§ 3. ON TITLES EXCUSING FROM USURY, OR ON INTEREST TO BE PERCEIVED FROM A LOAN FOR CONSUMPTION

TITLE, as it is taken here, is a certain circumstance extrinsic to the loan for consumption, with regard to which it is licit to exact something beyond the principal. Several titles are commonly admitted by theologians, namely: 1. damage emerging; - 2. profit ceasing; - 3. peril of the principal; - 4. conventional penalty. To these today the title of civil law has acceded.

1107. PRINCIPLES. I. Damage emerging and profit ceasing are legitimate titles of perceiving something beyond the principal. For no one is held, at least from justice, to undergo some detriment for the favor of another, without due compensation. If damage emerging or profit ceasing is not certain, but only probable, something beyond the principal can still be exacted, according to the estimation of the peril of damage or of the hope of gain (III, 768, 770).

Hence, it is probably licit to exact something beyond the principal if the loan for consumption is made for a long time, for example for three years. For it is morally impossible that the lender, on account of prolonged waiting, should not suffer some peril, damage, or inconvenience, or at least that he should not be impeded from exercising some act of liberality or of another becoming operation.

Note. To exact interest of this kind, three things are required: a) that the loan for consumption truly be the cause of damage or of profit ceasing; b) that no more be exacted than is the gain which is hoped for from another licit contract, according to the estimation of hope and peril, and after expenses have been deducted; c) that the interest be drawn into pact from the beginning (III, 760, 769; H. Ap., X, 149 ff.).

1108. II. Extraordinary peril of losing the principal is a just title of exacting something beyond the principal. The reason is that to expose oneself to such peril is truly estimable by price. Whence St. Thomas says thus (opusc. 73, c. 6, fin.): "Things which are possessed outside peril are valued more than the same things existing in peril." It is confirmed from the words of the Fifth Lateran Council already cited: "Usury is the profit which one endeavors to acquire by no labor, no expense, no peril"; and from the declaration of the Sacred Congregation de Propaganda Fide, of the year 1645, where peril of the principal is numbered among the titles excusing from usury (Bull. S. Congr. de Prop. Fide, I, 124, 131).

But it is required: a) that the peril be extraordinary, and this by reason of the loan alone: for example, if the borrower is of slight fortune, a prodigal, etc.; for nothing can be exacted on account of common peril, for example of fire, to which any sublunary thing is exposed; b) that it not stand by the lender why the principal is not secured, for example through pledge or suretyship (III, 765).

1109. • III. Conventional penalty is similarly a just title of exacting something beyond the principal. Reason: an accessory pact is licit, by which provision is made for the firmness of the contract, and the negligence of the other party is averted. But conventional penalty consists in this, that the borrower obligates himself to paying something beyond the principal if he does not restore within the predefined time.

Now it is required: a) that the delay of the debtor be notable and culpable; - b) that the mind of gaining through the appended penalty be absent; which mind is presumed if the time is constituted at which the debtor is known not to be able to pay; c) that the penalty be moderate and proportionate to the fault. But the penalty is to be paid before the sentence of a judge, because it is a pact rather than a mere penalty (III, 766, 767).

1110. • On the title of civil law, or of custom.

I. EXISTENCE OF THE TITLE. Today's laws, through a formal disposition, commonly attribute to lenders the right of accepting some increment from a loan for consumption; and where such law is lacking, CUSTOM, everywhere, concedes the same faculty. Nor nevertheless is the disposition of the law everywhere the same. For in some places, a legal rate has been established, beyond which nothing can be exacted; while in other places, the stipulations of the parties are circumscribed by no limits. But a certain vulgar increment is observed almost everywhere, not otherwise than as a price for other wares. For determining this, what is transacted in the mercantile forum (bourse; stock exchange), which is published daily in public sheets, especially makes.

In France,⁰¹ the legal rate is five percent in civil matter, and this cannot be exceeded; only in commercial matter is a conventional rate admitted.

In BELGIUM the French law has been abrogated; liberty of perceiving whatever increment is conceded.

In AUSTRIA,⁰² a rate of five percent can be constituted if in the contract the increment was stipulated without determination, or if interest is owed by force of law.

In SPAIN,⁰³ a conventional rate is admitted, in defect of which nothing can be exacted. Yet by reason of culpable delay, the legal rate of six percent is in force.

In GERMANY,⁰⁴ the legal rate, in defect of a conventional one, is four percent. A conventional rate is also admitted, which, if it exceeds six percent, the borrower can free himself after six months by restoring the principal, nor can any pact take away this right.

In ITALY, besides the legal rate which, in defect of agreement, can be exacted, that is, five percent in civil matter, six percent in commercial, a conventional rate is admitted, which civil law indeed (art. 1831) leaves free to each one to define; but natural law always forbids an immoderate or usurious rate.

1111. II. LEGITIMACY OF THE TITLE. Whether civil law, or prevailing custom, is a just title of perceiving something beyond the principal?

1. The mind of theologians. On this question, theologians go into diverse ways. There are those who deny it; because civil law can never permit what divine and natural law forbids.⁰⁵ There are those who more rightly affirm it; but the patrons of this opinion by no means agree in alleging reasons.

Some explain the matter from the end of lending, which on the part of the lender can be either gratuitous or gainful.⁰⁶ - Others say that the furnishing of consumptible things, such as is had in loan for consumption, can become the matter of an onerous contract, if this is pleasing to the contracting parties; whence, when the nature of the contract has been changed, nothing now stands in the way of perceiving a price from such furnishing, that is, from the leasing of money.⁰⁷ Others opine that to the supreme legislator, by force of high ownership, or by reason of the public good, belongs the right of transferring ownership of the increment from the borrower to the lender, the more so because subjects spontaneously consent, on account of the benefit coming thence to the whole society. For the nerve of commerce, they say, is loan for consumption, under its multiple form, by which it comes in a purchase-sale made, money not having been counted out. Therefore, once the aforesaid right of the legislator is admitted, the conclusion is now in the open: namely, that by force of civil law what is conceded beyond the principal can licitly be perceived.⁰⁸

Others flee to the triple contract, which they contend is in loan for consumption, at least when the borrower enters upon it for making gain.⁰⁹ Cf. n. 1159, note.

Finally, others, with whom we agree, teach that the present-day title of civil law or custom is not diverse from the other titles commonly received from ancient times, but rests altogether on them and exhibits their index and summary, attending especially to profit ceasing and to peril of the principal. And indeed, in our times, the conditions either of the state or of the economic value of money are altogether changed, insofar as money today is valued from the hope of fruitful consumption and the trust which it wins. From this it has happened that lenders not only generally intend that they make gain for themselves in whatever licit mode, but also require compensation for this hope, or profit ceasing, through interest. Add that in the handing over of a loan, peril of the principal is by no means fictitious, as is demonstrated from daily experience. Therefore the law, or custom, furnishes only one thing: namely, it indicates the value of money, according to common estimation, determines the interest which today corresponds to this value and can licitly be perceived.

Nor does it stand in the way that in some particular case no title is present from the commonly received titles; for that defect is compensated abundantly by a greater good, that is, by the common good, which, by the observation of some universal norm, is more efficaciously promoted, the more so because through it oppressive usuries are eliminated. Whence, the law remains just, although, not otherwise than was said about prescription, the presumption on which it rests fails in a particular case.

1112. 2. The mind of the Holy See. What the Church taught in ancient times, "that nothing can be perceived by the lender by force of the loan for consumption," this it firmly holds even now. Yet by reason of circumstances, especially from the fact that those titles which formerly were annexed to this contract only rarely are universally connected with loan for consumption, the Holy See today generally permits moderate interest to be stipulated and perceived. But in the decrees there is added the most weighty clause: "(It is permitted to perceive an increment) until the Holy See has issued a definitive decision."

Here is the sum of the Responses which have been published up to now:

a) The faithful who in good faith perceive interest according to the legal rate without another title are not to be troubled (Sacred Penitentiary, 16 Sept. 1830). - Similarly, those are not to be troubled who follow the practice introduced of accepting eight percent of annual gain from moneys given in loan (Holy Office, 18 Dec. 1872). The Bishop in individual cases, when it is a question of an increment surpassing the legal rate, is to decide the matter according to the practice of the timorous (Sacred Penitentiary, 18 Apr. 1889). But those who in bad or doubtful faith used the benefit of the law sinned, acting against conscience, but they are not held to restitution (Sacred Penitentiary, 17 Jan. 1838).

b) Priests are not to be troubled who contend that the law of the prince is a sufficient title of perceiving something beyond the principal, without another title (Sacred Penitentiary, 16 Sept. 1830). Priests conduct themselves more harshly and severely toward the faithful if they deny absolution to those who perceive an increment according to the norm of the law (Sacred Penitentiary, 11 Nov. 1831). Cf., with respect to the aforesaid Responses: Lehmkuhl, I, 1316, note; Gaude, ed. op. mor. St. Alph., II, p. 221 ff.; Schindler, II, p. 636; Bucceroni, Enchir. mor., n. 858; Crolly, II, 458.

From the things said you will resolve: 1. It is licit to perceive the legal increment, unless this is evidently unjust; for presumption stands for it. When the legal rate is lacking, one must stand by the vulgar: for the prevailing custom of upright persons has the force of law, and

common estimation is a sufficient argument of justice in the affairs of this age (Crolly, II, n. 465 ff.).

2. It is licit, in a loan for consumption, to exceed the legal or vulgar rate, if this is less than that which would be permitted to be perceived on account of common titles. Justice of itself does not seem to prohibit this, provided titles for the excess of increment are evidently present, and the borrower is forewarned. For such excess is not perceived except by title of compensation for the inconvenience by which the lender is burdened. But compensation of itself can be made to equality (Crolly, II, 465).

It is said: a) justice ... does not seem to prohibit this; for often charity forbids it, namely if the borrower is easily oppressed by such an increment and cast into misery; b) of itself; for by accident this can be prohibited, even by reason of justice, for example when the sentence of a judge accedes reducing the increment to the legal rate; c) provided titles are evidently present; for the danger of hallucination is very great, since greed of possessing easily invents for itself titles which are plainly lacking; - d) provided the borrower is forewarned; otherwise he does not seem to consent to the excess.

BEFORE THE FACT, therefore, it must with the greatest difficulty be indulged that someone exceed the legal or vulgar increment. AFTER THE FACT, this doctrine must be used prudently, lest restitution be imposed to which the lender is not held.

Note. On the conventional rate, D'Annibale, II, 535, writes these things: "I would say that interest of seven percent is not immoderate; above ten percent, immoderate; but what stands between these must be judged from peculiar adjuncts, but cautiously and soberly."

3. Anatocism is licit, that is, the perception of interest from interest itself not yet paid. This is permitted from civil law,⁰¹ but not in Germany, unless it is a question of savings banks, credit banks, and banks.⁰² And more probably it also has force for the forum of conscience, provided the new interest is liquid. For that which has not been paid obtains the aspect of principal. Yet for this it is required that either a pact concerning interest of this kind has preceded, or damage comes to the creditor from delay of payment, or it is decreed by law as a penalty against borrowers culpably in delay (Gousset, in French Civil Code, art. 1154).