§ V. On Mutuum

I. Notion. Mutuum is a contract by which someone yields to another a certain quantity of fungible things under this law, that the other afterward return an equal quantity of the same nature and quality (St. Alphonsus, III, 754). By its nature it is a gratuitous contract; this nevertheless does not prevent - as we shall explain afterward - the lender from stipulating, for example, an increase; when this is done, another contract is added to the contract of mutuum. It is said:

1. Yields to another, that is, transfers into the ownership of another. Therefore it differs, for example, "from commodatum and letting, because in these ownership is not transferred, but only use" (St. Thomas, II-II, q. 58, a. 1; St. Alphonsus, III, 754).

2. Of fungible things, that is, of things which are consumed by first use, and this either physically, as wine, wheat, etc.; or morally, as money, which perishes for the one using it, and thus is as it were consumed for him (St. Thomas, loc. cit.; St. Alphonsus, loc. cit.).

3. An equal quantity, etc.; wherefore compare what is to be said below under V.

II. Division. A twofold mutuum can be distinguished: mutuum of consumption and mutuum of production. The former is had when a thing is given by loan, for example wine, whose use consists in physical consumption. The latter, when someone gives by loan a thing whose use, with human industry added, can produce profit. Money especially belongs to things of this kind.

III. Obligation of giving a loan. An obligation of charity is present per se if someone is greatly in need of your thing, while you rightly expect the return of the principal granted, and do not prefer to aid the needy person in some other way.

IV. Obligations and rights of the one giving a loan. The one giving a loan:

1. Is bound to disclose harmful defects of the thing, if he knows any; likewise, not to demand what is owed to him before the time concerning which agreement was made (St. Alphonsus, III, 754).

2. Cannot, by reason of the contract itself, receive any profit, in other words anything beyond the principal. First, this is clear from Sacred Scripture.¹ Ecclesiastical documents are added, namely: cap. Praeterea, 7, De usuris, and cap. Consuluit, 10, same title; the Lateran Councils III² and V;³ the Constitution of Benedict XIV Vix pervenit;⁴ likewise the Code of Canon Law, which establishes thus: If a fungible thing is given to someone in such a way that it becomes his and afterward only as much in the same kind is restored, no profit can be received by reason of the contract itself (can. 1543). Finally, reason confirms the same thing; for if it were licit by reason of the contract itself to demand something beyond the principal, this would be permitted either because of the principal given up, that is, because of being deprived of the principal as such, or because of being deprived of the principal for some time. But the principal given up is compensated by the principal to be returned in equivalent form; and deprivation of the principal for some time as such is not worthy of compensation, as is clear in one who, for the entire time during which he will lack the thing, most certainly is not going to use it. Hence proposition 41 was condemned by Innocent XI: "Since counted money is more precious than money to be counted, and there is no one who does not value present money more than future money, a creditor can demand something beyond the principal from the borrower, and by that title be excused from usury"⁵ (St. Alphonsus, III, 759).

St. Thomas says thus: It must be known that there are certain things whose use is the consumption of the things themselves; as we consume wine by using it for drink, and consume wheat by using it for food; whence in such things the use of the thing ought not to be reckoned separately from the thing itself; but to whomsoever the use is granted, by this very fact the thing is granted; and for this reason in such things ownership is transferred by mutuum. Therefore, if someone should wish to sell wine separately, and should wish separately to sell the use of the wine, he would sell the same thing twice, or he would sell what does not exist; whence he would manifestly sin by injustice. And by a similar reason he commits injustice who lends wine or wheat, asking that two compensations be given, one indeed the restitution of an equal thing, but the other the price of the use; and this is called usury (II-II, q. 78, a. 1). But note:

a) As we have already noted from St. Thomas, profit received by reason of the contract which is called mutuum is called usury. Hence Benedict XIV in the Constitution Vix pervenit: "That kind of sin which is called usury, and which has its proper seat and place in the contract of mutuum, is placed in this, that someone, from the mutuum itself, which by its own nature demands only that as much be returned as was received, wishes more to be returned to himself than was received; and therefore contends that some profit beyond the principal is owed to himself by reason of the mutuum itself. Therefore every profit of this kind, which exceeds the principal, is illicit and usurious."

b) But profit received in this way is usury even if it is demanded as owed from benevolence and gratitude, and not as owed from justice. This follows from proposition 42 condemned by Innocent XI: "It is not usury when something beyond the principal is demanded as owed from benevolence and gratitude, but only if it is demanded as owed from justice."⁶ The reason is that gratitude considers more the affection of the giver than the thing given, and therefore the recipient satisfies by a similar affection of doing good indeterminately. Therefore, when the lender demands something as owed from gratitude, he fictitiously appeals to gratitude, since there is no such debt of gratitude, but under the cloak of gratitude he hides the strict obligation which he tries to impose on the borrower. Therefore the Vatican thunderbolt strikes this fictitious obligation of gratitude⁷ (cf. St. Thomas, II-II, q. 78, a. 2, ad 2; St. Alphonsus, III, 764, 780).

c) However, someone can hope for some gift, not "as if owed, but as gratuitous and to be rendered without obligation; and thus he who lends can licitly do so; just as one who does a service for someone trusts that he will in friendly fashion do him service in his own time" (St. Thomas, q. 13, De malo, a. 4, ad 13).

3. The lender can, if titles extrinsic to the contract are added, demand beyond the principal as much as the title is worth. That extrinsic titles can be present is recognized both in the encyclical Vix pervenit and in the responses of the Holy Office and of the Sacred Penitentiary;⁸ likewise in canon 1543 of the Code. They are: risk of the principal, emergent damage, ceasing profit, conventional penalty; concerning others there is dispute.

a) Risk of the principal,⁹ that is, the risk of not recovering the thing, and that greater than if he did not give the thing as a loan. "The reason is that to expose yourself to such a true risk is estimable by price" (St. Alphonsus, III, 765; St. Thomas, II-II, q. 77, a. 4, ad 2; Opusc. 73, cap. 6, at the end).

b) Emergent damage, that is, the detriment which he is going to undergo because of the thing given by loan, for example because for this reason he will have to buy the thing more dearly. The reason again is that, besides the principal, he suffers another damage which is estimable by price (St. Thomas, II-II, q. 78, a. 2, ad 1; St. Alphonsus, III, 768).

c) Ceasing profit,¹⁰ that is, the profit which he is not going to receive because of the thing given by loan, for example because for this reason he is not going to trade with the money. The reason is that, besides the principal, he loses the hope of profit; and this is estimable by price; but in the case only as much can be sought as the hoped-for profit is worth (St. Alphonsus, III, 768). The mind of St. Thomas is disputed.¹¹

Since money today, although in itself sterile, can be employed in innumerable ways for trading and thus for making profit, for example by buying a fruitful thing, or a thing which can at least be sold more dearly, or shares in an industrial or mercantile company, therefore one who gives money by loan can commonly stipulate an increase under the title of ceasing profit.

d) Conventional penalty, that is, a penalty to be paid by the borrower if he does not return the principal at the established time. A convention or contract of this kind is just, because it conduces to forestalling the negligence of the borrower. Further, in order that the lender be able to demand the penalty, it suffices that the borrower, with juridical fault, has not returned the thing at the established time; indeed sometimes, according to the mind of the contracting parties, no fault is required. But the penalty seems to be owed before the sentence of a judge, because it has more the nature of a pact than of a penalty (St. Alphonsus, III, 766, 767); nevertheless, unless the contrary intention of the contracting parties is established, the petition of the one giving the loan can be awaited.

Question 1. Whether a law which permits an increase is a reason for demanding something beyond the principal.

Response. It must be affirmed, because the State, by force of high ownership, licitly permits it if grave reasons for doing so are present. But grave reasons are present; since a mode of acting of this kind creates the faculty of receiving money by loan, and this faculty promotes commerce. But the State can proceed in this way, whether another title, on which the law rests, is always present, or whether another title is lacking here and now. Canon 1543 says thus: "In the furnishing of a fungible thing it is not per se illicit to make an agreement concerning legal profit, unless it is established that this profit is immoderate, or even concerning greater profit, if a just and proportionate title supports it."

Question 2. Whether the benefit furnished to the borrower by the one giving a loan is a title for demanding something beyond the principal.

Response. The benefit furnished consists either in the action of giving a loan, or in the fact that a thing is given by loan which will be specially useful to the borrower. Now the action of lending is intrinsic to the loan, nor is it any more estimable by price, separately from the thing given by loan, than the action of donating or selling is estimable separately from the thing donated or sold. But the fact that the thing given by loan is specially useful to the borrower depends on the condition and circumstances of this borrower, not on the one giving the loan; and the one giving a loan cannot receive something for a thing which is not his.

Question 3. Whether the obligation of not demanding back the principal up to a certain time is a title for demanding something beyond the principal.

Response. This must be denied, with regard to proposition 42 condemned by Alexander VII: "It is licit for one lending to demand something beyond the principal if he obliges himself not to demand back the principal up to a certain time."¹² The reason is that deprivation of the principal for a time as such, and consequently also the obligation of lacking it as such, is not worthy of compensation (p. 594); nevertheless if someone obliges himself not to demand back the principal except after a long time, an extrinsic title for demanding something besides the principal will hardly be absent, since a lender who must wait for a long time will easily suffer damage or deprivation of profit.

Question 4. Whether the faculty of making profit, today commonly annexed to the possession of money, is a title for demanding an increase.

Response. It seems to be affirmed, because the said faculty, according to common estimation, has a value distinct from the commutative value of money, and therefore deserves to be compensated.

Corollary. Likewise, on account of the just titles explained, it is licit to demand interest from unpaid interest, that is, anatocism, because unpaid interest is equated with principal handed over.

¹ Cf. Ps. 14:1; Luke 6:35.

² Cap. 25.

³ Session 5.

⁴ November 1, 1745.

⁵ Denzinger-Bannwart, n. 1191.

⁶ Denzinger-Bannwart, n. 1192.

⁷ Billuart, De iure et iustitia, diss. IV, art. 4.

⁸ Collectanea (n. 1393).

⁹ Lateran Council V (session 10), Bull Inter multiplices, in the year 1515; it is found in Labbe, tom. 19, col. 906.

¹⁰ L. 13, ff. Rem ratam hab.; Benedict XIV, encyclical Vix pervenit, § 3, n. 3.

¹¹ Cf. Billuart, De contractibus, diss. 4, a. 5.

¹² Denzinger-Bannwart, n. 1142.

V. Obligations of the borrower. The borrower is bound to return a thing of the same species and quality;¹ but if he cannot return what must be returned in kind, let him give back an equivalent. As regards quantity, the same must be returned if the value, whether of money or of another thing to be returned, is the same at the time of return as it was at the time of the contract begun. If the value is different, what was said concerning contracts in general must be said, namely:

1. If there is question of ordinary or - so to speak - normal changes, the contract as it stands must be put into execution, because the contracting parties are judged to have consented to changes of this kind.

2. If there is question of a greater change, it must be said thus:

a) If law, or an express pact, or custom assigns a norm, one must stand by these. As regards law or pact, the matter is clear; as regards custom, it follows from the fact that the contracting parties are judged to have contracted according to custom.

b) Law, express pact, and custom being excluded, the one who suffers damage by executing the contract is bound to undergo this if there is question of a case which could have been foreseen or feared; otherwise, at least more often, if there is question of a case which could not have been foreseen, such as war or a disturbance of public affairs. The reason is that every contract entered into in the way assigned in the question has something of an aleatory contract; once this is posited, the former cases are judged to be comprehended in the contract, but not the latter.

c) Sometimes from the circumstances it is clear that the same quantity must always be returned, and that the same quantity always suffices; for example, if a farmer out of friendship gives by loan to another farmer some quantity of wheat.

As regards pacts which are licitly entered into, note these things:

a) If it is doubtful whether the value of the thing given by loan will be increased or diminished, they licitly agree about returning the same quantity; since to the contract of mutuum there is added a legitimate aleatory contract (St. Alphonsus, III, 782).

b) If it is foreseen that the value of the thing given by loan will be increased, it is not licit to agree about returning the same quantity, except on account of emergent damage or ceasing profit; as if, the loan being excluded, you would have kept your thing until the time of the increased value and of the principal to be returned; likewise if, your thing having been given by loan, you are compelled to buy another more dearly. The reason is that otherwise you receive profit from the loan (St. Alphonsus, III, 782).

c) If it is foreseen that the value of the thing given by loan will be diminished, the lender can agree about a greater quantity being returned. The reason is that the lender, by receiving the greater quantity, does not become richer than he was at the time of the contract begun, so that he is not enriched from the loan or by reason of the contract.

¹ Nevertheless it is not repugnant, for example, that wheat or wheat of lesser quality be given by loan, by stipulating that another thing of the same value, or wheat of better quality in lesser quantity, be returned.

VI. Obligation and penalties of usurers. 1. It is clear that usurers are held to restitution, namely to the borrowers or their heirs.

2. Canon 2354 establishes: A layman who has been legitimately condemned for the delict of usury is held by the law itself to be excluded from legitimate ecclesiastical acts and from any office, if he has any in the Church, with the burden of repairing damages remaining firm. But a cleric who has committed the delict of usury is to be punished by an ecclesiastical tribunal, according to the diverse gravity of the guilt, with penances, censures, privation of office and benefice, dignity, and, if the matter requires it, even deposition.