LML4807 EXAM PACK ANSWERS () AND 2020 BRIEF NOTES

LML4807 EXAM PACK ANSWERS () AND 2020 BRIEF NOTES LML4807 BANKING LAW AND USAGE PAST EXAM PACK QUESTIONS AND ANSWERS (2019 – 2014) SUMMARISED NOTES 2020 LML 4807 BANKING LAW EXAM MEMO 1. Name and explain the roles of the various parties involved in documentary letters of credit. Depending on the circumstances a large number of different parties may be involved in a letter of credit. These include: -The applicant This is usually the buyer(importer) in terms of the contract of sale and who applies to the issuing bank for the issuance of the letter of credit. -The issuing bank or opening bank This bank issues or opens the letter of credit. The issuing and opening banks are usually one and the same bank, but that is not necessarily the case. Occasionally an opening bank approaches an issuing bank on behalf of the applicant to issue a letter of credit, in such a case the opening bank merely acts as messenger and does not assume any liability on the credit. Usually the issuing or opening bank is situated in the same country as the applicant or buyer, and the latter is usually an existing client of the issuing or opening bank. The issuing or opening bank assumes independent and separate liability toward the beneficiary on the letter of credit. -The Beneficiary According to the letter of credit the beneficiary is the party in whose favour the credit is issued. Usually the beneficiary is the seller (exporter) in terms of the contract of sale. -The advising or notifying bank Merely acts to advise or notify the beneficiary of the issuance of the letter of credit. Often the advising or notifying bank and the issuing bank are co-subsidiaries of the same holding company (bank). Alternatively, they may simply be branch offices of a correspondent bank of the issuing or opening bank. Usually they are situated in the same country as the beneficiary. The advising or notifying bank does not bind itself toward the beneficiary for the payment on the credit. -The confirming bank Confirming banks are only involved in the case of confirmed letters of credit and never in the case of unconfirmed letters of credit. The confirming bank is usually situated in the same country as the beneficiary. The confirming bank assumes a separate and independent liability on the credit in favour of the beneficiary. -The presenting bank Acts as a courier bank for the beneficiary in presenting the shipping documents to the issuing bank and does not assume any liability for the letter of credit. -The collecting bank The collecting bank is appointed by the beneficiary to collect payment on its behalf from the issuing, confirming or paying bank, as the case may be. -The paying or nominated bank The bank is appointed by the issuing or confirming bank to effect actual payment to the beneficiary. The paying bank does not assume any independent and separate liability toward the beneficiary, but only toward the bank that has appointed it to pay the beneficiary. The paying or nominated bank therefore acts as the payment mandatory of the issuing or confirming bank. Question 2 (a) Our courts have described a fixed deposit as a loan to a bank repayable on a certain date (the maturity date), usually bearing interest. Discuss the legal position where a customer needs the amount of a fixed deposit before the maturity date of the deposit. (10) (b) S When a customer makes a deposit at a bank over the counter, he will receive a deposit slip, which amounts to an admission of receipt by the bank and as such would serve as an evidential advantage to the customer in the event of a dispute. Discuss in detail whether this is also the position in respect of auto teller deposits. (10) The answer is No they are different because of the following  The transaction slip supplied by the machine has no evidential value, because it is simply a record of what the customer has keyed into the machine.  A question that may be important is whether the payment takes place when the deposit amount is inserted into the machine, or only when the deposit envelope is opened and its contents are accepted by the bank.  With a cheque it is clear that payment only takes place when the cheque is honoured.  When cash is deposited into an atm. It seems that payment of such amount takes place only when the contents of the envelope are removed by the bank official.  If this view is correct, only a contract of deposit (depositum) exists while the envelope is in the auto teller.  As banks receive amounts on loan, it is better to regard it as deposit for reward. X is an entrepreneur and the owner of various businesses. X's businesses include, amongst others, the following: 1. XFinancial Safe Services which offers safekeeping facilities for clients for small amounts of cash against a fee; 2. XSA Retail which imports fabric from India for the local market; and 3. XCredit Facilities which supplies credit guarantees on behalf of clients on request. X approaches you for legal advice. Answer the following questions in detail: (a) Is the Banks Act 94 of 1990 applicable to the services being offered to the public by XFinancial Safe Services? Explain. (10) X financial is not a bank because it does not follow the activities of a bank as stipulated in the Bank Act 94 of 1990 Section 18 A  The acceptance of deposits from the general public. The person concerned must carry on the “business” of deposit taking without soliciting or advertising for deposits. Employees of the person taking the deposit are also regarded as members of the general public. General public does not include a registered bank  The soliciting of or advertising for deposits. Someone who solicits or advertises for deposits is irrebuttably presumed o be carrying on the business of a bank. It is a question of degree whether or not one is dealing with soliciting or advertising  The utilisation of money, or the interest or other income earned on money for certain described purposes  The obtaining of money, as a regular feature of the business in question, through the sale of an asset to any person other than a bank, subject to an agreement in terms of which seller undertakes to purchase from the buyer at a future date the asset so sole or any other asset. The effect is that someone who concludes “repurchase agreements” as a business is deemed to be conducting the business of a bank.  The legislator’s viewpoint on a repurchase agreement is defective in that it maintains that the “second contract of sale” is only concluded at later stage. However, this is not true. Only performance in terms of the “second contract of sale” is delayed  Any other activity which the registrar has after consultation with the governor of the reserve bank, declared to be the business of a bank by notice in the government gazette. This gives the registrar draconian powers  After the consultation with the governor of the reserve bank, the registrar declared certain activities regarding specific business practises to be the business of a bank. These include:  Any agreement, arrangement or undertaking, whether legally enforceable or not, between two or more persons; or  Any scheme, practice or method of trading, including any method of marketing or distribution The activities of such a practice which are declared as the business of a bank which are the acceptance of money, directly or indirectly, from members of the public, as a regular feature of a business practise, with the prospect of such members receiving payments or other money-related benefits directly or indirectly- On or after the introduction of other members of the public to the business practice, from which new participating members, in their turn, money is accepted or obtained, directly or indirectly as a regular feature of the business whether or not- “ I. The introduction of the new participating members is limited to their introduction by participating members or extends to the introduction of the new participating members by other persons; or II. New participating members are required to acquire moveable or immovable property, rights or services; On or after the promotions, transfer or change of status of the participating members or new participating members in terms of the business practice” The activities of soliciting, or advertising, directly or indirectly for money and/or persons for introduction into or participation in such a business practice are also declared to be the business of a bank (b) Which methods of payment are available to the parties to a contract of international sale? (5)  The documentary letter of credit is most common type of letter of credit and the most popular method by which payment is effected in terms of international contracts of sale.  3 main types: the documentary letter of credit, the standby letter of credit and the acceptance credit.  Documentary letters of credit are also increasingly being used to effect payment in domestic commercial transactions.  They may be employed to effect payment in a large number of commercial contracts- lease, carriage and mandate for eg. (c) X employs documentary letters of credit as method of paying the purchase price for the imported Indian fabric. May X revoke payment of a letter of credit if the imported fabrick is of an inferior quality? (10)  Parties can expressly or tacitly agree that payment of the purchase price has to take place by means of a letter of credit.  In theory there are always at least 3 parties involved in a letter of credit: the buyer, the issuing bank and the seller, in practise however 4 parties are usually involved: the advising or notifying bank.  The buyer (the importer) is obliged to arrange for the issuance of a letter of credit in favour of the seller (the exporter). The contract of sale is known as the underlying contract or exchange contract.  After the conclusion of the contract of sale, the buyer proceeds to arrange with a bank for the issuance of a letter of credit in favour of the seller.  The buyer’s application for the issuance of a letter of credit takes place by the completion of a standard and lengthy application form. Any nonstandard terms must be added to the standard terms in the application form: amount to be paid, currency, documents to be submitted eg.  The application form constitutes an offer by the applicant (the buyer) to the issuing bank to conclude a contract involving the issuance of a letter of credit in favour of the seller  The next step is for the issuing bank to open a letter of credit in favour of the beneficiary (the seller). By issuing the letter of credit, the bank accepts the applicants offer to contract with it. The letter of credit is forwarded to the beneficiary or a bank in the beneficiary’s country.  The local bank in the beneficiary’s country may serve different functions:  To advise or notify the beneficiary of the issuance of the letter of credit without itself giving any undertaking toward the beneficiary that it will pay on credit. The role of the advising or notifying bank is merely to act as conduit for all documentation in