Legal480 Assignment 1
Instructions:
You are required to write a legal opinion of no more than 2,000 words (all inclusive) based on the facts in the scenario. The legal opinion must be typed in a WORD document, with a cover page showing the course code and title (Legal480-22A Banking and Finance Law), the student’s names and ID number, and submitted to Moodle before due (15 Apr 2022 at 5:00 pm). For information on late submission, extension or special consideration, please read the course outline.
Scenario:
Henry and Wendy are a couple. Henry is an employee of a landscaping company. Wendy is a house wife who kept complaining to Henry that her life was too boring. She told Henry that she had recently visited the local casino a few times and she needed to find something else to do. Henry understood that Wendy was suffering from depression, which had been diagnosed months before, and he thought that buying her a new car for her and a new business venture might help her get well. Is this a consumer credit or credit contract?
They decided that Henry should quit his job, and they should have a landscaping business of their own. They approached Bob, a friend of them, a senior manager of Bold Bank, and told Bob about their situations and plans. Bob was eager to help, so without any further enquiries, he granted them a loan of $300,000 in total for the purchase of a new car for Wendy, and a landscaping business. He simply filled out a brief form of loan agreement, recording the loan amount, interest rate and identified the securities, and asked Henry and Wendy to sign, without giving any further information. Henry and Wendy signed the agreement straight away. – Issue 1
The loan agreement provided that the interest payable on the loan was 15% per annum. The average market interest rate at the time for business loans was around 9%, and 15% for unsecured car loans. The loan was secured by a security over the assets of the business and a mortgage over a beachside holiday house owned by Henry and Wendy; and when the amount of the loan was reduced to $150,000 Bold Bank would release its mortgage over the holiday house.
$200,000 of the loan advancement was used to buy a landscaping business. Henry operated the business as a sole trader firm. The firm opened a cheque account with Bold Bank and Henry was the only person with the authority to deal with the account. $70,000 was used to buy a new Tesla for Wendy, and $30,000 was left in the firm’s cheque account for the daily operation of the business.
The business has not gone well and Wendy’s health has deteriorated. The couple have had some problems keeping up the loan repayments recently. Luckily, Wendy had a win at the casino and made a lump sum repayment which has reduced the loan to $140,000. Henry asked Bold Bank to release the mortgage over the holiday house but the Bank refused, saying that the value of the assets of the business has reduced and the repayment history has not been good. Bold Bank, however, offered them an overdraft facility of $20,000, also secured by the business assets and the holiday beach house. – S120 Oppressive contract
Wendy comes to the firm’s office from time to time to help Henry with the “housekeeping matters”. One day, Henry asked Wendy to draft a cheque for $500 for the firm. Wendy drafted a bearer cheque leaving nothing in the space for words of the amount, and a large space between the symbol of $ and the number of 500.00, and asked Henry to sign. Henry signed the cheque.
Wendy inserted “11” into the space between the symbol of $ and the number of 500.00 and added “eleven thousand and five hundred dollars exactly” in the space provide for the amount of the cheque and made out the cheque to “ourselves”. She then took the cheque to Bold Bank and cashed it, receiving $11,500 in cash which the bank debited to the firm’s account. Wendy came back office and handed henry $500.00 cash Wendy’s depression was getting worse, and she only felt happy when gambling in the casino. Wendy drew 12 cheques, with a total amount of $18,000. The forged Henry’s signatures by Wendy on the cheques were very suspicious, but Bold Bank honoured all the cheques, paid the moneys out and debited the firm’s cheque account. A week later, Henry drew a supplier a cheque for $1,000 against the cheque account.- .- Case - London Joint Stock Bank, Ltd v Macmillan and another [1918-19] All ER Rep 30
The supplier presented the cheque which was dishonoured and marked “Return to Drawer” by Bold Bank. The supplier went back to Henry asking him for payment. Henry told the supplier that by drawing the cheque he has discharged his debt owed to the supplier. He said that the supplier should sue the bank, which should have honoured his order even if there were insufficient funds in the cheque account because there was the overdraft facility.
Henry was unhappy with what happened and he wanted to go to the bank for a “serious discussion” about the matter. Wendy told Henry that there was no more than $500 in the bank account because the money had all been drawn out by her for buying shares of some wonderful companies listed on New Zealand’s Stock Exchange. She told Henry that all the money would come back to the account soon once she sold the shares with a profit. Henry loved and trusted Wendy and he decided not to tell the bank anything about the forgery. – Case - Greenwood v Martin's Bank, Ltd [1932] All ER Rep 318
Unfortunately, Wendy lost all the money in the casino. She killed herself knowing that she would not be able to get the money back into the account, and she would lose Henry’s love and trust.
Write a legal opinion, advising Henry on all the banking law issues that may arise out of the facts in the scenario.