ARTICLE III: ON TITLES EXCUSING FROM USURY

Four principal ones are numbered, namely 1st emergent damage; 2nd ceasing profit; 3rd peril of principal; 4th conventional penalty.

935. • Emergent damage is the detriment which the one lending suffers on occasion of the loan furnished to his neighbor.

I. If by reason of the loan the lender suffers damage, it is a legitimate title of accepting something beyond the principal. The reason is that it is not equitable that you bear damage from the loan; for no one is bound to furnish a benefit with his own damage except in the necessity of a neighbor. - Thus all.¹

II. For this, however, the following conditions are required: 1° that the loan be the cause of the damage; 2° that equality between the damage and its compensation be preserved; 3° that the increase be brought into pact from the beginning.² The reason for the first and second condition is clear of itself; but the reason for the third condition is this: that, since the contract of loan for consumption by its nature is gratuitous, when an express or tacit pact is lacking, nothing beyond that which was given by loan can be exacted. But an express pact is not required if it is a question only of a legal increase or, this lacking, a common increase; for concerning this increase today there is always present a tacit pact, since from a usage common today, known and accepted by all and permitted by the Church, the legal or common increase on occasion of loan is judged to be owed. See Kenrick.³

936. Questions. - Query 1° Can the lender exact compensation of emergent damage if he himself voluntarily offers himself for lending?

Resp. More probably affirmatively, with St. Alphonsus,⁴ etc. The reason is that even then the borrower, when he accepts the loan, is the true cause of the emergent damage. For the lender does not offer absolutely, but conditionally, namely under the condition of compensation to be obtained.

Query 2° Is it licit for the lender from the beginning to contract concerning a certain profit to be perceived if emergent damage is only probably going to occur?

Resp. Affirmatively, provided proportion according to the probability of the damage is observed.¹

While we establish these things concerning emergent damage, we altogether prescind from the various contracts by force of which perhaps some profit from money lent to another could be legitimated, as will be clear from what is to be said. This same observation ought also to be valid for the other titles soon to be explained, of ceasing profit, etc.

937. • I. Ceasing profit is that which the one lending would have gained by preserving his thing or money, if he had used it in another licit contract.

Ceasing profit is a legitimate title of exacting something beyond the principal. The reason is 1° because then truly emergent damage is had; 2° because the hope of profit is extrinsic to the loan, and at the same time estimable by price.

II. Required conditions: 1° they are the same as in the preceding title; 2° the lender ought to have had the mind of expending his money in business; for otherwise the profit would not cease.²

Query. Can you exact ceasing profit on account of the loan of money which you destined for business, if you preserve other idle money?

Resp. 1° Certainly affirmatively, if you had reserved this for the use of the family, or lest you expose your state to danger, because by reason of the loan you are not bound to neglect your own thing.³

Resp. 2° Probably affirmatively also in the other cases, provided that when you give the loan you truly have the intention of not exposing that other money to business, because the loan is the true cause why profit ceases.⁴

938. • Peril of principal is prudent fear lest the principal cannot be recovered. Peril of principal, provided it is true and extraordinary, according to the more common and more probable opinion is a legitimate title of some profit. The reason is both because, if abdicated hope of profit is estimable by price, a peril of probable damage will be estimable a fortiori; and because things placed in safety are valued more than things placed in peril; and also because it is established from the decision of the Sacred Congregation de Propaganda for the Chinese Missionaries approved by Innocent X in the year 1645. - See St. Alphonsus.²

Except 1° If the borrower is poor, because then the precept of loan from charity urges; 2° if the borrower guards against the peril of the principal by a pledge, etc.³

I have said: provided ... the peril is extraordinary. For the common peril, for example, fear lest all the goods of the borrower perish by fire, etc., is intrinsic to the loan, and therefore cannot be separated from it. But it would be extraordinary, for example, if a loan were given to a prodigal, or to a man of doubtful faith, or to one sailing, or if great expenses in recovering the principal were feared.

939. • You will object: Either the principal will perish, or not; if the former, the lender will accept nothing, namely neither the principal nor the stipulated increase; if the latter, he will in fact suffer no detriment: therefore he ought to exact nothing.

Resp. 1° Even if the principal is going to perish, it does not necessarily follow that the lender will receive absolutely nothing; for it can happen that the principal does not perish at once, and then the interest which meanwhile is paid will be held as a certain compensation for the principal.

Resp. 2° Although the lender suffers no damage in fact, nevertheless he can perceive something beyond the principal; for he truly undergoes a peril estimable by price. Certainly by equal right, one who agrees with another concerning the price for insuring a ship can indeed exact it, although in fact the ship has not perished. Therefore by parity, etc.⁴

940. • Conventional penalty consists in this, that the borrower obligates himself to paying something beyond the principal, if he does not restore it at the prefixed time.

I. Conventional penalty is a legitimate title of accepting, besides the principal, that concerning which agreement was made. The reason is that thus provision is made for the firmness of the contract, and at the same time the negligence of the borrower is guarded against.⁵

II. The required conditions are: 1° that the delay of the debtor be notable and culpable; 2° that the penalty be moderate and proportioned to the fault; 3° that the mind of profiting through the penalty be absent, for example, by burdening the debtor to return at a time at which he is foreknown to be unequal.⁵

941. Questions. - Query 1° What today concerning those who, caring nothing whether one of the aforesaid four titles is present or not, perceive from money given by loan the profit rated by civil law, or, this lacking, by the custom of the timorous?

Resp. From various responses of the Holy See (see p. LI sq.) it is clear that they are not to be disturbed, i.e. that this is positively permitted to them, provided it is a question of a loan not owed from charity, and they are prepared to obey the Holy See, which hitherto has put forth no definition concerning that matter.

Theologians have labored much to compose this declaration of the Holy See with natural right. 1. Some say that today scarcely not always one of the extrinsic titles thus far set forth is present, especially of ceasing profit, since scarcely anyone keeps money idle at his place. 2. Others, distinguishing between a loan of a fungible thing (consumptive loan) and a loan of a thing fruitful in any way whatever (productive loan), teach that, on occasion of the former loan, no profit can be exacted unless one of the titles set forth is present; but from the latter it can; but that money, if it is lent so that from it things destined to sustain life may be compared, must be numbered among fungible things; but among fruitful things if it is sought by loan for gain. Thus, they say, St. Alphonsus is to be understood, who, although in L. IV. n. 759 he denies that money is fruitful, nevertheless in n. 904 of the same Book by no means corrects Busembaum writing: "to some things suitable for gaining, or fruitful, as money, etc." 3. There are not lacking those who think that the Republic, on account of the common good which is promoted through the easy furnishing of money, is not lacking the power of permitting by law that the borrower pay something to the lender beyond the principal: among these, some hand down this doctrine crudely; others with the addition that borrowers willingly accept this law as profitable to themselves. 4. Finally others have recourse to the triple contract, as probably licit and similar to the pact concerning increase (n. 1015).

942. • Query 2° Is it licit to exceed the legal or common rate by reason of greater emergent damage or ceasing profit?

Resp. 1° Negatively with respect to the poor or others who seek a loan in necessity, and who would be oppressed by a greater increase, as is established from what has been said. Yet you are not bound to concede a loan to them if the detriment which you ought to undergo on account of ceasing profit or emergent damage is not light; because charity alone then obligates you, but charity does not obligate with grave inconvenience.

Resp. 2° If money is handed over for the utility, but not the necessity, of another, it is controverted, and a twofold opinion is brought. The 1st Opinion affirms by reason of indemnity or just compensation. Thus among others Kenrick¹ and Pages of Lyons, although in the matter of usury he has become known by a most noted reputation for severity. - The 2nd Opinion denies. The reason is that compensations of damages arising from a monetary obligation can be exacted only according to the legal rate. This opinion indeed can have place if the lender compels or obligates another to accept a loan from him; otherwise the reason does not appear why the lender ought to undergo the detriment of emergent damage for the favor of another.

943. • Query 3° Is it licit to subtract the increase from the beginning from money given by loan?

Resp. Of itself negatively, because the borrower, if the increase is subtracted from the beginning, pays it for a sum greater than that which he truly accepted.² "Yet," says Kenrick³ (and therefore I have said: of itself), "the custom has been received in money-tables that the increase is thus deducted from the beginning; and since it is approved by the common consent and usage of all, perhaps it can be excused on this account. The same is done whenever money is given by private persons for a promissory note."

944. • Query 4° Is it licit to perceive INTEREST from INTEREST itself (interest upon interest or compound interest)?

Resp. 1° Affirmatively by civil law. But it is required, that the agreement be made after interest has become due; an original agreement, though not void, would prevent the party from recovering the interest either at law or in equity.⁴

Resp. 2° It also seems it must be affirmed for the internal forum: 1° if an agreement preceded, whether explicit or implicit; because revenue, after the term has elapsed, is added to the capital sum: for it is altogether the same thing that I leave to the debtor my money, which he already has from loan, or hand over other money to him; 2° if from delay of payment damage comes to the creditor.

945. • Query 5° What must be said concerning institutions which are commonly called SAVINGS BANKS (savings banks)?

Resp. Such institutions are not only to be tolerated, but also to be praised, since they assist widows, male servants, maidservants, and the poor, while their modest money is accepted in a certain way by loan, and interest is repaid to them. It is confirmed from the Response of the Sacred Penitentiary, 17 Dec. 1832, in Kenrick.¹

946. Resolutions. - 1° Those who do not exceed the legal or common rate by reason of profit perceived from loan can be absolved, indeed are to be absolved; since it is by no means established that they are guilty of injustice, and therefore they cannot be obligated to making any restitution.

2° Although therefore anyone can defend the opposite opinion concerning profit arising from loan as speculatively more probable, nevertheless he cannot condemn the adverse opinion as contrary to Catholic doctrine, nor exact restitution, absolution being otherwise denied. Indeed, one who would urge a penitent to restitution would himself have to be forced to repair the damage of the penitent; since, from commonly received doctrine, a confessor rashly prescribing undue restitution is bound to repair damage inflicted.

3° Nor are those penitents to be obligated to restitution who accepted profit according to law with bad faith, that is, thinking that they could not perceive such profit; because from the fact that they sinned by acting against conscience, it does not follow that they were guilty of injustice.

4° Penitents from the clause added in most responses of the Sacred Congregation ought always to be prepared to submit themselves to the judgment of the Holy See; but they are not necessarily to be questioned by the confessor concerning such a disposition: 1° because this is not exacted in the aforesaid responses; 2° because the confessor ought to presume that the penitent, as a good Catholic, is placed in such a disposition, unless the contrary is established. Indeed, says Kenrick,² the Holy See has already become accustomed to omit this condition.

947. • 5° The profit perceived from money lent even to a poor man who does not suffer grave necessity, and who does not rashly hope that with the help of that money he will become so rich that he can easily restore the principal with a moderate increase, is not to be condemned as unjust. For the precept of lending gratuitously then does not urge, and money even then retains utility and its own price.

6° If no profit ought to be perceived from money lent to a poor man for sustenance, this happens because the lender by force of the precept of charity is bound to will that the money lent by him be applied to the sustenance alone of the poor man.

7° Profit exceeding the legal or common rate is illicit and unjust, and therefore liable to restitution. Except unless the reason of greater emergent damage or ceasing profit persuades otherwise, according to what was said and the limitation, n. 942.

948. • 8° Likewise, he who accepts money by loan according to the rate of law, for example at 5%, cannot for this reason exact 10% by lending the same money again to another, because the title for accepting the five superfluous is lacking; but it does not seem against civil or natural law of itself that someone accept money by loan for 3 or 4, and lend the same again for 5 in 100.

9° An increase exceeding the legal or common rate can be accepted from a borrower who, with regard to a greater profit, and with no necessity of household affairs compelling, offers it with a glad mind; for consent heals the defect of title. Thus Kenrick.¹

10° "In money-tables money is commonly given as a loan to be paid after sixty days: but if someone seeks a delay of six months, it is sometimes conceded with a greater increase accepted; but, lest the law seem to be violated, shares are sold at a greater price, which the buyer is going to pay after six months; or bank-notes of another, which are worth less, are given. This manner of acting plainly smacks of usury." Thus the same Kenrick.²

11° A title for accepting a greater increase can sometimes be taken from the uncertain condition of things, "by which it happens" that the credit of almost no one, even the richest, "is established," since by the fall of others he "can" become unequal to paying, or, with the help of laws, weave delays.... Hence "it happens" that on account of the narrowness of things money is "sought" as a loan, with an increase of two offered each month for one hundred; ... but since this is wont to happen "not by the fraud of one or another or from necessity by which" a few are pressed, "I do not dare to condemn those who, while such is the condition of things, give" money as loans, with the increase accepted which "then" is given; "although I confess that the matter is not lacking in the appearance of evil, and that the very condition of things is far removed from a right rule of trading." Thus again Kenrick.²

12° Absolutely nothing can be exacted from the poor seeking a loan from necessity, notwithstanding the title of civil law; and therefore, if any profit has been perceived, it must be restored; since civil law, which cannot destroy an obligation of natural right, is not judged to comprehend this case, and therefore neither to transfer dominion of the profit into the lender.