The attempts to legally equate the monetary irregular-deposit contract with the loan or mutuum contract are particularly attractive to those who most benefit from banking practices (bankers and authorities). Considering that this is ultimately what a banker does when appropriating demand deposit funds, the
ideal legal solution for him is clearly to equate the irregular deposit contract with the loan contract. Moreover, a worn-out legal pretext has persistently been used to reinforce the argument for equating the two. Lax and superficial, it is as follows:
Since the irregular deposit contract consists of the deposit of fungible goods, the very essence of which implies the inevitable transfer of ownership of individual items deposited (because they are indistinguishable from one another), the
deposit and the loan are naturally one and the same, as both institutions entail the transfer of ownership.
In fact, even if ownership is transferred in both cases, the two contracts still differ radically concerning the availability of the item (an essential feature of the
contracts). Indeed, whereas in the loan contract full availability of the item is transferred along with ownership, the very essence of the irregular deposit contract demands that the purpose of safekeeping or custody predominate. Accordingly, although we might in theory consider that ownership is transferred, in practice such a transference is negligible, since the safekeeping or custody of the fungible good requires the constant availability of the tantundem to the depositor. Therefore, even if ownership were transferred in the same sense in
both institutions, an essential legal difference would still exist between them: the contrast in availability.
It may come as a surprise that the jurists who have chosen to equate the deposit contract with the mutuum or loan contract have overlooked such an obvious difference. The association between the contracts is so forced and the arguments so weak that it is amazing that a certain group of theorists have tried to defend them. However, their attempt has a historical, theoretical explanation: the depositum confessatum, a legal artifice which arose in the Middle Ages from attempts to avoid the canonical ban on interest. Although we have already
shown that the canonical prohibition on interest and the development of fractional-reserve banking shared very little direct connection, the depositum confessatum acted as a strong, indirect link between them. We already know that from the time of Roman law, if a depositary violated the essence of the
deposit contract, based on safekeeping, and appropriated deposits and was not able to immediately return the funds when the depositor demanded them, then the depositary was obliged to pay interest. Then, irrespective of any other foreseeable civil or criminal actions (the actio depositi and the actio furti),
as is logical, an additional suit was filed to obtain interest for late payment and the loss of availability to the depositor up to the point when the depositary returned his funds. Thus, it is easy to understand how convenient it was in the Middle Ages to disguise a loan as a deposit in order to make the payment of interest legal, legitimate and socially acceptable. For this reason, bankers started to systematically engage in operations in which the parties openly declared they were entering into a deposit contract and not a loan contract. However, as the Latin saying goes, excusatio non petita, accusatio manifesta (an unsolicited excuse is tantamount to a self-accusation). Indeed, with a true deposit it was not necessary to make any express declaration, and such a declaration, when made, only revealed an attempt to conceal a loan or mutuum contract. The purpose of disguising a loan as a deposit was to evade the strict canonical prohibitions on interest-bearing loans and to permit many true credit transactions highly necessary, both economically and socially.
The depositum confessatum clouded the decidedly clear legal boundaries between the irregular deposit contract and the loan or mutuum contract. Whatever a scholar’s stance on the canonical prohibition of usury, the depositum confessatum almost inevitably led to the “natural” identification of deposit
contracts with mutuum contracts. To a theorist who wished to discover and expose all violations of the canonical prohibition and each case of concealment of interest, anything that sounded like a “deposit” was sure to appear suspicious from the start, and the most obvious and efficient solution from this point of view was to automatically equate deposits with loans and condemn the payment of interest in all cases, regardless of the operation’s outer legal appearance. Paradoxically, the more “liberal” moralists did not stop at defending the legal
existence of deposits and the consequent legitimacy of interest for late payment; they went on to indicate that such deposits were ultimately loans, and hence the banker could use or invest the money. These authors sought not only to justify the payment of interest, but also to legitimize an institution that permitted the same acts of investment, or exchange of present goods for future goods, that the loan contract had traditionally made possible. Furthermore, this type of exchange was quite necessary to industry and trade. Throughout the Middle Ages, most jurists who commented on law texts held this position. As we saw in the last chapter, it was also the opinion of several members of the School of Salamanca, such as Luis de Molina, who believed the monetary irregular-deposit contract to be a “precarious loan” in which ownership of the money is transferred to the banker (which we have seen is admissible in the case of a deposit of fungible money), as well as full availability (which we know is impossible and contrary to the very essence of the deposit).
Moreover, as we have already seen, the Irish banker and economist Richard Cantillon, in the civil and criminal suits brought against him for misappropriating securities deposited with him as fungible goods through an irregular deposit contract during the wave of speculation generated in France by John Law’s system, tried to defend himself using the only doctrinal justification that had at that point been developed in favor of his position: that because the contract was for an “irregular” deposit (i.e., the securities were considered fungible goods), a complete transfer of both ownership and avail-
ability took place. Thus, he could legitimately appropriate the shares, sell them, and use them to speculate on the market without committing any crime nor harming his depositors.
The same legal line of argument used by Richard Cantillon’s defense had been developed by scholars with respect to the monetary irregular deposit (and not the irregular deposit of securities). Consequently, if it is considered legally appropriate and justified to equate the monetary deposit contract with the mutuum contract, the same would certainly be applicable, mutatis mutandis, to all other deposits of fungible goods; and in particular, to deposits of securities as goods indistinguishable from one another. Hence we must emphasize that any
possible doctrinal analysis against the legality of a complete transfer of ownership and availability in an irregular deposit of securities also ultimately constitutes a powerful case against the use of a fractional reserve in the monetary irregular deposit. The great Spanish mercantilist Joaquín Garrigues has recognized this fact. He states:
The reasoning thus far leads us to the affirmation that when a customer entrusts his shares to the bank he intends to contract a bank deposit; however, immediately after making this assertion, we become aware of another contract with a similar financial purpose. This contract also involves the entrusting to the bank of a fungible good (money) and cashier services are provided by the bank. This—defenders of the checking account will say—is another unique contract which is not called a loan nor a deposit in bank documents and which has the same legal effects as the securities current account; namely, the transference of ownership to the bank and the bank’s return of the tantundem.
Despite Garrigues’s forced and unconvincing attempt to persuade us that these two deposits are different, it is obvious that both contracts of irregular deposits of fungible goods (of money and of securities) are essentially identical, and therefore if we accept the transfer of full availability of the good in one case (the deposit of money), we must also accept it in the other. Consequently, there is no denying the legality of one (the deposit of securities) without denying the
legality of the other (the deposit of money). In conclusion, the legal arguments used by Cantillon in his defense were derived from theories regarding the monetary irregular-deposit contract, and if we consider them valid, then they also justify Cantillon’s obvious swindling of his customers and the host of irregular and fraudulent activities later performed in connection with irregular deposits of securities in the other countries, especially Spain. Catalonian bankers carried out such fraud well into the twentieth century, and Spanish scholars have correctly and unanimously recognized the dishonest, criminal nature of their behavior.
ideal legal solution for him is clearly to equate the irregular deposit contract with the loan contract. Moreover, a worn-out legal pretext has persistently been used to reinforce the argument for equating the two. Lax and superficial, it is as follows:
Since the irregular deposit contract consists of the deposit of fungible goods, the very essence of which implies the inevitable transfer of ownership of individual items deposited (because they are indistinguishable from one another), the
deposit and the loan are naturally one and the same, as both institutions entail the transfer of ownership.
In fact, even if ownership is transferred in both cases, the two contracts still differ radically concerning the availability of the item (an essential feature of the
contracts). Indeed, whereas in the loan contract full availability of the item is transferred along with ownership, the very essence of the irregular deposit contract demands that the purpose of safekeeping or custody predominate. Accordingly, although we might in theory consider that ownership is transferred, in practice such a transference is negligible, since the safekeeping or custody of the fungible good requires the constant availability of the tantundem to the depositor. Therefore, even if ownership were transferred in the same sense in
both institutions, an essential legal difference would still exist between them: the contrast in availability.
It may come as a surprise that the jurists who have chosen to equate the deposit contract with the mutuum or loan contract have overlooked such an obvious difference. The association between the contracts is so forced and the arguments so weak that it is amazing that a certain group of theorists have tried to defend them. However, their attempt has a historical, theoretical explanation: the depositum confessatum, a legal artifice which arose in the Middle Ages from attempts to avoid the canonical ban on interest. Although we have already
shown that the canonical prohibition on interest and the development of fractional-reserve banking shared very little direct connection, the depositum confessatum acted as a strong, indirect link between them. We already know that from the time of Roman law, if a depositary violated the essence of the
deposit contract, based on safekeeping, and appropriated deposits and was not able to immediately return the funds when the depositor demanded them, then the depositary was obliged to pay interest. Then, irrespective of any other foreseeable civil or criminal actions (the actio depositi and the actio furti),
as is logical, an additional suit was filed to obtain interest for late payment and the loss of availability to the depositor up to the point when the depositary returned his funds. Thus, it is easy to understand how convenient it was in the Middle Ages to disguise a loan as a deposit in order to make the payment of interest legal, legitimate and socially acceptable. For this reason, bankers started to systematically engage in operations in which the parties openly declared they were entering into a deposit contract and not a loan contract. However, as the Latin saying goes, excusatio non petita, accusatio manifesta (an unsolicited excuse is tantamount to a self-accusation). Indeed, with a true deposit it was not necessary to make any express declaration, and such a declaration, when made, only revealed an attempt to conceal a loan or mutuum contract. The purpose of disguising a loan as a deposit was to evade the strict canonical prohibitions on interest-bearing loans and to permit many true credit transactions highly necessary, both economically and socially.
The depositum confessatum clouded the decidedly clear legal boundaries between the irregular deposit contract and the loan or mutuum contract. Whatever a scholar’s stance on the canonical prohibition of usury, the depositum confessatum almost inevitably led to the “natural” identification of deposit
contracts with mutuum contracts. To a theorist who wished to discover and expose all violations of the canonical prohibition and each case of concealment of interest, anything that sounded like a “deposit” was sure to appear suspicious from the start, and the most obvious and efficient solution from this point of view was to automatically equate deposits with loans and condemn the payment of interest in all cases, regardless of the operation’s outer legal appearance. Paradoxically, the more “liberal” moralists did not stop at defending the legal
existence of deposits and the consequent legitimacy of interest for late payment; they went on to indicate that such deposits were ultimately loans, and hence the banker could use or invest the money. These authors sought not only to justify the payment of interest, but also to legitimize an institution that permitted the same acts of investment, or exchange of present goods for future goods, that the loan contract had traditionally made possible. Furthermore, this type of exchange was quite necessary to industry and trade. Throughout the Middle Ages, most jurists who commented on law texts held this position. As we saw in the last chapter, it was also the opinion of several members of the School of Salamanca, such as Luis de Molina, who believed the monetary irregular-deposit contract to be a “precarious loan” in which ownership of the money is transferred to the banker (which we have seen is admissible in the case of a deposit of fungible money), as well as full availability (which we know is impossible and contrary to the very essence of the deposit).
Moreover, as we have already seen, the Irish banker and economist Richard Cantillon, in the civil and criminal suits brought against him for misappropriating securities deposited with him as fungible goods through an irregular deposit contract during the wave of speculation generated in France by John Law’s system, tried to defend himself using the only doctrinal justification that had at that point been developed in favor of his position: that because the contract was for an “irregular” deposit (i.e., the securities were considered fungible goods), a complete transfer of both ownership and avail-
ability took place. Thus, he could legitimately appropriate the shares, sell them, and use them to speculate on the market without committing any crime nor harming his depositors.
The same legal line of argument used by Richard Cantillon’s defense had been developed by scholars with respect to the monetary irregular deposit (and not the irregular deposit of securities). Consequently, if it is considered legally appropriate and justified to equate the monetary deposit contract with the mutuum contract, the same would certainly be applicable, mutatis mutandis, to all other deposits of fungible goods; and in particular, to deposits of securities as goods indistinguishable from one another. Hence we must emphasize that any
possible doctrinal analysis against the legality of a complete transfer of ownership and availability in an irregular deposit of securities also ultimately constitutes a powerful case against the use of a fractional reserve in the monetary irregular deposit. The great Spanish mercantilist Joaquín Garrigues has recognized this fact. He states:
The reasoning thus far leads us to the affirmation that when a customer entrusts his shares to the bank he intends to contract a bank deposit; however, immediately after making this assertion, we become aware of another contract with a similar financial purpose. This contract also involves the entrusting to the bank of a fungible good (money) and cashier services are provided by the bank. This—defenders of the checking account will say—is another unique contract which is not called a loan nor a deposit in bank documents and which has the same legal effects as the securities current account; namely, the transference of ownership to the bank and the bank’s return of the tantundem.
Despite Garrigues’s forced and unconvincing attempt to persuade us that these two deposits are different, it is obvious that both contracts of irregular deposits of fungible goods (of money and of securities) are essentially identical, and therefore if we accept the transfer of full availability of the good in one case (the deposit of money), we must also accept it in the other. Consequently, there is no denying the legality of one (the deposit of securities) without denying the
legality of the other (the deposit of money). In conclusion, the legal arguments used by Cantillon in his defense were derived from theories regarding the monetary irregular-deposit contract, and if we consider them valid, then they also justify Cantillon’s obvious swindling of his customers and the host of irregular and fraudulent activities later performed in connection with irregular deposits of securities in the other countries, especially Spain. Catalonian bankers carried out such fraud well into the twentieth century, and Spanish scholars have correctly and unanimously recognized the dishonest, criminal nature of their behavior.
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