CHAPTER 4 : SECURITIES FOR BANKER'S ADVANCES (:lock:TYPES OF BANKER…
CHAPTER 4 : SECURITIES FOR BANKER'S ADVANCES
:lock: WHAT IS SECURITY?
:star: Some right or interest in property given to the creditor/lender/banks.
:star: Creditor can be Banks and other financial institutions.
:lock:TYPES OF BANKER ADVANCES
:red_cross: Guarantee and idemnities
:red_cross: Shares and securities
:red_cross: Life insurance policy
:fire: Easy to value
:fire: Easy to dispose or sell
:fire: Easy to take a security
:fire: Taking of security must not be too costly to borrower.
Principal Debtor / Promiser
: The person on whose behalf the guarantee is given. Also known as borrower
: The person to whom the guarantee is given (Eg : banks)
Guarantor / Promisor
: The person who gives the guarantee.
:warning: 2 TYPES OF GUARANTEE
-Relates to a single debt only where a bank accepts a guarantee to cover single loan (Eg: Fixed loan)
- Covers a series of transaction for instance in a overdraft facility.
:zap: Advantage of guarantee a security
Easy to take
Guarantee usually have fixed and stable value
Useful where the borrrower is unable to provide security such as property.
A guarantee is a collateral security.
:forbidden: Parties involved
In Guarantee : Principal debtor, creditor, and guarantor
In Indemnity : Creditor, guarantor only.
:zap: Disadvantages of a guarantee as security.
The guarantee's value depends only on the financial standing of the guarantor.
If guarantor refuses to pay, the bank will have to take legal action to complete payment.
Guarantor may escape liability because of a technical defect in the security such as mispresentation.
Bad feeling between guarantor and banker may result if guarantor is called upon to pay the debt.
:closed_umbrella: FOUR (4) STEPS IN TAKING ALND AS SECURITY
Investigation of tittle
Valuation of the property
Creation of charges
Execution and registration of charge
:mostly_sunny: FOUR (4) CIRCUMSTANCES WHERE GUARANTOR MAY ESCAPE LIABILITY.
MISTAKE AS THE NATURE OF DOCUMENT SIGNED.
BANK'S FIDUCIARY DUTY TO GUARANTORS WHO ARE CUSTOMERS OF THE BANK.