Nambafu
approached the bank, the bank manager Opoka David advised him to resolve the matter with
Josrich Trading Co. Ltd, that on its part, the bank had nothing to do with the transaction.

ISSUES

1. What is the obligation for the bank to the parties above?

2. What remedies are available to James Nambafu?

LAW APPLICABLE

1. The Contracts Act No. 7 of 2010

2. The Financial Institutions Act, 2004

3. The Financial institution (Agent Banking) Regulations S.I. 39 of 2017

4. The Financial Consumer Protection Guidelines, 2011.

ISSUE 1
According to Section 3 (a) of the Financial Institutions Act as amended in 2016, agent
banking means the conduct by a person of financial institution business on behalf of a financial
institution as may be approved by the Central Bank as per Regulation 4 of the Financial
Institutions (Agent Regulations) Regulations, 2017.

Regulation 6 of the Financial Institutions (Agent Regulations) Regulations, 2017 provides

that persons eligible to be agents include, a sole proprietorship; a partnership; a company; (d) a
cooperative society; a microfinance institution; or an entity approved by the Central Bank.

Agent banking is hinged on the Agency Principal relationship. Agency is a fiduciary relationship
created by express or implied contract or by law, in which one party (the agent) may act on
behalf of another party (the principal) and bind that other party by words or actions. This
relationship is legally recognized in Uganda under the Contracts Act, 2010. The Contracts Act,
2010 defines an “Agent” under Section 118 as a person who is employed to do any act for
another person or to represent another party in dealing with the third party whereas the person for
whom such act is represented is called the principal.

Regulation 10 (3) of the Financial Institutions (Agent Regulations) Regulations, 2017

provides that there must be an agency agreement to specify the liability of any acts and
omissions of the agent to the extent of the agent’s express or implied authority to be borne by the
Financial Institution.

Regulation 9 of the Financial Institutions (Agent Regulations) Regulations, 2017 the

Financial Institution has an obligation to ensure appropriate management and supervision of all
agents.

Regulation 17 (1) of The Financial Institutions (Agent Banking) Regulations, 2017 in

providing for consumer protection states that a financial institution has 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.

Regulation 17 (2) of The Financial Institutions (Agent Banking) Regulations, 2017 states
that a financial institution shall ensure that every transaction is effected in real time; has at least
two-factor authentication; and generates a standard, easily identifiable copy system receipt or
acknowledgement with the name of the financial institution, unique identification number of the
agent who processed the transaction and a unique transaction reference number.

Section 157 of the Contracts Act 2010 provides that the principal is not liable for criminal acts
of an agent.

Therefore, Centenary Bank Ltd is not liable as the principal for the actions of actions of Josrich
Trading Co. Ltd since they are criminal acts.

Centenary Bank Ltd is bound by its fiduciary duty to its client Mrs. Serah Mugisha not to put to
halt its services with its customer.

In Konark Investments (U) Ltd V Stanbic Bank Uganda Limited Civil Suit No.116 of 2010;
the applicant brought an action against the defendant bank for declaratory orders that the freezing
of its account was unlawful. Court held that fraud is a matter to be proved to its standards by
court before a bank can freeze an account.

Therefore, by temporary halting of Mrs. Serah Mugisha amounted to breach of bank-customer

relationship.

PART C
BRIEF FACTS
The estates officer of Josrich Trading Co. Limited accessed the document marked B from the
managing director’s desk. He appended the second mandatory signature on the document,
completed the document by filling in the details Kaka Hardware Limited and the amount as
UGX 5,900,000/= (Uganda Shillings Five Million Nine Hundred Thousand) for cement supplied
to his site in Kawuku. The document was honored.
ISSUES
1. What is DFC(U) Ltd.’s potential liability against Josrich Trading Co. Limited?
2. What remedy does DFC (U) Ltd have against Kaka Hardware Limited?
3. What remedy does DFC (U) have against the estates officer of Josrich Trading Co.
Limited?
LAW APPLICABLE
5. Bills of Exchange Act, Cap 68
6. The Companies Act No.1 of 2012
 7. Case Law
RESOLUTION OF ISSUES

ISSUE 1: What is DFC(U) Ltd.’s potential liability against Josrich Trading Co. Limited

Section 19 of the Bills of Exchange Act deals with inchoate or incomplete cheques and it states
that Where a simple signature on a blank stamped paper is delivered by the signer in order that it
may be converted into a bill, it operates as a prima facie authority to fill it up as a complete bill
for any amount the stamp will cover, using the signature for that of the drawer, or the acceptor,
or an endorser; and, in like manner, when a bill is wanting in any material particular, the person
in possession of it has a prima facie authority to fill up the omission in any way he or she thinks
fit.
The section further states that for such instrument when completed may be enforceable against
any person who became a party to it prior to its completion, it must be filled up within a
reasonable time, and strictly in accordance with the authority given.
Section 72(1) of the Bills of Exchange Act defines a cheque as a bill of exchange drawn on a
banker payable on demand. Section 2(1) of the 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 on demand or at a fixed or determinable future time a sum
certain in money to or to the order of a specified person or to bearer. Therefore a complete
mandate on a cheque means that one has to comply with the requirements like it should be
addressed to pay on demand, by one person to another and should be signed by the person giving
it.
The customer has a duty of reasonable care in keeping cheque books and drawing cheques,
a customer must execute his order in a way that neither misleads the bank nor facilitates forgery.
The customer therefore has a duty to inform the bank if he knows that a cheque on his account
has been forged. In the case of London Joint Stock Bank v. Macmillan and Arthur (1982) A.C.
77 where the H.O.L said that a cheque drawn by a customer is in point of law mandate to the
banker to pay the amount according to the tenor of the cheque. It is beyond dispute that a
customer is bound to exercise reasonable care in drawing a cheque and if he or she does so in a
manner which facilitates fraud, he or she will be guilty of breach of duty as between him/herself
and the banker and he will be responsible.

That any endorsement forged on it may be disregard the instrument would be caught by S.23 of
the Bills of Exchange 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.
In the Supreme Court case of Stanbic Bank Uganda Ltd vs. Uganda Crocs Limited SCCA No. 4
of 2004 the Supreme Court stated as follows; ‘Legal principles which govern the relationship
between a bank and a 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 has 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 duty is to obey the mandate with reasonable care which may require the bank to question
payment, verify the validity of the negotiable instruments and notify the customer in instances
where it detects forgeries in regards to the instruments so as not to cause loss to the customer.
Negligence is not only a direct and actionable breach of duty, but may also deprive the banker
statutory protection against his customer (in debt or damages) or a third party (in contravention)
where he pays the wrong person.
The bank therefore has an implied duty to honor its customer’s cheques provided that;- they are
drawn in proper form, the account on which they are drawn for credit to an amount sufficient to
pay them, or arrangements have been made for an overdraft facility and the agreed overdraft
limit will not be exceeded, there is no legal cause (service of a garnishee order nisi which makes
the credit balance or the agreed overdraft limit un available and when they are presented during
banking hours or within a reasonable time thereafter as stated in Baines v National Provincial
Bank (1927) 96 KB 801.
A banker who pays out on a customer’s cheques which have been forged must credit the
customer’s account with the amount paid if the forgeries are not due to the customer’s
negligence.
On the other hand, the bank will not be liable if there is a breach of duty on the side of the
customer. And among the duties are;

➢ Breach of the Duty of reasonable care in drawing cheques

A customer must execute his order in a way that neither misleads the bank nor facilitates forgery.
The customer therefore has a duty to inform the bank if he knows that a cheque on his account
has been forged. In Joachimson v Swiss Bank Corporation (1921) 3 KB 110, Lord Atkin said
that it is a term of the contract between the bank and its customer that the customer undertakes to
exercise reasonable care in executing his or her written orders so as not to mislead the bank or to
facilitate forgery.
This duty has already been recognized in the case of London Joint Stock Bank v Macmillan and
Arthur (1982) A.C. 77 where the H.O.L said that a cheque drawn by a customer is in point of
law mandate to the banker to pay the amount according to the tenor of the cheque. It is beyond
dispute that a customer is bound to exercise reasonable care in drawing a cheque and if he or she
does so in a manner which facilitates fraud, he or she will be guilty of breach of duty as between
him/herself and the banker and he will be responsible for any loss sustained by the banker as a
natural and direct consequence of this breach of duty.
The above principle was applied in the case of Mobil (U) Ltd v Uganda Commercial Bank
(1982) H.C.B. 64. In this case a cheque drawn for Ushs. 10,301 was altered to read Shs. 40,301.
The High Court of Uganda held that a customer and a banker being under a contractual
relationship the customer in drawing a cheque is bound to take reasonable and usual 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 the dishonest
person, forgery is not remote but a very natural consequence of negligence of this description.
The above cases are to the effect that in instances where the fault arises from the side of the
customer and when it’s the customer who is negligent, the banker will be exonerated off the
liability.

➢ Breach of the Duty to inform the bank of any forgeries that that the customer is aware
of.
The customer of a bank therefore has a duty to inform the bank if he knows that a cheque on his
account has been forged; breach of this duty by the customer will exonerate the bank from
liability of paying on a forged mandate.
In Greenwood v Martins Bank Ltd (1932) I KB 371, the plaintiff had an account with the
defendant bank. The wife had over a period of time forged her husband’s signature. On the
wife’s request the husband refrained from notifying the bank of the frauds. When the husband
threatened to notify the bank the wife committed suicide. The husband afterwards brought an
action against the bank for the amount paid by them on forged signatures.
The English Court of Appeal said that there is a continuing duty on either side to act with a
reasonable care to ensure the proper working of the account. That the banker, if a cheque were
presented to it which it rejected as forged, would be under a duty to report this to the customer to
enable him or her to inquire into and protect himself or herself against the circumstances of
forgery. This involves a corresponding duty on the customer, if he or she became aware that
forged cheques were being presented to his or her banker, to inform him or her banker in order
that the banker might avoid loss in future. There was in present case silence, a breach of duty to
disclose. The H.O.L upheld the decision and the banker was exnorated.
Banex Ltd v Cold Trust Bank civil Appeal No 29 of 1995 (SCU) (unreported), Harlsbry’s
Laws of England, 4 th Edition, volume 3 (1) paragraph 175. If the banker pays and debit its
customers in reliance on signature being his customer’s, which is not so, he cannot charge its
customer with the payment, in paying cheques, a banker must not be negligent and cannot charge
its customer with money lost through his negligence.

Therefore, DFC(U) Ltd, is not liable to Josrich Trading Co. Limited for its breach of the duty of
care as it acted negligently by improperly keeping the cheque which the estates manager
accessed and fraudulently delt with, and the company’s failure to notify the bank about the
forgeries and fraudlent dealings exonerates the bank from liability as discussed above.

ISSUE 2 What remedy does DFC (U) LTD have against KAKA HARDWARE LTD?
From the instant facts, the payee is Kaka Hardware Limited which is a company and according
to Section 56 of the Companies Act, it provides for details how a company can contract and
particularly in regard to negotiable instruments. It provides that a bill of exchange or promissory
note shall be deemed to have been made, accepted or endorsed on behalf of a company, if made
accepted or endorsed in the name of or by or on behalf or account of, the company by any person
acting under its authority express or implied.
The banker must make sure that section 117 of the Companies Act is complied with or else it
may find that the company is not liable and recourse may be had to the person who signed the
instrument. The section provides inter alia that every company shall have its name mentioned in
legible roman letters in all business letters of the company and in bills of exchange, promissory
notes, endorsements, cheques and orders for money or goods purporting to be signed by or on
behalf of the company, and in all bills of parcels, invoices, receipts and letter of credit of the
company. Therefore, the bank can sue the company to recover the sum paid out to them.
ISSUE 2. What remedy does the DFC (U) LTD have against the estates officer of Josrich
Trading Co. Limited?

The estates officer was fraudulent in regards to the above facts.

The bank’s recourse is therefore to institute a suit against the estates officer individually for
fraud and recovery of money lost as a result of his fraud. Since the purported drawer is a
company and the fraudster is the estates officer of the company the principle of piercing the
corporate veil may come accrue.
PART C (ii)

BRIEF FACTS

Josrich Trading Co. Ltd signed up for internet banking for its account with DFC(U) Ltd. The
managing director had the pin to initiate a transaction and the transaction had to be approved by
the Company secretary. while the managing director had travelled to Addis Ababa, a fraudster
initiated a transaction and UGX 2,000,000/- was withdrawn from the company’s account using
the internet and deposited as mobile money on Telephone number 0777800016 belonging to a
one Njoroge Moses but the number was switched off and his whereabouts are unknown.

ISSUES

1. Whether Josrich Trading Co. Ltd has any right(s) in the above transaction.

LAW APPLICABLE
1. The Civil Procedure Act, Cap 71 (Section 26)
2. National Payments Systems Act No.15/2020
3. The Bank of Uganda Consumer Protection Guidelines, 2011.
4. National Payments Systems Regulations SI 18 of 2021
 5. Case law
RESOLUTION OF ISSUES

1. Whether Josrich Trading Co. Ltd has any right(s) in the above transaction.

The relationship of a banker/customer is a contractual one as per Grace Patrick Tumwine-

Mukubwa-Essays in African Banking Law and Practice at Page 40, PAGET'S LAW OF
BANKING 11th Edition page 112 and the statement of Atkin LJ in Joachimson vs. Swiss
Bank Corp (1921) 3 KB 110 at 127 that a bank is a trustee receiving funds from its
customer’s account. The cardinal duty of a bank is to honor the instructions of the
customer. If it does not act within the law, then it breaches its duty to its customer.

Fraud: Is premised on the fundamental breach of the duty owed by the banker to
customer. In the case of Makua Nairuba Mabel Vs Crane Bank Ltd Civil suit No.380
of 2009 the court cited the case of Simex International, Inc.v. Court of Appeals No.
88013, 19 March 1990,183 SCRA 360 where it was held that “the bank is under an
obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship “The Bank owes a duty of care, fiduciary
duty to the plaintiff
In the instant case, DFC (U) Ltd bank failed to establish payment system rules as required
under Section 11(1) National Payments Systems Act No.15/2020, hence giving rise to
the following rights below;.

Right to property
Josrich Trading Co. Ltd had a right with DFCU bank however this right was violated by
the fraudulent, unlawful or improper withdrawal of the said sum and DFCU Bank is
liable as it concedes that it was an improper withdrawal, not authorized by the customer.
Dfcu did not participate in the fraud; however, the it owes a duty of care and the duty to
safe guard the client’s deposits.

Right to information
In Barclays Bank Versus Quince care Ltd and Another (1992) for ALL ER page
331 STEYN J pointed out that while deciding on the facts of the case the banker was
under a duty to refrain from executing an order if and for as long as had reasonable
grounds (although not necessarily proof) for believing that the order was an attempt to
further a dishonest function such as misappropriating funds. Section 65(2) (a) supra
provides for the right to the customer and a duty to the bank to be transparent. This is also
emphasized under paragraph 8 Bank of Uganda Consumer Protection Guidelines,
2011, In our case, DFC(U) bank failed to inform its customer about the initiation process
of the transfer of the money hence contravening the above provisions of the law.
A right from unfair trade practice.
Section 65(2) (d) supra-Paragraph 6(1)(a) Bank of Uganda Consumer Protection
Guidelines, 2011, provides a duty to the bank to protect its customer from unfair trade
practice that disenfranchises the customer. In the case of Obed Tashobya V Dfcu Bank
Ltd Hccs No.742 of 2004 justice Geoffrey Kiryabwire as then was adopted the holding of
Lord Warrington in Lloyd Bank Ltd V E. B. Savory & Co. [1933] A.C. 201, as to what
standard ought to be applied in considering whether the bank acted negligently or not.
The learned Lord Justice, at P221 of that case, states that “The standard by which the
absence or otherwise of negligence is to be determined must be ascertained by reference
to the practice of reasonable men carrying on the business of bankers and endeavoring to
do so in such a manner as may be calculated to protect themselves and others against
fraud. In the instant case, it was unfair practice for the bank to release money without
consent from the customer.

Right to account protection

This is provided for under Paragraph 7(4)(b) of the guidelines which provide that the
bank shall protect and secure a customer’s PIN including phone –banking ,internet
banking not to allow anyone else to use his or her PIN or any other information.

Right to file a complaint with Dfcu Bank.

Article 50 of the constitution Provides that any person who claims that a fundamental
right under this constitution has been infringe or threatened, is entitled to apply to a
competent court for redress which may include compensation.
Section 65 (2) of the Act provide for the principle of Dispute Resolution mechanism and
Paragraph 9 of the guild lines provide for complaint handling.
These provisions in general create the above right which in our instant case a formal
complaint can be lodged/filed with DFC(U) Bank and the resolution shall be received
within two weeks upon filing of complaint from our client.

Right to reimbursement

Paragraph 9(4)(c) of the guidelines provide for bank to offer an appropriate redress. In
the instant case, the Bank can refund the two million shillings for avoidance of further
legal action which would attract heavy payments like Court action.

Right to seek for damages in court of law

Josrich Trading Co. Limited has a right to sue for special damages and general damages.
 Isanga Dauda V Stanbic Bank (U) Ltd. HCCS No.270 of 2014. The plaintiff sued the
defendant Bank for special and general damages arising from breach of contract, interest
and costs.
In conclusion, the above rights are available for Josrich Trading Co. Ltd in respect of the
transaction.

PART D

BRIEF FACTS.

Josrich Trading Co. Ltd opened an account with DFC(U) Ltd and was issued with a cheque
book. The estates officer of the company accessed the document marked B from the managing
director’s desk (an inchoate\uncompleted cheque with one of the mandatory signature). He
appended the second mandatory signature on the document. He also completed the document and
filled in the details Kaka Hardware Limited. He wrote the amount on the document as UGX
5,900,000/=. Kaka Hardware Limited presented the document marked B above to its bankers
Centenary Bank. Because they had a good relationship with the bank, they were allowed to
immediately withdraw the sum of UGX 5,900,000. Two days later, the bank called KAKA
HARDWARE LTD and advised them to refund the money immediately because a few hours
after KAKA presented the document, Josrich Trading Co. Ltd Managing Director called
CENTENARY 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. The bank
insists that a refund of the sum should be paid by KAKA with interest at 15% per annum. When
KAKA HARDWARE LTD refused to refund the money, the bank wrote to KAKA , threatening
to recall the loan facility which KAKA has been running for 5 years. The bank is also threatening
to foreclose the mortgage on KAKA HARDWARE LTD’s property.

ISSUES.

1. Whether Centenary Bank Ltd can legally demand for a refund of the money withdrawn by
Kaka Hardware Ltd.
2. Whether Centenary Bank Ltd can legally demand for a 15% interest P.a from Kaka Hardware
Ltd.
3. Whether Centenary Bank Ltd can legally recall the loan facility to KAKA and foreclose the
mortgage.
LAW APPLICABLE.

 Bills of Exchange Act Cap 68

 The Bank of Uganda Consumer Protection Guidelines, 2011.
 The Uganda Clearing House Rules & Procedures, 2018
 The Contracts Act No. 7 of 2010

RESOLUTION.

Issue 1: Whether Centenary Bank Ltd can legally demand for a refund of the money
withdrawn by Kaka Hardware Ltd.

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.

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 Premchandra Shenoi & Shivan MKP vs Maximor Oleg Petrorich SCCA
No.9/2003, where money is received from another in circumstances such as described, the
law regards the money as having been received to the use of that other person. In default, on
the promise for which the money was received, the law imposes on the receiver an obligation
to make payment to the one who paid.

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”.
Therefore, the question on interest which must be dealt with when the bank is entering into a
relationship with a customer and unless the customer agrees to the interest the same can’t be
levied against him\her.
The central bank has also come up guidelines which deal with interest levied by banks.
 Guideline 6(1) (a) of the Bank of Uganda (Financial Consumer Protections) Guidelines
2011 provides that a financial services provider shall act fairly and reasonably in all its
dealings with a consumer.
  G.6(1)(b) a financial services provider shall not engage in unfair, aggressive tendencies,
deceptive practices when dealing with customers.
 G.8(4) interests on deposits and loans arises from contract between consumer and
financial services provider.
In Esso Petroleum v Uganda Commercial Bank Civil Appeal No. 14 of 1992, it was held that
a relationship of a bank and customer is a contractual relationship which places duties to each
party which are both express and implied.
A bank cannot act outside a contract and claim against the customer.

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.

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.