FACULTY OF LAW

DEPARTMENT OF LEGAL
UNDERGRADUATE STUDIES
Module: BANKING AND FINANCE LAW

LECTURERS: DR. F HAMADZIRIPI & MR. A MUFARI

Contacts for module related
Inquries:
Cell: 0778173205 | 0719173205

Email: [email protected]

Address: 2nd Floor, Faculty of Law Building, University of

Zimbabwe
 LECTURE 1:
INTRODUCTORY ASPECTS
What students need to know:
Assessment:
- Students will be assessed through:
- An in-class test
- Group presentations in class
- An exam: The exam is a closed book. You will be
required to answer all questions. Questions will be
scenario type.
KEY QUESTION:
• Do we know what we are going into?
• If no, time to quit/ wait and learn?
• If yes, what is it?
What is a Bank?
• What is a bank?

• The Banking Act Chapter [24:20] is not very useful in defining a bank. It defines
it in sec 2 simply as a commercial bank or accepting house. This definition lacks
adequate substance as to the nature of business that is undertaken by the bank.

• The definition of banking business is provided again in section 2. This however

provides a better definition of a bank:

• It defines banking business as “the business of accepting deposits of money with-

drawable or payable on demand or after a fixed period and after notice and the
employment of those deposits in part by lending or any other means for the
account and at the risk of the person accepting the deposit.”
The Role of Banks in the Economy:
• Banks are at the centre of economic growth and monetary policy implementation.

• The availability of credit and a conducive efficient payment system are an

indispensable feature of any government’s economy.

• Thus, the principal function of banks is the collection of surplus money and the
advancement of that money to those with immediate needs and this is termed
financial intermediation.

• The intermediary functions of banks illustrate their importance in the development

and sustenance of economic activities.

• The deposits obtained from persons are channelled to other persons in the form of
loans. In turn, the recipients of these loans use them for income generating activities,
thus contributing to economic development.
Cont….
• The interest earned by banks from these loans are used for a variety of
purposes including investments. Money collected from depositors is
extremely important. A decrease on in depositors adversely affects the
economy by reducing the money available for banks for onward lending
and whichever little money would be available would be loaned out at
extremely high interest rates.
• Banks also act as agents in the transfer and payments of fund, which is
called fund management. They also provide international services, e.g.
foreign currency procurement, credit facilitates and estate management as
well as financing mortgage bonds and High purchase credit
Types of Banks in Zimbabwe
• There are 3 main types of banks in Zimbabwe, namely

i. Discount houses
ii. Merchant banks, e.g. NMB, Renaissance, Banc ABC, for giving
advice, etc
iii.Commercial banks, e.g. CBZ, Stanbic, Stanchart etc
• The first two are specialised and deal with big companies or
governments whereas the last one usually operates the current
transactions.
Commercial Banks:
• They carry banking business by accepting deposits and
allow withdrawal of money.
• They also lend money to businesses and individuals.
• CLASS DISCUSSION:
- Types of Commercial Banks:
- CBZ, FBC Bank, NMB, Nedbank, Banc ABC, Stanbic
Bank,
Discount Houses:
• They accept deposits from banks
• They used the deposits for short term financing to
government, government entities, parastatals,
municipal authorities and private business.
• They in turn obtain security in form of treasury bills,
government and local authority bonds, commercial bills,
certificates of deposits, etc.
• These transactions take place in what is called a
‘discount market’.
• Class discussion: examples of discount houses.
Merchant Banks
• They are also called accepting houses.
• They finance trade, and often international trade.
• They are known to finance huge transactions such as
mergers and takeovers.
• Provide long term borrowing, advisory services, risk
management, investment banking etc.
• Examples:
• African Century, Empowerbank Limited, National
Merchant Bank of Zimbabwe Limited, etc.
Types of Bank Customers
i) Companies and Private Business Corporations
• Companies that fall within the definition of a company in the COBE Act
[Chapter 24:31] are special customers of a banker because of their juristic
personality even though they rely on human agents to transact business on
their business.

ii) Partnerships
• A proper partnership deed is designed in such a way that specifies those that
are allowed to transact with the bank on behalf of the partnership and are
signatories to the partnership account.
Cont…
iii) Natural Persons:
- These constitute the bulk of bank customers.
- Person with limited capacity:
- Minors – Those under the age of 18, unless emancipated.
- Insolvents: Those that have been declared insolvent by a court of law. Limits
Contractual rights.
- Unincorporated bodies, e.g. churches, trade unions, social clubs: these can open
and operate a bank account provided their constitutions are specific on authorised
individuals.
- Certain professions: some professions e.g. legal practitioners or estate agents keep
trust accounts for members and clients. The bankers should be familiar on the
laws of operating such an account by the specific professional body.
Types of Bank Accounts:
i. Current accounts

• This is the most common type of account offered by banks.

• Involves ATM cards, credit cards etc.

• Customers can deposit or withdraw cash from their accounts or will by swiping a
card and entering a pin number.

• This is also called a transactional account. With this account, regular statements
should be given to the customer regarding the credit and debit balances.

• The account can either be in credit or overdrawn in an overdraft facility.

Cont.

ii) Savings Account

• This account is meant to encourage savings.

• Such withdrawals are usually not on demand but on notice.

• The credit balance accrues interest and overdrafts are not allowed on
this account.

iii) Loan Account

• This is usually created for large amounts of money being advanced to
the customer as a loan and interest is charged.
Cont…

iv) Trust Account

- These are created under general law and specific statutes.

- The account holder does not have a beneficial interest in the account.

- For example, s 13(5) of the Legal Practitioners Act.

- Banker should monitor transactions from this account strictly so that

he or she is not liable when funds are misappropriated.
Cont…

v) Joint Account

- This is whereby two or more people join the same account and its operation is
regulated by the agreements between the account holders and the bank.

- In the case of Caflin v Cyprus Finance Corporation 1983 QB 759, it was held:

- That where a bank negligently pays to one of the account holders where both
signatures are needed, the prejudiced party is entitled to damages equal their share
of interest in the account.

- That the bank has an implied separate agreement with each account holder that no
payment is to be made without his or her signature.
Services Provided by the Banker to the Customer:
i) Granting of Safe Custody Facilities:
- This refers to safekeeping of the customer’s valuables such as Wills, Jewellery etc.

- This is governed by the law of depositum such that the thing is retained in the same state as it was deposited upon
demand.

- This does not form part of the banker customer relationship.

- The banker cannot make use of the thing or profit from it and may not retain the thing as set off for a debt owed:
Standard Bank of SA v Union Boating Company Limited 1964 (4) SA 269.

- In Stokes & Stokes v T L Daly & Sons 1979 (3) SA 754, it was held that the banker has a duty to exercise
reasonable care of the goods and if damaged, lost or destroyed he will be liable for damages unless he has a defence
that excludes negligence or intention on his part.
Cont….
ii) Provision of Term Loans
• This refers to various types of loans that customers get from banks
through a contract of loan.
• The contract takes the amount to be given, the period of the loan
payment, manner of payment and interest charged.
• The law of contract generally applies.
Cont….
iii) Overdraft Facilities
- An overdraft is a reverse situation of the usual way whereby the bank gives a form
of a loan by allowing the customer to withdraw more than his credit in his current
account.
- The customer thus become indebted to the bank for the amount overdrawn, this
facility is usually done through an express agreement between the bank and the
customer.
- See In R v Wessels 1953 TPD 315, Trust Bank of Africa v Senekal 1977 (2) SA 587.

- When an account is overdrawn, the customer becomes the debtor to the bank and ay
deposits to the account are protando (for so much that one would be owing) payment
Interest on loans/ Overdrafts:
• In an overdraft or loan situation, there usually is an
agreement on the rate of interest to be charged on the loan.
• An agreement permitting the bank to charge interest or to
increase the rate of interest was held to be valid. See
Nedbank Ltd v Capital Refrigerated Trucks Ltd
1988 (4) SA 73.
• The maximum rate of interest that can be charged by a bank
is governed by statute precisely the Money Lending and Rate
of Interest Act [Chapter 14:14] in s8 and s9.
• There are 3 doctrines that act as the basis for bank to charge
Tacit Hypothec and 3 rd
Parties:
i. Doctrine of Acquiescence. In the Trust Bank case above, it was held that where
a customer has been receiving regular notices showing interest being charged and
has not protested, then the customer is deemed to have tacitly agreed to such
payment

ii. Implied Agreement: in National Bank of Greece v Pimous Shipping Company

1990 D AC 637, it was held that the true right if banks to charge interest on loans
arises from an implied agreement that has its roots in the custom and usage of
banks. See also Deweras Farm v Zimbabwe Banking Corp 1997 (2) ZLR 47.
iii.The Express Agreement: both parties agree and sign to show consent to the
terms.
The In-duplum Rule:
• A crucial doctrine that governs the issue of interest accruing is the in duplum rule.

• It provides that interest must cease to accrue when it reaches the principal amount.

• Therefore, the banks have no right to claim interest beyond the initial capital.

• See CBZ v MM Builders and Suppliers HH-140-96. This case confirmed the in
duplum rule as part as Zimbabwean Law.

• See also G & M Refrigeration and Air Condition Ltd v CBZ HH-68-97, Reuben
Jasper Gondo v Safe Freights Merchant Bank H-33-97; Mavindidze v Mavindidze
HH-43-10, and many others.
Cont:
• In the CBZ case above, a number of legal aspects of the in duplum rule were discussed.

i. The rule clearly also applies to overdrafts and not only to term loans.
ii. The rule prohibits the accrual of interest beyond the new capital as reduced by partial payment.
iii. Where judgment has been both for capital and interest, the new capital for the purposes of the
in duplum rule is the whole judgment debt that includes the interest.
iv. The capitalisation of interest does not remove the application of the rule, thus, capitalised
interest remains interest for the purposes of this rule.
v. The rule cannot be contracted out of it because it is an issue of public interest. It is meant to
protect debtors from exploitation by bankers/lenders.
vi. Payments made to an overdrawn account are, in the absence of contrary agreement made first
to interest than to capital. Etc.
Cont…..
• The rule does not apply to government debts or the fiscus, see Bindura Nikkel Corporation v Zimra HH30/08

• Another contentious issue concerning the in duplum rule is when does interest begin to run afresh for the
banker’s debtor.

• Two decisions of the HC have discussed this issue - From the date of summons.

• In Ehlers v Stanchart Bank 2000 (2) ZLR, the court ruled that interest must begin to run afresh at the date of
service of summons. The court reasoned that if a debtor chooses not to pay what he knows he owes to the
creditor, then public policy dictates that he or she must not be put off his moneys unnecessarily.

• This is contrary to what was held in the CBZ case where it was held that interest only commences to run
afresh from the date of judgment.

• See also Cornforce Pvt Ltd v City of Harare 2000 (1) ZLR 445 and ZDB v Salon and other HH-43-06
SOURCES OF BANKING AND
FINANCE LAW:
Statutes:
- The Banking Act [Chapter 24:01] – principal Act
- Reserve Bank Act [Chapter 22:10]
- The Finance Act [Chapter 23:04]
- Bills of Exchange Act [Chapter 14:02]
- Other Statutes, SIs, Regulations.
Cont…
Common Law:
- Law developed by courts from precedent (Stare decisis principle).
- Heavy influence of English Law, plus Roman-Dutch Law.
- English courts, South African Courts and Zimbabwean courts will
be relied on.
- Common law principles, e.g. in-duplum rule

Custom & Trade Usage:

- Refers to rules of banking law that are not written anywhere but
arise from customs and practices within the banking sector.
- These need to meet some requirements: Notorious, reasonable,
uniform, practiced for a long time.
Cont…
Authoritative Texts:
- These include writing of scholars, experts and
practitioners in a certain area.
- These are persuasive than binding.
- These assist the courts or parties in interpreting the
applicable law.
I’m obliged to take any……
I am not
like this
guy: