Chapter V — On emerging loss

I. QUESTION I. What is emerging loss? ANSWER. It is that detriment which a lender suffers by cause of the loan alone. You have moneys ready for the repairing of ruinous buildings, or for the tilling of fields, or for the buying of wheat for the whole year. Kindled with charity, you deliver these moneys on loan to a needy brother. If hence your house fall down, or your fields remain untilled, the loss which you sustain is by right to be compensated. This is emerging loss, which can be brought into an agreement. Who is there who would wish to undergo such a loss in order to succour a needy brother by a loan? They are very rare; and yet nothing is more frequent in the mouths of some than emerging loss.

II. Wherefore many conditions are necessary for a true title of emerging loss. First, that the loss be true, certain, and real. Second, that it emerge by reason of the loan alone. Third, that the loan be the cause of such a loss per se and not by accident. Fourth, that this loss be manifested to the borrower. Fifth, that the loss brought into an agreement be not compensated before it emerges. Sixth, that equality be preserved between the loss and the compensation.

III. Hence evidently false is the opinion teaching that it is not usury if from a loan of 100 gold pieces you are certainly about to receive a detriment of ten gold pieces, even if, the borrower not being warned of this loss, you bargain that 110 be rendered you. This opinion is against the fourth condition indicated. It is manifest injustice that a borrower should undergo a burden and pay it without his own consent.

IV. QUESTION II. Is the danger of a loss about to emerge a true title by force of which a convention can be made of paying something above the principal? ANSWER. It has already been said above that danger is an uncertain outcome of a thing. Concerning the danger of losing the principal enough also has been said: concerning the danger of a loss which can come about by cause of the principal lent, it is now to be spoken. Some of the younger authors affirm it, whose opinion is to me false. Since the title which renders an accession above the principal lawful is a loss true, real, and certainly future, and which is not compensated save after the event. For if the loss does not come about, recompense can have no place. If nevertheless a lender should probably foresee a determinate future loss, he could bargain with the borrower concerning a future compensation in the case in which that loss should come about by cause of the loan. I said determinate, that I might exclude indeterminate losses coming from elsewhere. The lender therefore ought clearly to declare such a loss in the individual, which he fears will be future, so that, the condition of the event being posited, the borrower may be bound to compensate it.

V. Hence gather that it is never lawful to exact anything beyond the principal on account of a merely probable, or even most probable, danger of a loss about to emerge, unless it in fact emerge. Some of the probabilists affirm this, nay even some who are not probabilists. But this opinion is evidently false, and opens the way to all usuries.

VI. QUESTION III. Whether it be lawful at the beginning of a contract to make an agreement of a conventional penalty if the debtor be in delay? ANSWER. A debtor is in delay, and is called tardy, when at the appointed time he does not pay the debt, and when he can pay and omits it. Delay is twofold: one from the thing, which of itself warns the debtor to pay; the other from the person, when the debtor, warned by the creditor to pay, neglects payment. The aforesaid agreement of a conventional penalty, confirmed by mutual consent, many of the younger authors defend: Henry of St. Ignatius and Fr. Billuart call this opinion common.

VII. The more probable opinion to me is this. A conventional penalty, unless there intervene that which is the creditor's interest, that is, unless it be imposed for the quantity of the emerging loss, is usurious. I prove it. The agreement of a conventional penalty concerning an accession above the principal in a loan is therefore called lawful, because by this agreement the lender keeps himself indemnified. But that agreement is inept for keeping the lender indemnified, unless it be imposed for the quantity of the emerging loss. Therefore it is usurious. The first proposition is plain. A lender adds an agreement of a penalty to be paid either because he fears that the principal is in danger after the appointed time, or because he foresees evils threatening himself if at the appointed time the principal be not rendered, or finally because he judges that this agreement is a spur for urging the debtor to pay. The first reason is a manifest cloak of usury. For he who fears that the principal — say a hundred — will not be restored, ought the more to fear that 105 will not be rendered. But to exact gain on account of the danger of losing the principal is usury, as I have shown above. Therefore in the case of which we treat, the conventional penalty is a cloak of usury. If our adversaries allege the second, they agree with us. But they expressly assert that gain imposed by an agreement of conventional penalty is lawful, the titles of emerging loss and ceasing gain being excluded. For that a penalty can here be imposed for the compensating of emerging loss all confess. The third consideration is empty. For if a lender should foresee that the borrower would be faithless and contumacious in deferring the restitution of the principal, he would never entrust his money to him, or would demand a pledge or a surety.

VIII. Lawful therefore is an agreement of conventional penalty when there truly occurs that which is the lender's interest, namely emerging loss and ceasing gain, to be explained below. Indeed many laws approve a conventional penalty, no regard being had to that which is the creditor's interest; but, as Honoratus Leotardus the celebrated jurisconsult observes, On Usuries, question 81, these laws are abrogated, just as those which granted moderate usuries. I explain the matter more clearly. I deliver to you on loan a hundred to be paid within a year: the year having elapsed, a convention is made between me and you that in penalty of delay, if you do not restore, you must pay ten. If I am truly about to suffer a loss of ten in the case of the payment deferred not from impotence but from malice, then I shall justly receive ten, supposing that I have suffered such a loss; if I have suffered a lesser loss, I ought to receive less; if no loss come to me, I cannot exact anything, because I should receive something from the loan, which is usury; if finally I have suffered a greater loss, I can exact more, that there may be equality between the loss and the compensation. A conventional penalty is not appraisable at a price: it is imposed for terror and appearance. Therefore when the creditor suffers no evil, he can exact nothing by force of the conventional penalty. If you desire more concerning this penalty, read Vol. VII, Book 3, dissertation 3, chapter 14, § 1 and § 4.