Finance Law - SE Pty Ltd - Essay Example

? Finance Law Corse The determination of the business form is crucial in cases involving liability of parties and parties to a contract. The major fact in this case revolves around the separate identity of SE Pty Ltd from Walter as an individual. Walter therefore has unlimited liability on the debts of SE Pty Ltd and his property are not property of the company. At the same time the property of the company are not personal assets of Walter. 1a. The bank has an obligation to lend to SE Pty Ltd. This is because as the manager of SE Pty Ltd, Walter has the ability to negotiate for a loan for the interest of the company even though the money lent is not his own (Bateman & Paul, 2002). As in the case of Salomon Vs Salomon, the court held that the two were separate entities. Walter therefore has the fiduciary duty to negotiate on behalf of the company while putting the interest of the company first. 1b. (i) According to the signed document that constituted the contract, the interest rate on the loan is 8%. Eight percent is therefore the appropriate interest rate that should be legally charged on SE Pty Ltd. Charging any rate lower or higher than the agreed rate as per the contract constitute a breach of contract and is therefore unacceptable and illegal. The company can as a result sue the bank for breaching the term of the contract and demand damages or refund for any loss that might have been attributed to the breach (Keenan & Riches, 2007). SE Pty Ltd can thus legally insist that the interest be calculated at 8% rate. (II) There would be legal ground for the company to obtain compensation if it could not insist on the loan calculation at 8%. In the legal suit against the bank, the company would contend that the calculation of interest at 11% interest made them incur additional cost and this hindered their operations. The bank would then be faced with the duty of determining the amount of compensation to award for the losses caused to the company. Moreover, SE Pty Ltd could argue that a cardinal term of the contract was breached whose impact can be determined financially. 1c. According to the banking law, the bank has a right to combine accounts without permission of the customer so long as the accounts are held in the same capacity. It was therefore in order for the bank to combine the loan account and current account because they all belong to the same company. In addition, the customer (SE Pty Ltd) owes the bank some debt. This verdict will be similar to the previous case of Garnet Vs McKewan 1872 in which the bank combined the accounts without customers permission (Hudson, 2009). On the other hand, it would be illegal for the bank to combine the personal saving account of Walter with those of the company because the accounts belong to different owners. The saving account of Walter is completely separate from that of the company and can therefore not be combined. A similar case was in Salomon Vs Salomon in which the separate identity was ruled (Salomon, 1961). 1d. The bank promise to accept only seven installments is unenforceable as they are inconsistent with the terms of the contract signed by the parties. Despite the promise, the bank could still claim that SE Pty Ltd pays the full amount of the loan and interest charges. The promise is only admissible at the goodwill of the bank and is not; legally binding. Moreover, the promise was oral hence; it cannot bar the bank from executing the original contract agreement. Q2a. Walter cannot be forced by the bank to sell his land in Bundoora to pay the loan of $ 1 million. This is because the loan was not Walter’s personal loan but was for the company. Moreover, the land in Bundoora is not the property of the company. The case of Salomon vs Salomon in which the separation of the property to that of the owners was determined. However, the land at Bundoora can only be sold if Walter has some financial debt to the company. The amount will however be limited to the extent of the debt Walter owes the company (Proctor, 2010). Q2b. The banking regulation requires bankers to exercise reasonable care and skills with an aim of protecting their customers. If a banker suspects that what appears to be valid as dishonest, the banker needs to carry out investigations aimed at determining the truth of the transactions (Hudson, 2009). In this case, Walter can only demand that the account be credited with the amount defrauded if he has tangible evidence that the bank ought to have been aware of the fraud. In that case, the bank could be compelled to re-credit the account as determined in the case of Lipkin v Karpanale of 1991. On the other hand, the bank would not accept re-crediting the account if they prove that they were not aware of the fraud. Moreover, they can also claim that the period for lodging the claim after receiving the bank statements had elapsed and therefore Walter failed to notify the bank of the discrepancy. 2c. Walter faces no risk of losing his investment should the bank becomes insolvent. As earlier discussed, SE Pty Ltd and Walter are two distinct entities even though Walter is the main shareholder of the company. The debts of the company are therefore not Walter’s debt. In case the bank becomes insolvent, it can only sell the assets of SE Pty Ltd to compensate for the losses arising from the loan. Walter may only lose his assets if the bank can prove personal liability of Walter or in case Walter owes the pharmacy company some debts. In summary, the legal case requires the determination of the separation of legal entities and the obligation of the banker to the customers. All the determinations have to be made within the law. References Bateman, B., & Paul, N. (2002). Business entities (3rd ed.). St. Paul, Minn.: Thomson West. Holmes, T. (2001). Business organisation. Plymouth: Studymates. Hudson, A. (2009). The Law of finance. London: Sweet & Maxwell. Keenan, D. J., & Riches, S. (2007). Business law (8th ed.). Harlow: Pearson Longman. Proctor, C. (2010). The law and practice of international banking. Oxford: Oxford University Press Inc. Salomon, L. I. (1961). The Supreme Court. New York: H.W. Wilson Co.. Top of Form Bottom of Form Read More