Section 6: Subsidiary Contracts

A subsidiary or insurance contract (contractus subsidiarius sive cautio) is one by which one contracting party takes upon itself a certain danger or risk for the benefit of the other, in consideration of a specified payment. The principal kinds of subsidiary contracts are: insurance, security, and bailment (pawn or pledge).

1. Insurance contracts are contracts by which the insurer undertakes to make good any loss suffered by the insured through the happening of some accident, in consideration of the payment of a fixed sum, either at once or at periodical intervals, or promises to pay a given sum to another upon the happening of a particular event contingent upon the duration of human life.¹ These contracts (contractus assecurationis) are called subsidiary.²

¹ Slater, A Manual of Moral Theology, Vol. I, p. 554.

² J. P. Gury, S. J., Comp. Theol. Mor., Vol. I, n. 878: “Those contracts are called subsidiary because they are employed for the security of another contract.”—Cfr. H. Busembaum, Medulla Theol. Mor., l. III, tr. 5, c. 3, dub. 15: “A contract of insurance is one by which someone assumes the risk of another’s property, binding himself either gratuitously or for a fixed price to compensate for it if it is lost. If this is done gratuitously, it is a gratuitous promise; if for a price, it is as though a purchase, by which the insurer sells his obligation to keep the other’s property free from loss. For its justice it is required that the outcome concerning the property be uncertain to both parties, at least with respect to the knowledge they have of it, because otherwise equality would not be preserved.” (Tournai 1876; I, 267).—Cfr. Göpfert, Moraltheol., Vol. II, pp. 206 sqq.

a) The insured party (assecuratus) is bound to pay the stipulated premium. The insurer (assecurator), on the other hand, pays the sum agreed upon only in case the accident in question actually happens.

To render an insurance contract valid it is required that the insured object really exists, that all circumstances material to the contract are made known to the insurer in order to enable him to form an accurate judgment as to the risks and merits of the case; that the insurer is able to pay the promised insurance if and when it falls due, that the premium paid is in proportion to the risk incurred, and that the stipulated terms of the contract contain nothing illicit.³

³ Gury, op. cit., I, n. 882: “The conditions required for insurance are the following: 1. That the price be proportionate to the risk; 2. That the risk be real and equally known to both parties; 3. That the insured observe all the conditions of the contract; 4. That the insurer have the means from which he can pay.”

According to the nature of the accident against which insurance is taken we may distinguish marine, fire, hail, storm, and accident insurance.⁴

⁴ The various conditions under which insurance is issued are defined by statutory law and for the U. S. are summarized, e. g., by Boles in Putnam’s Handy Law Book, pp. 6, 37, 124 sqq., 167 sqq., 302.

A special kind of insurance is that by which the insurer guarantees to pay a stipulated sum either to the insured if he lives out the determined period, or to his heirs or beneficiaries if he dies before its expiration (life insurance). Not a few present-day insurance policies are really no more than savings accounts.

b) Insurance contracts generally have been devised with the object of relieving undeserved misfortune. They do not indicate a want of confidence in Divine Providence, but are merely proofs of a prudent foresight and means of self-help.⁵

⁵ See this Handbook, Vol. III, pp. 109 sqq.—Cfr. G. v. Hertling, Kleine Schriften, pp. 341 sqq.

“The social advantages of insurance,” says Linsenmann, “are best attained if the practice is extended as widely as possible, because in that case the effects of serious catastrophes are distributed amongst many and consequently felt less severely by the individual, and for the further reason that the contribution of the individual becomes smaller, whereby the danger of fraud is minimized and participation in the benefits of insurance is made easier. The contribution of the individual beneficiary then appears like a slight tax, by paying which he not only acquires a feeling of security, but likewise aids more effectively than he could possibly do by alms, in assisting those who suffer from untoward events. Who does not feel relieved when he hears after a destructive fire that those whose property was destroyed were adequately insured?”⁶

⁶ F. X. Linsenmann, Lehrbuch der Moraltheol., p. 581.

c) Some writers refuse to regard life insurance as a contractus assecurationis because it does not in their opinion safeguard the subject against danger or risk. But on closer inspection we shall find that life insurance is insurance against danger or risk. “He who insures his life,” says a recent writer, “does two things: He invests his savings with an insurance company and receives as an equivalent the promise that the company will, in case he dies prematurely, pay out to his heirs the amount paid in, plus the amount necessary to make it equal to the sum which the insured would have received had he attained the age stipulated in the contract, or which he has to expect according to the mortality tables. Conceived thus as a savings account combined with an insurance contract, life insurance clearly partakes of the nature of a contractus assecurationis.”⁷

⁷ Cfr. V. Cathrein, S. J., Moralphilosophie, Vol. II, 5th ed., pp. 385 sq.—Huppert, Der Lebensversicherungsvertrag, pp. 169 sqq.; K. Wagner, Das Problem vom Risiko in der Lebensversicherung, Jena 1898; A. S. Bolles, Putnam’s Handy Law Book, pp. 167 sqq.

Life insurance is of great help to farmers and merchants, to whom it affords a means of paying their debts without amortization, within a reasonable period of time, if the obligation is not excessive and the premiums can be met. Under these suppositions life insurance aids in the payment of debts and strengthens the credit of the insured.

d) There has been talk of late of the advisability of insuring workingmen against unemployment.

“It is the duty of the State,” says Fr. Cuthbert, “to see that security against unemployment enters into the bargain between employers and employed, and it is not jeopardized by merely arbitrary action of either employer or worker. Thus, for instance, when new processes or methods are introduced into any industry, the State should insist that the change be made so as to minimize the danger of the worker finding himself without employment as a consequence of the change. The proper action of the State is, however, limited. It cannot so control the conditions of industry as to leave no personal freedom to either employer or worker in the control of labor; for that would cut at the very root of personal responsibility and consequently of real personal liberty. But it can protect both employer and worker against the mere arbitrariness of physical or moral force, and it can also give opportunities which conduce to the fulfilment of moral obligations. The giving of these opportunities is indeed its most positive contribution to economic freedom, and more directly constructive than any restrictive or ‘police’ intervention.”⁸

⁸ The Ethics of Labor, pp. 17 sq.

In working out a practicable system of unemployment insurance those concerned should take proper precautions to safeguard the interests of the diligent and sober workman, so that he will not be compelled to carry an extra burden because of the sloth and extravagance of his fellow-workmen.

e) Insurance against the risks of child-birth is another new idea. This no doubt has certain advantages, provided it be so carried out that it does not become a premium upon fornication and that deserving mothers are not forced to bear the burdens of undeserving prostitutes.⁹

⁹ Göpfert, Moraltheol., Vol. II, p. 210.—Cfr. A. Buckeley, Zur Frage der Mutterschaftsversicherung, Ratisbon 1908; J. Mausbach, Der christliche Familiengedanke im Gegensatz zur modernen Mutterschutzbewegung, Münster i. W. 1908.

2. Giving bail or becoming surety for the debt of another if he should fail to pay, is a contract commonly called by moralists fideiussio. It can be made only by one who is qualified to act in his own name and who has ample means to satisfy the obligations incurred. Minors cannot become surety without the consent of their guardians, nor religious without the permission of their superiors, nor wives without the consent of their husbands.¹⁰ To give bail knowing that one is not qualified to do so, or has not sufficient means to meet the obligation assumed, is a mortal sin whenever it is doubtful whether the debtor himself will be able to pay.¹¹ He who has become surety for another (fideiussor) must satisfy the creditors (creditores) if the debtor (debitor) is unable to do so, but has the right of recourse if the latter recovers financially. A fideiussio also binds the heirs of the surety. The debtor is bound to repay his surety as soon as he is able and, in addition, must indemnify him for whatever losses he may have sustained through the debtor’s fault.¹²

¹⁰ Ecclus. VIII, 16; XXIX, 27.—Cfr. Gury, Comp. Theol. Mor., Vol. I, n. 879, 1: “No one can be a surety unless he has the free administration of goods sufficient for this, as is evident. . . . Those who cannot be principally bound cannot become sureties; such are a ward, a minor, a religious, and a wife, at least without the consent of guardian, curator, superior, or husband.”—Ibid.: “Those who cannot be principally bound cannot become sureties; such are a ward, a minor, a religious, and a wife, at least without the consent of guardian, curator, superior, or husband.”

¹¹ P. G. Antoine, Theol. Mor. Univ., tr. De Contract., P. II, c. 10, qu. 3, n. 5: “He sins gravely who, certain of his inability to pay for another, makes himself that person’s surety, thinking it possible that the debtor may be unable to pay. For he unjustly deceives the creditor by offering a false security for the matter and gives him an occasion of danger and loss.” (Douai, 1751, Vol. III, 601).

¹² Prov. XX, 16; XXVII, 13.—Cfr. Gury, op. cit., I, n. 879, 3: “The surety is bound toward the creditors for all the obligations of the debtor, but only upon the latter’s default. A surety who pays for the debtor is subrogated to all the creditor’s rights and consequently has recourse against this debtor, so that he may recover from him the things which he was compelled to pay in his place. The surety’s obligation is transmitted to his heirs, because it is a real obligation, not a merely personal one.”—A. Lehmkuhl, Theol. Mor., Vol. I, p. 780.

To become surety for another may be a true act of charity, but carelessness in this regard is anti-social, as it not only favors recklessness in business, but is apt to ruin both creditor and debtor.¹³ It is wrong to borrow if one does not know whether one will be able to repay the debt; least of all should one borrow from a person who is himself in need.¹⁴

¹³ Prov. VI, 1–5; XI, 15; XVII, 18; Ecclus. XXIX, 18–24.

¹⁴ Cfr. G. E. Lessing, “Minna von Barnhelm,” Act III, Scene 7.

3. Pawn or pledge is a contract by which goods or chattels are delivered to another (pawnee) as security for money borrowed from him.¹⁵ The pawn is called pignus. If it is an immovable object, which is not actually transferred, but merely given over in writing, it is called mortgage (hypotheca).

¹⁵ Slater, A Manual of Moral Theol., Vol. I, p. 540.

As regards the respective rights and duties of pawner and pawnee, the following rules may be stated:

a) The pawner must pledge an object that is fit to serve the purpose;¹⁶ he must indemnify the pawnee for any expense the latter may incur for the preservation of the pawned object, and he may not demand that object back before the debt is paid, except in case the pawnee makes wrong use of it.

¹⁶ Busembaum, Medulla Theol. Mor., l. III, tr. 5, c. 3, dub. 16: “Things which cannot be sold cannot be pledged, e. g., churches. Immovable things, as also precious movable things dedicated to divine worship, e. g., chalices, chasubles, etc., cannot be pledged except in necessity, because then they can also be sold, so that aid may be given to the church and the needy.”

b) The pawnee is bound to take ordinary care in the custody of the pledge (pignus), he may not use it without the consent of the pawner, must deduct any fruits derived from it, and may not sell the pledged object unless the pawner is guilty of inexcusable negligence, and even then only after giving him due warning.

When the debt for securing which the pledge has been given, is paid, the pawnee must restore the pawn with all its accruing fruits to the pawner, but he may deduct necessary expenses.¹⁷

¹⁷ St. Alphonsus, Theol. Mor., l. III, nn. 913–916 (ed. Gaudé, II, 317 sqq.).—Cfr. Gury, Comp. Theol. Mor., I, n. 880.

c) Pawnbrokers form a special kind of pawnees, whose business in most countries is regulated by statutory law. The statutes usually fix the rate of interest which the pawnbroker may charge, and also determine the time after which he can dispose of the article pawned. In many States, says Fr. Michael Martin, S. J., on sums of one hundred dollars or less, three per cent. per month for the first six months is charged, and two per cent. per month for the following six months. When the sum loaned exceeds one hundred dollars, two per cent. per month for the first six months, and one per cent. for the next six months is the usual charge.

Pawntickets are generally good for one year only, but may be renewed upon payment of the interest.¹⁸

¹⁸ See Slater’s Manual of Moral Theol., Vol. I, pp. 541 sq.

The sale of goods entrusted to a pawnbroker is usually regulated by statute; if no law exists, and there is no agreement between the parties, the sale must be public, after due notice of time and place. If there is any surplus from the sale, the pawnee must pay it to the pawner and not apply it to another debt that he may owe.¹⁹

¹⁹ Bolles, Putnam’s Handy Law Book, p. 47.

d) The practice of pawning chattels is open to many objections, moral as well as economic. Pawnbrokers as a rule are only too ready to take advantage of the necessity of the poor and to charge usurious rates of interest. Ease in obtaining money on chattels leads many to be extravagant, and Linsenmann is therefore right when he says that, from the economic point of view, it would be better, as a rule, to sell an article outright than to pawn it, because one would realize more for it than at the pawnbroker’s, where as a rule it remains unredeemed. Pawning necessary articles, such as household goods, is generally the beginning of economic ruin.

e) Borrowing money on a mortgage is a different matter. Whereas a pawned chattel must be regarded as an unproductive thing, a farm or a house is of the nature of capital and bears immediate fruits. As a consequence, the creditor is secured against loss, as he runs no risk (periculum sortis), and therefore can be satisfied with a lower rate of interest, while the debtor has a chance of paying back his debt out of the revenues of the property itself without employing extraordinary financial means, which is not the case with chattels.²⁰

²⁰ Linsenmann, Lehrbuch d. Moraltheol., p. 578.

f) Montes pietatis are charitable institutions, usually conducted under ecclesiastical auspices, which lend money at a low rate of interest, or without interest, upon objects left in pawn, with a view to protecting the poor from usurers. Being charitable institutions, they lend only to people who are in need of funds to pass through some financial crisis, as in cases of general scarcity of food, misfortunes, etc. They originated in the Middle Ages, when it was difficult to obtain money, both on account of its scarcity and because of the prohibitions by which Christians were bound in relation to usury. Their establishment and dissemination is one of the brightest glories of St. Francis of Assisi. At first the montes met with opposition, but this was gradually overcome, and Leo X and the Fifth Lateran Council declared them to be in no way illicit or sinful, but, on the contrary, meritorious, and whoever preached or wrote against them was threatened with excommunication.²¹ To-day the montes pietatis flourish especially in Italy, where, in 1896, there were 556 of them with combined resources of nearly 72,000,000 lire. Msgr. U. Benigni, to whom we are indebted for this information, discusses the advantages and disadvantages of this peculiar form of charity as follows: “It is held that they promote carelessness in contracting debts, that they destroy love for labor, incite to theft, are often the cause of financial ruin, and, lastly, that they are contrary to the principle of free competition. On the other hand, they are a necessity; for without them the needy would be exposed either to the extortion of private lenders or to ruin, into which they might be plunged by some misfortune from which a momentary loan might save them. Their disadvantages are undeniable, but disadvantages are common to all human contrivances. For the rest, the montes pietatis, besides the relief that they brought to the poor, exerted great influence upon the ideas concerning interest on loans; for the rigid views of the theologians of the Middle Ages in that connection underwent a first modification which prepared the way for a generalization of the principle that moderate interest might justly be charged, and also the mere existence of the montes pietatis compelled private speculators to reduce their rates of interest from the usurious rates that had hitherto prevailed.”²²

²¹ Conc. Lat. V, sect. 10 (Denzinger-Bannwart, n. 739).—Cfr. Conc. Trident., Sess. XXII, c. 8, De Ref.; H. Holzapfel, O. F. M., Die Anfänge der Montes Pietatis, pp. 15 sqq., 32 sqq.

²² U. Benigni, article “Montes Pietatis” in the Catholic Encyclopedia, Vol. X, p. 534 sqq.; P. Cleary, The Church and Usury, pp. 106–113.

In this country we have no montes pietatis, and rapacious “loan sharks” ply their trade freely in spite of existing laws. Whether publicly controlled pawnbrokers would be an advisable substitute for the private harpies now robbing the poor, is a question which does not belong to Moral Theology.²³

²³ Benigni, ibid., p. 536.—Linsenmann, Lehrbuch d. Moraltheol., p. 579.

READINGS.—Sporer-Bierbaum, Theol. Mor., Vol. II, 2nd ed., pp. 902 sqq.—St. Alphonsus, Theol. Mor., l. III, nn. 911–916 (ed. Gaudé, II, 305 sqq.).—V. Cathrein, S. J., Moralphilosophie, Vol. II, pp. 167 sqq.—J. E. Pruner, Lehre vom Recht, Vol. I, pp. 424 sqq., 463 sqq.—J. Schwane, Die theol. Lehre über die Verträge, pp. 173 sqq.—D. Barry, “The Ethics of Insurance” in the Irish Theol. Quarterly, Vol. VIII (1913), No. 30.