Money

Question 1

The Brimnes

Answer 1

Where a contract provides for payment in cash of a specified currency, the word cash prima facie includes any commercially recognised method of transferring funds which gives the transferee immediate and unconditional use of the funds. An obligation expressed in money will generally be discharged if the creditor receives the “commercial equivalent” of cash or money.

Question 2

5 important legal characteristics of money.

Answer 2

1. Its legal value isn’t it’s intrinsic value as paper or metal, but the unit of account in which the money is denominated.
2. Money isn’t bought or exchanged, it’s either borrowed or received as a gift or in discharge of an obligation owed to the recipient.
3. Money is fully negotiable, meaning a good faith recipient for value receives good title
4. A creditor is not obliged to accept or entitled to demand anything other than money in satisfaction of a debt owed to him
5. Money is fungible, any unit is interchangeable with any other unit/ combination of units with the same value

Question 3

3 main functions of money

Answer 3

unit of account, a store of value and a medium of exchange

Question 4

What is the most important method for discharging money obligations in commercial transactions.

Answer 4

bank money

Question 5

How is electronic money defined?

Answer 5

Electronic money is defined by the Electronic Money Regulations 2011 Act as “electronically ( including magnetically) stored monetary value as represented by a claim on the electronic money issuer which (a) is issued on receipt of funds for the purpose of making transactions [and] (b) is accepted by a person other than the electronic money issuer (Art 2(1))

Question 6

What’s the difference between tangible and intangible money?

Answer 6

Bank money:

1. Isn’t issued under state authority
2. Isn’t legal tender
3. Isn’t a universal medium of exchange
4. Isn’t negotiable

Question 7

What are the two broad categories of intangible assets ?

Answer 7

1. Wholly generic claims: a right to be paid from the defendant’s general assets, which is not attached to any specific asset held by the defendant. These claims are PERSONAL and not proprietary in nature. The claimant takes his chance as an unsecured creditor. This category includes contractual claims for debt or damages.
2. Specific claims where the claimant can point to a particular intangible asset (typically a bank deposit) as beneficially vested in him by a trust, whether created by an act of the parties or in law. Specific claims to intangible “money” are by definition PROPRIETARY and can therefore only be asserted against a defendant who still holds the asset in question.

Question 8

Why is the distinction between the two broad categories of intangible assets important?

Answer 8

Real rights such as specific, proprietary rights survive the debtor’s insolvency and can be enforced to the exclusion of other creditors, while personal rights are converted into a right to prove in the insolvency in competition with other creditors.

Question 9

When will our definition of money be important

Answer 9

In order to fall within SOGA 1979, a contract must involve a transfer “for a money consideration”. A Bill of Exchange is only a negotiable instrument for the purposes of the Bills of Exchange Act 1882 if it requires the drawee to pay “a sum certain in money”.

Question 10

How did Moss v Hancock define money?

Answer 10

“that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities”

Question 11

How does Article XIX(d) of the IMF’s Articles of Agreement define currency?

Answer 11

“includes without limitation, coins, paper money, bank balances, bank acceptances and government obligations issued with a maturity not exceeding twelve months”

Question 12

Monetary sovereignty of States?

Answer 12

According to the State Theory of money, money is an exercise of sovereignty by the State in question, and so must exist within a legal framework.

Question 13

What does the Institutional Theory of money emphasise ?

Answer 13

The Institutional Theory of money emphasises that money primarily consists of a claim against the issuing central bank, but that money includes the credit balances of sight deposits made by the public with commercial banks, which are considered money as they can be transformed on demand into banknotes.

Question 14

What is the difficulty that can arise with allowing commercial banks’ money to count as money ?

Answer 14

If the commercial bank doesn’t have sufficient assets to place with the central bank in return for notes.

Question 15

Where the value of money isn’t linked to an external asset such as gold, how is the value of money achieved?

Answer 15

Monetary policy of central bank (& public confidence in this!)

Question 16

What’s the focus of the Institutional Theory of money?

Answer 16

Money is direct/indirect claim against central bank. The role of the central bank is controlling the amount of money within the economy to bring price stability

Question 17

What’s the central bank’s primary objective according to the Institutional Theory of money?

Answer 17

price stability

Question 18

Where a contract provides for payment in cash of a specified currency, the word cash prima facie includes any commercially recognised method of transferring funds

Answer 18

The Brimnes:
Where a contract provides for payment in cash of a specified currency, the word cash prima facie includes any commercially recognised method of transferring funds which gives the transferee immediate and unconditional use of the funds. An obligation expressed in money will generally be discharged if the creditor receives the “commercial equivalent” of cash or money.

Question 19

Iskandar v Bank of America

Answer 19

Existance of an account is the touchstone of the banker-customer relationship.

Question 20

What effect does the institutional theory of money have on government’s role?

Answer 20

The need for central bank independence reduces the state’s role in monetary affairs, but the State must pursue sound fiscal policies to support the success of monetary policy.

Question 21

Moss v Hancock

Answer 21

Where a coin is sold as a curiosity, an order for restitution may be made if it has been stolen, even if it has been sold on. This case held that the coin hadn’t been received by the appellant (a dealer in curiosities) as a current coin and so an order was therefore made ordering the appellant to restore it to the respondent.
This case defines money as:
“that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities”

Question 22

Miller v Race

Answer 22

A “good faith purchaser” or “holder in due course” of a negotiable instrument (cheque, banknote etc) gets good title if they were unaware of the defect in title. Mr Race was a bank clerk who refused to honour a banknote from Mr Miller (an innkeeper who’d received it in payment from a tenant)
Money, properly speaking, is whatever common consent has fixed upon as a sign denoting a certain value

Question 23

Glasgow Pavillion v Motherwell

Answer 23

A debtor is required to pay their debts in legal tender or “the current coin of the realm”

Question 24

Scriptural money

Answer 24

Funds held in current accounts at commercial banks

Question 25

What emphasises the difficulties with treating commercial bank money as money?

Answer 25

The 2007-2009 Financial Crash

Question 26

Are bank notes promissory notes?

Answer 26

Bank notes are a promissory note under the Bills of Exchange Act 1882, but they’re more than just a promissory note as they also constitute currency.

Question 27

Can we still describe money as a Chattel?

Answer 27

No, most money is e-money.

Question 28

Is the state theory of money still valid?

Answer 28

Money continues to exist in a legal framework but the creation/existence of money is no longer dependent on it being issued in a physical form on behalf of the state

Question 29

Banco de Portugal v Waterlow & Sons Ltd

Answer 29

The defendant unknowingly printed fraudulent notes following completion of genuine order. Banco de Portugal then had to withdraw both genuine & fradulent notes from circulation. The majority judgement in the House of Lords was that the bank could recover the face value of the new notes they were obliged to issue, as when issuing notes, a central bank is effectively parting with a portion of it’s wealth and so Waterlow had to indemnify the bank against the liabilities which arose as a result of Waterlow’s mistake. **This case emphasises money’s function as a store of value!! ***

Question 30

Can we regard money as commodity?

Answer 30

Usually no.
We can when the coins have been acquired with a view towards melting them down (R v Dickinson), when the coins are purchased for their rarity (as the coin is the object of exchange, not the medium of exchange), where coins are sold by weight with reference to their metallic value.
-Money is treated as a commodity when this reflects the intentions of the parties.

Question 31

Could new forms of money emerge?

Answer 31

New forms of money could emerge as a means of payment if they gain sufficient acceptance within the commercial world. We may already be able to regard bank deposits as money as they’re now widely accepted as a means of payment. Cryptocurrencies are becoming increasingly accepted and may one day gain wide enough commercial acceptance to function as a means of payment.

Question 32

What will the State need to do if new forms of money emerge?

Answer 32

Protect the rights of a person who receives “money”

Question 33

Does nemo dat principle apply to money?

Answer 33

No, nemo dat has never been applied to notes and coins if in good faith and for value. If funds have been transferred by electronic means, then credit to the transferee’s account will generally be irrecoverable if the transferee received them in good faith and for value.
It appears that in the absence of bad faith, a creditor retains good title to funds transferred to him.

Question 34

Would Moss & Hancock’s definition of money include e-money?

Answer 34

definition- “that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities”
This would include e-money- it’s accepted equally without reference/intention and passes freely. Moss & Hancock’s definition includes e-money as it doesn’t require money to be legal tender or to be a chattel of the State.

Question 35

Are damages a universal remedy?

Answer 35

Yes, even in cases where the initial obligation is performance, this may be converted into an obligation to pay damages. Money was described as the “universal solvent” in Auld v Sharp, as any loss or gain can be translated into money.

Question 36

R v Dickinson

Answer 36

We can regard money as a commodity when the coins have been acquired with a view towards melting them down

Question 37

What is broad money?

Answer 37

It’s the term that the Bank of England uses to refer to the money supply. The legal definition is narrower than this.

Question 38

What are Scottish banknotes?

Answer 38

Scottish banknotes are promissory notes. The only legal tender in Scotland is £1 and £2 notes.

Question 39

Payment for large transactions.

Answer 39

For large transactions, the parties will agree, whether expressly or impliedly to accept payment in bank transfer.

Question 40

What happens if a cheque used to discharge an obligation is dishonoured?

Answer 40

In cases where a cheque is dishonours, the discharge will be void ab initio.

Question 41

Must domestic contracts be denominated in pounds sterling?

Answer 41

No, domestic contracts can be denominated in foreign currencies. It is possible to sue for damages in a foreign currency in a Scottish court. (Fulleman v McInnes’ Exrs)

Question 42

Auld v Sharp

Answer 42

Money was described as the “universal solvent” in Auld v Sharp, as any loss or gain can be translated into money.
Even in cases where the initial obligation is performance, this may be converted into an obligation to pay damages.

Question 43

What do the SNP say an independent Scotland use as its currency?

Answer 43

The British Pound Sterling (Rahmatian has questioned how this would operate)

Question 44

Re Russian Commercial & Industrial Bank

Answer 44

A bank is liable to repay a deposit without a demand f they’re winding up the bank.

Question 45

What’s the problem with keeping the Bank of England as the central bank for Scotland

Answer 45

The English economy is stronger and so the pound was consistently be too strong for the Scottish economy (and economy likely to be weakened by independence).
Scottish banknotes seen as a symbol of Scottish autonomy, the use of BoE would undermine this.

Question 46

Fulleman v McInnes’ Exrs

Answer 46

It is possible to sue for damages in a foreign currency in a Scottish court.

Question 47

What is a bank?

Answer 47

The Banking Act 2009 s2 describes a bank as a U/.K institution with permission to accept deposits UNLESS it’s a building society, credit union or other institution excluded by a treasury order.

Question 48

What happens if a bank collects a cheque for its customers that it didn’t have title to?

Answer 48

Where a bank collects a cheque for its customers in good faith and without negligence, it has a statutory defence against the true owner (Section 24 of the Bills of Exchange Ordinance)

Question 49

When is someone a bank’s customer?

Answer 49

• If they hold an account (Commissioners of Taxation v English) unless they opened it using someone else’s identity to open it (Marfani & Co v Midland Banking Co).
• If the bank routinely provides services i.e clearing bank remitting cheques for non-clearing bank’s customers (Importers Co Ltd v Westminster Bank Ltd) but not if they’re receiving casual services (Great Western Railway Co v London and City Banking Co)
• The existence of an account is the touchstone of a banker/customer relationship (Iskandar v Bank of America)

Question 50

When does property in a deposit pass?

Answer 50

Property passes to the bank on deposit. The nature of the agreement is that the bank must repay the customer an equal amount. It becomes a debtor/creditor relationship.

Question 51

Foley v Hill

Answer 51

When an account is in credit, the bank must pay an equivalent deposit amount on demand, the limitation period runs from the date of the demand, not the date of the deposit.
The relationship is a banker/creditor relationship, the banker’s custom of honouring their customers cheques has given rise to an obligation to do so- it’s not a fiduciary/agent/trustee relationship.

Question 52

N Joachimson v Swiss

Answer 52

Illustrated principle of Foley v Hill (that the obligation to repay is on the customer’s demand)- it held that the bank was not liable to repay the deposit amount until the customer demands payment.
Customers don’t have a right of action against the bank for repayment of sums until the customer demands “the promise to repay is to repay at the branch of the bank where the account is kept, and during business hours”- dicta of Atkins LJ.

Question 53

Is a bank liable to repay a deposit without a demand?

Answer 53

Not usually (Foley v Hill, N Joachimson v Swiss)
Where it has a fixed maturity date, they are (Standard Chartered Bank v Tiang Ngit Ting) or if they're winding up the bank (Re Russian Commercial & Industrial Bank) or closing the account.

Question 54

What was the purpose of the lending code?

Answer 54

To equalise the power balance within bank’s relationship with their personal and small business customers.

Question 55

Marfani & Co v Midland Banking Co

Answer 55

Someone isn’t the customer of a bank if they used someone else’s identity to open an account.

Question 56

Lordsdale Finance plc v Bank of Zambia

Answer 56

There was no justification for striking increased interest rate down as a penalty since since it applied only from the date of default and didn’t operate retrospectively-
whether a provision is to be treated as a penalty depends on whether the function is to deter a party from breaking the contract or to compensate the innocent party for breach. That the contractual function is deterrent rather than compensatory can be deduced by comparing the amount that would be payable on breach with the loss that might be sustained if breach occurred. This 1% wasn’t a deterrent.

Question 57

Tidal Energy Plc v Bank of Scotland

Answer 57

Tidal entered the wrong bank details when trying to pay by CHAPS. It was held that not checking names on CHAPS transfers was a “clear and settled” banking practice as this would require manual checking and slow down CHAPS transfers (the point of CHAPS transfers is their speed so would render them a bit pointless!). This meant that Tidal was unable to recover the funds that they had mistakenly credited to the wrong account from the Bank.

Question 58

Barclays Bank v W.J Simms

Answer 58

When a bank fails to honour a customer’s instructions to stop a cheque, and mistakenly pays it, they’ll be able to recover money from the payee as having been paid in error of fact.
On learning of appt. of administrators of building company, one of Barclay’s clients, a housing association, told Barclay’s to stop a cheque to them. Barclays mistakenly paid the cheque. Barclays was able to recover from the building company as (1) It was their mistake in failing to stop the cheque (2) Barclays had acted without mandate (3) There was no evidence of a change in the defendant’s position

Question 59

Standard Chartered Bank v Tiang Ngit Ting

Answer 59

A bank is liable to repay a deposit without a demand if the deposit has a fixed maturity date.

Question 60

Can you recover if you enter the wrong bank details?

Answer 60

In Tidal Energy Plc v Bank of Scotland, Tidal entered the wrong bank details when trying to pay by CHAPS. It was held that not checking names on CHAPS transfers was a “clear and settled” banking practice as this would require manual checking and slow down CHAPS transfers (the point of CHAPS transfers is their speed so would render them a bit pointless!). This meant that Tidal was unable to recover the funds that they had mistakenly credited to the wrong account from the Bank.

Question 61

Importers Co Ltd v Westminster Bank Ltd

Answer 61

Someone will be a customer if the bank routinely provides them services I.e if the bank routinely provides services i.e clearing bank remitting cheques for non-clearing bank’s customers.
Note that they won’t be a customer t if they’re receiving casual services (Great Western Railway Co v London and City Banking Co)

Question 62

State theory of money?

Answer 62

According to the State Theory of money, money is an exercise of sovereignty by the State in question, and so must exist within a legal framework.

Question 63

How would Scotland use the £?

Answer 63

It could either establish a central bank and issue a currency voluntarily linked to the English £ that can be altered at will if economic conditions require it to be (done by Germany, Austria, Netherlands and Switzerland pre-euro), or keep the Bank of England as the central bank for Scotland.

Question 64

How much of the money supply do banks create and allocate?

Answer 64

Between 95 and 98%.

Question 65

How are banks helped by being exempt from the Client Money Rules?

Answer 65

Banks are exempt from Client MONEY rules, which means they don’t have to ring-fence their client money. This lets banks classify their liabilities from bank loan contracts as customer deposits.
Without this, they couldn’t create money.

Question 66

Financial intermediation theory of banking

Answer 66

According to it, banks do not have the ability to create money, neither individually (as the credit creation theory argues) nor collectively (as the fractional reserve theory maintains). The financial intermediation theory of banking claims, erroneously, that banks gather deposits and then lend these deposits out

Question 67

What gives banks the right to create and allocate the money supply?

Answer 67

no law, statute or bank regulation explicitly grants banks the right (usually considered a sovereign prerogative) to create and allocate the money supply

Question 68

Do banks create new money according to Werner?

Answer 68

Yes, they can create new money as they’re the ‘accountant of record’ of the rest of the economy- so nobody else can dinstinguish between money that stems from central bank money or money created out of nothing by commercial banks.

Question 69

What happens when a non-financial institution grants a loan?

Answer 69

the loan contract is shown as an increase in assets: the firm now has an additional claim on debtors — this is the borrower’s promise to repay the loan. The lender purchases the loan contract, treated as a promissory note. Meanwhile, when the firm disburses the loan (and hence discharges its obligation to make the money available to the borrower), it is drawing down its cash reserves or monetary deposits with its banks. As a result, one gross asset increase is matched by an equally-sized gross asset decrease, leaving net total assets unchanged.

Question 70

What happens when a bank grants a loan?

Answer 70

It appears as a positive liability not a negative asset

Question 71

What is the accounting process when a bank has agreed to a loan but not paid it out?

Answer 71

When a loan is agreed but not yet paid out, the accounting is identical for all types of firm

Question 72

What happens when non-bank firms make the funds available to the borrower?

Answer 72

The cash or deposit balance (an asset) is drawn down (as money comes from elsewhere within firm) and simultaneously the accounts payable item disappears from the firm’s liabilities. The balance sheet is the same as before the loan was granted.

Question 73

What happens when banks make the funds available to the borrower?

Answer 73

When banks make the loan funds available to the borrower, no balance is drawn down to make a payment to the borrower- : the bank reduces its ‘account payable’ item by the loan amount, acting as if the money had been disbursed to the customer, and at the same time it presents the customer with a statement that identifies this same obligation of the bank to the borrower, but now simply reclassified as a ‘customer deposit’ of the borrower with the bank. There is no equal reduction in the balance of another account to defray the borrower. Instead, the bank simply re-classified its liabilities, changing the ‘accounts payable’ obligation arising from the bank loan contract to another liability category called ‘customer deposits’.

Question 74

Are bank deposits part of the money supply? What does bank creation of money mean?

Answer 74

Deposits are part of the official money supply and so, through this creative accounting, the bank has effectively just made money (my words)

Question 75

What are the necessary conditions for banks being able to create money?

Answer 75

the lender ordinarily maintains customer deposits and thus is solely in charge of the record-keeping of customers’ deposits AND an exception from the Client Money Rules

Question 76

What are the Client Money Rules

Answer 76

Client deposits must be held separately. This means the client assets remain off-balance sheet for firms including non-bank financial intermediaries, and the depositor remains the legal owner. Banks are exempt from these rules.

Question 77

Why do banks have 2 businesses- lending and deposit taking?

Answer 77

Werner says this, along with Client Money Rules exception, is what allows them to create money

Question 78

Banque Belge v Hambrouck

Answer 78

Owing to his fraud, he is disentitled from relying on the confidential relationship between him and the bank.