BANKING LAW

[BANKING AND FINANCE-

BSFB207]
Blessing Mushohwe
blessmush@gmail.com
0779168617
 Class Rules OF Conduct
• Language-English
• Cell phones-on silent
• Side talking-not good
• Interjecting when another is speaking-not good
• Respect for others’ views-no sarcasm or mockery of
others
• Participating-always
• Questions encouraged but answering is a shared
responsibility between lecturer, students and Google!
• Lecture attendance????!!!!@@@
• Lecture cancellations-through Class Rep
• Consultations-soon after class or if requiring more
time, advise on email so I come
 Course Objectives
The Course aims to equip students with skills and
knowledge:
 To critically examine the rationale for banking and the role of
banks in Zimbabwe with regards to their customers and evaluate the
relationship thereto

 To develop understanding of the context and institutional

framework of local and international banking in relation to the
underpinning current socio-economic and political contexts within
which local banking sector operates

 To understand the critical role of regulation in the sector and the

adequacy of laws, policies and regulatory structures thereto

 To explore the different types of negotiable instruments in use in

 SPECIFIC LEARNING OUTCOMES
By the end of this course, students would have achieved the following outcomes:
 Ability to demonstrate a comprehension of the principles of banking
law and its relationship to banks and their customers;

 Provide an overview of the concepts and principles of banking law and

negotiable instruments in Zimbabwe and appreciate significant trends
and recurring issues thereto;

 Know how to comply with the statutory and administrative

requirements of the Banking Act [Chap 24:20] and its Banking Amendment
Act 2015 in the formation, operation and regulation of banks;

 Engage in critical analysis of the practice of banking law from a range of

perspectives including its regulation, different services provided and
common legal conflicts in the sector and remedies thereto;

 Demonstrate an understanding of the role of the Reserve Bank in

regulating the Zimbabwean financial sector and the tools available to it in
 Course Outline
INTRODUCTION: WHAT IS A BANK?

THE BANKER AND CUSTOMER RELATIONSHIP

SECURITY FOR BANKER’S ADVANCES

NEGOTIABLE INSTRUMENTS

INTERNATIONAL BANKING

REGULATION OF BANKS

ELECTRONIC BANKING

EXCHANGE CONTROL
 ASSESSMENT
Assignment: There will be one assignment which contributes to
15% of your total course mark

Test: There will be one sit-in class test which contributes 15% to
the total course work mark

Exam: At the end of the semester, as usual there will be a 3-
hour exam of about 7 questions, possibly one being compulsory.
Both essay and problem type questions. Contributes 70% to final
mark

For both assignment and test/exams, students will be expected to

display wide research and application of research material in
addition to showing a clear understanding of basic principles
 Introduction to Law: What Is Law?
Law refers to “the body of rules which a state or community
recognizes as binding on its subjects or members, and which
determines those persons’ rights or duties”

Rules and regulations that govern human conduct or other societal

relations and are enforceable by the state

There are, of course, other rules that govern human conduct such as
moral rules, religious directives and organizational rules

It is the sole factor of enforceability by the state that determines

whether a rule is law or not

Enforceability means law is normally supported by the threat of

sanctions, as interpreted and determined by the court.
 What Is Law?-Theories of Law
In order to understand the nature of law, reference must be made to the two
main theories of law, namely, the natural law theory and the positivist
theory

 The theory of natural law says law cannot be separated from the dictates of
morality, justice or fairness.-a minimum moral context

Any human-made law that contradicts ‘natural law’ is invalid

In other words, a law that is unfair or immoral, in the sense that it is contrary
to natural law, is no law at all

There is, therefore, such a thing as an unjust law, a bad law, an immoral law,
and so on

What law is, is one thing, but its goodness or badness is another

Morality is the bedrock of law but it is not law

 What Is Law?
It is important to note that in most cases the law is only concerned
with the external behavior of members of society

Thoughts are not subject to punishment but become important when

you have now acted on them and intention is to be determined

The word Sanctions simply refers to punishments or penalties for

wrongful conduct. For a crime, one is punished by being sentenced to
a term of imprisonment, fined or even executed, depending on the
nature of the offence.

Sanctions can also be applied in civil matters e.g. non payment of a

debt, non performance of an agreed act in a contract etc.
 What is a legal system?

A legal system is the sum total of the law of a given society

Includes the way(s):

it is made,
how it is enforced, and
the institutions involved in its making and enforcement.

For Zimbabwe, do we have a legal system?

Parliament for law making
Police for law and order
Judiciary for adjudication
Prisons for enforcement of sanctions
ETC
The purpose & function of law

The traditional approach to the role and function of

law is that it has two main purposes, namely:

(i) To do justice, and

(ii) To preserve peace and order.

These are further divided into the following:

 The purpose & function of law
To do justice
 Law must serve the ends of justice, and this function is accepted by all legal systems.
The ‘problem’ with justice is that it is difficult to define. Moreover, what is just for
one person may not be just for another
 But all human beings do have a sense of what is right and just.

To preserve peace & order

 This is sometimes and mostly regarded as the foremost purpose of law. Man must
live in society if he is to achieve his full development. Society, however, cannot exist
without law, for without rules of conduct there cannot be order, and without order
there cannot be peace and progress. Human are not all perfect!

To enforce morality
 The dominant view is that law has a legitimate purpose to enforce morality.
Differences arise as to the extent of the use of law in this regard, it being clear that
not every moral rule needs to be enforced by law.
 It is generally agreed though that law must only enforce morality to prevent harm to
others, but where an immoral act harms no one but oneself, the law must not be
involved (prostitution).
Some characteristics of a good law

• Equality: Everyone must be equal before the law despite his/her

status in society

• Certainty: The rules must be clear and unambiguous, must be

declared and known to the public

• Uniformity: Law must be applied uniformly without distinction to

people of different classes in society. This overlaps with the
principles of equality and certainty

• Authority: Laws must have an authority that enforces them.

Nationally it is the state while locally it may be the local authority.

• Just application: Law must be capable of being applied in a just way

to everyone, irrespective of their circumstances
 The Court Structure in Zimbabwe
The Constitutional Court: The last and highest court in the land. It deals with
constitutional matters either on appeal or at first instance.

The Supreme Court: This is a superior court of appeal which deals with appeal
cases from lower courts, ie the High Court and also some constitutional
matters.

The High Court: This is both a court of appeal and a court of first instance and
hears all matters of a higher jurisdiction.

Administrative Court: established to deal with government administrative

matters such as determination of water rights, liquor licenses, rent board
issues etc.

Magistrate Court: These are lower courts of first instance for the majority of
cases.

Local Courts: refers to community courts presided by Headman and Chiefs and
 Overview of Banking
The origins of modern banking activities can be traced
back to the 13th-14th century arguably in Italy and spread
through Europe with a number of innovations being made
to the banking business.

Oldest formal bank argued to have been formed in 1472 in

Italy

The evolution of banking gave rise to the need for a law

regularising and regulating the banking system or rather
the activities that were being undertaken as banking.
 Brief Overview of Banking
Banking law thus provides a regulatory framework for
the separation of those registered financial institutions
that qualify under law to be deemed banks.

It is a law that also defines the rights and duties of a

banker and the customer.

The law of banking in Zimbabwe developed primarily

from English Mercantile law.
 Definition of a Bank
The Banking Act is not very useful 0n the definition of a
bank

The definition of banking business in the same section

2 however provides a much clearer picture of a bank

It defines banking business as:

“the business of accepting deposits of money, withdrawable
or payable on demand or after a fixed period and after
notice and the employment of those deposits in whole or in
part, by lending or any other means of the account and at the
risk of the person accepting the deposit”.
 Definition of a Bank
This definition is drawn from the English case of United
Division Trust v Kirkwood [1966] 1 ALL ER 969 which gave the
following summarised essentials of a bank:

 They accept money deposits from their customers and places them
to their credit

 They honour cheques or orders drawn on them by their

customers when presented for payment and debit the customer’s
accounts in general

 They operate current accounts in general

 Levy acceptance as a banker

 Definition of a Bank
Section 7 of the Banking Act also sheds more light on the
definition by listing some activities of a bank that
include:

 receiving deposits;
 extending credit, including consumer and mortgage credit;

 buying and selling and issuing of money market instruments

including cheques, bills of exchange;

 buying and selling of foreign currencies;

 exchange and interest rate instruments;

 providing general money transmission services;

 the safekeeping and administration of valuables, including

securities;
 providing services as a portfolio manager or adviser or as a

financial agent or consultant

 ETC
 CORPORATE STATUS/ PERSONALITY OF A BANK

Corporate personality is also known as legal personality

and juristic personality.
A distinctive feature of Private & Public companies.
Corporate personality is different from natural
personality for obvious reasons.
A Co is referred to as an artificial or fictitious person
that only exists in the contemplation of the law. It
cannot have things like social or personal relationships
but rather acts through its officers.
Separate personality of a Co operates as a shield- the
courts will not normally look beyond the facade of the Co
to the shareholders who comprise it.
Corporate Status/Personality... Cont...

With corporate personality, a Co is capable of excising

rights and incurring obligations as does a natural
person.

Legal personality makes a Co an entity which is different

and separate from its members. This principle was
enunciated in the celebrated English case of Salomon v
Salomon & Co Ltd (1897) AC 22 (a boot and shoe
manufacturer).
Corporate Status/Personality... Cont...
 In order for a co to pass as a legal person, all the requirements of
formation and registration of a Co must be met as provided for by
the regulatory Act-the Co Act in Zimbabwe. In other words, the Co
must be properly incorporated.

 The fact that one person is in full control of the Co does not by itself
deprive it of its legal personality; it remains separate from the
person who controls it.

 A Co is therefore equal at law to a natural person-S9. Its assets are

distinct from those of its members. Creditors cannot claim
personal assets of the members for debts incurred by the Co.

 Section 9 says “A company shall have the capacity and powers of a

natural person of full capacity in so far as a body corporate is
capable of exercising such powers”
 Meaning of Separateness
 Co estate is assessed separately from the estates of the
individual members. Its debts are not the members’ debts.
Profits of the co belong to the co and not members until a
dividend is
declared where the members can claim the dividend.
 Assets of the Co are exclusively owned by it-no member can
claim ownership of such, save for in liquidation.
Membership does not qualify you to act on behalf of the Co, only
appointed officers in terms of the Articles of Association are allowed
to represent the Co.
 The fact that one member holds all the shares of the Co and
is controlling it does not make the Co the agent of the
member.
 Perpetual succession-the existence of the Co does not depend on
the existence of its members. It continues even if a member dies or
retires etc.
 Role of bank in the economy
Banks are the centres of economic growth and monetary
policy implementation

The availability of credit and a conducive payment system

are an
indispensable feature of any economy

Thus the principal function of banks is the collection of surplus

money or cash and the advancement of that money to those
with immediate need

This is termed financial intermediation

The intermediary function of banks illustrates their

 Role of bank in the economy
 The deposits obtained from firms and individuals are channelled to other
individuals and firms in the form of loans and these are used for
entrepreneurship and income generation hence contributing to economic
development

 The interest earned by these banks from the loans are used for a variety of
purposes including paying interest on depositors’ funds as well as investments

 Money collected from depositors is extremely important. A decrease in

deposits adversely affects the economy by reducing the money available to
banks for onward lending and whichever little money will be available will be
loaned out at extremely high interest rates

 Banks also act as agents in the transfer and management of funds.

 They also provide international services of foreign currency payment, credit

facilities, estate management, financing mortgage bonds etc.
 Sources of Banking Law-The Constitution

• In Zimbabwe there a number of sources of law that are

recognized.

• According to section 2 of the Constitution of Zimbabwe

(2013), the Constitution is the supreme law of the country
and any law, practice, custom or conduct inconsistent with
it is invalid to the extent of the inconsistency.
 Sources of Law-Legislation
Legislation is also referred to as statutory law and covers those
rules of law made directly by the legislature.

Each state has an organ responsible for law-making, and this is

what is referred to as the legislature.

Legislative authority in Zimbabwe lies in the President and the

Parliament.

There is a hierarchy within the legislative source of law: the

Constitution is supreme and is followed by ordinary Acts of
Parliament, then others.

Mainly the Banking Act (Chap 24:20) as amended

 Common law

There are various definitions of common law but as a source of law

under Zimbabwean law, the common law is made up of two
components namely:

(i) A collection of rules and principles made by judges of a superior

court in previous cases by applying what may be termed
fundamental principles of justice and fairness. Other judges in lower
courts when later faced with similar facts, are supposed to apply the
same principles as pronounced in the previous case. This is called
judicial precedent, which is mainly done for certainty, predictability
and uniformity in the law.

(ii) Rules and principles contained in that portion of the body of law
called ‘Roman Dutch law’ that is not reflected in any previous court
decision.
 Custom

 Refers to rules that have been used in a certain community over a long period of
time such that they have gained the status of law in that community.

 They are not necessarily written down.

 In other words, the community becomes accustomed to regulating its relationship in

a particular way, with many of its members regarding that particular way of doing
things as legally binding.

 In Zimbabwe, four requirements must be satisfied if a custom has to be recognized as

such:
The custom must be reasonable
The custom must have existed for a long time
The custom must generally be recognized and observed the community
The content of the customary rule must be clear and certain.
 Authoritative Texts

• These are also valuable for giving interpretations and

meaning to certain statutes and common law which
may not be clear.

• Though these have no inherent authority of their own,

they may be regarded as very persuasive sources of law
where neither legislation nor case law is in point, or
where they are explaining a legal point which is not
clearly covered in legislation or case law.
Types of Zimbabwean Banking
Institutions
See Section 6 of the Act

Merchant Banks: Financing foreign international transactions,

investment advise etc NMB, MBCA

Building Societies: Mainly building-related financing-mortgages

etc-CABS, FBC etc

Commercial Banks: operate current accounts-general deposit

and withdrawal by big and small customers-CBZ, Stan Chart,
Stanbic etc

Difference however fast becoming diluted-Overlapping allowed

 Types of bank accounts
Current Account: This is the most common account
offered by banks for general everyday transactions using a
cheque book, Debit cards, Credit cards etc
This is a transactional account where a customer can
withdraw cash from his account on demand

Deposit/Savings Account: This account is meant to

encourage saving and as such withdrawals are usually not
on demand but on notice. The credit balance accrues
attractive interest

Loan Account: These are usually created for large

amounts of money being advanced to a customer as a loan
and high interest is charged.
 Types of bank accounts
Trust Account: These are created under general law
and/or some specific statutes

The account holder does not have a beneficial interest in

the account eg trust accounts from the Legal Practitioners
Act

The banker should monitor transactions on this

account strictly so that he is not liable when funds are
misappropriated.
 Types of bank accounts
Joint Accounts: Not a type of account but a form which
may be taken by Current and Deposit Accounts

This is where two or more people hold the same account

and its operation is regulated by the agreement between the
account holders and the bank.

There is a separate implied agreement with each account

holder that no payment is to be made without his
signature.

See Cafl in v Gyprus Corp 1983 KB 759

 Regulation of Banks
Regulation of banks is a necessity in order to foster an
environment of bank safety and soundness for the benefit
mainly of customers and other stakeholders that banks deal
with.

Bank regulation thus involves putting in place procedures

that measure and manages risks properly, and ensuring
that banks have adequate capital to cater for the business
they run and the risks involved

These include human error, misjudgements or

economic instability.

Such capital requirements also ensure that banks have

adequate liquidity for their cash needs on a daily basis.
 Regulation of Banks…
The chief consideration of banking regulation is:

…risks that banks have which require strict monitoring

…to instil banking confidence in the public
…by guaranteeing safety of their deposits especially from
bank collapse.

In Zimbabwe, registration and supervision

(regulation) of banks is done by the Reserve Bank of
Zimbabwe as provided by the Reserve Bank of
Zimbabwe Act (Ch 22:15), the Banking Act (Ch 24:20) as
amended and the Exchange Control Act, all under the
Ministry of Finance.
The role of the RBZ (www.rbz.co.zw)
The RBZ Act (Ch 22:15), Banking Act [Chapter 24:20] and
various Banking Regulations provides for the role of
the RBZ in the banking sector as registration,
regulation, continuous monitoring and
supervision of banking institutions in Zimbabwe.

As one of its mission statements the RBZ says its role in
bank supervision is to promote and maintain the safety
and soundness of the financial system through proactive
and rigorous regulation and supervision in line with
international best practice.

The RBZ is critically involved especially in the maintenance

of liquidity of banks as provided by the RBZ Act (Ch
The role of the RBZ (www.rbz.co.zw)
It does this through the following:
Requiring each bank to deposit an amount with the
RBZ called a Reserve balance which is measured as a %
of the bank’s liabilities to the public.

Requiring monthly returns to the RBZ on its financial

status as a monitoring role of the RBZ

Requiring banks to hold assets which have a value

equivalent to or above its liabilities to the public plus the
minimum reserve discussed above

Has the power to request any information from the

banks to ensure that they operate in the public
 Regulation of Banks…
There are two main ways of regulating banks in
Zimbabwe namely:

Restriction
on persons who may carry on
banking business through strict registration
requirements

Ensuring that banks are able to meet their

liabilities through insisting on minimum
liquidity and other minimum conditions.
 Regulation of Banks…
 The Amendment to he Banking Act has expanded these to include
among others, corporate governance through section 28B

1. Restriction on carrying on banking business: The role of the

Registrar of
Banks and the Minister of Finance
 According to the Banking Act s 5, no person may carry on banking business
in Zimbabwe without being registered as such.

 Such a person wishing to operate a company as a bank applies to the

Registrar of Banks (an employee of the RBZ) in compliance with the
provisions of s 8 of the Banking Act as amended.

 The amendment especially requires that such an applicant, directors,

stakeholders etc must be fit and proper persons to be such.

 Such an application can be rejected on the discretion of the Registrar if

it is not in the public interest to approve it.
 Regulation of Banks…
 Where registered, the bank is required by section 8(7) of the
amendment to give notice of such to the DPC for further
supervision to happen. See also section 13 A.

 Section 14 of the Banking Act further gives the Registrar powers to

cancel registration of a bank, subject to consultation with the Min
of Finance through the RBZ governor, on adequate notice for various
stated reasons such as:
 Fraud or mistake in acquiring registration
 Gross and continuous contravention of the Reserve Bank Act and the Banking Act
 Misrepresentation of facilities/services to the public
 Doing banking business outside what was agreed on registration
 Engaging in undesirable methods of doing business
 Falsification of periodic information required by the Registrar.

See also section 15A of the amendment for shareholdings restrictions

to no-more than 25%
 Regulation of Banks…
Imposing minimum conditions for carrying on business
Certain conditions are imposed on banks by the RBZ to ensure that they do not
conduct business to the detriment of depositors and to promote transparency in
the operation of banks. See also section 28D

Minimum liquidity to meet its liabilities when they fall due.

Establishment of a main admin office in Zimbabwe with a CEO and a CAO

The bank required to keep accurate and up-to-date books of accounts which may
be requested for by the Registrar at any time.

Appoint an external Auditor to report on the bank’s accounts and compliance with
the Banking Act

Section 45 of the Banking Act gives the RBZ extensive powers to investigate banks
on any aspects that he needs clarity on, thus allowing for on-going monitoring of
banking activities.
ETC
 Regulation of Banks…
The above broad bank regulation mechanisms are however sometimes
broken down to smaller titles.
1. Prudential Regulation: This refers to regulating banks to ensure that the
risky
decisions they take will protect depositor’s funds.

This includes minimum capital requirements and liquidity ratios etc. It is

meant
to ensure that banks are prudentially run. See also section 4C of Amendment

2.Structural Regulation: this refers to how the banks must be structured

including licencing, security and management. See section 8 & 20 of Amendment

3.Fair-Play Regulation: this is a public policy regulation that requires fairness in

banks dealing with customers who are by nature always on a disadvantage and
can easily be exploited by banks. See section 28D & 28E of Amendment

4.Economic regulation: refers to regulation of the role of banks in the economy,

 Banks failures in Zimbabwe so far...
1. Century Discount 11. Time Bank;
House;
12. Interfin;
2. Rapid Discount House;
13. Allied Bank; and
3. Sagit Finance House;
14. AfrAsia Bank
4. Genesis Investment
15. NDH;
Bank;
16. High Veld;
5. Royal Bank;
17. Intermarket Bank;
6. Trust Bank Corporation;
18. Intermarket
7. ZABG;
Discount House;
8. Capital Bank;
19. Trust Bank,
9. Royal Bank;
20. Barbican Bank
10. UMB;
ETC
 Deposit Protection Fund
The Deposit Protection Fund was established in 2003, in
terms of Section 66 of the Banking Act as read with Section
4 of the Deposit Protection Corporation Act [Chapter 24:29].

 The fund is vested in and administered by the

Deposit Protection Corporation.

Membership to the deposit protection scheme is

compulsory to avoid attracting only the riskier
banking institutions.

The scheme also applies to all depositors, big or small

to create uniformity.
 Deposit Protection Fund…
The fund came as a result of widespread bank failures
in Zimbabwe from the mid 90s into the new millennium

The Deposit Protection Corporation Act thus plays a

public policy role of depositor’s insurance

This is through mandating the Deposit Protection

Corporation to serve the role of reimbursing depositors
in case of bank failures and to enhance financial stability of
banks through a fully-fledged risk minimisation mandate
as a prevention measure.
 Deposit Protection Fund…
 The principal responsibilities of the Deposit Protection Corporation’s are
to:

 Protect depositors: In the event of a bank failure, DPC reimburses

depositors of the failed institution up to the maximum insurable
amount which is now between $1000-$1500.

 This ensures that small depositors have prompt access to part or all
of their funds in the event of bank failure.

 By carrying out this function DPC promotes public confidence in the

Zimbabwean financial system as it protects depositors against the loss
of their deposits.

 This prevents panic withdrawals by assuring depositors on the safety

of their deposits even in the event of failure of a contributory
 Deposit Protection Fund…
Maintain stability and public confidence in
the financial system:

As a bank failure prevention measure, the DPC also has

a mandatory role in identification, assessment and
management of financial risks (prevention).

In this regard, the DPC will be involved in assessing and

monitoring contributory institutions for safety and
soundness via on-site examinations, off-site
surveillance, and special investigations.
 Deposit Protection Fund
To perform this function properly, the Banking Amendment
now requires that the DPC be promptly notified of
registration of a bank by both the registered bank and
the registrar-Section 8(7) and 13A.

The DPC is also now empowered by the Banking

Amendment Act, section 20A(6), to institute proceedings
against breach of Directors’ duties or for negligent and
reckless running of a bank thus further strengthening
supervision of banks.

For more information, go to www.dpcorp.co.zw

The Banker-Customer Relationship
Who constitutes a banker’s customer?

The definition of a banker’s customer is determined by

the relationship that exists between the person and the
bank.

 This relationship is primarily derived from common law.

The basic test to be a banker’s customer is “whether there is

an account of some sort that the person holds with the bank
through which transactions are conducted”.
 The B-C Relationship…
Previously, in English law, there used to be a requirement that the
account should have existed over a certain period of time for one
to be deemed a customer.

This old approach was ended in the case of Taxation Commissioners

v English & Australia Scottish Bank 1920 AC 685 where it was held
that the length of period which a person has held the account with
the bank is not an essential requirement in determining whether or
not a person is a banker’s customer.

It was also stated that ‘the word customer signifies a relationship
in which duration is not of essence’.

One banking transaction with a bank can result in a person

gaining
 The B-C Relationship…
There also exist some special circumstances where
rights and obligations emanating from the banker-
customer relationship can be extended to the period
prior to the opening of the account.

See Woods v Martins’ Bank Ltd 1959 (1) QB 55 where it was

held that the banker-customer relationship existed from the
time the banker accepted instructions from Woods to
collect some money from third parties on his behalf, part of
which was to be retained by the bank as a deposit, thus
opening an account.

At the time of the instructions, Woods had no bank

account with the bank.
 The B-C Relationship…
For the relationship to exist, it has to be proved that it was
inevitable that the account would be opened with the bank

That is, there has to be a reasonable inference that there

was a mutual desire by the two parties to enter into a
banker- customer relationship.

This legal position was also cemented in the case of Warren

Metals Ltd v Colonial Catering Co Ltd 1975 (1) NLR 273 where
it was held that ‘a customer is one with an account with the
bank or who is in such a relationship with the bank such that
the relationship of banker-customer exists even though at this
stage there is no account with the bank’.
 The B-C Relationship…
Furthermore, the dealings between the two will also have
to be distinctly related to banking business otherwise
no banker-customer relationship can be assumed.

Thus in Great Western Railway Co v London & Country

Banking Co Ltd 1901 AC 414, it was held that ‘mere collection
of cheques over an extended period of time was not sufficient
to create a banker-customer relationship without some form
an account or mutual desire to create one’.

See also Martini Co Ltd v Midland Bank Ltd 1968 (1) WLR 956;
Stoney Star Supplies v Midland Bank 1966 (2) WLR.
 B-C Relationship as a Contract
• Contracts are agreements between two parties who have
the intention to create legal rights and duties between them
and which are legally binding upon the parties.

• A legal obligation is a legal relationship between two or

more people which means one party has a duty to give a
certain performance, while the other party has a
corresponding right to receive that performance
• Requirements for a valid contract
• Agreement
• Contractual Capacity
• Certainty
• Possibility
• Formalities
• Legality
• Consequences for invalidity
 Classification of the contract…
The banker-customer relationship is a unique
relationship that is essentially based on a contract, thus
the basic law of contract applies.

This contract is based on the concept of mutum where

an arrangement exist between two people where one
party borrows something from the other for
consumption and is obliged to return the thing of the
same kind, quality and quantity.

This is distinguished from the contract of depositum for

safe keeping and return on demand or contract of
commodatum (a loan for use but to return the exact same
thing).
 Classification of the contract…
In Folley v Hill (1848) 2 HLC 28 it was held that ‘the money
placed in the custody of the banker is for all intents and
purposes, the money of the banker, to do with it as it
pleases. Is guilty of no breach of trust in employing it, he
is not answerable to the principal if he puts it in
jeopardy, if he engages in a hazardous speculation…but he is
of course answerable for the amount because he has
contracted having received the money to repay to the
principal when demanded a sum equivalent to that paid into
his hands.’

See also Joachimson v Swiss Bank Coorp 1921 (3) KB 110; R v

Bester 1961 (2) SA 52 (R); Standard Bank of SA v ABSA
Bank Ltd 1995 (2) SA 740.
 Classification of the contract…
The banker-customer relationship is thus that of debtor
and
creditor.

In most cases it is the banker that is the debtor and the
customer being the creditor since he is mainly
depositing money into the bank.

However in an overdraft situation, the roles are

reversed.

In Standard Bank of SA v Oneanate Insurance Co 1995 (4) SA

510 (C), the mutum nature of the B-C relationship was
Special types of customers-Companies
Companies that fall within the definition of company in
the Companies Act (24:03) are special customers of a
banker.

This is because of their juristic personality even though

they rely on human agents to transact business on their
own behalf.

Of interests to the banker when dealing with Co as

customers are the following:
The capacity of the Co
The parameters of authority given to the Co’s agents
or directors

 The parameters of authority…Cases
See Freeman Lockier v Buckhurst Park Properties 1964 (1)
ALL ER 644.
And also Roodsteel Products Ltd v British Steel Coorp
1986 CH 246.

NB: However, while the banks are protected by the law,

they still normally do due diligence checks on
authority of agents before transacting
Partnerships as Special Customers
Partnerships lack legal personality.

As such, every partner can draw on the partnership

account and has implied authority to bind the partners
unless an agreement was reached as to who is allowed to
transact with the bank on behalf of the partnership.

To avoid problems, the Partnership Deed is designed in

such a way that specifies those that are allowed to deal
with the bank on behalf of the partnership and are
signatories on the partnership account.
Persons with limited capacity as special
Customers
Minors: this refers to those below the age of 18 yrs
according to the legal age of majority.

Such persons require assistance from guardians to

contract validly and the same applies when they want to
open an account.

Exceptions could be emancipated minors

Persons with limited capacity as special
Customers…
 Insolvents: This refers to those persons declared as insolvent by a
court of law and their estate is now being operated by a curator or
trustee.

 This status limits the insolvent’s contracting capacity including banking

transactions relating to the estate.

 Unincorporated bodies: e.g. churches, trade unions, social clubs etc.

 These can open and operate a bank account provided their
constitutions are specific on those persons who are the authorised
signatories of the bank account.

 Similarly, their constitutions must indicate the type of resolution

required and the appropriate body/committee that authorises
borrowing or changes to signatories.
Persons with limited capacity as special
Customers…
Certain professions: some professions such as legal
practitioners or estate agents keep accounts for members
and clients (Trust Accounts).

The banker should be familiar with the laws for

operating such an account by the specific professional
body.
Services provided by bankers to their
customer
Among the many banking activities provided by banks as
listed in Section 7 of the Banking Act, the following
services of banks will be discussed:

1. Granting Safe Custody Facilities

2. Term Loans

3. Overdraft Facilities

 Granting Safe Custody Facilities
 This refers to safekeeping of the customer’s valuables such as
wills, jewellery, etc and is governed by the law of depositum…

 Such a thing is returned in the same state as it was deposited upon

demand.

 This does not form part of the B-C relationship.

 The banker cannot make use of the thing or profit from it and may
not retain the thing as setoff for a debt owed. See Standard Bank of SA
v Union Boating Co Ltd 1964 (4) SA 269.

 In Stalks V Stalks 1979 (3) SA 754, it was held that the banker has a duty to
exercise reasonable care of the goods and if damaged, lost or
destroyed, he will be liable for damages unless if he has a defence that
excludes negligence or intention on his part.
 Term Loans
This refers to various types of loans that customers get
from banks through a contract of loan.

The contract states the amount to be given, the period

of the loan repayment, manner of payment and
interest charged as will be discussed below.

The law of contract generally applies.

 Overdraft Facilities
 An overdraft is a reverse situation of the usual whereby the bank
gives a form of a loan to the customer by allowing one to withdraw more
than his/she has the account.

 The customer thus becomes indebted to the bank for the amount
overdrawn.

 This facility is usually done through an express agreement between

the two ie the bank and the customer.

 In R v Wessels 1953 TPD 315, it was held that the bank’s customer’s
obligation is to meet the customer’s cheques up to the amount of
the overdrafts agreed payable on demand without prejudicing the
customer’s interests.

 See also Trust bank of Africa v Senekal 1977 (2) SA 587.

 Overdraft Facilities…
When an account is overdrawn, the customer becomes the
debtor to the bank and any deposits to his account are a
pro tando payment to the bank

Pro tando meaning for so much that one would be

owing.

In an overdraft or any other loan agreement, there usually is

an
agreement on the rate of interest to be charged.

The maximum rate of interest that may be charged is governed by

the Money Lending and Rates of Interest Act [Chap 14:14] and
that the bank’s rate must be along the same rates customarily
charged in respect of that class of customers.
 Interest-The In Duplume Rule
A crucial doctrine that governs the issue of interest accruing
is the In Duplume Rule.

The rule says that interest must cease to accrue when it

reaches the principal amount, meaning banks have no right
to claim interest beyond the capital amount.

See CBZ v MM Builders & Suppliers HH-140-96. This case

confirmed the In Duplume rule as part of Zimbabwean law.

The following cases are also instructive on the subject:

G&M Refrigeration& Air Conditioning Ltd v CBZ HH-68-97; Rueben
Jasper Gondo v Sayfrets Merchant Bank HH-33-97; Barclays Bank
of Zimbabwe v Arrow Zip Fasteners Pvt Ltd 1999 (2) ZLR 441;
Mavindidze vs Mavindidze HH-43-10
Aspects of the banker-customer
relationship-Duties of the banker
Duties of bankers-Intro
The duties and responsibilities of directors were
previously only governed by common law.

This has now changed with the Banking Amendment Act

2015 which has now inserted section 20A dealing with
responsibilities and conduct of directors

While this translates mainly the common law duties, it is

an attempt by law to plug some gaps in regulating the duties
and conduct of directors, some of which is largely blamed for
the many problems faced by the banking sector in recent
Common Law Duties: Duty of
confidentiality and secrecy
This duty comes in as an implied term of the contract between
the banker and the customer at the commencement of the B-C
relationship.

It is therefore a matter of contract. See Abrahams v Burns 1014

CPD 432.

In a leading case of Tournier v National Provi9ncial and Union Bank

of England 1024 (1) KB 461, it was held that the banker owed his
customer a legal and not merely a moral duty of
confidentiality.

This means that the banker cannot willy-nilly disclose to third

parties
 Duty of confidentiality and secrecy…
Any unlawful disclosure may result in liability of the bank to
the customer for breach of contract. A customer may
additionally sue for defamation of character under delict.

The scope of the duty of secrecy is not very clear but in the
Tournier case it was persuasively held that the duty stretches to
information acquired whether before or after the account was
opened or after it was closed/terminated, whether
obtained directly or indirectly from the customer or other
sources or whether the account is in credit or overdrawn
and possibly even after the customer dies.

The duty arises at the same time as the banker-customer

relationship ie when the account is opened and/or
before sometimes.
Duty of confidentiality and secrecy…
The duty is however not absolute.

It was held in the Tournier case that there are exceptions to this duty
and these are also arguably applicable to Zimbabwe:

A. Disclosure under compulsion by the law

In Zimbabwe, some laws compel banks to disclose certain

customer’s information if so directed by the court eg the Income
Tax Act, CPEA, Criminal Code, Bank Use Promotion and
Suppression of Money Laundering Act, Prevention of Corruption
Act etc.

Such information should be disclosed if the bank is presented with

a court order and not simply to someone conducting
Duty of confidentiality and secrecy…
B. Duty to the public justifying disclosure-public interest
This applies for public interest where there is belief that the customer is
using the account to commit crimes or in times of war where the customer
is trading or dealing with the enemy.

Non-disclosure of such information by the bank may result in the

bank being accused of aiding or abetting the commission of a
crime.

Even though it is not clear from authority as to when exactly the bank
should consider such disclosure to be necessary, it is advisable that banks
do not disclose lightly upon mere suspicion but rather on relatively
concrete evidence otherwise they will unfairly prejudice their customers
and loose confidence from their depositors.

See Hassneh Insurance of Israel v Mew 1993 (2) Lloyds’s Rep 243; Price
Waterhouse v BCCI Holdings SA 1992 (1) BCLR 583; AS v Guardian Newspapers
Duty of confidentiality and secrecy…
C. Disclosure justified in the interests of the bank
This may happen when the bank is entitled to pass on the
information to its banking or non-banking subsidiaries, failure of
which may prejudice the whole group of companies.

It may also happen to credit reference groups, presumably for

public
interest

And lastly, in its own defence eg in litigation against the bank

where the account is the subject matter.

It may be seen however that in certain instances flowing under this
exception, it may be unjust not to seek the customer’s consent first.
Duty of confidentiality and secrecy…
D. Disclosure justified by the customer’s implied consent

This is where the customer agrees to the disclosure by the

bank eg for reference purposes of disclosure to a guarantor
or surety etc of the customer’s liabilities.

This however should only be limited to that which

is necessary.

The customer retains the right to expressly prohibit the

bank from disclosing information even to credit references
and the bank must comply.
The banker’s duty to honour the
customer’s

mandate
As mentioned earlier, the customer is usually the creditor and the banker
the debtor.

 The customer is entitled to repayment of his money on demand through

drawing a cheque (now in its various forms) to the banker.

 The cheque is thus not merely a negotiable instrument but also a mandate
from the customer to the bank.

 The appending of a signature to the cheque indicates the customer’s

mandate/instruction to the banker and the banker is duty bound to
honour the cheque as demanded as an implied term of the contract

 The bank should honour instructions that it undertook to honour at the

commencement of the banker-customer relationship as well as those
mandates that it subsequently agreed to honour after the commencement
of the relationship.
Duty to honour the customer’s mandate
There are however conditions or requirements that must
be met before the duty is discharged. These are:

1. The cheque must be valid & must be regularly drawn

2.There must be sufficient and available funds to

the customer's credit

3. The cheque must be drawn during normal

banking hours
1. The cheque must be valid & must be
regularly drawn
This means the cheque must not be ambiguous; it must not
raise suspicion and confusion as to what the banker is
really called upon to do.

It must be an order in writing, addressed by the customer to the

bank and signed by the customer giving a particular
isntruction.

See the BoE Act (s 72). See also London Joint Stock Exchange v
MacMillan 1918 AC 777; Brooks & Co v Blackburn Benefit Society
1884 9 AC 857.
 Valid & regular cheque…
A suspicious signature can result in the bank
refusing to honour the cheque.

According to the BoE Act s 23, a bank cannot debit the

customer on a forged signature or a fraudulently
altered amount as the forgery makes the mandate
inoperative for lack of authority from the customer.

See Knight vs Standard Chartered Bank HB/123/02

The mandate can however only be operative if the

customer subsequently ratifies the forgery, whereupon
he is estopped from relying on the forgery in future.
 Valid & regular cheque…
In practice, the following irregularities may result in a
bank refusing to honour a cheque:
Undated cheque (See Griffiths v Dalton 1940 2 KB 264)
Differences between amount in words and figures
A stale cheque that is dated over 6months ago
Post dated cheque before its due date (Obit Mining &
Trading Ltd v Westminister Bank 1963 1 QB 794)
Cheques signed by a person without capacity
Cheques drawn by an improperly appointed trustee or
trustee who is illegally benefiting from a trust he is not
supposed to benefit from
Cheque signed by a person who has died and the bank
knows

2. Sufficient and available funds to the
customer's credit
It was held in Joachmson v Swiss Bank Corp supra that the bank
may refuse to honour a cheque where funds are insufficient in
the account.

This refers to sufficiency of funds in the account where the

cheque is drawn.

A refusal to pay must be done in a non defamatory way by

endorsing the words “Refer to drawer” or effects not cleared” or
“Signature differs” etc.

Such endorsements were held in Anglo African Factors Ltd v

Cupperssamy 1974 (3) SA 399 to usually mean that the drawer does
not have sufficient funds to meet the demand.
 Sufficient and available funds…
On the other hand, endorsements such as “No account”, “Not
sufficient” or “Insufficient funds” are potentially defamatory to the
customer.

The cheque may however be paid without sufficient funds in the

account if the drawing of the cheque is construed by the bank as an
application for an overdraft. It will be acting within the
customer’s mandate.

Where there are a number of cheques presented and there are

insufficient funds to meet all, the practice is that of 1st come
1st discharged.

Where a customer has several accounts at the same bank and

branch, the accounts may be joined together to determine the
sufficiency of funds to honour the customer’s cheques (consent
3. The cheque must be drawn
during normal banking hours

But this is subject to exceptions such as electronic

banking including internet and mobile banking
 Duty of care
This duty is derived both from contract and from delict.

It refers to the banker exercising reasonable care and

skill in discharging its duties to or on behalf of its customer
so as not to cause loss to the customer.

Negligent misrepresentations, transactions and disclosure of

information may result in the banker being liable for loss
or suffering caused to the customer.
 Statutory Duties of Directors
(Relating to the Banker’s Duties)

While previously, only common law guided the duties of bankers to

their customers, the new Banking Amendment Act 2015 has
now introduced Duties and Responsibilities of Directors

These are strongly linked and therefore complement common

law duties of bankers to their customers

These are provided for in section 20A of the Amendment and are
largely a restatement of the common law duties of directors of
a company

The rationale for the codification is to increase accountability by

directors in light of the widespread bank failures in Zimbabwe.
 Statutory Duties of Directors…
Section 20A borrows also from the new
Corporate Governance Code of Conduct of
Zimbabwe

Section 20A provides for fiduciary duties and the duty of

care and skill to the institution or company

It states that:
(1) Each director and principal officer of a banking
institution or controlling company owes a fiduciary duty
and a duty of care and skill to the institution or company
and, in particular, owes a duty to:
 Section 20A Duties
(a) act bona fide for the benefit of the institution
or company and for the benefit of its depositors and
shareholders; and

 (b) avoid any confl ict between his or her personal

interests and the interests of the institution or company and
its depositors and shareholders; and

(c) possess and maintain the knowledge and skill that may
reasonably be expected of a person holding a similar
appointment and carrying out similar functions as those that
he or she carries out; and …
 Section 20A…
(d) exercise such care in the carrying out of his or her functions
in relation to the institution or company as may reasonably be
expected of a diligent person who holds the same appointment
under similar circumstances, and who possesses both the
knowledge and skill mentioned in paragraph (c) and any
additional knowledge and skill that he or she may have.

Failure to observe these duties, there is sub-section 5 of

section 20A which provides for personal liability in addition
to section 318 of the Companies Act for failure to follow
prudential norms and standards

Section 20B also provides a duty to disclose interests and

assets by directors of banks.
 The Banker’s Rights
Just as the banker has duties towards the customer, the
banker also has rights that he/she is entitled to as a
result of the same banker-customer relationship.

1. The right to charge interest:

As was discussed on interest under overdrafts and term
loans, banks are entitled to charge interest on their
customers

This is on the basis of an express or implied

contract between the bank and customer and as is
dictated by banking practice/tradition.
 The Banker’s Rights…
2. The right of set-off through consolidation of accounts:
This applies to situations where the customer has more
than one account with the same bank.

If the customer owes the bank, usually due to an overdraft or

loan, the banker has a right to combine the accounts and
set off whatever monies he is owed by the customer from
whichever account has credit from the same bank.

The customer should ideally however be duly notified of

this, even though his consent is not necessarily needed.
The right of set off through consolidation
of accounts…
The banker is however prohibited from combining
the customer’s accounts in the following
circumstances:
If the customer’s accounts are held in different capacities eg personal,
as a business account or as a trust. See Union Bank of Australia v Murray-
Aynsley 1898 AC 693, Mkombachoto v CBZ Ltd 2002 (1) ZLR 17 (title deeds).

Where there is an express or implied agreement not to combine

accounts. See Bradford Old Bank v Sutcliffe 1918 2 KB 833.

Where money is paid into the bank for a special purpose eg wages.
See
Barclays Bank Ltd v Quistclose Investments 1970 AC 567.
 The Banker’s Rights…
3. The right to commission:

This is an implied or expressed right emanating from

a general Roman Dutch law legal right to charge a
certain commission to the customer for services
rendered

In this case, keeping his account and for rendering other
bank related services to the customer.
The duties of the banker’s customer
 Since a relationship is two way, the customer also has duties that he/she
owes to the banker.

 Among others, the main duties are:

1. The duty to notify the bank of known forgeries:
 This refers to the customer’s obligation to alert the bank of any forgeries on
his account as soon as he becomes aware of them.

 This is obviously done to enable the bank to act swiftly either in stopping
the payment or in recovery of the money stolen.

 Failure to alert the bank will result in the customer being estopped from
recovery on the basis of the forgery. See s 23 of the BoE Act. See also Watson
Pvt Ltd v Minister of Finance HC/H/32/95, Greenwood v Martins Bank Ltd 1933
AC 51.

 The customer however has no duty to regularly check his account

statements for irregularities. See Kircos v StanChart of SA Ltd 1958 (4) SA 58.
The duties of the banker’s customer
2. The duty to draw cheques in such a way as not
to facilitate fraud:
The customer has an obligation to exercise reasonable
care in operating his account so as not to open
opportunities for fraud on his account or misleading of the
banker with regards to the customer’s instructions.

See London Joint Stock Bank v MacMillan supra and

Willsgrove Farm Enterprises v Barclays Bank of Zimbabwe Ltd
HC/B/751/93.

The customer will be debited of the full amount of the

fraud and will become liable for any losses to the bank if
he fails to exercise such reasonable care.
Termination of the banker-customer
relationship
When an account is terminated, the banker-customer
relationship ceases to exist and the bank’s mandate
to act for the customer is terminated.

The practice is usually that the customer gives

written instructions to the bank to close his
account and terminate the banker-customer
relationship.

The bank on the other hand may also terminate the

relationship by giving the client appropriate and
reasonable notice accompanied by repayment of the
customer’s credit balances. See Joachimson v Swiss Bank
Termination of the banker-customer
relationship
A customer cannot force a bank to continue operating his
account but can sue for inconvenience caused and loss
of business due to closure of account without sufficient
and reasonable notice.

See Rolland v Electrical Engineering Ltd 2003 (1) ZLR 226;

International Trading Pvt Ltd v Nestle Zimbabwe 1993 (1) ZLR
21 (H).

Other situations that terminates the banker-customer

relationship are death of the customer, insolvency,
outbreak of war (suspends only) and liquidation of the
bank.
 Security for banker’s advances
When giving loans to a customer, bankers normally require
some form of security to secure their advances.

This is loosely known as collateral security.

Such security is important in that it enables lenders

especially banks to part with their money and make it
available for the economy on the secured belief that they
will be able to recover it…

Even if misfortune befalls the debtor, thus enabling the

economy to move forward.

Such security is in the form of real or personal security.

 Personal Security
Personal security refers to the use of a 3rd party who
pledges to pay back the debt in the event that the customer
fails to pay.

The most common type of personal security is suretyship.

Suretyship
Suretyship is an accessory contract by which a person (the
surety) undertakes to the creditor of another (the
principal debtor), primarily that the principal debtor who
remains bound will repay the debt to the creditor and
secondarily that if he fails to do so, he the surety will
perform the principal debtor’s obligations to the
 Suretyship…
Suretyship is solely dependant on a default in
payment
by the debtor.

Thus it is important to note the following under the law

of suretyship:

a. A suretyship is an accessory contract, meaning it only

exists where there is a valid principal contract. See
National Industrial Credit Corp (Rhodesia) Ltd v Kluchow
1970 (1) RLR 92, African Life Property Holdings v Score
FodHloldings 1995 (2) SA 230.
 Suretyship…
b.It appears that in Zimbabwean law as in other jurisdiction, a
suretyship contract is not one of utmost good faith
(uberimae fidei).

This means that the bank is under no obligation to

disclose to the surety any adverse information that may
dissuade the surety from agreeing to be a surety to the
creditor. See Century Insurance Co v Grain Marketing Board
1961 RLR 903 (FC), Davies v London & Provincial Marine
Insurance 1878 8 CLD 469, Cooper v National Provincial Bank
Ltd 1945 2 ALLER 641.

c.Capacity to contract on a suretyship is the same as with

any other contract for both natural persons and companies.
 Suretyship…
d. General principles of contract equally apply to
suretyship contracts.

Undue influence may thus invalidate the whole

contract.

In English law, it was decided in the case of Barclays Bank

v O’Brien 1994 1 AC 180 that the undue influence of a
husband on a wife surety for the husband’s debts may entitle
the wife to set aside the suretyship contract with the bank
unless the bank has taken reasonable steps to satisfy
itself that the
wife’s agreement was properly obtained.
 Suretyship…
The bank is obligated to take reasonable steps to
ensure that the wife is not unduly influenced…,

Failure of which the bank will be presumed to have

had constructive notice of the undue influence,
thereby invalidating the suretyship contract.

This rule also covers other emotional and

vulnerable relationships. Royal Bank of Scotland v
Etridge 1997 3 ALLER 628.
 Suretyship…
Reasonable steps include:
Explaining the nature and risks of the transaction to
the wife in the absence of the husband

Advising the wife to take independent legal advise

It is submitted that this English law position on wives

and vulnerable relatives, the O’Brien guidelines are
equally applicable to Zimbabwe

The rule is meant to avoid the social effects of bad

bargain, thus a public policy rule.
 Suretyship…
e. Where the suretyship has been signed as a result of a
fraud on the surety, it was held in Musgrove & Watson
Ltd v Rotta 1978 RLR 129 that such a fraud induced
mistake invalidates the contract ab initio.

f. A suretyship contract can be set aside as being contrary

to public policy.

Public policy demands in general full freedom of contract, the

right of people to freely bind themselves and that contracts
freely entered into should be enforced. See
Karimazondo v Stan Chart Bank Zimbabwe 1995 (1) ZLR 404
(S).
 Suretyship…
g.The surety can raise defences that would have been
available to the principal debtor such as duress,
misrepresentation, mistake etc

h.The surety has special rights against the creditor called

benefits.
These are benefit of excussion, benefit of division
and
benefit of cession of actions.

 Excussion- exhaust all remedies against the creditor

Division- debt be divided among co-sureties
Cession- surety can proceed against the debtor if he pays-all
rights now ceded to the surety
 Suretyship
…
i.The surety who has paid the full amount has a right to claim
contribution from co-sureties of the proportionate share of
the debt.

j.Insolvency of the principal debtor does not absolve the surety.

In fact the bank will still proceed to claim payment from the
surety…that’s the essence of having the surety.

k.Suretyship is terminated by payment of the debt by the

principal debtor or where the creditor’s conduct is taken
to have discharged the surety.
It can also be terminated just like any other contract is
terminated. See ZIFA v Mafuruse 1985 (1) ZLR 244; GMB v
Diamond Insurance Co Ltd HH/4/98
 Real Security
This refers to the creditor obtaining a real right to the
debtor’s or 3rd party’s assets as security for money loaned
or for the debtor’s obligations such that failure to pay, the
bank will recover its money from the proceeds of the
assets.

This is loosely known as Collateral Security.

The personal circumstances of the debtor at the time

of enforcement are irrelevant.

This right certainly gives the best security for loans. There
are different types of real security in Zimbabwe.
 Mortgage
This refers to a bank’s right over immovable property as
security for the performance of a particular obligation, ie
repayment of the loan.

The immovable property is basically land and buildings

attached to it (See also s 2 of the Deeds Registry Act).

This also includes a long lease of land.

The general rule is that only an owner of property or

his authorised agent may validly grant a mortgage over
it.

Ownership in our law is by registration in the Deeds

 Mortgage
There are 3 essential requirements for a mortgage namely:
There must be an existing valid obligation such as repayment of a loan,
judgement or suretyship. The mortgage can be by a 3rd party.

There must be immovable property to which the mortgage attaches.

There must be created a real right to over the property ie an agreement

between the mortgagor and mortgagee to create a mortgage and the
formalities necessary to create a mortgage should be fully complied with.

Some of the formalities are to embody the mortgage contract into a special
document called the mortgage bond as governed by the Deeds Registry Act
and done at the Deeds Registry offices.

Failure to comply with the formalities of the Act will make the bond void thus
incapable of creating a real security.
 Mortgage
 Ownership of the immovable property does not transfer to
the mortgagee on signing the bond.

 Before the debtor is in default or is insolvent, the mortgagee simply

holds on to the property and secures it from being disposed of or from
being devalued by the mortgagor.

 Upon default of payment or insolvency of the mortgagor, the mortgagee

is
entitled to sell the property and recover his loan from the
proceeds.

 This is however done with a court order. See Mapedzamombe v CBZ

SC/150/96, Iscor Housing Utility Co v Chief Registrar of Deeds 1971 (1) SA 613
(T).
 Mortgage and Land Reform
The dynamics of compulsory acquisition of land in Zimbabwe
however must also be considered as affecting mortgaging of
especially farming land.

Amendment number 16 of the Lanchester House Constitution in

2000 made a distinction between land and agricultural land,
with the government refusing to pay for compulsory acquisition
of agricultural land.

The same clause was included in the new Constitution (2013)

where a distinction is made between land and agricultural
land.

Section 71 guarantees property rights but s 72 says there shall

be no compensation for compulsory acquisition of agricultural
 Mortgage and Land Reform
The new farmers have 99 year leases which do not grant
them title to the land. It is a long lease.

The uncertainty and political dynamics of the land reform

thus makes banks reluctant to give loans to new farmers for
fear of losing their money due to lack of security

Where land secured as a mortgage is compulsorily acquired,

the
bank becomes an unsecured creditor but the debt
remains.

There are reports of processes underway of making 99 year

Pledge of movable corporeal property
A pledge refers an agreement where the pledgor places his
movable property such as a car, household property etc as
real security for a debt to the pledgee.

The real security is created not by merely agreeing but by the

actual delivery of the property to the pledgee.

Delivery ensures that the pledgee has preference against

other creditors upon insolvency.

Upon failure to pay, the bank can proceed to sell the

property
and recover its monies from the proceeds thereof.


Pledge of movable corporeal property
Unlike in a mortgage, the pledgee can sell the property
without necessarily obtaining a court order if there is
an agreement to that effect, which is usually the case.

The agreement is commonly known as a parate executie.

An agreement that the pledgee takes over the property

on default of payment known as a pactum commissorium
is void on public policy grounds.

See Mapendukla v Ashington 1919 AD 343; Chimutanda Motor

Spares Ltd v Musare&Anor 1994 (1) ZLR 310; Changa v
Standard Finance 1990 (2) ZLR 12.
Pledge of movable corporeal property
 If the pledgor still wishes to continue using the property, he can
enter into a pledge by execution of a notarial bond where there is
no delivery of the property.

 Upon default or insolvency, the bond holder has no right to sell the
property but only becomes a preferred creditor among other creditors
on the pledgor’s assets.

 According to s 108 of the Insolvency Act the pledgee’s preference is

over the bonded assets and not over the whole residue.

 Because of the uncertain land reform programme, pledges have become

attractive forms of security

 See Mukwa Milling Co v Stanbic Bank Zim SC/55/97; Artmore NO v

Tobacco Sales Warehouse Ltd 1997 (3) SA 215
 Negotiable Instruments-Definition
The Bills of Exchange Act [Ch 14:02] is the principal law
on negotiable instruments.

It however unfortunately does not define the term

negotiable instrument.

The term is however defined at common law as a document

which expresses title to a certain amount of money.

It is a physical embodiment of a payment obligation and

its possession with any necessary endorsements is
evidence of entitlement to the money it represents.

A negotiable instrument can thus function as a

substitute for
Types of negotiable instruments
The Bills of Exchange Act recognises 3 types of negotiable
instruments namely:

1. Bill of Exchange: According to s 3 of the Act, it is an

unconditional order in writing from 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 of money to or to the order of a specified
person or to bearer.

There are 3 parties to a BoE ie the drawer, the drawee and the
payee.

Mainly used in international trade and some local trade

transactions.
 Promissory notes
Promissory notes: according to s 89 of the Act, it is an
unconditional promise in writing made by a person to
another, signed by the maker, engaging to pay on
demand or at a fixed or determinable future time a
sum certain in money to order of a specified person or
bearer.

With a promissory note there are two parties ie the maker

and the payee.
 Cheques
Cheques: these are the most common type of
negotiable instruments in present day commercial
transactions.

A cheque is a special type of a Bill of Exchange drawn on

a banker only and payable on demand or on a future
determinable date. See s 72 of the Act and Barclays Bank v
Bank of England 1985 1 ALLER 385.

A cheque represents the existence of an underlying

relationship of indebtedness between two parties, ie the
banker and his customer.
 Cheques...
 A cheque book is given to normally a current account
holding customer primarily to facilitate withdrawals,
deposits & payments by the customer called the
drawer who issues a mandate to the bank to debit or
credit his account by signing the cheque.

The banker is the drawee who has an obligation to

discharge the mandate of the drawer provided there is
credit in the account.

The payee is the person to whom payment is intended or

the intended beneficiary noted on the cheque.

Where such payee is not stated, the cheque is payable to

bearer meaning any person who presents it to the bank.
Characteristics of Negotiable
Instruments mentioned above
Unconditional Order

Determinable in amount

Time of payment

Place of payment

Name of Payee

Date & Place of Issue


 Negotiability of cheques...
 A cheque payable to bearer is negotiated by signing & delivery to another person
ie the transfer of possession from one person to another.

 Where the cheque is payable to a specific person mentioned on the cheque, then it
is an order instrument which is negotiated by the endorsement of the holder and
delivery to the specified person. See s 30 of the Act.

 An endorser, by merely endorsing, impliedly promises to pay the amount of

the instrument if the drawer or maker defaults on the payment.

 There are 3 types of Endorsements

1. Blank Endorsement ie if the payee just signs at the back without giving
additional instructions regarding who to pay. This creates a cheque payable to
bearer.

2. Special Endorsement is a way of forwarding the cheque to another person

by signing at the back of the cheque with the instruction to pay another
person.

3. Restrictive Endorsement ie if the cheque is endorsed “pay John only”

 Crossings on cheques-s79-88
 Negotiability alone may however necessitate fraud on cheques. This can
be necessitated by the mere fact that a bank does not have the
signature of the intended beneficiary.

 As such, a signature can be forged and a cheque is endorsed

to someone else in a fraudulent transaction.

In order to minimize such fraud on cheques, a cheque can be crossed

and certain words added with the effect of restricting negotiability
or transferability of the cheque.

 A crossed cheque is thus payable only to the banker, ie into the bank
account of the beneficiary. Meaning you are not paid over the counter
upon presenting it. You have to fill in a deposit slip and the cheque
will be processed and then paid into your account with the bank.

 The idea is to allow banks to exercise a certain amount of due

diligence checks for security.
 Exchange control regulation
This refers to the regulation of the buying and selling and
import and export of foreign currency as regulated by the
Exchange Control Act (Ch 22:05).

There are however a number of specific regulations and

proclamations that regulate specific issues at a particular time as
per need.

Exchange control is necessitated by the need to preserve the

amount of foreign currency in the country, at a given time,
more so when we are using foreign currency as legal tender for
Zimbabwe.

Foreign currency facilitates business with other countries,

which with globalization has become an integral part of any
country’s economic development.
ASPECTS OF INTERNATIONAL BANKING
LAW-An

Overview
International markets offer opportunities to traders and corporate and
multinational companies to expand their business across different parts of
the globe.

 The international markets in the financial sector offers a wide range of

opportunities for expansion of trade and financial activities across the
borders of nations.

 “International Banking” can thus be defined as a sub-set of commercial

banking transactions and activity having a cross-border and/or cross
currency element.

 International banking thus comprises a range of transactions that can be

distinguished from purely domestic operations by:
 (a) the currency of denomination of the transaction,
 (b) the residence of the bank customer and
 (c) the location of the booking office.
 An Overview…
Legal issues associated with international banking transactions
arise due to involvement of more than one law/s of
different countries.

Due to various reasons, even in a simple two party loan

agreement a number of different legal systems may be involved.

In such a situation which contains a foreign element,

principles of private international law, or conflict of laws,
come into operation.
 An Overview…
The objects of private international law are:
 To ascertain whether a court has jurisdiction to determine the case
 To identify which system of law the court will apply to determine the
facts of the case.
 To determine whether the court will recognize or enforce a
judgment obtained in a foreign court.

It is of the utmost importance that the legal aspects of any

international banking transactions are made as predictable
as possible.

This question of predictability does not normally pose a significant

problem in purely domestic banking transactions, since the rights
and obligations of the various parties will normally be determined
by the local systems of law under which they contract.
 An
Overview…
However, this will not necessarily be the case in
international banking and it will therefore be crucial to
structure the transaction documentation within a
competent legal framework.

The most effective way in which this can be achieved is

by selecting both:

the system of law which governs the substantive aspects

of the transaction, and

the court which will have jurisdiction to resolve any

dispute that may arise.