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Loan of Central Bank of Ruritania - Essay Example

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The paper “Loan of Central Bank of Ruritania” provides the case at bar, which involves the prospect of extending an unsecured loan by Bank A to the Central Bank of Ruritania. The Central Bank of Ruritania has an existing deposit in Bank A…
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Loan of Central Bank of Ruritania
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Download file to see previous pages The answer to this question would depend largely on the provisions of the contract, which will be signed between Bank A and the Central Bank of Ruritania. As a basic rule, the provisions of the contract shall be considered as the primary authority governing both parties, provided that such contract is entered into according to the laws of the country from whence the party came from or of the country, which was, chose by the parties as the place of jurisdiction of the contract.1 Where the intent of the parties can be clearly gleaned from the tenor of the contract, such intent shall be held a binding upon the parties.
However, in the banking system, there are certain established rules, which must be followed. “It is well established that the normal relation between a banker and his customer is that of debtor and creditor…” 2 . When the client deposits money in the bank, the banker debits on its books the amount deposited by the client, thereby, recognizing an account payable. Why is this so? The rationale behind this is that one the money is deposited to the bank, “money which a customer deposits with a bank becomes the bank’s money.” 3 This means that the bank can now use the amount deposited for purposes of loan releases and financing. However, “the bank is prima facie bound to meet its debt when called upon to do so by the customer.”4 In other words, although technically there was a transfer of ownership of the money deposited from the depositor to the depositary bank, the amount can be withdrawn upon demand of the client.
The question now is that whether or not the bank can hold on to the deposit account of the client in the event that the client will fail to pay its loan to the bank. What is the right of the bank on the deposit account of the debtor/client?
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