The fungibility of #money, combined with the familiar nature of the jewelers' business, led to the transformation of banking—from a safekeeping relationship to a debt-based one. The question of how this change in legal relations occurred is posed by Powell: "When was the doctrine adopted that a banker is simply a debtor, and not a bailee, much less a trustee, of his clients' funds? What circumstances led to this change in his legal status and created an economic 'sport' that led to the degeneration of the financial system, immeasurably increasing its power? How did receipts and vouchers lose their connection with a specific deposit and come to refer only to the banker as a whole?"
Changes occurred evolutionarily.
In the 17th and 18th centuries, #bank customers went to court over fractional-reserve banking and the legal status of customer deposits. The courts almost always ruled that the banker was simply a debtor, not a bailee or trustee. Why? Primarily because the money or coins in custody lacked distinguishing features. This condition was a sine qua non in cases of theft or robbery: the courts believed that stolen property or goods must be identifiable. But the coins of a specific customer could not be identified. Thus, due to the natural fungibility of money, the banker could not be held liable as a bailee.
The courts treated cases involving banks the same way they would any other cases involving fraud or theft; they simply did not see the special nature of cash deposits.
As a result, “unpackaged and therefore unidentifiable coins were transferred for safekeeping, and the only course of action for the custodian to return the money was debt.”
This problem was finally resolved in #England only in the early 19th century.
Some depositors again questioned the traditional decisions of the English courts, arguing that "banks should be held liable no less than the class of bailees, which includes shipping companies, innkeepers, and others." However, "in 1833, in the case of Pitts v. Glegg, the court held that sums credited to a client's account by a banker, although usually called deposits, were in fact loans from the client to the banker."
Nevertheless, the courts recognized that the use of the term "deposit" was misleading, although they allowed bankers to use it. Developing this view, Lord Cottenham, in Foley v. Hill in 1848, held: "Money deposited with a banker is, to all intents and purposes, the banker's money, who is free to do with it as he pleases. He is not guilty of breach of trust in using it. He is not liable to the principal for exposing it to danger by engaging in a casual speculation; he is not bound to keep it or treat it as the principal's property, but he is certainly liable for the amount, because, having received it, he contracted to pay the principal, on demand, a sum equivalent to what he received."
#bitcoin
Changes occurred evolutionarily.
In the 17th and 18th centuries, #bank customers went to court over fractional-reserve banking and the legal status of customer deposits. The courts almost always ruled that the banker was simply a debtor, not a bailee or trustee. Why? Primarily because the money or coins in custody lacked distinguishing features. This condition was a sine qua non in cases of theft or robbery: the courts believed that stolen property or goods must be identifiable. But the coins of a specific customer could not be identified. Thus, due to the natural fungibility of money, the banker could not be held liable as a bailee.
The courts treated cases involving banks the same way they would any other cases involving fraud or theft; they simply did not see the special nature of cash deposits.
As a result, “unpackaged and therefore unidentifiable coins were transferred for safekeeping, and the only course of action for the custodian to return the money was debt.”
This problem was finally resolved in #England only in the early 19th century.
Some depositors again questioned the traditional decisions of the English courts, arguing that "banks should be held liable no less than the class of bailees, which includes shipping companies, innkeepers, and others." However, "in 1833, in the case of Pitts v. Glegg, the court held that sums credited to a client's account by a banker, although usually called deposits, were in fact loans from the client to the banker."
Nevertheless, the courts recognized that the use of the term "deposit" was misleading, although they allowed bankers to use it. Developing this view, Lord Cottenham, in Foley v. Hill in 1848, held: "Money deposited with a banker is, to all intents and purposes, the banker's money, who is free to do with it as he pleases. He is not guilty of breach of trust in using it. He is not liable to the principal for exposing it to danger by engaging in a casual speculation; he is not bound to keep it or treat it as the principal's property, but he is certainly liable for the amount, because, having received it, he contracted to pay the principal, on demand, a sum equivalent to what he received."
#bitcoin