Chapter V. On Aleatory Contracts

Those contracts are called aleatory which are subject to the vicissitudes of fortune, either wholly or only in part. Several are numbered, but the principal are insurance, wagering, lottery, and gaming. A few things will be said concerning each one.

Insurance is a contract by which one of the contracting parties takes upon himself the danger of some thing, and the other obliges himself to a certain determinate price for this kind of danger taken up. Thus, for example, life is insured against death, a house against fire, a ship against shipwreck, etc.

On life insurance. There is certainly need of great prudence in entering upon and interpreting this contract. For some things concern the validity, and some only the liceity, of the contract. Here we regard the obligations and rights of the insured. 1st. The person examined ought to be the person insured. 2nd. There are certain diseases, certain degrees of diseases, whose existence precludes every contract. 3rd. There is a determined age below and above which the company does not make a pact. If all or one of these conditions are not observed, the contract is null. But there are 4th. other things which leave the contract valid, yet, if known, would have caused the companies to bring forward another pact; for example, if the true age is not given, but some age is given within the years generally required. There are 5th. other things of lesser moment which leave the pact as it lies. Finally 6th. companies often set down other annulling clauses which nevertheless we can regard as obliging in the forum of conscience to restitution only when the sentence of a judge has then been given. In entering upon these contracts the only method to be used is the sincere method. Therefore if some damage has been unjustly inflicted on the company, this certainly must be repaired. If someone substitutes another to be examined for himself, he does not have a right to the money concerning which agreement was made. If someone has a very advanced disease, with which existing the company would not have entered, but did enter because deceived, the contract is null. If someone, say, makes a pact above the age, the money is not his or his heirs'. This money must be returned, with the sum deducted which is equivalent to the annual premiums paid, unless the sentence of a judge has declared otherwise. If someone has given a false but insurable age, let the heirs compose the matter so that they retain for themselves that quantity of the handed-over money which would have been given if the true age had been designated. Yet we judge that in these adjuncts of lesser moment one must act more mildly if the ministers of the company themselves were in the cause and the insured acted as if deceived. Besides, several other circumstances here and there are taken up by the company to be investigated, and this must be said to pertain to it: thus the disease of grandparents, and other things; we do not judge that these things, concealed in good faith or exercising no influence on the death of the insured, are to be held as destructive of the pact. Let this be said in general. There are certain companies which set down a healing clause, by force of which, if after a time determined from the pact entered the company has not discovered and decided the matter, the contract is unassailable, for example, The New York Life Insurance Co.: according to this company, incontestability means: if the insured person is the examined person (i.e., if no substitution was made), if that person has truly died and the contract or policy, as it is commonly called, is in force at the time of death according to its terms, this contract will not be contested. "This policy shall be incontestable after one year from its date of issue except for non-payment of premium." (Studies in Practical Life Insurance, p. 154.) We judge also, as we have already indicated, that the company ought to answer for errors of the contract which are owed to its agents and not to the private persons themselves, who are easily deceived by them in good faith; otherwise the whole difficulty will fall upon innocent heirs. As to restitution itself, when its obligation is truly present, it is of itself to be made to the injured company. Yet, as in other matters, so in this cause great difficulties can arise. But if it is established that the company insured itself against these events, perhaps it can more easily be permitted that restitution be made either to pious causes or to the poor. - Cf. Lehmkuhl, nn. 1036 et seq. - Bulot, n. 830. - Huppert, Der Lebensversicherungsvertrag. - Genicot, n. 658, VIII. - Hudnut, Studies in Practical Life Insurance.

I say. The contract of insurance is licit; for when due conditions concur, equality of justice certainly is preserved in it, as theologians commonly admit and daily practice confirms. - But the required conditions are the following: 1st. that the price be proportioned to the danger; 2nd. that the danger be true and equally known to both parties; 3rd. that the insurer have that from which he can pay; 4th. that the insured observe the particular conditions of the contract. - Cf. St. Alphonsus, n. 911. - Kenrick, nn. 137 and 139.

Wagering is a contract by which several persons contending about the truth or event of some thing pledge something to one another, or deposit it with a third party, so that it may belong to him who has spoken the truth.

I say. The contract of wagering is licit, with those things posited which must be posited; for it presents nothing dishonorable in itself and is approved by the common practice of all peoples. - But the conditions are: 1st. that the thing be understood in the same sense by each party; 2nd. that there be the intention of obliging oneself and paying what is pledged; 3rd. that the event be uncertain to both. Cf. Kenrick, n. 154.

Lottery is a contract by which several persons deposit something in common so that they may have the right of drawing by lot the thing exhibited in the midst. Some have the whole, some a part, and finally some nothing.

I say. The contract of lottery is licit provided the required conditions are present. The reason is that lottery can be regarded as the purchase of an uncertain thing, or as a contract by which with money is bought the right of drawing by lot and acquiring that which has fallen by lot; but it is licit to buy an uncertain thing, just as to make a pact for the danger of some thing. Therefore . . . - But the required conditions are the following: 1st. that there be no fraud in drawing out the tickets, nor in paying the prize which has fallen; 2nd. that the owner of the lottery not exceed in profit, nor morally gain more than if by another licit contract he spent his money or distributed his goods; although nevertheless, if the lottery has been instituted for a good work or public utility, it is commonly admitted that the profit can be greater.

Gaming is a contract by which those playing make a pact among themselves that the stake which they have put up should fall to the victor. Game is distinguished threefold: 1st. industrial, which is governed especially by the skill of those playing; 2nd. aleatory, which depends chiefly on chance; 3rd. mixed, which depends partly on skill and partly also on chance, as, at least for the most part, is the game of cards.

I say. None of the three aforesaid games is of itself illicit, if the due conditions are observed. The reason is that gaming is repugnant neither to good morals, since it is of itself an act of honorable recreation, nor to commutative justice, since anyone can transfer the dominion of his goods to whom and in what way he wishes. I said of itself, because often from adjuncts gaming becomes a thing full of dangers, and unless due moderation, which very often is most difficult, is employed in its use, in a short time it turns aside into detestable abuse. But the required conditions are the following: 1st. that the player have free administration of the things which he exposes; 2nd. that fraud and deceit be absent from the game; 3rd. that on both sides the danger of losing be morally equal; 4th. that the game be honorable in itself and not prohibited by law; 5th. that an enormous sum not be exposed, so that the family and creditors could suffer damage from it.

Question. Whether the victor in a prohibited game is bound to restore or the one conquered is bound to pay in the same game?

Resp. The victor certainly is not bound to restore, because the contract is not always and everywhere declared void by law, but only prohibited; and if somewhere it were declared void, yet because by natural law it is valid, as is supposed, positive law cannot, at least according to the probable opinion, invalidate it in the internal forum. For this same reason the one conquered in a prohibited game is not to be obligated to pay in the forum of conscience; for the opinion which holds that the contract becomes void by force of positive law is probable. - Cf. St. Alphonsus, nn. 887 et seq. - Lugo, disp. 22, n. 300; and disp. 31, n. 60. - Lacroix, lib. 3, part. 2, n. 1086.

The Exchange is a place constituted by public authority for the exchange of values, to which negotiators and their Agents come together for dispatching business. Among us it is called the Stock Exchange, or exchange of values. The negotiations which are made there turn about securities, stocks, obligations, commodities. The rules of the diverse Exchanges form a certain system according to which negotiation concerning stocks or commodities is made either for investing capital or for the sake of speculation. Negotiations are exercised either with cash or with credited money. In the New York Exchange fictitious sales do not exist. In the hall itself stocks or obligations are not actually exchanged, but there are only made promises of delivering or receiving a determinate number of securities at a determinate price. The actual delivery itself, if the whole transaction is regular, must be made before a quarter past two in the afternoon of the day following the sale. But negotiation can be made so that delivery is placed on the same day or after three days, or there are even options of sellers and buyers for a space which is within sixty days. All sales in that Exchange are perfected for actual delivery and for full payment at the time of delivery.

Investment, insofar as it is distinguished from speculation, simply signifies the purchase of securities for the full price paid: then the securities are kept for the annual income. One example of speculation, for there are also others: The buyer gives an order to an Agent to buy a determinate number of stocks at a determinate price, or at the prevailing price, and at the same time deposits with the Agent a sum of money which is equivalent to ten percent of the whole value of the stocks. The Agent executes the order in the Exchange itself. Afterward, if the purchased titles are active, the business is sent to a special office, and if it is not eliminated by it, the Agent who sells must deliver the stocks before a quarter past two in the afternoon of the following day; the buying Agent must give a certified check for full payment. Then he takes the stock and obtains credit from the Bank on account of it. The client of the buying Agent can now give an order that he sell the stock when the price has increased, and his profit is the difference between the price of sale and of purchase after subtracting the price of the commission given to the Agent and the interest of the credit obtained from the Agent. In these and similar operations no special difficulty seems present. Yet there are such negotiations which are very dangerous: for the price is artificially diminished or increased by false rumors being spread; or by monopoly it grows beyond value, and they are entered into by those who here and there cannot pay the differences: in these cases justice is also violated. - Cf. Ball.-Palm., v. 3, p. 796. - Bulot, n. 838. - Genicot, n. 665. - The Work of Wall Street, Sereno S. Pratt. - The A. B. C. of Wall Street, S. A. Nelson. - Gury, Cas. Conscien. de Emptione, n. 17.