More Historical Evidence on the Mutuum Contract

This seems to be my week for discussing fractional reserve banking and the demand deposit.

Thomas Wood (1661–1722) was an English Doctor of Civil Law (New College, Oxford), eminent jurist and author of the leading work on English law in the 18th century. In the 4th edition of A New Institute of the Imperial or Civil Law (1730; 1st edn. 1704), we have this definition of the mutuum:

“Mutuum (a Loan simply so call’d quod de meo tuum fiat [sc. “because let what is mine become yours”])

It hath no one particular name in the English Language.

is a Contract introduced by the Law of Nations, in which a Thing that consists in weight (as Bullion,) in number (as Money,) in measure (as Wine,) is given to another upon condition that he shall return another thing of the same Quantity, Nature and Value upon demand. More than Consent is required, for the Thing, viz. Money, Wine, or Oil ought to be actually delivered, and more than what was delivered cannot be repaid; but less may be repaid by Agreement. This Contract forces men to be industrious and promotes Trade, and for this reason it may be greater charity to lend than to give. Creditum is a more general Word. In the case of Money, Silver may be repaid tor Gold, unless the Creditor is to be damnified by it; for it shall be understood to be the same kind of Money when it is of the same” (Wood 1730: 212).

What is most interesting here is the statement:

“he shall return another thing of the same Quantity, Nature and Value upon demand”.

The words “upon demand” seem to be entirely consistent with what we would expect if under English law mutuum contracts allow demand deposits (and not just time deposits).

One can also see this idea in the definition of mutuum in the Lexicon Technicum: or, An Universal English Dictionary of Arts and Sciences (1723; 2nd edn.), which is no doubt based on Wood’s treatise:

MUTUUM, in the Civil Law, is a Loan simply so called; or a Contract introduced by the Law of Nations, in which a Thing that consists in Weight, (as suppose Bullion) in Number, as Money: or in Measure, as Corn, Wine, Oil, &c. is given to another upon Condition that he shall return another Thing of the same Quantity, Nature, and Value, upon Demand.
So that this is a Contract without Reward, and admits, properly speaking, of no Recompence. And therefore where Use and Interest is agreed on, they arise from some distinct particular Argument, or by Custom of the Country. (s.v. “mutuum”).

A reading of the extended section of Thomas Wood’s A New Institute of the Imperial or Civil Law on the mutuum contract shows no evidence that a time deposit was held to the indispensible element in the contract (as Huerta de Soto argues).

The transfer of ownership of the money in a mutuum loan is explicitly stated by Wood above in the Latin phrase ...de meo tuum fiat (“let what is mine become yours”). This phrase (in the form quod de meo tuum fit) goes right back to Roman law (MacLeod 1902: 149) as a way of describing the mutuum loan, and is found as a definition of mutuum in the Digest (at 12.1.2.2) of Justinian (AD 530-533), part of that emperor’s Corpus Iuris Civilis (Body of Civil Law).

Over a century later in America, a case is recorded in the Court of Appeals of the State of New York involving Benjamin C. Payne, Executor, &c. vs. William Gardiner (impleaded with Oliver Slate, Jr.) in the 19th century. This was essence of the case:

“In May 1848, P[ayne] delivered to the firm of S. G. & H. $1,000, which they received and credited to him on their books, and delivered to him a paper signed by them, acknowledging the receipt of the money, and stating that the same was to P's credit on their books at six per cent interest. Held, that the transaction was a deposit and not a loan; and that the rights and liabilities of the parties were precisely the same as if the money had been in a bank; and hence there was no right of action against the depositaries until actual demand was made; and that the statute of limitations began to run from the same time, and not before. But that if the transaction was to be treated as a loan, then the paper signed by S. G. 8c H. was in effect a promissory note on interest, and payable on demand; and the statute of limitations would not begin to run in favor of any of the parties to it, until such demand was made. ....” (Tiffany 1865: 146).

“This action was commenced on the 27th November, 1861, to recover the amount deposited and interest thereon since 1859. Howell died before the commencement of the action. ....” (Tiffany 1865: 147).

“There was a verdict for the plaintiff for $1,177.16. The counsel for the defendant Gardiner then moved for new trial, on the judge's minutes, which was denied. He then appealed from the judgment, and from the order denying said motion to the general term in the second district, and that court affirmed both the judgment and order.” (Tiffany 1865: 148).

“The rule laid down in Merritt v. Todd, that notes on demand are continuing securities, and do not become overdue by the mere lapse of time, has always been accepted in the English courts; and yet, as we have seen, the rule that notes payable on demand, with or without interest, may be sued as to the maker instantly and without demand, was never shaken there. This contradiction and absurdity seem never to have occurred to bench or bar in that country.” (Tiffany 1865: 152).

There is a clarification of the nature of demand deposits here:

“A deposit of money with a bank or private person is what is known in the civil law as a mutuum or irregular deposit—the distinction between the two kinds of deposit not being recognized by the common law.

When money is borrowed, and no time of payment is fixed by the contract of loan, the debt, as already stated, is instantly due, and an action may be brought without demand — the bringing of the action being a sufficient demand to entitle the lender to recover. (Chitty on Contracts, 734; Norton v. JEUam, 2 M. & W. 461.)

Even if the debt is by the terms of the agreement to be paid on demand, yet no special demand is necessary; the money being due without it.

We would have to conclude that in the case of bank accounts where “no time of payment is fixed by the contract of loan” American law assumed the mutuum was a type of callable loan or demand deposit.

UPDATE
I have added some other sources from the 18th century to the discussion above.

BIBLIOGRAPHY

Harris, John. 1723. Lexicon Technicum: or, An Universal English Dictionary of Arts and Sciences (vol. 2; 2nd edn.), D. Brown, J. Walthoe et al., London.

Macleod, Henry Dunning, 1893. The Theory and Practice of Banking in Two Volumes (2nd edn.; vol. 1), Longmans, Green and Co., London.

Tiffany, J. 1865. Reports of Cases Argued and Determined in the Court of Appeals of the State of New York (vol. II), Weare C. Little, law Bookseller, Albany.

Wood, Thomas. 1730. A New Institute of the Imperial or Civil Law (4th edn.), J. and J. Knapton, London.