Who has heard of the Credit River Decision, 1968?

the_barfly1

(apologies if this has been discussed before)

Hi, I recently came across this case from Minnessota in 1968, in which a guy took his bank to court to challenge the foreclosure of his home when he failed to meet his mortgage repayments.

His case was that the bank never had the money to loan him for the mortgage in the first place, but just "created" the money by book-keeping entry when the contract was signed. The bank manager testified that this was true, and the case was ruled in favour of the defendant because the bank breached it's own contractual obligations by not having consideration for the loan granted to the defendant. (or something to that effect)
So the defendant got to keep his house and didn't have to pay another cent to the bank.
The judge was poisoned 6 months later...

I'm just wondering, hypothetically, could this same defence apply to anybody in forclosure on this side of the pont, considering that the ECB operates on basically the same premise as The US Fed?

I find this topic very interesting, especially in the current economic climate, and would welcome all comments/observations/discussion from people here with a legal background!!


woops, almost forgot, here's a link to an article about it : http://www.cyberclass.net/creditriver.htm

Maximilian

Not a chance. The Banking System (or what's left of it) would collapse. I only had a quick scan but I suspect that decision is what happens when you put a case like that before a Jury.

the_barfly1

Sorry for the delay replying -

But that doesn't really answer my question, whether the banking system would collapse or not is irrelevent, my question is that is there any section of Irish or European law that indicates that a similar case would yield the same result in an Irish court - ie - does the law afford financial institutions here the power to create money by means of book-keeping entry for the purpose of awarding a loan?

Would such an act be lawful or would it essentially be akin to a bank counterfeiting money?

Tom Young

The answer to this is logically no. See Northern Bank v Charleton [1979] 1 IR 150 - It's not identical but interesting based on the Credit River scenario.

johnnyskeleton

the_barfly1 wrote: »

Sorry for the delay replying -

But that doesn't really answer my question, whether the banking system would collapse or not is irrelevent, my question is that is there any section of Irish or European law that indicates that a similar case would yield the same result in an Irish court - ie - does the law afford financial institutions here the power to create money by means of book-keeping entry for the purpose of awarding a loan?

Would such an act be lawful or would it essentially be akin to a bank counterfeiting money?

Banks must keep a percentage of their loan book in cash or other liquid assets such as bonds, stocks or precious materials. So long as they retain the minimum ratio, they can loan out as much as they want. They don't create money by some magical book-keeping entry, they make money by loaning other peoples money to others.