The loan process has many moving parts and for most it is hard to keep up, this post will be a lot easier for you to understand.
In order for you to pledge your promise to pay back a loan, the creditor must have suffered a legal detriment.
In contract law, consideration is a detriment to the promisee and a benefit to the promisor. In order to make for a valid contract and for legal detriment to have been suffered, consideration must be exchanged.
To incur detriment means to cement a promise by either refraining from doing something that one has a legal right to do or by doing something that one is not under any legal obligation to do.
Now at this point most of americans would assume the legal detriment is the bank loaning you money, if in fact they did loan you money, but in fact they did not.
In fact the "money" lent to you was in fact legally required and NOT something they were not under obligation to provide.
And just why is that you ask?
Because as the federal reserve bank publication (modern money mechanics) points out......
What they do when they make
loans is to accept promissory notes in exchange for credits
to the borrowers' transaction accounts.
Important to notice here are the words EXCHANGE and CREDITS.
Both the promissory note and the credits are called MONEY OF ACCOUNT
Definition of money of account
- : a denominator of value or basis of exchange which is used in keeping accounts and for which there may or may not be an equivalent coin or denomination of paper money
The promissory note when deposited acts as cash as per federal law definition of the word DEPOSIT...
The term “deposit” means—
the unpaid balance of money or its equivalent received or held by a bank or savings association in the usual course of business and for which it has given or is obligated to give credit, either conditionally or unconditionally, to a commercial, checking, savings, time, or thrift account, or which is evidenced by its certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar name, or a check or draft drawn against a deposit account and certified by the bank or savings association, or a letter of credit or a traveler’s check on which the bank or savings association is primarily liable:
, That, without limiting the generality of the term “money or its equivalent”, any such account or instrument must be regarded as evidencing the receipt of the equivalent of money when credited or issued in exchange for checks or drafts or for a promissory note upon which the person obtaining any such credit or instrument is primarily or secondarily liable, or for a charge against a deposit account, or in settlement of checks, drafts, or other instruments forwarded to such bank or savings association for collection.
We also know this is true for a number of other reasons...
1. A holder in due course MUST accept the instrument for VALUE
2. In order to enforce a lost note the bank must indemnify.
The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.
I will finish writing this up if there are those interested in learning more about it.