Business transactions in today’s economy are carried out more efficiently and effectively mainly because world over, the focus has shifted from a predominantly cash-dependent market to less cumbersome, simpler means of transacting business such as the use of various means and forms presented through electronic platforms otherwise known as electronic commercial transactions.
Banks play a critical role in electronic commerce either because they enable payments to be made directly or because they simply enable electronic credit which further facilitates commerce. As a result of this growth in electronic commerce, banks are conducting their business with the ever-growing assistance of telecommunications and telecommunications-based tools.
Contractual relationships as a substitute to legal tender
Payment by plastics generate some type of credit, given that payment to the retailer may not be instantaneous. Plastics are not legal tender and the merchant or retailer is under no obligation to accept the card as a substitute for money being a legal tender. The retailer accepts this having entered into a pre-existing contractual arrangement. The general features of credit card transactions are eloquently described by Sir Nicolas Browne-Wilkinson in the case of Re Charge Card Services Ltd:
(a) There is an underlying contractual scheme which predates the individual contracts of sale. Under such scheme, the suppliers have agreed to accept the card in payment of the price of goods purchased: the purchasers are entitled to use the credit card to commit the credit card company to pay the suppliers.
(b) That underlying scheme is established by two separate contracts. The first is made between the credit company and the seller: the seller agrees to accept payment by use of the card from anyone holding the card and the credit company agrees to pay to the supplier the price of goods supplied less a discount. The second contract is between the credit company and the cardholder: The cardholder is provided with a card which enables him to pay the price by its use and in return agrees to pay the credit company the full amount of the price charged by the supplier.
(c) The underlying scheme is designed primarily for use in over-the-counter sales, i.e., sales where the only connection between a particular seller and a particular buyer is one sale.
(d) The actual sale and purchase of the commodity is the subject of a third bilateral contract made between buyer and seller. In the majority of cases, this sale contract will be oral, over-the-counter sale. Tendering and acceptance of the credit card in payment is made on the tacit assumption that the legal consequences will be regulated by the separate underlying contractual obligations between the seller and the credit company and the buyer and the credit company.
(e) Because the transactions intended to be covered by the scheme would primarily be over-the-counter sales, the card does not carry the address of the cardholder and the supplier will have no record of his address. Therefore the seller has no obvious means of tracing the purchaser save through the credit company.
(f) In the circumstances, credit cards have come to be regarded as substitutes for cash: they are frequently referred to as plastic money.
(g) The credit card scheme provides advantages to both seller and purchaser. The seller is able to attract custom by agreeing to accept credit and payment. The purchaser, by using the card, minimizes the need to carry cash and obtains at least a period of free credit during the period until payment to the card company is due.
The principle that applies to credit cards equally applies to debit cards. The only difference is that with debit cards there is no credit company offering to make payment on behalf of the customer. The customer by punching a pin number on the point of sales terminal gives an indication to its bankers to debit his account in favour of the supplier’s bank. The bank in turn credits the merchant. The process goes through the payment settlement scheme. This is enabled by a technology referred to as an application programming interface. This application allows financial technology startups to access customers’ data stored within the bank system thereby enabling the development of third-party financial applications.
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Choice of law/jurisdiction
In discussing the legal issues, it is necessary to demarcate between a banker-customer relationship and a bank-bank relationship. The legal issues that relate to electronic fund transfer are diverse and numerous, depending on the type of transfer that is being considered. Take, for example, a scenario where a card issued by a Nigerian bank is used outside the country but fails to activate or validate the transaction. Or a customer sitting in Japan attempts to access his bank account in Nigeria to purchase goods from the United Kingdom. This failure immediately generates a critical issue of determining the law governing the transaction as well as the question of which country’s jurisdiction should decide the dispute. This question will always arise if the parties in the scheme live or operate in different jurisdictions. But the question of where to institute the action could also possibly arise where the stakeholders live within Nigeria but in different states.
The general principle of course is that the action will be instituted where the defendant resides. Where payment is expected to be effected electronically, it might be difficult to determine where the defendant resides. As stated earlier, there is still no provision for an entirely virtual credit. As a result and almost invariably, the electronic funds’ transfer is supported by contracts entered into prior to the commencement of electronic transactions. The usual connecting factors, the party’s choice, and most significant relationship, provided for in domestic conflict of laws legislation or case laws will identify the applicable law which in turn will govern the rights and duties of the parties. Notwithstanding the express provision in a pre-existing contract when common law principles are applied to electronic contracts, it proves practically impossible to conceptualize let alone implement. The United Nations Commission on International Trade Law (UNCITRAL) provides a functional mechanism for dealing with such issues and provides as follows in section 19 of the Bill:
“(4) An electronic communication is deemed to be sent from the sender’s place of business and received at the addressee’s place of business.
Plastics are not legal tender and the merchant or retailer is under no obligation to accept the card as a substitute for money being a legal tender. transaction, the persons principal place of business.
(5) if the sender or the addressee has more than one place of business, the place of business for the purpose of subsection (4) of this section is the one with the closest relationship to the underlying transaction to which the electronic communication relates or if there is no underlying
(6) If the sender or addressee does not have a place of business, the persons place of habitual residence is deemed to be the place of business for the purpose of subsection (4) of this section.
Discharge of payments obligations
With payment by cash, it is easy to determine when payment is complete. With a cheque, the instructions to the bank may be countermanded provided the account of the beneficiary has not been credited. In other words, payment is completed when the account of the beneficiary is credited.
In the case of payment by a debit card, payment is more or less complete when the customer has entered his PIN into the keyboard provided at the retailer’s terminal. However, this may not be entirely correct. The fact that the originator cannot countermand his instruction is not the same thing as saying that payment is complete. To say that payment is complete is effectively to assume that the beneficiary discharges the right he will otherwise have to sue the originator for non-payment.
In an electronic transfer, the time at which payment is considered effected may not necessarily be the same time the obligation to pay for the goods is discharged. Tendering a card as a substitute for payment by cash following the case of Re Charge Card Services Ltd discharges the obligation of the originator absolutely. In other words, the purchaser is no longer obliged to pay for the goods in cash. In effect, the creditor admits to accepting a funds transfer into his bank account to fulfil an obligation to pay cash. This arrangement is translated into a new set of obligations between the customer and his bank on the one hand and the creditor and his bank on the other. By agreeing to payments by funds transfer, the creditor beneficiary agrees to accept a right of action against his own bank instead of a right of action against the original debtor. This substitution of one debtor for another is equivalent to payment by cash and discharges the monetary obligation between the payer and the payee.
Conclusion
In discussing electronic banking and payments by plastic cards, the objective has been to consider the rights of the customer as against the right of the banks in light of the absence of the Electronic Transaction Act. Since electronic commerce has spread all over the world, many countries are enacting legislation to accommodate the platform for electronic transactions. Still many of the traditional concepts of contract law can be applied without any problem to this form of banking. The object will be at all times to find a balanced distribution of risk, such that risk is not totally transferred to the consumer but also to avoid consumer protection issues that suffocate the whole e-banking process. In the absence of relevant regulation, courts have an even more significant role to play in giving a commercial and purposeful interpretation to these transactions. The current practice in Nigerian jurisprudence where substantive rights are hardly ever determined and many of the superior courts are instead focused on procedural justice, will affect the growth of commerce negatively.
Osaro Eghobamien, SAN is one of the Founding Partners of Perchstone & Graeys LP; he is also the Managing Partner of the firm and currently leads its Banking & Finance and Dispute Resolution Groups.
Excerpts from a paper presented by the author at the 14th National Seminar on Banking and Allied Matters for judges at the National Judicial Institute.
