summary on the law on Banking and Negotiable Instruments

DEFINITION OF BANK, BANKER AND CUSTOMER

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repealed)-  A cheque is a bill of exchange drawn on a specified banker and not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

Main Differences with Money Lenders

Enshrined in Money-Lender Act Cap. 273, s. 3  as money lenders not including;
(a)   Any person bonafide carrying on business of banking or insurance, or other not
having  lending as its primary objective, for which he lends money;
(b)   Any society registered under the Co-operative Societies Act and
(c)    Any body corporate incorporated or empowered by a special Act to lend money
in accordance with that Act.
Lord Denning in United Dominions Trust Ltd v. Kirkwood [1966] 2 Q.B
431  READ remarked that defining a bank is very difficult because of the different
functions carried out by specialized Banks. Hence the word bank or banker should
only be looked at as a guide rather than an exhaustive/ conclusive one. Hence he
used the characteristics. Denning went on to say other characteristics make a
 banker ie; soundness, stability and probity and in doubt, one should lookat the
reputation of the company among intelligent commercial men. Ie banking
community should know banker when presented with one.
Re Shield’s Estate, governor and Co of Bank of Ireland, Petitioners     (1901)  real
business of bankers is to obtain deposits of money to use for profit by lending it
out again. Hence under common law, a banker
(a)   Conducts accounts on which they deposit money from customers, showing
debits and credits
(b)   Lending money deposited with it for its profit
(c)    Collecting cheques or orders for customers and
(d)   Paying cheques drawn on the bankers.
Types of Banks [Second schedule (A)]
(i)     Commercial Banks provide:
Acceptance of call, demand, savings and time deposits withdraw-able by cheque
or otherwise;
Overdrafts and short to medium term loans;
Foreign exchange facilities
Accepting and discounting of bills of exchange;
Provision of financial investment advice;
Participation in inter-bank clearing systems;
Guarantees, bonds or other forms of collateral and accept and place 3rd party
drafts and promissory notes connected with operations in which they take part.
(ii)    Post-Office Savings Bank provide:
Acceptance of  savings and fixed deposits;
Investments in Government Securities;
(iii)  Merchant Banks;
Acceptance of corporate call and time deposits;
Provision of foreign exchange facilities;
Facilitation of trade through the granting of acceptance facilities;
Provision of corporate finance of advisory service through; (a) share issues; (b)
rights issues; (c) mergers and acquisitions and corporate reconstruction; (d)
private placement.
Excluding underwriting arrangements;
Issuing bonds, debt obligations and certificates in such loans as they may grant or
say any other instrument traded in the domestic market or abroad according to
the regulations Central Bank may set forth.
Investment portfolio management, investment advisory services and nominee
services;
Arranging finance, lending or participating in syndicated loans and acting as
grantors.
(iv)  Mortgage Banks provide;
Receiving deposits of participation in mortgage loans and in special accounts;
Granting of loans for acquisition, construction, enlargement, repair, maintenance
of urban/ rural estates and for substitution of mortgages taken out for that
purpose;
Giving Guarantees bonts or other form of collateral connected with operations
which they may take part in;
Obtaining foreign loans * acting as intermediary in loans extended in local &
foreign currency (with authorisation from CB for such loans exceeding specified
limit).
Non-Banking Financial Institutions
These are also stipulated in the Act in Part (B) of the schedule and include (i)
Credit Institutions; (ii) Accepting Houses; (iii) Discount Houses; (iv) Finance
Houses.
CUSTOMER
This also presents difficulty in defining. The major factor in determining whether
or not a person in a customer depends on whether or not they have or will have
an account with the bank.
Therefore, there must be some sort of account, either a deposit, or current
account or similar relationship  to make a person a customer of a bank
Great Western Railway Co. v. London and County Banking Co. Ltd a man had for
years been in the habit of getting crossed cheques exchanged for cash at the bank
where he had no account and for which service he was not charged anything. in
holding him not a customer of the bank the House of Lords said:- but he had no
account of any sort with the bank. Nothing was put to his debit or credit in any
book or paper kept by the bank.
Therefore casual service by the bank for a person does not make them a
customer.
However one need not have an account to qualify as a customer. An agreement
to open an account is sufficient to constitute a person a customer of the bank.
Like in all contracts one has to find a consensus ad idem. In Ladbroke v. Todd it
was argued that a person does not become a customer of a bank until the first
cheque is collected. Court said: in my opinion a person becomes a customer of a
bank when he goes to the bank with money or cheque and asks to have an
account opened in his name ad the bank accepts the money or cheque and is
 prepared to pen an account in the name of that person; after that he i.e. entitled
to be called a customer.
Woods v. Artins Bank Ltd  a bank accepted instructions from the plaintiff to collect
money, pay part to a company he was going to finance and retain to his   order
the balance of the proceeds. He has no account. It was held that an agreement
with the bank however is sufficient to constitute the person the customer for the
bank.
Commissioners of Taxation v. English, Scottish and Australian Bank 1920 AC  the
word customer signifies a relationship in which duration is not of the essence
A person having an account has 3 fundamentally legal consequences.
a)      Where the bank collects in good faith and without negligence, cheques
remitted to it, it is entitled to a statutory defence against the true owner.
b)     The bank owes a duty to obey customer regarding  collection of cheques and
other effects payable to him and further as regard the making of payments
ordered by the customer..
c)      The bank owes incidental duties to its customer i.e.  confidentiality.
Nature of the Banker Customer Relationship
Sudan Commercial Bank v El Sadiq Mohammed El  Sadiq the Court of Appeal of
Sudan said; the relationship of banker to customer is one of contract. The
relationship consists of a general contract which is basic to all transactions
together with special contracts (such as the contract of borrowing and lending)
which arise only as brought into being by the express or perhaps implied acts of
the parties.
In Esso Petroleum Co. v Uganda Commercial Bank 1992  the Supreme Court of
Uganda has held that the relationship of a banker and a customer is
contractual. Hence the respondent was in breach of his duty emanating from the
contractual relationship. The customer if relationship is breached is entitled to a
tracing order.
In Foley v Hill a customer paid an amount of money to the credit of an account
opened with his bank on the understanding it would earn interest at rate of 3%
P.A. No interest was credited to the account for 6 years. He argued that the
relationship was fiduciary in nature and it was held that the customer was not
entitled to an account and his correct course was to institute a common law
action in debt for the amount due and the relationship was merely that of debtor
and creditor. Limitation period would start to run from the date of unmet
demand not deposit.
Mobil (U) Ltd v. Uganda Commercial Bank 1982 HCB 64 it was held that the
banker and customer relationship was contractual.
Joachimson v Swiss Bank Corp Lord Atkin stated. The relationship is contractual
and that the bank undertakes to receive money and collect bills for its customer’s
account.
The proceeds received are not held in trust for the customer; the bank borrows
them and undertakes to repay them. The promise to repay is to repay at the
branch of the bank where the account is paid and during the banking hours.
It includes a promise to repay any part of the amount due against the written
order of the customer, addressed to the bank at the branch and such written
orders may be outstanding in the ordinary course of business for 2 to 3 days.
It is a term of contract that the bank will not cease to do business with the
customer except upon reasonable notice.
 The customer undertakes to exercise reasonable care in executing written orders
so as not to mislead the bank or facilitate forgery.
The bank is not liable to pay the customer the full amount of this balance until he
demands payment from the bank at the branch at which the current account is
kept. Hence from Foley v Hill it can be seen
a)      Demand exists only in the case of current savings account which provided for
the payment at call. For fixed deposits payment only on the designated day.
b)     The amount standing to the customer’s credit becomes payable without
demand if this bank is being wound up or if the banker customer relationship is
terminated.
c)      The period of limitation begins to run from the day on which the amount is
payable.
d)     Contract exists between banker and customer based on  maintenance of the
account.
Bank of Baroda (U) Ltd v. Kamuganda (2006) 1 EA 11
Whether he must demand it in writing is not necessary now to determine.
The relationship’s terms are of an implied contract and hence not written but
depend on bankers customs. They may be modified by express agreement
between bank and customer. Statutes in force may also regulate or modify them
they are as follows:
1.      Bank account balance is financial position between bank and customer-
when  account credited, the banker owes balance, when account overdrawn,
customer owes balance to banker.
2.      Bank agrees to pay the customer’s cheques cheques up to the amount standing
to cresit of the customers account plus any agreed overdraft limit.
3.      Bank may not pay from customers account without a mandate from them ( e.g.
cheque drawn by them).
4.      The bank agrees to promptly collect  cheques deposited to the customer’s
account as agent and credit proceeds to customer’s account
5.      Bank has right to combine customer’s account- each account is just an aspect of
the same credit relationship.
6.      The bank has a lien on cheques deposited to the customers account, to extent
that customer is indebted to the bank
7.      The bank must not disclose details of transactions through the customer’s
account- unless customer consented, public duty to disclose the bank’s interests
require it to or the law demands.
8.      Bank musn’t close customer’s account without reasonable notice since cheques
are outstanding in the ordinary course of business for several days.

The contract has with it superadded obligations which however do not affect the
main contract. They are the duties which arise in the ordinary course of business
such as the
-         relationship of debtor and creditor. Because the bank undertakes to borrow
money from the customer as and when the customer lends it to him when he
deposits it Foley v. Hill  it was stated that   money paid into a bank ceases to be
the money of the principal but of the bakner who is bound to return it upon
demand. Hence the banker is not an agent or a factor but a debtor
A banker can also be creditor and customer a lender- that relationship hence can
change. Bart of the bankers business is to borrow and lend money see Act… hence
a banker and a money-lender are the same thing.
 Distinguishing feature between bank and any other borrower who undertakes to
pay on demand is that for the bank, demand or repayment is made against a
written order or mandate which is exemplified by a cheque. Clearly stated in
the Bill of Exchange Act  S. 72- a cheque is a bill of exchange drawn on a banker
payable on demand. It then states that the provisions of this act except otherwise
provided in the Act, the provisions of the Act applicable to a bill of exchange
payble on demand apply to a cheque. and the Stamps Act S. 2? Which states that
a cheque is a bill of exchange drawn on a specified bank and not expressed to be
payable otherwise than on demand.
S. 74 of Bills of Exchange states that the duty and authority of a banker to pay a
cheque drawn on him or her by his or her customer are determined by the;
countermand of payment and notice of the customer’s death.
A cheque can hence not be drawn on any other borrower.
In Joachimson v Swiss Bank Corporation [1921] 3 KB .110 it was stated that having
regard to the peculiarity of that relation there must be, I consider, quite a number
of implied superadded obligations beyond the one specifically mentioned in Foley
v. Hill. Unless this is so… in order to regain his money however, the customer must
make an application to the banker for it. This is different from the general rule
where the debtor must look for his creditor and pay him.
-         Money lenders are regulated by the Money Lenders Act Cap … which does not
apply to banks. The Act defines a money lender but says it does not include “any
person bonafied carrying on the business of banking.”
Duties Owed by the Customer to his Bank
Duty of reasonable care in drawing cheques
Joachimson v. Swiss Bank Corporation  Lord Atkins stated the customer…
undertakes to exercise reasonable care in executing his written orders so as not to
mislead the bank or to facilitate forgery.
London Joint Stock Bank v. Macmillan and Arthur   “…as the customer and banker
are under a contractual relation in this matter… in drawing   a cheque the
customer is bound to take usual and reasonable precautions to prevent forgery…
if the cheque is drawn in such a way as to facilitate or almost an increase in the
amount of forgery if the cheque should get into the hands of a dishonest person.
In Mobil (U) Ltd v. Uganda Commercial Bank a cheque drawn for Shs 10,301 was
altered to read Shs 40,301. High Court held that “a customer and a banker, being
under a contractual relationship, the customer in drawing a cheque is bound to
take usual and reasonable precautions to prevent forgery. If a cheque is drawn in
such a way as to facilitate or almost to invite an increase in the amount by
forgery, if the cheque should get into the hands of a dishonest person, forgery is
not a remote but a very natural consequence of negligence of this description.
Duty to inform bank on any forgeries customer is aware of otherwise customer
bears loss for the forgery.
Greenwood v. Martins Bank Ltd   the plaintiff had an account with the defendant
bank. The wife had over a period of time forged her husband’s name. on the wife’s
request the husband had refrained from notifying the bank of the frauds. When he
threatened to notify the bank, she committed suicide. He brought an action
against the bank for the amount paid by them on the forged signatures. Court of
Appeal held- if a cheque awe presented to a banker which he rejected as forged,
he would be under duty to report this to the customer and enable him to inquire
into and protect himself against the circumstances of the forgery. This involves a
 corresponding duty on the customer.. to do the same if he is aware of his cheques
being forged. Hence, in the present case, silence is a breach of duty to disclose.
p. 5
3
Duties owed by the banker to the customer
To honour the customer’s mandate
The customer gives bank authority to operate the account in accordance with his
instructions i.e the “customer’s mandate” as long as the bank is within the terms
of the mandate it may debit the customer’s account otherwise not. it is the banks
duty to ensure no unauthorised changes are made to the customers documents
kept by the bank. Hence banker is to honour cheques given by customer
provided:
a.       They are drawn in the proper form.
b.      Account drawn for credit to has an amount sufficient to pay them, or
arrangements have been made for an overdraft facility and the agreed overdraft
limit will not be exceeded.
c.       There is no legal cause (service of a garnishee order nisi which makes the credit
balance or the agreed overdraft limit unavailable.
d.      They are presented during banking hours or within reasonable time thereafter
Baines v. Nation Provincial Bank (1927) 96 KB
Banker has until close of business on day of presentation to decide whether or
not to meet a cheque. If not, it must after close of business return it with some
remarks indicating it hasn’t been honoured.
If dishonour wrongful, customer may sue for damages in breach of contract.
Before Dishonouring Cheque, Holden states bank should follow precautions;
a.       Make sure customer’s account has not been debited by mistake with any
cheque drawn on other accounts.
b.      Make sure no post-dated cheques drawn by the customer has been
prepmaturely debited.
c.       Should make sure no regular credits such as salary are from customer’s
account.
d.      Cheque which it proposes to dishonour is not backed by customer’s cheques
guarantee card.
Patel v. SCB [2001]
Bank of Baroda (U) Ltd v. Kamuganda (2006) 1 EA 11.
Limit to duty to honour customers mandate.
a)      the bank is not obliged to honour a cheque or meet some other demand if the
customer’s balance is inadequate (Bank of New South Wales v. Laing  where the
bank had agreed to grant the customer an overdraft and the amount of the
cheque does not exceed the prescribed ceiling.
b)     The demand must be made at the branch with which the account is maintained.
The customer is not entitled to demand payment at another branch Arab Bank
Ltd v. Barclays Bank.
c)      Cheques should be paid only if presented during ordinary business hours.
d)     Cheques that have been outstanding for a long period of time may be
dishonoured (this is more than 6 months).
Where the account is overdrawn the bank becomes the creditor and the
customer the debtor.
2. Duty of Skill and care.
Owed by the bank in carrying out customer’s operations.. it should be reasonable,
this standard being case by case.
In Barclays Bank OLC v Quincecare [1992]4 ALLER 363 it was held that an
ireasonable care in executing customer’s orders to pay or transfer money is
implied. This duty may sometimes interfere with duty to honour customer’s
mandate but a banker who executes an order knowing or suspecting it
dishonestly given but ignoring that or acting recklessly in failing to make inquiries
is liable For breach of duty.
3. Services rendered outside the contract (fiduciary relationship)   may raise duty
of skill and care
A bank may be held liable in tort for negligent advice or statements made to both
customers and non- customers alike because then the bank is taken to act as a
fiduciary. It is   under no obligation to give advice but if it takes it upon itself…
Hedley Byrne & Co. Ltd v. Heller & Partners [1964] AC   Hedley Byrne were a firm of
advertising agents and they wanted to check the financial position and credit-
worthiness of a client and asked their bank, National Provincial Bank ti get a
report from their clients bank. Stating “without responsibility on the part of this
bank” that the company was considered good for its ordinary business
engagements. The company soon went into liquidation and the Hedley firm sued
for negligent misstatement occasioning vast losses. Heller & Partners argued no
duty in regards to the statement and liability was excluded.. Before this the notion
of a duty of care had been rejected. House of Lords introduced “assumption of
responsibility.
Court held the duty to be “sufficiently proximate” as to create a duty of care.
On the facts, the disclaimer was found sufficient enough to discharge any duty
created by Heller’s actions. There were no orders for damages.
As customer’s agent, the bank has to strictly adhere to mandate. Additional duties
of care are imposed on the bank where it gives advice on financial matters to its
customer. The customer, in turn owed his bank the general duty of a principal to
an agent which is to issue orders in a manner that douesn’t facilitate their
falsification.
Woods v. Martin Bank [1955] 1 QB   the manager of a bank advised the plaintiff to
invest a substantial amount of money in shares of a company, whose excessive
overdraft was of concern. The branch manager didn’t disclose these facts to the
plaintiff. Plaintiff lost the full amount in invested shares. Bank pleaded that
plaintiff had not been a customer hence no duty owed. Salmon J held that even
though bunker-customer relationship hadn’t been established at time the advice
was given, the bank through branch manager had assumed a fiduciary obligation
toward the plaintiff when it agreed to act as his financial adviser.
Lloyds Bank Ltd v. Bundey (1975)
National West Minister Bank LC v.    Morgan [1985] AC 686

4. Duty of secrecy/ confidentiality, ie a duty not to disclose any information

concerning the affairs of the customer without his consent.
The banker customer relationship has elements of agency and as a general rule an
agent owes a duty of loyalty and confidentiality of his principle. S. 40 (3) Bank of
Uganda Act Cap 51 a banker shall not publish or disclose any information
regarding the affairs of a financial institution or a customer of a financial
institution… unless customer consents.
 Parry Jones v Law Society [1965] Diplock stated that the duty of secrecy extended
even to a banker and customer and subject to the contract
Tournier v. National Provincial and Union Bank of England [1924] 1 KB the
plaintiff was unable to meet the payment demands made by tehe branch
manager. On one occasion the branch manager noticed a cheque drawn to the
plaintiffs order by another custodian. The manager then rang the plaintiffs
employees to ascertain the plaintiffs private address but in the course of the
conversation he disclosed the plaintiffs account being overdrawn. The plaintiff’s
contract was not renewed because of this by the employers.
Court of Appeal held the bank guilty of a breach of a duty of secrecy and awarded
damages against it. .it was elucidated, the bank’s duty remains even after the
account has been closed. In this case, it was highlighted that the duty of
nondisclosure is a legal one arising out of contract, highlighted the fact that the
duty is not absolute but qualified, hence providing exceptions thereto.
Exceptions to the duty of secrecy.
a)      Where disclosure is under compulsion of law. a bank cannot refuse to answer
questions concerning its relationship with a customer on the ground of
privilege. Sec. 2 or S 5 of which Act?
S. 6 Evidence )Banker’s Book) Act Cap 7 – on application of any part of a legal
proceeding court may order that such party may be at liberty to inspect, take
copies of any entries in the banker’s book for any of the purpose of such
proceedings. The bank is served with 3 days notice to comply with courts
directive.
This application is similar to an application for a search warrant as the courts are
guided by decisions from inspecting and discovering documents.
Bankers trust Co v. Shapira (1980)   two rogues obtained money by presenting to
plaintiff bank cheques purportedly drawn on it by a bank in Saudi Arabia. Court of
Appeal held that the order would be granted where plaintiff sought to trace funds
of which evidence showed they had been fraudulently deprived.
Foley v Hill  it was held that a customers bank account has been described as a
chose in action or incorporeal right as contrasted with corporeal or tangible
things.
Income Tax Act Cap 340 S. 131 (1) allows the commissioner general or any
authorized in writing to access any premise, place, book, record, computer. They
may  make a copy or seize the record for evidence in determining liability.
Leadership Code Act Cap 167  the Inspector of Government can authorize anyone
under its control to inspect a bank account or any safe deposit book in an
account.
Prevention of Corruption Act Cap 121 S. 13 (1)if DPP is satisfied  that there are
reasonable grounds to suspect corruption  may authorize any police officer above
rank of Assistant Superintendent to investigate any bank account. And failure to
disclose is a punishable offence. S. 14 any court may place restrictions on the
operation of any bank account of an accused.
Companies Act Cap 110 Sections 165 – 175 states a duty to officers and agents of
the company whose affairs anre being investigated to produce to the inspector all
books of accounts.
S. 176 a company’s banker is not required to disclose affairs to any other.
Standard Bank of West Africa v. AG of Namibia (1927)   a police officer wished to
inspect books of the banker and the account of a certain customer in hope of
coming upon an offence but without knowledge what this evidence would help, he
 laid the information before a magistrate and the magistrate issued a warrant for
the documents. Bank instituted proceedings against being subject for a search
warrant for reasonable grounds of evidence. It was held, search warrant should
issue against a bank only if the bank suspected of having communicated the
offence itself or of harbouring evidence directly connected with a crime and
should not issue in any case where an inspection order might be made under the
Bankers Books Act and it is not enough for applicant to merely hope for evidence
along the search- must have a very good reason, hence it was wrong.
A court order in the form of garnishee proceedings.. here money held by a
banker  to the credit of a customer who is a judgement debtor may be attached to
satisfy  the judgement debtor. The bank is called upon to show why customers
money should not be attached. Here it has to disclose its customer’s affairs. Civil
Procedure Rules O. 20

b)     Where there is a duty to the public to disclose.   Described in the Tournier

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

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

(a)   The instrument and right s it embodies are  capable of being transferred by
delivery, whether  the instruments in favour of order or bearer.
(b)   Person to whom it is negotiated can sue on it in his own name.
(c)    A person to whom a current and apparently regular instrument has been
negotiated takes it in good faith and for value obtains a good title to it even
though this transferor has defective title.
Difference between a negotiable instrument and contract.
A negotiable instrument can serve to convey value constituting at least part of the
performance of a contract, albeit perhaps not obvious in contract formation, in
terms inherent in and arising from the requisite offer and acceptance and
conveyance of consideration. The underlying contract contemplates the right to
hold the instrument as, and to negotiate the instrument to, a holder in due
course, the payment on which is at least part of the performance of the contract
to which the negotiable instrument is linked. The instrument, memorializing (1)
the power to demand payment; and, (2) the right to be paid, can move, for
example, in the instance of a 'bearer instrument', wherein the possession of the
document itself attributes and ascribes the right to payment. Certain exceptions
exist, such as instances of loss or theft of the instrument, wherein the possessor
of the note may be a holder, but not necessarily a holder in due course.
Negotiation requires a valid endorsement of the negotiable instrument. The
consideration constituted by a negotiable instrument is cognizable as the value
given up to acquire it (benefit) and the consequent loss of value (detriment) to
the prior holder; thus, no separate consideration is required to support an
accompanying contract assignment. The instrument itself is understood as
memorializing the right for, and power to demand, payment, and an obligation
for payment evidenced by the instrument itself with possession as a holder in due
course being the touchstone for the right to, and power to demand, payment. In
some instances, the negotiable instrument can serve as the writing memorializing
a contract, thus satisfying any applicable Statute of Frauds as to that contract.
Qn. What is the effect of a forged endorsement in a bearer instrument?
Define endorsement S. 2 Bills of Exchange Act
Define bearer instrument-
Bearer s. 1 (e) means the person in possession of a bill or note which is payable to
bearer.
Effects of a forged endorsement on the instrument
S. 23-
S. 59 (1), (2)-
R Bank v Ross inoperative if it is visibly forged?
 Qn. What are the effects of crossing a cheque?
Define cheque- linking it to a negotiable instruments ie  s. 72 a bill of exchange
drawn on a banker payable on demand.
S. 75 Bills of Exchange Act. What crossing is
Crossing of a Cheque: types
·        Two parallel transverse lines
·        Two parallel transverse lines with “not negotiable” between the,
·        Where cheque bears across its face addition of the name of a banker, either
with or without the words “not negotiable” addition constitutes a crossing and
the cheque crossed specially and to the banker.
A drawer may generally or specially cross cheque. S. 76 (1), where uncrossed the
holder may as well s.76 (2). (1) (a) where cheque bears on its face addition of the
words “and company”
Generally crossed cheque may be crossed by the holder specially 76(3). Where it
has been crossed in either of the above ways, holder may add the words “not
negotiable” 76 (4).
Where 75 (2), the banker to whom it is crossed may again cross it specially to
another banker for collection. 76 (5).
Where uncrossed or generally crossed cheque sent to a banker for collection;
they may cross it specially to self.
S.77. Crossing should not be obliterated or added to or altered.
Effects of crossing a cheque
……….

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

Qn. A bill is endorsed by John Brown

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

Posted 7th June 2012 by Nish

Banking-Types of Cheques Lecture

TYPES OF NEGOTIABLE INSTRUMENTS

TYPES OF CROSSING
There are generally two types of crossing;

A general crossing
This is a cheque which bears across its face, two parallel transverse lines without
any words written in between those two lines. Hence it is considered as generally
crossed.

Special Crossing
this is where a cheque bares across its face, two parallel transverse lines and in
addition the name of the banker in between those lines. That addition shall be
deemed a crossing and a cheque shall be deemed to be crossed by that banker.
Where a cheque is crossed specially, a banker on whom it is drawn shall not pay
it, otherwise than the banker to whom it is crossed.

Crossings may also have in between words such as account payee or, not
negotiable.
Account payee means the collective bank is supposed to credit the amount of the
cheque to the account of the payee only.
It means that only the beneficiary has a right to present it through his account for
collection.

 HOLDER IN DUE COURSE

S. 28. A holder in due course is a holder who takes a bill, complete and regular on
the face of it, under the following competitions.
1.                  That he or she, became a holder of it before it was overdue, (expiry of
6 months from the date of issue)  and without notice, that it had been previously
dishonoured if that was the fact.
2.                   That he took the bill in good faith and for value (consideration) and
that at the time the bill was negotiated to him, he had no notice of any defect in
the title of the person who negotiated it.
Interpretation
S. 1 (i) defines a holder as a payee or endorsee of a bill or a note who is in
possession of it.
To become a holder in due course, one must either be a payee or an endorsee
(negotiation must have first been gone through).
 A holder I due course, acquires a negotiable instrument for value (consideration),
and in good faith, without notice that the instrument has for instance been
dishonoured or contains alterations or unauthorised signatures, or is so irregular
and incomplete as to call into question its authenticity.

The holder to become in due course, must have taken, or received the instrument
for value- in otherwise as a payment or as a security for a debt.

The holder must have received it in good faith, in other-words, under honest
dealing.

You must have had no notice of the defects on that cheque. The notice can be
actual or constructive notice of the defects.
The cheque must not be overdue. In other-words an unreasonable length of time
must not have passed after its issue (6 months).

Must have taken the negotiable instruments, complete and regular

The instrument must have been acquired before the amount in it becomes
payable.
Must take the bill, complete and regular on the face of it

In order to be a holder in due course, one must possess the following;

1.                  Must be a holder. S. (1) defines it, read back. To be a holder you must;
- be entitled to possession of the instrument (entitled to the bill).
- be entitled to receive or recover the amount due from the parties liable thereto.
For though, a payee is a holder, he cannot be a holder in due course, because the
bill has not been negotiated.
2.                  He took the negotiable instrument complete and on the face of it. It is
the duty of every person who takes a negotiable instrument to examine its form
and contents thoroughly and if it contains any material alterations, you must
confirm the alterations from the endorser or drawer. The cheque is regular on the
face of it when there is nothing on the face of it that suggests any suspicions as of
its viability.
The word face s. 37 means looking at the cheque face and back, it appears
regular look up that case also  and there are no alterations whatsoever that raise
suspicion.
3.                  The transferee must have no previous notice of dishonour of the
cheque. In otherwise the cheque has been previously dishonoured. The
transferee or endorsee must not previously be aware of that fact.
4.                  You must have acquired the cheque before it is overdue. A cheque
will be deemed overdue when it has been in circulation for an unreasonable
length of time and the usual practice in Uganda and East Africa after the expiry of
6 months from the debt of issue.
5.                  He became a holder in good faith, without having sufficient cause to
believe that any defects existed in the title of the transferor. According to S. 89 in
the Bills of Exchange Act, a thing is deemed to be of good faith when it is in fact
done honestly

LIABILITIES TO PARTIES OF A CHEQUE

According to S.54 (a) a drawer of a cheque by drawing it, engages that on due
presentment, it shall be paid according to its character and that if it is
dishonoured, he will compensate the holder or any other endorsee.
According to s. 52 (a), an endorser of a cheque engages that, on due
presentment, it shall be paid according to its character and if it is dishonoured, he
will compensate the holder or the subsequent endorsers. An endorser is
precluded from denying his immediate or subsequent endorsee that the cheque
was at the time of its endorsement a valid and subsisting cheque and that he had
a good tittle to it.

WRONGFUL DISHONOUR OF CHEQUES

A bank is bound to pay cheques drawn on it by a customer in a legal form
provided that there are sufficient and available funds for the purpose and
provided that cheques are within the limits of an agreed overdraft. The bank
which without justification dishonours a customer’s cheque is liable to the
customer in damages for injuring his commercial credit or his reputation.
            When a contract has been breached, a customer is entitled to normal
damages, unless he proves/ able to, actual damages.
            However, where a cheque has been wrongfully dishonoured, it is generally
believed that the damages will depend on whether the person is a trader or a
non-trader. Authorities suggest that a trader is entitled to substantial damages for
wrongful dishonour of his cheque without pleading or pruning them.
            The definition of a trader has been enlarged to include any person in
business and this includes professionals. Therefore, any person engaged in
business or a profession is entitled to substantial damages when his cheque has
been wrongfully dishonoured, without proving them. Some other policies have
enlarged the definition of trader to include other classes of the community, i.e.
the military and naval officers, because these are all people held in high esteem in
the society.
            As a must, a notice of dishonour must always be given where there is
dishonour of a cheque. I.e.  in such a case by the payee.
“In such a case, whose injury has been damaged?” - Mr. Byaruhanga.

DEFENCES TO A CLAIM ON A CHEQUE

(The defences one can have if his cheque has been dishonoured by the bank)
 These are largely similar to defences in the law of contract.
1.               Failure or absence of consideration. Under any contract, the plaintiff must
prove that he gave valuable consideration. S.26 bill of exchange Act. Looks at
Variable consideration, supported bill. Valuable consideration may be by any
sufficient consideration to support a contract.

2.                  Antecedent debt or liability.

It should be noted however, that contrary to contract law, a payee of a cheque
does not have to prove consideration. According to contract law, a payee to a
cheque does on need to provide consideration. S. 29 on the Bills of Exchange Act,
which provides that e very party whose signature appears on a bill is prima
facie  deemed to have become a party there for value. This is a rebut-able
presumption of fact and the drawer can resist this by proving that there was
absence or failure of consideration or that the consideration was illegal. Essau
Petroleum v. UCB

3.                  Failure to Give Dishonour

The Bills of Exchange Act contains detailed rules regarding the notice of
dishonour. It is a statutory requirement that whenever a bill has been
dishonoured, notice of dishonour must be given to the drawer and the endorser
or any other party to the Bill. S. 47-54 Bills of Exchange Act. According to S.
49 the notice must be given as soon as the cheque has been dishonoured or
within a reasonable time. A drawer can also be discharged with liability where the
notice was given but after a long period of time from the time it was
 dishonoured. Gorine Patel v. Dhanji. The plaintiff was a resident of Nairobi who
presented a cheque drawn on his Mombasa Bank for payment on the
13th  December. On 16th  December, his bank verbally informed him that the cheque
had been dishonoured. The plaintiff received back the cheque on the 18 th  of
December mark to refer to the drawer. On the 19 th  he sent that cheque to a friend
in Mombasa to hand it over to an advocate for action. The advocate wrote the
letter on the22nd of December informing the defendant that the cheque had been
dishonoured. On appeal the Court of Appeal held that the notice of dishonour
hadn’t been given with reasonable time and the appellant hadn’t given any
evidence to show that he had acted with due diligence or that there were any
special circumstances justifying the delay.

1.                  Material Alterations of Cheques. According to S. 63 where a cheque is

materially altered, that cheque is avoided as and against the person who has
himself made or authorised the alteration. But where a cheque has been
materially altered and the alteration is not apparent in the hands of a holder in
due course, then that holder in due course has a good title and can enforce
payment on that cheque. The test of materiality is whether the alteration affects
the rights or liabilities of any party to that cheque. Material alterations include an
alteration of the debts, alteration of the sum payable and the time of payment,
the place of payment, the payee, etc. this has to be combined with S.23, where a
person cannot be liable where his signature has been forged.

THE TERMINATION OF A BANKER-CUSTOMER RELATIONSHIP

 It can be bought to an end by either the customer or banker and also by law. A
customer need not give notice for terminating the account; however a bank
needs to give reasonable notice to the customer before closing the account. It
must give reasons some sources say.
If a customer dies the bank can terminate.
Bankruptcy or insolvency terminates an account..
Mental incapacity of the customer can end the contract.

An agreement between a bank and a client can be brought to an end;

1.                  Under an instance of either of the parties or by operation of the law.

a)      The Customer can close his account with the bank at any time once he
demands a full payment of his credit balance. It is suggested that if the customer
reduces the account to a nil balance, then the implication is that the customer
decided to close the account. However, it is advised that even in such a situation,
the bank should seek the confirmation in the customer that it is his intention. The
banker customer relationship is rooted in contract and henceforth each party
must strictly observe the terms of the contract.
b)      The bank on the other hand can also terminate its contract with a customer,
but through giving reasonable notice as well as making provisions for outstanding
cheques. Prosperity Limited v.Lloyds bank [1921]3 KB 110   it was held that one
month’s notice was insufficient.  Lord Atkin stated that; in absence of a special
stipulation, the bank must give the formal intimation to the customer that it
wishes to close the customer’s account after a specified period. It also has to
request the customer to withdraw all his credit balance in the accounts and
 return the unused cheques. That the length of the notice must be reasonable
enough to allow a customer to make alternative arrangements on where he
mistaking his money.
c)      Death of a customer. As soon as a bank receives notice of a customer’s death, it
must stop all operations on transactions on that account. However deposits are
allowed. The banker can only restart activities on that account in accordance with
a letter of probate issued by a competent court.
d)     Customers insanity. Mental disability and insanity of a customer, automatically
destroys the banks authority to act as the customer’s agent. In other wards the
banks authority to pay its customer’s cheques is revoked by notice of insanity. The
bank must have fairly conclusive evidence of a customer’s insanity. In absence of
that notice, the bank must  list its customer as sane.
e)      A customer’s Insolvency. This is also called civil death. An insolvent customer
looses his rights and they are transferred to an assignee, receiver or a liquidator.
As soon as a bank receives notice of insolvency of its customer, or gets notice that
a petition has been presented to court to declare its customer insolvent, then the
bank’s authority to pay cheques or to accept or honour bills or take any other
action on behalf of its insolvent customer comes to an end. A bank must transfer
all the credit balance in the insolvent customer’s account to the official assignee
or receiver’s account.
f)       Once the bank is in the norm of a petition, it cannot deal with any search of a
customer’s property or honour his cheques. All those powers are transferred to
the receiver.
g)      An order of court. This can also bring a customer-bank relationship to an end.
This is normally in ganishi proceedings. The court of law may serve a bank with
a ganisheeproceeding, in execution of the decree against the bank’s customer. If
that order is meant to take away the entire amount of the credit balance in the
customer’s account, then the relationship between the banker and customer
automatically comes to an end.

ELECTRONIC BANKING
 Define it
It can be defined as the use of electronic delivery channels for banking products
and services. The most common delivery channels are the internet, the wireless
communication networks;  (i.e. mobile money), the ATM’s (Automated Teller
Machines). Electronic banking is mainly offered in two ways.
            It can be issued through the traditional banks, normally called the Brick and
Click banks or through electronic distribution channels, without having a branch
network. These bans are called virtual banks, or branches or internet only banks,
in which withdraws and deposits are made through ATM’s or other remote
delivery channels owned by the virtual bank. Electronic banking in Uganda is
mainly done through the use of ATM’s and the Electronic Funds Transfer System
EFT. With EFT customers can instruct their banks to transfer funds form their
accounts, to named payees in other banks.
            This system can be used for periodical recurring utility debts, like water,
electricity and telephone services. It can also be used for school fees. Electronic
transfer systems can also be used to effect electronic credit and debit transfers.
Electronic credit and debit transfers normally referred to as electronic funds
transfer at the point of sale. Funds are hence transferred at the point of sale.
            Electronic funds transfer as a system has also been employed by banks to
affect the Real-Time Gross Settlement System (RTGS). Which is an inter-ban credit
transfer system, in which large payments and time sensitive payments are settled
immediately (real time) and individually on a gross basis.
            The RTGS has many advantages. It has done away with long clearing cycles
for traditional settlement instruments;
1.                   It has strengthened the management of risk in payment systems.
2.                  It has also promoted economic efficiency and competitiveness through
expeditious transfer of funds.
3.                  It has enabled Bank of Uganda to improve the efficiency of
management of monetary policy through the timely availability of data and
money flows in a financial system.

The RTGS went live in Uganda, on 21 st Feb 2005 and with the very first day of
implementation, Uganda shillings 220 billion was transferred inter-branch
EFT system has also been implemented through teleshopping, or digital shopping.

Bank of Uganda has also evolved the National Electronic Switch, which enables
banks to share their ATM’s. In Uganda the company providing that service is
Bankom.

Advantages of Electronic Banking

 1.         It has increased accessibility to banking services through the internet and
mobile phones. Not only based services are provided such as funds inquiry
balance transfer and bills, but also loans and credit applications and foreign
exchange transactions can be offered electronically.
2.          It goes without saying that E-banking provides vast opportunities for banks
and their customers.
3.         Access to services and products is first, in available around the clock,
independent of the location of the customer
4.         It also increases transparency
5.         It also lowers banking costs
6.         … Apparently there are many more..

Disadvantages of Electronic Banking

Risky business, through;
1.          Operational risks,
a)      Data and system integrity, system availability data secrecy etc. security can be
threatened from inside and outside the system, including unauthorised access to
a system through hijacking, sniping, etc, to retrieve and use confidential
consumer information. There is also the reputational risk is considerably
increased through E-banking.
b)      Reputational risks. If a bank fails to deliver secure accurate and timely services
on a consistent basis, its reputation will be at risk. In addition to system
availability and integrity, any breaches or glitches to the system can also heavily
damage the bank’s reputation.
c)      Legal risks. Virtual banks can potentially expand the geographical scope of their
services faster than other banks. This may create problems with local laws and
regulations.
2.         Operational costs. A lot of money is required to set up such a system. It is
expensive.
3.         There are also chances of money laundering increased among many
others.

  

There are many advantages associated with electronic banking

-          Cheaper
-          Fast

Disadvantages

Electronic banking
Electronic funds transfer;
Electronic transfer at the point of sale (credit card like)

Banker-Customer relationship by Nish

”Because it is a contract , the banker-customer relationship can be terminated
in ways applicable to ordinary contracts with the qualification that there may be
other ways to determine it that are particular only to this relationship'' Discuss
this statement taking into account the various modes of determining the baker-
customer relationship.

In Green Boat entertainment v Kampala city council JUSTICE YOROKAMU

BAMWINE was of the view that in law, when we talk of a contract, we mean an
agreement enforceable at law.   For a contract to be valid and legally enforceable
there must be: capacity to contract; intention to contract; consensus and idem;
valuable consideration; legality of purpose; and sufficient certainty of terms.   If in
a given transaction any of them is missing, it could as well be called something
other than a contract.

Define a bank
Bank means any company licensed to carry on financial institution business as
its principal business as specified in the second schedule to this Act and includes
all branches and offices of that company in Uganda. [1] Financial institution means
a company licensed to carry on or conduct financial institutions business in
Uganda and includes a Commercial Bank, Merchant Bank, Mortgage Bank, Post
Office Saving Bank, Credit Institution, a Building society, An Acceptance House
and a Discount House.[2] It is however highly remarked and recognised that like
many other beings a banker is easier to recognise than to define. [3] This is so
because of the different functions performed by specialised banks hence making
it difficult to give a general definition of the word bank or banker in that the
 definition should only be looked at as a sort of guide rather than an exhaustive
one.
In the case of United Dominion Trust Ltd v. Kirkwood (1966) 1 All 968

This case is a leading authority on the question of the common law meaning of a
Banker.  Lord Denning propounded that there are therefore two characteristics
usually found in bankers today.

1.                           they accept money from and collect cheques for their customers and
place them to their credit
.
2.                  They honour cheques or orders drawn on them by their customers when
presented for payments and debit their customers accordingly.

These two characteristics carry with them also a third namely

3.                           They keep current accounts or something of that nature in their books in
which the credits and debits are entered.

Define a customer
When it also comes to defining the word customer the dilemma is still the same
and it is not easy to define it with exactness. It seems that the major factor
determining whether or not a person is a customer must depend on whether or
not such a person has or will have an account with the bank.[4]
Duration is not of the essence when determining the relationship between a
banker and customer.
In GREAT WESTERN RAILWAY CO V LONDON COUNTY BANKING CO. LTD (1901)
AC 414
If a person has no account with the bank and is not about to open on account
with the bank the fact that the bank renders some casual service to or for him
does not qualify him as a customer.  However an agreement to open an account is
sufficient to constitute a person a customer of a bank.
Court held that a person need not have a series of dealings with the bank before
he acquires the status of a customer. He becomes a customer the moment the
bank receives money/cheque and agrees to open an account for him

In Landbroke v. Todd  (1914) Vol 30 T.L.R

The court said; “in the opinion a person becomes a customer of a bank when he
goes to the bank with money or cheque and asks the bank to open an account in
his name, and the bank accepts the money or cheque and is prepared to open an
account in the name of the person; after that he is entitled to be called a
customer.”
The Relationship of a Banker and a Customer:
In Foley v. Hill (1848) Vol H.L

There is an argument that the relationship of a banker and customer consists of a

general contract which is basic to all transactions together with special contracts
which arise in relation to the specific transactions or services that the Bank
offers.  The nature of the contract is described in a leading case of
Joachimson v. Swiss Bank Corporation. 1921 Vol. 3 A.B. 110

Lord Atkin in this case described that contract at page 127 in the following terms

“I think that there is only one contract made between the bank and its
customer.   The terms of that contract involve obligations on both sides and
require statements.   They appear upon consideration to include the following
provisions.   The bank undertakes to receive money and to collect bills for its
customers account.   The proceeds so received are not to be held in trust for the
customer but the bank borrows the proceeds and undertakes to repay them.   the
promise to repay is to repay at the branch of the bank where the account is kept
and during banking hours.   It includes a promise to repay any part of the amount
due against the written order of the customer addressed to the bank, at the
branch. It is a term of the contract that the bank will not cease to do business with
a customer except upon reasonable notice.   The customer on his part undertakes
to exercise reasonable care in executing his written orders so as not to mislead the
bank or to facilitate forgery. I think it is necessarily a term of such contract that
the bank is not liable to pay the customer the full amount of his balance until he
demands payments from the bank at the branch at which a current account is
kept.

Ways in which an ordinary contract can be terminated

In Mobil (u) ltd v U.C.B, it was noted that the relationship between a banker and
customer is contractual. It’s an implied contract whose terms are in much
dependent on the custom of bankers. Because it is a contract the banker
customer relationship can as well be discharged or terminated thereby
determining the relationship.
The banker-customer relationship can be determined on ways applicable to
ordinary contracts. There are four methods of discharging contractual obligations
in an ordinary contract; these include performance, agreement, impossibility or
frustration and breach. However as per the banker-customer relationship the only
applicable and practical methods are agreement and frustration also known as
impossibility.
The banker-customer relationship will be determined by agreement through
mutual agreement where the both the banker and customer agree to extinguish
the rights and obligations under the he banking contract. This can be enlightened
by the latin maxim translated as “what has been created by agreement can be
extinguished by agreement”
However in usual banking practice, such cases of mutual termination are rare.
Frustration or impossibility will also apply in instances where the customer is
using the account for illegal transactions. The bank can close the account of the
customer without giving reasonable notice to such customer. This is applicable to
an ordinary contract where illegality is deemed to be impossibility. This is in line
with the bank’s superior public duty not to aid an illegality. That’s why in Banex
limited v Gold Trust Bank ltd Platt J.S.C noted the bank’s duty is to act in
accordance with the lawful requests of the customer in the normal operation of
the customer’s account.
Frustration just like in an ordinary contract will determine the banker-customer
relationship where the banker’s right to transact a banking business will be
terminated once the central bank revokes its license  as under section 17 of the
Financial institutions Act No 2 of 2004. In ordinary contracts this can be seen as
frustration by government intervention. This is because a banker-customer
relationship can be determined by the central bank which is a government body.
Legislation stopping the banker-customer relationship can frustrate the
relationship hence determining it. An example would be legislation during time of
war against trading with the enemy. This is similar to that of an ordinary contract
whereby government interventions through enactments can frustrate a contract.
This was the case in Twentsche Overseas Trading case where court noted that
the contract had been frustrated following an outbreak of war and legislation that
followed in its wake.
In banker-customer, where there is legislation very often confiscate credit
balances of an enemy customer thus effectively terminating the bank-customer
relationship. In criminal enactments like the penal code Act targeting the offences
of corruption, the courts will be empowered to place restrictive orders that
appear reasonable if an application is made by the DPP.
Mental incapacity is encompassed under frustration and may determine the
relationship of a banker-customer as well as that of an ordinary contract. Section I
(f) of the Mental Treatment Act defines a person of mental incapacity as a person
of unsound mind as an idiot or a person who is suffering from mental
derangement. In Jackson v union marine Insurance co. ltd an ordinary contract to
write a book was frustrated by the supervening insanity of the author.
Death also arises under frustration as to determination of an ordinary contract.
The common law rule is that upon the death of a party to a contract there is
automatic assignment of the rights and liabilities of the deceased to his personal
representatives but this law doesn’t apply to relations of personal nature where
the banker-customer relationship falls therefore where a bank receives notice of
the customer’s death its duty and authority to pay a cheque drawn on the bank
by the customer is determined as per section 71 of Bills of Exchange Act. This will
however depend on the question of facts. The customer’s death thus terminates
the contract between a banker and such customer. The balances on the account
are vested on the legal representative of the deceased customer as appointed
under the succession Act and where the customer dies intestate; the
administrator first obtains letters of administration.
Other ways determining a banker-customer relationship
1. Closure of account by the customer on demand. By demanding payment of
the outstanding balance on the account. However withdraw of funds on the
account doesn’t mean the end of customer-banker relationship. In Wilson v
Midland bank ltd the bank manager relied on a telephone conversation
with the customer, which conversation the customer would not recollect,
to close the customer’s account. The customer subsequently paid the
money into his account which the bank credited to a wrong account and it
was dishonored in the words of the account. The bank was condemned for
breach of contract and libel. It is also prudent for the bank to obtain written
evidence that the customer is closing the account upon settlement of the
overdraft hence that requirement that the customer surrenders all unused
cheque forms as a good safeguard for the bank.
2. Closure of account by the bank with an exception to illegality. This can be
done through giving reasonable notice to its customer. In JOACHIMSON V
SWISS BANK Atkin L.J pointed out that it is a term of the contract that the
 bank will not cease to do business with the customer except upon
reasonable notice.
3. Bankruptcy of a customer. Bankruptcy  means a state of a person who has
been adjudged to be insolvent. Bankruptcy will have the effect of closing
the account.
4. Winding up of the customer. A company is seen as an individual because of
its legal existence. Section 211 of the companies Act, a company may wind
up by either court, voluntarily or as a subject to the supervision of court. IN
RE RUSSIAN COMMERCIAL AND INDUSTRIAL BANK, it was held that a
relationship is terminated when the legal personality of a body corporate
ceases to exist.
5. Garnishee orders. This is the order that makes determination of a banker-
customer relationship. Garnishee order is the order served on the
garnishee attaching a debt in his hands. The garnishee order is under order
20 rules of the civil procedure rules. The garnishee may be commanded to
appear before court to show cause why he should not pay the decree
holder the due from him to the judgment debtor. The order issued
attaching the debt is at this stage called nisi. A customer whose account is
thus attached should be informed of the receipt of the order. in Rogers v
whitely, it was held that un restricted garnishee order completely
immobilizes the destroyed account.