I will quote here some useful sources on the mutuum contract in the US and British law.
First, we can turn to the work of the American jurist John Bouvier (1787–1851) in his compendium of American law called The Institutes of American Law (4 vols, 1851) on the nature of mutuum in US law in the 19th century:
This is clearly the legal framework under which fractional reserve banking was conducted in the US, and obviously English law influenced American law on this point.
SECTION 2. OF GRATUITOUS LOAN FOR CONSUMPTION, OR mutuum.1089. Mutuum, or loan for consumption, is a contract by which the owner of a personal chattel, of the kind called fungibles,(c) delivers it to another by which it is agreed that the latter shall consume the chattel, and return at the time agreed upon, another chattel of the same kind, number, measure or weight, to the former, either gratuitously or for a consideration; as if Peter lends to Paul one bushel of wheat, to be used by the latter, so that it shall not be returned to Peter, but instead of which Paul will return to Peter another bushel of wheat of the same quality, at a time agreed upon.
By fungible, in this definition is meant any personal chattel whatever, which consists in quantity, and is regulated by number, weight and measure, such as corn, wheat, oil, wine and money, (a)
The person who delivers the article to be used is called the lender, the other is called the borrower.
1090. This contract differs essentially from a loan for use, or commodatum. In the latter the title to the property in the thing lent remains with the lender, and, if it be destroyed without the fault or negligence of the borrower, the loss will fall on the lender, the rule res perit domino, applying in such case. On the contrary, by the loan for consumption, or mutuum, the title to the thing lent passes to the borrower, and in case of loss, he must bear it. Mutuum bears a strong resemblance to barter or exchange; in a loan for consumption the borrower agrees to exchange with the lender a bushel of wheat, which he has not, but expects to obtain, for another bushel of wheat which the lender now has and is ready to part with.
§ 1.—Of the nature of the contract of loan for consumption.
Art. 1.—What constitutes the essence of this contract.
1091. There must be, 1, something lent which is consumed by use; 2, that it be delivered to the borrower; 3, that the property in the thing be transferred; 4, that the borrower agree to return as much in kind; and, 5, and lastly, the parties agree on all these things.
1092.—1. There cannot be a loan for consumption unless there be a thing loaned, which is to be consumed, and it must be lent for that purpose.
1093.—2. It is also of the essence of this contract that the lender deliver to the borrower the thing lent. But there are some exceptions to this rule; if Peter agrees to lend to Paul one thousand dollars, which money has been already delivered by Peter to Paul on a special deposit, the agreement will of itself change the property; while it was on deposit it was at the risk of the depositor, but the moment the contract is turned to a loan, the money is at the risk of the borrower, the title to it being then in him.
1094.—3. The title to the thing loaned must be transferred to the borrower; a transfer of the possession without an intention of transferring the property, would not oblige the borrower to return other property of the same kind. It is sometimes difficult to say when the transfer has been made so as to convey the title.(a)
1095.—4. The borrower who receives the things loaned must agree to return the same quantity, weight or number, of the same kind of goods. If Peter were to borrow of Paul one hundred bushels of corn, and agree at a future time to pay him in money, for the corn, one hundred dollars, the contract would not be a loan for consumption, but a sale; and if, instead of money, he agreed to return to him seventy-five bushels of wheat, the contract would be a barter or an exchange.
1096.—5. As in all other contracts, the parties to this must agree upon all the essential matters which belong to it.” (Bouvier 1851: 441–443).
Henry Dunning Macleod in his Theory and Practice of Banking (6th edn; 1902) also gives us a very good summary of the legal principles (writing as he was in the UK):
“When a man lends a book, or any other chattel, to his friend, he never parts or dispossesses himself of the property in it. He is entitled to have that very book, or the very chattel, back again. There is no exchange, and no new property created. And only one party can have the use of the book, or the chattel. But in all cases whatever of a loan of money, the lender absolutely cedes the property in the money to the borrower, and it becomes his absolute property. What the lender does acquire is the right, or property, to demand back an equivalent amount of money, but not the specific money. A loan of money, is therefore, always an exchange, and in all such cases, there must, by necessity, be a new property created; and this property may be sold and transferred like the money itself.Appendix
In the loan of a book, or a chattel, the right to it, or property, of the lender, is never severed from it; in a loan of money, the right, or property, of the lender in it is always severed from it, or rather, transferred to the borrower; and the new right, or property, created in the lender is termed a Debt, or Credit, and when the debt is paid, or, in common language, the loan returned, this new property is destroyed.
Hence we see that there are two distinct species of loan: the one where the lender has the right to have the very thing returned, the other where he has only the right to demand to have an equivalent amount returned. Now all commercial loans are of the latter species: they are all sales, or exchanges, and they are never of the former sort; and all the confusion on the subject has arisen from not observing this distinction.” (MacLeod 1902: 81).
There are some other useful sources below. And it should be noted that European law was itself based on Roman law, where the mutuum was also understood as a loan where ownership of the money passed to the bank; this was the legal framework for money loans that were recallable on demand by the creditor in ancient Rome (Gamauf 2006).
(1) Alexander Pulling in the British journal The Bankers’ Magazine (1851):
“The English term loan has a variety of meanings. It is used to designate, 1st, the commodatum of the Roman law … a transaction by which an article of use, such as a book, a horse, &c, is gratuitously delivered by the owner to another for his mere use or accommodation, on the simple condition of the borrower returning it in the same state in which he received it. 2ndly. The mutuum, or gratuitous loan of those things which in the phraseology of the Scottish law are called fungibles, and can be used only by actual consumption or expenditure, such as corn, wine, money, or the like, the lender of which absolutely abandons the ownership on condition of the borrower substituting by way of return the specific value in number, weight, and measure. 3rdly. The foenus, or loan at interest, which in most countries has been the subject of artificial regulations.” (Pulling 1851: 202).(2) In a case called Dawson et al vs. the Real Estate Bank that came before the Supreme Court of Arkansas in 1845 we have a test case clarifying the nature of money left at a bank:
“In order to ascertain what power the bank had over the funds of Dawson, and the duty enjoined upon her by law, it is necessary first to determine whether they were held as a special or general deposit. If the funds were held as a special or general deposit, the authorities all agree that the bank had no right to use or dispose of them; but was bound simply to keep them and restore to the depositor the identical funds deposited. If they were held either as a general or irregular deposit, the rule appears to be equally well established that, upon such deposit being made, the legal interest in the money or thing deposited, became immediately vested in the bank, and the relation of debtor and creditor was thereby created between the parties; that is, as between the bank and Dawson, the latter became the creditor and the former his debtor, to the amount or value of the deposit. And in such case, the bank having acquired the absolute property in the thing deposited, could lawfully dispose of them in any manner she pleased, her obligation being only to restore to the depositor the like sum or value in kind with interest, but not the identical thing deposited. Commercial Bank of Albany vs Hughes, 17 Wend. 94 Foster et al. Ex’s vs. The Essex Bank 17 Mass. R. 477. Story Com. on Bailment 60. lb. 66.Although the language is unusual, it seems that the “special or general deposit” must be the depositum and that “general or irregular deposit” refers to a mutuum. The tradition of sealing money in a bag, chest or box to indicate that it was to be held in safekeeping as a depositum (not as a mutuum) goes right back to English banking practices that have been examined by Selgin (2010).
From a careful consideration of the authorities on this subject, we understand the general rule to be, that where money, not in a sealed packet, or closed box, bag or chest, is deposited with a bank or banking corporation, the law presumes it to be a general deposit, until the contrary appears; because such deposit is esteemed the most advantageous to the depositary, and most consistent with the general objects, usages, and course of business of such companies or corporations. But if the deposit be made of any thing sealed or locked up or otherwise covered or secured in a package, cask, box, bag or chest, or any thing of the like kind of or belonging to the depositor, the law regards it as a pure or special deposit, and the depositary as having the custody thereof only for safe keeping, and the accommodation of the depositor.” (Pike 1845: 296–297).
(3) In April 1843 a case called Downes vs. The Phoenix Bank of Charlestown came before the New York circuit court where the nature of mutuum is also an issue:
“The usual course of such business is, for the dealer to deposit his money with the bank, to be repaid upon his checks or drafts, or in taking up his notes or acceptances made payable at the bank. It is not strictly a deposit, nor a bailment of any kind; for the same thing is not to be returned, but another thing of the same kind and of equal value. In the civil law it is called a mutuum, or loan for consumption. Except where the deposit is special, the property in the money deposited passes to the bank, and the relation of debtor and creditor is created between the parties. (Commercial Bank v. Hughes, 17 Wend. 94.) Still, the commonly received opinion is, that the banker cannot be sued for the money until after the customer has drawn for it, or in some other way required its repayment. Mr. Justice Story says, the bank is to restore the money ‘whenever it is demanded.’ (Story On Bailm. 66, § 88; and see Marzetti v. Williams, 1 Barn. Ad. 415; Chit. On Bills, 547, ed. of1839; Chit. Jr. On Bills, 44.) Judging from the ordinary course of this business, I think the understanding between the parties is, that the money shall remain with the banker until the customer, by his check, or in some other way, calls for its repayment: and if such be the nature of the contract, the banker is not in default, and no action will lie, until payment has been demanded. No one could desire to receive money in deposit for an indefinite period, with a right in the depositor to sue the next moment, and without any prior intimation that he wished to recall the loan.” (Denio 1845: 299).BIBLIOGRAPHY
Bouvier, John, 1851. Institutes of American Law, R.E. Peterson, Philadelphia.
Denio, H. 1845. Reports of Cases Argued and Determined in the Supreme Court and in the Court for the Correction of Errors of the State of New-York. Vol. VI., Gould, Banks and Co. New York.
Gamauf, R. 2006. “Mutuum,” in H. Cancik and H. Schneider (eds), Brill’s New Pauly: Encyclopaedia of the Ancient World (Vol. 9), Brill, Leiden. 382–383.
MacLeod, H. D. 1902. Theory and Practice of Banking (6th edn), Longmans, Green, Reader, & Dyer, London.
Pike, A. 1845. Reports of Cases Argued and Determined in the Supreme Court of Law and Equity of the State of Arkansas Volume V. B. J. Borden, Little Rock.
Pulling, Alexander. 1851. “The Law of Money Lending—No. I.,” The Bankers’ Magazine; Journal of the Money Market 11: 202-208
Selgin, G. “Those Dishonest Goldsmiths,” April 14, 2010