3. (a) Yasto intends to guarantee Japheth against a loan of Ksh.300,000. The bank guarantee form includes a whole debt clause. Explain the legal implications of the clause to enable Yasto make an informed decision. (8 marks) (b) (i) Outline four essentials of a bill of exchange. (8 marks) (ii) Highlight two conditions under which a Bill of Exchange gets discharged. (4 marks)

(a) The legal implications of the whole debt clause in the bank guarantee form for Yasto are as follows:<br /><br />1. **Security for the Loan**: The whole debt clause ensures that Yasto is fully protected if Japheth defaults on the loan repayment. It guarantees that the bank will cover the entire loan amount, up to the specified limit of Ksh.300,000.<br /><br />2. **Risk Mitigation**: By having a whole debt clause, Yasto can be confident that the bank will bear the full risk of the loan. This reduces Yasto's exposure to potential losses if Japheth fails to repay the loan.<br /><br />3. **Enforceability**: The whole debt clause makes the guarantee enforceable. If Japheth does not repay the loan, Yasto can demand repayment from the bank, is legally obligated to fulfill its guarantee.<br /><br />4. **Legal Protection**: The clause provides Yasto with legal protection. If there is a dispute, the whole debt clause can be used to prove that Yasto is not responsible for the loan repayment, as the bank has guaranteed it.<br /><br />5. **Flexibility**: The whole debt clause may offer some flexibility in terms of repayment terms. Yasto can negotiate with the bank on the repayment schedule and conditions, which might be more favorable than dealing directly with Japheth.<br /><br />6. **Creditworthiness**: Having a whole debt clause in place can enhance Yasto's creditworthiness. It shows that Yasto is a responsible borrower who seeks to mitigate risk, which can be beneficial in future financial dealings. **Compliance**: The clause ensures that Yasto is in compliance with legal requirements. By using a whole debt clause, Yasto is adhering to the standard practice in loan guarantees, which can be advantageous in case of any legal scrutiny.<br /><br />8. **Peace of Mind**: Ultimately, the whole debt clause provides Yasto with peace of mind. Knowing that the bank will cover the loan repayment if Japheth defaults can significantly reduce stress and uncertainty.<br /><br />(b) (i) The essentials of a bill of exchange are:<br /><br />1. **Order to Pay**: The bill must contain an explicit order for the drawee (usually a bank) to pay a specified amount to the payee.<br /><br />2. **Maturity Date**: The bill must specify the date on which the payment is due (the maturity date).<br /><br />3. ** The bill must be accepted by the drawee, indicating their agreement to pay the specified amount on the maturity date.<br /><br />4. **Anatomy of the Bill**: The bill must include the names of the parties involved (the drawer, the drawee, and the payee), the amount to be paid, and the terms of payment.<br /><br />(ii) Two conditions under which a Bill of Exchange gets discharged are:<br /><br />1. **Payment**: If the drawee pays the specified amount to the payee before the maturity date, the bill is discharged. This means that the obligation to pay is fulfilled, and the parties are released from their respective duties.<br /><br />2. **Presentation for Payment**: If the payee presents the bill for payment before the maturity date and the drawee accepts it, the bill is considered discharged. This acceptance signifies that the drawee acknowledges the obligation to pay, and the parties are released from their respective duties.