If a bank has paid a check that has been properly revoked from its drawer, it must refund the drawer for the loss. In the context of traditional banking, the deposits of the bank`s customers are considered money because these customers know that their account balance can be used to settle debts arranged by a quick transfer of funds between bank accounts. This is much more efficient and convenient than transporting banknotes from one commercial establishment to another, which was the only practical alternative at the time. Demand-to-term deposits in the banking system refer to funds held in a bank and redeemable on demand if they are non-interest-bearing demand deposits, they are called a current account. Since the balance held is refundable without notice, it is often used for the immediate transfer of funds by cheque or other means of payment (Desmond, 1983).1 The relationship between banker and client is divided into three categories; Upon request, a bank must return all cheques it has paid to the drawer so that the drawer can check the cancelled cheques to ensure that there have been no forgeries or errors in setting its current account balance. This review of audits is usually supplemented by monthly billing. If the shooter detects an error or counterfeit, it is his duty to immediately inform the bank or to assume full responsibility for the loss suffered. Banks also purchase commercial paper, which is commercial loans, at a discount from creditors who have entered into long-term contracts with debtors. A creditor sells commercial paper to a bank for less than its face value because it requires immediate payment. The bank benefits from the difference between the discount price it pays and the nominal value of the bond it receives when the debtor has made the repayment of the loan. The types of commercial paper are student loans and mortgages. Thus, when a person opens an account by depositing a sum of money with a bank, a contract is created between the customer and the bank.
The cash becomes the property of the bank and the obligation to repay the same becomes a general responsibility of the bank. The bank and its customer are therefore in a simple creditor-debtor relationship. The question that may arise is what kind of contract, especially on the creditor-debtor relationship, is based, we can all agree that for such a relationship there must be an underlying contract. It seems that the contract underlying such a relationship was of no concern to those who were looking at the legal basis of the money that had and received in the depositor`s fund. However, a statement by the Chief Justice approving the first two cases in this regard can help determine the underlying contract of the creditor-debtor relationship. During his judgment, he stated that the sums of money paid on the client`s loan to a banker, although they are generally referred to as deposits, are in fact loans from the client to the banker. Although the Chief Justice specified the underlying contract of the relationship as that of the loan agreement, he did not give a reasonable justification in detail for its conclusion. As regards the savings account, the legal basis covering the current account also applies to savings accounts. However, these deposits in savings accounts do not follow the legal description of the deposit in the legal sense, as the bank can use them and thus generate profits. As such, it takes over the legal effect of the loan agreement in relation to the repayment guarantee and the repayment of an equivalent amount.
In return, no fees will be charged for the services provided in the savings account. In addition, the bank can create a kind of price for the public. The practice of granting savers a certain amount of money from profits made in exchange for the use of their funds has been criticised on the grounds that such a practice may constitute usury and subsequently prohibited, especially if it is seen from the point of view of savers as a motivation to save their money. The savings account is legally covered by the deposit contract or wadiah, but if the customer`s authorization has been obtained to use the fund on the condition that the bank guarantees repayment, the contract takes the position of a loan agreement. Loans and remittances A primary function of a bank is to provide loans to applicants who meet certain requirements. In a loan transaction, the bank and the debtor execute a promissory note and a separate agreement detailing the terms of the loan. The interest charged on the amount lent may differ due to many variables. A variable is a benchmark interest rate set by the Federal Reserve`s Board of Governors, also known as the prime rate, at the time of lending. Another variable is the amount of the refund. The collateral provided to secure the loan in the event of the borrower`s default can also affect the interest rate. In any case, the interest rate cannot exceed what is legally permitted.
The loan must be repaid in accordance with the terms set out in the loan agreement. In the event of failure, the agreement shall specify the procedures to be followed. When the legal basis of the treaty was changed to a simple loan linked to Islamic banks, it had been argued that after obtaining permission from the owner to use the deposited property, the obligation to keep it was no longer valid. This argument was also unfounded, since the obligation of safe storage would continue until the recovery of the assets deposited under the guarantee rules, in the sense that even in the loan agreement in the banking context, the custody element would be present in all cases (Rasool, 1984).9 A person who has a bank account in his name and the banker undertakes to provide the facilities as a banker is considered a customer. As for interest-bearing demand deposits, they are known as money on demand, when a person has a lot of money to invest but cannot find a suitable outlet for the funds, he opens an interest-bearing demand deposit. The money remains at the on-demand bank in the sense that it is repayable on demand until favorable investment opportunities are available. There must be a minimum deposit and interest will be paid at interest rates that vary depending on market conditions, provided that notice of withdrawal is made prior to repayment. There are no fees for the fixed term deposit account held in the branch and interest is given at interest rates that vary from time to time. Usually, a press release is issued when deposit rates change and a notice is posted on the branch premises. In general, accounts opened for the purpose of storing balances are called deposit accounts, while accounts opened for the purpose of keeping debt balances are called credit accounts (Desmond, 1983).2 Currently, conventional banking services have three types of accounts, namely the current account, the savings account and the term deposit account. Fixed term deposit is a type of term deposit that results in a fixed interest rate at maturity. It also offers a higher interest rate compared to a regular savings account.
For the purposes of this section, our discussions are limited to the legal basis of the current account as it operates in traditional banking services. The powers and obligations of a bank are determined by the terms of its law and the legislation under which it was created (federal or state regulation). A bank may, through its board of directors, adopt appropriate rules and regulations for the efficient operation of its activities. Despite the opposite views, Western theory had relied on considering the money held in a bank account as mere credit, and the bank as such has the right to use the amount to make a profit. The practice was confirmed by Lord Chancellor Cottenham, as mentioned earlier. Unlike the Western theory of deposit, which emphasizes custody, the Islamic doctrine of deposit had been much more comprehensive in terms of the use of deposits, or wadiah. The eminent jurists of the Sunni law schools had elaborated the theory in detail, which included various provisions capable of dealing with subsequent developments even before the development of the banking sector. The lawyers studied in detail the possibility of using and using deposits, mixing deposits, exchanging deposited goods and lending deposited goods. In addition, much more has been elaborated in terms of the distribution of profits made through the use of such a deposit or wadiah.
The lawyers expressly authorized the person with whom the deposit was kept to dispose of it, provided that permission had been granted to the depositary to use it on the condition that the deposit was secured and returned upon request. The legal status of the person with whom the property is deposited may change to become a guarantor instead of simply being a trustee who only holds the deposit. A bank is also responsible for determining the authenticity of the confirmation when a depositor presents a payment cheque. A bank is liable if it pays a cheque that has been substantially altered, unless the change is due to the fault or negligence of the drawer. If a bank pays a cheque containing a counterfeit note, it is liable for the loss if it is immediately informed by the customer. In both cases, the bank is entitled to recover the amount of its loss from the thief or counterfeiter. Cheques A cheque is a written order that a drawer sends to their bank to pay a specific person or organization (the payee) the amount indicated on the cheque. Payment according to the check must be made in strict compliance with its conditions.