§ I. On Sale with the Pact of Buying Back

[Conditional Sale. Kent, T. IV. n. 144. (4)]

995. • Sale with the pact of buying back is a contract by which the seller reserves to himself the right of buying back his own thing, under the condition that he compensate the expenses, improvement, or similar things.

996. • As regards the morality of sale of this kind, to which for the internal forum purchase with a pact, that the thing bought must be bought back by the seller at the judgment of the buyer, seems able to be assimilated; these things from the sufficiently common doctrine of Moralists can be established:

Sale or purchase with the pact of buying back is of itself licit, provided the price of the thing is diminished pro rata for the burden which one party, by bargaining for the right of buying back, imposes on the other party; since such a burden in reality is as it were a part of the price, which therefore must be diminished insofar as due equality in the contract of purchase-sale demands it. Wherefore:

1° If the pact of buying back is made solely in favor of the seller and as a burden of the buyer, the seller must descend in the price according to the estimation of the burden imposed on the buyer. But how much that burden is to be estimated, this must be left, with attention to the circumstances, to the judgment of prudent men, although not rarely that burden will be equivalent to a third or at least a fourth part of the price; so that not rarely also the price must be diminished by a third or at least by a fourth part; and thus, for example, if the price of the thing of itself is 100, and the seller sells it with the pact of buying back in his own favor, then often he will have to sell it for 65-75, or, generally speaking, for the price which, with attention to the circumstances, is determined by the estimation of prudent men.

2° But if the pact of buying back is made solely in favor of the buyer, and to the burden of the seller, then on the contrary the buyer is held to increase the price according to the estimation of the burden to be undergone by the seller.

3° Finally, if the pact of buying back is made in favor of both; so namely that as often as the seller has returned the price, the buyer is held to return the merchandise, and on the contrary, as often as the buyer has returned the merchandise, the seller is held to return the price; then equality of the middle price will have to be observed, since the burden is equal for each. Cf. St. Alphonsus.¹

997. • Besides, for practice as to purchases and sales of this kind with the pact of buying back, observe that they are sometimes made not with the intention of buying or selling, but with an entirely usurious intention, namely to cloak, under the deceitful species of purchase-sale, the usury latent in the agreement. But it is easily understood that such agreements, by reason of the latent usury, are illicit and unjust, at least whenever the profit perceived from them exceeds the increase which it is licit to receive on the occasion of a loan according to the things said above in n. 972. An example of a usurious agreement of this kind is at hand in the contract called in Spanish mohatra, by which someone sells a thing at a greater price on credit, with the pact that the buyer sell it back to him at a lesser price, in counted money. Cf. St. Alphonsus.¹