LECTURE NOTES ON BUSINESS LAW

Chapter One

Law of Arbitration

1.1 General Introduction

1.1.1 The Notion of Arbitration

It is a truism that the intention of the parties to a commercial transaction is not usually to
determinate completely prospects of future business dealings. This explains why, when entering
into a contract of any significant value, the parties will generally want to ensure that any dispute
that might arise under the contract in the future, should be dealt with efficiently, rapidly and
confidentially. This should not be interpreted to mean that parties to a contract cannot seek redress
through arbitration when a dispute had arisen and the parties did not expressly state in their
contractual agreement that disputes thereto will be settled by arbitration. Arbitration is thus:

A means of dispute settlement whereby parties to a contract agree that disputes ensue
(resulting) from their contractual relationship should be solved by either a specific individual or
a group of individuals appointed by them or a particular arbitral tribunal chosen by them.

The worry about international arbitration is that it does not fit into the legal system of any
single country. Moreover, it is frequently conducted under the rules of an arbitration institution.
No two sets of rules are the same. Finally, the parties to arbitration may decide to add their
individual twist to arbitration by agreeing on special rules to apply to the arbitration. Arbitration
allows parties to settle their disputes in a tribunal consisting of a sole arbitrator or a panel of
arbitrations, who may be chosen by the parties themselves. The result of arbitration is an arbitral
award, which, as a general rule will be final and binding, subject to any appeals and with no easily
enforceable conditions, if the losing party does not comply spontaneously.

Arbitration may either be institutional (that is, conducted by an arbitral centre that
administers the arbitration in accordance with its own rules), or Ad Hoc, (that is, conducted
without the assistance of an arbitration centre and in accordance with any rules that the parties and
the tribunal may choose to apply). Arbitration is generally subject to the rules laid down by the
law of the country where the arbitration tribunal has its seat). It should be noted that, until 1999,
very few OHADA member States had legislations specifically related to arbitration. With the
coming of the of the OHADA, it is now possible for parties to a contract to include an arbitration
clause, providing for proceedings to take place in any of the member states, in the knowledge that
the modern law will apply.

It is said that, at the formation of a contract (negotiating stage), the parties usually focus
more on the commercial aspect of the transaction and frequently pay little attention to the situation
where dispute may set in, as well as, the mode of resolving such disputes. This often leads to
uncomfortable surprises with a dispute arising and the parties finding that the arbitration clause is
imperative or that it has consequences that they had not anticipated. Vigilance would be required
when the parties envisage arbitration under OHADA law as the organization has created different
sets of legislations applicable to arbitration.

Firstly, there is OHADA Treaty itself, which provides for institutional arbitration under the
auspices of the Common Court of Justice and Arbitration (CCJA), in accordance with the CCJA’s
own arbitration rules (the CCJA rules).

Second, there is the Uniform Act (herein after referred to as UA) on arbitration where the
seat of the arbitral tribunal is in one of the member States. In other words, if a contractual
arbitration clause simple provide for arbitration under the UA, there will be no institutional
framework but the UA will govern certain matters relating to the proceedings. Conversely, if the
clause states the parties’ agreement to arbitration under OHADA Treaty or under the CCJA Rules,
this will establish an institutional framework for the arbitration.

1.1.2 Why Arbitration is preferred to the classical court system

Usually, parties in a commercial transaction would prefer to settle their disputes via
arbitration than the classical court system. This ma y be explained by the following reasons:

 Arbitration is more expedient than the classical court system since the court system is most
often opened to appeals;
 It is debatably argued that arbitration is less costly than the classical court procedure;
 Parties have the possibility of participating in the arbitration through the appointment of
arbitrators, this is not the case with the classical court system;
  Arbitration hearings and awards are confidential unlike court hearings and judgments that
are in open court;
 The procedure for instituting arbitration is usually less time consuming than with the
courts.
1.1.2.1 Other alternative dispute settlement mechanisms

The parties to a dispute who are unable to reach a settlement between them, have three
principal means available to them by which they may resolve their dispute, namely: court
proceedings, arbitration and some form of Alternative Dispute Resolution, usually known by its
acronym “ADR”. Emphasis shall however be limited to ADR. The rule is that parties should
include the arbitration agreement in the original contract. However, even if an arbitration
agreement was not concluded in the main contract between the parties, they may, nevertheless,
both come to a conclusion that the dispute is of such a kind (e.g. it existence causes embarrassment
to both of them) that it would best be resolved by arbitration.

Alternative Dispute Settlement is now encountered so often, either before the

commencement of arbitration or during the course of one that anyone having to deal with
arbitration should be aware of what it entails. Furthermore, international arbitration institutions
such as the American Arbitration Association (AAA), the International Chambers of Commerce
(ICC) and the International Centre for the Settlement of Investment Disputes (ICSID), as well as
the United Nations Commission on International Trade Law (UNCITRAL), have published rules
relating to ADR involving conciliation.

1.1.2.2 Ways in which national courts may act in support of arbitration

National courts are frequently called upon to act in support of arbitration. They may be
asked to:

 Assist in the appointment and removal of an arbitrator;

 Issue an injunction protecting property in dispute;
 Compel production of documents by a third party;
 Compel appearance of a witness at a hearing;
 Assist in the enforcement of an arbitral award.
 It should be noted however that none of these acts involve a court making a final decision
on the merits of the dispute.

1.1.2.3 Alternative Dispute Resolution (ADR) Proper

ADR procedures take many forms; the most frequently encountered forms are the
following:

a) Negotiation

This is a method of settlement by which parties settle their dispute themselves through
consultation and exchange of views without the participation of any third party. It is a means by
which large majority of international disputes are settled. However, the existence of active
negotiation does not preclude the resort to other settlement procedures, including judicial
settlement.

b) Mediation

To many, ‘mediation’ and ‘conciliation’ are synonymous, but this may not be true as in a
mediation, the mediator (who is appointed by agreement between the parties) attempts to assist the
parties to a dispute to negotiate a settlement. Mediation is therefore a method of dispute settlement
whereby the parties by agreement appoint a third party to assist them to negotiate settlement. He
may do so by discussing the issue separately with each of them, drawing attention to the strengths
and weaknesses of each case and attempting to get the negotiation process going. If the parties so
wish, this may take place in joint sessions or in a combination of separate and joint sessions. He
does not provide any opinion as to what he thinks would be fair to settle the dispute.

c) Conciliation

It is an active third party intervention to resolve disputes via the provision of recommendation
which the parties may accept or reject. It is similar to mediation, but however different in that, the
conciliator will take a view on what he considers would be fair to settle the dispute. The parties to
the dispute may take or reject because the recommendation is not binding.

d) Inquiry and fact finding

 This method of settlement as its name suggest, does not involve the investigation or application
of the rule of law. The function of an inquiry is to facilitate a solution of dispute by elucidation or
make lucid the facts by means of an impartial investigation. It involves a third party, but the dispute
may be settled by the finding of the true facts by one party which is accepted by the other. It is
defined as the activity designed to obtain detail knowledge of the relevant facts of any dispute or
situation in order to maintain peace between parties.

1.2 The Arbitration Agreement

The most usual form of arbitration agreement is the ‘arbitration clause’, which is inserted in
the parties’ contract at the outset of their business relationship, i.e. “the parties’ agreement to settle
any disputes that arise in the contract by arbitration”. In this part, “arbitration agreement” means
an agreement by the parties to submit to arbitration all or certain disputes which have arisen or
which may arise between them in respect of a defined legal relationship, whether contractual or
not. However, an arbitration agreement may be entered into at any time subsequently and typically
when the dispute arises between the parties. According to the OHODA UA, parties may enter into
an agreement even if they have already commenced proceedings before a court. (Art. 4 of the UA
on General Commercial Arbitration).

Though the arbitration agreement is often encountered as one of a number of clauses in a

written contract, it is widely accepted that it is a separate agreement and that it does not
automatically terminate when the contract in which it is embedded comes to an end. This is the
concept of ‘autonomy’, and ‘separability’ of the arbitration clause. It is therefore not surprising
that the law applicable to an arbitration agreement is different from that applicable to the principal
contract between the parties.

Article 3 of the OHADA Uniform Act on Arbitration Law provides that the arbitration
agreement must be made in writing or by any other means allowing its existence to be proven. The
question therefore is whether oral agreement before witnesses who could attest to that agreement
is possible? It would be inadmissible as the UA requires a copy of the arbitration agreement to be
produced in enforcement proceedings in the member states. In addition, if enforcement is sought
in other countries, the New York Convention may come to play, and this also requires arbitration
agreement to be in writing.
1.3 Arbitration Tribunals

Arbitration agreements will normally contain provisions as to the composition or appointment

of the tribunal as well as the proceedings. According to Art 8 of the UA, the arbitral tribunal must
be composed of odd number of arbitrators. This is a mandatory provision, as the article goes further
to list a hierarchy of methods that must be followed for the appointment of an additional arbitrator
if the parties have appointed an even number of arbitrators or if a previously appointed arbitrator
can no longer sit on the tribunal for whatever reason. The parties are free to determine the rules
applicable to the appointment, dismissal and replacement of arbitrators.

As regards appointments, if there are to be three arbitrators, each party is to appoint one and
the appointed arbitrators will definitely have to appoint the third arbitrator. However, where there
is the possibility for just one arbitrator to be appointed, the parties would have to agree on the
appointment. If there is failure either by the parties of the arbitrators to agree as required, or via a
party’s refusal to appoint an arbitrator, the appointment of the arbitrator concerned will be made
by the local court in the state where the seat the tribunal is located. This is to prevent a party from
frustrating the arbitration process by refusing to appoint its own arbitrator.

1.5.2 The arbitration proceeding proper

Parties to an arbitration agreement must be treated on equal footing And, must be allowed
to state their claims. The manner in which arbitration is commenced varies depending on the
relevant arbitral rules or laws applicable the arbitration. The following examples explain the
various ways in which arbitration may be commenced.

a. The UNCITRAL arbitration rules: under the united nation commission for international
trade law ( UNCITRAL) arbitration rules, arbitration is commenced by notice of
arbitration given to the other party with the arbitration commencing on the day date the
notice is received by the party. The notice must include a proposal as to the number of
Arbitrator.
b. The UNCITRAL model law: Here, arbitration begins by request addressed to the other
party.
c. The OHADA rules.. A common court of justice an arbitration (CCJA) rules laid down
detail procedure to be followed during the course of the arbitration. Proceedings are
 initiated by the submission to the secretary General of a request for arbitration by the
claimant. The request must contain certain information as specified in article 5 of the rules,
including a summary statement of the claims and the ground up which they are based and
must be accomplished by payment of a deposit of two hundred thousand France (200.000)
FCFA. Unlike the ICC, the CCJA does not forward a copy of the request to the defender.
Instead, the claimant must it self do this. However the secretary general notify all parties
of receipt of the request and it is that date of the receipt. That is deemed to the date upon
which the arbitration has commenced. The defendant must find an answer within 45 days
of receiving notification.

National law:

1. England: in England, it begins by a writing notice calling on the correspondents to concur

in the appointment of the arbitrator.
2. Netherlands: by writing notice informing the respondent that the claimant is commencing
arbitration. In each case it commences on the date the notice is received by the respondent.

Time limits:

Time limits for bringing claims in arbitration may take two forms

a. Contractual: these are limits contain in the parties’ agreement. The relevant period should
be establish in a properly drafted agreement.
b. Statutory: these are limit established in relevant legislation. The question how ever is which
legislation? Is it that of the country which the arbitration takes place (the lex arbitri) or that
of the country whose law is applicable to the dispute (the lex causae)

If the parties have not agree otherwise, the date line of six months I laid down for the award to be
issued.

1.6 Arbitration award and appeals

1.6.1 The award

Awards are decision of the tribunal which dispose of issues between the parties and which
will be given recognition and effects by the courts. The parties are expected to abide by the decision
of the awards. The UA lays down formal equipment that must be included in the awards, such as
the name of the parties and the arbitrators. The award must indicate the reasoning upon which it is
based and must be singed by the arbitrators.

1.6.1.1 Characteristics of arbitration awards

Arbitration awards have the following characteristics:

 Arbitration award lack an enforceable power. They cannot be spontaneously implemented

were a party resist the award unless a court order(exequatur) is obtain
 Arbitration award provide only civil remedies and do not contain criminal sanction
(imprisonment)
 Arbitration award are confidential unlike court judgments which are delivered in open
courts
 All arbitration awards must be in written and the reason for which the award is made clearly
stated.

1.6.1.2 Types of award

The principal types of awards are the following:

- The interim/interlocutory awards: these are awards which are made in the course of the
arbitration and which do not dispose of all the issues between the parties. They include
award dealing with challenged to the jurisdiction or procedural matters and not the issues.
- Partial awards: these are awards which deal with only a part of the issues before a tribunal.
They a very similar to interim award. However their difference is that partial awards are
those awards which require a payment to be made by one party to another weather on
account of damaged to be assessed, or on disposal.
- Final award: they are those award which dispose of all the issues in an arbitration (or all
the remaining issues, if there has already been an interim award) and which concludes the
function of the arbitral tribunal.
- Concern award: they are those made with the concerned of the parties following a
settlement of their dispute.
 - Default award: it is an award made in proceeding in which one of the parties (usually the
defendant) has refused to participate either in their entirety or for a part of them.

1.6.2.2 Remedies available in arbitration

There are no universal rules establishing the remedies which are available in an international
arbitration. However, available remedies include

a. Other for payment of money: this is the most common remedy found in awards. Except
with the concern of the parties, an arbitrator will not generally make an award directing
payment of an accrued dept of damages by the way of installment.
b. Declaration: parties, especially those in a continuing relationship, may which to have their
legal rights and obligations clearly establish in an awards. The essence of this may not be
to claim damages but to simply for a declaration of their legal rights to be made by the
arbitrator.
c. Specific performance: it is an order included in the award, requiring the defendant
(opponent) to perform the obligations which are establish in the declaration. The difficulty
here is that such an order will depend on the court for enforcement.
d. Injunction: under the law f many countries, the arbitral tribunal has the power to institute
the relief of injunction. It is an order instructing a party to do or refrain from doing
something. There are two types of injunction Mandatory and Prohibitory injunction. The
former (Mandatory) being an order to do something and the latter (Prohibitory) been an
order to refrain from doing something.

Rectification: it sometimes happen that parties to an agreement fails to make an accurate

accord of what they have agreed and one party attempts to take advantage of these lapses. The
arbitral tribunal may correct the agreement so as to reflect what was actually agreed.

Punitive damages: these are damages which may be awarded over and above the damagers
which are required to compensate the injured party.

1.6.3 Enforcement of an arbitral award and appeal

In other to be enforceable, the award must be submitted to the national court for an
enforcement order. The court order enforcing an award is call ‘’executor’’ any of the parties
 not satisfy with the award or even the executor may appeal the decision contain in the award
or the court order (executor). Appeals again the court order are directed to the court of appeal

1.6.4 Circumstances under which an award may be said aside:

An application to set aside an award is admissible only if it is based on one or more of the
following grounds.

 There was no arbitration agreement, or the arbitration agreement was null and vowed
or had expired by the time the tribunal gave its awards
 The arbitral tribunal was improperly constituted.
 The arbitral tribunal fail to comply with its terms of reference
 There was a lack of due process in the proceeding
 The award does not contain reasoning
 The arbitral tribunal has violated a rule of international public policy of the OHADA
member’s state.

CHAPTER TWO
INTELLECTUAL PROPERTY LAW

Intellectual property law is that that branch of law which protect applications of ideas and
information that are of commercial value. The subject matter is gaining grounds, in the advanced
industrial countries in particular, as the fund of exploitable ideas becomes more sophisticated and
as their hopes for a successful economic future come to depend increasingly upon their superior
corpus of new knowledge and fashionable conceits. There has recently been a great deal of political
and legal activity designed to assert and strengthen the various types of protection for ideas.
Intellectual property is a generic term encompassing a variety of sub notions such as patent,
trademarks, copyrights etc. All these are legal contraptions developed to protect the product of the
intellect or inventions from being unjustly exploited by persons who are not their authors.
Intellectual property is divided into two categories: industrial property which includes inventions,
industrial designs, integrated circuits, trademarks and geographical indications and copy right-s
which covers literary works such as novels, poems and plays, films, musical works: artistic works
such as drawings, painting, photographs and sculptures and architectural.
2.1 World Intellectual Property Organization (WIPO) and other Conventions dealing with
Intellectual Property (IP)

IP is not necessarily exploited at the national level, but rather exploited at the global level.
For example, video cassettes and CDs which contain materials protected by copyright are marketed
in an increasing number of countries.

2.1.1 WIPO

The idea of WIPO had it origin in the 1883 Paris Convention for the protection of industrial
property and the 1886 Berne Convention for the protection of literary and artistic work. The
Convention establishing WIPO was signed in 1967 but enter into force in 1970. The organization
became a specialized agency of the UN on the 17th of December 1974.

The main objectives are, to maintain and increase intellectual property via out the world in
order to favour industrial and culture development by stimulating creative activities and facilitating
the transfer of technology and the dissemination of literal and artistic works.

To aid in the protection of IP, where it is accepted that WIPO promotes the wider
acceptance of existing treaties and their revision and where necessary encourage the conclusion of
new treaties and assist in the development of national legislation.

2.1.2 The Paris Convention

In the area of patent, the minimum international rules are found in the Paris Convention for
the protection of industrial property which was signed in 1883. It has been revised many times
with the most recent being in 1964. The most important provisions of the convention are; “The
Principle of National Treatment” and that of, “Unionist Treatment”. The former is to the effect
that no distinction is made between treatment of home or domestic citizens and that of foreign
national. By the latter, anyone entitle to the benefit of the convention must enjoy certain specific
rights and advantages regardless of the national treatment to which they are entitled.

2.1.2 The Universal Copyrights Convention

The UCC is another convention in the area of copyrights. Entered into by 36 member states
in the year 1952 in Geneva, Switzerland, it was promoted by UNESCO but lost most of its
importance when its most influential member (USA), joint the Berne Convention. Unlike the Berne
convention, the UCC provides protection only for 25 years.

2.1.4 The African Intellectual Property Organization (OAPI)

The OAPI is the successor and continuation of the African Malagashie Intellectual Property
Office which was set up by virtue of an agreement signed in Libreville on September 13th 1964
between twelve (12) African States. Base on a common system of obtaining and maintaining
industrial property rights on patents, trademarks and industrial designs, the office created a central
body that will act for each member states as a specialized national service. Later on in December
31st 1976, the board decided to call the body African Intellectual Property Organization.

2.1.4.1 The Duties of the OAPI

OAPI carries out inter alia the following task entrusted to it by the Bangui Agreement.

 Reception and centralization of deposits

 Registration and delivery of titles
 Administrative and regularization of received application for declaration.
 Publications: it is bound to bring out two compulsory publications annually. Namely;
official bulleting and patent booklets.
 Keeping of special registers.
 Dissemination of documents on information on patent and copy rights.
 Collection of fees

It should be noted that the headquarters of the OAPI is located in Yaounde Cameroon.

2.1.5 The Stockholm Convention

 At the international level, the developing countries advocated major changes to the Berne
Convention during the 1960s. they requested to be allowed certain translations and publication of
certain works if these are not otherwise made available. This saw the birth of the Stockholm
Convention on July 14th 1967 establishing the WIPO.

2.1.6 The Berne Convention

The most important international convention on copyrights is the Berne Convention for the
protection of literary and artistic works. The convention is to copyright what Paris Convention is
to industrial property right. Signed by 10 States in 1886, the Convention today has 117 member
States. The Convention was revised in 1908, 1928, 1948 and 1964. Thus, the Convention
enunciated three basic principles in relation to copyrights.

Firstly, it put forth the principle of national treatment, by which authors enjoy the same
rights as nationals in any of the States which are members of the union.

Secondly, it brought forth the principle of automatic protection, by which no formalities

are required for the protection of these rights.

Thirdly, it established the principle of independent protection, by which protection of the

enjoyment of these rights is independent of the existence of their protection in the state of origin.

2.1.7 The Bangui Agreement

In the light of promoting the effective contribution of IP to the development of their

respective states on the one hand concerned on the other hand to protect IP on their territory in as
effective and uniform a manner as possible, over 15 African States (Benin, Burkina Faso,
Cameroon, Chad, CAR, Congo, Ivory-Coast, Gabon, Guinea, Guinea Bissau, Mauritania, Niger,
Mali, Senegal and Togo), concluded the Bangui Agreement on February 24th 1999. This agreement
serves as the industrial and scientific laws for these countries.

2.2 Patent Law

2.2.1 Introduction
 Invention: invention means an idea that permits a specific problem in the field of
technology to be solved in practice (Art 1, annex 1 of the Bangui Agreement).

Patent: A patent is a title granted for the protection of an invention. Simply put, “a patent is a right
granted by the state to an inventor to exclude others from commercially exploiting the invention
for a limited period, in return for the disclosure of the invention, so that others may gain the benefit
of the invention. An invention may consist or relate to a product or process or use thereof. It should
be noted that the state grant the protection but does not immediately enforce it. This makes the
patent owner his own policeman.

2.2.2 Conditions for Patentability

An invention must meet several criteria for it to be eligible for patent protection. This
include; Novelty, Inventive step, Industrial applicability, non-patentable subject matter.

a) Novelty

This is an important criterion for patentability. It should be emphasized however that, novelty
is something which can be proved; only it absent can be proved. An invention shall be new if it
is not anticipated by a “prior act”. “Prior Act” in general, is all the knowledge of what existed
prior to the relevant filing or priority date of the patent application.

b) Inventive Step (Non Obviousness)

An invention shall be regarded as resulting from an inventive step if, having regard to the
prior act, it would not have been obvious to any person having ordinary knowledge and skill in
the art on the filing date of the patent application or, if priority has been claimed on the priority
date validly claimed for it. The expression “ordinary knowledge” (Skill) is intended to exclude
the “best” experts that can be found. It is intended that, the person be limited to one having the
average level of skill reached in the field in the country concerned.

c) Industrial Applicability

An invention, in order to be patentable must be of a kind which can be applied for practical
purposes, not to be purely theoretical. If the invention is intended to be a product or part of the
 product, it should be possible to make that product. The term industrial shall cover handicraft,
agriculture, fishery and services.

d) Non Patentable subject Matter

Patent shall not be granted for the following:

 Inventions, the exploitation for which is contrary to public policy or morality;

 Discoveries, scientific theories and mathematical methods;
 Computer programs;
 Mere presentation of information;
 Methods for the treatment of human or animal body by surgery of therapy,
including diagnostic methods.

2.2.3 Drafting and Filing of Patent Application

a) Identification of the invention

The first task in drafting a patent application is the identification of the invention. This
involves:

- Summarizing all the necessary features which in combination solve a particular technical
problem; and
- An examination of this combination to determine whether it fulfills the condition for
patentability.

b) Practical aspects of drafting patent

Drafting practices and requirements defer from country to country. However, there are
basically three requirements to comply with:

First the application must relate to one invention only or to a group of inventions so linked
so as to form a single general inventive concept;

Secondly, the description should disclose in a manner sufficiently clear and complete for
the invention to be evaluated and to be carried out by a personally ordinary knowledge in the art;
 Finally, the application to proceed must contain claims which determine the scope of
application.

c) Certificate of Addition

The patentee titled persons shall for duration have the right to make changes, improvements
or additions to the invention. A certificate of addition is therefore a certificate guaranteed for
any addition made to the ordinary patent. They shall be filed in the same way as the original
patent. Such certificates if granted have the same effect as the original patent.

e) Duration

Certificate of addition shall terminate with the original patent. However, invalidation of the
certificate of addition shall not invalidate as of right, the principal patent. The duration of
protection for patent as provided by the Bangui Agreement is 20years.

2.2.4 Infringement

a) Exclusive right of the patent owner

Generally speaking, a patentee acquires the right enforceable at law to decide who shall
and who shall not exploit his patented invention. He maintains this right for the term of the patent
provided he pays maintenance fee.

b) Enforcement of Rights

Initiatives for enforcing a patent rest exclusively with the patent owner. It is he who is
responsible for dictating infringements and for bringing them to the infringers attention.

2.2.5 License Contracts

As provided by article 36 of the Bangui Agreement, the owner of a patent may, by contract
grant to a person, whether natural or legal entity, a license enabling him to exploit the patented
invention. The duration of the license may not be longer than that of the patent. The license contract
shall be drawn up in writing and signed by a party. The contract shall be entered in a special register
of patents.
2.2.5.1 Non Voluntary Licenses or Compulsory Licenses

Licenses that are granted by the owner of the patent are considered “voluntary” and
distinguished from compulsory or non voluntary licenses. Where a voluntary is granted, the
beneficiary has the right to perform arts covered by the exclusive right under an authorization from
the owner of the patent. This authorization in a contract is called a “License Contract” concluded
between the owner of the patent for invention and the beneficiary of the license.

A non voluntary license is a license granted by the government to an individual authorizing

him to exploit a particular patent for invention against the will of the owner of the patent, either
due to abuse of patent or public interest.

a) The Grant of Non Voluntary License

In countries where the grant of non voluntary license is provided for, such license generally fall
into two categories;

1) Non working of the Patent

At the request of any person made after the expiry of a period of four (4) years from filing date
of the patent application or three years from the date of the grant of the patent which ever period
expires last, a non voluntary license may be granted where one or more of the following conditions
are fulfilled.

 The patented invention is not being worked on the territory of a member state at the time
the request is made;
 The working of the patented invention in such territory does not meet the demand for the
protected product on reasonable terms.
 On account of refusal of the owner of the patent, to grant licenses on reasonable commercial
terms.
2) The grant of non voluntary license for public interest

Some countries provide for a compulsory license when there has been no abuse of the right
but where the grant of the patent is necessary to protect the public interest. Non voluntary
 license granted for public interest can be divided into those that are granted in favour of private
parties and those which are in favour of the government itself.

I) Compulsory license granted in the public interest in favour of private parties

One example of this kind of license is in the case of the so called “dependent Patent”. Such
compulsory license are granted to remedy situations that arise when it is not possible, without
performing acts covered by one patent (the dominant patent) to work an invention claimed in
another patent (the dependent patent) and if the owner of the dependent patent has not been able
to obtain a license from the owner of the dominant patent.

II) Non voluntary License granted in the public interest infavour of the government

A number of countries allow the government to exploits inventions without the consent of
the owner of the patent or have third parties exploits the patent on its behalf. There are three fields
in which this may occur; National defence, National Economy and public Health.

Dependent patent: this is a patent for invention which cannot be perform or worked without
performing acts covered by another patent called “the dominant patent”.

B) Penalties for the violation of patent

As per article 58 of the Bangui Agreement, any violation of the right of the patentee by the
use means forming the subject matter of his patent, by the receiving or sale or display for sale or
by the introduction into the national territory of one of the member states or more, objects shall
constitute the offence of infringement. Such offence shall be punished with a fine of one million
to 3million FCFA without prejudice to the right to compensation.

2.3 Trademark and Service Mark Law

2.3.1 Introduction

A trade mark is any mark that individualizes the goods of a given enterprise and
distinguishes them from the goods of its competitors. In order to individualize a product for the
owner, the trade mark must indicate its source. This does not mean that it must inform the
consumer or the actual person who has manufactured the product or even the one who is trading
it.

According to art. 2 (1) of annex 3 of the Bangui Agreement, a trade mark or service mark
is any visible sign used or intended to be used and capable of distinguishing the goods or services
of any enterprise, including in particular, surnames by themselves or in a product or its packaging
labels, rappers, emblems, prints, stamps, seals, vignettes, boarders, combinations or arrangement
of colours, drawings reliefs, letters, numbers, devices and pseudonyms.

Service Mark

In modern trade, consumers are confronted not only with a vast choice of goods of all
kinds, but also with an increasing variety of services. There is also the need for signs that enables
the consumers to distinguish between the different services such as insurance companies, car rental
firms, airlines etc. These signs are refer to as, “service marks”.

Collective Marks

This is mark owned by an association which itself does not use the collective mark, but
whose members may use the collective mark. Typically, the association has been founded in order
to ensure the compliance with certain quality standards by its members. The members may use the
collective mark if they comply with the requirements fixed in the regulations containing the use of
the collective mark.

2.3.2 Signs which may serve as trademarks

If we adhere strictly to the principle that the sign must serve to distinguish the goods of a
given enterprise from those of others, the following signs can be imagined:

Words: this category includes company names, surnames, forenames, geographical names, and
any other words or set of words whether invented or not and slogan;

Letters and numerals: examples are one or more letters, one or more numerals or any
combination thereof;

Devices: this category includes fancy devices, drawings, drawings and symbol containers;
Coloured marks: this includes words devices and any combination thereof in colour;

Three-dimensional signs: a typical category of three dimensional sign is the shape of goods and
their packaging. However, other three-dimensional signs such as the three pointed Mercedes star
can serve as a mark.

Audible signs (sound marks): two typical category of sound marks can be distinguished, namely
those that can be transcribed in musical notes and others (e.g. the cry of an animal).

Olfactory marks (Smell Marks): imagine that a company sells its goods (e.g. writing paper) with
a certain fragrance and consumer becomes accustomed to be recognizing the goods by their smell.
Other invincible signs, e.g. signs recognized by touch.

2.3.3 Criteria for protectability and rights conferred on registration

This relates to requirements which the sign must fulfill in order to serve as trademarks.

2.3.3.1 Criteria for the protection of trademark

a) Distinctiveness (Distinctive Character of the Mark)

A trademark, in order to function must be distinctive. A sign that is not distinctive cannot
help the consumer to identify the good of his choice. The word “Apple” or an apple device cannot
be registered for apples, but it is highly distinctive for computers and mobile phones. This explains
that distinctive character must be evaluated in relation to the good in which the trademark is
applied.

i) Generic terms

A sign is generic when it defines a category or type to which the goods belong. It is essential
that nobody should be allowed to monopolise a generic term. Examples of generic terms are
“furniture” (for furniture in general and also for tables, chairs etc.) and “chair” (for chairs). Also
drinks, coffee and instant coffee, fridge for cooling device. The terms used to describe them are
generic.

ii) Descriptive signs

 These are signs that serve in trade to designate the kind, quality, purpose, value, place of
origin, time of production or any other characteristic of the goods for which the sign is intended to
be used or is being used.

iii) Reference to geographical origin

References to geographical origin are basically not distinctive. They convey to the
consumer, an association to the geographical name, indicated either as the place of manufacture of
the goods in question or of ingredients used in their production.

iv) Letters, numerals and basic geometrical shapes

These signs are often regarded as being indistinctive and therefore cannot be registered.

2 It must not be contrary to public policy, morality or the law.

3 Deceptiveness: trademarks that are likely to deceive the public as the nature, quality or any
other characteristics or other geographical origin do not qualify for registration.
4 Marks that reproduces, imitates or incorporates armorial bearings, flags or other emblems, the
abbreviated name or acronym or an official sign, etc.

2.3.3.2 Rights conferred by registration

i) registration confers to the owner, the exclusive right to use the mark or sign resembling it in
connection with the goods or services for which it has been registered.

ii) the right to prohibit a third party from making use of the business without his consent, of
identical or similar signs for goods and services that are themselves similar.

2.3.4 Duration of rights, removal from register and Penalties

Duration of rights

As per Art. 19 annex III of the Bangui Agreement, the registration of a right shall be valid
for only 10 years from the filing date of the application for registration. However, the ownership
of a mark may be preserved indefinitely via successive renewals of the registration which can be
effected every after 10 years.
Removal of the trademark from the register

A trademark may be cancelled from the register for the following reasons:

 Removal for failure to renew;

 Removal at the request of the registered owner;
 Removal for failure to use; and
 Removal as a result of lack of distinctiveness.

Counterfeiting

It is the imitation of a product. A counterfeit is not only identical; it also gives the
impression of having being produce by the genuine producer, making it a genuine product. For
example, the false PUMA, REEBOK sports shoes, the false LACOSTE sports shirts.

Penalties

The following persons shall be punished by a fine of 1.000.000 to 6.000.000FCFA and

with imprisonment of 3 months to 2 years;

- Those who fraudulently affix on their goods any mark belonging to another;
- Those who knowingly sell or offer for sale one or more goods bearing a counterfeit or
fraudulent affixed mark;
- Those who make a fraudulent imitation of a mark in such a way as to mislead the buyer.

Trade names: Trade names look similar to trademark and service marks. Unlike trademarks and
service mark, trade names distinguish the enterprise from the others quite independently of the
goods and services that the enterprise markets or renders.

2.3.5 Franchising

Franchising may be defined as an arrangement whereby one person (the Franchisor), who
has developed a system for conducting a particular business, allows another person (the
Franchisee), to use the system in accordance with the prescriptions of the Franchisor in exchange
for compensation. Example Coca Cola and brasseries du Cameroon

a. Factors that Characterize a franchise relationship

 i. A License to use the system: in return for a fixed payment, the franchisee is allowed
to use the franchise system. Where the Franchise system is to be exploited at a particular
location, such as at a franchise restaurant or shop that location is referred to as a
“franchise unit”.
ii. All ongoing interactive relationship
iii. The franchisor’s right to prescribe the manner of operation of the business: such
directives may include quality control, protection of the system, territorial restrictions,
operational details etc.
b. Types of franchise
1. Unit franchising

It is a franchising that involves direct relations between the franchisor and the Franchisee,
whereby the franchisor enters into a franchise agreement with the franchisee. Where the
franchisor and the franchisee are in the same country, unit franchising is the most commonly
use.

2. Territorial franchising

These are franchise agreements which aim at covering substantial territory or geographical
area by setting up a number of units, shops, over the agreed period of time.

2.3.6 Palming-off

This is misrepresentation of someone else’s goods and services as one’s own in business. It is
a tort that is actionable in law. This tort is known as “palming-off in the US, passing-off in the
British Isles and most of the Commonwealth and unfair competition elsewhere. It is usually
committed by imitating the appearance of the plaintiff’s goods or by selling under the same or a
similar name. If a name used by the plaintiff merely describes his goods, then generally no action
will lie. However, it is possible for a name that is originally only descriptive to come to signify
goods produced by the plaintiff. It is also possible for a word to lose it trade meaning and become
merely descriptive. The tort may also be committed by using another person’s name.

Generally, the usual remedies of palming-off are injunctions, delivery up offending items and
inquiries as to damages or accounts of profit.
 2.3.7 Character merchandising
a. The notion of character

Broadly speaking, the term “character” carries both fictional human beings (e.g. Tarzan or
James Bond) or non human characters (e.g. Donald Duck or Bugs Bunny) and real persons (for
example, famous personalities in a film or music business, sportsman). In the context of
merchandising of characters, it is mainly the essential personality features easily recognized by the
public at large which will be relevant. Those personality features are, for example, the name,
image, appearance or voice of the character or symbols permitting the recognition of such
character.

Character merchandising can be defined as “the adaptation or secondary exploitation, by a

creator of a fictional character or by a real person of the essential personality features (such as
name, image or appearance) of the character in relation to goods or services with a view to creating
in prospective customers a desire to acquire those goods because of the customer’s affinity with
the character.

b. Sources of primary use of character

The main sources of fictional characters are:

 Literary works (such as Pinocchio by Collodi or Tarzan by E.R. Burroughs)

 Strip cartoons (such as Tintin by Herge or Asterix by Uderzo and Goscinny)
 Artistic works (such as paintings, for example Monalisa by Leonardo da Vinci or
drawing for e.g., the Panda of WWF.
 Cinematographic works (e.g. Crocodile Dundee, King Kong, Rambo with respect
to movies or columbo with respect to television series or Bambi with respect to
motion picture cartoons)

The following examples of character merchandising can be given:

- A toy is the three-dimensional character Mickey Mouse.

- A T-Shirt bears the name or image of fictional character;
- The label attached to a perfume bottle bears the name of an actor or actress;
- An advertising movie campaign for a drink shows a pop star drinking it.
c. Types of character merchandising
i) Merchandising of fictional character: it involves the use of essential personality
features (name, image etc) of fictional characters in the marketing and or advertising
of goods and services.
ii) Personality merchandising: this more recent form of merchandising involves the use
of essential attributes (image, name, voice and personality features) of real persons (in
order words, the true identity of an individual) in the marketing and or advertising of
goods and services.
iii) Image merchandising: it involves the use of fictional films or television characters
played by real actors in the marketing and advertising of goods and services.

Industrial design: it refers to the right granted in many countries pursuant to a registration
system to protect the original ornamental or non-functional features of an industrial article or
product that results from design activity. See article 1 annex IV of the Bangui Agreement.

Utility models: it is merely a name given to certain inventions, namely inventions in the
mechanical field.

2.4 Copyright and related rights

2.4.1 Introduction

Copyright law is a branch of law that deals with the rights of intellectual creators. It deals
with particular forms of creativity. It does not only deal with printed publications but also with
such matters as sound and television broadcasting, films for public exhibition in cinemas etc.
Copyright can therefore be defined as “the protection granted to the author of any literary
and artistic work”. This are of activity in Cameroon is regulated by Law No 2000/11 of 19
December 2000 on Copyright and Neighboring rights.

Copyright protection is one of the means of promoting enriching and disseminating the
national cultural heritage. A country’s development depends to a very great extent on the
creativity of its people, and encouragement of individual creativity is a sine qua non for
progress. Legislations could provide for the protection not only of the creators of intellectual
 works but also of the auxiliaries that help in the dissemination of such works, in respect of their
own rights.

2.4.2 Subject matter of copyright protection

The subject matter of copyright protection includes every protection in the literary, scientific
and artistic domain where the mode or form of expression for a work to enjoy this protection, it
must be an original creation. To be protected by copyright law, an author’s work must originate
from him; they must have their origin in the labour of the author. Practically, all national copyright
laws provides for the protection of the following types of works:

Literary works: novels, short stories, poems, dramatics works and any other writings, irrespective
of their content (fictional and non-fiction), length, purpose (amusement, advertisement, education)
from (handwriting, typed, printed, book, pamphlet, newspaper, magazine etc) whether published
or unpublished.

Musical work: whether serious or light; songs, choruses, musicals

Artistic works: whether two-dimensional (drawings, paintings) or three-dimensional (sculptures,

architectural works) irrespective content and destination.

Photographic works: irrespective of the subject matter (portraits, landscapes, current events etc)
and the purpose for which it is made.

Motion pictures: (cinematographic works) whether silent or with a sound track e.g. computer
programs.

2.4.3 Rights comprised in copyright

The owner of copyright in a protected work has the right to use the work as he wishes but not
without regards to the legally recognized rights and interest of others and may exclude others from
using it without his authorization. Rights comprised in copyright are the economic and moral rights
of the author.

a) Moral Rights
The original authors of works protected by copyright also have “moral rights” in addition to
their exclusive rights of an economic character. The moral right of the author includes:

- The right to claim authorship or the work (i.e. right to be footnoted or cited whenever his
work is used);
- The right to object to any distortions, mutilation or other modification of or other
derogatory action in relation to the work which will be prejudicial to the author’s honour
or reputation. These rights are generally known as the moral rights of the author, are require
to be independent of usual economic rights and to remain with the author even after he
transferred his economic rights.
b) Economic Rights: this includes the right to monetary earnings from exploitation of his
work or creation.

Duration of Copyright: According to the 2000 law on copyright, duration of protection

given to the owner of copyright is the lifetime of the author and 20 years after his death.

2.4.4 Defences to copyright infringement

Copyright restrictions will be stifling if there were not some latitude in the application
to meet special cases. They may be grouped under the following headings:

1) Fair dealing

Fair dealing with a literal, dramatic, musical or artistic work or a published edition does
not infringe copyright if it is for the purpose of research or private study. But the problem
is what is fair dealing? A typical situation involves a researcher or a student who photocopy
materials from learned periodicals. Various guidelines have been produced as a very rough
guide making a single article from anyone issue of a journal is acceptable and probably a
single chapter from the book.

2) Educational news

It is a truism that communication works already made available to the public shall
be lawful if there are done free of charge strictly for educational or school purpose.

3) Library and archives

 The other group of permitted acts concern prescribed libraries provided that they are non
profit making.

4) Public administration

Copyright is not infringed by anything done for the purpose of parliamentary of judicial
proceedings.

5) Authorization and consent of the owner

Copyright in a work is not infringed if the owner of the copyright in the work authorized
or consented to the allegedly infringed act.

2.4.5 Collective management bodies and their domain of management

Cameroonian law lays down conditions governing the activities of collective

management bodies. According to Article 77 of the 2000 copyright law, such organizations may
carry out act of collective management, such as authorizing the use of works, the collection and
distribution of royalties and the judicial defence of rights. There are four collective management
bodies for copyright and neighbouring rights in Cameroon. It should be noted that only one body
may be created for each category of copyright and neighbouring rights.

Category A: literature, dramatic arts, dramatico-musical, choreographic and other similar

arts. This is managed by SOCILADRA (Société civile de droits de la literature et de arts
Dramatique.

Category B: musical arts, managed by the defunct Cameroon Music Corporation (CMC)
(recently changed to SOCAM), today (Société Camerooniase de l’Art Musicale).

Category C: Audiovisual and photographic arts, managed by SCAAP (Copyright

Corporation for Audiovisual and Photography).

Category D: graphic art and fine art, managed by SOCADAP (Société civille des droits
d’Auteur et droits Voisins des Arts Plastiques et Graphiques).

CHAPTER THREE
 BANKING LAW

3.1. General Introduction

3.1.1. The Historical evolution of Banking Law in Cameroon

Banking law and the banking sector as it exists today in Cameroon has undergone a series
of changes from the colonial days to present. To study the evolution of banking law in Cameroon,
consideration shall be made to both the period before and after the unification of Cameroon.

a. The period before unification of the two Cameroons

Pre-colonial Cameroon did not witness the operation of the banking profession as it exists
today. Before her contract with the European, small groups of contribution existed in which money
circulated among members providing credit and saving facilities on interest known as “Njangi” or
“Tontin”. It was when the Germans colonised Cameroon that Cameroon witnessed the creation of
the first banks like Deutsch Westafrikanische Handelsgesellschalt MBH Bibundi and
Westafrikanische Pflanzungsgellschaft Victoria.

During the reign of the British, the desire to replace the German in all spheres saw the
creation of branches of Barclays Banks in British Cameroons. Another bank they created was the
bank of West Africa.

In 1959, the government of former Southern Cameroons decided to create a National Bank in
order to enhance economic development. For the same reason, the Financial Secretary and the
Chairman of the Southern Cameroon Development Agency (SCDA) established a proposal for the
creation of commercial banks which was sent to the central bank of Nigeria in 1960. The bank
replied favourably and after some background work, Cameroon Bank Ltd was incorporated on the
29th July 1961 and it started with a share capital of 250 million FCFA divided into 250,000 shares
of 1000FCFA each.

Meanwhile, in East Cameroon, the French were administering the Banque de l’Afrique
Occidental. After East and West Cameroon had their independence, they fused to form the Federal
Republic of Cameroon. A local law, Decree No 62/DF/90 of 24th March 1962 was passed
regulating the banking profession in Cameroon. Today, there are a host of banks in Cameroon.
b. The period after unification of Cameroon

When East and West Cameroon had their independence, they fused to form the Federal
Republic of Cameroon. Upon fusion, a local law, Decree No 62/DF/90 of 24th March 1962 was
passed to regulate the banking profession in Cameroon. The effects of this law were two-fold:

i. the creation of new banks in conformity with the law;

ii. banks created under foreign laws (British and French), which did not deem it necessary to
continue to operate under the new law amalgamated with others.

Banks with regards to (i) above included:

- Credit Lyonnais help to create the Société Camerounaise des Banques (SCB)
- Banque Nationale pour le Commerce et Industrie du Cameroun (BNCI) made way for
Banque Internationale pour le Commerce et l’Industrie du Cameroun (BICIC)
- Société Generale became an associate of the Société Generale des Banques du Cameroun
(SGBC) in 1963

With regards to (ii) above,

- The bank of West Africa folded up and Barclays bank amalgamated with BICIC

Other banks that later came up were:

- Banque Internationale pour l’Afrique Occidentale du Cameroun-BIAOC (1974),

- Boston Bank (1980), Chase Bank (1979), Banque de Paris et de Pay Bas (1980), Meridien
Bank (1988), First Investment Bank (1991), Amity Bank (1991), Credit Agricole (1990),
Standard Chartered (1992) and a host of others.

The banking sector worked successfully until mid 1980s, which saw the liquidation and
restructuring of some banks. The following banks were liquidated:

- Cameroon Bank Ltd (1989);

- Cameroon Development Bank (1989);
- Bank of Credit and Commerce (1982);
- Société Camerounaise des Banque; etc.
 Today, there are a host of banks in Cameroon

3.1.2. Governing Laws/legislations

a. International Legislation

International and regional treaties and conventions have actually been established by the
international community to regulate the banks and the exercise of the banking profession. The
principal international bank legislation applicable in Cameroon are, the Convention of 16th October
1990, creating the Banking Commission of Central African States (Commission Bancaire de
l’Afrique Centrale) COBAC and the Convention of 17th Jan. 1992 on the Harmonisation of
Banking Regulations in the Central African States.

b. National Legislation

The first national law relating to the control of banking profession in Cameroon was Decree
No 62/DF/90 of 24th March 1962 Regulating the Banking Profession in Cameroon. The Decree
equally established bodies to carry out research into credit policy and to ensure its application and
control the banking profession. This Decree remained in force until 1973 when it was replaced by
Ordinance No 73/27 of 30th August 1973 Regulating the Banking Profession. In 1985, Ordinance
No 85/02 of 31st August 1985, Relating to the Operation of Credit Establishment was passed. It
replaced the 1973 Ordinance.

3.1.3. Definition of Bank or Banker and Customer

The word “bank” is said to be derived from the Italian word “Banco”, meaning a bench.
This is because the early Jewish bankers in Lombardy transacted their business at benches in the
market place. When the banker failed at the time, his Banco was broken hence the appellation
“bankrupt”. There is no established definition of a bank. However some definitions have been
provided.

The Cameroonian legislator in Article 1 of the 1962 Decree defined a bank as “an
establishment whose activity is to receive funds from the public in the form of deposit, with the
view to carrying out discount and credit operation, investment and other financial transactions”.
 Meanwhile, The COBAC Regulation R-2009/02 of 1st April 2009 equally classifies credit
establishments. Article 3 of the Decree like article 1 of the COBAC Regulation R-2009/02
stipulates that: Banks are institutions which can carry out all banking activities. It continues in
article 4(1) that banking operations would comprise:

a- the reception of deposits from the public, the granting of credits as well as putting at the disposal
of the customer means of payment or their management.

Article 4(2) of the decree and article 5 of the COBAC Regulation further enumerate additional
operations which banking institutions can perform. These include:

- Exchange transactions
- Investment, subscription of shares, purchase, management, custody and sale of stocks and
shares and other financial products.
- Advice and assistance related to matters of property management
- Advice and assistance in financial management and in the general manner, all the services
designated to facilitate the creation and development of enterprises.

The COBAC regulation equally categorises credit establishments into universal banks,
specialised banks and financial establishments or financial companies.

Universal banks are those which are authorised in a general manner to receive funds from
the public. They have the right to carry out all the other banking functions as listed above. (Article
9 COBAC Regulation R-2009/02).

Specialised Banks are those that are also authorised to receive funds from the public but
they can be distinguished from universal banks by the restrictive character of their scope of
activity. (Article 10 COBAC Regulation R-2009/02).

Financial companies are those that can only receive short term funds from the public,
generally not exceeding two years. They finance their activities with their own capital and loans
from other credit establishments or non legal means. (See Article 11 COBAC Regulation R-
2009/02).
 Specialised Financial Institutions are institutions which can only receive short term funds
from the public not exceeding two years. They assume a mission of public interest determined by
the national authority. The modality for financing their activities as well as any banking activity
they can carry are regulated by legislative and regulatory text. (article 12 COBAC Regulation R-
2009/02).

They can carry out only the financial activities listed in their license

1.3.2. Distinction between a banker and a money lender

Customer

At one time, it was thought that a person became a customer of a bank only when banking
services were habitually performed for him by the bank. The mere opining of an account by the
bank in the customer’s name was considered inadequate. This view was later argued and even
castigated in some cases. Today, it is evident that “a customer of a bank is one who opens an
account with the bank”. It is immaterial that the account is overdrawn and it is irrelevant whether
account is of the current type or some other such as deposit and savings accounts.

3.2. Fundamental Principles of Banking Law

It is a fact that banking regulations can change depending upon the requirements of every
state. However, there are certain principles of bank regulations that never change. In other words,
these are the principles which are there in every country’s bank regulations. There are three
fundamental principles of bank regulations that are bound to last as long as bank regulations will
do.

1. Meeting the Minimum Capital Ratio Requirements

Every bank regulation in the world has a clause requiring the bank to maintain a minimum
capital ratio. These are requirements levied on the banks so that they can promote duty of being
regulators. Every bank must follow this principle in order to remain licensed.

2. Maintaining Market Discipline

 Another very crucial principle of bank regulations which must be conformed to by every
bank of the country is that of maintaining market discipline. This principle compels the banks
within the states to disclose financial and other similar information yearly or monthly to the public.
The reason for this principle is to ensure that the investors, depositors and the employees of a bank
can assess the financial risks a bank may face.

3. Getting Licensed

No bank in a country is allowed to function without a license from the regulators. The
regulator is responsible for supervising all the licensed banks and monitor whether they are
complying with the regulations. Where any bank goes against this requirement, it license may be
suspended or withdrawn.

There above principles discussed are just three regulating worldwide today. However, this
does not mean that bank regulations worldwide only have three principles.

10.3. Money Lender and a Banker Distinguished

The obvious and important difference between a banker and a money lender are as follows:

1. The banker is a debtor, being a receiver of money from depositors without providing security
and in turn lends this money with collateral. The bank is bound to make payment on demand, of
the amount not exceeding the total of their bank balances to its customers whereas, a money lender
on the other hand, provides its own funds through many means including borrowing from friends
or even banks and lends always on the provision of tangible securities.

2. The bank is obliged to collect drafts on behalf of its customers and discounts promissory notes
and bill of exchange as well. A money lender may not discount notes, and certainly is under no
obligation to collect draft for its customers.

In sum, whereas the relationship of debtor and creditor exist between banker and
customers, the reverse is the case with a money lender. The money lender is usually the creditor
and his client always the debtor.

3.4. The Nature of the Contract and the Relationship between Banker and Customer
A- The Nature of the Relationship

The contract between the bank and the customer in Cameroon is “A bilateral contract”.
This is so because it is a contract which creates reciprocal obligations, each party having both
rights and duties.

B- The Nature of the Relationship between Banker and Customer

As said earlier, the general relationship between a banker and customer is a contractual
one. From this contractual relationship spring other relationships:

1- Debtor and Creditor Relationship

The relationship of banker and customer is most easily understood when one reflect on the
nature of the agreement between them. It is agreed that an amount equal to that deposited has to
be repaid by the bank. In the case of a current account, the amount is repayable without interest
against the customer’s demand. For other accounts the amount is paid with interest.

The right to draw on the funds by means of cheques and money transfer constitute the
benefit derived by the customer from his deposits with the bank. The essence of the contract of
banker and customer is therefore the bank’s right to use the money for its own purposes and its
undertaking to repay an amount equal to that paid in with or without interest.

2. Principal and Agent Relationship

The relationship of creditor and debtor arises out of the deposit of money in the bank. When
the banker is performing certain duties, he frequently acts as an agent. Banks often collect the
proceeds of cheques as agent for their customers. When banks accept the instructions of customers
to purchase and sell stocks and shares, they do so as agents.

3. Bailor-Bailee Relationship

Deposit of goods for safe custody is an example of an important type of contract called
bailment. Bailment is a term which signifies the delivery of good by one person, the bailor, to
another, the bailee, on the term that in due course they are to be delivered to the bailor or to his
order. When banks receive valuables from customers for safe custody, a relationship of bailor-
bailee is created between them.

3.5. The Regulation of the Banking Profession in Cameroon

The business of banking is full of dangers arising principally from instability in the world’s
economy and from human error or misjudgement. Bank failures are therefore not new. Banks face
many challenges in their daily operations. Turbulence in the banking system has an unfavourable
effect on the economy. As far as the banking profession is concerned, two issues have to be
constantly watched.

The first is described as the general standing of institutions carrying on banking activities.
One way of achieving this is by enacting laws that regulate banking. The other is to impose
restrictions on the free entry of firms into banking business.

The second matter that needs to be regulated is the stability of individual banks. This
involves the introduction of measures to ensure that banks meet their liabilities. A bank that
maintains, adequate margins i.e. funds available to meet current demands, has the required
liquidity. It can be regarded as a sound institution.

Cameroonian law seeks to safeguard the stability of the banking system by imposing
certain controls affecting the two aspects discussed above. The control of the banking profession
in Cameroon focuses on three areas: the regulation of entry into the banking profession, control
when the bank is in activity and the control when the bank is in liquidation.

3.5.1. Regulation of entry into the banking profession

The 1992 Convention imposes conditions which restrict entry into the banking profession.
These conditions can be grouped under bureaucratic conditions, conditions of eligibility to manage
and conditions relating to judicial form, name and capital of banks seeking entry.

3.5.1.1. Administrative (Bureaucratic) procedures

Before anyone establishes a bank, two principal administrative procedures must be

fulfilled: he must obtain an approval from the monetary authority; secondly he must register the
bank with the National Credit Council (NCC) and in the Trade and Personal Credit Register
(TPCR).

a. Approval by Monetary Authority

Unlike the 1985 Ordinance which gave the monetary authority the monopoly over the
issuance of approval to operate a bank in Cameroon (art 3(1)), the 1992 Convention associates
COBAC in this process. Though Article 14(1) of the Convention states that the application for
approval to operate the banking business shall be submitted to the Monetary Authority, this
approval can be accorded only after COBAC has studied the application and given a favourable
opinion on it. Interested parties are required to submit two identical application files to the
Monetary Authority, which then transmits one to COBAC for investigation to determine its
opinion. The application file must contain the following documents:

 A draft Articles of Association;

 A list of shareholders and managers;
 Activities that the bank will undertake;
 Implantation and organisational chart of the bank;
 A detail of the technical and financial resources it intends to use and
 All documents which can be useful in making a good assessment of the viability of the
undertaking.
These documents will help COBAC to assess the ability of the applicant to attain
objectives. COBAC has 6 months from the date of reception of the application file from the
Monetary Authority to give an opinion. Silence after this period would be interpreted as a
favourable opinion and the Monetary Authority can go ahead to issue an approval in the form of a
Ministerial Order.

The 1992 Convention equally provides situations in which an approval can be withdrawn.
The decision to withdraw approval rest with the Monetary Authority or COBAC either at the
request of the bank or where the bank;

- No longer fulfils the conditions under which the approval was granted

- Does not use its approval within 12 months.

 In case of violation, COBAC has the right to impose one or more of the following
sanctions;

 Warning
 Reprimand
 Prohibition from carrying out certain operations
 Dismissal of auditors
 Suspension or Resignation of one or all bank managers responsible and
 Withdrawal of approval.
It should however be noted that before these decisions, the management of the bank in
question must give its opinion in writing or be head and have a right to seek the assistance of the
Professional Association of Bankers (PAB).

If any decision is taken by COBAC, the reasons for such must be given and the sanctions
are enforceable upon notification of those concerned. But the sanction of withdrawal of approval
is enforceable one month after notification of the decision of the Monetary Authority. This period
may be extended if the bank or Monetary Authority appeals against the decision of withdrawal in
conformity with the procedure of the Board of Directors (BODs) of BEAC.

Finally, anybody who exercises the baking profession without authorisation or who after
withdrawal of approval, continues to carry out banking business, may be punished with
imprisonment of from 3 months to 2 years or with a fine of from 500, 000 to 25,000,000 FCFA or
with both imprisonment and fine. (See Article 45 of the 1992 Convention).

b. Registration with the National Credit Council

After the Monetary Authority has approved the operation of a bank on the national territory,
the promoters must ensure that the bank is registered with the National Credit Council (NCC)
(Article 15(4) of the 1992 Convention). The NCC is then expected to update the list of banks
authorised to function in the country to include the newly approved bank. A registered number is
given to it which must appear in all official documents of the bank. Before the registration with
the NCC, the approval must be published in the official gazette or in one of the press organs in the
country at the expense of the bank. The reason for this registration and publication is to make the
customers and the public aware of the official existence of the bank.

c. Registration in the Trade and Personal Property Credit Register (TPPCR, RCCM)

Article 27 of the Uniform Act on General Commercial Law provides that companies and
other corporate bodies shall apply for registration in the TPPCR within one month of their
formation to the registry of the court within whose jurisdiction the registered office is located.
Approved banks must make sure they comply with the above requirement.

3.5.1.2. Eligibility to manage a bank

Approval of the persons to manage a bank is very important because poor management can
cause the liquidation of the bank. It is for this reason that the 1992 Convention provides some
conditions as to character, academic and professional profile of those who can manage banks.

The convention requires management of approved banks to be in the hands of at least two
individuals assisted by at least two auditors. The role of the auditors is to certify the balance sheet
and to confirm information given to the public by the managers.

In order to ensure that banks are not poorly managed, the legislator has set out certain
conditions that must be fulfilled before anybody can be called upon to play the role of management
and auditing.

To begin with, Article 20 of the 1992 Convention imposes the responsibility of approving
persons to manage and audit banks on the Monetary Authority and COBAC. Application for the
above function is made in two copies and addressed to the Monetary Authority who then forwards
one copy to COBAC. Upon reception, COBAC has one month to give its opinion. Silence of
COBAC after this period is considered to be a favourable opinion and the Monetary Authority can
proceed to issue an approval which must be published in the official gazette. To facilitate the task
of the Monetary Authority and COBAC, a number of factors guiding the granting of authorisation
to manage a bank have been set.

a. Residence
 Before now it was provided that those charged with the management of banks must be of
Cameroonian nationality and resident in Cameroon. (see article 8 of the 1985 Ordinance). This
Ordinance was however amended by Law No 90/19 of 10th August 1990. Today nationality has
been abolished but residence still applies. This means that to be able to manage a bank in
Cameroon, the manager must not be a Cameroonian but must take up resident in Cameroon.

Article 21(1) of the 1990 Convention presents a list of documents to be deposited by the
applicant wishing to manage a bank. It requires a certificate of residence and a resident permit for
foreigners. In the absence of any of these, the law states that a receipt showing that the aspiring
manager has applied for a resident permit is valid. The insistence on the fact that those interested
to manage banks must reside in the country where the bank is situated is to facilitate the arrest of
managers who mismanage.

b. Morality and Competence

To ensure proper management of banks, only those who are morally upright and competent
in the banking profession can aspire to manage. According to article 22 of the 1992 Convention,
those applying to be auditors or managers must be holders of at least a First Degree or any
equivalent Diploma in Economics, Banking, Finance, Law and management at the time they
deposit their application for recruitment at the Ministry in charge of money and credit. In addition,
they must have a rich CV and five years experience in high positions in any credit establishments.
In the absence of a First Degree or any equivalent, in the above mentioned fields, a 10 years
professional experience in high positions in any credit establishment qualifies the candidate
seeking the function. All individuals of doubtful morality are put out automatically from the
banking profession.

3.5.1.3. Judicial form, Name and Capital

a. Judicial form

Before 1st June 2009, banks were classified into different categories by the Decree in
conformity with the National Credit Council. That is why Decree No 90/1469 of 9th November
1990 in Cameroon distinguishes two categories of banks i.e. deposit banks and specialised banks.
Article 16 of 1992 convention obliges all banks to take the form of corporate body.
 COBAC Regulation R-2009/02 has categorised credit establishments and indicated their
judicial form. The regulation categorises credit establishments into Universal banks, Specialised
banks and Financial establishments or Financial companies.

Article 7 of same regulation indicates that with the exception of credit establishments with
headquarters abroad, all others must be constituted in the form of a Public Limited Company, with
a Board of Directors as stated by the OHADA Uniform Act relating to Commercial Companies
and Economic Interest Groups.

b. Registered Capital

The legislator has always desired to safeguard the interest of depositors by ensuring that
banks maintain an amount of net assets and other resources. The law does not make the minimum
capital of a bank a discretional. The 1992 Convention provides that the minimum capital shall be
fixed by decree and shall be fully paid up at the time of submitting the application for approval to
operate a bank. Previously, Decree No 90/1470 fixed the minimum capital for banks in Cameroon
at 1 billion FCFA.

COBAC, by Regulation R-2009/01 has fixed the minimum capital of credit establishments.
It provides that the minimum capital of banks with Head Quarters within CEMAC shall be 10
billion FCFA and that of financial establishments 2 billion FCFA.

Credit establishments were given a transitional period of 5 years to comply with the new
COBAC regulation. The regulation envisaged that banks will have to raise their capital to 5 billion
FCFA at the end of June 2010, 7.5 billion FCFA at the end of June 2012, and to 10 billion FCFA
at the end of June 2014.

On the other hand, financial establishments will raise their capital to 1 billion at the end of
June 2010, 1.5 billion at the end of June 2012 and 2 billion at the end of June 2014.

c. Name of Bank

In order to avoid organisations from duping the public, establishments are forbidden from
including the term “bank” or “banking” in their names or advertisements. The law further punishes
any person not subject to the above Ordinance who includes in his company name or his
advertisement the word “bank” or “banking” with imprisonment of not less than 6 months and not
more than 5 years or a fine between 1,000,000 and 50,000,000frs or with both such imprisonment
and fine. (See article 53(1) and (2) of the 1985 Ordinance).

Again, a similar provision is made by article 28 of the 1992 Convention though article 45
of the same convention prescribes a less severe punishment in the case of violation. It recommends
a 3 months to 2 years imprisonment term or a fine of from 500,000 to 25 million or both such
imprisonment and fine.

The Cameroon Penal Code in section 219 also provides the possibility of bringing an action
against those who illegally use bank names.

3.5.2. Control when the bank is in activity

Control at this level will focus on the foundation of certain norms and also on the setting
up of supervisory mechanisms to ensure that these norms are respected.

3.5.2.1. Formulation of Management Norms

This involves the introduction of measures to ensure that banks are able to meet their duties.
A bank that maintains adequate margins, i.e. funds available to meet current demands has the
required liquidity. It can be regarded as a basically sound bank.

We shall consider some of the management norms put in place with a view to examining
their efficacy towards the attainment of the general objective of control- guarantee of liquidity and
solvency and enhancing of the confidence of the customer in banks.

1. Prudential Ratios

Prudential ratios are the normal standards of care that the bank has to take in the
management of its resources. Before COBAC, the prudential ratios within the BEAC zone were
far from being in line with the international acceptable standards.
 Today, the prudential ratios applicable within the BEAC zone is that instituted by COBAC.
This was done on the 29th of March 1993. The prudential ratios instituted by COBAC can be
grouped into two:

i. those that aim at assuring bank solvency and

ii. those which assure bank liquidity.

A bank is said to be solvent if it is able to meet its commitments using its own resources
under all circumstances. On the other hand, it is said to be liquid if it can honour its commitments
within a short notice. A bank can be liquid but not solvent.

i. Prudential requirements aimed at assuring Solvency

The following are prudential requirements that exist to assure solvency within the BEAC Zone:

1. Ratio of risk coverage

This ratio obliges banks to justify on a permanent basis their net resources cover a
minimum of 5% of the entire credit they accord. This ratio is meant to prevent banks from
depending exclusively on the customer’s deposits in according credits.

2. The Ratio of Risk Division

This ratio is based on the adage that “one must not put all his eggs in one basket” in other
words “one must spread his eggs in several baskets”. It forbids credit establishments from
concentrating their risks on a small number of customers. This is because their insolvency can play
very negatively on the establishment. It is forbidden for a credit establishment to accord to one
customer credit exceeding 75% of its net resources.

3. Ratio for real estate coverage

The purpose of this ratio is to prevent credit establishments from using resources from
customer deposits in financing the construction of their head quarter buildings or branches, buying
materials or houses in general. These investments have to be financed by at least 100% of their
own resources.

4. Limitation of the participation of credit establishments in other enterprises

This is to ensure a strict control of the participation of credit establishments in non- banking
businesses. Credit establishments are barred from investing more than 15% of their resources in
non - banking enterprises. The total amount of capital that may be invested by any banking
institution in all enterprises must not exceed 75% of its net assets.

5. Limitation of credit accorded by credit establishments to shareholders, administrators,

managers and personnel of banks

This limitation defines the rules relating to the conditions in which credit establishments
are authorised to accord loans to their shareholders, administrators, managers and personnel.
Consequently, direct and indirect credit accorded to shareholders, administrators, managers and
personnel of any bank cannot exceed 15% of the banks income.

ii. Prudential requirements aimed at assuring Bank Liquidity

Liquidity means the capacity of a credit establishment to honour its commitments within a
short notice. This requires that the bank must be in position to restitute a customer’s deposit
immediately it is demanded. COBAC pre-occupied with the protection of customer’s deposits and
the general necessity for good management, obliges credit establishments to respect two ratios in
view of assuring liquidity. To respect these ratios, banks will be prevented from engaging a major
part of their short term resources in long-term transactions. These ratios are:

i. the liquid ratio and

ii. the long term transformation ratio

i. The Liquidity Ratio

 Credit establishments are obliged to respect a minimum relationship (called liquidity
relationship) between their available resources and their debts. They must always justify that
resources immediately available can cover the totality 100% of their debts in a month.

ii. Long term Transformation Ratio

These are commitments and resources of banks falling within 5 years. The maximum rate
to observe is 50%. The objective of this ratio is to dissuade credit establishments from using their
short term resources in long term investments. These prudential ratios enacted by COBAC are
subject to changes depending on the modifications observed in the economic environment of the
BEAC sub region. Any credit establishment which fails to observe these prudential ratios exposes
itself to sanctions as per article 13 of the annex of the 1990 convention and 48 of the 1992
Convention.

3.5.2.2. Security for bank loans

One of the functions of a bank is to give loans to customers. But this function has to be
exercised with caution. This is because loans and overdrafts granted to customers may not be paid
back when they become due, reasons being that the debtor may be insolvent or might have died.
The 1992 Convention provides no direct security disposition for the recovery of bank loans when
the bank is a going concern. Recourse on this matter can only be made to the 1985 Ordinance and
COBAC regulations. The provisions of the 1985 Ordinance on this matter are contained in Article
23(1). From this section, bank loans can be secured by mortgage of property or by way of cession
by the beneficiary, of any debt the latter may be claiming from the third party.

The problem in the above article is the use of the discretion may, instead of the mandatory
shall. It is left for banks to ask for property to be mortgaged in its favour when loans are granted
to customers. No doubt some unethical bank managers grant huge sums of money as loans to
customers without bothering to ask for security from beneficiaries.

The law governing securities within the OHADA zone is the Uniform Act Relating to Securities
adopted in 1997 and went into force in 1998. Its strict application will help solve some of this
problems banks face.

3.5.2.3. Control of Accounts

 In order to ensure the solvency of a bank, both the control authority and the public have to
be aware of the financial situation of the bank. All banks are obliged to publish their accounts
under the conditions fixed by the Monetary Authority following the advice of the National Credit
Council.

3.5.2.3. Payment of Commission and Remuneration

In Cameroon there exist a Ministry of Finance regulating banking conditions. This

condition states clearly that commission have to be paid by the customer received by the bank for
services rendered. Within the BEAC zone, banks do not determine the fixed interest rates. Rates
are determined by BEAC.

3.5.2.4. Supervisory Mechanism

The supervisory mechanisms of the banks in Cameroon can be classified into two:

1. External Supervisory Mechanism

The main supervisory mechanism put in place for banks is COBAC. One of the principal
assignments of COBAC is to ensure that banks respect regulations.

Presentation of COBAC

COBAC was created on the 16 of Oct 1990. The institution is charged with the duty to
ensure that credit establishments respect the laws in place and to sanction violators.

Administration and function of COBAC

According to the new banking regulations, the approval of banks, their managers, the
appointment of auditors and others must conform to the opinion of COBAC. The Monetary
Authority must take this opinion into account. Once a credit establishment as a result of poor
management faces insolvency, COBAC has a right to take preventive measures by appointing a
Provisional Administrator endowed with the necessary powers to remedy the situation.

It is the function of the COBAC in association with the courts to appoint a liquidator for
all credit establishments whose approval have been withdrawn or those without approval.
Regulatory Function

COBAC has put in elaborated and to work Prudential Ratios which were under the powers
of the NCC. The council now plays only a consultative role.

Jurisdictional function

COBAC has the status of an administrative judge. In this light, it has the power to
pronounce sanctions against managers of credit establishments. These sanctions can be as severe
as the withdrawal of approval.

Control Function

One of the principal attributes of COBAC is to ensure that credit establishments apply
banking regulations. It does this through it secretariat that does on-the-spot checks. On the spot
checks involves verification done in the premises of the credit establishment, by agents of the
commission to ensure authenticity of the information periodically sent to the authorities for control
and the respect of the ethics of the profession.

2. Internal Supervisory Mechanism

These control mechanisms are two in number: internal control system and internal control
function

Internal control system corresponds to permanent control dispositions put in place by

management and the Board of Directors over each operational unit to ensure the continuous
existence of the bank. Internal control function on the other hand implies the specialisation of
certain agents in the control at a second degree. That is those who ensure that the internal control
system put in place works. COBAC Regulation R93/08 imposes on banks within BEAC zone the
duty to put in place an internal control system within their banks.

3.5.3. Control of Liquidation of Banks

It does happens that despite the precaution put in place to control entry into the banking
profession and to monitor banks in operation, some banks still go bankrupt and have to be
liquidated. The conduct of the liquidation process of such banks is very important because its
outcome can affect the attitude of customers towards savings in banks. Today, the liquidation of
banks is governed by article 17 of the 1992 Convention which requires that liquidation of banks
should follow rules of ordinary law. The OHADA uniform Act relating to Commercial Companies
and Economic Interest Groups and the collective procedures for winding up.

3.6. Bank Guarantees and Securities

3.6.1. Bank Guarantees

A guarantee “is a promise to answer for the debt, default or miscarriage of another, if that
person fails to meet the obligation”. According to the Statute of Frauds 1677, Section 4, primary
liability for the debt is incurred by the principal debtor. The guarantor incurs secondary liability,
that is, the guarantor becomes liable only if the debtor fails to pay. If the principal debtor’s liability
to the bank is void, the guarantor will not be liable.

A guarantee must be evidenced by a written note or memorandum signed by the guarantors

or their agents. Without such written evidence, the guarantee is unenforceable. A guarantee differs
from an indemnity. An indemnity imposes direct or primary liability to pay and need not be
evidenced in writing.

3.6.1.1. Attributes of Guarantees as Security

a. Advantages

 An unsupported guarantee is a very simple security to take. No registration is involved and

no complications concerning proof of title arise.
 A guarantee can easily and immediately be enforced by court action.
 As with any other security given by a third party (collateral security), it can be ignored
when claiming against the principal debtor.
 As several parties can guarantee a loan, it is useful security where the principal debtor is
unable to provide security but offer’s a viable business proposition.
b. Disadvantages

 Unless supported by a cash deposit or other security, a guarantee is always of an uncertain

value as a security. A guarantor’s financial position can change very quickly.
  Enforcing a guarantee may cause bad feeling, particularly if the guarantor is a valued
customer.
 Litigation may be necessary to enforce payment where the guarantee was not supported by
other security.
3.6.1.2. Types of Guarantees

There are basically two types of guarantees, namely specific and continuing guarantees of
a limited amount.

1. Specific Guarantee: It is when the guarantor’s liability in the transaction between the debtor
and the bank is limited to a specific sum.

2. Continuing guarantees of a limited amount: It is a situation where the guarantor guarantees

the debtor’s liability to the bank for a specific sum, thus limiting his own liability. If possible,
banks usually obtain a continuing guarantee.

3.6.1.3. Instances where a guarantee may be vitiated

1. Undue influence: The basis of undue influence is to ensure that the guarantor is not unduly
influenced by the bank or more likely by the principal debtor to sign the guarantee. If undue
influence is proved, the guarantee may be set aside.

2. Guarantee by the wife or an elderly relative: Problems are most likely to occur where a wife
guarantees her husband’s borrowing or elderly persons, that of their child. In such instances, the
bank is expected to give an independent advice to the wife or the guarantee may be set aside for
undue influence.

3. Principal debtor obtaining the guarantee: It is not advisable to ask the principal debtor to
obtain the guarantor’s signature. Apart from the obvious risk of forged signature, the debtor would
almost certainly be deemed to act as the bank’s agent and the bank would be responsible for any
misrepresentation.

3.6.2. Bank Securities

 Securities also known as “collaterals” are properties or assets (whether fixed or not, or
movable or immovable) used by an individual whether natural or artificial, usually on the demand
of the bank to obtain a bank loan.

Elements that determine the acceptability of a fixed asset as bank security

1. The title to the property

For an asset to be acceptable by the bank as security to obtain a bank loan, the bank has to
investigate the title to the property. This is to ensure that the asset intended to be used as collateral
is legally owned by the debtor.

2. Location

The location of the property plays a great role in determining its acceptability as security.
If the asset is accessible, the chances to be accepted is collateral are greater as accessibility also
determines the value.

3. State of the property

The bank has to investigate whether the property is not on mortgage to another person or
institution.

4. Value

The bank will always want to consider the market value (monetary) of the particular
property to determine whether it is acceptable or not as collateral.

5. The Marketability

Most often than not, the bank would be reluctant to accept assets that are not easily to
market as security for the granting of loans.

3.7. Negotiable Instruments

A negotiable instrument is a document guaranteeing the payment of a specific amount of

money either on demand or on a specified period of time. It may also be defined as “an
unconditional promise or order to pay a fixed amount of money with or without interest or other
charges described in the promise or order, if it:

 is payable to the bearer or to order at the time it is issued;

 is payable on demand or at a definite time; and
 does not state any other undertaking or instruction by the person promising or ordering
payment to do any act in addition to the payment of money”.
Negotiable instruments within the CEMAC sub region are governed by regulation No.
02/03/CEMAC/CM relating to the systems means and incidences of payment signed in Yaoundé
on April 4 2003 and entered into force on 1st July 2004 within all the Member States of CEMAC.
We must however note that this part of the course has not yet been adapted to this new dispensation
of the law.

3.7.1. Elements of Negotiable Instruments

Negotiable instrument has been defined as a written document, signed by the maker or the
drawer of the instrument, that contains an unconditional promise or order to pay an exact sum of
money (with or without interest in a specified amount or at a specified rate) on demand or at a
specified future time, to a specified person or order or to its bearer. The elements of a negotiable
instrument includes the following:

1. Must be in writing: A negotiable instrument must be in writing for it to be valid

2. Must be signed: For an instrument to be negotiable, it must be signed by the maker or drawer.
A signature may be any symbol made by the maker or drawer with the present intention to be a
signature.

3. Unconditional promise

a) Promise or order: A negotiable instrument must contain an express promise or order to pay.
A mere acknowledgement of a debt is not sufficient without evidence of an affirmative undertaking
on the part of the debtor to repay the debt. However, the exception to this rule is a Certificate of
Deposit.
b) Unconditionality of promise or order: A promise or order is conditional (and therefore not
negotiable) if it states:

- an express condition to payment

- that the promise or order is subject to or governed by another writing or

- that the rights and obligations with respect to the order or promise are stated in another writing.

4. A fixed amount: The fourth requirement of negotiability is that it must state a fixed amount of
money. Fixed amount means an amount that can be determined from the face of the instrument.
This requirement applies only to the principal amount of money. The instrument can refer to an
outside source to determine the rate of interest. Payable in money means the medium of exchange
authorised by the state.

5. Time for payment

a) Payment on demand: An instrument is payable on demand “at sight” or “upon presentation”

if it is subject to payment upon being presented to the drawee. If no time for payment is presumed,
a negotiable instrument is presumed to be payable on demand.

b) Payment at a definite time: An instrument is payable at a definite time if it states that it is

payable i) on a specified date; ii) within a definite period of time; or iii) on a date or at a time
readily ascertainable at the time the promise or order is made. Such instruments are often referred
to as time instruments.

Acceleration Clause: It is a clause that permits a payee or other holder of a time instrument to
demand payment of the entire amount or balance due, with interest, if a certain event occurs, such
as default in payment of an instalment when due.

Extension clause: It is a clause in the time instrument that permits the date of maturity to be
extended.

6. To whom it must be paid

a) Order instrument: It is a negotiable instrument that is payable “to the order of” an identified
person or “to” an identifiable person “or order”.
b) Bearer instrument: A negotiable instrument payable “to bearer” or to “cash” rather than to an
identifiable payee.

Bearer: The person possessing the instrument. Any instrument payable to following is a bearer
instrument: i) “Payable to the order of bearer”; “Payable to Jane Smith or bearer”; iii) “Payable to
bearer”; iv) “Pay cash”; or v) “Pay to the order of cash”.

3.7.2. Factors Not Affecting Negotiability

Certain ambiguities or omission resolvable by applicable provisions will not make an

instrument non negotiable. For example:

 the fact that the instrument is undated does not affect its negotiability, unless the date of
the instrument is necessary to understand the payment term;
 postdating or antedating an instrument does not affect its negotiability;
 interlineations and other written or typewritten alterations need not affect negotiability;
 if the instrument fails to specify the applicable interest rate, the judgement rate of interest
3.7.3. Types of Negotiable Instruments

1. Draft: A draft is an unconditional order to pay by which the party creating the draft (the Drawer)
orders another party (the Drawee), typically a bank, to pay money to a third party, (the Payee).
E.g. a cheque.

2. Promisory Note: It is an unconditional promise in writing made by one person (the maker) to
pay a fixed sum of money to another (the payee) on demand or at a specific time period.

3. Certificate of Deposit: It is a note by which a bank or similar financial institution acknowledges

the receipt of money from a party and promises to repay the money, with interest, to the party on
a certain date.

4. Bill of Exchange: A Bill of Exchange is “an unconditional order in writing addressed by one
person (the drawer) to another (the drawee), signed by the person giving it, requiring the person to
whom it is addressed to pay upon demand or at a fixed or determinable future time, a certain sum
of money to or to the order of a specified person or to bearer”. Bills of Exchange are used primarily
in international trade and are written orders by one person to his bank to pay the bearer a specific
sum on a specific date. In other words, a bill of exchange is a written order by the drawer to the
drawee, to pay money to the payee. It requires in its inception three parties: the person who gives
the order to pay “the drawer”, the person to whom the order is given to pay known as “the
drawee/acceptor” and finally the person to whom payment is to be maid called “the payee”. The
bill of exchange is frequently used in international commercial transactions. The purpose of a Bill
of Exchange can be illustrated by the example below:

If B (a buyer) owes S (s seller) 100 000frs for goods supplied, by using a Bill of Exchange he can
request F (probably a financier or agent) to pay the debt, B having given or agreed to give F the
necessary funds. At the same time the bill can be used to enable B to obtain a period of credit,
whilst S will nevertheless receive prompt payment (although of a slightly smaller amount).

The bill may be drawn as follows:

Bamenda 5th March 2014

To: F

Three months after date pay S or order the sum of one hundred thousand frs (100 000),
value received.

Signed: B

Thus B has drawn a bill requiring F to pay 100 000frs to S or to the order of S.

Parties to a Bill of Exchange

Drawer: The person who orders money to be paid on his behalf.

Drawee: The person to whom the order is given.

Payee: The person to whom the money will be paid.

Indorser: The holder of an order bill who signs the back when transferring it.

Indorsee: The person to whom an order bill is indorsed.

Bearer: The person in possession of a bearer bill.

Holder: The payee or indorsee who is in possession of an order bill or the person in possession of
a bearer bill (the bearer). It is important to note that a bill is negotiated when it is transferred from
one person to another in such a manner as to constitute the transferee the holder of the bill.

5. Cheques: A cheque is an unconditional order in writing addressed by one person to another

who must be a banker, signed by the person giving it, requiring the banker to pay on demand a
sum certain in money to or to the order of a specified person or to bearer. According to article 13
of the CEMAC Regulation cited above, a cheque must contain the following:

 The indication “cheque” inserted within the context of title and expressed in the language
used in drafting the cheque;
 A simple and pure order to pay a determined sum;
 The name of the person who shall pay, named Drawee;
 The indication of the place where payment shall take place;
 The indication of the date and the place of creation of the cheque; and
 The signature of the person issuing the cheque, named Drawer.
Article 237 of the CEMAC Regulation punishes anyone who issues a cheque without cover to a
prison term of from six months to five years or with a fine of from 100 000frs to 2.000 .000frs or
with both such fine and imprisonment. Article 196 provides that the issue of a cheque without
cover may lead to a prohibition from the courts or banks to issue cheques.

3.8. Methods of payments in international trade

 The party to the contract have the choice between various methods of international
payments, namely; direct payment, collection and documentary credit also known as banker’s
commercial credit.

1. Direct payment

When the seller is confident of the integrity of the buyer, he may arrange for direct
payments which may be done in various ways. The buyer may simply send the price to the seller
by telegraphic transfer or mail transfer whereby the buyer’s bank communicates with the bank in
the seller’s country instructing it to pay the seller. Direct payment may also be done by the use of
banker’s draft. In which case, the buyer obtains from his bank an order drawn from a bank in the
seller’s country and naming the seller as payee. The most common method of direct payment is
where the documents i.e. invoice, the bill of laden and the insurance against others are transmitted
by the seller to the buyer with a bill of exchange drawn by the seller to the buyer attached.

2. Collection

Under this arrangement the seller instructs his bank to make arrangements normally
through a bank in the buyer’s country to collect payments on the bill of exchange drawn on him
by the seller. The bill may be sent to the bank accompanied with documents relating to the goods
which the bank may hand over to the buyer when he pays on the bill of exchange. This is known
as documentary remittance, but if the bill is sent without documents attached to it, it is called clean
remittance.

3. Banker’s commercial credit (documentary credit)

It is a pre-approved amount of money issued by a bank to a company that can be accessed

by the borrowing company at any time to help meet various financial obligations. It is commonly
used to fund the day to day operations or fund new business opportunities or to pay for unexpected
charges. It is often repaid once funds become available. It is also referred to as commercial line of
credit or business credit. Documentary credit may take various types in the sense that they may be
recoverable or irrecoverable credits, confirmed or unconfirmed credit, revolving credit, back to
back credit etc.

a. Letters of Credit (LC)

 Letters of Credit have been a corner of international trade dating back to the early 1900s.
They continue to play a critical role in world trade today. For any company entering the
international market, Letters of Credit are important payment mechanism which helps eliminate
certain risks. A Letter of Credit simply defined

as a written instrument issued by a bank (called the issuing bank) at the request
of its customer, the importer (buyer), whereby the bank (negotiating bank or
paying bank) promises to pay the exporter (beneficiary) or exporter’s bank called
accepting bank for goods or services, provided that the exporter presents all
documents called for, exactly as stipulated in the Letter of Credit, and meet all
other terms and conditions set out in the Letter of Credit.

It is commonly referred to as a documentary credit. In other words, Letters of Credit

guarantees payment of a specified sum in a specified currency provided the seller meets precisely-
defined conditions and submits the prescribed documents within a fixed timeframe. Letters of
Credit are used usually where the seller is unwilling to extend credit to the buyer. In effect, a Letter
of Credit substitutes the creditworthiness of a bank for the creditworthiness of the buyer. Thus, the
international banking system acts as an intermediary between the far flung exporters and importers.
However, the banking system does not take any responsibility for the quality of goods, genuiness
of documents or any other provision in the contract of sale.

Since the unambiguity of terminology used in the writings of a Letter of Credit is of vital
importance, the International Chambers of Commerce (ICC) has suggested specific terms (called
incoterms) that are now almost universally accepted and used. Unlike a bill of exchange, a Letter
of Credit is a non-negotiable instrument but may be transferable with the consent of the applicant.
Although Letters of Credit come in numerous forms, two basic ones are: revocable and irrevocable
Letter of Credit. A revocable Letter of Credit can be revoked without the consent of the exporter,
meaning that it may be cancelled or changed up to the time the documents are presented. It affords
the exporter little protection.

An irrevocable Letter of Credit cannot be cancelled or changed without the consent of all the
parties including the exporter; unless stipulated, all Letters of Credit are irrevocable.

b. Revocable and Irrevocable Letter of Credit

Revocable Letter of Credit: It is a Letter of Credit that may be amended or cancelled at anytime
by the buyer (the account party) without the approval of the seller (the beneficiary). Since it does
not provide any protection to the seller, it is rarely used. Some banks even refuse to issue such
Letter of Credit because of the fear of getting involved in possible litigation between the buyer and
the seller.

Irrevocable Letter of Credit: It is a firm’s commitment by an issuing bank to pay an accepting

bank a specified sum in a specified currency provided that the conditions included in the Letter of
Credit documents are met within a specified timeframe. This Letter of Credit cannot be cancelled
(or its terms amended) without the seller’s (beneficiary) prior written approval and comes usually
as a confirmed letter of credit.

c. Recoverable and irrecoverable credit

Recoverable credit constitutes a definite undertaking by the issuing bank that the credit will
be made available only if the seller complies with the stipulated conditions. Irrevocable credit
provides considerable security to the seller but may have a disadvantage for the buyer, since he is
committed to the credit. It means that the seller is sure to be paid even if the goods he supplies
does not meet the contract description which will be a disadvantage to the buyer who may have to
resort to another legal action against the seller. A recoverable credit on the other hand does not
constitute a definite undertaking by the issuing bank and may be cancelled or modified. So it does
not give the security that the seller normally looks for.

d. Confirmed and unconfirmed credit

The distinction between this two terms lie upon whether or not the correspondent bank
accept directly to the seller to honour the credit, whether or not the funds are provided by the
issuing bank. In the former event, the correspondent bank confirms the credit, meaning that it
undertakes to pay sometimes in return for a commission whether or not it is put in fund by the
issuing bank. In the latter event, the credit is unconfirmed as the intermediary bank merely informs
the seller that the credit has been opened in his favour and the seller may have no right of recourse
against the bank in the event of it refusing to pay.

c. Revolving Credit
 It is employed when buyer and seller deal regularly with one another or have arranged to
deal over a certain period. In such a situation it is inconvenient to set up a documentary credit for
every transaction. Accordingly, a credit is established with a minimum limit for drawing by the
seller, and as the seller presents documents for drawing on the credit, the buyer replenishes it.

d. Back-To-Back Credit

Unless in a situation where the seller is the manufacturer, it is possible for sellers to buy
goods which they intend to sell. In which case, the seller is also the buyer which will require
appropriate arrangements for payments. The seller may therefore require his buyer to set up credit
in his favour and then use this credit to support a second credit which he opened as buyer in favour
of his own supplier. This arrangement which may involve a string of sellers and buyers is called a
back-to-back credit.

3.9. Rights and Duties of a Banker and a Customer

It is not that the bank has only duties toward its customers, it also has certain rights vis-à-
vis its customers. These rights can broadly be classified as:

- the right to general lien (banker’s lien),

- right to set-off,

- right of appropriation,

- act as per mandate of customers

- right to charge interest, commission, incidental charges etc.

3.9.1. Banker’s Lien

A lien is the right of a creditor in possession of goods or securities or any other asset
belonging to the debtor to retain them until the debt is repaid, provided that there is no contract
express or implied to the contrary. It is a right to retain possession of specific goods or securities
or other movables of which the ownership vest in some other person and the possession can be
retained till the owner discharges the debt or obligations to the possessor. The creditor (bank) has
the right to maintain the security of the debtor but not to sell it. There are two types of lien; viz
particular lien and general lien.

a. Particular Lien

A particular lien gives the right to retain possession only of those goods in respect of which
the dues has arisen. It is also termed ordinary lien. If the bank has obtained a particular security
for a particular debt, then the banker’s right gets converted into a particular lien.

b. Right of General Lien

The banker has the right of general lien against his borrower. General lien confers bank’s
rights in respect of all dues and not a particular due. It is a statutory right of the bank and is
available even in the absence of an agreement but it does not confer the right to pledge. A general
lien gives the right to retain possession of any good in the legal possession of the creditor until the
whole of the debt due is paid by the debtor. Banks have a right of lien only when goods and
securities are received in the capacity as creditor. While granting advances, banks take documents.
A banker’s lien is more than a general lien; it is an implied pledge and has the right to sell the
goods. In case of default banks have a “right of sale” of goods under lien.

Exercising right of lien

Banks have the right of lien on goods and securities entrusted to them legally and standing
in the name of the borrower. Banks can exercise right of lien on the securities in its possession for
the dues of the same borrower, even after the loan taken against that particular security has been
repaid. Right of lien can be exercised on bills, cheques, promissory notes, share certificates, bonds,
debentures etc.

Limitations to the right of lien

Banks cannot exercise right of lien on goods received for safe custody, goods held in
capacity as a trustee, or as an agent of the customer or goods left in the bank by mistake.

3.9.2. Right to Set-Off

 The bank has the right to set-off the accounts of its customer. It is a statutory right available
to a bank, to set off a debt owed to it by a debtor from the credit balance held in other accounts of
the borrower. This right can be exercised only if there is no agreement express or implied to the
contrary. This right is applicable in respect of dues that are due or are becoming due. It is not
applicable on future debts. The right is also available for deposits kept in other branches of the
same bank. The right can be exercised after death, insolvency and dissolution of a company, after
receipt of a garnishee attachment order.

Deposits held in the name of a guarantor cannot be held as set off to the debit balance in
borrower’s account until a demand is made to the guarantor and his liability become certain. Banks
cannot set off the credit balance of customer’s personal account for joint loan account of the
customer with another person, unless both the joint account holders are jointly and severally liable.
Banks exercise this right only after serving a notice to the customer informing him that the bank
is going to exercise the right to set off.

a. Automatic right to set-off

Depending on the situation, sometimes the set-off takes place automatically without the
permission from the customer. In the following events the set-off happens automatically

 on the death of the customer

 on the customer becoming insolvent
 on receipt of a garnishee order on customer’s account by court
 on receipt of a notice of assignment of credit balance by the customer to the banker.
b. Conditions for the exercise of the right to set-off

For the right to set off to be exercised the following are necessary:

1. The account should be in the sole name of the customer

2. The amount of debts must be certain and measurable

3. There should not be any agreement to the contrary

4. Funds should not be held in trust accounts

5. The right cannot be exercised in respect of future debts.

3.9.3. The bank’s right to rectify errors

This problem usually arises when the bank credits the customer’s account with the wrong
amount or with a sum not due to him. The moment the bank discovers the mistake, it rectifies the
entry. If the customer argues the bank’s right to do so, he institutes proceedings. Two pleas are
opened to him.

 the first is that the bank is stopped from disputing the correctness of the balance as shown
in the passbook or in the periodic statement.
 the second is based on a claim that the balance constitute “account settled” or an “account
stated”.
The success of the plea of estoppels depends on the effect that the wrongful payment has on
the customer’s position. If the customer honestly believes that the entries are correct and alters his
position, to his detriment in reliance upon them, the bank will be stopped from claiming to have
the mistake put right.

3.9.4. The customer’s right to demand corrections

Sometimes the banks commit errors in statements and in passbooks issued to customers.
Once these errors come to the notice of the customer, he becomes interested in getting them
corrected. This error may come when a customer’s account has been credited with an amount
smaller than that of an item payable to him or if his account is debited with an amount larger than
that for which he drew a cheque. It can equally be that the amount of the customer’s cheque has
fraudulently been raised. Computer faults are responsible too.

3.9.5. Statement of Account

The bank is under a duty to inform the customer of the state of his account. It does this
either by furnishing the customer with periodic statements of his current account or where pass-
books are still in use, the customer presents it to the bank from time to time to be brought up to
date. Banks usually maintain a high standard of writing up passbooks or preparing statements of
accounts. But it is obvious that both the passbook and a periodic statement may contain
inaccuracies resulting from errors in addition and from wrong entries. A prudent customer will
verify the entries in his passbook or statement of account. If he notices an error, he will signal the
bank which generally will rectify the error without any problems. There are instances where it
cannot be corrected and the courts are called upon to adjudicate.

3.9.6. Banker’s duty of Confidentiality/Bank-client confidentiality (Bank secrecy)

This is a legal obligation on the bank to protect and keep transactions between the bank
and the customer secret. It can also be termed the duty not to disclose customer’s account or other
transactions with the customer. Economic policy has been advanced as a justification of the duty
of secrecy. This is because the bank has a very detailed knowledge of the customer’s affairs
acquired while acting as its customer’s pay-master and receiver of amounts due to him. This
includes privacy in relation to financial income and assets. The banker’s duty of security was
succinctly enacted by the Cameroonian legislator in Ordinance No 85/002 of 31st August 1985
relating to the operation of credit establishments. However, the law applicable today is Law No
2003/004 of 21st April 2003. Article 3 of this law indicates that bank secrecy consist of the
obligation of confidentiality imposed on credit establishments in relation to acts, facts and
information concerning their customers which come to their knowledge in the course of exercising
their functions. This obligation extends to individuals who not being part of the personnel of credit
establishment obtain information (for example a computer specialist who is hired to operate the
computer).

English law governing the banker’s duty of secrecy has been clearly laid down in the
landmark case of Tournier v. National Provincial and Union Bank of England, [1924]1 K.B.
461. In that case, the plaintiff whose account with the defendant bank manager was heavily
overdrawn failed to meet the repayment demands made by the branch manager. On one occasion,
the branch manager noticed that a cheque drawn to the plaintiff’s order by another customer was
collected from the account for a bookmaker. The branch manager there upon rang the plaintiff’s
employees to ascertain the plaintiff’s private address, but, in the course of the conversation, he
disclosed that the plaintiff’s account was overdrawn and that he had dealings with bookmakers.
As a result of this conversation, the plaintiff’s contract was not renewed by the employers upon
expiration. The plaintiff brought an action against the bank for damages, for slander and for breach
of an implied term of the contract between him and the bank. Judgement was entered for the bank.
On appeal, the three members of the court of appeal were unanimous on the view that the bank
was guilty of the breach of a duty of secrecy.

Another worry is whether this duty is absolute or whether there are circumstances where
the bank can feel justified in making disclosures concerning its customer’s affairs. The
Cameroonian legislator expresses the view that the duty is not absolute but qualified as he states
in Art 45 of the 1985 Ordinance. Equally the duty to keep the customers affairs secrete is
emphasised by the Penal Code in sections 310 and 311.

However, there are exceptions to the bank’s duty of confidentiality. The addition of new
crimes to the statute books has led to the creation of new duties of disclosure, for example
regarding insider trading and money laundering.

Limits to bank confidentiality

A banker's obligation to respect his/her clients' privacy is not absolute, and no protection
is afforded to criminals. In particular, there is a duty for banks to provide information under the
following circumstances:

1. Compulsory at law

That a bank may be compelled by law to disclose the state of its customer’s account is
recognised by the proviso of Article 45 of the 1985 Ordinance. Article 8 to 25 of law No 2003/004
list instances where the bank will be under compulsion at law to make disclosures of the customer’s
account.

a) Civil Proceedings (inheritance or divorce, for example): For the purpose of evidence clarity
in matters of inheritance and divorce (especially where the parties are in a joint property regime,
the banks may be called upon to divulge information relating to the bank-customer transactions
and customer accounts.

b) Criminal Proceedings: Money laundering, association with a criminal organisations, theft, tax
fraud, blackmail are all cases of criminal proceedings. If circumstantial evidence gives rise to a
suspicion that the financial assets are the proceeds of a crime, then, financial institutions may
inform the authorities without breaching bank-client confidentiality; if the suspicion is well-
founded, they must inform the Money Laundering Reporting Office.

c) Debt recovery and bankruptcy proceedings: Banks may also be called upon to expose
customer’s information during debt recovery and bankruptcy proceedings.

2. Duty to the public to disclose

This is the second exception to the banks duty of secrecy as postulated by Bankes in the
Tournier case. Disclosure is allowed wherever the court realises that other interests to be protected
are equal or superior to the interest of the customer. This would include cases where a garnishee
order is served upon a bank and also where information is demanded by the monetary or judicial
authority.

3. Disclosure in the bank’s own interest

Whenever there is litigation between the bank and the customer, the bank, in order to prove
its case has the right to make disclosure which ordinarily will be sanctioned. For example, if a
bank sues to recover money it lent to a customer, the bank has the right to disclose in its pleading
the state of the customer’s account and the amount owed by him to the bank.

In Sunderland v. Barclays Bank Ltd, [1938] 5 L.D.A.B. 163, the defendant bank
successfully defended an action for wrongful disclosure on the grounds that it was in the bank’s
interest to make the disclosure.

4. Disclosure with customer’s consent

Section 310 and 311 of the Cameroon Penal Code acknowledge consent of the customer
as exception to the banker’s duty of secrecy. Consent may be express, implied, general and special.
A customer is said to have expressly consented when he clearly authorises his bank to disclose his
affairs to a third party. A customer is said to have impliedly consented when he conducts himself
in such a way as to lead a reasonable man to believe that he authorised the bank to disclose his
affairs to third parties.
 There is controversy over disclosure made by a bank to an intending guarantor who calls
at the customer’s bank and for the purpose of signing a guarantors form ask questions concerning
the way in which the customer’s account has been conducted. The view is that the surety’s question
should be answered on the ground that by introducing the surety to the bank, the customer
impliedly authorised disclosure.

5. The banker’s duty of secrecy and the intervention of foreign courts

Issues relating to bank secrecy sometimes generate problem of conflict of laws. It usually
occurs that banks that maintain offices around the world and deals with multinational customers.
For example, a Cameroonian branch of a French bank may be asked by a court in Cameroon to
supply information maintained with the head office in Paris. There are two methods by which the
courts can come by this information: letters of request or rogatory and subpoena.

3.9.7. The bank’s duty to pay cheques

A cheque is an unconditional order in writing addressed by one person to another who must
be a banker, signed by the person giving it, requiring the banker to pay on demand a sum certain
in money to or to the order of a specified person or to bearer. The bank’s duty to honour or refuse
to honour a cheque is owed to the customer alone. This duty flows from the nature of relationship
between the banker and the customer which is principal and agent. In such relationship, the
customer is the principal and the bank the agent. The bank’s duty to honour the customer’s cheque
is however subject to limitations.

 the amount of the cheque must not exceed either the balance standing in the customer’s
account;
 the cheque must be presented at the branch of the bank where the account is kept;
 the bank’s duty to pay the cheque may be abrogated by law;
 the cheque must not be defective.
Abrogation of the bank’s duty to pay cheques by law

The bank’s duty to pay cheques may be abrogated by law under the following circumstances:

a. Garnishee proceedings
 Garnishee proceedings are usually instituted by a judgement creditor whose claims against
the bank’s customer have not been satisfied. The creditor applies to the court for an order under
which all debts owing and accruing from the bank to the customer are to be attached for the purpose
of satisfying the creditor’s judgement against the customer. If the court sees it fit, it will first issue
a garnishee order nisi asking the bank to explain why it should not pay the amount owed by the
customer to the creditor. If the bank cannot, the court will now issue a final order (i.e. garnishee
order absolute) requiring the bank to pay over an amount adequate to satisfy the customer’s debt
to the creditor. The bank may raise the following defences when the garnishee order nisi is issued:

i. the bank will successfully raise an objection where the balance is standing to the credit of
a trust account.
ii. the bank can raise an objection where it has a right of set-off or a right to combine the credit
balance in the garnished account with a debit balance accrued in another account
maintained by same customer.
iii. if the bank has evidence that the balance standing to the credit account of the customer is
jointly owned by himself and some other person, it can raise an objection.
iv. if the garnishment debtor is described in the order nisi under a name which is different
from that under which he has opened the account.
Exception: the court does not have power to grant a garnishee order in respect of balance
maintained with a foreign branch of the bank and repayable in foreign currency.

b. Mareva injunction

A mareva injunction terminates the duty of the bank to honour the customer’s cheques and
make transfer of funds on his behalf. The objective of a mareva injunction is to prevent a defendant
from defeating judgement that may be given against him by dispatching his assets. For this order
to be issued, the plaintiff must show two things:

 that he is likely to obtain judgement and

 that the defendant is one likely to transfer assets out of the jurisdiction of the court.
The injunction is not only addressed to the defendant, but also to 3rd parties who are believed
to be in possession of any of the defendant’s assets. Sometimes, the injunction requires the
defendant’s banker to freeze his account or to ensure that the balance is not reduced beneath a
given figure.

c. Death or mental disorder of the customer

The relationship of the bank and the customer when it comes to cheque is that of agent and
principal, the bank being the agent and the customer the principal. It is well known in law that the
mandate of the agent is automatically ended by the death of the principal and that the agent will
be liable for any act performed thereafter. Therefore the duty of the bank to pay the customer’s
cheques is terminated once the principal who is the customer dies. Once the bank obtains notice
of the customer’s death, it is to stop acting on his behalf. With regards to insanity of the customer,
there is no direct authority regarding the effect on the bank’s duty to pay its customer’s cheques.
However, the decision in Young v. Toynbee, [1910] 1 KB 215, is to the effect that insanity of the
principal terminates the agent’s authority to act on his behalf.

d. Bankruptcy of customer

Since the amount standing to the credit of the customer’s account constitutes a debt owed
to him by the bank, for the purposes of bankruptcy proceeding, such a debt is deemed to be an
asset due to the customer. The bank is however entitled to set off against the amount due to the
customer, any amount due to the bank from him such as overdraft.

e. Winding up of the company

When a company winds up, the effect on the bank’s duty to pay cheques is similar to that
of bankruptcy.

f. Defective Cheques

A bank will not pay any cheque if it does not meet the requirements of a valid cheque, e.g.;

- Amounts in words and figures must correspond;

- the signature on the cheque must correspond with that provided to the bank;

10.9.8. The duty of the bank not to wrongfully ay a cheque

 As between the bank and the customer, the relationship arising from drawing a cheque is
governed by law of Agency. A cheque is an order issued by the customer who is principal to the
bank- his agent to pay a definite sum to the order of the payee or the bearer. A general action for
conversion can be brought by a customer against a bank which has paid any type of cheque to a
wrong person.

The following are some of the different situations in which a bank pays cheque without a valid
mandate:

 cheques bearing a forged signature of the drawer

 cases in which a 3rd party alters the cheque such as raising the amount
 where banks pay despite countermand orders
 where a payee’s endorsement is forged by a 3rd party.
Determination of the contract between the banker and the customer

The contract between the banker and the customer may be terminated by the following:

a) Closure of account

The relationship between the bank and the customer may be brought to an end when the
customer’s account with the bank is closed. Closure may be effected by either the banker or the
customer.

i) Closure of account by the customer: Suppose the customer is operating a current account and
wishes to close it, the balance standing to a customer’s credit on such account is repayable on
demand. Consequently, he may close his current account which is in credit by demanding
repayment of the balance due, less accrued bank charges.

ii) Closure by banker: The banker, like the customer has the right unilaterally to terminate he
contractual relationship existing between him and the customer.

b) Death of the customer

 The contract of banker-customer being of a personal nature terminates automatically when
the customer dies. When the customer dies, the right to receive any sum owed him as a general
rule goes to his personal representative.

c) Mental incapacity of the customer

Once it is determined that a person is incapable by reason of mental disorder, of managing

and administering his property and affairs, it becomes the responsibility of the bank to terminate
the contract if the mental state of the customer is dully certified.

d) Bankruptcy of the customer

A banker can decline to honour his customer’s cheque if he had notice of an act of
bankruptcy committed by the customer. A bank will be protected if it continues to pay cheques
drawn by a customer until it learns that a bankruptcy petition has been presented.

e) Winding-up of company

Banks have as customers companies. Once a company is wound up, it ceases to have any
legal existence and all its contractual relationship comes to an end including its relation with the
bank.

f) Winding up of the Bank

When a bank winds-up, the contract between it and the customer is put to an end.

Garnishee Orders: A garnishee order is an order of the court, obtained by a judgement creditor
attaching funds in the hands of a third party who owes money to the judgement debtor.

Writ of Sequestration: It is a mode of execution which is available where the person against
whom it is issued is in contempt for disobedience of the court.

CHAPTER FOUR
 LAW OF TAXATION

4.1. General Introduction

Fiscal or taxation law may be defined in several ways. Firstly, it is a collection of rules and
regulations governing taxes. The rights to levy taxes which is a royal or legal prerogative is linked
to the exercise of sovereignty and is checked by the courts. The word tax is complex and a
universally accepted definition in time and space is difficult to come by. A tax can therefore be
defined as: “A compulsory payment, levy, duty or contribution, without direct compensation
demanded by the state or its decentralized organs from natural and artificial persons to cover public
charges”.

The following are particularities features of a tax:

A) A compulsory or permanent payment: It is an obligation for the fiscal administration to collect

its taxes (attribution of sovereignty) and the tax payer equally has the obligation to pay taxes.

B) A pecuniary payment: Because it is basically a financial settlement, a tax is different from other
types of levies.

C) A settlement defined to cover public charges: The purpose of levying taxes is to cover public
charges. In this light, the payment of taxes is meant to take care of general interest both nationally
and locally.

D) No specific gain in return: A tax is a payment without any direct compensation required to be
provided to the payer. The tax payer may enjoy certain benefits from the State, but they hardly
correspond to the amount paid in taxes.

4.2 Sources of Taxation Law

1. Statute

Statute is an essential source of taxation law. The levy of taxes falls within the jurisdiction
of the legislator. In tax matters, the law maker is involved at two levels. In the first place, it is
solely law that a new tax may be created, modified or an old one eliminated. See article 26 of the
1996 Constitution of Cameroon. Secondly, a law has to authorize the government to collect taxes
on a yearly bases. This authorization is usually given in the form of finance bills.

2. Legal precedence.

Only a small package of laws is provided by this source.

3. Administrative Doctrine

Because of the technical nature of most taxation law provisions, the administration usually
by service notes, instructions and secular letters issued by the minister of finance and the
department of taxation define its concepts of application to its agents.

4. International norms

a) International conventions on taxation: These are conventions on taxation concluded between

Cameroon and other countries with the aim of setting the situation of persons against whom taxes
may be levied because of the activities, place or residence or the revenue of each states concerned.

b) Community Law: Community Laws also play a substantial role as a source of taxation law.
Some of these communities include; CEMAC, OHADA etc.

4.3. Functions and Purposes of Taxes

The functions of taxes can be classified into two categories, i.e. the fiscal function and the
instrumental function.

4.3.1. The fiscal function of Taxes

This is the expenditure function of taxes. In a State, the citizens or members of the community
require a certain number of needs. Individually they cannot succeed inacquiring all these needs.
Collectively through the state, they can meet these challenges. Some of the duties of collective
interest include

 National defense
 Social security
 Payment of interest for money borrowed through treasury bonds
  Police and fire protection
 Public health services
 Provision of educational facilities.

4.3.2. Instrumental functions of taxes

In addition to using taxation to raise money, governments use taxes as a mean of

intervention in the economy or the society. Taxes are used by governments to:

 Protect infant industries from foreign competition

 Stabilize economic growth through taxation policies
 Orientate, regulate and promote certain economic activities
 Encourage investments by offering tax reliefs
 Redistribute incomes in favor of the poor etc.

Taxable Activities

 Taxable activities include:

 The possession of a movable or immovable property
 The possession of capital or wealth
 The manufacture of a product
 The transfer of a right or ownership

4.4 Types of Taxation Systems

Tax systems are the means by which taxes are raised and collected

1. The Proportional tax system: A proportional tax imposes the same amount of tax on
everyone, regardless of income. The amount of tax to be paid is obtained by applying a
fixed rate on the assessment base of the tax. For example, if tax rate is 10% on the monthly
income, a person earning 100,000 FRS is required to pay 10,000 FRS as tax while another
person who earns 150,000 also pays 10% which is 15,000 FRS.
2. Progressive tax system: This tax system imposes a higher percentage of taxation on those
with higher incomes. Here, the rate of taxation increases as income increases, so that a
person with high income pays more. It is oftenreferred to as “pay as you earn” (PAYE)
3. Regressive tax system: This system imposes a higher tax rate on low incomes than on high
incomes.
4. The ad valorem or percentage tax system: Here the amount of tax paid is determined by
the commodity.
5. The per capital tax system: This is tax levied per head. Every tax subject pays the same
amount as tax not withstanding his income or social capacity.

Direct and Indirect taxes: The administration defines direct tax as all taxes directly collected
by the administration while indirect taxes refer to all taxes indirectly collected by the
administration.

4.5. The Principles/Canon of Taxation

Canons of taxation describe the fundamental principle to be followed by

government when formulating their taxation policies.

These policies include:

Equality,certainty,convenience,economy,efficiency,simplicity,impartiality.

1. Equality: According to this principle, the subject of every State ought to contribute towards
the state in proportion to their respective abilities. That is in respect of the revenue that they
enjoy under the protection of the state.
2. Economy: This principle is to the effect that, the tax should be designed to talk out and
keep out of the pockets of people as little as possible over and above what it brings to the
state treasury. This means in other words that the yield should be greater than that pent in
the collection because if it is the contrary, then it is a waste of time
3. Convenience: This principle states that, any tax should believed at a time and manner in
which it is convenient for the tax payer to pay. It helps the government to maintain the flow
of revenue at the same pace as that of expenditure.
4. Fairness: Two principles are considered here to determine whether the burden of a tax is
distributed fairly. Thy include the ability to pay and the benefit principle.
 a) The ability to pay principle: This principle is to the effect that, people’s taxes should
be based on their ability to pay as measured by income and wealth. One implication of
this principle is horizontal equity which states that people in equal position should pay
the same amount as tax. The second requirement of the ability to pay principle is
vertical equity. The idea is that; tax system should distribute the burden fairly across
people with different abilities to pay.
b) The benefits Principles: This principles states that, only the beneficiary of a particular
government program should pay for it.
5. Impartiality: Taxes should be impartial, i.e. not favoring one or another. Complete
impartiality is achieved by direct taxation, if it is designed to be progressive in as ‘fair’ a
way as possible
6. Simplicity: Tax law should be written in a manner in which both the tax payer and the
collector can easily understand the, though not usually easy, people will be more willing
to pay taxes if they understand how to calculate them.
7. Efficiency; In addition to fairness, a good tax system should be efficient, wasting as little
money and resources as possible. Efficiency refers to three issues: administrative cost,
compliance cost and excess burden.

i) Administrative cost: Running tax collection authority cost money. The government must hire
tax collectors to gather revenue, data entry clerks to process tax returns, auditors to inspect
questionable returns, lawyers to handle disputes and accountants to tract the flow of money.

ii)Compliance Cost: Paying tax cost tax payers more than the actual tax bill. The cost of
compliance of any taxation system should be as low as possible.

iii) Excess Burden: The excess burden simply indicates that, when governments impose taxes on
certain commodities, it distorts consumer behavior as people buy less of the taxed goods and more
of other goods. In this case, the choice of consumers is influence by taxes.

4.6. Company or Corporate Tax

 Company tax is levied on all profit and income made by the companies and other corporate
bodies. This tax is charged on the net profit before tax or for the profit chargeable to the company
tax realized by incorporated profit making organizations and persons operating in Cameroon. In
Cameroon, company tax is based on Act No 3/UDEAC/153 of 22nd December 1972 on the
harmonization of company tax within UDEAC, copied by the General Code of taxes.

4.6.1. Persons subject to company tax (scope of application)

In principle, those subject to company tax are corporate bodies. However, the relations
among persons liable for company tax are unequal. A distinction should thus be made between
those totally liable for company tax, those partially liable and corporate bodies that are entirely
exonerated from taxes.

4.6.1.1 Those totally liable for Company tax

This category is stratified on the one hand, these are those corporate bodies that are
compulsorily liable for the company tax and on the other hand, there are those for whom the
payment of the company tax is only an option.

a) Compulsory Liability for company tax

Companies or corporate bodies that are compulsorily liable for company tax no matter their
form are:

i. All incorporated businesses or incorporated persons carrying out profit making

activities such as limited liability companies
ii. All micro-finance establishments, whatever their legal status: Cooperative Societies
Independent Micro Finance Establishments, Common Initiative Groups, Mutual
Organizations
iii. All enterprises that offer financial services, collect savings and offer loan granting
operations, no matter their legal status.
iv. Civil societies that carry out profit-making or lucrative activities
v. Public organizations carrying out profit-making activities.

b) Optional Liability for company tax

 Partnerships are allowed by law to opt for company tax. The list of such companies
comprises partnerships firms, limited liability partnerships, joint ventures and financial syndicates.
This option is equally open to civil societies where they are not automatically liable for company
tax.

4.6.1.2 Corporate bodies exempt from company tax

According to section4 of the General Code of Taxes, the following are exempted from
company taxes:

i. Non-profit agricultural establishments

Any organization that registered as a non-profit organization or whose activities are
observed to be non-lucrative such as:
ii. Regional or local authorities (councils) and their public utility services:
 Bodies responsible for regional development which are recognized as being of
public utility;
 Real estate public bodies for the allocation of low-cost housing
 Private clubs and societies for their non0profit making activities
 National Social Insurance Fund for the share of profit coming contributions on
salaries
 Non-Profit private establishments
 Economic interest groups for the shares of their profits distributed to their
members that are natural persons.

CHAPTER FIVE

LAW OF INSURANCE
 Insurance is an old age concept that was practiced by the local societies or the CIMA, the
sector was loosely organized insurance activities were performed in the form of “Njangi” “tontin”
houses. The njangi houses were made up of individuals who came together for their common
interest and provided financial assistance to members who suffered loss to their person or
properties.

Insurance activities in Cameroon are regulated by the Conference Inter Afriqain des
Marches d’Assurance translated in English as Inter African Conference on Insurance Markets,
established by the Treaty signed in Yaounde on July 10 1992. Signatories to this treaty include”
Benin, Burkina Faso, Cameroon, Central African Republic, Comoros, Congo, Ivory Coast , Gabon,
Equatorial Guinea, Guinea Bissau, Mali, Niger, Senegal, Chad and Togo.

Importance of Insurance to the Country

 In encouraged investment since many people who fear risk will take out policies to protect
themselves against any insurable eventuality
 Earnings from insurance constitutes a substantial portion of the country’s foreign exchange
 It helps reduce social cost of some family members obligations e.g. contribution to the
National Social Insurance Fund (CNPS).
 It guarantees workers security against industrial accidents and occupational diseases
 It contributes to infrastructural development and provide as avenue for the employment of
Cameroonian
 It encourages savings in the country especially life insurance
 Insurance reduces the cost of social services. E.g. Providing National insurance annuities
take the place of government financial assistance to the very poor.

5.2.2 Fundamental Principles of Insurance

The main objective of every insurance contract is to give security an protection to the
insured from any future uncertainties. The insured must never try to misuse the safe financial
cover. Seeking profit opportunities by reporting false occurrences violates the terms and conditions
of an insurance contract. It is also a study of the insurer to accept and approve all genuine insurance
claims made, as early as possible without any future delays.
1. The Principle of Uberimae Fidei (Utmost good faith)
 - Both the parties i.e. the insured and the insurer should act in good faith towards each
other
- The insured must provide the insurer complete, correct and close information on the
subject matter
- The insurer must provide the insured complete, correct and clear information regarding
terms and conditions of the contract.
- The principle is applicable to all contract of insurance, i.e. life, fire, marine etc
The principle of uberimaefidei or utmost good faith is a very basic and first primary
principle of insurance. According to this principle, the insurance contract must be signed by both
parties. (insurer and insure) in an absolute good faith or belief or trust. The person getting insured
must willingly disclose and surrender to the insurer, his complete true information regarding the
subject matter of the insurance or the insured’s liability gets void (i.e. legally revoked or cancelled)
if any facts about the subject matter of insurance are either committed, hidden, falsified or
presented in a misrepresented manner by the insured.
2. Principle of insurable interest.
- The insured must have insurable interest in the subject matter of the insurance
- In life insurance, it referred to the life insured
- In marine insurance, it is enough if the insurable interest exists only at the time of
occurrence of the loss.
- In fire and general insurance, it must be present at the time of the occurrence of the loss
- It is applicable e to all kinds of insurance
This principle states that, the person getting insured must have insurable interest in the
object of the insurance. A person has an insurable interest when the physical existence of the
insured object gives him some gain, but its non-existence will give him a loss. In other words, the
insured person must suffer some financial loss by the damage of the insured object. For example,
the owner of a taxi has insurable interest in the taxi because he is getting income from it. But if he
sells it, he will not have insurable interest left in the taxi. A man cannot insure his neighbour’s
house against fire destroying it; rather a man may insure this wife’s life against any damage. From
the above examples, one can say that ownership plays a very important role in evaluating insurable
interest. Every person has an insurable interest in his own life. A merchant has insurable interest
in his business of trading. Similarly, a creditor has insurable interest in his debtor’s life.
 3. The principle of indemnity
Indemnity means a guarantee or assurance to put the insured in the same position he was
immediately prior to the happening of the uncertain event. The insurer undertakes to make good
the loss. The insurer agrees to pay no more than the actual amount of the loss suffered by the
insured.
Why?
-The purpose of the insurance contract is to restore the insured to the same economic
position as before the loss.
-The insured should not profit from a loss
- It reduces the moral hazard of eliminating the profit incentive.
- It is applicable to fire, marine and another insurance except life.
- Under this, the insurer agrees to compensate the insured from the actual loss suffered.
According to the principle of indemnity, an insurance contract is signed only for getting
protection against unpredicted financial losses arising due to future uncertainties. In insurance
contract, the amount of compensation paid is in proportion to the insured losses. The amount of
compensation is limited to the amount assured or the actual losses, whichever is less. The
compensation must not be less or more than the actual damage. It refers to putting the insured in
the same position in which he was before the event that caused him the loss.
Compensation is not paid if the specific loss does not happen due to a particular reason
during a specific time period. Thus insurance is only for giving protection against losses and not
for making profit. However, in case of life insurance, the principle does not apply because the
value of human life cannot be measured in terms of money.
4. Principle of contribution
This principle is a corollary of the principle of indemnity. It applies to all contracts of
indemnity m if insured has taken out more than one policy on the subject matter. According to this
principle, the insured can claim the compensation only to the extent of actual loss either from all
insurers or from only one insurer. If one insurer pays full compensation, then the insurer can claim
proportionate contribution from the other insurer.
For example, Mr. Tamfu insures his property worth 100,000frs with two insurers
“Zenith Ltd” for 90,000frs and “Med life Ltd” for 60.000frs. If Mr. Tamfu’s actual property
destroyed is worth 60,000frs, then Mr. Tamfu can claim the full loss of 60,000frs either
 from Zenith or Med life Ltd, or he can claim 36,000frs from Zenith and 24,000frs from
Med life.
5. The principle of subrogation.
According to the principle of subrogation, when the insured is compensated for the losses
due to damage to his insured property, the ownership rights to such property shifts to the
insurer. The Principle is applicable only when the damaged property has any value after the
event that caused the damage. The insurer can benefit out of subrogation rights only to the
amount he has paid to the insured as compensation. The principle is applicable to all contracts
of indemnity. For example, Mr Paul insured his house for 100,000 pounds. The house is totally
destroyed by the negligence of his neighbor, Mr Tom. The insurance Company shall settle the
claim of Mr Pau; for Tom. The insurance company shall settle the claim for Mr Paul; for
1000,000 pounds. At the same time, it can file a law suit againstMr Tom for 120,000 pounds,
the market value of the house. If the insurance company wins the case and collects 120,000
ponds from Mr Tom, the insurance company will retain 1000,000 (which it had already paid
to Mr Paul), plus other expenses such as court fees. The Balance amount, if any will be given
to Mr Paul the insured.
6. The Principle of loss minimization.
This principle is to the effect that; the insured has the duty to take all possible steps to minimize
the loss to the insured property on the happening of uncertain events. The insured must always try
his level best to minimize the loss of his insured property, in case of uncertain events like fire
outbreak, or blast etc. The insured must take all possible and necessary measures to control and
reduce the losses in such a scenario. The insured must not neglect and behave irresponsibly during
the event just because the property is insured.
For example, assume, Peter’s house is set on fire due to an electrical short-circuit. In this tragic
scenarios, Peter must try his level best to stop fire by all possible means, like first calling the
nearest fire department office (fire brigade), asking neighbours for emergency fire extinguishers.
He mus5 not remain inactive and watch his house burning hoping ‘why should I worry? I have
insured my house”
7. The Principleof Causa Proxima (Proximate or Nearest Cause)
 The loss of insured property can be caused by more than one cause (risk) in succession to
another. The property may be insured against some risk and not some cause and not against all
causes.
In such an instance, the proximate cause or nearest cause of loss is to be found out
If the proximate cause is the one which is insured against, the insurance company is bound to
pay the compensation and vice versa. Indemnity or compensation shall be paid only if the insured
property was destroyed by the risk against which the insurance was taken. Causa proxima,
translated in English as proximate or nearest cause, It means when a loss is caused by more than
one causes, the proximate or nearest or closes cause should be taken into consideration to decide
the liability of the insurer and not the remote (farthest) cause.
Example, a cargo ship’s base was punctured due to rats and so sea water entered and destroyed
cargo. Here, there are two causes for the damage cargo on board the ship.
i) the cargo ship is getting punctured because of the rats and
ii) the sea water entering the ship through the puncture. The risk of sea water is insured
but the first cause is not. The nearest cause of the damage is the sea water which is
insured and therefore the insurer must pay compensation.
However, in case of life insurance, this principle does not apply. Whatever may be the reason
of death whether natural or death or an unnatural death), the insurer is liable to the amount of
insurance. Contracts by which one party enters for a consideration called premium assumed
particular risk of the other party and promises to pay him or his nominee a certain or ascertainable
sum of money on a specified contingency. Central to any insurance contract is the insuring
agreement which specifies the risks that are covered, the limits of the policy, and the term of the
policy. Additionally, all insurance contracts specify,
- Conditions, which are requirements of the insured such as paying premiums or
reporting a loss:
- Limitations which specify the limits of the policy which was the maximum amount that
the insurance company will pay”
- Exclusions, which specify what is not covered by the contract
5.3.1. Elements of a valid Insurance Contract
A valid contract must have the following essential elements;
 Offer and acceptance, consent of the parties, capacity, consideration and legality.If a contract
lacks any essential elements, then it is a void contract that will not be enforced by any court.
A voidable contract is one that can be nullified by a party if the other party breaches the contract
or because material information was omitted or false in the contract
a. Offer and Acceptance.
For a valid insurance contract, to be concluded, there must be offer and acceptance. The offer
is made by the insured upon submission of the proposal form and a shown payment (premium)
while, acceptance is done upon declaration of willingness to accept the offer. In other words,
submission of the proposal form accompanied by the premium or down payment is an offer while
issuance of acceptance letter is acceptance from the insurer. It should however be noted that, if the
proposal form is accompanied by the premium, it does not qualify as an offer but an initiation to
treat. In which case, the letter from the insurer demanding payment of premium becomes the offer
and the actual payment is acceptance.
In Property-Casualty insurance, offer is submission of application while a down payment while
acceptance is binder. A binder or binding receipt is a memorandum given to the insured that
obligates the insurer to pay the insurance if a loss occurs before the policy is issued or the
application is denied. A binder evidences a contract of temporary insurance until the permanent
policy is issued or disapproved or some other temporary impediment is removed,
In life insurance, offer is submission for application with a down payment while issuance of a
life insurance policy is acceptance. Giving a quotation to a prospective insured is deemed as
solicitation or invitation to make an offer.
b. Consideration
Apart from offer and acceptance, for an insurance contract to be valid, there must be
consideration. Consideration has been defined as the price for which another’s promise is bought.
In order for a contract to be binding, it must be supported by valuable consideration. That is to say
one party promises to do something in return for a promise from the other party to provide a benefit
of value (the consideration). Usually the consideration is the payment of money but it need not be;
it can be anything of value including the promise not to do something or to refrain from executing
some rights. The promise or to pay a fixed sum at a given contingency is the insurer who must
have some return or his promise. It need not be money only but it must be valuable. It may be
sums, rights, interest, or fit or benefit. Premium being the valuable consideration must be given
for starting the insurance contract. The fact is that, without payment of premium the insurance
contract cannot start.
C. Intention to create legal relations.
A contract required that the parties intend to enter into a legally binding agreement. That
is, the parties entering into the contract must intend to create a legal relation and must understand
that the agreement can be enforced by law. The intention to create a legal relation is presumed so
the contract does not have to expressly state that the parties understand and intend legal
consequences to follow. If the parties to a contract decide to be legally bound, this must be clearly
stated in the contract for it not to be legally enforceable. This is because, not all agreements are
intended to be enforceable. Parties entering into the contract should enter into it by free consent.
The consent will be free when it is not caused by coercion, under influence, fraud,
misrepresentation or mistake.
D. Legal Capacity
Another important element of a valid contract is that the parties must have the capacity to
contract. A minor is not competent to contract. A contract by a minor is void except in contract is
of necessaries. A minor cannot sign a contract. Under Cameroonian Commercial Law, a person is
said to be competent to contract when he has attend the age of majority (18 Years). A contract
concluded by a minor is void ab initio. However, an insurance proposal on life of a minor made
by the parents or guardian is valid if after attaining the age of majority, the minor has exercised
the option to continue it.
Furthermore, capacity to contract equally depends on soundness of mind. A person is said
to be of sound mind for the purpose of making a contract if at the time of concluding the contract,
he is capable of understanding an forming a rational judgment as to its effect upon him, A person
who is usually of unsound kind, but, occasionally of sound mind may make a contract when he is
of sound mind,
e. Legal Purpose.
In order to make a valid contract, the object of the agreement should be lawful. For
insurance contracts to be valid, the object at the insurance must be lawful. If the object of insurance
like the consideration is found to be unlawful, the policy is void. A typical example is marine
insurance contracts where no insurable interest exists on the maritime property, but is concluded
on the basis of wagering and gaming. The object of the insurance contract will be unlawful if it is
forbidden by law, is immoral, opposed to public policy or defeat the law.
5.3.2. Characteristic of insurance contracts different from other contracts
Though all contracts share fundamental basic elements, insurance contracts typically
possess a number of characteristics not widely found in other types of contractual agreements. The
most common of these featured are listed below;
a) Aleatory Contracts
This is a contract whose value to either of the parties or both parties depend on chance or
future events or where the monetary value of the parties performance are unequal. In agreements
where one party to a contract might receive considerably more in value that he or she gives up
under the terms of the agreements, the contract is said to be aleatory. Insurance contracts are of
this type because, depending upon the chance or any number of uncertain outcomes, the insured (
or his beneficiaries( may receive substantially more in claim proceeds than was paid to the
insurance company in premium francs. On the other hand, the insurer could ultimately receive
significantly more francs than the insured party if a claim is never filed.
b) Contract of Adhesion
Insurance contracts are drafted by an insurer and an insured must accept or reject all the
terms and conditions. In a contract of adhesion, one party draws up the contract in its entirety and
presents it to the other party on a “take or leave it” basis; the receiving party does not have the
option of negotiating, revising or deleting any part or provision of the document. Insurance
contracts are of this type because, the insurer drafts the contract and the insured either adheres
(accepts) to it or is denied coverage. When legal determinations must be made by the court in case
of ambiguity in a contract of adhesion, the court will render its interpretation against the party that
wrote the contract.
C) Unilateral Contracts
A contract may either be bilateral or unilateral. In a bilateral contract, each party exchanges
a promise for a promise. However, in a unilateral contract, the promise of one party is exchanged
for a specific act of the other party. Insurance contracts are unilateral; the insured performs the act
of paying the policy premium, and the insurer promises to reimburse the insured for any covered
losses that may occur. It must be noted that, once the insured has paid the policy premium, nothing
else is required on his or her part, no other promises or performances are made. Only the insurer
has any further action and only the insurer can be held liable for a breach of contract.
d) Conditional Contracts.
A condition is a provision of a contract which limits the rights provided by the contract.
Even when a loss is suffered, certain conditions must be fulfilled before the contract can be legally
enforced. An insurer’s obligation to pay a claim depends on whether the insured or the beneficiary
has complied with all the policy considerations. For example, the insured individual or beneficiary
must satisfy that the condition of submitting to the insurance company sufficient proof of loss, or
prove that he or she has an insurable interest in the person insured. The insurer may not pay a claim
if one or more policy conditions are not complied, or death benefits if the insured individual takes
his or her own life within two years of the life insurance policy ‘s effective date.
e) Personal Contract
Insurance contracts are usually personal agreements between the insurance company and
the insured and are not transferable to another person without the insurer’s consent. This is
because, insurance protects insured, not property or liability subject to loss. In property insurance
for instance, if ownership of a property changes, insurance contracts (policies) cannot be
transferred to another party (buyer) without the insurer’s written consent. Life Insurance and some
maritime insurance policies are notable exceptions to this standard. As an illustration, if the owner
of a car sells the vehicle and not provision is made for the buyer to continue the existing car
insurance (which in actuality would simply be writing a of the new policy), then coverage will
cease with the transfer of title to the new owner.
f) Utmost Good Faith
Although all contracts ideally should be executed in good faith, insurance contracts are
held to an even higher standard requiring utmost of this quality between the parties. Due to the
nature of an insurance agreement, each party need- and is legally entitled to rely upon the
representations and declarations of the other. Each party must have reasonable expectations that
the other party is not attempting to defraud, mislead or conceal information that is indeed, in
conducting themselves in good faith. In a contract of utmost good faith, each party has a duty to
reveal all material information that is, information that would likely influence a party’s decision
to either enter into or decline the contract an if any such date is not disclosed, the other party will
usually have the right to void the agreement.
 g) Executory
An executory contact is one in which the covenant of one or more parties to the contract
remain partially or completely unfulfilled. Insurance contracts necessarily fall under this strict
definition; of course, its stated in insurance agreement that the insurer will only perform its
obligation after certain events take place (in other words, losses occur)
5.3. Risk and Insurance as a Pool of Risks
5.3.1. Risks
As earlier said, all economic activities involve an element of risk. Indeed there is not
business venture which does not involve risk taking. A student who decides to become a lawyer
takes a risk in that, there are new regulations which restrict practicing, he will remain unemployed.
Risk may be divided into insurable and non-insurable risks.
Insurable risks are all risks whose occurrence in a given period can be calculated based on
past experience. Only such risks are usually covered by insurance companies since they are in a
position to fix a premium, which has to be paid by the insured. These risks include: fire, theft,
accident, damage, fidelity guarantee, consequential loss, employer’s liability, motor insurance, life
etc
Non insurable risks on the other hand, are all risks which cannot be calculated. Their
occurrence is unpredictable and as such it will be difficult to set a premium which has to be paid
by the insured. These risks may be geared by the entrepreneur himself. They include changes in
demand due to change in taste and fashion, changes in the price of raw material, changes in climatic
conditions, cost of labour etc.
5.3.2. Insurance as a Pool of Risks
Insurance is the pooling of risk by those who belong to a similar situation in life. To protect
themselves against certain risks, they contribute towards a pool fr5om which the unfortunate
among them can be restored to their former situations. This principle is based on the fortunate
helping the unfortunate. It is different from other situations (such as gambling) whereby it is
unfortunate that help the fortunate,
It may so happen that the insurance company wants to relief itself from taking atotal
responsibility for compensating the insured in the event of loss. When this happens, the insurance
company registers with another insurance company in a policy known as “reinsurance”
 Reinsurance is insurance for insurance companies. It is a contractual agreement whereby
an insurer secures coverage froma reinsurer for a potential loss to which it is exposed under the
insurance policies issued to original insured. The risk indemnified against is the risk that the insurer
will have to pay on the underlying insure risk. Because reinsurance is a contract of indemnity, the
reinsure is not required to pay under the contract until after the original insurer has paid a loss to
its original insured.
5.4. How an Insurance Agreement is Undertaken
An insurance policy is a document that shows evidence of an agreement between the
insurer and the insured. An individual taking pout an insurance policy against any insurable risk
will contact an insurance broker. The broke then arranges for the individual to complete a proposal
form issued by the insurer (the insurance company). The proposal form is a questionnaire prepared
by the insurer to facilitate his work and assist the insured in his attempt to disclose all fact which
will enable the insurer to determine the premium to be paid. In the absence of an insurer to
determine the premium to be paid. In the absence of an insurance broker, the insured will contact
the insurance house himself. There, a similar process will occur. When the questionnaire is
completed and signed by the insured the form is then handed to an expert called the “Actuary”
who now calculates the premium from statistical information for the loss incurred.
In practice, the sum to be paid in most cases is already predetermined for certain risks. For
example, cars valued at 1 million FCFCA may be insured for 60.000 Fcfa. for third party, fire and
theft. the amount to be paid as premium depends on a number of factors. In certain insurance, the
risk content and the safety measures taken will influence the premium; in others, age of the person
wishing to take out the policy will be considered whether it deals with large sums or not. When
the premium, has been paid by the insured, the insurer issues him a cover note to serve as a
temporary protection while the policy is being written up.
Later on, the insurance company forwards the insured an insurance policy (the contract of
insurance). This policy binds the insurer to restore the insured to his former position provided he
has not reached any special condition accompanying the policy. Special clauses if added, are often
referred to as “warrantees”. This may warrant the insured to do certain things in order to minimize
the risk. For instance, an insurance cover against a car theft may warrant that the car must always
be packed at night or locked up in a garage. If the car is stolen on the playground in the compound,
then the special conditions have been violated and hence the insurer cannot be bound to honor his
pledge.
5.5 Insurance Agents and broker (intermediaries of insurance)
5.5.1 Insurance Broker
An insurance broker is an independent insurance agent who works with many insurance
companies to find the very best available policies for his/her clients. While an insurance broker is
different from the typical agent, the two are otherwise similar. Both structured policies, settle
claims and usually work on a commission basis. Some insurance brokers may specialize in one
specific type of insurance or deal in many different types, including health, life, auto, home and
other specialized varieties of insurance. In most countries, both the agent and the insurance broker
must be licensed after having passed an insurance exam. It is worth noting that a degree is not a
requirement for someone who wants to become and insurance broker.
5.5.2. Insurance Agent
They are insurance professionals that serve as intermediaries between the insurance
company and the insured. As a broad statement of law, agents liabilities to customers are
administrative, i.e. agents are only responsible for that timely and accurate processing f forms,
premiums and paper work.
A captive agent is an agent who works for only one company and is a captive of that
company. He sells policies only for that insurer.
On the other hand, an indeended agent is one who works as an agent for a variety of
different insurers.
5.6. Commencing an insurance claim.
There are a number of procedure that must be followed in order to be able to establish a
claim in insurance. It should however be noted that, there are standard procedures relating to the
particular type of insurance policy. For all other insurance except life insurance, it must be
established that the loss has been suffered by the insured and it has been caused by a particular risk
insured against. That is there must be that casual link. The damage must also be accessed in order
to determine the amount of compensation. The assessment of the damage suffered is based on the
market value of the damaged property at the time of damage.
Procedural Stages
Example: Commencing an auto insurance claim
 The procedure for commencing an insurance claim depends on the terms of the contract
between the insured and the insurer. The amount to be paid as compensations equally depends on
the agreement between the parties. To start an auto accident insurance claim for instance, five steps
should be followed.
1. Calling the insurance company.
The victim of the damage (insured) has to call the insurer or insurance company which he
intends to collect money from and start a property damage claim. The victim can file this claim
under his own collision coverage or against another’s liability insurance. At this juncture, a
compensation claim has been started and a claim number will be given.
2. Collection of Evidence
If the insured brings the claim, i.e. files and auto-accident insurance claim against another
driver’s insurance company, the extent of fault of the other driver in causing the car crash must be
proven. This can be done having pictures of the car accident scene, checking the car accident report
established by the police and getting witness statement. The importance here is that, the amount
of the compensation given depends on the amount of blame assigned on the other driver. If we
assumed for example that damages are worth 600,000Frs after assessing the evidence collected,
the insurance company decided that their insured was 80% at fault and the victim 205 at fault for
the accident, the outcome would be that the insurance claim will be reduced by 20% to 480000frs.
3. Assessment of the repair Costs (Estimates)
The next thing to do is for the vehicle to be taken to the repair shop. To get a list of estimated
repairs. The car should be returned to its original condition using the same quality parts. If there is
any need for repainting, then it must also be included. The repair shop should be that which is
familiar with that type of vehicle. This will give an accurate estimate plus the cost of labor A copy
of this detail; estimate is then forwarded to the insurance company with list of replacement parts
and costs of labour. If the car was complete destroyed such that, the cost of repairs is more than
the cost of the vehicle, the insurance company will pay for the car’s actual cash value.
4. Discuss damage with Insurance Claim adjuster.
When the estimate gets to the insurance company, it tries to evaluate the cost by assigning an
insurance adjuster who may want to examine the car or property to see if the estimate is reasonable.
The company may propose the insured to visit their own repair shop if they have one.
5. Signing of Property Damage Release Form
 Once the victim and the insurance company have agreed on a settlement amount, a property
damage release form is sent to the company from any future property damage claims from the
accident. Once the form is signed, no more money can be collect4d from the insurance company.

CHAPTER SIX

CONTRACT AND INGREDIENTS OF A VALID CONTRACT

General introduction
 The law of contract is that branch of private law which regulates the obligations which
people impose on themselves, by reason of transactions in which they become involved. This
presupposes a society and legal system in which people share the right to choose which obligations
they wish to assume. The law of contract presents a sharp contract with obligations of a public
character such as constitutional and political obligations governed by rules of public law as well
as a fine distinction between other obligations owed by parties interse imposed on citizens as legal
duties. This is the domain of criminal law and tort which impose legal obligations not owed to
anyone in particular but to the one who becomes victimized by a breach of such obligation.
Obligations in contract are exclusively enforceable by the persons to whom they are owed. Where
an obligation privately owed is breached, such as would arise in the breach of contract, the
aggrieved party must enforce his rights in the courts without the assistance of any public authority.

Thus, the term contract is used in English to refer to three different things: a series of
operative act by parties resulting in new legal relations.

Scholars, generally define contract in terms of agreements or promises.

As per G.H. Treitel contract is an agreement giving rise to obligations which are
enforceable or recognized by law. In summary, a contract may be defined as an agreement between
two or more persons which is recognized by law as affecting the legal rights or duties of the parties.
It follows that a contract is an agreement giving rise to obligations which are enforced or
recognized by law. The distinguishing factor between contract and other legal obligations is that
they are based on the agreements of the contracting parties. This implies that, there has to be an
agreement (consensus ad idem or the meeting of the minds) between two or more persons which
is intended by them to be enforceable at law.

Classification of contracts

At common law, there exist two basic types of contracts. These are formal contracts (also
known contract under seal or specialty contracts) and informal contracts commonly referred to as
simple contracts. Specialty contracts are contracts made by deed while simple contracts are those
made in any other form whether in writing, orally that is parole contracts or even by mere conduct
of the parties. Simple or parole contracts are in fact ordinary contracts and these types shall form
the bases of our study in the law of contract. Apart from these two there are various other
classifications of contracts.

i) Contracts by deed and simple contracts

This is a contract by deed or a contract under seal is one whose terms are embodied in a
document written or printed which is then signed sealed and delivered by the parties.

ii) Bilateral and Unilateral Contracts

A bilateral contract arises where a promise or a set of promises on one side is exchanged
for a promise or a set of promises on the other side. In other words, the parties reach an agreement
where each of them undertakes reciprocal obligations. While a unilateral contract is one sided
contract in the sense that one party binds himself by a conditional promise leaving the other party
free to perform the condition or not as he (the person making the rules) pleases.

iii) Express and Implied contracts

A contract is said to be express when the intention of the parties is clearly stated in words.
Meanwhile a contract is implied when their terms are not so clearly stated. That is, the intention
of the parties has to be inferred from their conducts.

iv) Quasi contracts

This are not contracts in actual sense but are so in contemplation of law; that is, the
obligation arise not by any agreement between the parties but by the operation of law (the
obligations are imposed by law) on account of special circumstances which exists between the
parties, based on the principle of equity that none be allowed to enrich himself unjustly at the
expense of another.

v) Valid, Void, Voidable and Illegal Contracts

A valid contract is one which fulfills all the essential requirements of an appropriate
contract. Thus, a contract is void if it lacks one of the essential elements so that in reality it does
not exist at all. It should be noted that, the expression void contract is a contradiction in terms since
there is really no contract if it is void.

A voidable contract is one which is valid unless and until it is brought to an end at the
option of the parties usually the innocent party.

An illegal contract is one which is absolutely void, found illegal on grounds of public policy
(immorality) or because the contract has been entered into for an illegal or immoral purpose.

vi) Executed and Executory Contracts

Contracts may also be classified as executed or executor. These terms make a distinction
between a contract which is wholly unperformed on the one hand (executor contract) and a contract
which is performed or partly performed on the other hand (executed contract).

A contract is often said to be executed where the document has been signed, sealed and
delivered. In other words, it refers to a contract that has been fully performed by both parties. An
executor contract is a contract which remains wholly unperformed or for which there remains
something still to be done by both parties.

vii) Transactions and Relations

A typical transaction involves the act of conducting business, other dealing or a discrete
event. E.g, a one off sale between a buyer and a seller who are not likely to meet again; a motorist
buying fuel at a filling station which is remote from his home. Long term contractual relations are
regulated by statutes e.g. employment contracts are regulated by the labour code.

The phenomena of agreement

The starting point in the formation of any valid contract is the arriving at a consensus from
the negotiations of the parties involved. When parties to a contract begin to negotiate, there may
be a considerable difference between them on various terms of the contract. These differences are
gradually water down by a series of consensus, as they move towards an agreement. This position
justifies the firm view of original authors of the law of contract that, “a man is liable not because
he has made a promise but because he has made a bargain”. In as much as the fact of agreement is
the outcome of the consenting minds of the parties it would be misleading to adopt such an alien
and sometimes mystical approach to the problem of agreement. This is to say that, an agreement
is not a mental state but an act which may be expressed or inferred from conduct. The parties are
judged not by what is on their minds but by what they have said, written or done. This position
affirms the famous proclamation of Justice Brain that “the thought of man is not triable for the
devil himself knows not the thought of man”.

The function of the judge therefore is not to seek to satisfy some elusive mental element
but to ensure in a more practical manner that the reasonable expectations of honest men are not
disappointed. Thus, the law of contract is concerned with the process of reaching an agreement
and the terms of the agreement reached. However, unilateral contracts such as a deed (under seal)
or a gratuitous promise which is legally binding even before it is communicated to the promisee.
There is no requirement of negotiation by the parties to arrive at a consensus. This is true today of
most “standard form contracts” whose terms are drawn by one party and the other party is often
bound by the terms of which he is not aware.

Since the phenomena of agreement is concerned with the presence of the outward and
visible signs of assent and bearing in mind that it is often difficult to say at what time such an
agreement has been made, we shall proceed by considering various stages in the negotiation
process. These involve the making of a firm or definite offer and an unconditional acceptance.

Ingredients of a valid contract

1) Offer

It is a statement to the effect that the person making it (offeror) is willing to contract on the
terms stated, as soon as these are accepted by the person (offeree) to whom the statement is
addressed. Simply put, an offer is an expression of the willingness to contract on specific terms,
once the offer is accepted by the person to whom it is made. To determine whether a valid contract
has been made therefore, it is seen that the offeror becomes bound, if his words or conduct are
such as to induce a reasonable person to belief that he intends to be bound as soon as the offer is
accepted. An offer may be made expressly or impliedly by conduct.

Characteristics/Features of an offer

1) The offeree must prove the existence of a definite offer that is clear, complete and final.
2) It must be made to a particular person, a group of persons or the world at large

In order to ascertain that the offeror was not merely paving his way towards an agreement
or merely initiating negotiations which might or might not result in an agreement but that he
has finally declared his readiness to undertake the obligations upon special conditions, a
distinction is often made between offer and invitation to treat. It is not every expression of
willingness to contract which amounts to a valid offer. Since the expression of willingness is
nothing more than the preliminary step in the formation of a contract, it becomes important to
distinguish it from an invitation to treat.

Offer and invitation to treat distinguished

No precise principle exists from which a distinction between offer an invitation to treat
may be drawn and any attempt to distinguish the concepts is inferred from the essential features
of an offer. While an offer must be definite and requiring nothing to complete it, the offeror
intends to be bound without further negotiations, an invitation to treat simply triggers or
provokes discussions from which an agreement might or might not result. It is the first step in
negotiations which may not be a prelude to firm offer.

Common illustrations of invitation to treat include:

a) Display of goods for sale, issue of circulars and advertisements.

It is said that, when goods are displaced in a shop for sale with prices attached to them, it
is not an offer but an invitation to treat.

b) Auction Sales

It is said that, no offer for sale is made by the advertisement of the auction nor by putting
the goods up for bidding. The offer is made by the bidder and accepted by the auctioneer in
the traditional fall of the hammer.
 c) Tenders

It is common in commercial practice to ask for tenders for the purchase or sale of goods or
for the supply of services. The person asking such tenders makes an invitation to treat and the
actual tender becomes the offer to render the services required. Thus, a tender is a mere attempt
to ascertain whether an acceptable offer can be made.

d) Offers to Sell Land

Special rules apply in the formation of contracts for the sale of land. In the preliminary
stages, the vendor makes in writing what appears to an offer to sell at the stated price.

Communication of the Offer

An offer has no validly unless and until it is communicated to the offeree, to give him the
opportunity to accept or reject it. An offer may be communicated to a particular person, group of
persons or generally to the world at large. Only the offeree can make a valid acceptance where an
offer is made to a particular person or group of persons.

Termination of an offer

Events may occur which may bring an offer to an end so that it can no longer be accepted.
These events include revocation or withdrawal, lapse of time, death of one of the parties, rejection
or occurrence of a condition.

a) By Revocation

An offeror may revoke or withdraw his offer at any time before it is accepted by the offeree.
This rule applies even where the offeror declares himself ready to keep the offer open for a given
period since such a promise is not usually backed by a consideration. Revocation is ineffective
unless it is communicated to the offeree. It is not enough that the offeror has changed his mind.

b) Lapse of Time

If time limit for acceptance is expressly stated in the offer, the offer may lapse by passage of
that time. Even if no time is stated, an offer is normally open for a reasonable time. Such time
would depend on circumstances such as nature of the subject matter and the general market
conditions in which the offer is made.

c) Rejection

Rejection puts an end to an offer. Once an offeree rejects an offer, he cannot change his
mind and accept it. It is also seen that, where an offeree makes a conditional (counter-offer)
acceptance, it would be considered as rejection.

d) Occurrence of a condition

Where an offer is made subject to fulfillment of a condition, failure on the part of the
offeree to fulfill the condition will prevent acceptance from taking place. The condition to be
fulfilled may be implied from the circumstances of the case. E.g if an offer is made to buy
goods, there is an implied term that it cannot be accepted after the goods have been seriously
damaged.

e) Death of a party

It is a general rule that the death of a party terminates the offer is certainly not true. This is
because, it is said that, where an offeror dies, the offer only fails where the offeree has noticed
the offeror’s death before acceptance. On the other hand, when the offeree dies, it is believed
that the offer automatically comes to an end. This however is not the case since his personal
representative can still accept the offer. Thus, death terminates an offer in a situation where,
both parties die and it is believed that the offer needed their personal service.

2) Acceptance

For there to be a valid agreement, a definite offer must be followed by an unqualified

acceptance. Whether there has been an acceptance of an offer may be collected from the words
or documents that have passed between the parties or maybe inferred from their conducts.
According to G.H. Treitel, acceptance is final and unqualified expression of assent (approval)
on the terms of an offer. The task of inferring an acceptance and of fixing the precise moment
at which it was made remains one of obvious difficulty especially in cases of protracted
negotiations or transactions in several correspondences. In spite of this, the court will always
examine the communication between the parties to discover whether at any time one party may
be deemed to have assented to all the terms expressed and implied of a firm offer by the other
party.

Communication of acceptance

As a general rule, an acceptance has no effect unless and until it is communicated to the
offeror. Communication implies that the fact of acceptance must be brought to the notice of
the offeror. If the words of acceptance are drowned by an aircraft flying over heard, or spoken
into a telephone that has gone dead, there is no contract. Communication of acceptance is
necessary in order that there should be a meeting of the minds of contracting parties. It has
been said that, there must be an external manifestation of approval, some words spoken, or
some act done by the offeree or his authorized agent which the law can regard as the
communication of acceptance to the offeror. The reason for this rule is that, it might be unjust
for the offeror to hold him bound if he did not know that his offer had been accepted.
Conversely, no injustice is done to the offeree by holding that there is no contract, since he can
take steps to retrieve the situation by making a second attempt at communication. Acceptance
need not be communicated to the offeror personally as an authorized agent such as a company’s
senior official is competent to receive acceptance.

Ways which acceptance can be done

a) Where mode of acceptance is prescribed

Acceptance may be communicated in any manner whatsoever. Generally, the offeree may
decide for himself the manner of acceptance. But where the offeror prescribes expressly or by
implication the mode of acceptance, the question arises whether communication in any other
manner will suffice. Where an offer states a particular mode of acceptance, the offeror is not
in general bound unless acceptance is effected in that precise way. However, notwithstanding
the fact that the mode of acceptance has been prescribed, the offeror may conduct or otherwise
waive his right to insist on the prescribed method of acceptance where such is done in a manner
no less advantageous to him. Where the offeror intends to be bound only if the offer is accepted
in some particular manner, he must make this clear. Furthermore, a prescribed method of
acceptance may also be implied from the conduct of the offeror.
 b) Where no particular method is prescribed

The method of communication here will depend upon the nature of the offer and the
circumstances in which it is made. Where the offeror makes an oral offer and it is clear that an
oral reply is expected, the offeree must ensure that his acceptance is understood by the offeror.

Silence is not acceptance

An offeror may not arbitrarily impose contractual liability upon an offeree merely by
claiming that silence shall be deemed consent. The decision to accept must be manifested and not
stored in the mind of the offeree. However, the rule that there can be no acceptance by silence does
not mean that it is always necessary to communicate words of acceptance to the offeror. An
acceptance may be inferred from the conduct of the offeree and communication of acceptance may
be dispensed with. When this happens, acceptance is said to be by conduct rather than by silence.

Exceptions

There are two important exceptions to the rule that a contract is not made until acceptance
is actually communicated to the offeror.

a) Where performance constitutes acceptance

Where an offer may not present an offeree with the alternatives of repudiation or liability he
may for his own purposes waive the need to communicate acceptance. He may run the risk of
incurring an obligation, though he may not impose it upon another. Such waiver which may be
express or inferred from circumstances is normally assumed in unilateral contracts. In this type of
case, the offeree is deemed to have included in his offer a term providing that performance by the
offeree shall be a sufficient acceptance and communication is not necessary. The offeror is bound
when the offeree performs whatever act is required of him according to the term of the contract.

b) Postal acceptance

If no particular method is prescribed and the parties are not in each other’s presence, the rule that
an acceptance takes effect when it is received by the offeror may be impracticable and
inconvenient. This may well be the case where the negotiations have been conducted via the post.
There are many possible answers to the question when an acceptance sent by post should become
operative. Amidst the divergent views, the law looks primarily to the convenience of the offeree,
by holding that acceptance takes effect as soon as it is posted.

Counter offer

The most important rule with acceptance is that it must correspond with the offer. In other
words, the offeree must be unreserved assent to the exact terms proposed by the offeror. Where
the offeree introduces a new term which seeks to qualify or vary the offer, it is ineffective as
acceptance and in fact destroys the original offer.

The legal consequences of a counter offer

1) it rejects the original offer which cannot longer be accepted

2) it amount to a fresh offer which the original offeror may accept

Thus, a request for further information should not be seen as a counter offer as it will not
destroy the original offer. Equally, a conditional approval such as one made subject to contract or
subject to a formal contract to be drawn up by our solicitor does not constitute acceptance.

3) Consideration

The element of consideration is a major ingredient of contract law after offer and
acceptance. The general rule in English law is that, unless an agreement is made under seal or deed
it must be supported by consideration. The purpose for the requirement of consideration is to put
some legal limit on the enforceability of agreements even where they are intended to be legally
binding. More than this, consideration is that vital element which imprints on an agreement, the
willingness of the courts to give effect to the intention of the parties. Without consideration, what
the parties promise remains a nudum pactum, that is a bare promise.

The basic feature of consideration is that of reciprocity. Thus, consideration consists in

some gain to the person or some loss to another. That is, in a contract for the the sale of goods for
example, consideration is the gain to the seller of the buyer’s money and also the buyer’s prospect
of having something he needs. Each side has parted with something; the buyer with his money and
the shopkeeper with his goods.
Executed and Executory Consideration

Consideration may be executed or executor. Executed consideration is some act performed

for the other party while executor consideration is a promise made to the other party. E.g. if X in
return for a book handed to him by Y, pays Y 1000frs, his consideration is executed. If he promises
to pay Y 1000frs next week, his consideration is executor. Both types of consideration fall under
the general description of valuable consideration as against good consideration. The parties to a
contract are the persons who had provided consideration and their relationship is that of privity of
contract (to be discussed below). It is for the party alleging the breach of contract to show that he
gave consideration. Generally this is the person making the complaint before the court.

Rules governing valuable consideration

i) Consideration must be real or sufficient

Essentially, this simply means that consideration should have some value no matter how small,
so long as it is worth something over and above what the promisee was already obliged or bound
to do. The test question here are;

a) Did the party (usually the promisee) claiming to have given consideration do any more
than he was bound to do under a previous contract with the other party?
b) Did the party (usually the promisee) claiming to have given consideration do any more
than he was already obliged to by law? e.g of a witness in court, police gives extra service.
c) Did the party (usually the promisee) claiming to have given consideration do any more
than he was bound to do under a pre-existing contract with a third party? E.g, where the
party merely undertakes to fulfill the conditions of an existing contract with a third party.
ii) Consideration need not be adequate

Although consideration must be real, the traditional rule under English law is that, parties are
allow to strike whatever bargain they choose.

iii) Consideration must move from the promisee

This means that no stranger to the consideration may by himself sue on the contract. Any
action for breach of contract must be brought by the party who gave consideration. E.g, you
 owe me 5000frs and you are unable to pay. You then go to work for Mr. Tasimo in order for
him to pay my debt owed by you. It he fails to pay after the work, I won’t be able to have my
money since there was no consideration between me and Mr. Tasimo.

iv) Consideration must be past

As aforesaid, a valuable consideration must be executed or executory. In this situation one

party’s promise or act together with the other person’s promise are related constituting a single
consideration. E.g, one makes a promise to pay you 2000frs in consideration of an executed
duty, and later her husband later promise he pay. In order word, it must be made at the moment
of the transaction.

Exception to past consideration

Section 27 of the Bill of Exchange Act 1882 provides that circumstances are often quoted as
apparent: where the plaintiff performs a service at the request of the defendant subsequently makes
a promise to pay. E.g you pay part payment in full consideration base on another agreement. Time,
place

4) Intention to create legal relations

For there to be a binding contract, the parties must intent their agreement to be legally
binding or must give rise to legal consequences.

It is said that, every contract involves an agreement but not every agreement amounts to a
contract. The elements which converts an agreement into a legally binding enforceable contract
is the intention of the parties to enter into legal relations, and thus bind themselves to carry out
the agreement. Sometimes the intention may be expressly declared by the parties, but in the
majority of cases it is necessary for the courts to deduce it from the general circumstances in
which it had been entered into. That is, what is said and done. How then can the courts find
out what was in the minds of the party?

According to Lord Stowell, “contract must not be the spots of an idle hour, mere matters
of pleasantry and badinage never intended by the parties to have any serious effect
whatever”.
 From the above, a very strong presumption has been developed. That is, in agreements
relating to every strong social or domestic engagement (such as, that between husband and
wife, parent and child, relatives, etc.), the parties do not intend legal consequences to follow.
However, these are mere presumptions anyway and parties may expressly provide to the
contrary.

In business or commercial agreements, the presumption is that, the parties intend to create
legal relations and make a contract. This presumption can be rebutted by the inclusion of an
express statement to that effect in the agreement.

Assignment: It is said that, every contract involves an agreement but not every
agreement amounts to a contract. Discuss?

5) Capacity to contract

The parties to a contract must possess the capacity to contract. The term capacity designates
the ability of a person to do a legally binding act. It describes the ability of the parties in a contract
and where they have the ability they are said to have the capacity to contract and where they lack
the ability, they are said to lack the capacity to contract. In case of incapacity for both or one of
the parties, the contract normally is null and void although circumstances do exist where it may be
voidable.

a) Capacity of physical persons

A physical person would normally enter into a contract when he attains maturity or when he
has acquired the mental attribute to be able to appreciate the legal implications of his act.
Generally, minors or infants or those who are mentally deranged or insane cannot enter into a
contract because they lack capacity to contract. In the case of contract, a minor is a person less
than 21 years, and are considered not sufficiently independently minded to make a choice for
themselves and for that reason they are at the mercy of the other contracting parties who might
want to take advantage of their inexperience to dupe or exploit them.

However, some minors are smart that they may take advantage of the protection accorded by
law to dupe adults and enter into contracts with them. It is for this reason that some contracts are
binding on minors and therefore valid.
Contracts that is valid on minors

i) Contracts for necessaries

Contracts for necessaries are binding when entered into by the minors. This type of contracts
are binding upon the minor for the benefit of the person he contracted with and for the benefit of
the infant himself because the situation of the minor will be difficult if he were not given the
possibility to contract on credit. The term necessaries is not limited to necessaries of life but
includes all articles of utility (which may be of an expensive character) suitable to the station in
life to which the minor moves.

ii) Beneficial contracts for service

The second category of contracts which can bind an infant are contracts for service and
apprenticeship in which an infant enters into a contract to learn a trade. An infant is bound by
contract of service if it is completely for his benefit notwithstanding the presence of clauses
disadvantageous to him. However, if the contract is harsh and oppressive, the infant will not be
bind by it.

Factors affecting the validity of a contract

Although parties to a contract may have met the various requirements of a valid contract,
yet a party may still have legal rights and remedies as a result of other defects that are later
discovered. These defects may relate to some imperfections at the time the contract was performed.
The defects are generally known as vitiating factors. A vitiating factor is one which may operate
to invalidate an otherwise validly formed contract. To vitiate basically means to impair the quality
of, or to corrupt or debase. In contract law this means that factors present at the time of the
formation of the contract, or that the contract lacks the essential element of voluntariness, or is
based on misinformation or is of a type frowned on by the law.

Where any vitiating factor is present in a contract, the legal consequences will vary
according to the circumstances. The factor may render the contract void, voidable, illegal or
unenforceable. Whether a contract suffers any of these effects, in any given case will also depend
on the type of vitiating factor, complained of. Factors which may vitiate a contract include:
Mistake, Misrepresentation, illegality, duress and undue influence.
Termination of contract

a) Performance: a contract may be terminated upon a successful execution of the duties by

both parties.
b) Breach: a contract may be terminated as a result of a breach by one party
c) Agreement: a contract may be terminated upon agreement by both parties
d) Frustration: this is where it is seen that, there exists some impossibility in the execution
of the contract as a result of some unforeseen circumstances.

Remedies for breach of contract

A right would be of little value, if there was no remedy available in the event of an
infringement. Hence the maxim ubi jus ibi remeduim (where there is a wrong or right, there must
be a remedy).

A remedy is the means given by law for the enforcement of a right, or for the recovery of
pecuniary compensation in lieu of performance. A breach of contract by one party necessarily
causes an infringement of the contractual right of the other party. A breach of contract usually but
not always causes a loss: in any event, there is a right of action against the contract breaker. The
victim will have decides which of these possible courses is most appreciated. He may sue for
damages, seek discretionary remedy in equity or treat the contract as discharged.

Damages

The major remedy for breach of contract under common law is damages. A party may
claim damages for every breach of contract whether partial or total. The damages for which the
party may be entitled may either be liquidated or unliquidated. They are liquidated; when the
amount has been agreed upon (or is known) by the parties themselves and unliquidated if they
have to be assessed by the courts.