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The Law Relating To Banking And Finance Question Paper
The Law Relating To Banking And Finance
Course: Banking
Institution: Kenya School Of Monetary Studies question papers
Exam Year:2006
Q1. Harry Nyange run a factory which makes clothes and shoes. He banks at wananchi bank. However, due to influx of second hand clothes and shoes, his business has bee declining for the past one year. This morning, he has informed the bank that he presented his own petition in bankruptcy. His accounts at present have balances as follows:
Current account kshs. 50,000 cr
Savings account kshs. 150,000 cr
Joint account with his wife kshs. 30,000 cr
Savings A/C Harry Nyange
Re: Hariet Nyange(his young daughter) kshs. 15,000 cr
Loan A/C kshs. 400,000 Dr
His father mzee Nyange also has a deposit account at the branch of Kshs. 200,000 which the bank has for sometime suspected is being operated by him as nominee for Harry.
This afternoon, Laura informed the bank that she has separated from her husband having found out that for the past one year, he has been paying kshs. 20,000 through standing order for his savings account to maintain Cynthia his mistress. Laura asks the bank to confirm the existence of this standing order as it would be relevant to divorce proceedings which she would be commencing.
Advise the bank as to:
a) How it should deal with Laura’s request (15 marks)
b) Its right of set off (combination) as regards the accounts detailed above. (5 marks)
Q 2.
a) Mr. & Mrs. Omollo own their residential property as joint tenants. They acquired this property through long-term loan from your bank five years ago. Today, you receive telephone call from Mrs. Omollo who tells you that her late husband forged her signature on a further advance deed which was completed a year ago. Mrs. Omolo did not discover the forgery until after her husband’s recent death. She is now saying that she will not be bound by the terms of the further advance and will not make the mortgage payments to the bank.
Explain the legal position. (8 marks)
b) You have on good authority that Mr. Kuria has left the country in considerable haste. It is rumoured that he has no plans to return. The last six payments of his mortgage account has been missed although all the previous payments were made as they fell due. You have been to see the property. There was no sign of Mr. Kuria although his Mercedes Benz car was parked in the garage. The property which is large seems to have been divided into flats. This has happened since the date of the loan. There is a large hole in the roof and generally the property is deteriorating rapidly. Partly for this reason, and partly because there was a general decline in property value locally, it is thought that the property is much less than the mortgage debt. Some of the flats are occupied. The occupants claim they are paying rent to Mr. kuria by means of standing orders to an account in his name at Imani Bank. Mr. Kuria also has a savings account at your bank.
Explain the legal remedies available to the bank under mortgage deed and in respect to Mr. Kuria. (12 marks)
Q3.
a) In relation to insolvency law, discuss the effect of liquidation on a bank account. (8 marks)
b) Summarize the difference between the following:-
i) Preference
ii) A transaction at undervalue
iii) A transaction defrauding creditors. (12 marks)
Q4.
a) A legal mortgage is a stronger mode of security than an equitable charge. To what extent is this statement correct in relation to shares and stocks? (8 marks)
b) By a legal mortgage date 17th June 2002, Mercy mortgaged her shares at kiboko investments ltd to secure a loan for kshs. 300,000 advanced by Huduma Bank to Francis. Mercy also extended an unlimited guarantee in favour of Huduma Bank. The guarantee was on the banks standad form.
On 2nd April 2004 Francis defaulted in repayment of the loan and on the same day, Huduma Bank demanded full repayments from Francisand mercy. Both failed to honour the banks demand to pay. On 30th september2004, the bank wrote a letter to mercy notifying her of its intention to sue her under the guarantee in order to recover the loan and interest secured by the guarantee. Mercy responded in writing that she was not liable to pay any money to the bank for the following reasons:-
i) The shares mortgage by her were worth kshs. 500,000 on 17th June 2002
ii) The shares were worth kshs. 400,000 on 2nd April 2004
iii) The shares were worth kshs. 200,000 on 30th September 2004
iv) The bank ought to have known of the declining value of shares and should have sold them before they become worthless.
Advise the bank on its legal rights in view of allegations by mercy. (12 marks)
Q5.
a) Your customer Michael Maneno, charged his title deeds to your bank for an advance of kshs. 250,000. The charge was by way of the bank’s usual form of charge to secure an advance of kshs. 250,000. The memorandum was worded as to secure the ultimate balance owing on the account. When the advance was created you debited the full amount of the advance to a loan account and credited it to your customer’s current account. You have received notice of the second charge. The balance on the current account is kshs. 180,000 credit. Explain the banks position. (10 marks)
b) One and half years ago you granted an unsecured overdraft of kshs. 180,000 your customer Mambo. The account, which is slightly over the limit been dormant for some time now. Mambo calls you to discuss the matter with you but you are unable to agree on a satisfactory repayment programme. During the discussion, he mentions that he has a life insurance policy of kshs. 400,000 but when you ask him to produce it, he tells you that it s with the insurance company for a small loan he took a few years ago. He further tells you that he is sure the surrender value will cover both advances and you decided to take it as security. The policy is on his own life and in his name.
Describe the procedure you will adopt in taking this security. (10 marks)
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