MZUMBE UNIVERSITY

(MBEYA CAMPUS)
FACULTY OF LAW

COURSE: L.L.B II

SUBJECT: BANKING LAW.

NATURE OF WORK: GROUP ASSIGNMENT.

QUESTION:
DELEGATED LEGISLATION IS AS MUCH LAW AS ANY
STATUTE.
GROUP 4

NAME REGISTRATION NUMBER

MAKWASA KERITHA 1023/T.08
PAZI MWANAHAMISI 1135/T.08
KUNJUMU PAULINA 1000/T.08
DOMINICIAN DENIS 935/T.08
YAHYA FATMA 1183/T.08
MUSA HAPPYNESS 1089/T.08
MKOLWE VICTOR 1070/T.08
NEEMA ROBERT 1140/T.08
EMISIA MAWALA 1039/T.08
MWAMPINGE EDGAR 1104/T.08
NEMESI CHAMI L. 924/T.08
HAJI JUMA .H. 944/T.08
ABDALLAH MWAMACHI 1101/T.08
MISSO Z. ESTER 1068/T.08
HEMEDI MWANAIDI 946/ T.08
 OUTLINE.
INTRODUCTION.
 General concept of the question.
MAIN BODY;
 Definition of loans and advances
 Role and significance of securities
 Types of securities and why it is preferred
 Criticism
CONCLUSION ;

REFERENCE.
INTRODUCTION;
In discussing the question in hand this work will include the definition of various terms, then the
roles and significance of securities will be explained followed by various types of securities and
which the bank prefers them and various criticism. Reference and conclusion will mark the end of
the work.

MAINBODY
Meaning of loan
An arrangement in which a lender gives money or property to a borrower and the borrower agrees
to return the property or repay the money usually along with interest at some future point in time.
Usually there is a predetermined time fro repaying a loan and generally the lender has to bear the
risk that the borrower may not repay a loan though modern capital market have developed many
ways of local risk.1
Section 173(2) (a), of the Income Tax (Earnings and Pensions) Act 2, loan is referred to as credit
hence means more than just lending money. It includes any form of credit. It follows that any
amount of advance by reasons of the employment is covered, example; any amount shown in the
employers book, or records as owed by an employee will count as a loan.
In the case of Grant v. Watton3 meaning of loans was said to be refered to as credit which is
granted where payment is not demanded until a time later that the supply of goods to which the
payment relates. Is also the deferral of payment of a sum which absent agreement would be
immediately payable.4
Types of loans. gyt
Secured loans. These are loans secured against an asset you own, that is home, which is offered up
as a collateral. Ultimately if you default on the loan the bank will get their money back by way of
foreclosing your house or otherwise seizing the collateral. Example, car loans, boats, mortgage.
5
Unsecured loans. They are loans that are not secured against any asset. The bank can only utilize
collectors and freeze your account if you default. The loan amount granted is largely attributable to
your credit history and income or assets or debts at the time of application. The bank is highly on

1
[Link]/2858/[Link]
2
2003 United Kingdom
3
(71TC 333)
4
[Link]/MANUALS/eimanual/EIM26108htm.
5
[Link]/loanstypes
risk with this type of loan, example, personal loans, personal lines of credit, student loans, credit
card or department store cards.6
Meaning of advance.
Any extensions of credit bankers talk of advances when the rest of us say loans. An advance
from a banker in this context could be in and form of drawing under an overdraft facility, a fully
drawn advance or term loan, a line of credit with a bill option, a bill facility or personal loan. 7

Meaning for security for loans.

Security offered against a loan can be of various types. It may vary from a piece of land or a
building to a commercial paper or bullion. Whatever may be security a banker has to realize that it
is only a cushion to fall back upon in case of need and its adequancy alone should not form the sole
consideration for advance. It must be ensured that the security when accepting must be adequate
readity marketable, easy to handle and free from encumbrances.8

Meaning for security for advances.

A security is meant to be an insurance against such an emergency and its role as one of the main
considerations for sanctioning and advance can not be undermined. 9 If a borrower fails to repay the
advance a banker should have adequate cushion or cover to protect his interest. The viability of a
project and the credit worthiness of a borrower based on his character, capacity and capital,
however take precedence over the security as per the modern methods of lending. Even after
considering all these aspects a banker can not be sure that the advance will not fail. It is then that
security plays the role that an umbrella does in case of a rainy day.

HISTORICAL BACKGROUND FOR LOANS AND ADVANCES.

During the British colonial administration, there were bank branches in various towns in
Tanganyika to serve the British finance capital systems. The land bank was established to provide
long and medium term loans and the procedural requirements for processing loans, advanced by the
6
Ibid.
7
[Link]/glossaries/advance/4942846
8
B.S Khubchandani, (2002)Practice and law of Banking pg 149
9
B.S Khubchandani, Ibid pg 156
land bank were structured to favor the settlers. The British government had given land titles to the
settlers who mortgaged their land to procure loans. The land titles were the popular securities
demanded by the land banks, and because of this requirement most of the African farmers could not
provide the security, since they did not own title deeds I the form of right of occupancy and not
even in the form f letters of offer.10

Significances for securities for loans and advances.

While granting loan the bank has to take into account the purpose for which the loan is required to
determine desirability of granting the loan. The security offered by the borrower is also an
important factor to be taken into account while granting the loan; the following are some of the
roles and significances of security for loans.
The security offered by the borrower is of great significance while deciding the grant of loan
by the bank, if it is personal security of the borrower and the sureties, then their financial status,
credit worthiness as indicated by their past record and the business in which they are engaged in has
to be looked into.
It improve the creditor chance of getting paid or of receiving whatever else the debtor is
required to do by way of [Link] is because by depositing his securities by the debtor, he
will do all of his level best to make sure that the his property is not lost, hence creditor is being
assured of getting paid.
The borrower shows more interest in the enterprise when his stake is there in the form of a
security. The end use of funds can be ensured to a certain extent by physically verifying securities
like raw materials, goods in process, finished goods machinery and equipment.
Incase of default a banker can dispose of the either by private negotiations or public auction
after giving adequate notice to the customer.12
It improves the debtors performing his obligation even where he is not insolvent. In most
situations the last thing the creditors want is to enforce his security. His prima-facie objective is that
the contract he has entered into with the debtor should be performed. The debtors fear that the
security may be enforced out of threat by the creditors to enforce the security will often be enough

10
Binamungu C.S, Regulation of banking business in Tanzania, pg.
11
Banking Law, Robert Bradgate, pg 488
12
Ibid Khubchandani, B.S pg 156.
to ensure that a debtor who is having difficulty in fulfilling his entire contract will give priority in
the performance in favor of the sued creditor.13
The main purpose and advantage of security is to guide against and improve the creditor’s
position in event of the creditor’s insolvency. This was seen in the case of Holrody v. Marshall14,
“if a vendor or mortgagor agree to sell or mortgaged property real or person, of which he is
possessed at the time, and he receives the consideration for the contract and afterwards becomes
possessed of property answering the description in the contract, there is no doubt that court of
equity would compel him to perform the contract and that the contract would in equity transfer the
beneficial interest to the mortgagee or purchaser immediately o the property being acquired.” 15
The real security (mortgage) gives a creditor special proprietary to the pledged asset a
proprietary interest but less than full ownership limited to the value of a secured debt 16. In Donald
v. Sudding17, it was held that the debtor (pledgee) may deal with his interest by assigning or using it
without destroying the property.

Types of securities and securities prefered by the bank.

Few persons carry out business activities through their own resources. In the early days,
owners of the business used to finance all the operations through their own resources. With the
economic development it became apparent that more resources were required. The main function of
the banker is to give advance to the customer by the way of loan. No any banker can give advance
without receiving any property as a security. Now days the banker receive both movable and
immovable properties as security to the loans.18
There are different types of securities, in relation to preference it depends much with the
circumstances of the surroundings of which one is available or which one is offered by the
customer, since the main concern of the bank is to make profit therefore the securities that will be
preferred are of different factors; The marketability of the commodity, The nature of the demand,
The storage and insurance problem, and Durability of the commodity. Those securities includes

13
Ibid, 488
14
[1862] 10 HL
15
Robert Brad gate, 488
16
Ibid, 501
17
[1866] LR 1QB 585.
18
Dr [Link],Law of banking,P.83
land, debenture, pledge (pawn), shares, life Insurance Policy, hypothecation, banker’s lien,
right of set off and guarantee.

Land; land is defined under S.2 of the Land Act19 to include the surface of the earth, the surface
below the earth (exclude minerals and petrol) and other structure permanently fixed affixed to the
land. Land may be accepted by lenders or bankers as a security in form of mortgages, in the Land
Act Mortgage is defined under S.2 to mean ‘‘an interest in the Right of occupancy or Lease
securing payment of money or money’s worth or the fulfillment of a condition and includes a sub-
mortgages and the instrument creating a mortgage’’20 also in the case of Stanley V. Wilde21it was
defined by Lindly Mr, To mean conveyance or an assignment of chattel as a security for the
payment of the debt or the discharge of some other obligation for which is given.
In the additional to the above Section 115 of the Land Act provides that mortgages of the land
shall take effect as a security only and not operate as transfer of any interest or rights in the land
from the mortgagor to the mortgagee but the mortgagee shall have all the powers and remedies in
case of default by the mortgagor.22
Usually the bank prefer land as the security for the following reasons; the value of the land is
usually stable and in fact appreciate overtime, again land can not be moved from one place to
another (it immovable property). It is a type of security in which the business community is used,
further more in case of equitable mortgage there must be a certificate of ownership, if it is a legal
mortgage it must be registered
Right of set off (combine accounts) (cash in security); it is an inbuilt security in a sense that it
is a right implied in a banker customer relationship. It is a right given to the banker upon the
happening of a certain event to combine the accounts of the customer in order to pay an outstanding
debt. Where a customer has defaulted in payment normally the banker would first find out whether
it can exercise a right of set-off before falling on the security taken. In the case of Tanya Said
Nkoloma V. [Link] Corporation23 The court of appeal, elaborated on the right to combine
accounts or right of set-off, in case the customer has more than one account with a bank the bank
has the right to combine the account and treat them as one.

19
[Cap 113 R.E 2002]
20
ibid
21
(1899)2 Ch. Div,474
22
Binamungu C.S; Regulation of Banking Business in Tanzania; p92
23
 Moreover There are two circumstances were the bank is entitled to combine accounts, which are
whenever the customer is unable or unwilling to repay an overdraft incurred in one account and
where a customer draws a Cheque for an amount exceeding the balance standing to the credit of the
account involved but the deficiency can be met out of the funds deposited in another account. but
this right runs subject to some exceptions as the right can not be exercised in joint account, private
account of partners, and When the bank exercise the right of set-off must exercise it subject to
notice to the customer, this was the position in the case of Buckingham V The London and
Midland Bank Ltd.24 And Greenhalgh [Link] Bank of Manchester25 where by it was held that
a bank can not without reasonable notice sett-off the customers account unless there is immediate
cause such as death and insanity. And it is preferable because, it is not cost full and does not take
time because the money is in the possession of the bank it is just the matter of transfer.
Debenture is an instrument normally under seal, issued by a company or the public body as the
evidence of the debt. It contains an acknowledgement of a debt and carries a promise to repay the
amount mentioned therein. This was the position in the case of Shinyanga Regional Trading
Company Ltd and others V NBC26 there are types of debentures secured(fixed charge and floating
charge) and unsecured debenture. Provide for the time to be 42 days. The reason as to why the bank
prefers this type of security is because the assets are placed in the hands of the lender in such a way
that if the loan is not repaid then the lender can take over those asset.
Shares as the security, S.2 of the Companies Act27, define share to mean the capital of the
company which include stock except where a distinction between stock and shares is expressly
stated. It is preferable because they are chose’s in action capable of realization in money from and
therefore property, again a bank will normal take legal charge as opposed to an equitable charge
over the share which makes it to be legal owner of the share. There are different procedures in taken
the legal charge which include borrower deposits his certificate with the bank and borrower signs a
share transfer from.
Guarantee; this is assurance that a contract or legal act will be duly carried out or performance
or the debt will be paid, again the guarantee can mean a written promise made by one person to be
collaterally answerable for the debt, default or miscarriage of another person. 28 There are condition

24
(1895)12 TLR 70
25
(1924)2 K.B 153
26
(1997)TLR ,78
27
Ibid
28
Sheldon, banking law page 348
of valid guaranty which are as follows; first, the guarantee must be issued by a willing (free
consent) reliable and an undoubtedly good third party. Second, the guarantor should guarantee
something he has full knowledge of. So explain to him what a guarantee is all about and his liability
under the guarantee agreement to make him decide whether to enter into the contract or not
(consenting mind) this was see in the case of the Carlisle and Cumberland Banking Co V
Bragg29.
And last, once guarantee contract has been concluded the creditor is nit allowed to make any
changes in his relation with debtor which may prejudice the position of the guarantor. The banking
preferred the guarantee as the security because it is somehow relax because when the debtor failed
to pay the loan, the liability raise to the guarantor.

CRITICISM;
Banks may be justified in calling back money lent even before the promise time of repaying has
arrived. This may happen in the following circumstance e.g. death or insolvency of a borrower,
death or financial soundness of the guarantor or surety, if the borrower is a partnership then the
insolvency or death of its partner, or there’s dissolution of the partner, bankruptcy of the company.
T his act of the bank denies the customer the right to pay up the bank in the agreed time. Banks
ought to have given the customers opportunity to pay the loan in the agreed time regardless of what
might be going on the customers business.30

The securities that banks are interested in for example goods, real estate, life insurance etc. this
presupposes the presumption that one cannot obtain loan if that person doesn’t have any property to
give as security31.

When the customers fail to pay the loan at a given time the bank may opt to sell the security. This
may be sometimes difficult on some of the security. In the case of real estate the bank cannot sell
the real estate if it hasn’t obtained the consent of both of the married couple. If the banks decide to
do so without the consent of one of the spouse the sell will be void. This was decided in the case of
32
Hadya [Link] Maberi Mbaga and National Bank of Commerce and the case of Idda
29
(1911)1 K.B. 489
30
R.K Bangia;Banking Law & Negotiable Instrument;p25
31
Ibid,p25
32
Civil appeal No 40 of 1995 (Unreported)
[Link] Holdings Corporation & San Sayen Mwakilindile 33 where it was held that
the act of the bank to sell the land without the consent to the wife was void since section 56 (2) of
the Law of Marriage Act of 1971 provide that the wife or a husband has a right to remain in the
matrimonial home until the marriage is dissolved.

The personnel at the legal department had on some circumstance been compelled and hastened to
draft and process security document and loan agreement in respect of loans with political string
attached. Due to the pressure the documents precede would be incomplete and defective 34.

Types of security preferred by the bank all have [Link] advances against good has a
problem of risk of deterioration, fall of price and storage problems, while real estate require consent
from parties concerned when selling the security, titles are subject to forgery or cheating. Hence this
shows that although there are those types preferred by the banks they still have disadvantages35.

Consumer union blames the lenders for exploiting people’s financial hardship for profit. They say
lenders target the young and the poors, particularly those in low income communities. They also say
that borrower may not understand that the high interest rates are likely to trap them in a debt cycle
where they can finally save enough to pay off the principle and get out of debt36.

CONCLUSION;
Generally it can be said that, securities for advances and loan improve the creditor chance of getting
paid or of receiving whatever else the debtor is required to do by way of performance. This is
because by depositing his securities by the debtor, he will do all of his level best to make sure that,
his property is not lost, hence creditor is being assured of getting paid.

33
Civil appeal No 59 of 2000 (Unreported)
34
Binamungu C.S;Regulation of Banking Business in Tanzania; p92
35
Ibid.p87
36
http;//en;[Link]/wiki/consumer union accessed on 24/01/2001 at 9.30 pm
REFERRENCES.

STATUTE;

THE LAND ACT OF TANZANIA CAP 113 RE 2002

THE COMPANY ACT CAP RE 2002

BOOKS

C.S Binamungu; Reguation of banking business in Tanzania; 1st Edn 2006

Dr A Subrahmanyam; Law of Banking; 2nd Edn 2003

R.K Bangia; Banking Law and Negotiable Instrument;2nd Edn 2006

Sheldon; The Law and Practice of Banking; 3rd Edn 1982

OTHER SOURCE;
http;//en;[Link]/wiki/consumer union
http;//en;[Link]/glossaries/advance/4942846