Practice of Banking I

Law and Practice

Outlines

Carl John Abruquah ACIB

Contents
Introductory Lecture
1

Banker Customer Relationship 5

Bank Operations 24

Determination of Banker Customer Relationship

28

Accounts of Customers 36

Cheques 55

Securities 63
 Introductory Lecture

Introduction

The Concept Of Law

Laws Governing Ghana
o This Constitution
o Enactments Of Parliament
o Subsidiary Legislation
o The Common Law
o The Existing Law

The Constitution

The Fundamental Law Of The Country Is The Constitution 1992 And The Basis Of
All Law

Enactments Of Parliament

Enactments Of Parliament Are Laws Promulgated By The Parliament Of The 4 th

Republic
They Are Known As Acts Of Parliament.
An Example Is The Land Title Registration Act 1986 Pndc Law 186

Subsidiary Legislation

Laws Enacted By Other Governmental Bodies Like The District Assemblies Under
The Authority Of Parliament
Legislative Instruments That Contain Details For The Implementation Of An Act
Of Parliament E.G. Land Title Regulations

The Common Law

The Common Law In The Broad Sense As The System Of Law We Inherited From
Our Colonial Masters
This Comprises
o The Common Law In The Narrow Sense As Law Based On Cases Decided In
Court
o Rules Of Equity
o The Customary Law

Classification Of Law

o Public Versus Civil Law

o Criminal Versus Civil Law
o Civil Law Includes:
Contract Law
Family Law
 Tort Law
Commercial Law Particularly Mercantile Law

Banking Law

Influences On Banking Law

o Commercial And Mercantile Law
o Contract Law
o Tort Law
o Commercial Law
Sources Of Banking Law
o Case Law The Common Law Various Cases That Decided On Matters In
Dispute Between Banks And Their Clients
o Acts Of Parliament

Anti-Money Laundering Act, 2008 Act 749

Bank Of Ghana Act 2002, Act 612
Banking Act, 2004 Act 673
Banking Amendment Act, 2007 Act 738
Bills Of Exchange Act, Act 55 Of 1961
Bodies Corporate (Official Liquidation) Act 1963 Act
180
Borrowers And Lenders Act, 2008 Act 773
Central Securities Depository Act 2008 Act 733
Company Act, 1963 Act 179
Credit Reporting Act 2007 (Act 726)
Data Protection Act 2010 Act 843
Financial Administration Act 2003, Act 654
Financial Leasing Act 1993 Pldc Law 331
Foreign Exchange Act 2006 Act 723
Home Finance Mortgage Act 2008 Act 770
Insolvency Act, 2006 Act 724
Internal Audit Agency Act 2003, Act 658
Mortgages Decree, 1972, Nrcd 96
Narcotics (Control, Enforcement And Sanctions Law)
1992, Pndc Law 236
Non-Bank Financial Institutions Act, 2008 Act 774
Payment System Act, 2003 Act 662
Power Of Attorney Act 1998 Act 549
Public Procurement Act 2003, Act 663
Venture Capital Trust Fund Act 2004, Act 680

Syllabus
Part A

Banker Customer Relationship

o Definition Of Bank And Customer
o Basis Of Banker Customer Relationship
o Terms Of The Banker Customer Relationship
o Rights Of Bank And Customer
Termination Of Banker Customer Relationship
Bank Operations
o Bankers Opinion
o Safe Custody
o Clearing Operations
o Standing Orders And Direct Debits
o Indemnities
Accounts Of Customers
o Individuals
o Joint Accounts
o Executors/Administrators
o Trustees
o Professionals E.G. Lawyers, Estate Agents And Accountants
o Sole Proprietors
o Partnership
o Companies
Cheques

Part B

Securities For Bank Advances

o General Considerations
o Guarantees
o Shares
o Life Policies
o Land
o Corporate Securities
o Assignment Of Debt
o Pledges
o Other Specialized Securities

The Examination Paper

Part A Three 20 Mark Questions

Part B Two Twenty Mark Questions On Securities
Total Five 20 Mark Questions Thirty-Six Minutes Should Be Allocated To Each
Question (Six Minutes For Understanding And Planning Your Answer And Thirty
Minutes For Writing Your Solution).

Text Books
 Acib Manual
Lecturers Manual
Lecturers Practice Questions
Other Law And Practice And Law Relating To Banking Textbooks
o Holden
o Kelly

Approach

Revision Of Law Relating To Banking

Repetitive Reading
Solving Of Practical Scenario Questions Showing Knowledge Of The Law And
Ability To Apply The Law To Resolve Practical Banking Problems.

The Banker Customer Relationship

Introduction

There is the need for a legal framework to govern every relationship

o For the resolution of disputes
 o Establishment of contractual rights and obligations
o The protection of the respective parties

Definition of Parties

Reason for definition protection of parties e.g. the bank is protected under
the Bills of Exchange Act if it collects a cheque for a customer who is not
entitled to it.
Parties have rights and obligations conferred by the law
Definition of a banker
o United Dominion Trust V Kirkwood (1966)
Accept money and collect cheques
Honor cheques sand other orders
Keep running account or something of that nature
o Banking Act 2004, Act 673 section 90
Body corporate licensed to do the business of banking
Accepting deposits, cash and other instruments and collecting
them for the credit of customers account
Effecting payment on behalf of customer
Financing of industry agric and commerce
Any other business Section 11 of Act
Finance lease
Money transmission
Guarantees
Trading in money market instruments
o Banking Amendment Act
Class I banking license
Class 2 Banking License
General Banking License
o Banking Act regulates Banks and Deposit taking non bank financial
institutions
Non Deposit taking financial institutions
o Leasing
o Money lending
o Money transfer
o Mortgage finance
o Non deposit taking microfinance services
o Credit union operations
o Consumer credit finance houses

Definition of Customer

Person becomes a customer when an account is opened the duration of the

relationship does not matter
o Commissioner of Taxation V English, Scottish and Australian Bank
[1920]
Account without deposit is sufficient
 o Barclays Bank V Okenhare overruled Ladbroke V Todd
Merely cashing a cheque for a stranger does not make the stranger a
customer of the bank
o Great Western Railway V London and County Banking Corporation
Duty not to give inaccurate financial advice. Such a person is treated by law
as a customer in the sense of the duty of care the bank owes
o Woods V Martins Bank

Nature of Banker Customer Relationship

Based on simple contract

o Foley V Hill Debtor/Creditor relationship
o Balmoral V Bank of New Zealand when is contract completed re
credit of account
o Chambers V Miller
Other relationships
o Principal/agent
o Bailor/Bailee
o Trustee/beneficiary
o Executor/beneficiary

Terms of Contract

Joachimson V Swiss Banking Corporation spelt out the terms as follows:

o A bank undertakes to receive money and collect bnills
o The proceeds are not held in trust but constitute borrowed money that
is repayable against the unambiguous written order of the customer
o The bank borrows and undertakes to pay money on demand, during
working hours and at a branch of the bank.
Baines V National Provincial Bank- within a reasonable time after
working hours
o A bank undertakes to give reasonable notice to cease to do business
with the customer
o The customer undertakes to exercise reasonable care in drawing
cheques and issuing payment instructions
London Joint Stock Bank V McMillan and Arthur
Greenwood V Martins Bank
Brown V Westminster Bank duty to disclose fraud when it
comes to the attention of customer
Also in Tournier V National Provincial and Union Bank it was held that an
implied term of the banker customer contract was that a bank undertakes not
to disclose customers affairs
The relationship is essentially contractual
Tai Hing Cotton Mill V Lui Chong Hing Bank forgery of customers signature
the bank is not entitled to debit customers account.

Express Terms
 Mandate forms
Terms must be brought home to the customer
o Tai Hing case
The customer is bound if he signs the mandate form
o Lestrange V Graucob
o However if any of the terms are ambiguous or contain
misrepresentation, the court will construe them against the bank

Duties of a Bank

Duty to comply with customers written instructions

Duty to inform customer of forgery on the account
Duty to allow customer to draw money at the account holding branch subject
to:
o The instruction being unambiguous
o Instruction is in accordance with the mandate
o Sufficient funds
o All effects cleared
o Approved overdraft
o The bank may exercise its right of combination and appropriation
Duty not to cease doing business with a customer without sufficient notice
o Prosperity V Lloyds 1923
Duty to provide passbook or statement of account
o Tai Hing held that there was no corresponding duty on the part of
customer to peruse the bank statement
Duty of confidentiality
Duty of care
o Woods V Martins Bank

Duty of Care

Duty to honour the words of its authorized officials

o Box V Midland
Duty of care in complying with customers written instructions
o Smith V Lloyds Bank
Duty of care to prevent fraud on the account
o Lipkin Gorman V Karpnale
Duty of care in providing advice
o Woods V Martins
o Verity Splindler V Lloyds Bank 1995
No duty to provide advice on the effect of a not negotiable crossing
o Redmond V Allied Irish Bank

Rights of a Bank

Right of appropriation
Right of lien
 Right of set off
Right to charge commission
Right to be paid overdraft on demand
o Cannon V Titford Properties
o William and Glyns Bank V Barnes

Duties of a Customer

Duty of care in issuing out payment instructions

Duty to advice bank of fraud
Duty to pay overdraft on demand
Duty to pay reasonable charges
Duty to keep confidential, security information relating to ATM, Internet
Banking and Credit Cards
Duty to pay loan granted.

Rights of a Customer

To draw money
To be informed of fraud
To be provided statements of account
To be given notice prior to closing an account

The Banks Duty Of Confidentiality

Introduction

Why is it necessary to impose such a duty?

o To protect the image of the customer
o To avoid disclosing matters that may cause a loss of reputation and
business interests of the customer
Tournier V National Provincial And Union Bank held that a bank holds a duty of
confidentiality subject to four exceptions
o Disclosure under compulsion of law
o Disclosure in the interest of the public
o Disclosure in the interest of the bank
o Disclosure with the express or implied consent of the customer
 Section 84 of the banking act 2004 act 673 codified this common law rule
specifying the following exceptions:
o Disclosure under compulsion of law
o Disclosure in the interest of the public
o Disclosure in the interest of the bank
o Disclosure with the authority of the customer
Exception here is disclosure to a bank provided that information is
of a general nature and required to assess the credit worthiness of
a customer
Disclosure under compulsion of law
o Court order
o Evidence decree
o Antimony Laundering Act 2008 Act 749
o Credit Reporting Act
o Borrowers And Lenders Act
o Tax legislation
o Banking amendment act section 31 amends section 84 of the banking
act
Civil proceedings against customer
Customer deceased - disclosure to executors and administrators
Disclosure re credit card default to other banks issue credit cards
Customer declared bankrupt or company is being wound up
Information required by an employee or an auditor of the bank for
official duty
Bankers opinion
Garnishee order against customer
Disclosure in the interest of the public
o Customer engaged in fraud
o Customer engaged in criminal activity and laundering of public money
o Customer becomes an enemy alien
Disclosure in the interest of the bank
o When demanding or suing for payment of a loan
Sunderland V Barclays Bank
Disclosure with the authority of customer
o Authority must be express
o Disclosure to auditors must be with the express permission of the
customer
 THE BANK AS A TRUSTEE

Introduction

Definition of a trust

Express trust

Duty of a bank is to the exercise due care to the standard of a prudent

business person Bartlett v Barclays Bank Trust co. (1980)

The bank as a constructive trustee

Definition of a constructive trust

Bank liable under two headings
o Knowing receipt
o Dishonest assistance
Knowing receipt definition

Receipt of trust property

Knowledge that receipt is in breach of such trust
Personal benefit from receipt e.g. reduction of overdraft Agip Africa V
Jackson (1989)

Definition of knowledge Baden V Societe General

Actual knowledge
Willfully shutting ones eyes to the obvious
Willfully and recklessly failing to make enquiries as an honest and reasonable
person would make
Knowledge of circumstances that would indicate the facts to an honest and
reasonable person
Knowledge of circumstances that would have put an honest and reasonable
person on enquiry

Re Montagu held that the first three would suffice and last two amounted to
carelessness.
Also Eagle Trust Plc V Sbc Securities Ltd advised that 4 and 5 should not be
applied to commercial transactions since they would require the parties to be
unduly suspicious
Polly peck international v nadir held that there were no precise boundaries
between the five

Banks liability

To account to the beneficiary

Dishonest assistance

Existence of trust or fiduciary relationship

Assistance in breach
Assistance should have been dishonest.

Quistclose trust

Barclays Bank V Quistclose Investments Ltd. (1970)

 Set Off/Combination Of Accounts

Introduction

Definition and comparison with appropriation

Right to combine two or more accounts if even at more than one branch

Requirements Garnett V Mckewan

Certain accounts
Accounts in the same name/for the same person
Accounts in the same capacity

Right of set off where banker customer contract has been determined

A. Customers death
a. Bank to exercise right of set of on receipt of notice of customers death
b. Balance to be paid out to personal representatives of deceased
customer on presentation of death certificate and probate or Letter of
Administration as the case may be
B. Mental incapacity
 a. Accounts to be set off and the balance paid over or transferred to
guardians account
C. Insolvency
a. Automatic set off on making of insolvency order section 45(2) of
insolvency act 2006 act 708
b. Section 39 (2) of bodies corporate (official liquidations) act 1963 act
180 automatic set off on making of winding up order

Effect of winding up/insolvency order

Statutory set off is automatic and inexcludable Halesowen Press Works And
Assemblies Ltd V Westminster Bank Ltd 1972.
Any express or implied agreement not to set off becomes void
Any agreement to extend the right of set off becomes void British Eagle
Airlines Ltd V Cie International
Debits and credits subsequent to the insolvency notice or bankruptcy or
petition for winding up cannot be set off
Debts and contingent liabilities not due now become due and payable Re
Charge Card Services
Where there are more than two accounts with at least two in debit the
accounts should be ratably set off (this does not include wages accounts) re
unit 2 windows

Right of set off where banker customer relationship has not been determined

The need to exercise set off arises where the bank has to take a decision on
whether or not to pay a cheque

Two current accounts, one in debit one in credit the bank can set off and if
the overall balance is not sufficient the bank can refuse to pay customers
cheque
Savings deposit and overdrawn current account the bank can set off
Time deposit and overdrawn current account the bank cannot set off unless
deposit is due
Loan account and current account set off is only available when loan is due
and bank must give customer notice Buckingham And C V Midlands Bank

Where bank cannot exercise right of set off

Contingent liabilities Jeffryes V Agra And Mastermans Bank (1866)

When loan is due, notice is required Bradford Old Bank V Sutcliffe(1918)
and customer has the right to withdraw the balance on receipt of notice
Halesowen Pressworks And Assemblies Ltd V Westminster Bank Ltd.
Where the other account is a trust account
Where there is agreement to the contrary

Equitable right of set off

 Arises where the bank suspects that two accounts with different names are
being operated as nominee for the same person.
Conditions clear and indisputable evidence of nomineeship
o Uttamchandrah V Central Bank Of India
o Bhoogal V Punjab National Bank

Appropriation

Introduction

Definition
Contrast with set off

Rules of appropriation

Where there are several debts due from the depositor he has the first right of
appropriation Simpson V Ingham
If the debtor does not appropriate, the right devolves on the creditor
Debtors intention shown by course of dealings or other circumstances
Peters V Anderson
However entries in the debtors books is not of itself evidence of
appropriation by him Manning V Westerne (1707)
If the right devolves on the bank as a creditor, the bank may appropriate the
monies to a statute barred debt though the debt is not revived Friend V
Young (1897)
The creditor cannot appropriate to an illegal debt Ex Parte Mandleson
Appropriation need not be made at the time of payment but can be made
whiles a legal action against the debtor is proceeding Seymour V Pickett
(1905)
 Creditor cannot subsequently vary the appropriation Deely V Lloyds (1912)

Additional rules for single account

Money paid to meet a particular cheque must be applied accordingly Farley

V Turner (1897)
In the absence of the customers appropriation, the rule in claytons case
applies

Where claytons case not applicable

Trustee/beneficiary funds mixed in one account the Rule In Hallets Case

applies
Where there is a contrary intention
Does not apply to two accounts Bradford Old Bank V Sutcliffe
However it may apply where the two accounts were in principle operated as
one account Re E J Morel

Significance of the rule

Joint account/ partnership Royal Bank Of Scotland V Christie (1840)

Notice of second mortgage
Determination of guarantee

Rule operating in the banks favour

Floating charges section 90 of companies code Re Mortimer Ltd. (1925)

Advances for wages and salaries Re Primrose Builders Ltd (1950)
 Bankers Lien

Introduction

Definition of an ordinary lien the right to retain property belonging to a

debtor pending the extinguishment of a debt
Definition of a pledge deposit of asset or transfer of control over asset to
creditor pending the repayment of a debt on condition that where the debtor
defaults, the creditor can sell the item and use the proceeds to pay off the
debt

Bankers lien

An implied pledge in that bank has the right of sale Brandao V Barnett
A general lien in that it covers all items that come into the possession of a
bank in the ordinary course of business
Contrast with particular lien

Where applicable
 Securities in the banks possession
o Share certificates Re United Servicesco. Johnstones Claim (1870)
o Insurance policies Re Bowes, Earl Of Strathmore V Vane (1886)

Limitations

It does not apply to securities deposited with the bank for safe custody
Brandao V Barnett
It does not apply to securities held in trust by customer
It does not apply where there is agreement to the contrary

Safe Custody The Banks Duty As A Bailee

Introduction
o Definition
o A bank is considered as a bailee for reward whether it charges for the
service or not
Port Swettenham Authority V Twwu & Co
o Duty of bailee duty of care to keep the item deposited with reasonable
care as a prudent person would to protect himself from loss

Nature of service

Offered to various types of customers

Receipt slip given to customer, and mandate taken regarding the person to
whom the item should be released normally the bailee
The bank has the duty to make delivery according to the mandate
o Brandon V Scott [1875]
In the case of joint account holders, in the absence of instructions, the right of
survivorship may apply
The bank should exercise care where trust is involved
 The bank is to retain the item in case of doubt until the doubt is resolved
o Hollins V Fowler [1873]

Effect of death

For individual customers, the items must be released to the personal

representatives of the deceased on presentation of probate or letters of
administration
Joint bailors to the survivors or personal representatives as the case may be.

Effect on insanity of bailor

Delivery should be made to the bailors duly appointed guardian

Effect of insolvency

The item should be held pending appointment of trustee in bankruptcy or

liquidator as the case may be.

Legal risks/ duties

Conversion
Negligence
Vicarious liability

Conversion

Definition any act that deprives a true owner of his property

Good faith and absence of negligence is no defense against conversion
o Langtry V Union Bank Of London [1896]

Negligence

Lack of the due care in caring for another persons property resulting in loss to
that person
The standard of care depends on the circumstances of the particular case
o Houghland Vv Rr Low Luxury Coaches
Examples
o Robbery and other acts of nature bank is not liable
o Deed or other document not safely kept
o Bank discovers loss but does not inform customer
Coldman V Hill [1919]

Vicarious liability

An employer is vicariously liable for the wrongful acts of its employees or

servants where these acts were committed in the course other employment
even though there was no benefit to them
 o Lloyds V Grace Smith
o Re United Services Co., Johnstons Claim [1871] manager had the only
key to a safe and misappropriated items held in custody
The bank may not be liable for theft of employee whose duties do not include
supervision of the item.
o Morris V Martins And Sons Ltd [1966]
The bank could be liable for negligently employing a dishonest person or
negligently permitting an unauthorized employee access to the property

Bankers Opinion

Introduction
o Definition and illustration of bankers opinion
o Duty of a bank the bank is not obliged to make external enquiries to
ascertain new facts.
Parsons V Barclays Bank
Potential liability
o To ultimate recipient
o To customer
Liability to ultimate recipient
o Fraudulent misrepresentation
o Negligent misrepresentation
Fraudulent misrepresentation
o Knowing or reckless misrepresentation
o Recipient took action based on representation
o No liability unless opinion is signed
Statute Of Frauds Amendment Act 1828
o Lloyds v grace smith 1912 if signed by bank employee acting within
authority the bank would be liable
Ubaf Ltd. V European American Banking Corporation
 Commercial Bank Co. Of Sydney V Rh Brown held that bank would
be liable if reply is fraudulent or deceitful
Banbury V Bank Of Montreal 1918
Negligent misrepresentation
o Careless reply to enquiry without taking necessary due diligence
Hedley Byrne And Co V Heller And Partners
Disclaimer clause upheld
Liability to customer
o Breach of duty of secrecy
o Libel
Breach of duty of secrecy
o Bank must disclose only with customers authority
o Banking amendment act provides that a bank may disclose to another
bank information about a customer so long as it is required to assess the
credit worthiness of a customer and that the information is of a general
nature.
Libel
o Bank would be liable if it provides information that is not true that reduces
the estimation of the customer in the eyes of right thinking members of
the human society.
o Protection for the bank the principle of privileged statement or qualified
privilege
London Association For The Protection Of Trade And Anor V
Greenlands And Co 1916 All Er
A person asked information in such circular may be said to be
under a social duty to communicate it and is in the interest of
society that he should be able to do so without fear of an
action for libel
It is a principle of law that a person asked for info regarding
the credit of another is justified in giving it provided:
o He bonafide believes in the truth of the information he
gives
o He bonafide believes that the person making the
enquiry has a legitimate interest which justifies it and
is not actuated by mere curiosity
o Provided the person is not actuated by motives of
private gain.
 Bank Operations Indemnities

Introduction

There are instances where the bank may be called upon to provide indemnities to
third parties in respect of their customers liabilities. Such indemnities include:

1. Bid Bonds
2. Performance Bonds
3. Advance payment bonds

A bank will only give an indemnity if it considers the customer good for that
amount. It will take a counter indemnity from the customer which incorporates
clauses that protect the banks interest. Some of them are:

Power to immediately debit customers account when a claim arises

Immediate right of set off between accounts
Lien over items held by the bank including those in safe custody

Procedure

Examine the indemnity to ascertain maximum liability and whether it is

conditional or unconditional.
Ensure the customer is considered good for the amount.
Consider whether additional security would be required in support of the
indemnity.
 Have the indemnity signed on behalf of the bank by head office or regional
office
Contact customer to call at the branch to sign the counter indemnity.
In the case of companies, ensure that their regulations allow them to give
counter indemnities

Indemnities issued to the Bank

Release of funds/safe custody items less than 5,000 to personal

representatives without calling for probate
o The indemnity will state that the personal representatives will obtain a
grant of probate or LA if asked to do so by the bank
Issue of duplicate bank draft/fixed deposit receipt.

Banks Duty Of Care And Duty To Render Accurate Accounts

Introduction

The Bank Has A Duty To Render Accurate Accounts

This Includes A Duty To Provide Regular Bank Account Statements To
Customer
The Bank Has The Duty To Obey The Instructions Of Its Customers And Not A
Forgery Of These Instructions
Duty To Care To Prevent Fraud On The Account
Duty Of Care In Providing Advice
Duty To Honour The Words Of Its Authorized Officials
No Duty To Give Advice When Not Asked E.G. On Not Negotiable Crossing

Customer Under No Corresponding Duty To Check Bank Account Statements

Tai Hing Cotton Mill V Lui Chong Hing Bank

Chatterton V London And County Banking Corporation

Errors

Over Credit Of Customers Account

Account Not Credited
Wrongful Debit To Customers Account
 Forged Cheque
Account Not Debited

Implications

Over Credit
o Customer Not Entitled To The Money
o The Bank May Recover Under The Following Circumstances
Amount Credited In Error
Customer Has Not Withdrawn Funds
Customer Withdraws Money With Clear Knowledge That He Is
Not Entitled To It
o Customer Will Recover If
The Bank Misled Him To Think He Was Entitled To The Money
He Relied On This Misrepresentation Of Accounts To Change His
Position In Good Faith
It Would Therefore Be Inequitable To Retrieve The Money From
Him
Lloyds Bank V Brooks
United Overseas Bank V Jiwani
Account Not Credited
o Customer Is Deprived Off Funds
o A Subsequent Cheque May Be Returned As A Result
o Customer Can Therefore Sue The Bank For:
Breach Of Contract
Libel
Wrongful Debit
o Account Balance Lower Than Customer Anticipated
o He May Issue A Cheque Based On The Higher Balance
o If Cheque Is Returned, The Customer Can Sue The Bank As Above
Payment Of Forged Cheque
o A Bank Has A Duty To Pay Customers Cheque Against Customers Own
Signature And Not A Forgery Of Customers Signature
o Section 22 Of The Bills Of Exchange Act States That A Forged Signature
Is Wholly Inoperative Unless Customer Is Estopped From Denying
Authority
o Customer Would Be Estopped In The Following Instances
Failure To Inform The Bank Of The Forgery
Brown V Westminster Bank
Greenwood V Martins Bank
Failure To Exercise Care In Drawing The Cheque
London Joint Stock Bank V Mcmillan And Arthur
o If The Customer Is Not At Fault, The Bank Does Not Have The Authority
To Debit The Account And Must Therefore Reinstate The Account
Smith V Lloyds Bank
Tai Hing Cotton Mills V Lui Chong Hing Bank
Duty To Care To Prevent Fraud On The Account

The Bank Has The Duty To Prevent Fraud On The Account When It Comes To
His Attention
o Lipkin Gorman V Karpnale

Duty Of Care In Providing Advice

The Bank Owes The Customer A Duty Of Care In Providing Advice To The
Customer
o Woods V Martins Bank
o Verity Spindlier V Lloyds Bank

No Duty To Give Advice When Not Asked E.G. On Not Negotiable Crossing

The Bank Has Not Duty To Provide Advice When Not Asked E.G.
o Redmond V Allied Irish Bank
Advice About Risks Customers May Encounter In His Own Business

Duty To Honour The Words Of Its Authorized Officials

The Bank Has The Duty To Honour The Words Of Its Duly Authorized Officials
o Box V Midlands Bank
 DETERMINATION OF BANKER/CUSTOMER RELATIONSHIP

INTRODUCTION

Meaning of determination
o contract terminated
o Parties no longer have rights nor obligations against each other
o Exception duty of secrecy
o This means relationship continues notwithstanding termination of contract
Modes of determination
By mutual consent
o The bank initiates closure
o The customer initiates closure
By operation of law
o Death
o Mental incapacity
o Bankruptcy
o Legal processes
Garnishee order
Injunction
Writ of sequestration
o Outbreak of war

Notice by customer

Requires written instruction to terminate

 o Wilson v midland bank
Telephone instruction must be followed up with written instruction
Bank to call for all unused check books
Customer to be advised to make arrangement for cheques already issued
Balance to be paid out less charges
Any cheques received subsequently returned with reason account closed

Notice by bank-closure

Requires reasonable notice

o Buckingham & co. V london and midland bank customer entitled to draw
on cheque account without reference to loan account
o Prosperity v lloyds period of notice, one month sufficient for individual
but not for company with sophisticated transactions
o Length of period depends on the circumstances of a particular case
o Limpgrange Ltd. V Bcci Sa [1986] there may be subsequent claims for
unauthorized debits

Determination by operation of law

Death of customer
o Mandate ceases
o Account must be stopped
o Balance vests in executors at the point of death Woolsley V Clarke
o However authority to administer the estate devolves on grant of probate
o When customer dies intestate, balance vests in the high court until the
personal representatives obtain letters of administration
Mental incapacity of customer
o Treatment depends on whether a guardian has been appointed
Guardian appointed
Close account and transfer to a new account in the name of
guardian/receiver
Where customer was in business a separate account should
be opened for the business
Any third party authority ceases Drew V Nunn
No guardian appointed
The bank should make enquiries to confirm the position
If feedback states that customer can manage his affairs, the
account should be operated as usual
If feedback is otherwise, the bank must stop the account and
return all cheques marked mandate insufficient
It is dangerous transferring the balance or allowing another
person to operate the account when that person has not
been appointed guardian
o R Beavan, Davies, Banks & Co. V beavan elder sister
allowed to operate account
 o Scarth V National Provincial Bank balance transferred
to wife

Insolvency of customer

Introduction

Objective of insolvency law

Balance vests in the official trustee on passing of protection order

Summary of insolvency procedure

Petition to the official trustee (OT) brought by either the debtor or the creditor
threshold GHC 10,000
Consideration of the petition by OT within 7 days
Decision dismissal of petition or institution of a protection order
Statement of affairs to OT within 7 days or other such period as OT shall
allow.
Submission of creditors proof
Challenge by debtor within 14 days
Creditors meeting not later than 4 weeks after the publication of protection
order
Within 14 days after closing of first meeting of creditors the ot shall make
application to the high court
Judicial consideration by high court
Decision by high court rescission of protection order, approval of
arrangement with creditors or issue of insolvency order.
Winding up of estate
Where applicable, adjudication of bankruptcy.

Effect of protection order

All assets vest in official trustee including after acquired assets

OT has authority to take control over assets
No action may be brought against insolvent

Important considerations

Preferred creditors section 39 (1)

o Any time between the making of insolvency order and debtors
discharge it appears
Six months to protection order and at a time when debtor
insolvent
Debtor make a preferential payment
o It must be paid back to the OT
Restoration of property s 39 ( (2)
 o Anyone who during relevant period received payment or property iro
debt owed shall restore on receipt of notice to ot the property or its
value
o Relevant period 21 days to presentation of petition and ending with
the making of the protection order.
o Exceptions
The above provision i.e. 39 (2) do not apply to a payment or any
other transfer of property
Made by the debtor to the debtors banker, in so far as it
has been subsequently disbursed by the banker in
meeting cheques drawn by the debtor;
Made in respect of a debt incurred during the relevant
period
Made in respect of a secured debt
Made on the enforcement against at third party of a
guarantee or indemnity, or of a mortgage, charge or lien
on that partys property.
Repayment of gifts transactions at an undervalue s 40
o Any time between the making of insolvency order and debtors
discharge it appears
Debtor made disposition of debtors property otherwise than for
full value during a specified period and subject to specified
conditions, the person who received this excess benefit shall
restore this benefit to the ot
The specified period and conditions are:
During the two years ending with the making of the
protection order or
More than two years but less than ten years before the
making of the protection order and at a time when the
debtor was insolvent,

Wages account

Section 47(1) provides for the following classes of debts:

Class a a debt or part of a debt which answers either of the following descriptions,
namely,

(a) A remuneration not exceeding the official minimum wage prevailing at the
time, owed to an employee of the debtor, who is not a near relative, in
respect of employment during the whole or a part of the four months
preceding the making of the protection order; or
(b) Rates, taxes or similar payments owed to the republic or a local authority
which have become due and payable within the year preceding the making of
the protection order.
Class b a debt or part of a debt which does not fall into any other class

Class c a debt or part of a debt which does not fall within class d or is, or was at
any time within the year preceding the making of the protection order, owed to a
near relative of the debtor.

Class d a debt or part of a debt which answers either of the following descriptions,
namely

(a) Excess benefit restored to the official trustee under section 40 or

(b) Excess interest, that is a portion of a debt which whether it is stated to do so
or not, represents interest at a yearly rate in excess of seven per cent

A near relative is defined as including the spouse, parents and issue of the debtor
and brothers, sisters, uncles, aunts, nephews and nieces of the debtor whether of
the whole or the half blood.

Procedure on notice of bankruptcy

Individual accounts

Stop account
Return any cheque market refer to drawer bankruptcy order made
Any credits would be placed to suspense account
Provide details of balances and any preferential claims as well as details of
security held to the trustee in bankruptcy
Forward balances after exercising right of set off, or present claims if any.

Garnishee order

Introduction

Garnishee order nisi

Garnishee order absolute

Unlimited garnishee order

Limited garnishee order

Main provisions

The garnishee order nisi must state the name of the customer correctly or with
sufficient accuracy to enable the bank to identify the account in its books as that
of the judgment debtor
 Koch V Mineral Ore Syndicate, London And South Western Bank Ltd.,
Garnishee (1910) 54 Sol Jo 600

The monies attached are those standing to the customers credit at the moment
of service of the garnishee order nisi and for which he could sue

Heppenstall V Jackson, Barclays Bank Ltd. Garnishee (1939) 1 Kb

Monies paid into account of the judgment debtor after service of a garnishee
summons could not be attached e.g. proceeds of shares sold at customers
instructions.

Also if customer has more than one account and the net balance is a debit, no
money is attached.

When a loan account is not due, it cannot be set off against a current account. For
that matter, the balance on the current account is attached.

Tapp V Jones (1875) Lr 10 Qb 591

Uncleared effects

The proceeds will not be attached unless the bank would have allowed the customer
to withdraw the funds

Bower V Foreign And Colonial Gas Co. Metropolitan Bank, Garnishee

(1874) 22 Wr 740

Deposits

In England, the administration of justice act 1956 allows set off

A sum in foreign currency will be attached notwithstanding that the judgment is

given in the local currency

Choice Investments V Jeromnimm, Midland Bank, Garnishee [1981] 1 All Er

225

Joint accounts/partnerships a joint account or partnership account cannot be

attached in respect of a debt owed by one of the parties

Hirschorn V Evans, Barclays Bank Ltd., Garnishee [1938] 2 Kb 101

o A garnishee order naming two judgment debtors will attach a balance

standing in the name of one
 o A garnishee order naming two judgment debtors will attach a balance
standing in their joint names.
o A liquidators account cannot be attached in respect of a debt owed by
a company of which he was liquidator. The reasoning is that they are
separate entities.
Lancaster Motor Co. (London) Ltd V Brewith Ltd,, Barclays
Bank Ltd., Garnishee [1941]01 Kb 675

Trust monies will be attached.

Plunkett V Barclays Bank Ltd. [1936] 2 Kb 107

The bank must nonetheless notify the court that the account is a trust
account, and should for that matter not be available to the judgment
creditor.

Balances abroad these are not attached because they are not within the
jurisdiction.

Richardson V Richardson, National Bank Of India Ltd., Garnishee [1927]

228

Outbreak of war

The account operation is suspended and customers right to be paid a credit

balance on a current account is a right which survives the war.

Arab Bank Ltd., V Barclays Bank (Dco)

Mareva injunction

A mareva injunction is an injunction granted by the court to restrain a defendant

from transferring assets outside the jurisdiction of the court, so that the assets
would be available to the plaintiff when the plaintiffs claim succeeded.

Mareva Compania Naviera S.A. V International Bulkcarriers S.A. [1975] 2

Lloyds Report 509

Cases

Wilson V Midland Bank

Buckingham & Co. V London And Midland Bank

Prosperity V Lloyds
Limpgrange Ltd. V Bcci Sa [1986]

Woolsley V Clarke

R Beavan, Davies, Banks & Co. V Beavan

Scarth V National Provincial

Rogers V Whitely
Koch V Mineral Ore Syndicate, London And South Western Bank Ltd.,
Garnishee (1910) 54 Sol Jo 600
Heppenstall V Jackson, Barclays Bank Ltd. Garnishee (1939) 1 Kb

Tapp V Jones (1875) Lr 10 Qb 591

Bower V Foreign And Colonial Gas Co. Metropolitan Bank, Garnishee
(1874) 22 Wr 740
Choice Investments V Jeromnimm, Midland Bank, Garnishee [1981] 1 All Er
225
Hirschorn V Evans, Barclays Bank Ltd., Garnishee [1938] 2 Kb 101

Lancaster Motor Co. (London) Ltd V Brewith Ltd,, Barclays Bank Ltd.,
Garnishee [1941]01 Kb 675
Plunkett V Barclays Bank Ltd. [1936] 2 Kb 107
Richardson V Richardson, National Bank Of India Ltd., Garnishee [1927]
228
Arab Bank Ltd., V Barclays Bank (Dco)
Mareva Compania Naviera S.A. V International Bulkcarriers S.A. [1975] 2
Lloyds Report 509
 Accounts of Customers

Accounts of individuals

Initial considerations

Authority
Identity
Integrity
Employees
Capacity

Account Opening-Mandate

Contents
Pass books and bank statement-frequency
Duty of bank and customer re statement
Chq books
Response to status enquiries

Third party mandate and power of attorney

 Accounts Of Minors

Introduction

Age of capacity/majority-18
Jurisdiction for care and maintenance of minors -High Ct

Relevant legislation affecting minors

Childrens act 1998 act 560

o Prohibits child labour at night
o Minimum age for light work-13
o Minimum age for child labour-15
o Minimum age for hard labour employment - 18

Labour Act 2003 Act 651-Young Persons

Labour Regulations 2007 Li 1883

Legal ramifications of contracting with minor

Contract with minor not binding on minor but binding or principal except for
o Contract for necessaries-sale of goods act 1962 act 137 provided that
where necessaries are sold and delivered to a child he must pay a
reasonable price therefore
Definition of necessaries - Nash V Inman waistcoats
Chapple V Cooper a married minor entered into a contract for the
purchase of a coffin to bury her husband held, contract one of
necessaries and the minor was liable to pay for it.
 Where terms of a contract were found to be harsh, notwithstanding
that it was for necessaries, the contract would not be enforceable
Fawcett V Smethurts minor made liable for damage to car in
contract of carriage.

o Contracts of service e.g. education of infant; service or apprenticeship

Should be beneficial to minor
De Francisco V Barnum stage dancing apprenticeship deed
contained terms that the infant would not marry during the
period of apprenticeship, nor accept any professional
engagements without the plaintiffs prior consent. Plaintiff
paid very low allowance and had the right to terminate the
contract when he determined the minor unfit for stage
dancing.
o Contracts of continuing liability voidable contracts
Acq of interest in a subject of permanent nature(property)
A minor may hold interest in land but may avoid any
disposition or such interest on attaining majority or within a
reasonable time thereof.
Contracts of tenancy
Partnership
Membership of a company
Such contracts cannot be enforced against the minor during
minority
After attaining majority the contract would be binding unless he
avoids it within reasonable time.
Edwards V Carter
Goodie V Harrison-Partnership
On attaining majority, minor may repudiate, though he cannot
recover any money paid Steinberg V Scala Leeds Ltd (1923) 2ch
452
o Void contracts
Infant relief act 1874 sec(1)all contracts entered into by specialty or
simple contract void
For the repayment of money lent or to be lent
For goods supplied or to be supplied(other than necessaries)
Account stated

Banking operations

Banks will not normally open current accounts for minors

A deposit account is normally opened e.g. for a student under the student loans
scheme
Where a/c is in credit, minor may sue the bank for any breach of contract e.g.
duty of secrecy
 Bills of exchange drawn by minor valid

Lending to minors

Advance void notwithstanding minor had made false representation of his age
R Leslie V Shields-subrogation
Good practice-obtain guarantee (with indemnity clause) from parent or minor
Coutts And Co V Brown Lecky
A minor cannot give an enforceable guarantee, although he could ratify such a
guarantee upon attaining the age of majority.

Minor acting as agent

A minor may act as agent-Smally V Smally

Other considerations

A minor cannot act as an executor or trustee

A minor cannot make a valid will unless he is in active military service (in the
case of emergency)

Cases

Nash V Inman [1908] 2 Kb Ca

Steinbers V Scala Leeds Ltd. [1923] 2 Ch 452
R Leslie Ltd V Sheill [1914] 3 Kb 607
Coutts And Co. V Browne Lecky & Others [1947] Kb 104
Lewis V Alleyne (1888) 4 Tlr
Smally V Smally
Lovell & Christmas V Beauchamp [1894] Ac 607
 Joint accounts

Introduction

Definition

Initial considerations

Capacity
Authority
Identity
Integrity

Mandate

Request for account to be opened

Signing instructions both/either to sign notwithstanding that account is
overdrawn or overdraft is increased.
Husband V Davis presumption against delegated authority
Liability of the parties to the bank
o Joint liability
o Several liability
o Joint and several liability
Advantages
Where liability joint, the bank may only be able to claim
against the surviving account holder, but when it is joint and
several the bank may also claim against the estate of the
deceased joint account holder
Combination against individual account possible because the
party is separately liable
 Bank has a choice to either sue the parties jointly or
individually
Bank may claim against a bankrupt partner as a private
creditor, but if it was joint the bank may only claim after
private claims have been met
Liability of bank to parties
o Forgery of one signature/insufficient mandate
Jackson V White And Midland Bank the banks agreement with the
two customers was to honour cheques drawn jointly and that there
was an implied agreement with each of them separately not to
honour any cheques not drawn by him.
Catlin V Cyprus Corporation, the bank held that although the bank
had made an agreement with the parties jointly, the bank owed a
duty to each party separately.
In this case the bank was liable to the extent of the wifes half share
of the account.
o Countermand of payment
Gaunt V Taylor (1843) any party may countermand payment of a
cheque subject to the terms of the mandate
Rights between the bank and parties
o Depends on the mandate re Survivorship clause
o If the ownership of the funds is for the benefit of the estate, it will not be
the concern of the bank unless it was aware or has constructive notice of
breach of trust.
o If bank acts contrary to the mandate, it may be held liable.
McEvoy V Belfast Banking Co. Ltd. no consideration, no privity of
contract so son was not successful
Dividends/Interest Both/either
Loans, advances, discounts both/either
Safe custody both/either
Clause stating that mandate to remain in force unless cancelled by both/either of
the parties.

DETERMINATION OF CONTRACT

Death

Account in credit
o Survivor may continue operating the account.
o Cheque signed by deceased party should be returned unpaid, marked
drawer deceased
o Cheque signed by survivor would be honoured
o If signed by both parties and survivor is entitled to the funds in the
account, the cheque may be honoured
o If there are more than two survivors, it would be advisable to take a fresh
mandate
 Account in Debit
o Account should be stopped (or a term of the original mandate may
preclude the operation of the rule in Claytons case)
o This is to preserve the rights of the bank against the deceaseds estate

Mental Incapacity

Account should be stopped whether in debit or credit, whilst awaiting

instructions from the Guardian
Cheques signed by mentally incapacitated party should be returned marked
insufficient mandate
Cheques signed by both parties should also be returned.
Cheques signed by only one party should be returned for the same reason.

Bankruptcy

Account must be stopped in all cases.

Cheques presented should be returned marked Bankruptcy petition presented
Bank will acknowledge the rights of the trustee in bankruptcy to the undivided
debt and should only act on the joint instructions of the account holder and the
trustee.
Where the account is overdrawn, the bank may combine it with a credit account
in the joint names of the parties or in an individual partys name, if there is one.
Otherwise the account should be stopped to prevent the operation of the rule in
Claytons case

The bank can then open a separate account for the solvent party and take a new
mandate from him, her or them if more than one.
 ACCOUNTS OF EXECUTORS

INTRODUCTION

Definition of Executors and Administrators

Time of vesting of authority

INITIAL CONSIDERATIONS

Capacity
Authority
Identity
Integrity introduction by solicitors if unknown to the bank

TAKEOVER OF DECEASEDS ACCOUNT

Will deposited in safe custody

Account in credit pay out or open new account styled Executors account
Account in debit the bank will stop account and claim from the estate of the
deceased

MANDATE

Signing authority Executors/Administrators can delegate either/all to sign

If there is any trust element however, all would be required to sign..
Joint and several liability
One executor can countermand payment

ACCOUNT OPERATIONS

Account in debit
Account in credit
Safe custody items

ADVANCES

Joint and several liability

Power to charge assets as security
DUTY AND POWERS OF EXECUTORS WHERE NOT AUTHORIZED TO CARRY ON
BUSINESS

Executors do not have the power to carry on business save to wind up the estate
o Collinson V Lister
Duty to preserve business assets
Executors are required to act in good faith and in the best of their judgment

WHERE AUTHORIZED TO CARRY ON BUSINESS

The bank to establish source of power in the will?

Creditors assent entitle the bank to priority
When creditors have not assented they are entitled to priority over business
creditors including the bank
The Executors cannot employ personal assets of the deceased for the business
They can however employ assets already in the business
Creditors must assent to protect their interest
Executors do not have the power to charge assets outside the business as
security
The Bank can however take a valid charge over business assets
The bank can rely on the joint and several liability clause
Insufficient funds Executors must apply to court for direction

TERMINATION OF BANKER CUSTOMER CONTRACT

DEATH OF ONE EXECUTOR

The survivors may act

Cheques may be honoured
The standard practice is to take a new mandate
If overdrawn, the account must be stopped

DEATH OF LAST SURVIVING EXECUTOR

Executor of last surviving Executor may act

If he dies intestate interested parties are required to apply for the Grant of
Administrator de bonis non administratis
New mandate should be taken
Where the last survivor dies intestate, whether or not he leaves a will, interested
parties are required to apply for the Grant of Administratus de bonis non
administratis

DEATH OF LAST SURVIVING ADMINISTRATOR

Grant of Administrator de bonis administrates

EXECUTORS BECOMING TRUSTEES

The estate should have been wound up within a year.

Normally the executors became trustees of the residuary of the estate
The account should be restyled Trustees Account normally after one year.

ACCOUNTS OF TRUSTEES

INTRODUCTION

Definition of trust
Types of trust
o Charitable
o Private
Differences between charitable and private trust
o Private Trust
Number not to exceed four iro settlements of land
No supervision by any public department
Cannot delegate and must act jointly
No avenue for appointment or discharge by meeting of trustees
Enforced by beneficiaries and/or settlor
o Charitable Trust
No limitation on number
Supervision by public trustee
May delegate to two or more of their number
Appointment and discharge by resolution of meeting of trustees
Enforced by Attorney General
Executors as trustees of the residuary balance of the estates in the sense that all
that is due has been specifically bequeathed to specific legatees and the balance
is cannot be specifically linked to any one legatee such that what remains has to
be held in trust until it is decided who the residuary should go to
o Re Smith, Henderson-Roe V Hitchins (1889)

OPENING OF ACCOUNT

Initial Considerations
o Capacity trust deed
o Authority trust deed
o Identity
o Integrity introduction by solicitors if unknown to the bank
o Account should be styled to indicate trust
Signing Authority
o Charitable Trust at least two
o Private all to sign subject to the following conditions
 It should only be permitted if trustees are of undoubted integrity
Delegation should be in respect of the income account and not the
capital account
An indemnity should be taken from all trustees and sui juris
beneficiaries
At least two trustees to have authority to sign
All trustees to verify balance at least every six months
Delegation of Duties
o By Power of Attorney for a maximum period of 12 months S 5 Power of
Attorney Act
o Trade custom
o For proper performance of the task.

ADVANCES

Initial considerations
o Must not charge trust assets to secure personal borrowing
o Do they have the power to borrow for the purpose in mind?
o Do they have power to give security for the proposed advance?
Source of Authority
o Trust Instrument
o Legislation
o Authorization from beneficiaries for trustees to borrow money against
specified security
o Application to court
Conditions
o All trustees must execute relevant documents by way of security
o Trustees must undertake joint and several liability
o When securities are released and returned to trustees, the receipt of all of
them should be obtained

DETERMINATION OF CONTRACT

DEATH

Trust deed
Legislation survivors may act
Overdrawn account should be stopped
Where all die, the personal representative of the last trustee may take over until
substantive trustee is appointed

BANKRUPTCY

A bankrupts trustee may still act

However any interested party e.g. co-trustee or beneficiary, may apply to the
courts for his removal and appointment of a new trustee
RETIREMENT

Consent of beneficiaries
Legislation
Court

BREACH OF TRUST

Gray V Johnston
o Executrix claimed credit balance after realization of life policies. The
widow continued the husbands business. She drew a cheque payable to
the firm name and a new account was opened in the name of the bank.
She only had a life interest. One of his sons alleged that there had been a
breach of trust
Rule in Hallets Case
Constructive Trusts
ACCOUNTS OF CLUBS AND SOCIETIES

INTRODUCTION

Nature of clubs and societies in the eyes of the law

Members not liable for any borrowing
Officers however liable if borrowing duly approved by Management Committee
(Executive Committee)

ACCOUNT OPENING

Capacity Rules and by-laws

Authority Resolution to open account
Identity
Integrity introduction by solicitors if unknown to the bank
Account name
o Name of club
o Name of Treasurer or Secretary with indication of nature of account

MANDATE

Signing authority

BORROWING

Check authority to borrow

Borrowing should be against the security of a guarantee incorporating indemnity
Security should be signed by all officers

DEATH OF OFFICER

New officer appointed

Bank should take new mandate
 SOLE PROPRIETOR

INTRODUCTION

Definition

INITIAL CONSIDERATIONS

Capacity Registration of business names, Certificate of Registration and Form A

Authority
Identity
Integrity introduction by solicitors if unknown to the bank

MANDATE

Akin to individual account

 PARTNERSHIP ACCOUNTS

INTRODUCTION

Definition Section 3
Number of partners - 20
Who cannot be a partner
o Corporate body
o Infant
o Unsound mind
o Person guilty of fraud
o Undischarged bankrupt
Refusal of registration
o Firm not registrable
o Unlawful business
o Any of partners is
an Infant
Unsound mind
Person guilty of fraud
Undischarged bankrupt
o Statement incomplete illegible irregular or on unsuitable paper

INITIAL CONSIDERATIONS

Capacity
o Registration Procedures and publicity
o Partnership agreement
Default terms
o Section 5 provisions
Authority
o letter head of Partnership
o All partners to sign application letter for account
Identity
o Means of identification
Integrity
o Reference from existing customer

ACCOUNT OPENING

Certificate of Incorporation
Letter Head
Account should be opened in the name of Partnership Alliance Bank V Kearsley
Signing authority
Joint and several liability section 12
ACCOUNT OPERATION

Partner as agent of the partnership

Duties of partners to each other
Powers of trading versus non trading partnership section 14 power of
partners
Countermand of cheques
Breach of trust/Fiduciary relationship between partners (Section 34) Lipkin
Gorman V Karpnale
Cheques

CHANGES IN PARTNERSHIP

Effect of cessation of membership

Automatic Cessation of membership by legislation Section 39
o Death
o Enemy alien
o Insolvency of Partner
Automatic cessation By election
o Party charges his interest in firm for payment of debt
o Any other case that Partners deem appropriate
On application to Court on a number of grounds
o Permanently of unsound mind
o Permanently incapable of performing share of partnership agreement
o Prejudicial conduct
o Breach of partnership agreement
o Just and equitable
Mental incapacity cannot be partner why is it not automatic
Retirement
Admission of new Partner
Effect on continuing guarantees
o Action to be taken on change in constitution
Account in credit
Account in debit

INSOLVENCY OF PARTNERSHIP

Modes of Liquidation

Against one partner

o Automatically ceases to be a partner
o Bank must draw attention to Partners to take steps to obtain new
certificate
o Bank must take new mandate
o Account overdrawn bank must stop account to preserve insolvents
liability
 o Bank can open a new account in the name of the reconstituted
partnership
Against the partners jointly
o Powers vest in official trustee on making of Protection order
o Account must be stopped pending instructions from Official trustee
Against the Partnership firm section 47
o Bank must stop account awaiting instructions from the trustee in
bankruptcy whether account in credit or debit
o Bank can set off debit against personal account
Voluntary liquidation.
o Continue account
o Take new mandate all to sign
o Protection order account should be stopped
o Personal accounts can continue

COMPANIES
INTRODUCTION

Definition of Company
Features of Company
Types of Companies

INITIAL CONSIDERATIONS

Capacity
o Incorporation of a company
Authority
o Board Resolution
o Authority of Officers
o Ultra vires
o Protection of third parties
Identity
Integrity
o References from existing customers

OPENING OF ACCOUNT/MANDATE

Board Resolution
Completion of mandate
Details and signatures of all the directors
Signing authority relating to cheques, safe custody items etc.
Authority to divulge information to auditors
Agree commission and interest rates
Issue cheque books
Determine frequency of account statements

ACCOUNTS OPERATION

Collection of cheques and Payment of cheques

Name of company printed on cheques
Directors
Disputes between directors.
Effect of death of director.
Financial assistance by companies for the purchase of shares.
Guarantees and financial assistance to directors and connected persons.
Liability as shadow director.

ADVANCES

Ultra Vires Rule

o Borrowing powers of company
 o Directors borrowing powers
o Power to charge security

INSOLVENCY/LIQUIDATION

Modes of Liquidation

Private Liquidation
Official Liquidation
Action on Notice
o Stop the account pending instructions from trustee in bankruptcy.
Preferences
Transactions at an undervalue
Restoration of property

Part 1 - Cheques

Introduction
o Development Of Cheques
o Goldsmiths
 o International Trade
Definition
o Bills Of Exchange Act 1961 Act 55
o Section 72
o Section 1
Unconditional Order
Nathan V Ogdens
Bavins And Sims V London And South Western Bank Ltd.
Provision For Payment Within A Prescribed Period Is Not
Conditional. However The Mandate To Pay Ceases On Expiry
In Writing
Addressed By One Person The Drawer
To Another The Drawee
Signed By The Person Giving It
Signature In Trade Name S 21
Signature Of A Firm Name Constitutes Signature Of All
Practice: Mandate S 21
Signature Per Procuration Implies That The One Who Signs
Has Limited Authority And The Principal Only Bound If Agent
Acting Within Authority S 23
An Agent Is Personally Liable Unless He Expresses That He Is
Signing On Behalf Of The Principal S 24 Mere Description As
Agent Or Representative Does Not Exempt Him
Section 22 A Forged Signature Is Wholly Inoperative
Requiring The One To Whom It Is Addressed
S 3(1) A Bill May Be Made Payable To Or To The Order Of The
Drawer Or Too Or To The Order Of The Drawww
Ss 3(1) A Bill May Be Made Payable To Or To The Order Of The
Drawer Or Too Or To The Order Of The Drawww
S(2) Where Drawer And Drawee The Same Person, Bill May
Be Treated At The Option Of The Holder Either As A
Promissory Note Or A Bill Of Exchange
S 4(1) The Drawee Must Be Named Or Indicated On The Bill
With Reasonable Certainty
To Pay On Demand
Section 8
A Sum Certain In Money
S 7(2) Amount In Words And Figures
Barlow V Broadhurst Deduction Of Amount Owed Drawer
To Or To The Order Of A Specified Person Or To Bearer
S 5(1) When A Bill Is Not Payable To Bearer, The Payee Must
Be Named Or Indicated With Sufficient Certainty.
S 5(2) Bill May Be Paid To Two Or More Persons Jointly Or To
An Office
 S 5(3) Where The Payee Is A Fictitious Or Non-Existing Person
The Bill May Be Treated As Payable To Bearer.
o Clutton V Attenborough
o Vindon V Hughes Name Of Customer
Bill Payable To Cash Or Wages Do Not Qualify As Cheques
And Must Be Treated As Mandates. Payment Should Only Be
Made To The Drawer Or His Known Agent.
o Orbit Mining And Trading V Westminster Bank
S 6(2) Bill Payable To Order Or To Bearer
S 6(3) Definition Of Bearer Cheque
S 6(4) Definition Of Bill Payable To Order
Negotiation Of Cheques Section 29
o 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.
o A Bill Payable To Bearer Is Negotiated By Delivery.
o A Bill Payable To Order Is Negotiated By The Endorsement Of The Holder
Completed By Delivery.
o Where The Holder Of A Bill Payable To His Order Transfers It For Value
Without Endorsing It, The Transfer Gives The Transferee Such Title As The
Transferor Had In The Bill, And The Transferee In Addition Acquires The
Right To Have The Endorsement Of The Transferor.
o Where Any Person Is Under Obligation To Endorse A Bill In A
Representative Capacity, He May Endorse The Bill In Such Terms As To
Negative Personal Liability.
Essentials Of A Valid Endorsement
o Signature Of Person Transferring Rights On The Cheque
o A Mere Signature Suffices
o Rights On The Entire Bill Are Transferred And Not Partial Rights
o Where A Bill Is Payable To The Order Of Two Or More Payees Or Endorsees
Who Are Not Partners, All Must Endorse, Unless The One Endorsing Has
Authority To Endorse For The Others.
o Where, In A Bill Payable To Order, The Payee Or Endorsee Is Wrongly
Designated Or His Name Is Mis-Spelt, He May Endorse The Bill As
Therein Described, Adding, If He Thinks Fit, His Proper Signature.
o Where There Are Two Or More Endorsements On A Bill Each Endorsement
Is Deemed To Have Been Made In The Order In Which It Appears On The
Bill, Until The Contrary Is Proved.
Types Of Endorsement
o Conditional May Be Ignored
o Blank S 32(1) Specifies Not Endorsee And Converts The Cheque Into A
Bearer Cheque
o Special S 32(2) Endorsee Named
o Restrictive S 33 Prohibits Further Negotiation Of The Cheque
Holder Of A Cheque
o Mere Holder Section 97
 o Holder For Value S 25(2)
Valuable Consideration
Lien
o Holder In Due Course- S 27
o Jones V Waring And Gillow 1926 A Payee Cannot Be A Holder In Due
Course
Liability Of A Cheque
o Liability Of Drawer S 53(1)
Engages That It Will Be Paid And If Not Paid Will Compensate Anyh
Holder Or Endorser Compelled To Pay On It Provided Requisite
Proceedings On Dishonor Are Taken
He Is Precluded From Denying To A Holder In Due Course The
Existence Of The Payee And His Then Capacity To Endorse
o Liability Of Endorser S 53 (2)
Engages That It Will Be Paid On Presentment And Will Compensate
Holder Or Subsequent Endorser
He Is Precluded From Denying To A Holder In Due Course The
Genuineness And Regularity In All Respects Of The Drawers
Signature And All Previous Endorsements
Crossed Cheques
o General Crossing S 75 (A) & (B)
o Special Crossing S 75(C)
o Not Negotiable Crossing S 80
o Account Payee Only S 6 (1)Cheque Containing Words Prohibiting Transfer
Valid Between The Parties Thereto But Is Not Negotiable.
o When A Bill Contains Words Prohibiting Transfer Or Indicating An Intention
That It Should Not Be Transferable, It Is Valid As Between The Parties
Thereto, But Is Not Negotiable.

Part B -The Paying Bank

Introduction
o The Bank That Pays The Cheque Or The Drawee Bank
o The Collecting Bank Is The One That Collects Proceeds Of A Cheque For Its
Customer.
o Where The Cheque Is A House Cheque The Bank Acts As Both Paying And
Collecting Bank
Duties Of The Paying Bank
o Duty To Obey Mandate
o Duty To Pay Cheque Subject To:
Cheque Being Unambiguous
Sufficient Cleared Funds In Account
 Agreement To Pay Against Uncleared Funds
Marked Overdraft Limit
Payment At Bank Or Branch
Cheque Must Not Be Stale Or Postdated
No Legal Bar To Payment
Notice Of Death
Countermand Of Payment
Insolvency
Mental Incapacity
Closure Of Account
Legal Proceedings Against Account E.G. Injunction, Garnishee
Order
Account Suspended
Notice Of Fraud Lipkin Gorman V Karpnale
Funds In Account Are Held In Trust
Barclays Bank V Quistclose Investments Ltd.
Risks Of Paying Bank
o Breach Of Contract/Mandate
o Conversion
Breach Of Contract
o Non-Compliance With Signature Instructions
o Payment Of Inchoate Cheque/Altered Cheques
o Payment Of Countermanded Cheques
o Wrongful Dishonor Of Customers Cheque
Breach Of Contract Kpohraror V Woolwich [1996] 4 All Er
Libel
Jayson V Midland Bank [1968] 1 Lloyds Report 409
Conversion
Protection For The Paying Bank
o Breach Of Mandate
Estoppel
Subrogation
Payment Under Mistake Of Fact
o Conversion
S 57 Discharge Of A Drawer
S 58 Payment Of Order Cheque
In Good Faith
In The Ordinary Course Of Business.
S 79 Payment Of Crossed Cheques
In Good Faith
In Accordance With The Crossing
Without Negligence
 Part C The Collecting Bank

Introduction
o The Bank That Collects Proceeds Of A Cheque For Its Customer
Duties Of Thee Collecting Bank
o Care In Collection Foreman V Bank Of England
o Notice Of Dishonor To Customer
Risks
o Incorrect Clearing Procedures
o No Notice Of Dishonor
o Conversion
Protection
o Case Law And Bills Of Exchange Act
The Bank As A Holder In Due Course
Westminster Bank V Zang
Contributory Negligence
Lumsden V London Trustee Savings Bank
o Statutory Protection
o S 81 A Bank Is Protected Provided It Acts:
For A Customer
In Good Faith
Without Negligence

Negligence

In Lloyds Bank V Eb Savory And Co. 1933 A Bank Is Not Acting

Negligently When In Carrying The Business Of Banking As Reasonable Men,
They Do So In A Manner Calculated To Protect Themselves And Others From
Fraud.
Marfani V Midland Bank Ltd. 1964 Refers To Knowledge A Reasonable
Banker Should Have Had About A Customer
 An Example Of Negligence Is Poor Accounting Procedure, For Example, Not
Taking Or Following Up On References. In Ladbroke V Todd 1914 A Thief
Opened An Account With A Stolen Cheque. The Bank Failed To Take Up
Reference. In Hampstead Guardian V Barclays Bank Ltd. 1923 The
Reference Was Unknown To The Bank
Not Taking Note Of Customers Employers Or Employer Of Customers Spouse
Would Amount To Negligence Lloyds Bank V E B Savory And Co. 1933.
However, No Further Enquiries Are Necessary Orbit Mining And Trading
Co. Ltd. V Westminster Bank Ltd. 1963
A Bank Must Exercise Care In Dealing With Trading Names - Registration Of
Business Names Act 1962 Act 151
Instances Of Negligence In The Collection Of A

Particular Cheque Are Detailed Below:

o Collecting Without Enquiry Cheques Drawn On The Private Account Of

An Individual Payable To A Company And Endorsed By That Individual
In His Capacity As An Official Of A Company - Al Underwood V Bank
Of Liverpool 1924

o Collecting Without Sufficient Enquiry Cheques That Are Out Of

Character For The Account

Nu-Stilo Footwear V Lloyds Bank Ltd. 1956

Motor Traders Guarantee Corporattion Ltd. V Midland

Bank 1937

o Collecting Without Sufficient Enquiry Cheques Payable To A Partnership

Into The Private Account Of A Partner

Baker V Barclays Bank Ltd. 1955

Smith & Baldwin V Barclays Bank Ltd. 1944

o Collecting Without Sufficient Enquiry For The Account Of An Individual

Cheques Payable To Him In His Official Capacity

Ross V London County Westminster And Parrs Bank

 Bute V Barclays Bank Ltd.

o Collecting Without Sufficient Enquiry For The Private Account Of An

Individual A Cheque Payable To Him But Also Drawn By Him In His
Capacity As Agent On His Principals Account

Midland Bank V Rickett 1933

o Collecting Without Sufficient Enquiry A Cheque Payable To A Limited

Liability Company For An Account Other Than The Companys

Montrose Shipbuilding And Repairing Co. Ltd. V Barclays

Bank Ltd. 1926

o Collecting Without Sufficient Enquiry Cheques Payable To The

Collecting Bank For The Private Account Of An Employee Where The
Cheque Is Signed By That Employee

Lloyds Bank Ltd. V Chartered Bank Of India, Australia

And China 1929

Collecting Without Sufficient Enquiry Cheques Crossed Account

Payee Only For An Account Other Than The Payees. The Bank
Would Be Negligent Unless It Had Ensured That Either The Payee
Had Already Received The Proceeds Or Would Receive Them As
A Result Of The Collection. -Bevan V National Bank Ltd. 1906
 Introduction To Securities

Introduction
o Definition
o Parties
Principal debtor
Creditor/lender
Mortgagor/owner of security
Direct and third party security
Should be in writing statute of frauds amendment act 1828
Deutche Bank V Ibrahimi
Qualities of good security
o Marketability
o Ascertainability of value
o Stability of value
o Transferability
o Ease of taking security
Types of assets offered as security
o Landed property
o Insurance policy
o Shares and other financial instruments
o Corporate assets
o Movable property
o Produce
o Contract proceeds/debt
Mode of taking security
o Transfer of possession and/or of ownership
o Lien/pledge
Lien as non-consensual security
o Legal and equitable mortgage
o Fixed and floating charge
Memorandum of deposit
o Advantages
Puts intent beyond doubt
Bank benefits from clauses including power of attorney
Other advantages depends on the type of security
Standard clauses
o All monies
o Continuing security
o Conclusive evidence
Bache And Co (London) Ltd. V Banque Venes Et Commercial De
Paris (1973)
o Change in constitution
o Consideration
o Repayable on demand
o Additional security
o Applicable law
 o Amalgamation/successor clause
o Joint and several liability clause
o Personal covenant to repay
o Agreement regarding power of sale
o Protection in case bank fails to break account
o Right of lien/set off
o Ultra vires
o Agreement by third party charge holder in the event of insolvency to
refrain from competing with the bank and from taking any security from
principal debtor
o Preference clause dealing with the banks rights subsequent to the release
of security in case the charge is subsequently held to be a preference
o Right of retention for a period of third party security
o Beneficial ownership clause

Guarantees

Introduction

Definition
Requirement
 o Writing or form recognized by customary law section 14 (1) contracts
act Elluah V Ankomah
o To be enforceable, the original contract must be enforceable Coutts
And Co V Browne Lecky [1947] minors and company acting ultra vires
Guarantees and indemnities
o Writing required by guarantees but not indemnities Mountstephen V
Lakeman
o Primary versus secondary liability
o Bank guarantee forms always incorporate indemnity clause
Types of guarantees
o Sole party
o Multiparty
o Supported
o Cross guarantees
o Partnership
o Letters of comfort
Sole guarantors
Multi party
o Joint and several guarantee
o Legal implications requirements
All guarantors must sign National Provincial V Brackenbury
[1906] 4th guarantor died without signing
The signatures should not be forged James Graham And Co
Timber V Southgate Sands And Another [1984]
The amount should not be altered Ellesmere Brewery V Cooper
Supported guarantee
o Third party charge form
o Direct party charge form
Limited company guarantees
o Interested directors
o Regulations of company
o Cross guarantees
Letters of comfort
o Reasons
o Legal implication depends on wording regarding intention to be a
binding liability Kleinwort Benson V Malaysia Mining Corporation
Partnership guarantee
o All partners are jointly and severally liable for the borrowing of the firm
s 16 of Act 152
o All partners must join in signing guarantee where firm is guarantor
because partners to not have the authority to grant guarantees

Duty of disclosure

Guarantee is not a contract uberrimae fidei

 No duty to pass on information about principal debtor to guarantor cooper v
national provincial bank
However, any fact that guarantor may reasonably not expect be naturally
expected between the principal debtor (PD) and the bank must be disclosed
In Lloyds Bank V Harrison [1925] where the PD was in serious financial
difficulties, the court held that the bank had not acted wrongfully in not
disclosing the fact to the guarantor
However in Levett V Barclays Bank [1995] the bank had secretly agreed with
the pd that treasury stock s deposited as security would be used to pay off
the bank directly, the court held in favor of the guarantor
The bank must when posed a question by the guarantor, give a reply which is
true and not misleading Westminster Bank V Cond

Uk banking code

Effect of indemnity clause

Extent of liability
Independent legal advice

Legal risks

Undue influence
Non est factum
Forgery
Misrepresentation/ misapprehension

Undue influence

Actual class 1
Presumed class 2
o Class 2 a law presumes
o Class 2 b guarantor must prove existence of special relationship of
trust e.g. banker customer, husband wife

Actual

Requirement
o Claimant to prove that other party had capacity to influence him
o That he actually influenced him
o That the influence was undue
o That it caused the complainant to enter into the transaction
o In CIBC Mortgages V Pitt [1994] it was held that it is not necessary for
complainant to show manifest disadvantage

Presumption of undue influence class 2a

The law presumes in the following situations:

 o Parent/child dependent child is claimant
o Doctor/patient
o Guardian/ward
o Solicitor/client
o Trustee/beneficiary
o Religious leader/disciple
It is the duty of the bank to rebut this presumption e.g. by claiming that
independent legal advice was provided, or that notwithstanding the
presumption, no pressure was brought to bare
For a claim to succeed
o Undue influence must be exercised by the bank or its agent
Kings North Trust V Bell
Avon Finance And Co V Bridger
o The bank must have actual or constructive notice of the undue
influence
Midland Bank V Perry
o The transaction must be manifestly disadvantageous to the claimant
National Westminster V Morgan [1985]

Special relationship class 2 b

This may exist

o Child/parent parent claiming
o Husband/wife
o Banker/customer
Claimant must prove that there was a relationship of trust/confidence or
influence
This will raise the presumption of undue influence
Requirements
o The bank must rebut the presumption by ensuring that guarantor
obtained independent legal advice
o For claimant to succeed, claimant must prove manifest disadvantage

How to avoid undue influence

Independent legal advice

Signing at bank premises and in the presence of a senior bank official
Take care to ensure no undue influence

Forgery

Forgery will make guarantee void

o James Graham And Co Timber V Southgate Sands
o First National Securities V Hegarty
Bank must ensure that guarantor is whom he purports to be
Bank must not release guarantee document to pd to procure guarantors
signature
Non est factum

Guarantor may plead that he was not aware that the document he signed
was a guarantee document
For his plea to succeed, three elements are required
o The person should have been under a disability Saunders V Anglia
Building Society
o The document should be radically different from what he thought he
was signing
o The guarantor acted carefully in signing the document Lloyds Band V
Waterhouse

Misrepresentation/misapprehension

Duty to address misapprehension and not to create any misapprehension

The bank must correct any likely misapprehension at the least opportunity
o Cornish v midland bank [1985] misapprehension as to extent of
liability and unaware that mortgage had been executed
The bank must not misrepresent the true position
o Mackenzie V Royal Bank Of Canada [1934]
o Barclays Bank V Obrien [1994]

Clauses in guarantee charge form

All monies
Determination of guarantee by notice
Death does not automatically determine the guarantee
Continuing of account despite determination
Consideration
Payment into suspense account re sass
Power to open new account
Change in constitution
o General
o Partnership section 15 (1) Contracts Acts
Conclusive evidence
Exclusion of common law rights
o Variation
o Release
o Compounding
o Granting of time
Right of set off over guarantors credit account
Guarantor not to take security

Determination of guarantee

Determination can be construed either

o When the guarantors liability is extinguished
 o When the borrowing crystallizes (liability)
The guarantors liability is extinguished
o When the pd pays the facility
o When the guarantor pays the facility
o Variation
o Release
o Granting of time
o Compounding
o Change in constitution
The guarantee crystallizes
o Guarantors death
Notice determines the guarantee Bradbury V Morgan
However a clause will provide for a period of notice by personal
representatives
o Notice of mental incapacity a clause may however require notice by
guardian
o Notice of bankruptcy of guarantor
o Death of debtor
Determination of joint and several guarantee
o Clause provides for determination by one guarantor
Clause provides for notice
On expiry of notice guarantee is determined. The account should
be stopped
Remaining guarantors remain liable
o Notice of death of one guarantor
Protection of clauses
Account to be stopped
o Mental incapacity of one guarantor
Bradford Old Bank V Sutcliffe
Account should be stopped
o Bankruptcy of guarantor
Same

Rights of guarantor

Against lender
o Right to know extent of liability
o Right of subrogation so long as guarantor pays off whole debt
o Section 15 (1) of contracts act, 1960 act 25, provides that where a
guarantor pays off a creditor, he can take over the securities held
by the creditor in respect of the debt
o To be informed of any facts that would naturally dissuade him from
entering the guarantee Hamilton V Watson
Against pd
o Petition for an order for PD to pay bank
o Can claim money paid from PD provided he pays whole debt
 o Can take over any rights of set-off or counterclaim PD may have
had against bank
Against co-guarantors
o Right to contribution on pro rata basis
Hay v carter [1935] PD can be joined if solvent

Duty of bank in realizing any direct security

Bank must exercise reasonable care in disposing off security e.g. in disposal
of land, the bank must appoint a reputable estate agent to sell and bank
must not interfere Scb V Walker
Bank has total discretion on time of realization-china and south sea bank v
tan
Skipton Building Society V Scott [2000]
Duty to sell at current market price or claim reduced pro tanto

Advantages

Easy to take
Lack of formality, registration procedures
Moral dimension borrower less likely to default
Commitment of directors
Funds can be placed in suspense account

Disadvantages

As good as guarantors financial standing

May lead to ill feeling
Often results in litigation
Early settlement will result in credit being claimed as a preference

Shares

Introduction

Definition
Section 54 companies code share certificate as prma facie evidence of title
to shares
Mode of transfer of shares
Types of financial securities

Initial considerations

Nature of company
Restriction
Directors share qualification
Lien on shares section 102
 Valuation
Realization
Partly paid shares
Forgery of transfer document Sheffield Corporation V Barclays
Duplicate certificate Rainford V James Keith Blackman And Co.
Bonus and rights issue
Constructive notice of prior equitable interest Coleman V London County
And Westminster Bank
Banks own shares as security not allowed in Ghana and some other
countries

Taking the security

Legal mortgage
o Obtain share certificate
o Complete Memorandum of Deposit (MOD)
o Stock transfer form ensure signature is genuine
o Forward shares to registrar of issuing company
o Bearer shares simply retained with mod and where bank took shares
for value and without notice in defect of transferors title, bank will
have absolute legal title and will defeat any defect in the title of
previous holder London Joint Stock Bank V Simmons
o If a private company the bank will need to examine its regulations
thoroughly
Equitable
o Obtain certificate
o Mod under seal
o Holder asked to sign undated stock transfer forms will not be
enforceable if holder dies
o Serve stop notice on issuing company Rainford V James Keith
Blackman And Co

Priority

Priority of legal over equitable charge if taken without notice of earlier charge
Legal charge cannot overcome earlier charge if aware of previous equitable
interest
Where equities are equal, the first in time prevails

Clauses in MOD form

Undertaking to deposit bonus and rights issues with bank

Undertaking to meet any calls on unpaid liability
Undertaking to execute legal mortgage when called upon to do so
Power of sale at any time after demand has been made
Power of attorney clause
 Agreement to execute a completed, signed transfer form
Agreement to accept equivalent shares of the same class or denomination
Margin of cover

Realization of security

Legal mortgage
o Bank has the right to choose the time of sale
o Instruct brokers to sell
o Mark mod cancelled if full payment received
Equitable mortgage
o In absence of mod, contact chargor and arrange for shares to be sold
voluntarily
o If chargor does not cooperate, Power of Attorney clause in MOD
coupled with an undated but completed stock transfer form, on which
the bank can rely on except in case of death, means the bank will not
need to obtain court order for sale in order to realize and sell shares
o Place cancelled mod with obsolete securities

Release of security

Legal mortgage
o Cancel MOD and place with obsolete securities
o Have shares transferred back into the name of mortgagor
o Return new certificate to mortgagor
o If bearer certificate, bank will merely return the certificate to
mortgagor
Equitable mortgage
o Remove stop notice
o Mod marked cancelled and placed with obsolete securities
o Blank transfer form destroyed
o Return certificate to mortgagor

Advantages of shares

Absolute legal title possible

Easy and inexpensive to take
Easy to realize with listed securities
Legal mortgage
o Notice of rights and bonus issues come directly to bank if a legal
mortgage is held
o Shares in the name of the bank greater control
o No issues with customer obtaining duplicate share certificate
Equitable mortgage
o Bank is not concerned with minimum share qualification of director
o Bank would not have any liability to meet calls on shares
o No administrative expensive in the event of bonus and rights issue
Disadvantages

Fluctuation in value listed shares

Difficulty of valuation with unlisted shares
Not easy to realize if shares of private company
Legal mortgage
o Forgery of transfer form Sheffield Corporation V Barclays
o Possible claim of negligence if bonus and rights issue not sent to
mortgagor
o Administrative expenses in dealing with bonus and rights issues
o Directors minimum qualification
o Company has lien on any unpaid liability on shares
o In the event of liquidation liability on uncalled capital
Equitable mortgage
o Can be defeated by prior equitable charge
o Possibility of customer obtaining duplicate certificate
o Bonus and rights issues can affect value
o Lien

Insurance policies

Introduction

Definition
Assurance and insurance
Parties
o Proposer/policy holder
o Insurance company
o Life assured
o Beneficiary

Types of assurance policies

Term
Endowment
Whole life
Mortgage protection
Pension linked insurance
Initial considerations

Insurable interest section 1 of Life Assurance Act 1774

Examples
May not be fatal to the bank as assignee
o Assignee needs not have insurable interest Ashley V Ashley
o Insurable interest needs to be present only at the time of the policy
Dalby V London Life Assurance [1854]
Uberimae fidei
o Material fact section 18 marine insurance act 1906
o Insurance act 2006 Act 724 section 214 (3)
C no obligation to disclose unless asked
G if however aware of material fact, proposer must disclose,
otherwise insurance co. Can rescind contract
I insurance co. Cannot rescind if proposer can prove that
statement made is true and any misstatement is not material to
the risk
E material to a reasonable person
o Woolcott V Sun Alliance And London Ltd criminal record
o London Assurance V Mansel risk previously rejected
o Mental health of assured
o Dangerous pastimes or hobbies
o Terminal illness
o Canning V Faquhur any change in material circumstances must be
disclosed
Beneficiaries
o Must be named wife and my children unacceptable
o Minors
o Must join in assignment if named
Age admitted
o Confirmation by insurance co. Of age of life assured
o Age determines premiums to be paid
Murder
o Cleaver V Mutual Reserve Life Fund Life Association 1892 proposer
murdered the life assured. Against public policy for him to benefit
Suicide
o Sane Beresford V Royal Insurance Company
o Insane Moore V Woolsey
Nonpayment of premium
o Insurance company may avoid policy
o Premiums must be paid for at least three years
o Bring premiums to date and realize security
o Pay premiums on customers behalf and debit his account
o Convert into paid up policy

Taking security
 Legal assignment
o Obtain original policy Spencer V Clarke [1878]
o Inspect details of policy
Age admitted
Beneficiaries
Restrictions/consents,
Insurable interest,
Uberrimae fidei
Suicide clauses
Nonpayment of premiums
Ascertain amount payable, the term and benefits
o Check that premiums are up to date
o Establish surrender value to ensure security is sufficient
o Enquire about prior assignments and reassignments
o Note expiry date
o Execute assignment
o Notice of assignment in duplicate
Determines priority policies of assurance act 1867
However Newman V Newman held if prior assignee failed to give
notice, subsequent assignee cannot defeat if in constructive
notice
Gives bank right to sue in own name
Commits insurance company to pay to the bank alone
Sets limits of any claims of set off between insurance company
and policy holder
o Bank will hold policy, deed of assignment and acknowledgement of
notice
o Continuous monitoring of security
Equitable assignment
o Obtain original policy and check details
o Execute memorandum of deposit
o Give notice
o If equitable assignees do not give notice, priority is determined by date
of charge dearle v hall
o Retain policy along with mod and acknowledged notice, if any

Assignment by limited company

Follows same procedure

Bank must examine regulations to check
o The purpose of advance is within its object clause and not ultra vires
o Companys directors borrowing powers
o It has power to give security
o Personal interest of directors
o If the form is required to be sealed by the company
Obtain a search on the company its directors and a copy of the mortgage
register
 A certified copy of resolution (borrowing and charging) from the company
should be obtained
Registration at companies registry is not necessary

Clauses in charge form

All monies
Continuing security
Assignment clause with obligation of assignee to reassign on satisfaction of
debt
Repayable on demand
Undertaken to comply with the terms of insurance policy
Right to exercise rights and deal with policy without borrowers consent

Second legal assignment

Very rare
Ensure that policy is with profits and in force for at least two to three years
otherwise it will not acquire surrender value
Bank cannot have legal title to policy although it will receive equity, if any
from the proceeds of the policy
Bank will not have power of sale or surrender or receive the onies on maturity
without the assignors cooperation, even if prior mortgagee is repaid
If bank sends notice to insurance company, without the banks cooperation,
the mortgagor cannot receive monies under the policy.

Procedure

Same is in first assignment

Enter details of prior assignment in the schedule in charge form
Enquire of amount secured by prior assignment, obtain surrender value and
determine equity
Give notice of assignment to all prior assignees
If prior mortgagee paid, obtain reassignment from earlier mortgage and take
a fresh assignment
Upon release, reassign the assignment and forward to any subsequent
assignee if any
On default, realize assignment and pay any subsequent assignee

Priority

Priority is determined by date of notice to insurance co Dearle V Hall

Priority of legal assignment if taken in good faith and without notice of prior
assignment
Actual or constructive notice assignee cannot defeat prior charge Spencer
V Clarke, if even prior assignee did not provide notice to insurance co
Newman V Newman
Release

Legal assignment
o Vacation/reassignment executed on reverse side of assignment form by
endorsing a form of discharge by deed
o If no notice of other assignment, return discharge policy and previous
charges or reasignments to customer against receipt
o If notice of subsequent assignment forward policy to subsequent
assignee
o Give notice of release to insurance company
Equitable assignment
o No requirement for reassignment
o Mark MOD as cancelled
o Return policy and cancelled mod to assignor against receipt
o Give notice of release to insurance company

Realization

Legal assignment
o Arrange for loan on strength of policy
o Sell policy
o Surrender policy
o Convert policy into paid up policy
Equitable mortgage
o Needs cooperation of assignors if no power of attorney incorporated
o A court order may be necessary if assignors are not cooperating

Realization on death of life assured

Legal assignment
o If bank receives notice of assureds death, account must be stopped
and the mandate cancelled
o Obtain certified copy of death certificate from the deceaseds personal
representatives
o Obtain form of receipt and claim form from insurance company
o On receipt of monies, send the completed claim form, executed
receipt, policy, previous released assignments, bonus notices, charge
form and certified copy of death certificate to the company
o Make a diary note of receipt of monies
o Credit amounts to customers account and pay any excess to prs on
presentation of letters of administration or probate
o Where amount is less than borrowing, it should be credited to
securities realized suspense account
Equitable assignment
o Obtain death certificate for personal representatives
 o Obtain necessary receipt and claim forms from insurance company
o Advise insurance company to send proceeds direct to the bank
o If prs do not cooperate, obtain a court order for sale.

Maturity

Legal assignment
o Send receipt an completed claim form as above before maturity date
o Diarize for the receipt of monies
o Credit customers account and advise him
Equitable assignment
o As above form of receipt
o Obtain court order if PRs and beneficiaries do not cooperate unless
mod with power of attorney is held

Advantages

Easy to value
Easy to realize
Easy and cheap to take
Value increases over time
Easy to transfer

Disadvantages

Nonpayment of premiums
Danger of non-disclosure of material information
Change in health state of life assured
Suicide
Murder
Adverse publicity
Insurable interest
 Land

Introduction

Definition

Legal estates and interests

Types of shared ownership

Joint tenancy
Tenancy in common section 14(2) Conveyancing Act (presumption of
tenancy in common)

Joint tenancy

The four unities

o Unity of possession
o Unity of time
o Unity of interest
o Unity of title
Right of survivorship

Tenancy in common

Tenants have distinct shares of property that is not divided.

Capable of alienation inter vivos
No right of survivorship property devolves on estate on death of tenant

Registration regimes

Unregistered land
o Title is evidenced by bundle of title deeds and other documents
evidencing dealings in the land
 o Conveyancing is based on a good root of title 30 years in Ghana
(section 36(1) of the Conveyancing Act 1975, NRCD 175
o Instruments affecting land e.g. mortgages however are required to
be registered section 25(1) lands registry act 1962 act 122
o Searches required by purchaser, mortgagee
Land charges register
Collateral register
Local land charges register town and country planning
Registered land
o Title evidenced by land title certificate
o Land title certificate constitutes a state guaranteed title to land s 43
indefeasibility of title
o S 18 land title register serves as conclusive evidence of title to land
or other interest contained therein
o Nature of register in three parts
Property register
Proprietorship register
Charges register
o Property register
Shows description and location of parcel of land with reference
to registry map and plan approved by the director of surveys
o Proprietorship register
Entry of name of proprietor an nature of proprietorship
Section 19 lists the various types of ownership
Allodial
Customary freehold
Common law freehold
Leasehold for more than two years
Lesser interests under sharecropping and customary
tenancy
o Charges register
Shows entry in respect of interests such as mortgages and
restrictive covenants

Interests in unregistered land

Mortgages
Beneficial interest of persons in occupation
Meaning of occupation:
o Kingsnorth Finance Company V Tizard 1986 an ex-wife visited home
every afternoon and stayed one night in every fortnight
o In Abbey National Building Society V Cann, where a claimant brought
her belongings into the newly acquired home 35 minutes to execution
of the mortgage, it was held to be insufficient

Interests in registered land

 Instruments requiring registration
o Easements for land that is burdened
o Restrictive agreements notification
o Profits notification
o Licences - entering of a caveat or licence will not be enforceable
against a purchaser for valuable consideration
o Overriding interests
Interests that override registration i.e. are effective if even
unregistered
Section 46 (1) land title registration act 1986 pndc law 152
Land registered under the law is subject to overriding interests
whether such interests are registrable or not
Examples
Easements
Rights of persons in occupation

Mortgages of land

Definition
Requirements s 1(3)
o Writing
o Excused from writing by operation of rules of equity relating to fraud,
duress, hardship, unconcionability and part performance
o Excused by any enactment relating to customary law
Registration mortgages decree
o Section 3(2) of mortgages act requires mortgages to be registered
o Details
Name and address of mortgagor and mortgagee
Nature of mortgagors interest in property being mortgaged and
extent to which property is subject to mortgage
Identification of property by location and boundaries or previous
registry description
Where debt involved, details of due date, principal sum lent and
whether further advances can be made
Registration borrowers and lenders act
o Section 21 provides for the establishment of a collateral registry for the
registration of charges and collateral created by borrowers to secure
credit facilities provided by borrowers
o A borrower or a person interested in the charge is required to register a
certified copy of the charge or collateral within 28 days of creation of
the charge
o This requirement is in addition to the requirements under section 107
of the companies code
o Particulars requiring registration
Name of borrower
Name of lender
 Nature of charge
Date of creation of the charge
Amount secured by the charge
Short particulars
Any restriction against creating further charges ranking in
priority to or with the charge created.
o Registration of memorandum of satisfaction on payment of debt in
whole or in part section 27
o Register to allow for late registration if it does not prejudice other
creditors or if it is just and equitable.
Characteristics of a mortgage
o A security charging land for the payment of debt or discharge of some
other obligation
o An encumbrance on property charged and not a change in ownership
o Redeemability

Taking the security

Legal mortgage unregistered freehold land or leasehold land

Obtain title deeds

Value property
Ensure no person has right of occupation
Report on title
Search land charges register and collateral register
Search at local land charges registry
Execute mortgage
Register mortgage
Ensure fire insurance in place

Additional steps for leasehold property

Consent of lessor
Notice to lessor
Rent receipt exhibited to bank
Check on responsibility for fire insurance

First legal mortgage of registered land

Obtain land title certificate

Update certificate
Request official search
Value property
Ensure no overriding interests
Execute mortgage
Register at land title registry and collateral registry
Receive charge certificate
 Ensure fire insurance in place

Equitable mortgage of unregistered land

Obtain title deeds

Execute memorandum of deposit
If deeds are not held, register at land charges register

Equitable mortgage of registered land

Obtain land title certificate

Execute memorandum of deposit
Register notice of deposit at land titly registry

Priority of mortgages of unregistered land

Section 19(1) mortgages act 1972 nrcd 96 -subject to express agreement

among encumbrancers, priority shall be in order of time and subject to the
rules of equity relating to
o Fraud
o Estoppel for gross negligence or otherwise
o Purchasers for valuable consideration without notice of prior interest
o Priority of legal over equitable interests
Section 19(2) notice may be actual or constructive
Constructive notice includes
o Possession and contents of title documents
o Good root of title
o The rights of persons in occupation
Section 19(3) tacking shall not be allowed except where the mortgage is
expressed to secure further advances
Section 19(4) no consolidation shall be allowed
Section 26(2) land registry act 1962 registration to take effect on date of
execution if registration is
o Within 15 days of its date of execution takes place within the locality
o Within 60 days if executed elsewhere
o Within 3 months if executed abroad

Incidence of obligations

Contribution
Exoneration
Marshaling
Release of mortgage

Unregistered land

Memorandum of discharge
The legal mortgage is discharged by signing the back of mortgage deed.
Now forms part of chain of title and must be preserved.
Withdraw notice at land registry and collateral registry
Any registered land charge should be vacated by notice to land charges
registry
Return deeds to borrower
With equitable mortgage return of title deeds subject to notice of second
mortgage and cancellation of mod or any deed.
Any land charge should be vacated.

Registered land

By form 42 under regulation 67 of land title regulations signed by

mortgagee and sent to the land title registry with charge certificate.
The land registrar will delete entry on the charges register and return land
certificate to the mortgagor, unless there are other mortgagees outstanding.
Discharge of equitable mortgage will involve notice to land registry by
mortgagee that the notice on the charges register should be deleted.
The mortgagee will return the land title to the mortgagor and cancel any mod
or deed (if under seal)

Realization of mortgage

Subject to provisions of borrowers and lenders act 2008 act 773

o Exclusion of mortgages decree concerning matters relating to default
of borrower to pay and remedies available to the lender
o Section 32 notice of default in writing and request for payment within
30 days
o Remedies of a lender after period of notice
Section 33 (a) sue borrower on personal covenant to perform
(repay)
Section 33 (b)realize security on notice to person in possession
of property
Section 34 entry into possession
There is no obligation to initiate proceedings in court to
enforce the lenders right of possession
Section 29 appointment of a receiver under the terms of the
charge or if no power granted by charge, on application to the
court
Duties of receiver
 o Take possession of and protect the property
o Receive rents and profits and discharge the outgoings of the property
o Realize the security on behalf of the lender
Registration requirements
o A person who appoints a receiver, obtains an order for the
appointment or receiver or manager, or enters into possession shall
within ten (10) days give notice to the registrar who will enter such
notice in the register of charges of that borrower
o If such persons cease to act or withdraw from possession, notice
should be given to the registrar within ten days.

Duty of a lender regarding sale

Duty to obtain a proper price cuckmere brick co. V mutual finance ltd
[1871].
However the seller is not obliged to delay sale in order to obtain a proper
price
A creditor must choose the timing of its sale, but when he does so, he must
take care to obtain the best price china and south sea bank v tan
In standard chartered bank v walker, it was held that if a lender interferes
with the work of a receiver, it would be liable for any loss resulting.

Clauses in a mortgage charge form

Continuing security
Personal covenant to repay
Money due on demand
Power of sale and power to appoint a receiver
Consolidation clause
Undertaking of mortgagor to insure and repair
Undertaking not to create or surrender leases
Undertaking not to create further mortgages without the consent of the
lender
A clause providing that the mortgagor does not breach the companys
regulations

Advantages and disadvantages of land as a security

Value tends to increase over time

Land can be productive food and rent
Borrower will be motivated to pay in order not to lose his land

Disadvantages

Land is not easily realizable it can take a long period of time to sell
It is difficult to value accurately
 It is costly from the borrowers point of view
It is expensive to mortgage
Bank may not be able to obtain a good title to the property due to some
technical difficulties
Bad publicity may arise if bank has to sell borrowers residential property.

Some defect in the mortgagors title e.g. overriding interests and beneficial
interests.

A forged signature on a mortgage deed. The charge will be void in this

instance.- first national securities v hegarty 1984

Pitfalls in respect of leasehold

Claim of undue influence or non est factum by one of the mortgagors.

NB Outlines do not include mortgage of residential property which is governed by

the Home Finance Mortgages Act 2008 Act 770
 Corporate Securities

Introduction

Power of companies to grant security

Borrowing powers
Interested directors Victors V Lingard

Registration of charges

Requirement section 107

o Within 28 days
o Particulars with original or certified copy of instrument
o Effect of non-registration also section 25 of act 773
Charges not requiring registration section 107 (3)
o Pledge of goods
o Possessory lien on goods
o Pledge, deposit, hypothecation, trust receipt
o Bill of lading
o Dock warrants
o Bills of exchange and promissory notes
o Other negotiable instruments
Particulars requiring registration s 107(4)
o Date of charge
o Nature of charge
o Amount or where od, the maximum amount
o Short particulars of property
o Chargees
o In the case of floating charge, any negative pledge
Registration of debenture series s 107(5)
Responsibility for registration s 111
Effect of registration
o Conclusive evidence save for submission of false particulars or
incorrect copy of documents s 112
o Registration serves as notice to the whole world of the particulars
registered and not of the contents of any document s 118
Late registration s 115(2)
o On application, registration time extended or corrections or omissions
made provided
Omission or error accidental or due to inadvertence or other
sufficient cause
Is not of a nature to prejudice companys creditors or members
Or on other grounds it is just and equitable to grant relief
Types of charges in debenture form s
o Fixed charges
 Over easily identifiable assets that cannot easily be moved
Specific charge over specific assets
Intangible assets
Future acquired assets
Company requires permission to deal with assets
o Floating charges s 87
Equitable charge over general class of assets
Current and future
Company free to deal with assets until charge crystallizes under
the terms of the charge or company enters into insolvency
Priority
o Priority of fixed over floating charges unless there existed a restriction
by the floating charge holder
Taking security
o Inspect the regulations to check
Companys borrowing powers
The power to grant security
The objects clause to make sure the use of the facility is intra
vires
o Inspect articles to check
Borrowing powers of directors
Whether interested directors can vote
The method of taking charge under hand or seal
o Carry out search at companies registry to ensure no existence of prior
charge
o Obtain deposit of documents to be charged
o Obtain a copy of the board resolution duly certified by chairman and
secretary authorizing the transaction, detailing the security being
charged and authorizing the giving of security or guarantee
o Arrange for mortgage form to be dated, signed and sealed in
accordance with the companys requirements
o Send the prescribed particulars of charge for registration at companys
registry within 28 days (England 21 days)
o Registrar issues certificate
o Search again to ensure that record of charge has been correctly
entered
o Value security
o Ask company to deposit insurance policies covering company assets
o Obtain premium receipts an diarize future premium dates
o Check the gazette for any entries recorded against the company
charging or giving the security which might affect the banks security
Clauses in charge form
o Repayment on demand
o Nature of charge
o Negative pledge
 o Undertaking to grant a legal mortgage to the bank of any land
acquired in the future
o Continuing security
o Undertaking not to dispose any part of the business without the prio
permission of the bank
o Book debts must be paid into bank account
o Crystallization clause
Demand made by bank
Breach of prohibition clause
Failure to pay interest on capital as agreed
Presentation of winding up petition
Appointment of receiver/manager by some other creditor
Company ceases to carry on business either completely or in the
major part
o Power to appoint receiver who will be the agent of the company
despite being appointed by the bank.
o Duties of receiver irrevocable power of attorney appointing bank as
agent to do what is necessary to enforce debenture and to appoint
others as substitute agents for the bank
o Exclusion of section 93 and 102 of Law Of Property Act 1925 (England)
o Undertaking not to assign its book debts to third parties and pay those
debts into its account with the bank when they are received
o To provide copies of annual accounts and management accounts
o To keep assets in good repair and insured and in default, bank may
take action to recover the costs incurred from the company
o Undertaken to pay debts as they fall due and to keep the bank
informed about any proceedings against the company
o Promise to keep its records in good order and provide copies of
accounts an notices of meeting to the bank
o Power to break the account and power of combination
o Charges do not contravene the moa of the company
Interested directors

Advantages and disadvantages

Fixed charges
Advantages
o Greater control
o Priority
o High value assets
Disadvantages
o Value of assets may fall
o Prior floating charge holder may prevent a fixed charge from being
taken
Floating charges
Advantages
 o Easy to take and covers assets normally outside the reach of the bank
o Capacity to prevent the appointment of an administrator under
administration order
Disadvantages
o Stock value
o Assets seized
o Subsequent fixed charge
o Preferential creditors have priority
o Section 90 on validity
o Reservation of title Romalpa Clause
Aluminium Industrie Vaasen Bv V Romalpa Aluminium Otd
[1936]
Reservation of title subject to
Wording must not create a charge that would be void
unless registered within 21 days Re Bondworth [1979]
The goods must be easily identified Borden Uk Ltd. V
Scottish timber products [1979] where resin and boards
were mixed to produce chipboards
Hendy Lennox (Industrial Engines) Ltd. V Graham Pattick
Ltd [1984] engines were easily identifiable

Remedies of Debenture holder

Sue in court for payment of debt

Exercise power of sale
Petition for winding up
Appoint receiver under floating charge
Enter into possession

Receivers and managers s 116

Registration within 10 days of appointment

Registration within 10 days of going out of possession
Duties
o Notify company of appointment
o Within three months report stating events leading to appintment,
disposal or proposed disposal of assets and funds available for each
catgegory of creditor
o Realize assets caught
o Distribute proceeds
Fixed charge holder
Preferential creditors
Floating chargeholder
Unsecured creditors
Subordinated creditors
The company
 Powers
o Get in and realize assets
o To litigate in companys name
o Use companys seal to execute contracts for company
o Carry on companys business if also a manager
o To call up uncalled capital
o To sue for, defend or prove in company winding up

Discharge s 114

Effect of insolvency on securities

Section 90 on validity of floating charge

o Invalid if winding up commences within 12 months of creation of
charge unless proved that co was solvent immediately after creation of
charge
o Charge however valid for new loans hence defeats rule in claytons
case
Re Yeovil Glove Co Ltd [1965]
Re Thomas Mortimer [1925]
o New monies should not be paper transactions
Re Gt Whyte And Co. Ltd [1982]
Re Matthew Ellis Ltd [1933]
Preferences
o Occurs when a company
o Pays one of its creditors shortly before it becomes insolvent with the
intention that such a creditor is in a better position than creditors who
have not been paid
o Preference can be rebuttably presumed if debtor and creditor were
connected persons or associates
o Preference occurred six month before petition and ending with winding
up
Restoration of property
o Receipt of money, transfer of property in respect of debt owed by
company
o Within relevant period - - 21 days before petition for winding up was
made
o Exceptions
Made to bank and subsequently used in paying cheques drawn
by company
In respect of debt incurred during period
In respect of secure debt
Made on enforcement against any third party of a guarantee or
indemnity or of a mortgage, charge or lien on that partys
property
o Party affected can submit proof of debt for property restored
 Transactions at an undervalue
o Disposition of property or settlement of debt or incurred other
obligation, otherwise than for full value
Two years to winding up
More than two years, but less than ten years before winding up
and when company was insolvent
o Liquidator is to give notice ot such persons for the restoration of excess
benefit
o Such excess benefit save in the case where a director is under breach
of his duty under s 203 to 205, shall be treated as a provable debt
Fraudulent trading
o Business carried on when directors aware that company has no
reasonable prospects of paying its debts as they fall due
o Business shall be deemed to have been carried on with the intent to
defraud the creditors of the company
o On application of any creditor or member or contributory,
The company is to make such parties liable without any
limitation for all or any of the debts or other liabilities of the
company as the court may direct section 26 of Act180

Other matters

Financial assistance to directors s 301

o Exceptions company ordinary business is lending
o Assistance does not exceed 1% of net assets of the company
Financial assistance to acquire shares

Assignment Of Debt

Introduction

Definition
Legal assignment

A legal assignment must comply with section 7 of contracts act 1960 act 25:

It must be in writing
Express notice must be given to the debtor
The bank should ask the debtor to acknowledge receipt of the notice and
confirm the amount of the debt and whether debtor has received any notice
of prior assignments

Taking the security

Obtain and peruse the contract document thoroughly

o Banks rights as assignee will be known
o Rights of the third party will be revealed e.g. in the event of default on
the part of the customer in performing his part of the contract
o Retention clauses
o Prior written promise of debtor
Complete the banks standard form of assignment identifying the debtor or
contract rights by reference to the parties involved
If the date of contract is known, this should be inserted in the assignment
The charge form must be dated, signed by the customer and witnessed by a
bank official or the customers own solicitor if independent advice is taken.
The bank should then give notice in duplicate to the debtor who should be
asked to acknowledge notice by signing and returning the copy. He will also
be asked to confirm the amount of the debt and to declare whether he has
any set off against the assinor at the time of receiving the notice.
The bank would also enquire whether the debtor has had notice of any prior
charge and will ask him to give an undertaking to pay all monies due the
assignor to the bank as assignee.
Where the debtor is unknown, the bank should obtain a bankers opinion
about his ability to pay and his general trustworthiness. The statute report
should be renewed from time to time if the period involved is very long
With some contracts e.g. building contract, it would be important to ensure
that the builder is adequately covered by insurance and that notice of its
interest in the policy is given to the company by the bank.

Importance of notice

The notice entitles the bank to sue in its own name under section 136 of law
of property act 1925.
Where notice is not given, the assignment takes effect as an equitable
assignment
 Priorities are determined by the time the debtor received notice. Hence if the
bank does not give notice it would rank behind another assignee, who takes
his security without notice of the banks charge and give notice to the debtor
first
The debtor can only exercise those rights of set off or counter claims existing
at the time when notice was received.
Where notice is not given and if he acquired rights against the customer after
the date of the assignment he would be enabled to exercise those rights in
equity as against the assignee
If in error, debtor pays out money to another person, the bank cannot claim
against him
In the absence of notice, the debtor will be effectively discharged. If he
however pays the debt after receiving the notice, the bank can recover from
him
In the absence of notice, the banks assignment would be postponed to a
subsequent assignee for value without notice of a previous assignment who
gave notice to the debtor Marchant V Morton, Down And Co. [[1901] 2 Kb
829
In the absence of notice the bank is subject to any equities arising between
the debtor and creditor after the date of assignment. The assignment is
always subject to equities prior to the notice given. I
If debtor disregards the notice and pays the customer, and not the bank, the
bank could sue the debt and recover the money

Assignment by limited liability companies

An assignment by a company should be registered within 28 days otherwise it will

be void against a subsequently appointed liquidator re Kent And Sussex Saw Mills
[1947]. The company went into liquidation and the bank claimed. The bank had
failed to register the assignment. It was held that the banks charge was void for
want of registration

Equitable assignment

An equitable assignment would arise if the assignee were not in writing or where
notice had not been given to the debtor

The main disadvantage is that the bank cannot sue in its own name and in
consequence has to invoke customers support in any action in the courts to recover
the money due

There can be no legal assignment of a future debt, but it is possible to charge

monies due under a contract at a future date,. In this case the assignment would be
an equitable charge.

Release
When the customer pays, the charge form may be cancelled and placed with the
banks obsolete documents

Where a charge has been given by a limited liability company, it will be necessary
for the company to remove the entry at the companys registrar.

Realization

A legal assignment enables the bank to sue the debtor in its own name and
recovery can be achieved only by negotiation, legal proceedings and enforcement
of judgment

In the case of equitable assignment the bank would need the support of its
customer or join him in the proceedings so that it could sue in his name

Advantages

Easy to take as the usual form of charge is short with a few clauses and will
be worded in such a way as to create an absolute assignment
It is self-liquidating

Disadvantages

the amount of the security may turn out to be uncertain due to counterclaim
by the debtor who may exercise a set off, or allege bad workmanship or
breaches of contract
Litigation may become necessary to recover monies
Debtor may not be able to pay a good bankers opinion on the debtor is an
essential part of the process
 Pledge

Introduction

Definition
Parties
Delivery
o Actual pawn brokerage
o Constructive
Key to store
Transfer of bill of lading
Delivery of warehouse keepers warrant
Delivery by attornment whereby warehouse keeper acts as
attorney to lender

Exporters

Procedure
o Irrevocable documentary credit
Arranged by exporter
Arranged by importer
o Revocable documentary credit
o Acceptance credit opened by exporter
o Negotiation of bills under documentary credit
Credit granted against security of pledge over goods.
Bill of exchange drawn on importer and accepted by bank. The exporter may
discount the bill on the market to provide the needed funds

Importers

Procedure same as in exporters

Trust receipt

Documents of title may be released against a trust receipt

The trust receipt includes an undertaking by the customer that he holds the
goods in trust for the bank and that proceeds accruing from the goods would
be paid to the bank.

Clauses in letter of pledge

Agreement to deliver goods to bank or agent

Continuing security
Power of sale in the event of default
Undertaking to insure
Undertaking to pay rent and other expenses in respect of warehousing of
goods
 Agreement that the bank will not be responsible for the default of any broker
employed to deal with the goods

The letter of pledge is exempt from stamp duty as an agreement under hand

Goods already warehoused

Need for transfer order to be issued directing the warehouse keeper to hold
the goods in the name of the bank.
The receipt and transfer order will be forwarded to the warehouse keeper who
will hold the goods in the name of the bank and issue a new receipt in the
banks name before the advance is granted.
The bank will hold a letter of pledge before releasing the goods

Advantages

It is self-liquidating as when the goods are sold, the sales proceeds are
received into the account , in effect, paying off the borrowing
Complications with title are avoided since this service is normally rendered to
reputed and undoubted customers
Charging formalities are easy and few costs are incurred

Disadvantages

It requires detailed controls and a lot of paper work on an on-going basis as

the goods are moved from one location to the other
It would be necessary to take regular opinions about warehouse keepers and
purchasers to ensure that the bank can place full trust in all the parties
involved
Where warehousing charges have not been paid, the keeper will have a lien
superior to the security of the bank
Accurate valuation of the goods may be difficult
Some goods may be perishable especially edible produce
Price fluctuations may erode the security margin
The customer may not be able to meet costs incurred for insurance and
storage and the bank would need to pay them to protect its security
Where the goods are stored in customers warehouse and he has the key,
possible a duplicate, he may sell the goods behind the banks back.

There may be retention of title clauses in the original sales contract.

 Reversionary interests

Introduction

Mortgage of a beneficiarys interest in a trust

Life tenant
Remainderman

Taking the security

The bank should first examine the trust deed in detail and if necessary seek
professional advice from a solicitor.
The value of the life interest should be quantified as far as possible
The banks standard charge would be executed under which the life tenant will
assign his interest to the bank.
After the mortgage is executed, the bank has to serve notice on the trustees in
order to preserve its priority under the rule in Dearle V Hall. Under this rule,
priority is determined by the order in which notice of the mortgage is received by
the owner of the legal estate.
The bank would enquire if there have been any prior charges. If the answer is no,
it could go ahead and execute the mortgage. A formal acknowledgment should
be requested.
The bank would ask for an undertaking that future payment due the beneficiary
will be made directly to the bank.
The interest of a life tenant usually includes the right to occupy or use property
during his life time or to derive some income from the property.

Realization

If customer defaults, the bank will only have rights in respect of the income
accruing from the trust.
Demand notice should first be served on the customer.
The bank could sell the interest by auction in a specialist market. Alternatively
the bank could sell the customers life interest to a third party.
Another option would be to receive the income paid for the remainder of the life
tenants life, and ensure that the debt is reduced. No withdrawals should be
made on the account.

Release

The charge form should be released under seal and then given to the life tenant
or trustees, the latter being informed that the bank is no longer interested.
When the life tenant dies and income ceases, the charge may simply be placed
with obsolete documents with the branch.

Mortgage by remainderman
 The bank must ascertain whether the remaindermans interest is certain to take
effect in possession at some future date.
If the reversion is contingent on his surviving the life tenant then it would be of
no value as security unless supported by a mortgage of a life policy on the
remaindermans life.
if customer defaults, the bank can sell the remaindermans interest in the trust.
Otherwise, it could hold the interest until it falls into possession.

Procedure

Examine the trust instrument to ensure that there is a chargeable interest and
that there is no restriction to its being mortgaged
The bank must then ascertain the market valuation of the property. This should
be done on a regular basis if the trustees have the power to vary the assets in
the trust from time to time
The bank must examine the tax position critically and whether therefore the
value of the remaindermans interest can be accurately valued
Enquire about prior charges and any advances trustees may have made.
Enquiries must be made as to the age and health of the life tenant which would
enable the bank to estimate approximately how long it might be before the
remainderman receives his benefit
Execute the charge form and witness in the presence of a bank official or the
customers solicitor.
Provide written notice to the trustees to preserve the banks priority. The notice
will request the trustees to undertake to pay all monies that become due to the
remainderman to the bank.
The bank should enquire about whether a trust corporation has been nominated
to receive notice. If so, then the notice should be given to the trust corporation
and an acknowledgement requested.
The bank must from the outset ascertain whether the trustees are persons of
integrity and if unknown status opinions on them from their bankers should be
obtained

Realization

Demand notice should be served before the power of sale arises

Sell interest on a specialist auction market
In approving the facility initially, the security value should have been written
down to allow for the costs to be incurred in realizing the security.
The sale would be by way of assignment of the banks interest and to effect this,
a special document would have to be drawn by solicitors
The bank will hand over its mortgage, unreleased to the purchaser and should
also provide notice to the trustees.

Release
 The charge form should be released under seal and given to the charger, or if he
so wishes to the trustees, with an advice note that the bank is no longer
secured.
If the trust falls in and benefit passes to the remainderman, the proceeds will be
paid to the bank which would give a receipt for them. The charge form would
then be set aside.
if the bank is to continue the facility then it can take a charge over the property
since it now vests in the remainderman.