Bank Instruments & Accounts Management: Detecting & Preventing Fraud: With Case Law, Tutorial Notes, Questions & Answers

By Idika Kalu Uma

Supposing you walked across to your bank and give your bank cashier (teller clerk) your cash for deposit, but while the cashier was counting the cash, an armed gang swooped in and carted away all monies on the counter, including your cash. Do you know that your bank will not be liable? Yes, your bank will not be liable. The bank will only be liable if the bank cashier had received the cash, checked it, and stamped “Paid” on your deposit teller receipt!
Do you know that you have no duty, as a bank customer, to ascertain or check the correctness of the figures entered in your passbook or current account statement? If you relied on the accuracy of the statement sent to you and in good faith spent the money stated in your account, the bank may find it difficult to recover such money from you.
Do you know that on the death of one party in a joint account, any credit balance, security or property is transferred to the surviving party and the survivor will be the one to account to the representative of the deceased party? Again, do you know that a minor (that is, a person below 18 years of age), can run a company account, but cannot repay any loan granted him? Any lending to him, by law, is void, and he cannot be expected to repay such loan!
Do you know that where a signature on your cheque is forged or unauthorized, the forged or unauthorized signature is wholly inoperative, and your bank cannot debit your account with such a cheque, unless you facilitated the forgery?
This is just the icing on the cake. Bank Instruments & Accounts Management: Detecting and Preventing Fraud is a recipe for making the soup of banking practice sweet. It is, therefore, an essential work tool for all discerning bankers, a reference partner for all bank customers and the last line of defense for passing the professional banking examination.

• Language: English
• Publisher: Xlibris US
• Release date: Jan 19, 2019
• ISBN: 9781796010398

Idika Kalu Uma

Idika Kalu Uma is a professional banker and an Associate of the Chartered Institute of Bankers of Nigeria (ACIB). He started his banking career with Centre-Point Merchant Bank Limited in 1990 where he worked in the Domestic Operations Group as a Bank Officer in charge of Loan Administration. He moved on to the African Banking Consortium, ABC Merchant Bank (Nigeria) Limited, as an Assistant Manager in the Corporate Finance/Capital Markets Division of the bank, overseeing the investment banking and corporate finance business of the bank. While at the bank, he qualified as a Stockbroker and Dealing Clerk of The Nigerian Stock Exchange (NSE) in 1995. Leaving as Deputy Manager, he joined the First City Group as a Stockbroker serving with FCMB Capital Markets, City Securities Limited & CSL Stockbrokers Limited – all associates of First City Monument Bank Plc. (FCMB Plc.), where he later became the Regional Head, Eastern Operations, of the companies. From there, in 2007, he moved on to become the pioneer Managing Director/Chief Executive Officer of Kofana Securities & Investments Limited, an investment banking/stockbroking firm. In 2013, he was appointed Managing Director/Chief Executive Officer, Zeitgeist Limited – a finance, projects and economic research firm – where he is currently involved in financial engineering, business restructuring and the financial markets. Idika Kalu Uma is a Fellow of the Chartered Institute of Stockbrokers (FCS) and a Fellow of the Institute of Strategic Management, Nigeria (FSM). He holds the Masters of Business Administration (MBA) in Finance and Banking. As an astute money market expert and a frontline capital market operator, he has advanced the frontiers of financial knowledge through several bestsellers in banking and stockbroking, among which are Getting That Bank Loan: Issues of Security & Their Perfection; Game Investors Play; The Financial System & Stock Market Activity; Secrets In Banking Practice; and Nigeria’s Foreign Exchange Markets: Management & Development.

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Copyright © 2019 by Idika Kalu Uma.

Library of Congress Control Number:        2019900504

ISBN:                    Hardcover                      978-1-7960-1038-1

                             Softcover                       978-1-7960-1040-4

                             eBook                            978-1-7960-1039-8

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Rev. date: 01/18/2019

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CONTENTS

DEDICATION

PREFACE

ACKNOWLEDGMENT

CHAPTER 1 BANKS AND THEIR CUSTOMERS

INTRODUCTION

WHO IS A BANKER?

WHO IS A BANK CUSTOMER?

BANKER-CUSTOMER RELATIONSHIP

IMPLIED DUTIES OF A BANKER TO HIS CUSTOMER

BANKERS’ RIGHTS

BANKERS’ PRIVILEGES

CUSTOMERS’ DUTY TO BANKERS

CUSTOMERS’ RIGHTS

Chapter 2 BANKERS’ QUALITIES

INTRODUCTION

THE WORD BANKER

B – Bright:

A – Articulate:

N – Newsy:

K – Kinetic:

E – Ebullient:

R – Respectful:

Chapter 3 OPENING OF BANK ACCOUNTS

INTRODUCTION

THE A, E, I, I QUESTION

A – Authority:

E – Employment:

I – Identity:

I – Integrity:

1. THE PERSONAL CURRENT ACCOUNT

EVENTS THAT AFFECT THE PERSONAL CURRENT ACCOUNT

2. THE DEPOSIT ACCOUNT

3. THE OVERDRAFT ACCOUNT

STATEMENTS OF ACCOUNT & PASSBOOKS

Over-crediting the customer’s account

Over-debiting the customer’s account

CASE STUDY QUESTIONS & ANSWERS

Chapter 4 THE JOINT ACCOUNT

INTRODUCTION

THE SURVIVORSHIP CLAUSE

EVENTS THAT AFFECT THE JOINT ACCOUNT

SERVICE OF STATEMENT OF ACCOUNT

CASE STUDY QUESTIONS & ANSWERS

Chapter 5 THE PARTNERSHIP ACCOUNT

INTRODUCTION

PARTNERSHIP NORMS

EVENTS THAT AFFECT THE ACCOUNT

COLLECTING CHEQUES FOR A PARTNER

CASE STUDY QUESTIONS & ANSWERS

Chapter 6 THE COMPANY ACCOUNT

INTRODUCTION

OPENING A COMPANY ACCOUNT

BORROWING BY THE COMPANY

BORROWING ULTRA VIRES THE COMPANY

Remedies for borrowing ultra vires the company

Remedies for borrowing ultra vires the director but intra vires the company:

THE ULTRA VIRES DOCTRINE (CAMA 1990)

Reasons for Ultra Vires Doctrine

PROHIBITION OF FINANCIAL ASSISTANCE

RESTRICTIONS ON CERTAIN BANKING ACTIVITIES

DETERMINATION OF A COMPANY’S MANDATE

SPECIAL PROBLEMS REGARDING COMPANY ACCOUNTS

CASE STUDY QUESTIONS & ANSWERS

Chapter 7 LIQUIDATION OF A COMPANY

INTRODUCTION

SAFEGUARDS FOR BANKERS

(1) Charging Company Assets:

(2) Effect of a Floating Charge:

(3) Effect of a Guarantor:

(4) Effect of a Separate Wages Account:

CASE STUDY QUESTIONS & ANSWERS

Chapter 8

INTRODUCTION

CONTRACTUAL PRINCIPLES

(1) Liable contracts:

(2) Void contracts:

(3) Indemnity:

(4) Security:

MINORITY, PARTNERSHIP AND GUARANTEES

CASE STUDY QUESTIONS & ANSWERS

Chapter 9 THE CLUB ACCOUNT

INTRODUCTION

A CLUB: A LEGAL ENTITY?

DEALING WITH A CLUB

CASE STUDY QUESTIONS & ANSWERS

Chapter 10 NEGOTIABLE INSTRUMENTS

INTRODUCTION

NEGOTIABILITY

TRANSFERABILITY

ENDORSEMENT OF A BILL

CHEQUES & CROSSINGS

CASE STUDY & QUESTION & ANSWERS

Chapter 11 FORGED SIGNATURES & ALTERATION OF CHEQUES

INTRODUCTION

LEGISLATIVE ACTS

REGULAR/IRREGULAR ENDORSEMENTS

SIGNATURE ON CHEQUES

DOCTRINE OF ESTOPPEL

‘CONTRIBUTORY NEGLIGENCE’

PAYMENT OF A FORGED CHEQUE

SPECIAL PROVISIONS

CASE STUDY QUESTIONS & ANSWERS

Chapter 12 CONVERSION

INTRODUCTION

HOLDER FOR VALUE

HOLDER IN DUE COURSE

THE PAYING BANKER

Liabilities/Risks of the Paying Banker:

Protections:

THE COLLECTING BANKER

Liabilities/Risks of the Collecting Banker:

Protection (for conversion):

Losing the protection of Section 77(2), Bills of Exchange Act (1990):

CASE STUDY QUESTIONS & ANSWERS

Chapter 13 COUNTERMAND OF PAYMENT

INTRODUCTION

CONDITIONS FOR COUNTERMAND

Notification by Telephone or Telegram

WHEN COUNTERMAND FAILS

AUTHORITY TO COUNTERMAND PAYMENT

REMOVAL OF STOP NOTICE

STOPPING A DRAFT

Countermand rules where a customer maintains two or more accounts:

PROTECTION FOR BANKERS

Protection of a Paying Banker of Drafts:

Protection of a Collecting Banker of Drafts:

CASE STUDY QUESTIONS & ANSWERS

Chapter 14 THE ELECTRONIC PURSE

INTRODUCTION

MOTIVES FOR A CASHLESS SOCIETY

MERITS OF AN ELECTRONIC PAYMENTS ENVIRONMENT

MODES OF ELECTRONIC BANKING

BENEFITS OF THE ELECTRONIC PLATFORM

RISKS IN ELECTRONIC TRANSACTIONS

CASE STUDY QUESTION & ANSWER

Chapter 15 CLOSING OF BANK ACCOUNTS

INTRODUCTION

CLOSURE OF ACCOUNT

By The Customer:

By The Bank:

CLOSING AN UNSATISFACTORY DEBIT ACCOUNT

CLOSING AN UNSATISFACTORY CREDIT ACCOUNT

EFFECT OF CLOSING

CASE STUDY QUESTIONS & ANSWERS

DEDICATION

THIS BOOK IS SPECIALLY DEDICATED to those innocent damsels of our land Nigeria – the students of Government Girls Secondary School, Chibok, Borno State, otherwise known as the ‘Chibok Girls’ – who, in their dogged search for the golden fleece of higher education, were ruthlessly abducted and dehumanized by those who should have cared for, and supported, their ambition to become accomplished personalities in various fields of endeavour, affecting their generation positively and contributing their quota to the growth and development of our dear country. Wherever they may be, they remain heroines of our time, whatever their condition, they are models of ambition to the whole world and, however their fate, they represent an educational renaissance in Nigeria that gives meaning to the need for ‘the education of all children’ all over the world. Indeed, when the protection of children’s right to education is guaranteed all over the world, then and only then would we say a mockery of girl-child education happened in Nigeria once upon a time.

QUOTE

The fear among bankers is that there’s this guy out there, and he can do whatever he wants, and nobody can stop him. I would be afraid, too, if I were a bank.

- Dick Bove

Banks are an almost irresistible attraction for that element of our society which seeks unearned money.

- J. Edgar Hoover

CASE LAW CITATIONS

Chapter 1

Great Western Railway Co. v County Banking Co. Ltd (1901)

Woods v Martins Bank (1959)

Ladbroke v Todd (1914)

Importers Company Ltd v Westminster Bank Ltd

Balmoral Supermarket v Bank of New Zealand (1974)

Joachimson v Swiss Bank Corporation (1921)

Tournier v National Provincial and Union Bank of England (1924)

Prosperity Ltd v Lloyds Bank Ltd (1923)

London Joint Stock Bank v MacMillian & Authur

Slingsby v District Bank Ltd

Lumsden & Co. v London Trustee Savings Bank Ltd (1971)

Greenwoods v Martins Bank Ltd (1932)

Brown v National Westminster Bank Ltd (1964)

United Dominion Trust Ltd v Kirkwood (1966)

Chapter 3

Ladbroke and Co. v Todd (1914)

Guardians of St. Johns Hampstead v Barclays Bank (1923)

Lloyds Bank Ltd v E. B. Savoury (1933)

Marfani & Co. Ltd v Midland Bank Ltd.

Re: Beaven Davis, Banks & Co. v Beaven

Scarth v National Provincial Bank Ltd.

Arab Bank Ltd v Barclays Bank DCO (1954)

Chartterton v London County Bank

Lloyds Bank Ltd v Brooks (1950)

British and North European Bank v Zalstein (1927)

United Oversees Bank Ltd v Jiwani (1976)

Chapter 4

Drew v Nunn (1879)

Lloyds Bank v Brooks (1950)

Marshall v Crutwell (1875)

Scarth v National Provincial Bank Ltd (1930)

Chapter 5

Alliance Bank v Kearsley

Ladbroke v Todd (1914)

Re: Bourne (1906)

Blackhouse v Charlton (1878)

Re Yenidje Tobccoa Ltd (1916)

Courts and Co v Browne-Lecky (1947)

Liggett (Liverpool) Ltd v Barclays Bank Ltd (1928)

Chapter 6

Ashbury Railway Carriage and Iron Company v Richie (1875).

Royal British Bank v Turquand (1866).

A. L. Underwood Ltd v Bank of Liverpool & Martins (1924)

Salomon v Salomon (1897),

Re Yenidje Tobacco Ltd (1916)

Re: Introduction Ltd v National Provincial Bank Ltd (1968)

Ladbroke v Todd (1914).

Guardian of St. John’s Hampstead v Barclays Bank Ltd (1923).

Chapter 7

Re: Thomas Mortimer Ltd. (1965)

Re: Sass (1896).

Chapter 8

Coutts and Co. v Browne-Leckey and Others (1946)

Walter v Edward

Lloyds Bank Ltd v Bundy (1974)

Lumsden & Co. v London Trustee Savings Bank (1971)

Guardians of St. John’s Hampstead v Barclays Bank Ltd (1923)

Chapter 9

Salmon v Salmon & Co. Ltd (1897)

Chapter 10

National Bank v Silke (1891)

Brown v Westminster Bank Ltd (1964)

London Joint Stock Bank v Macmillan and Arthur, (1918)

Greenwood v Martins Bank Ltd. (1933)

Brown v Westminister Bank Ltd (1964)

Wilson and Meeson v Pickering (1946)

Midland Bank Ltd v R. V. Harries Ltd (1963)

Chapter 11

Arab Bank Ltd v Ross (1952)

Greenwood v Martins Bank Ltd (1932)

Brown v Westminster Bank Ltd (1964)

London Joint Stock Bank Ltd v Macmillan & Authur (1918)

Lewes Sanitary Steam Laundry Co. Ltd v Barclay Bevan Co. Ltd (1906)

Kepitigalla Rubber Estates Ltd v National Bank of India Ltd (1909)

National Westminster Bank Ltd v Barclays Bank International and Another (1975)

Nigeria Advertising Service Ltd v UBA Ltd (1906)

Tai Hig Cotton Mill v Lingchong Hing Bank (1985)

Charterton v London & Country Bank (1980)

Wealden Woodlands (Kent) Ltd v National Westminister Bank (1983)

Joachimson v Swiss Bank Corporation (1921)

Jayson v Midland Bank Ltd. (1968)

Chapter 12

M’Lean v Clydesdale Banking Co.

Westminster Bank Ltd v Zang; Lloyds Bank Ltd v Dolphin

National Bank Ltd v Silke

Attribs v UBA Ltd (1968)

Foreman v Bank of England (1902)

Ladroke v Todd

Greenwood v Martins Bank (1933)

BEWAC Ltd v ACB (1972)

United Insurance Co. Ltd v Muslim Bank (W.A) Ltd (1972)

Chapter 13

Ademiluyi v Africa Continental Bank Ltd (1964).

Curtice v London City & Midland Bank Ltd (1908)

Westminster Bank Ltd v Hilton (1926)

Chambers v Miller

Baines v National Provisional Bank Ltd

Reade v Royal Bank of Inland (1922)

Burnett v Westminster Bank Ltd (1965)

Westminster Bank Ltd. v Zang (1965)

Jayson v Midland Bank (1967)

Prosperity Ltd v Lloyds Bank Ltd (1923)

Chapter 14

Balmoral Supermarket v Bank of New Zealand (1974)

Chapter 15

Wilson v Midland Bank

Prosperity Ltd v Lloyds Bank (1923)

Tournier v National Provincial and Union Bank of England (1924)

Joachimson v Swiss Bank Corporation (1921)

TABLE OF REGULATIONS

Chapter 1

Section 2(1), Banks and Other Financial Institutions Decree (BOFID) No. 25 (1991)

Section 2, Bills of Exchange Act (1964)

Chapter 3

Section 77(2), Bills of Exchange Act (1990)

Section 2(2), Bills of Exchange Act (1964)

Section 75, Bills of Exchange Act (1990)

Nigerian Bankers Clearing House Rules 15(c)

Section 82, Bills of Exchange Act (1990)

Chapter 5

Business Name Decree No. 1 of 1990

Section 1 of the Infants Relief Act (1874)

Chapter 6

Company and Allied Matters Decree (CAMD 1990), Section 39(1)

CAMD Section 39(3) 1990

CAMD Section 39(4) 1990

Section 159 of CAMD 1990

Section 20 of the Banking and Other Financial Institutions Decree (BOFID)

Section 495 CAMD 1990

Section 72, Companies and Allied Matters Decree (1990),

Section 72 (2) CAMD (1990).

Section 69 CAMD (1990).

Article 79 of Table A of the Companies Act (1968)

Section 69 (d), Companies and Allied Matters Decree (1990)

Section 70 CAMD (1990).

Section 77 (2) Bills of Exchange Act (1990)

Section 38, Partnership Act (1890)

Chapter 7

Section 498 CAMD (1990)

Section 494 (1) Companies and Allied Matters Decree (1990)

Section 494 (3) Companies and Allied Matters Decree (1990)

Chapter 8

Section 5, Betting and Loans Infant Act (1892)

Infant Relief Act (1874)

Infants Law of 1957

Section 1 of the Infants Relief Act (1874)

Chapter 10

Section 8(1), Bills of Exchange Act (1990)

Section 23, Bills of Exchange Act (1990)

Section 73, Bills of Exchange Act (1990)

Section 30 (2), Bills of Exchange Act (1990)

Section 83, Bills of Exchange Act (1990)

Section 77 (2), Bills of Exchange Act (1990)

Section 76(1), Bills of Exchange Act (1990)

Section 24, Bills of Exchange Act (1990)

Section 34 (1), Bills of Exchange Act (1990)

Section 29, Bills of Exchange (1990)

Chapter 11

Section 64(1), Bills of Exchange Act (1958)

Section 64(2), Bills of Exchange Act (1958)

Section 24, Bills of Exchange Act (1990)

Section 23, Bills of Exchange Act (1990)

Chapter 12

Section 77(1), Bills of Exchange Act (1990)

Section 77(2), Bills of Exchange Act (1990)

Section 29(1), Bills of Exchange Act (1990)

Section 29(2), Bills of Exchange Act (1990)

Section 29(3), Bills of Exchange Act (1990)

Section 60(1), Bills of Exchange Act (1990)

Section 76(1), Bill of Exchange Act (1990)

Section 76(2), Bills of Exchange Act (1990)

Section 82, Bills of Exchange Act (1990)

Section 83, Bills of Exchange Act (1990)

Rule 10 of the Central Bank of Nigeria Collection Rules

Section 24, Bills of Exchange Act (1990)

Section 55 (2) (c), Bills of Exchange Act (1990)

Chapter 13

Section 75, Bills of Exchange Act (1990)

Section 60(10), Bills of Exchange Act (1990)

Section 19, Stamp Act (1853)

Section 1, Bills of Exchange Act (1964)

Section 80, Bills of Exchange Act (1958)

Section 2(2), Bills of Exchange Act (1964)

Section 29, Bills of Exchange Act (1990)

Section 76(1), Bills of Exchange Act (1990)

Section 83, Bills of Exchange Act (1990)

PREFACE

BANKING ACTIVITIES INVOLVE THE RENDITION of services from the banker to the bank customer. Such services could range from taking customer instructions on standing orders and direct debits to the giving of bankers’ opinion, keeping safe custody items and maintaining secrecy in business relationships. These are banking services that result from mere interface between the banker and the customer.

However, when banking services involve tangible instruments like negotiable instruments (cheques, drafts, promissory notes, etc.) and structures like creation of accounts (personal, joint, partnership and corporate accounts), the interface between banker and customer takes a more serious dimension. Much of banker-customer litigation arises from the management of bank instruments and bank accounts. Indeed, about 65 percent of all bank cases domiciled with the courts stem from issues involving negotiable instruments and the management of accounts. Little wonder this branch of banking is replete with case laws that give guidance to the conduct of banking activities to ensure that neither the bank nor the customer is short-changed in the conduct of their respective businesses.

Again, most of the fraud cases in banking are represented in this district of banking – by the use of bank instruments and the manipulation of bank accounts. You have instances of forged signatures and incomplete account opening documentation.

Bank Instruments & Accounts Management: Detecting & Preventing Fraud is an expose on how bank instruments should be employed and how accounts should be managed to guarantee a seamless flow of banking operations to the benefit of both the bank customer and the bank itself. It posits processes and procedures in the conduct of accounts and in the utility of negotiable instruments. Buoyed by relevant case laws, banks and their customers are being acquainted with the legal interpretation of their actions with a view to ensuring sound banking.

Knowing when a fraud is being calculated and stemming it from crystallizing is the hallmark of excellent banking. No right-thinking banker would like to deplete shareholder funds due to a miscarriage of banking operations, worse still, as a result of lack of knowledge of extant laws.

Moreover, the transition from a cash-based economy to a cashless economy has implications for both the banker and his customer. Understanding this transition and the anticipated benefits (and burdens) would better position the banker and the banking public on how to key into this new wave and make the best of it, particularly, its capacity to reduce fraud to the barest minimum in banks.

This book has been made as simple as breathing. It is hoped that this book, when thoroughly digested, will make a clear difference between ignorance and knowledge-based banking. It is the latter that is needed in the 21st Century and beyond, and it is the belief of the author that with this book, the glory of the future of banking, both in Nigeria and beyond the Nigerian borders, will be greater than the history of its past.

Idika Kalu Uma

Abuja, 2019

ACKNOWLEDGMENT

I THANK MOST SINCERELY THE Central Bank of Nigeria (CBN), Abuja, for materials that have enabled this work have the desired punch. I thank, particularly, Peace Munopurgopwa Ray, Mary Ndidi Ndubuisi, and Mrs. Ifenyinwa Ariole, CBN library staff members, for papers on a cashless economy and the