Finance Law
School of Law LST2FLA
Instructions
Students must answer all parts of the following Question.
PART A
Aeneas is a keen yachtsman and wanderer. He wants to start his own yacht-building business. He goes to a new branch of Take It All Bank (TIA Bank) in his area.
On 31 August, he sees the manager of the TIA Bank, a lady named Juno. He discusses with Juno the amount of borrowed funds Aeneas thinks he will need for his business. They discuss different types of loans, and Juno says that a simple loan of $300,000, repayable in 3 years, would be the best type of loan for what Aeneas wants to do.
Aeneas doesn’t want to pay high fees and requires a loan interest rate of no more than 7%, payable quarterly.
Juno says, ‘I will discuss your needs with my branch lending team and see what we can do.’
Later that same day, on 31 August, Juno telephoned Aeneas and left a message on Aeneas’s answering machine.
Juno’s message says, ‘I just wanted to update you and let you know that I’ve had discussions with our lending team and it seems the bank can provide you with a current account and a loan account of $300,000 repayable at the expiration of three years. What do you think about that proposal?’
Aeneas is getting a little fed up with Juno’s overbearing manner and thinks he can get a better deal elsewhere. Unfortunately, he finds that, in fact, no one else will lend to him. So two weeks later, on 14 September, Aeneas emails Juno, in which he states, ‘I accept your offer of 31 August’.
Now, it appears that Aeneas used to bank at the NAT Bank. Juno found out about this and phoned the Manager of the NAT Bank on 12 September. In the course of the conversation, the Manager told Juno that Aeneas was in the habit of writing cheques in favour of the local casino.
He further told Juno that Aeneas’s wife, Hebe, had been to see him complaining of Aeneas’s excessive drinking. After hearing all this, Juno decided that her bank would not lend any money to Aeneas.
Aeneas comes to see Juno on 15 September to discuss when the loan will be available. At this interview, Juno tells Aeneas that the TIA Bank has decided not to lend him any money but is happy to open a current account in his name.
(a) Ignoring legislation or codes of conduct, advise Aeneas as to whether or not TIA Bank is obliged to provide him with a loan of $300,000. Give reasons for your answer. [7 marks]
(b) Advise Aeneas if, upon his becoming aware of the details of the conversation between Juno and the Manager of the NAT Bank, he has any rights against the NAT Bank, and if so, why?
[2 marks]
(c) Can Aeneas be considered a customer of the TIA Bank even though no account was actually established?[1 mark]
[10 marks]
PART B
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Ganymede Ltd is a customer of the Caring and Wealthy Bank. It is a very large company and employs more than 100 people; therefore, the Code of Banking Practice does not apply to it.
When it opened its account with the Caring and Wealthy Bank, it agreed to be bound by this Bank’s terms and conditions as it was notified from time to time.
Six months after the account is opened, a bank statement is sent to the company together with the following letter:
PLEASE READ THIS LETTER IT CONTAINS EXCITING NEW INFORMATION ABOUT YOUR ACCOUNT
Dear Customer (‘you’), The Caring and Wealthy Bank (‘us’) is always trying to find new ways to service you.
To enable us to do this, however, we have decided to introduce a new term of the contract between you and us.
This is to enable us to reduce costs in one area so we can provide you with exciting new services. The new clause 12 of the contract between you and us is as follows:
The customer (‘you’) must read each bank statement sent to you. If there are any inconsistencies in the statement, you must notify the bank within 10 business days.
Failure to notify us of such inconsistencies means the amount of the balance contained in the incorrect statement represents what you owe us or what we owe you, as the case may be.
The managing director of Ganymede Ltd. receives the bank statement and letter but doesn’t read the bank statement.
She starts to read the letter but throws it in the bin after reading the first sentence, thinking the bank is trying to sell new products to the company. “Just another publicity stunt,” she remarks to the office cat.
The bank statement shows that $1 million was fraudulently withdrawn from the company’s bank account between 1 February and 1 April.
Ganymede Ltd does not notify the bank of the fraudulent withdrawal within 10 business days of receiving the statement.
The bank later discovered that Annette, an employee of Ganymede Ltd., had fraudulently withdrawn $1 million and then lost the whole sum at the casino.
Two months later, on 1 June, the managing director became aware that on 15 May, Jake, the company’s accounts clerk, had fraudulently stolen $2,000 from the company’s current bank account at The Caring and Wealthy Bank by forging company cheques.
Jake’s wife had just died, and the managing director did not tell the bank about the forgeries. On 30 July, Jake steals a further $1,000 from the company account in the same manner.
After discovering on 30 July what Jake has done, the managing director comes to you and asks you to advise Ganymede Ltd whether The Caring and Wealthy Bank is entitled to debit the company’s account for the $ 1 million stolen by Annette and the $3,000 in total stolen by Jake. Advise Ganymede Ltd in giving reasons with relevant cases.
[7 marks]
PART C
Assume that the ‘unthinkable’ happened when the Caring and Wealthy bank suddenly went into liquidation after becoming insolvent. At that time, Ganymede Ltd had the following assets in credit with the bank:
(a)The sum of $150,005.00 in its current account,
(b) The sum of $60,000.00 in a term deposit account and
(c) The sum of $40,000.00 in an entity known as the Caring and Wealthy Bank Safe and Reliable Equity Management Fund (an entity of the bank whose object is to invest funds in the stock market paying a dividend to investors).
All this occurred in 2015. In normal circumstances, the Liquidator appointed to wind up the insolvent company would sell the Bank’s assets and divide the proceeds equally between its creditors; in this event, the creditors, including Ganymede Ltd, would receive only 25 cents in the dollar.
Can you advise Ganymede Ltd. on how the company could escape this result and recoup more of its assets in the Bank?
[3 marks]
Total marks: 20 marks
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