Conference 55 - The Subject of Contracts

Conferences on the Virtues

By Fr. Bruno Cocuzzi, ocd

Number 55

The Subject of Contracts…

Question 4:

The Subject of Contracts…

Not only are there conditions to be met with regard to the Matter of a Contract in order that it be valid, but also in regard to the subjects of a Contract, namely, the persons who enter into a contract.

Considering Natural Law alone, only those individuals who have the use of reason are capable of entering into valid contracts, that is, of binding themselves in conscience. The use of reason, of course, is required because the consent so to bind oneself must be given freely with sufficient knowledge and deliberation. Thus, by Natural Law, those incapable of entering into Contracts are:

(a) Children who have not attained the use of reason. Perhaps that should be extended to include those children who do enjoy the use of reason, but who have not a conscience sufficiently formed to perceive themselves as being “bound in conscience”.

(b) The mentally deranged – those, whose disability renders them incapable of making free, deliberate decisions.

(d) Those who are under the influence of a violent passion (while under its influence) and

(e) Those who are in a hypnotic state.

With regard to individuals who do not have the full use of reason, such as the semi-retarded and folks of low I.Q., but who nevertheless are able to manage their lives relatively well, it would be best that they do not enter into contracts. However, with the help of a “care-taker” who has the individual’s best interest at heart, they would be capable of entering into valid, binding contracts.

What is the relationship between the Natural Law on Contracts and human Positive Law?

Well, for certain human positive law cannot cancel the Natural Law, that is, declare morally good what by Natural Law is intrinsically evil. However, human positive law (or better, lawful public authority) can, for the sake of the common good, declare that what is licit (morally good) in virtue of Natural Law is illicit for certain categories of persons or in certain circumstances.

The common good here is usually the protection of certain members of society who otherwise might enter into contracts that would cause them temporal or spiritual harm.

Thus, in Canon (Ecclesiastical) Law, individual religious, as individuals, would be incapable of entering into contracts.

The Civil Law ordinarily declares minors incapable of entering binding contracts. However, it also usually legislates the conditions or requisites by means of which a minor or a person not enjoying the full use of reason can and may enter into contracts.

With regard to persons who do enjoy the full use of reason and for moral persons (lawful associations and other corporate entities), Civil Law can and does also add requirements for the validity of contracts that go beyond what is required by Natural Law.

With regard to all of the above, Human Authority always lays down the requirements and the procedure by means of which parties to contracts may seek to have them interpreted, rescinded or declared null and void.

Question 5 - The effects of a [valid] Contract

My textbook treats of this subject by considering one of the parties to a contract to be the debtor and the other the creditor. The debtor is the one who “first in time” is obliged to act, once the contract has been sealed. The effect of the contract upon him, then, is twofold, direct and indirect:

(a) Direct – the obligation to do what the contract calls for: perform a service, deliver goods, perform certain acts, and refrain from performing certain acts.

(b) Indirect – to make just recompense for any damage to the creditor in the event of, and caused by, the debtor’s failure to perform as required by the contract.

The effect of the contract upon the creditor is one and the same in regard to each of the above: it gives him the right to demand (or exact) what the debtor “owes” him.

The direct effect on the debtor is an obligation arising out of commutative Justice, such that it

(i) Is binding in conscience, which means that a violation of this obligation is a sin, a moral evil.

(ii) Requires a good faith fulfillment of the obligation. What this means is that not only must those things be done which the contract expressly, explicitly calls for, but also all those things that are implied in virtue of the language used, the character and disposition of the contracting parties, and everything else that equity, custom and the nature of the contract requires.

(iii) Has obligatory force only upon the contracting parties and those who by operation of natural or positive law are the “successors in interest” of the contracting parties. This would include “heirs” of the same interests, and creditors (of the creditor in the relationship).

(iv) Should the contract be rescindable, it remains in force until the party who has the right to seek a rescission has done so.

As we stated the indirect effect of the contract upon the debtor in the relationship is to compensate for the harm done to the creditor caused by breach of the Contract.

The breach can be the result of a moral fault, a legal fault (indeliberate violations of the laws governing contracts), or merely a fortuitous fault (due to circumstances beyond one’s control).

When the breach is the result of

(a) A moral fault, that is, a free and deliberate violation, the obligation to compensate for all the harm resulting therefrom is as binding in conscience as was the contract that has been breached. Deliberate omission to make compensation would be another sin, and as much a sin as the deliberate breach of the contract.

(b) A legal (or juridical) fault, the obligation to compensate becomes binding in conscience following a judicial decision, and even following a lawful demand made by the injured party. Here the legal breach would be a sin, but the deliberate omission to compensate would be sinful, because it is an act of injustice.

(c) A fortuitous fault (or better, default) would not give rise to any obligation to make compensation, because, clearly the failure to comply with the terms of the contract could not be attributed to either of the parties thereto.

However, the fortuitous circumstances must occur within the time the debtor can be reasonably expected to fulfill the contract. If that time has already run, he is guilty of a breach. The fortuitous occurrence thereafter of events that make fulfillment of the contract physically or morally impossible does not absolve him of the breach, nor of his obligation to compensate.

Cessation of Contractual Obligations

Several are the happenings that terminate a contract, that is, terminate the obligations of the parties thereto.

1. The first and normal happening is the fulfillment of the terms of the contract.

The not so usual ways in which the contract ceases to exist are:

2. When the creditor in the relationship forgives (writes off) what the debtor owes, or condones a breach of the contract.

3. When the parties are related by more than one contract, so that each is a creditor of the other for an equal amount, or for the identical thing or service.

The obligations of the respective parties cease because they are equal and offsetting.

4. When the obligation of the debtor and the right of the creditor are merged in one and the same person. For example, someone may have contractual obligations toward a relative, but then, at the death of the relatives, inherits or is bequeathed that relative’s estate. As we saw in an earlier conference, one person cannot enter into a bilateral contract with himself.

5. By loss or destruction of the matter of the contract [if it is a material object], or by fortuitous, unforeseen events which make fulfillment of the contract impossible.

6. By rescission or annulment of the contract by judicial decree.

7. By operation of law, as when a creditor fails to pursue his legal rights to force compliance by the debtor within the time prescribed by the Statute of Limitations.

Chapter II - Unilateral Contracts

First Question – Concerning Promises

All bilateral contracts are founded upon promises. The mutual promises are what constitute a Contract, as we have seen.

Nevertheless, a Promise is capable of standing alone. Or, rather, anyone capable of entering into a contract can and may make a promise binding in conscience upon himself without the inducement of a compensatory, binding promise made to him by that other person. A Promise may then be defined as:

The deliberate and spontaneous giving of one’s word to another that one will confer, gratis, a benefit that is lawful and possible upon that other, who, in turn, assents to, or agrees to accept, the benefit.

1. Deliberate and spontaneous – The giving of one’s word must be free of all error, fear, deceit and force, such that it proceeds out of pure generosity.

2. Gratis – to distinguish it from a bilateral, onerous contract. The promise if made WITHOUT any intention of obtaining a benefit in return.

3. Giving of one’s word - which indicates that the Promisor expressly manifests to the Promisee that he has bound himself in conscience faithfully to confer the benefit.

4. To another… and accepted by him - Although unilateral contracts by nature do not require a compensatory assumption of obligations by the beneficiary, nevertheless, every contract, whether multi-lateral or not, always requires the mutual consent of at least two parties. Thus, the promisor is not bound in conscience until the intended beneficiary consents, that is, manifests exteriorly in some way that he accepts the gratuitous promise.

5. Of a lawful and possible benefit – Because no one can bind himself in conscience to do what is sinful or impossible. The respective concepts are mutually exclusive.

All of what has just been said can be summed up by saying that the following three conditions must be verified in order to make a binding promise:

(a) the intention to bind oneself in conscience;

(b) the deliberate and spontaneous act of the will so binding oneself; and

Source of the obligation arising out of a promise…

Any and all promises made are binding in conscience, first of all, in virtue of the requirement of the natural law that, in our dealings with one another, we humans conduct ourselves with fidelity.

Or, as St. Thomas says, what we do should conform to (be in agreement with) what we say. The good of human society requires this.

Ordinarily, the virtue of fidelity would be the only one violated by failure to carry out a gratuitous, unilateral promise.

However, one can and may wish to impose upon himself an added obligation in Justice to fulfill it.

But, it the promisor knows that the beneficiary who has accepted (and thus ratified) the unilateral promise has assumed obligations or has made plans relying upon the benefit to be received, then again, the promisor would be obliged also in Justice to be faithful to the promise.

Obviously, all bilateral contracts oblige in Justice, so that deliberate failure to fulfill a bilateral contract is a sin of Injustice as well as a sin of Infidelity.

When a unilateral contract is binding ONLY because of the general obligation to be faithful, failure to fulfill it, even in grave matters, would be no more than a venial sin. When it is also binding in Justice, deliberate failure to fulfill it would be, considered in the abstract, a serious sin.

Whether the deliberate omission is actually serious of slight then would depend upon the circumstances, the same circumstances we had occasion to speak of in a previous conference.

All promises, whether unilateral of bilateral, cease to oblige in conscience when

(a) the Promisee revokes his acceptance or freely forgives the promisor for failure to keep the promise;

(b) it becomes impossible to keep the promise, or it turns out that it would be unlawful to do so, or it appears that the thing promised would be either useless (without value) or harmful to the beneficiary.

(c) Circumstances change to such an extent that one prudently may conclude that the promisor would not have made the promise had the new and present circumstances been in effect at the time of the promise.

(d) In the case of mutually interdependent promises (bilateral contract), if one of the parties is unfaithful in fulfilling his part of the bargain, the other is thereby absolved from the obligation of fulfilling his part. There is a principle that applies: One who is unfaithful (in mere contractual matters) has no right to expect others to be faithful in their dealings with him (also in contractual matters).

I place those words in parentheses because of what we read in one of the Letters (of John?, Paul?, Peter?) in the New Testament: If we deny Him (Jesus), He will deny us; if we are unfaithful to Him, He will remain faithful to us, for He cannot deny Himself.

Clearly and generally, the infidelity of another does not and cannot absolve any of us of the obligation imposed upon us by the natural law; to be Faithful in all our dealings.

(e) Finally, the death of the Promisee terminates the obligation of the Promisor to perform.

With the death of the Promisor [prior to performance], the obligation dies along with him, unless it is very clear from the circumstances, that the Promisor intended to bind his Estate. In this case, the obligation would devolve upon his heirs.

Ordinarily, most promises which individuals make to another are of the simple kind, and only oblige in virtue of fidelity. By their nature, they would always be venial sins, unless, as we said, failure to keep them would result in grave harm to the Promisee.

Practically speaking also, we humans tend to speak in such a way that it appears that we are making a promise to another, whereas in point of fact, we are only expressing an intention or a desire, as in “wishful thinking.” No obligations would arise in such instances.

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