ISLAMIC UNIVERSITY IN UGANDA

FACULTY OF LAW
COURSE UNIT LAW OF BANKING 1
ACEDEMIC YEAR: 2022/2023
SEMESTER 1
LECTURER MR. MUGISHA ISMAIL
GROUP 5

NAME REG.No SIGN

UNIT SIX : ACCOUNTS AND DEPOSITS

1. Special customers in the banking business

2. Types of accounts/ deposits
3. Bank statement/ statement of account
4. Over draft and interest of accounts
5. Appropriation of payments
6. Combination of accounts
7. Incidental matters
8. Bankers opinion/ response to inquiries

BANKER AND BANK

The section 1(b) of the Bill of Exchange Act 1 defines “banker” to mean a body of persons whether incorporated or not who carry on the
business of banking. Section 1(a) of the Evidence (Banker’s books) Act 2 provides that “bank” or “banker” means any person carrying on the
business of banking in Uganda. A customer is the person who has an account with the bank whether fixed or savings or one with dealings of
banking nature.3
Special customers of a bank
Special customers are the bank customers that are distinguished from others. It usually comes with the relationship the customers have with the
bank itself, a private or public entity, age, or where one operates a bank account with an account that does not belong to them.
These customers are or be dealt with carefully while operating and opening the accounts. Special customers include minors, trustees, local
government, among others as explained below.

i) Unincorporated Associations

Unincorporated associations are ones which are not legally registered and therefore have no artificial personality. They are mainly bodies such as
clubs, societies and charitable institutions with usually non-commercial object and usually obtained from subscriptions and donations.
When dealing with such associations, the bank must always bear in mind that they are not persons and therefore can not sue or be sued. In
AFRICAN CONTINENT BANK V BALOGUN4, where the plaintiff (bank) sued members of an incorporated trading company to recover
overdraft, the law subject to this was discussed that, where a body contracting is unincorporated the matter ceases to be straight forward. The
body lacks the necessary legal personality and therefore cannot contract as an entity whether by itself or by means of an agent. In absence of
legal personality, clothing the association itself, a principle can in law be constituted by the members of the association, therefore, the
contractual relations of voluntary society do not involve any question of capacity but rest purely on the basis of agency.
Cutts & Co. v. Irish Exhibition in London (1891) 7 TLR 313, a promoter of a company opened an account with an arranged overdraft. Later
the company was incorporated. The promoters proposed to pass the responsibility of the account to the company contending that, throughout the
transactions it was not the intention of the bank to look to them personally for the amount. It was held that the company could not be liable and
the promoters were personally liable for the debts which they incurred in the name of the association.

1
Chapterv68 of the laws of Uganda
2
Chapter 7 of the laws of Uganda
3
www.merriamwebster.com
4
(1969) 1 ALR Comm. 386
Where the bank accepts an incorporated body as a customer, the bank should ask for clear instructions as to who is entitled to operate the
association’s account and should obtain a copy of the constitution.

ii) Executors and Administrators.

Section 2(h) of the succession act5 defines an executor as a person appointed in the last will of the deceased person to execute the terms of the
will. Section 2(a) of the succession act6 defines an administrator to mean a person appointed by a court to administer the estate of the deceased
person when there is no executor.

Section 180 Succession Act, the executor or administrator of the deceased person is a legal representative for all purposes and all the property
of the deceased person vests in him/her as such. A bank account is a property and vests in the executor or administrator as legal representatives
of the deceased. Borrowing by an executor is always his personal responsibility and the estate of the deceased cannot be made liable for it.

iii) Limited Companies

limited companies refers to companies whose owners are legally responsible for its debts only to the extent of the amount of capital they
invested and has legal personality of its own. This means that companies can enter into contracts in their given name and can sue and be sued.
Companies can open and operate an account and have capacity to borrow money on security of their assets. Before opening an account, it’s a
standard practice that the bank obtains the certificate of incorporation, articles and memorandum of association which ought to be followed when
giving out an overdraft.
Section 56 of the companies act7 provides that a company can contract and particularly in regard to negotiable instruments drawn in the names of
the company. The person dealing with a transaction must satify that the proposed transaction is not inconsistent with the memorandum of
association. In Ashbury railway carriage co.v Richie 8, it was noted that a company can lawfully do only acts as it was formed to do as set out in
its memorandum of association objects clause.

5
Chapter 162 of the laws of uganda
6
ibid
7
Act 1 of 2012
8
(1875) LR7HL 653
iv) Children

article 257 of the constitution9 defines a child any person under the age of eighteen years. There is no good legal reason why a child cannot open
and operate a bank account but the questions arise such as, can the account be in the names of the minor, can the bank honor cheques drawn on
the account by a minor, and the bank position in regards to extension of credit to a minor.
Section 21 of the Bills of Exchange Act 10 is to the effect that a person’s capacity to issue negotiable instruments is the same as his capacity to
enter into a simple contract. Section 21(2) of the bills of exchange act 11 provides that where a bill is drawn or endorsed by an infant, minor or
corporation having the drawing, or endorsement entitles the holder to receive payment of the bill and to enforce it against any other party thereto.

A child shouldn’t be given an overdraft. According to Blackburn Building Society v. Cunliffe Brooks & Co. 12 overdrafts are money lent and as
such could not be recovered against a child and any security given by a child for such an overdraft would be void. 13

However a minor is bound by a contract under which he is supplied with goods or services that constitute necessaries like food, clothing and
presumably books required for study. In the same aspect loans granted to enable a minor to acquire necessaries are also binding.

v) Joint Accounts

joint account refers to an account opened in the name of two or more customers. In a joint account the owners, either jointly or severally, act on
behalf of themselves. In the ordinary joint accounts, there is a rebuttable presumption that all those whose names the account stands must
combine in drawing the mandate or authorize one or more of their number to do so. The instructions give rise to a dispute where the bank honors
a cheque bearing the required signature or a cheque on which the mandatory signature is missing. The principle of survivorship as applied to
joint accounts (ownership) can be rebutted and usually depends on the intentions of the parties.

9
1995 constitution of the republic of Uganda
10
Cahpter 68 of the laws of ugande
11
ibid
12
(1882) 22 ch. D 61
13
Nottingham Permanent Benefit Building Society v. Thurstan (1903) A.C. 6
In the case of Marshall v. Crutwell14 the husband was in bad health at time of opening the joint account. When he died, it was held that the
intention was not to make provision for the wife but merely to manage the husband’s affairs conveniently and therefore she had no claim of the
joint account.
Therefore, if either the husband or the wife become mentally disabled it would not be safe for the banker to part with the money to the other
party. This is also true in all other joint accounts. The mental disorder of any party revokes any mandate he or she may have given, if the
disorder is such that he or she does not know or understand what he or she is doing.

vi) Partners

partners refer to two or more people engaged together in the same activity 15. Partners do not have a legal personality separate from that of the
partners and hence in partnership accounts, one partner has a prima-facie right to draw cheques in the firm’s name. He also has implied authority
to bind the firm by the cheques so drawn but he has no mandate to postdate them.

A partner has no implied authority entitling him or her to open an account in his or her own name so as to bind the partnership 16. In absence of an
agreement to the contrary, the death of one partner marks the dissolution of the partnership though the surviving partners have power to bind the
firm and to continue business so far as it is necessary for winding up of its affairs hence the banker in such case is safe dealing with the surviving
partners only to such extent as is clearly for this purpose. The bankruptcy of one partner also dissolves the partnership unless the partnership
deed provides otherwise.
In Re Bourne (1906) 2 Ch 427, the partnership was dissolved by the death of one of the partners. The remaining partners continued to carry on
the firm business in order to wind up the affairs and for this reason, refrained from closing the bank account. As the account was overdrawn and
an increase of the overdraft was required, the surviving partners deposited with the bank some title deeds as security. Court held that the
surviving partner had power to give a good title, to purchase and mortgage. Persons dealing with them were therefore entitled to assume that
they were acting in good faith with them to liquidate the partnership.

vii) Local Governments

14
(1875) LR 20 Eq 328
15
www.merriamwebsteronlinedictionary.com
16
Alliance Bank v. Kearsley (1871) LR 6 C.P 433,
local governments can mean administration of a particular county or district with representatives elected by thise who live in it 17. Section 6 of the
local government Act18 provides that every Local Government Council shall be a body corporate with perpetual succession and a common seal
and may sue and be sued in its corporate name. Article 180 (1) of the constitution19 provide that a local government is based on a council which
is the highest political authority and the executive powers are vested in the executive committee. Article 195 of the constitution grants the local
government power to borrow money.
Local government may borrow money as is provided in the fifth schedule 20 whereas Regulation 20 of the schedule gives local governments
powers to raise loans by way of debenture, issue of bonds or any other method in amount not exceeding 25% of locally generated revenue
provided the local government demonstrates ability to meet its statutory requirements.
The borrowing powers are exercised by the Local Government with approval of the minister responsible for local government if the amount to
be borrowed exceed ten percent of the total amount the Local Government Council is eligible to borrow. It is also dependent whether the Auditor
General has certified the books of accounts of the preceding financial year and his report is qualified.
It is clear that a local Government as a body corporate can open and operate a bank account therefore, what the bank need to ascertain is the
council’s authority to borrow and to create security and also the authority of the persons purporting to act on behalf of the local government.
In Southend-on-Sea Corporation v. Hodgson (Hick ford) Ltd (1962) 1 QB 416, it was held that it is advisable for a bank to satisfy itself that
the application for a loan is made by a duly authorized body of the local authority.

viii) Trustees.
A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. The principle is that a trustee has legal
title in the trust property and the beneficiary of the trust acquires the equitable interest.
The purpose of appointing several trustees is to ensure that the trust property is under their combined control. Delegation of these powers to a
single trustee is not allowed when such a delegation involves exclusive dealing with the property. It follows that signatures of all trustees should
be required on all the cheques unless the modification of this rule is fully authorized by the terms of the trust.
In case of trust account, a banker must recognize the person from whom or whose account, he has received the money in an account as the
proper person to draw on it and it cannot set up the claim of a third person as against the client.

17
Merriamwebsteronlinedictionary.com
18
Cahpter 243 of the laws of uganda
19
supra
20
Section 84 of the local government act
In Ademiluiji v. African Continental Bank Ltd 21, it was held that a person whose money has been accepted by a bank on the footing that the
bank undertakes to honor cheques up to the amount standing to that person’s credit is a customer of the banker and the position is unaffected by
the banker’s belief that the account is held in trust, nor does that make the supposed beneficiary a customer.
The general rule was formulated by Chitty J in Re Tillot (1892) 1 Ch. 86and is that the trustee must give information to his or her cestui que
trust as to the investment of the trust estate. Cestui que trust is entitled to an authority of the trustee to enable him or her make proper application
to the bank, in order that he or she may verify the trustee. The other important rule is that a beneficiary of a trust fund is entitled to an authority
of the trustee to enable him or her to verify from the bank whether statements of the accounts have been filed by the trustee tally with the bank
book entries.
ix) Solicitors’ account
A solicitor is a member of the legal profession qualified to deal with conveyancing, the drawing of wills, and other legal matters. Solicitors’s
accounts describe an account opened by a solicitor in order to deposit clients’ money. Clients’ accounts need to be treated specilly because such
accounts have been subject to legislation which lays down accounting procedures that prcludes the mixing of clients money with the solicitor’s
own funds. Section 40 of the advocates act 22 requires advocates to keep accounts in compliance with the rules entitled the “the advocates
accpunts rules” and “the advocates trust account rules” under the first and second schedule repectively.
Accounts
Account refers to a record of debit and credit entries to cover transactions involving a particular item or a particular person or concern. A bank
account refers to a financial account maintained by a bank or other financial institution in which transactions between the bank and a customer
are recorded23. Bank accounts are of different types which include the following.
Banks have a duty to carry out the instructions given to them by the customers but they are subject to the following limitations.

i) The bank is not obliged to homor a cheque or meet some other demand if the custo,er’s balance is insufficient. The case of Rd Bank
of New South Wales V Laing24 laid down an exception wgere the bank agrees to grant the customer an overdraft and amount of the
cheque doesn’t exceed the prescribed ceiling.
ii) Cheques should be paid only if presented during ordinary business hours
iii) Banks dishonor cheques that have been outstanding for a very long period of time, usually after 6 months from the date of issue.
21
(1969) ALR Comm 10
22
Chapter 267 of the laws of Uganda
23
Ww.merriam-webtser.com
24
(1954) AC 135
Current account
Current account refers to a bank account where you can deposit and withdraw money regularly. It is mainly for business persons, firms,
companies, public enterprises etc. and is never used for the purpose of investments or savings.

These deposits are the most liquid deposits and there are no limits for the number of transactions or the amount of transactions in a day. There is
no interest paid on amount held in the account, bank charges certain service charges on such accounts. Current accounts are bound to pay
cheques and obtain overdraft. An amount is paid to the customers current account be it by mean sof cash, or cheque payable, the sum in question
is forthwith regarded as paid rent by the customer in the bank.25

Savings Accounts

These allow one to deposit money safe with the bank, meant for saving purposes. Any individual either single or jointly can open a savings
account. Most of the salaried persons, pensioners and students use savings account. The advantage of having savings account is banks pay
interest for the savings. The savings account holder is allowed to withdraw money from the account and when required. There are no restrictions
on the number and amount of deposits but withdraws are subjected to certain restrictions. Some banks recommended maintaining a minimum
amount to keep it functioning.

Fixed Deposit Account

This is the type of account where an assured rete of interest is paid for keeping the funds for a particular period. Here a particular sum of money
is deposited in the bank for specific period of time. It’s one time despot and one time take away (withdraw) account. The money deposited in this
account cannot be withdrawn before the expiry of period. However in case of need the depositor can ask for closing the fixed prematurely by
paying a penalty. The penalty varies with banks. A high interest rate is paid on fixed deposits but this may also vary according to the bank.

Recurring Deposit Account

This means a banking service account in which a depositor puts a certain amount of money each month for a set length of time, usually, between
one to five years. (minimum is 6 months and maximum is 10 years)

25
Foley V Hill (1848) 2HLC 28
This is opened by those who want to save certain amount of money regularity for a certain period of time and earn a higher interest rate.
Recurring deposits account has affixed amount which is deposited every month for a specified period and the total amount is repaid with interest
at the end of the particular fixed period.

The interest rate vary for different plans based on the amount one saves and the period of time and also on banks. No withdraws are allowed
from this account however the bank may allow to close the account before the maturity period.

Loan account

This is an account set up as a repayment method for a customer who has been given a bank loan. 26 It is usually refered to as the liability account
and some of the examples include home purchase loans, auto loans, personal loans, student loans, among others. It is an asset of the bank and a
liability of the borrower.

Suspense accounts

This is an account in which items are entered temporaliry before allocation to the final or correct account with the major purpose of temporarily
holding uncategorized transactions.It is used to temporarily store transactions for which there is uncertainty about where they should be
recorded.

It can have a debit or credit balance, depending on which side the trial balance is short. The accounting department clarifies and therefore
transfers or shifts the transaction from the suspense account into the correct, intended or final account. It can be opened and closed when needed
and not needed respectively at any time.

Deposits

Bank deposits are savings product that customers can use to hold an amount of money at a bank for a specific length of time. In return, the bank
or other financial institution will pay the sutomer the relevant amount of interest, based on how much they choose to deposit and for how long. 27
In other words, deposit is the money paid or kept into the bank account, with an aim of saving or in order to earn interests.

26
Collins dictionary
27
www.bankiter.com
The two types of Deposits are demand and time deposits as explained below.

a) Demand Deposits

Section 1(j) of the financial intitutions Act 28 defines demad deposits to mean deposits which are repayable on demand and withdrawable by
Cheque, draft or order or by other means. They are generally referred to as current, mercantile or running accounts. This type of deposits allows
customers to withdraw all or part of their money whenever they need it and without incurring a penalty. (they are the most liquid savings
product after cash) (refer to current account)

b) Time Deposits/ term deposits

Section 1(x) of the financial institutions act 29 defines time deposits as deposits repayable after a fixed period or after notice and includes saving
deposits. A time deposit doesnot mean that one can not withdraw money incase of necessity, rather, a person will incur a penalty for early
termination, as is with breach of contract. (refer to fixed deposit account)

3. Bank statement/ statement of account

A bank statement is an official summary of financial transactions occurring within a given period for each bank account held by a person or
business with a financial institution. Bankers periodically dispatch statements indicating the status of the customer’s account for a required
period of time. There is no duty to the customer to check on the bank statement so as to be able to notify the bank of any items which may not
have been authorized by him or her.

A bank statement can sometimes be inaccurate, as mistakes may occur in favor of the banker or the customer, that is to say, over crediting or
over debiting.

a) Over Crediting

28
Chapter 54 of the laws of Uganda
29
ibid
Over crediting comes about when excess money is attached to a customer’s account. Where the customer honestly believes that the money
belongs to the him or her and alters the position in reliance on the statement, the banker is estopped from recovering the money from the
customer.
In LLOYDS BANK LTD V BROOKS30 it was held that there was aduty on the bbanker not to over credit the customer’s account and there id
duty on the banker not to induce the customer by representation, contained in the statements of account, to draw money from the account to
which the customer is not entitled. The amount credited to the customer’s account will be treated as being due to him, estopple acts where the
customer has acted upon the representation.
b) Over debiting
This occurs as a result of fraud and forgeries.
In the case of TAI HING COTTON MILL LTD V. LIU CHONG HING BANK & ORS 31 a fraudulent account clerk forged signatures on over
300 cheque to the tune of HK$5.5million drawn on the company’s account over a period of five years. The Privy Council held that the banks
which had paid on forged cheque were not entitled to debit the company’s accounts. That the duty owed by the customer to the banker in the
operation of the business

Where such mistakes as explained above occur both parties have rights which are;
1) Bank’’s right to rectify32
2) Customer’s right to demand correction33
Appropriation of Payments

This deals with dispatch or distribution of a customer’s money to specific accounts. In the case of Deeley v. Lloyds Bank Ltd34, court noted that
the person paying the money has a primary right to say to what account

30
(1950) 72 JI.B 114
31
(1986)AC.80
32
Holland v Manchester and kiverpool district banking co. (1909) 14 Comm. Cas 241
33
Keptingala Rubber Estate Ltd V National Bank of india Ltd (1909) 2 KB 1010
34
(1912)A.C 756
The general rule is that the person paying money has the primary right to say to what account it is to be appropriated and if the debtor makes no
appropriation, the creditor has the right to appropriate, and if neither exercises the right of appropriation, one may view the matter as one of
account and thus, investigate how the creditor has actually dealt with the payment in order to ascertain how in fact he did appropriate it. 35

In Devaynes v. Noble, Clayton36 court decided that when a current account is kept between parties as in the case of accounts between bankers
and their customers, if there is no express intention to the contrary and no circumstances from which such an intention can be implied, the
account rendered is evidence that the payments in one side are appropriated to the payments out on the other side in the order in which they take
place. That is to say the first item on the debit side is discharged or reduced by the first item on the credit side.

The rule in Clayton’s case applies only where the payment into or out of the account continue to be made, and this is illustrated by the facts in
Clayton’s case itself. Clayton had a current account with a banking firm, a partnership named Devaynes, Dawes, Noble and Co. One of the
partners, William Devaynes, died. The amount then due to Clayton was 1,717 pounds. The surviving partners thereafter paid out to Mr. Clayton
more than that amount while Clayton himself, on his part, made further deposits with the firm. The banking firm subsequently went bankrupt.
Between the death of the partner’s death and the date of the failure of the banking firm the customer withdrew sums in excess of the credit
balance but he also paid in sums sufficient to put the account more in credit than it had been when the partner died. The customer claimed that
the payments in should be appropriated against the withdrawals so as to leave intact the balance at the time of the partner’s death as a claim
against his estate.

A feature of overdraft account is that the debit balance keeps changing from day to day. These fluctuations occur because of the current nature of
the account and mutual dealings transacted through it. For most purposes it is adequate to determine the net credit or debit balance as standing at
the end of each trading day. In certain cases, though, it is important to consider which of the debit items in the account are to be regarded as
discharged by the incoming credit entries, the problem is relevant in two cases which are, transactions in which the bank seeks to enforce a
security covering a revolving amount and the account of a partnership following the firm’s dissolution.

The principle used by courts to solve problems of this type is known as ‘the rule of appropriation of payments’. It treats each item paid to the
credit of the account as discharging the earliest debit item entered in it. The principle is better described as ‘first incurred first discharged’ as is in

35
www.lexix nexis banking & financial expert
36
(1816)I Mer 527
Claytons case (supra) where court held that the estate of the deceased partner was not liable to Clayton, as the payments made by the surviving
partners to Clayton must be regarded as completely discharging the liability of the firm to Clayton at the time of the particular partner’s death.

That the credit balance being a liability for the continuing fund had been extinguished by the withdrawals since items in the current account
were presumed to be set against each other chronologically. Thus the customer had no claim against the estate of the deceased partner. By
continuing to make payments into the account and withdrawing from the account he lost his claim against the estate of the deceased partner.

Combination or Consolidation of Accounts.

The words combination or consolidation of accounts in banking law have yet to receive a satisfactory judicial definition. But according to
Buckley L.J, in Halesowen Presswork & Assemblies Ltd v. Westminster Bank Ltd 37, it is an accounting situation in which the existence and
amount of one party’s liability to the other can be ascertained by discovering the ultimate balance of their mutual dealing.

Combination or Consolidation of accounts ought to be limited to an accounting situation whereby a banker might treat two or more accounts
opened between its customer and itself as though they were one whole account, entirely under its control by reason of which it might remove
assets from one account to meet deficiencies in other. Using this definition as a guide attempt will be made to answer the question posed earlier
on whether a banker has an automatic right to combine or consolidate its customer’s accounts.

Whether the bank in any particular case will combine or keep the accounts separate will depend on the facts of each case to be proved by calling
the necessary evidence. If there is no express or implied agreement then it has to be proved like any other trade usage or custom.

The need to combine or consolidate usually arises in the following circumstances;

1) Where the customer is unable or unwilling to repay an overdraft incurred in one account although another is in credit.
2) Where customer draws a cheque for an amount exceeding the balance standing to credit of the account involved but the deficiency can be
met out of funds deposited in another account.

37
(1910) 3 W.L.R 625
As to when accounts may be combined, the general principle is well explained in T & H.Greenwood Teate O. Williams vs. Williams Brown
& Co.38 where Wright J noted that a bank had the right to combine a customer’s separate account subject to three exceptions.

a. The right to combine could be abrogated by a special agreement

b. It would be inapplicable where a special item of property was remitted to the bank and appropriated for a given purpose
c. A bank could not combine a customer’s private account with the one known to the bank to be a trust account or to be utilized for
operations conducted by the customer as trustee.

In the case of Obed Tashobya vs. DFCU Bank Ltd HCCS No. 742/2004 the plaintiff operated a local current account with the defendant bank
and deposited a cheque drawn on Citibank Philippines for US$. 150,000 on his local shilling account. Later he opened a dollar account in order
to receive his funds upon advice from the defendant bank which was credited with the amount and made withdrawals. The defendant bank after
informed the plaintiff that the cheque had been dishonored and the need to recover the money and the plaintiff volunteered to deposit money on
the account and deposited Partial amount. The local current account was debited leaving it overdrawn. The defendant bank set off the plaintiff’s
account who was subsequently denied access to his account and his cheques were dishonored. The issue was whether the defendant bank
correctly exercised the right of set off of the plaintiff’s account.

The issue on whether the bank has an automatic right to combine or consolidate customers accounts or wheteher ther is duty imposed on the
bank to keep its customer’s accounts separate is dicussed as follows

a) Banker’s lien

Lien is the right to retain property belonging to a debtor until he or she has discharged debt due to the retainer of the property. The banker has
no lien in respect of a customer’s account 39. A lien attaches instruments deposited with bankers as security and not the customer’s balances. In
the case of HALESOWEN PRESSWORK & ASSEMBLIES LTD V WESTMINSTER BANK LTD 40 (1971) 1 Q.B 1, Buckley L.J noted
that no man or woman can have lien on his or her own property and consequently no lien can arise affecting that money or that credit, therefore,
money or credit which the bank obtained as a resukt of clearing a cheque became the property of the bank not the property of the company.

38
(1895-1895) 11 T.L.R 56
39
Re Morris coneys V Morris (1922) I.I.R
40
(1971) 1 Q.B 1
 b) Setoff

A set off is a legal right according to which a debtor will take into account a debt owing to him by a creditor when he is required to settle the
debt. In Halesowen’s case (supra), lord Cross of Chelsea defined set-off as when there have been mutual dealings between the debtor and
someone who claims to prove as a creditor an account of mutual delaings shall be taken, there by set off of the sums mutually owing and it is
only the balance that the creditor is to pay or prove for as case maybe.

The case of MUTTON V PEAT41 sets an example of set off, where stockbrokers had a loan account and current account with their bank, when
they went bankrupt, their current account was in credit and loan account was in debit it was held that both accounts are to be treated as one so
they could use the securities to satisfy the difference between those two balances.

Incidental matters

These are things occurring in or associated with, the normal, typical, or customary operations of the particular trade or business under
consideration. (way of operation of banks) It is usual practice for bankers and now a requirement of Section 129 of the financial institutions
act42 not to open an account for a customer without obtaining a reference and without inquiry as to the customers standing. It is also an offence
under Section 129(2) of the Act43 which carries a fine for any offending director or officer who does not take a reference.

Failure to do so at the opening of the account might prevent the banker from establishing its defense under Section 81of the Bills of Exchange
Act Cap 68 if a cheque was converted subsequently in the history of the account because in establishing whether the bank acted without
negligence one has to look at all the circumstances antecedent and present. Such antecedents include the issue or not the banker took references
before opening the account.

Section 81 of the bills of exchange act(supra) provides that where a banker in good faith and without negligence receives payment for a
customer of a cheque crossed generally or specially to himself or herself, and the customer has no title or a defective title to it, the banker shall
not incur any liability to the true owner of the cheque by reason only of having received that payment.

41
(1902) 2 Ch. 79
42
supra
43
Financial institutions act
It has been stated by Holden Miles, in the Law and practice of Banking 44 that when an application is made to a bank to open an account in the
names of a private individual, there are certain principal matters for considerations regarding the prospective customer, namely;

a) whether he or she has authorized the opening of the account

b) whether he or she is the person he or she claims to be and
c) whether he or she is employed by someone else and if so, the name of the employer. If a third party claims to have authority to open an
account in another person’s name the banker should be very cautious indeed.

In Robinson vs. Midland Bank ltd45 there was a blackmailing conspiracy against a foreign dignitary who had been discovered in compromising
circumstances with the wife of the plaintiff. The plaintiff was not a party to the conspiracy. The dignitary issued a cheque for 150,000 pounds to
prevent the plaintiff from bringing divorce proceedings, and the conspirators, without the plaintiff’s knowledge, opened an account with the
defendants in the names of the plaintiff. They paid into this account the cheque in question and later drew out the proceeds. The plaintiff’s action
for money had and received failed because inter alia, it was held that the bank was dealing with a fictitious customer notwithstanding the use of
the plaintiff’s name.

A bank which fails to take references and cross check the identity of an intending customer will be negligent and loose the protection afforded to
paying bankers under the Bills of Exchange Act.

Bankers opinion

This is a written report provided by one bank to another regarding creditworthiness of a particular customer. It refers to a written report provided
in confidence by one bank to another regarding the opinion or credit reference. Privacy legislation constrains disclosures without the customer’s
authorization46

44
1996 at pg 392
45
(1924) 41170
46
www.oxfordreference.com
BIBLIOGRAPHY

1. the 1995 constitution of the republic of Uganda

2. www.wikipedia.com
3. www.merriam-webster.com\
4. Bills of exchamge act cap 68
5. Financial institutions act cap
6. Case law
7. The Law and practice of Banking by Holden Miles, 1996