LAW OF BANKING
AND
NEGOTIABLE
INSTRUMENTS
(LPT 313)
Course Outline
COURSE OUTLINE
1. Nature, history and evolution of banking in Nigeria
2. Law regulating the establishment and operation of banks in Nigeria
3. Banker-Customer relationship
4. Nature and legal effect of bank accounts - Overdrafts, forgeries, conversion
5. Nature and legal effect of negotiable instruments
6. Security for Advances –
a) Nature of secured credits
b) Types of security
c) Mortgages and foreclosures
7. Regulation of Banks and Financial Institutions
• The Role of -
(a) Central Bank of Nigeria (CBN)
(b) Nigerian Deposit Insurance Corporation (NDIC)
Reading List
1. J Milnes Holden The Law and Practice of Banking (3rd ed) Vols 1 & 2 ELBS London.
2. OA Adeniji The Law and Practice of Banking in Nigeria (2nd ed) OAU Press, Ile-Ife.
3. Goldface-Irokalibe, I.J. Law of Banking in Nigeria (2nd ed) Malthouse Press, Lagos
4. Enyia, J.O. The Law of Banking in Nigeria: Cases and Commentary Malthouse Press,
Lagos.
Nature of Banking
History and Evolution
of
Banking in Nigeria
History…
• Barclays Bank v Abubakar (1977)10 SC 13 @74
• Early Regulation
• The Banking Ordinance 1952
• The Banking Ordinance 1958
• The Banking (Amendment) Act No. 28 of 1961
• Banking Act 1969
• Central Bank of Nigeria Act 1991
• Banks and Other Financial Institutions Act (BOFIA) 1990
• See Omidire, K ‘Options for Banks’ Additional Capitalisation: Legal
Implications’ (1997) Vol. 2, No.2, MODUS International Law and
Business Quarterly p.10
Law Regulating the
Establishment and Operation of
Banks in Nigeria
Law Regulating the
Establishment and Operation of
Banks in Nigeria
Establishment and Operations
• Banks and Other Financial Institutions Act (BOFIA) No. 5 of 2020
• Explanatory Memorandum -
“This Act, among other things, regulates banking and business of ither financial institutions by prohibiting
the carrying on of such business in Nigeria without a licence and by a company incorporated in Nigeria.
This Act also makes adequate provisions regarding the proper regulation and supervision of such
institutions by the Central Bank of Nigeria.”
• The Act is divided into 5 Chapters –
A. Banks
B. Specialised Banks and Other Financial Institutions
C. General Regulatory Powers
D. Resolution Fund
E. Special Tribunal for the Enforcement and Recovery of Eligible Loans
• See Omidire, K ‘Regulation of Investment in Banking Business and Operations in
Nigeria’ in Current Developments in Nigerian Commercial Law (edited by I. E. Sagay
and O. Oliyide) 1998, Throne of Grace Limited, Lagos p.36
Banker-Customer Relationship
Relationship…
• Akwule and Ors v Reginam (1963) All NLR 193
• Section 2 of the Bills of Exchange Act Cap B8, LFN 2004 (Bills of
Exchange Act 1917)
• ‘Banker’ includes a body of persons whether incorporated or not who
carry on the business of banking.
• Section 131 BOFIA 2020-
• “the business of receiving deposits on current account, savings account,
paying or collecting cheques, drawn by or paid in by customers;
provision of financial consultancy and advisory services relating to
corporate and investment matters, making or managing investments on
behalf of any person whether such businesses are conducted digitally,
virtually or electronically only or such other business as the Governor
may by order publish in the Gazette, as banking business”
Relationship…
• Ojikutu v Agbonmagbe Bank Ltd and Anor [1967-1975] 2 NBLR 187
• Ademiluyi v. A. C. B. Ltd. [1964] NCLR 10
• Festus Yusuf v Co-operative Bank Nig Ltd [1994] 7 NWLR (pt 359) 676
• Great Western Railway Co. v. London & Country Banking Co. Ltd (1900)
AllER 1004 (HL)
• Ladbroke v. Todd (1914) 30 TLR 433
• National Bank of Nigeria v Hotchand and Ors [1967-1975] 2 NBLR 65
• Osawaye v National Bank of Nigeria [1967-1975] 2 NBLR 426
• Principal / Agent - See Bank of West Africa v Balogun [1967-1975] 2
NBLR 265
• Bailor / Bailee – See Johnson v Sobaki [1967-1975] 2 NBLR 143
Relationship…
• Duties of Banker
• United Nigeria Insurance Co Ltd v Muslim Bank (West Africa) Ltd [1967-
1975] 2 NBLR 231 (SCN)
• Savory & Co v Lloyds Bank Ltd (1932) 2 KB 122 @ 144
• Duty of Confidentiality
• Tournier v National Provincial & Union Bank of England [1924] 1 KB 461
• Habib Nigeria Bank v Koya [1992] 7 NWLR (pt 251) 43
• Exceptions
• Onagoruwa v Inspector General of Police [1991] 5 NWLR (Pt 193) 593
• Williams v Bankole [1966] NCLR 371
Rights of a Banker
• Rickett v Bank of West Africa (1960) ESC 113
• Enahoro v Bank of West Africa (1971) 1 ALR Comm 180
• Missri v Bank of West Africa (1967) 1 ALR Comm 427
• Egwuekeh v Barclays Bank Nig. Ltd (1973) 432
• Barclays Bank v Abubakar (1977) 10 Sc 13
• Union Bank v Ozigi (1991) 2 NWLR (pt 176) 677 (CA)
Duty of Confidentiality
• Habib Nigeria Bank v Koya [1992] 7 NWLR (Pt 251) 43
• Tournier v National Provincial & Union Bank of England [1924] 1 KB
461
• Onagoruwa v Inspector General of Police [1991] 5 NWLR (Pt 193) 593
• Williams v Bankole [1966] NCLR 371
• Hedley Byrne v. Heller & Partners Ltd [1964] AC 465
3 Party Interference on
rd
Customers’ Accounts
3rd Party Interference on Accounts
• Garnishees
• Sheriff and Civil Process Act Cap 189 LFN
• Nigeria Hotels Ltd v Nzekwe (1990) 5 NWLR (pt 149) 187
• Sieimers Export v W. G. N. T. Ltd (1985) HCNLR 965
• Nigeria Hotels Ltd v Nzekwe (supra)
• Barclays Bank DCO v Baderinwa (1962) LLR 33
• Barclays Bank DCO v Bright Gravel & Granite Service (1963) NLR 19.
• Freezing Orders
• Diamond Bank Ltd v Ugochukwu [2008] 1 NWLR 1.
3rd Party Interference…
• By S. 30 BOFIA, Director of Banking Supervision is conferred with
supervisory powers over banks on behalf of CBN.
• Money Laundering (Prohibition) Act
• Economic & Financial Crimes Commission Act
NEGOTIABLE
INSTRUMENTS
Negotiable Instruments
• Definition
“A negotiable instrument is one of the property in which is acquired by
anyone who take it bona fide, and for value, notwithstanding any defect of title
in the person from whom he took it, from which it follows that an instrument
cannot be negotiable unless it is such and in such a state that the true owner
could transfer the contract or engagement contained there by simple delivery
of the instrument.”
- Willis, The Law of Negotiable Securities.
Negotiable…
• Bills of exchange
• Definition
• A bill of exchange drawn on a banker payable on demand
• Bill of Exchange
• “an unconditional order in writing addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay on demand, or at a
fixed or determinable future time, a sum certain in money to or to the order of a
specified person or to the bearer”.
• S.3(1) Bills of Exchange Act, Cap B8 LFN 2004
• A copy of the English Bills of Exchange Act 1882
• Agbafe v Viewpoint (Nig) Ltd (1977) NCLR 93
(c) Kolapo Omidire 21
Cheques…
• Yau v Bank of the North (1994) 1 NWLR (pt 321) 461.
• Takaya v Union Bank of Nigeria Ltd [1985-1989] 4 NBLR 1
• Crossings
• ‘Not Negotiable’ crossing
• Has no effect except with the crossing
• African Continental Bank Ltd v AG Northern Region [1967] NSCC 66
• United Nigerian Insurance Co v Muslim Bank WA [1972] NCLR 177
• Central Bank of Nigeria v National Bank of Nigeria Ltd [1976] NCLR 99
• National Bank of Nigeria v Mobil Oil Nig. Ltd [1994] 2 NWLR 534
• Other instruments
• Bank drafts/Banker’s cheques
• Mat Holdings Ltd & Anor. V United Bank for Africa plc [2003] 2 NWLR 71
• African Continental Bank v Alao [1994] 7 NWLR (Pt 358) 614
• Lagricom Co. Ltd v Union Bank Ltd and Ors [1996] 4 NWLR 185
Operation of Customers’ Accounts
• Wrongful dishonour
• Chukwuedo v First Bank of Nigeria Ltd [1985-1989] 4 NBLR 40
• Libel
• Wrongful dishonour conveys the impression that the customer has no money
in his account, or that he drew the cheque in bad faith or in fraud.
• First Bank of Nigeria v Ibennab [1995] 5 NWLR 726
• Salami v Savannah Bank Ltd [1990] 2 NWLR 106
• Balogun v National Bank of Nigeria Ltd [1978] NSCC 135
• Availability of funds
• African Continental Bank Ltd v Egbunike & Ors [1985-1989] 4 NBLR 424
• Uzuegbu v Progress Bank of Nigeria [1985-1989] 4 NBLR 400
SECURITY FOR ADVANCES
Security…
• Statutory interventions…
• S. 19 Banks and Other Financial Institutions Act Cap B3, LFN 2020
• S. 19(3)(a)(i) Banks and Other Financial Institutions Act No. 5 of 2020 –
Restrictions on business.
• S. 868(1) Companies and Allied Matters Act 2020 [CAMA] defines
“debenture”
• S. 191 CAMA 2020 – Power of companies to borrow money
• S. 44(1) CAMA 2020 - Statutory effect of ultra vires.
Mortgages
• Constitutional interventions.
• 43 1999 Constitution
• Right to acquire and own property anywhere in Nigeria
• S. 16(2)(d) 1999 Constitution
• State to direct policy towards providing shelter for all citizens
• Land Use Act
• S. 1- Land held in trust by Governor of a State
• S. 34 (2)- Developed land pre-dating the Act is a deemed grant
• S.22-
• Unlawful to alienate right of occupancy “without the consent of the Governor first had
and obtained”
• Where mortgagor is a company, S.197 CAMA requires additional
registration at CAC
Protection of Mortgagor
• Ogiorio v. Igbinovia (1998) 13 NWLR (Part 582) 426
• S. 20 Conveyancing Act and S.125 PCL – Requirement of notice.
• Nigerian Housing Dev. Society Ltd v Mumuni (1977) 2 SC 57
• Gbadamosi v. Kabo Travels Ltd (2000) 8 NWLR (Part 668) 243
• Taiwo v. Adegboro (2011) All FWLR (Part 584) 52 SC
Debentures
• S. 191 CAMA 2020
• Every company has the power to “borrow money for the purpose of its
business or objects and may mortgage or charge its undertaking, property,…
whether outright or as security for any debt…”
• The borrowing powers is however subject to the Memorandum and Articles of
Association.
– S. 868(1) Companies and Allied Matters Act 2020 [CAMA] defines
“debenture” as-
• ‘a written acknowledgement of indebtedness by the company, setting out the terms and
conditions of the indebtedness, and includes debenture stock, bonds and any other
securities of a company whether constituting a charge on the assets of the company or
not’
• See - Inter-Contractors Nig Ltd v. National Provident Fund
Management Board (1988) 2 NWLR (Part 76) 280
Alternatives to land as Security
• Cash
• Pledge
• Bill of sale/Chattel mortgage
• Lien
• Guarantees, Bonds and Indemnities
• Irrevocable standing payment orders (ISPOs)
• Shares
(c) Kolapo Omidire 29
REGULATORY FRAMEWORK
FOR BANKING
Regulatory…
• Central Bank of Nigeria (CBN)
• S. 2 CBN Act 2007 -
• The principal objects of the Bank shall be to
• (a) ensure monetary and price stability;
• (b) issue legal tender currency in Nigeria;
• (c) maintain external reserves to safeguard the international value of the legal
tender currency;
• (d) promote a sound financial system in Nigeria; and
• (e) act as banker and provide economic and financial advice to the Federal
Government.
• The objective of promoting stability and continuity in economic
management -See S. 1(3) CBN Act
Regulatory…
• S. 29 BOFIA 2020 – Exclusive regulatory and supervisory powers
• Note that NDIC regulatory powers are largely regarding failed banks
• S.30 – Conduct of supervision and competition
• S. 31 - Appointment and powers of Director of Banking Supervision
• S. 32 – Examination and Report
• S. 33 – Special Examination
Regulatory…
• Part II – Duties of Banks
• S. 15 – Maintenance of reserve funds
• S. 16 – Restriction on the payment of dividend
• S. 17(1) – Disclosure of interest of Managers, Directors and Officers
• S. 19(2) One obligor rule
• S. 19(3) – Loans in excess of N1mm to directors to be secured
• S. 19(4) – Loans to Directors and significant shareholder
• S. 19(7) – Directors to indemnify bank for losses arising from breach of
provisions
Regulatory…
• Part VIII – Other Regulatory Powers of CBN
• S. 63 - Risk-based supervision and capital requirements
• Monitor the capital adequacy ratio
• Restrictions in the event of deficiency
• S. 66 – Anti-Money Laundering and Combating of Financing of Terrorism (AML/CFT)
• S. 67 - Corporate Governance and Ethics
• Corporate Governance Guidelines – CBN Circular of July 2023
• Provisions on –
• Board Structure and Composition
• Non-executive directors (NEDs)
• Independent non-executive directors (INEDs)
• Roles and responsibilities of the Board
• Board Committees
• Induction and continuing education
• Access to independent advice
• Conflict of interest
• Disclosures
• Whistle blowing
• Sanctions
(c) Kolapo Omidire 34
Regulatory…
• Nigerian Deposit Insurance Act 2006
• S. 2 – Functions of the Corporation
• S. 3 – Prohibition of other Deposit Insurance scheme
• Breach is an offence
• Deposit Guarantee
• N500,000 to a depositor in Deposit Money Banks (DMBs) and Primary Mortgage Banks
(PMBs); and
• N200,000 to a depositor in Micro Finance Banks (MFBs)
• In the event of failure of a participating financial institution
