Case XL: A Case of Restitution

Mr. X was engaged, some years ago, in the wholesale dry goods business. The saying that "every business man fails at least once in his life," came true of him. He failed for $25,000, with assets amounting to about half that sum. His creditors were, first, several wholesale houses, to whom he owed $20,000; second, a friend, from whom he had borrowed $4,000; third, a dressmaker, to whom he owed about $1,000 for garments for his family. Mr. X, though a Catholic, had neglected the practice of his religion, but was, nevertheless, in his business dealings an honest man. It was through no fault of his that he failed, and he turned over conscientiously to the receiver for his estate whatever he possessed in the nature of assets. When his affairs were finally settled, it was found that he was able to pay fifty cents on the dollar. This he paid and got a discharge from the court, under the bankruptcy laws, from all further liability for these debts.

He went to work again, courageously, to retrieve his fortunes. By industry and economy, he has succeeded in laying by about $15,000. But now his health is broken and he is growing old, and is obliged to retire from business for good. He has nothing to depend on for the support of himself and his wife and an invalid child but this $15,000. He has made up his mind to return to the practice of the faith, and this matter of his earlier failure disturbs him. He was discharged by the court from further liability, after paying fifty cents on the dollar, at that time, because it was all he had wherewith to pay. Now he asks himself, Was that discharge of the court also a discharge in conscience? Did it wipe out, before God, his obligation of paying the other fifty cents out of his future acquisitions? Or did it only discharge his person, and leave his obligation to pay out of his future acquisitions in full force? This is the question that he asks his confessor to settle for him, as it is now only a question of conscience.

Solution. Theologians are agreed that a "cessio bonorum," whether voluntary or ordered by the court, does not, of itself and independently of other considerations, relieve a debtor of the obligation of making full payment of his debts out of his future acquisitions, if he be able to do so.

Dr. Crolly, sometime professor in Maynooth College, and an authority of weight, contends that the intention of the insolvent laws of England is to wipe out the debt entirely, and that these laws must be considered just and equitable, and applicable in the court of conscience. (De just, et jure, vol. iii., n. 1232.)

But Lehmkuhl takes exception to this contention of Dr. Crolly, and maintains that the insolvent laws of England or of any other country can not, of themselves, discharge the conscience of the debtor from further liability for his debts, unless other conditions are present, from which it may be gathered that the creditors renounce all future claims against him.

And this opinion of Lehmkuhl is the opinion practically of all the theologians.

A specific case, according to modern theologians, where a "cessio bonorum," followed by a discharge of the court, operates in conscience also, and wipes out the obligation of future payment, is the case of wholesale and retail merchants, making a bona fide assignment in favor of their creditors. In this case it is not the discharge of the court that wipes out the debtor's liability in conscience, but it is the method of doing business prevailing to-day that makes it probable, if not altogether certain that there existed a tacit contract between the retail and wholesale merchant that in case of a bona fide failure, the creditor would take the debtor's assets in payment for his debts, and renounce all further claims to be paid out of future acquisitions.

Father Konings (Theol. Mor. i., n. 861) says that there are theologians to-day who think that the opinion of earlier writers on this matter must be abandoned, because of the new methods introduced into commercial transactions. Commerce to-day, they say, is conducted almost exclusively on a credit basis. The creditors foreseeing that, among their numerous debtors, there will be some who will fail and who will be obliged, in consequence, to settle with them for a certain per cent on the dollar, charge a higher price for their goods, or a higher rate of interest for their money, in order to secure themselves against loss. It is tacitly understood among business men that if one of their number makes a bona fide assignment, his creditors take what is left and renounce all further claims against him. The insolvent laws, discharging the debtor from further liability, are equally fair to all, beforehand. The benefit which A reaps under them to-day at the expense of B is reaped later on by B at the expense of A, or of some one else of their number. To all of this Konings replies: “Let wiser men judge how much these considerations are worth and whether, at least when taken together, they make that opinion probable.”

We believe, with Konings and others, that it is not the intention of the insolvent laws of the United States, or of any other country, to discharge the conscience of the debtor from further liability. Although the civil law uses the words "forever discharged from all debts and claims," it takes no account of the conscience, and only means by these words that the creditors are forever denied any action in the future against a legally discharged debtor.

Judge Kent (Commentaries on Am. Law, vol. I., n. 422) says, in regard to the value of insolvent laws: "The 'cessio bonorum' of the Roman law, and which prevails at present in most parts of the continent of Europe, only exempted the person of the debtor from imprisonment. It did not release or discharge the debt, or exempt the future acquisitions of the debtor from execution of the debt. The English statute of George II, commonly called the lords' act, and the more recent English statutes of George III and George IV have gone no further than to discharge the debtor's person; and it may be laid down as the law of Germany, France, Holland, Scotland, and England, etc., that insolvent laws are not more extensive in their operation than the 'cessio bonorum' of the civil law."

Again in vol. ii., p. 392, note, he says: "It was stated by the Chief Justice in giving the opinion of the Supreme Court of the United States, in Sturges vs. Crowninshield, 4, Wheaton, 122, that the insolvent laws of most of the States only discharge the person of the debtor and leave his obligation to pay out of his future acquisitions in full force." These laws have been very materially changed, of course, since the days of Judge Kent, both in their purpose and nature, and are less concerned to-day than ever perhaps about the "forum internum," or court of conscience.

Lehmkuhl's opinion, therefore, seems just and equitable, namely, that in a case of "cessio bonorum," the discharge of the court is not sufficient of itself to wipe out the conscientious obligation of paying the remainder of the debt out of future acquisitions. Other conditions must be present, from which it may be inferred, with at least reasonable probability, that the creditors renounce further claims against the debtor.

The question remaining to be settled, therefore, is this: Are there, in reality, present in business transactions circumstances and conditions from which it may be gathered that business people enter into a tacit agreement to accept, in case of a bona fide failure, the assets in full settlement for the debts owed them? We think they do. We have reason to believe that this is the persuasion of conscientious and honorable business men, both Catholic and non-Catholic alike. Conscientious and honorable business men, who feel a keen sense of duty to pay dollar for dollar for money borrowed or for work done for them, feel no such sense of duty to pay, later on, out of their future acquisitions, the remainder of their debt to, for instance, wholesale houses after a bona fide failure and a discharge in bankruptcy. A wholesale house, for example, is fully aware that among its many retail patrons, the number of failures, on an average, will reach such a figure every year. To secure themselves against this loss, among many other measures that they take, is this that they charge a higher price for their goods than they would otherwise charge, or be justified in charging, were there no bona fide as well as fraudulent failures. Thus, if A, a retail dealer, fails in business and makes an assignment in favor of his creditors, who are the wholesale houses, it is in reality A's fellow retail dealers purchasing from the same wholesale house who make good the amount that A is unable to pay by paying a higher price for their goods, in view of such failures as A's. This is true of most lines of business. For instance, insurance companies protect themselves against loss by fraudulent fires by charging a uniform higher rate for insurance than they would be justified in doing were there no fires of incendiary origin. The policy-holders all tacitly agree to pay more for insurance in order to protect them against loss inflicted by some of their number.

We do not see, therefore, how Mr. X can be obliged in conscience to pay in full out of his future acquisitions the debts he owed the wholesale firms. There seems to be a reasonable doubt of his obligation to pay. And with such reasonable grounds for doubting whether Mr. X is bound in conscience, it would be unreasonable to impose such a burden on him. Of course, as Father Konings remarks, “most certainly, those who have come through their own grave fault into that necessity—namely, of surrendering their goods—are bound as formally unjust authors of harm.”

We suppose that Mr. X has not failed through any grievous fault of his own; and, moreover, that he has done all that he tacitly agreed to do, in the event of his bona fide failure, viz., he has turned over conscientiously all his assets for the benefits of his creditors. Therefore, being certainly discharged in person by the court, he is also probably discharged in conscience.

It is quite different with Mr. X's other two creditors, namely, the man from whom he borrowed $4,000 and the dressmaker. With these he is obliged in conscience to settle in full out of his future earnings. For he had no such understanding with these as he had with those. The discharge of the court does not, of itself, discharge the conscience. There are no other conditions or circumstances present, however, on which a discharge in conscience might be argued, even with probability. Therefore, for these two latter debts Mr. X must in conscience settle from his future earnings.

When he has done this his conscience may rest easy. Here again we must remark, with Lehmkuhl and Crolly, “it is altogether required that he himself also act entirely according to the laws and permit himself not the least thing in his own favor beyond what the laws grant,”