Conferences on the Virtues
By Fr. Bruno Cocuzzi, ocd
Number 61
Bilateral Gratuitous
Contracts…
The first of
these is called, in Latin, a Contractus Crediti. We cannot translate this into a Contract of Credit because
here the word credit does not have the meaning we give it when we speak of buying
on credit. Thus it is better
translated as a contract of Trust.
It is based upon the confidence one of the parties to the contract has
in the honesty and integrity of the other party.
In this kind of
contract, there is no exchange of money or goods in return for goods or
services. However the thing or things
which comprise the object of the Contract do change hands, first from
party A to party B, and then, some time later, party B back again to party A.
The Latin has
two words, distinct in meaning, both of which we translate by the one word to lend. The corresponding word, to borrow is
also translated by two distinct words in Latin.
This is because
we can lend or borrow something like a tool or an instrument or equipment,
which remains unchanged by its use, or we can lend or borrow something, which
is consumed by its use, and thus ceases to exist.
In the first
instance, the borrower returns to the lender the identical item that was
borrowed. In the second, he gives back
something identical in kind but not the identical thing borrowed. For example, a man may go to his neighbor and
ask to borrow his lawnmower. Or, a
woman may go to her neighbor and ask to borrow a cup of sugar. In the first instance, the identical
lawnmower is returned. In the latter, a
cup of the same kind of sugar is returned.
For the sake of
completeness, the Latin for to lend what is not used up is dare
commodatium, and for to lend what is used up is dare mutuum.
Certain
obligations arise out of a Contract of Trust when the identical object lent and
borrowed is to be returned intact:
The Lender
1. Is
not to ask for the item to be returned prior to the time agreed upon (either
explicitly or implicitly) without an urgent need that was not foreseen.
2. Is
to pay the cost to repair the object borrowed in the event it breaks down
without any fault of the borrower while it is in the latter’s possession.
3. Must
reveal to the borrower any hidden defects in the item lent.
In
the event the hidden defects are not revealed, and the borrower is harmed as a
consequence, the lender is obliged to compensate the borrower for the harm
suffered.
The borrower
1. Is
to care for the item borrowed as if he were its true owner. In particular, he is to use it for no other
purpose than that for which it was lent.
To use it for other purposes, he needs to get the express consent of the
lender.
2. Is
to assume the ordinary costs of maintenance during the time the item is in his
possession.
3. Is
to restore it in as good a condition as it was when he borrowed it, normal wear
and tear excepted.
Similarly,
there are obligations arising out of lending and borrowing consumable goods.
The lender
1. Is
to surrender goods of ordinary, acceptable quality, free of harmful defects.
2. Is
to reveal any defects or lack of wholesome quality in the goods lent.
If
failure to do so results in harm to the borrower, he is to compensate him for
the harm. As for example, to lend a
gallon of wine without revealing that it will turn to vinegar within a few
days.
3. He
is not to ask for the equivalent goods to be returned before the time
specified; or, if not specified, before a reasonable time.
4. He
is not to ask for a greater amount in return than the quantity he had lent,
even though the price of that same amount has increased in the meantime.
The
borrower
1. At
the specified time, or at some reasonable time, is to return the equivalent in
quantity and quality of the same kind of goods borrowed, even though the value
of that amount and quality may have increased or decreased in cost.
2. If
it is impossible for him to return the goods in kind, he is to pay the lender
the value of the equivalent goods at the time and place it was to be returned.
3. In
the event he is unable to return the goods in kind or its equivalent value in
money at the specified time, is obliged to begin paying the legal interest on
that value beginning at that time, and until the goods in kind or its monetary
value has been returned.
Obligation
(3) of the borrower, just cited, provides the author of my textbook the
occasion to begin a long discussion of
Usury…
In moral
philosophy and theology Usury is defined, as the price a borrower must pay
for the use of consumable goods. In
this definition, money itself is considered a consumable good. In slightly different words, Usury is the
profit derived from lending consumable goods. The word Usury has always had a bad connotation.
The bad
connotation is derived from the fact that what started out as a gratuitous
Contract of Trust ends up with the lender demanding some compensation for not
having received back in time the goods lent to the borrower. When the demand for periodic payments
prevents the borrower from accumulating the resources out of which to return
the goods borrowed or its equivalent, with the result that the borrower falls
into a state of economic servitude to the lender, then THAT is the aspect of Usury
that is so roundly and forcefully condemned, particularly in Holy Scripture.
Governing the
practice of Usury, there are several Principles:
1. Usury
(as defined above) is of itself prohibited by Natural Law and is unjust. The rationale for this principle is derived
from the fact that Usury can be conceptualized as demanding payment for
something that does not exist, since, once used up, the goods are no more.
2. The
taint of Usury (i.e., making a profit on a Contract of Trust) can be
removed by an accessory contract. In
virtue of the latter, the borrower agrees to pay the lender an interest
for the using up of consumable goods, notably, money.
In
this situation, the lender and the borrower both acknowledge that the lender
could suffer some harm in not having the consumable goods he has lent at his
disposal during the time they are being used up by the borrower. In the alternative, the lender could suffer
harm from not getting the equivalent goods back at the stated time. Further
still, he could suffer harm for both reasons combined. Because of this shared perception, the
accessory bilateral, onerous contract to pay an interest is freely entered into
by both lender and borrower.
3. In
view of current economic realities and practices, it is understood by all
that every lender assumes a risk, such that it is always licit to charge a
moderate, reasonable interest for consumable goods, notably money, whenever it
is lent to another for a stated period of time
Apparently what
has happened is that the original Contract of Trust, which is bilateral
and gratuitous (no profit intended or sought by either party) gradually was
lost sight of in virtue of the accessory bilateral, onerous Contract for
Interest. Now the focus is entirely
upon the latter. As evidence of this,
most of us have to admit frankly: “This
is the first time that I have heard of a Contract of Trust!”
Usury as
something detestable, therefore, seems no longer to exist, at least in its
traditional meaning. Nowadays the term
Usury is applied to those situations where a lender exploits the desperate
need of a borrower by charging an unconscionably high rate of interest.
My author goes
on to give a rather detailed history of the development of the thinking of
moral philosophers and theologians on Usury, i.e., the practice of seeking to
make a profit on consumable goods lent and borrowed. Since the account is rather abstract and dry, I will not even
attempt to summarize it here. However,
there are some practical Observations that merit attention:
A. In
view of what Jesus enjoins in the Sermon on the Mount (Matt. 5:42),
charity may require that we lend gratuitously to a neighbor in great
need whatever he lacks, if this can be done without grave inconvenience.
Ordinarily,
a wealthy person would not be obliged to lend large sums of money to a poor
person, but if the indigent one asks to borrow a small sum, charity could
oblige the wealthy person to just give him that amount as an outright gift.
Outside
of the above instances, it is lawful to charge a moderate interest for money
lent, and even to charge interest on unpaid interest. Interest is considered moderate (or reasonable) when it is
in proportion to the risk of default and to any inconveniences arising out of
not having possession and control of the funds lent.
B. In
those regions where the civil law determines what percentage the rate of
interest must not exceed, that percentage is binding in conscience, and the
lender who surpasses it is obliged to make restitution, unless he is excused by
extraordinary circumstances.
Where
there is no legal limit to the rate of interest charged, there usually does
exist a commonly accepted limit that is respected in practice, to which lenders
would then be bound in conscience to observe.
In any event the natural law would always prohibit a lender from taking
unfair advantage of the borrower’s need.
Whoever would do so sins against commutative justice and would be held
to make restitution.
Bailment
Contracts and Escrow Contracts…
A bailment is
the act by which someone accepts something that belongs to another for the
purpose of keeping it safe for him until such time as the giver asks for
it back.
It happens
quite frequently that travelers or passengers on a ship surrender their
valuables to the innkeeper or Captain of the ship during the time they remain
in the respective lodging establishment or on board the ship. Since this is done as a courtesy by
the respective innkeeper or ship’s Captain, it is numbered among the
gratuitous, bilateral contracts.
The same tends
to happen often among friends. Surely
all of us have been asked by one or another of our close acquaintances to hold
on to something while he is away on a trip.
He may have asked us to take possession of his automobile and keep it in
our custody until his return. We
wouldn’t dream of asking for payment from that friend for doing him that favor.
The one who
receives the goods for safekeeping is called the Bailee, and the one who
surrenders them is called the Bailor.
The above
situations are examples of voluntary bailment. There can also be a quasi-voluntary bailment. This would happen when someone brings an
article (piece of furniture, equipment, vehicle) in for repairs. The repairman, who has the article in his
custody for the purpose of working on it, is also considered a Bailee. Though the focus is not on the bailment, the
repairman would nevertheless be bound by the obligations incumbent upon all
bailees. Which are as follows:
1. To
guard and protect the object bailed with the same diligence he would employ if
the object were his very own. Thus he
would be obliged to compensate the bailor for any damage that might befall the
article due to his own negligence.
2. He
is not to use the object for his own purposes without the express consent of
the bailor, or at least without a reasonable presumption of having the implied
consent of the bailor.
3. To
return the item immediately upon being asked for it by the bailor. Should it happen that the object was stolen
while in the bailee’s possession, he is bound to make restitution (that is, his
insurance company).
4. To
return the item in the same condition it was when he received it.
The obligations
of the Bailor are
1. To
make known any defect in the object bailed that might cause harm to the bailee
or any of his property. (The example
given in the text is that a farm animal, which has a contagious disease, and
thus would spread the disease to the bailee’s own farm animals).
2. To
pay whatever expenses are necessary to keep the object bailed in good condition
(Again the example is of farm animals, namely, the cost of feeding them).
3. To
take back the item at the appointed time, or earlier, should the bailee be
unable to continue keeping them safe in his custody.
From all that
has been said, it is clear that the objects of bailment contracts are always movable
goods. Money, considered as legal
tender, IS NOT a subject of bailment.
However, money in the form of rare coins, or commemorative coins, or
issues of currency that have an additional value as collectors’ items can, of
course, be the subject of a bailment contract.
An Escrow
Contract is somewhat analogous to a Bailment Contract in that it has to do with
placing something of value in the custody of another for safekeeping,
eventually to be surrendered to its rightful owner.
This happens in
those circumstances when the ownership of the goods in question is disputed by
two or more parties, each of whom alleges that he is the one entitled to the
goods. Here, of course, money can be
the object of the Escrow contract.
Most homeowners
who are still making mortgage payments to the mortgage bank are familiar with
another type of transaction to which the name Escrow is applied. Part of the monthly payment is set-aside in
escrow to pay, for example, the property tax levied by the municipality in
which the home is located. Here,
though, there is not so much a controversy over who has a right to that money,
as you know, but rather, it is a partial payment made in advance of the date the
taxes are due, and held in safekeeping until that time.
I believe I
have heard of situations where courts will not accept a Civil Complaint against
a Defendant that alleges him to be liable for damages suffered by the
Plaintiff, unless a substantial amount of money is paid into the court by the
Plaintiff, and to be held in escrow by the court until the case is
finally decided. Should the defendant
be adjudged NOT LIABLE by the court, the money in escrow is used to reimburse
him for the costs of his legal defense.
Otherwise, the money is returned to the Plaintiff.
In Escrow
Contract situations, the only obligation in justice is incumbent upon the
Holder-in-Escrow. Besides preserving
the funds intact, he is to restore them to their rightful owner as soon as he
knows for sure the identity of that true owner.
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