INSTITUTE OF BANKERS IN MALAWI

DIPLOMA IN BANKING EXAMINATION

SUBJECT: LAW RELATING TO BANKING (IOBM – D216)

Date: Tuesday, 4th May 2010

Time Allocated: 3 hours (08:00 – 11:0 am)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2 Section A consists of 4 questions, each question carries 15 marks.

Answer ALL questions.

3 Section B consists of 4 questions, each question carries 20 marks. Answer

ANY TWO questions.

4 You will be allowed 10 minutes to go through the paper before the start of the
examination, you may write on this paper but not in the answer book.

5 Begin each answer on a new page.

6 Please write your examination number on each answer book used.

7 DO NOT open this question paper until instructed to do so.

SECTION A (60 MARKS)

Answer ALL questions from this section.

QUESTION 1

(a) The Banking Act (Cap. 44:01) of the Laws of Malawi under section 2 (1) defines
a ‘bank” as a person who conducts banking business in Malawi, including the
acceptance of funds withdrawable by cheque or transferable by other means.
However, the Banking Act does not define a “customer”. Explain what makes a
person a bank’s customer in banking law terms. (4 marks)

(b) A banker-customer relationship may take several instances (characteristics).

With illustrations, give three of the forms of banker-customer relationship.
(6 marks)

(c) The opening of an account by a customer with a bank involves a contractual

relationship with rights and obligations both for the bank and the customer.
What are five of the duties that a bank owes its customer? (5 marks)

(Total 15 marks)

QUESTION 2

(a) The Reserve Bank of Malawi in conjunction with the Minister of Finance is
given the mandate to regulate the exchange control regime in Malawi. In this
regard, the Reserve Bank of Malawi has established regulations with a view to
ensuring stability in the foreign exchange market. Give any twelve restrictions
that have been imposed by the Exchange Control Regulations. (12 marks)

(b) In terms of section 3 (d) of the Reserve Bank of Malawi Act (Cap. 44:02) of the
Laws of Malawi, one of the principal objectives of the Reserve Bank of Malawi
is to carry out monetary policies. Describe three of the aims of monetary
policies. (3 marks)

(Total 15 marks)

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QUESTION 4

(a) In banking, a customer may give a third party to the banking contract his power
of attorney to operate his bank account. The power of attorney may be special
or specific (to operate the bank account or other specific powers like the sale of
property) or general (which may give the holder authority to act on the
customer’s behalf for many activities including banking). A power of attorney
arrangement creates some duties on the part of the attorney. Mention five of
the duties that are imposed by law on the holder of a power of attorney.
(5 marks)

(b) Just as a person can give a power of Attorney, can also cancel it by revocation.
However, Power of Attorney revocation may also result automatically from
various events. List five instances in which a power of attorney can be revoked.
(5 marks)

(c) Under section 75 Bills of Exchange Act (cap. 48:02) of the Laws of Malawi a
bank's duty to pay a cheque is ended by a countermand. Explain five of the
prerequisites of an effective countermand. (5 marks)

(Total 15 marks)

QUESTION 4

With illustrations, discuss circumstances under which money mistakenly paid into the
customer’s account by the bank can be rightfully claimed by the said customer and
under which the bank may be estopped from asserting its claim to recover the said
money. (15 marks)

(Total 15 marks)

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SECTION B (40 MARKS)

Answer ANY TWO questions from this section.

QUESTION 5

(a) Mr. Chipande, an illiterate wealthy man in town and Mrs. Phiri, a chartered
accountant, with a view to share profits form a partnership called Deposit
Investments. In terms of their partnership deed, Deposit Investments will be
managed by Mrs Phiri only at executive level owing to Mr. Chipande’s illiteracy.
Deposit Investments capital has now grown to Malawi Kwacha equivalent of
US$ 600,000.00 and Deposit Investments now wants to get a banking licence.
Advise Deposit Investments on the law governing acquisition of banking
licences in Malawi. (15 marks)

(b) The banker-customer relationship may be terminated voluntarily by either of the

parties. However, there also instances when the bank-customer may be
terminated by operation of law. Briefly explain three instances in which the
banker-customer relationship is terminated by operation of law. (5 marks)

(Total 20 marks)

QUESTION 6

(a) Mrs. Gama, a non-trading individual, delivered to her bank, Uptown Bank, a
MK10,000,000.00 cheque payable to her for credit of the proceeds to her
account. By mistake the proceeds were credited by Uptown Bank to another
customer’s account. After a few days, Mrs. Gama’s own cheque of
MK50,000.00 drawn on her account in payment of rent due to her landlord was
presented by her landlord for payment and dishonoured as there were in
sufficient funds in Mrs. Gama’s account. The landlord insisted that in future
Mrs. Gama must pay her rent to him in cash. Mrs Gama wants to sue the
Uptown Bank to Claim substantial damages. Discuss the issue of liability as
between Mrs Gama and the Bank. (10 marks)

(b) Mr. Lingawombe terminated the authority of Mr. Tidyeretu to act as Mr.
Lingawombe’s agent. However, after the said termination of agency, Mr.

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 Lingawombe suspected that Mr. Tidyeretu had subsequently paid into his (Mr.
Tidyeretu’s) own bank account a cheque received by Mr. Tidyeretu in his
capacity as an agent of Mr. Lingawombe. Accordingly, Mr. Lingawombe
persuaded the bank inspector to allow him to a statement of the account.
Discuss the rights of the parties. (10 marks)

(Total 20 marks)

QUESTION 7

City Jewelries Ltd received a consignment of rare diamond. Fearing for the safety of
the diamond, City Jewelries Ltd deposited the diamond with their bank for
safekeeping. One morning a cleaner who was given access to clean the custody
room stole the diamond. City Jewelries Ltd wants sue the bank and the said City
Jewelries Ltd have now approached you for advice. Discuss the issue of liability.

(Total 20 marks)

QUESTION 8

Discuss any five grounds on which the Reserve Bank of Malawi may revoke a
banking licence and give rationale behind these grounds.
(Total 20 marks)

END OF THE EXAMINATION PAPER

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