Study On The Legal Validity And Effect Of Deducting For Outstanding Loan In Bankruptcy Proceedings

The fundamental proposition of this dissertation is : the bank and the debtor has entered into a agreememt and it stipulated that in the event of overdue debt the bank was entitled to deduct the debtor’s deposit for the payment of debt(hereinafter referred to as "deducting for outstanding loan ").Then what is the legal nature and legal validity of the act of deducting for outstanding loan in accordance with the agreed terms In bankruptcy proceedings.General opinion about this question is the legal relationship between the bank and the debtor is debtor-creditor relationship according to the deposit behavior of debtors.the ownership of the deposit is owned by the bank,the debtor only has the creditor’s rights to ask the bank to pay the deposit.The behaviour of deducting for outstanding loan is deemed to exercise the right of set-off therefore.In bankruptcy proceedings,the bank may,on the basis of contract terms of deduction loan and the provisions of the Bankruptcy Law concerning the bankruptcy set-off right,exercise bankruptcy set-off rights legally.Hence,the bank’s deduction action is in compliance with the law and effective in.bankruptcy proceedings.the cross-claim between the bank and the debtor has been eliminated through the system of offsetting.The aforementioned opinion has confused the definition of legal currency and deposit currency.After depositor deposits his legal currency into the bank,legal currency has been converted into deposit currency.The deposit currency is expressed in the form of bank account balance and has the same fuction of circulation and payment as the legal currency.It should be defined as the property interest directly controlled by the depositor.The depositor’s control of his deposit currency in his bank account is the same as the control of legal currency.The legal relationship between the depositor and the bank as a result of this deposit behavior should be a mixed legal relationship including the currency custody relationship and the investment relationship.Repayment and offsetting are different causes of the elimination of debt,and they do not exist any inclusion relation.The opinion that the bank’s behavior of deducting for outstanding loan is exercising the right of set-off has confuised their realtionship.The bank and the debtor have formed a entrusted legal relationship due to the contract clause of deducting for outstanding loan actually.The legal effect of the bank’s behavior of deducting for outstanding loan as per the entrusted clause is tantamount to the debtor’s voluntary payment of the debts.Therefore,the legal nature of the bank’s deducting for outstanding loan is liquidating debts.Since the legal nature of the bank’s deducting for outstanding loan is liquidating debts,in bankruptcy proceedings,this act of liquidation has been invalid for violating the provisions of the Bankruptcy Law on the prohibition of individual liquidation.However,after the act being deemed to be invalid,if the bank still is entitled to exercise the bankruptcy set-off right to the trustee in bankruptcy,the practical significance of making the bank’s behavior of deducting for outstanding loan invalid has been lost.Since the ownership of the deposit belongs to the depositor and the legal relationship between the depositor and the bank due to the deposit behavior is a mixed legal relationship including the currency custody relationship and the investment relationship not a simpleb debtor-creditor relationship,the premise that the bank has the bankruptcy set-off right has eliminated.Thus,after the bank’s deducting for outstanding loan act has been invalid or revoked in the insolvency proceedings,the bank can not claim to exercise the bankruptcy set-off right so that his debt could be liquidated in priority.