Order among creditors; bankruptcy

507. If a debtor cannot satisfy all his creditors, it is asked whether before cession of goods, or with abstraction made from it, payment must be made to each pro rata, or whether some order among creditors can or must be observed. Now from natural law these things can be established:

1. To the owner must be returned another's things which exist in themselves with the debtor, for example, deposited or leased things, as was said above (n. 506).

2. Before all others satisfaction must be made to creditors who through hypothec have acquired a real right in certain goods of the debtor. But satisfaction must be made to these so that earlier ones are preferred to later ones: for these later ones acquire a right in the goods of the debtor only insofar as they are not already bound to prior ones.

3. The full debt can licitly be paid to the following creditors, although from this the part to be paid to other creditors is diminished: for, by acting thus, an injury properly so called is not done to these, because on the one hand they do not have a right in certain goods, and on the other the others receive only what is owed to them by strict right:

a. to poor creditors;

b. to creditors prior in time;

c. to creditors asking first.

alpha. If the debtor has a just cause of paying one integrally before the others, nothing prevents him from warning him to seek payment of the debt.

beta. Sometimes laws declare payments made a short time before cession of goods to be void. Therefore if creditors to whom satisfaction cannot be made integrally have recourse to a judge, and the judge declares the payments made invalid, creditors must return in conscience the payments received.

508. What must be done by a servant who adverts that his master is so burdened with debt that he cannot satisfy his creditors?

a. A servant who is necessary for preserving honor and a justly acquired state can remain in service and receive wages: for what is necessary for this end the master burdened with debt can licitly expend.

b. A servant who is not necessary for this end can seek and receive wages if in good faith he furnished service to the master and only now adverts that he is unable to pay all creditors, both because he belongs to privileged creditors and because of the reason to be adduced below.

c. Whether a servant who is not necessary for preserving the honor and state of the family must depart when he adverts that his master cannot feed so many servants without damage to creditors, or whether he can remain and receive wages, authors do not agree. It can probably be said that the master indeed cannot licitly retain superfluous servants to the damage of his creditors, but that servants whom the master does not spontaneously dismiss can ordinarily remain and accept wages: for they must be considered as materially cooperating in the sin of the master; but ordinarily a sufficient reason will be present on account of which they can licitly cooperate in the sin of the master, especially where, if they depart, others will not be lacking who will enter the service.¹

¹ Cf. Ballerini-Palmieri III, n. 526.

The question of order of payment among creditors also arises when a debtor is insolvent and cannot pay all in full, for if he can pay all in full, order of payment is not of consequence. If a man cannot pay his debts as they become due, he will be adjudicated a bankrupt, and his property will in general be divided ratably among his creditors. Some debts, however, have priority according to English law, and must be paid in full if the assets are sufficient for the purpose; otherwise they will abate equally among themselves. These are (1) Rates and taxes. . . . (2) The wages or salary of any clerk or servant, not exceeding £50, in respect of services rendered during four months prior to the receiving order. (3) Wages of any labourer or workman, not exceeding £25, for services, whether time or piece work, rendered during two months prior to the date of the receiving order.”’¹

“A secured creditor has four courses open to him: (1) He may rest on his security and not prove. (2) He may realize his security and prove for the deficiency. (3) He may value his security and prove for the deficiency, after deduction of the assessed value. (4) He may surrender his security and prove for the whole debt.”’” The debts of a person lately deceased must be paid by the executor or administrator in the following order: ‘‘ First, the funeral expenses; next, the expenses of probate or taking out administration, including the costs of an administration action and other executorship expenses; and then the debts of the deceased are payable out of legal assets in the following order:

(a) Crown debts due by matter of record, a surety to the Crown having the like priority; (b) debts having priority by statute—e.g., under the Friendly Societies Act, 1896, sec. 35; (c) debts of record consisting of judgements in courts of record and recognizances; (d) debts by specialty and simple contract.”²

If, however, the deceased died insolvent, on the petition of one or more of his creditors, whose debt would have been sufficient to support a bankruptcy petition against him if he 2 bid. had been alive, his property will be administered as in bankruptcy according to English law.

If a debtor makes a payment of money or a delivery of property to a creditor not in the ordinary way of business and without any pressure or demand on the part of the creditor, knowing that his circumstances are such that bankruptcy will be the probable result, he is guilty of a fraudulent preference in English law. Such fraudulent preference is void against the trustee in bankruptcy, if made within three months before the bankruptcy petition is presented. There is a similar provision in American bankruptcy law, but the period is four months instead of three.

Those who are on the verge of bankruptcy should not, of course, give such preferences to any of their creditors merely with the intention of favouring them at the expense of other creditors. If they cannot pay their debts in full, the claims of justice are the same for all, and all creditors should share alike. If such a preference has been given, the property must, of course, be surrendered to the official receiver or trustee on his demand, But supposing that he does not come to the knowledge of it, and makes no demand for it, is the preferred creditor bound to surrender the property of his own accord ? There would seem to be no obligation in conscience to do so. He has only received payment of what was due to him, as we suppose; he might have demanded payment, and then the insolvent debtor might lawfully have paid it. No valid reason can be urged to show that in accepting full payment of his debt before the debtor’s bankruptcy the preferred creditor commits an act of injustice against the other creditors. If he does not commit an act of injustice against them, he is not bound to make restitution to them, At least, this opinion would seem not to be destitute of all probability in its favour.

¹ Encyclopedia of Laws, s.v. Bankruptcy.

² [bid., s.v. Executors and Administrators.

Preliminary Note. We suppose that the debtor has not yet made cession of goods or cession in court. Now:

I. With regard to natural law:

1. Another's thing existing in itself must be returned to the owner (St. Alphonsus, III, 690).

2. Those who enjoy a hypothec or pledge have preference with respect to the thing obligated to them, unless and insofar as law establishes the contrary.

3. There follow creditors endowed by law with a privilege in certain determinate goods, namely insofar as the law truly grants the privilege.

4. Then come creditors endowed with a privilege in all the goods of the debtor, namely again insofar as the law truly assigns the privilege.

5. Then follow common creditors, to whom, as regards the debtor's obligation, privileged creditors are equated so long as the privilege has not yet become available for execution. Now the debtor, with regard to them, can either satisfy each according to proportion, or make full payment either to the creditor who was earlier in time, or to the creditor asking for full payment, or to both; and divide what remains according to proportion (St. Alphonsus, III, 688, 690-693). Thus we resolve practically; but theoretically:

Disputation 1. Whether the creditor who is earlier in time must be preferred. Some affirm it, because the earlier creditor, although he directly has the person of the debtor obligated, nevertheless indirectly has also the debtor's goods obligated, in which he ought not to be prejudiced by a subsequent creditor. There is added the ancient Rule of Law 54 in the Sext: he who is prior in time is stronger in right. But this is denied sufficiently probably, because not the debtor's goods, but only his person, is obligated to the creditors, and equally to all. Nevertheless, the creditor who is earlier in time can sufficiently probably be preferred, namely with regard to the argument alleged above, which indeed does not prove an obligation of preferring him, but nevertheless argues so strongly on its behalf that one may conclude to liceity (St. Alphonsus, III, 690; cf. St. Thomas, Opusc. 73, chap. 18, at the end).

Disputation 2. Whether the creditor asking for payment can be preferred. Per se it seems this must be denied, because on the one hand the said creditor has only an equal right with the others, and on the other hand, for him as such there is not present, as there is for the earlier creditor, a special title not altogether to be rejected. Appeal is indeed made to ecclesiastical positive law;¹ but that law, even if perhaps formerly it favored the opposite opinion, after the Code of Canon Law can no longer be urged. Nevertheless per accidens the creditor asking for payment seems able to be preferred, because approved custom in commerce so holds. For the same reason it is licit for the creditor to ask for full payment; but the debtor cannot warn some creditor to ask, because on his part he cannot bring it about that the other creditors, who have a right equal to that of the one to be warned, become of worse condition; nor do men who admit payment to one asking approve that someone be warned to ask.

Disputation 3. Whether a poor creditor can be preferred to a rich one; likewise, whether a creditor by reason, for example, of theft committed by the debtor, can be preferred to a creditor from contract.

Response. It seems this must be denied, because the said creditors have only an equal right with the others, nor is there present for them as such, as for the creditor earlier in time, some special title not altogether to be rejected (cf. St. Alphonsus, III, 691). Make exception if the poor man is in grave necessity, because then the consent of the other creditors seems able to be presumed (cf. St. Alphonsus, III, 691).

Objection 1. A poor man suffers greater damage than a rich man. But restitution is ordered to repairing damage.

Response. I distinguish the major: he suffers greater damage subjectively, because he is poor, I concede; but this is per accidens to restitution. For just as on that account you are not held to restore more to him, so neither are you held to restore sooner to him than to others enjoying an equal right. He suffers greater damage objectively, that is, a violation of a greater and stronger right, I deny. But restitution is ordered to repairing the violated right, or the damage inflicted, objectively.

Objection 2. The owner suffers a greater injury (and therefore has a greater right to restitution) from theft or robbery than from an unobserved contract.

Response. The obligation of restoring does not arise from the personal injury, but from the unjust detention of the thing; and the detention in a contract, once the term of payment has elapsed, is equal and equally unjust as in theft or robbery.

Disputation 4. Whether certain creditors must be preferred to uncertain or unknown creditors, that is, to the poor, etc., who come in place of the uncertain creditors.

Response. Many affirm it, because certain creditors have an immediate right, whereas uncertain creditors have only a remote right, namely insofar as they succeed to unknown creditors. Others deny it, because, as succeeding to unknown creditors, they have a right equal to that of certain creditors. Thus the authors; but we have denied the very obligation of restoring if the creditors are unknown (n. 1011).

Disputation 5. Whether a creditor to whom the debtor has unjustly made full payment is held to restitution.

Response 1. Theoretically it must be affirmed, if the creditor accepted the restitution in bad faith, because he culpably cooperated in an unjust action. Likewise it seems theoretically to be affirmed if he accepted the restitution in good faith, because by retaining the things restored he continues or confirms the unjust act (although not culpable) of accepting full payment (St. Alphonsus, III, 693).

Response 2. Practically he is not held to restitution, because he can ask for the full payment already made; this being posited, he can retain what he received.

6. Finally come creditors by gratuitous title, or, "debts from onerous title must be paid before those which are owed gratuitously, for example from a promise; because these include a tacit condition, unless something stands in the way. Hence the debts of the deceased must be paid before all legacies, even pious ones" (St. Alphonsus, III, 689, 4°).

¹ Pupillus; l. Si non, 6, § 2, ff. de bonis auctoritate iudicis possidendis.

II. Whether and how far civil law tempers natural law, see in the Code of the country. Yet note this: 1° another's thing existing in species is to be returned to the owner; 2° debts from onerous title are to be preferred to debts from gratuitous title.

What order is to be observed in restitution as regards creditors? - The order, as regards creditors, of restitution does not have place unless there are several creditors. In such a case, if the debtor can satisfy all, he can restore in whatever order, because the precedence of one inflicts no damage on another. But if the debtor cannot restore to all, the due order in restitution is to be observed, on account of the opposite reason, namely because the precedence of one inflicts damage on another. Moreover this order is determined by justice itself. For restitution is the reparation of an injured right. Therefore the preference of right determines the precedence of restitution. Now this injured right is the right of property. Therefore a more perfect right of property in creditors demands that they be preferred to others. L. 684.; C. L. 878. Wherefore, first, creditors who are still truly owners of the thing are to be preferred to all others, since they preserve in their own thing not only a right to the thing, but also a right in the thing, while the others have only a right to the thing. And so before all other debts stolen things, deposited things, leased or lent things are to be restored. Secondly, privileged creditors are to be preferred to the rest. For restitution is to be made by natural right, and on account of the private good of persons, which commutative justice directly regards. Therefore, if positive right is added to natural right, prescribing for the common good the preference of some creditors in particular, these indeed by reason of the privilege of the law are to be preferred to the rest, as privileged. And this law obliges in conscience according to the common opinion of theologians, since it is a legitimate law of a superior, passed for the common good. C. G. 2095.; C. I. 1945. Some privileged debts have a privilege over the generality of movables, others over determined movables, others over immovables. If there are several privileged creditors, their preference is determined by the law itself according to the quality of the privilege. And, if several enjoy the same privilege, they obtain payment of the credit pro rata. C. G. 2096, 2097.; C. I. 1953, 1954. Privileged debts over all movables, and subsidiarily over immovables, are in this order: expenses which are called those of justice, funeral expenses, expenses made for illness from the last six months, expenses for support from the last six months, wages of servants also from the last six months, and credits of the State for direct taxes.

C. I. 1956, 1959, 1963. Cf. C. G. 2101, 2105.; C. H. 1924.; C. L. 880 seqq. - C. I. 1952 seqq.; C. G. 2092 seqq.; L. 14 § 1, L. 45 de Relig. et sumpt. etc. Privileges over determined movables are: certain determined credits of the State; of the emphyteutic canon; of leases of urban and rustic estates; of expenses for cultivation of fields; of the pledge creditor; of expenses for the conservation of the movables themselves; of innkeepers; of transportation and taxes; of indemnity to be furnished by public officials; of sums to be paid by public administrators. C. I. 1958 seqq. Cf. C. G. 2102.; C. H. 1922.; C. L. 880 seqq. Privileges over immovables are: credits for expenses of expropriation of immovables; of the State for land taxes, for rights of registration, for any other indirect tax. C. I. 1961, 1962. Cf. C. G. 2103.; C. H. 1923, 1927.; C. L. 887. Privileges over immovables do not have effect unless they have been legitimately inscribed in the conservatory registers of mortgages. C. G. 2106. Cf. Tropolong in h. a. Thirdly, mortgage creditors are to be preferred to the rest, for these have bound to themselves not only the person, but also the very goods of the debtor. Where there are several mortgage creditors, they have the order constituted by the law itself, either from the day of inscription in the conservatory registers of mortgages, or from the very day of the constitution of the mortgage, according to Reg. 54 of Canon Law in the Sixth: He who is prior in time is stronger in right. L. 690.; Laymann de Restit. c. 11, n. 3 seqq.; C. I. 1964 seqq.; C. G. 2114 seqq.; C. H. 1928, 1929. Fourthly, finally, the remaining creditors, who are called common or chirographary, are to be made harmless. But whether among these some order is also to be established from circumstances of time, persons, contract, delict, and of the things themselves, is a question; and some generally deny it, because commutative justice regards only equality of thing to thing, which is altogether independent of conditions of times, persons, contracts, and the things themselves; others on the contrary generally affirm, because restitution is for repairing an injured right and for making good the damage inflicted; but from various circumstances of time, persons, contracts, things, the right is various, and the damage is less; therefore according to those circumstances an order is to be established in restitution even of common creditors. But chiefly those circumstances are the ones about which the following particular questions are raised. L. 689, 694, 695. From C. I. 1948-1950, 2092.; C. G. 2092-2094.; C. H. 1911., whoever has obligated himself personally is held to satisfy his obligation from all his goods, whether movable or immovable, present or future. Therefore the goods of the debtor are like a common pledge of his creditors, and they are equal in the right of exacting what is theirs, unless legitimate causes of preference exist among them. But the legitimate causes are privileges and mortgages. Wherefore all the others are esteemed equally, and all concur pro rata, if the debtor cannot satisfy all. - C. H. 1921 seqq.

Whether another's thing existing with the debtor must always be restored to its owner before all debts, however privileged? Resp. Affirmatively, if the thing is held by title of deposit, lease, etc. For that thing, existing in individual form, cries out for its owner. L. 684. If the thing is held by title of purchase, the price not having been paid, or at least not secured by pledge, surety, or given faith, it certainly must be restored to the seller according to Roman Law; for the seller still retains dominion of the thing. But when the seller has handed over the thing, and has received only credit concerning the price, it is controverted. "The first opinion says that then the seller is to be preferred....

The reason is both because natural equity demands this, and because the dominion of the thing, although in that case it has been transferred, nevertheless has been transferred under the condition of paying the price; hence such a thing remains mortgaged for the payment of the price. But the second and more probable opinion... holds that no preference is owed to the seller. The reason is that since dominion has already been transferred, there remains to the seller only a personal credit toward the buyer; and it is held by no right that the thing remains mortgaged to the seller until the price is paid to him."

L. 685. From C. I. 1512, 1513.; C. G. 2102, 2103., a thing sold, the price not having been paid, remains bound to the seller as regards the payment of the price against all other creditors, yet after the owner of the house or estate for the price of the lease, if the thing is movable. Indeed the seller can reclaim this, if no day for paying has been appointed, within 15 days from C. I., within 8 days from C. G., from the handing over of the thing; and from the same C. G. its price is always privileged, if the thing is movable. If the thing is held by theft and has been mixed with one's own things, satisfaction must be made to the owner of the thing before all other creditors, because the whole heap is specially bound to the owner of the thing taken away. L. 686. Cf. 907.

Whether debts whose creditors are known are to be restored before other debts to the poor or to pious causes, because their owners are unknown? - It is controverted. The first opinion, probable and common, affirms; because the owner is not judged reasonably unwilling, both by reason of the debtor, who would often have to be pursued by another creditor, and by reason of the other creditor, who is made harmless, since he himself cannot be. Moreover, because certainly from justice it is owed to the former, and probably from canon law to the latter. The second opinion, also probable, says that restitution can then be made pro rata to the poor. For the preference of a known owner is demonstrated neither by positive right nor by natural right. For by natural right the poor or pious causes succeed to the unknown owner, that what is his may profit him; namely, that what cannot be restored to him may profit his soul. But probably restitution must first be made to uncertain creditors rather than to unknown ones; because first those must be made harmless who probably have suffered damage, rather than those who certainly have suffered no damage. - L. 687.

Whether debts from delict are to be paid before debts from onerous contract? It is controverted. The first probable opinion affirms, because to retain a thing injuriously taken away is a graver injury than not to pay a thing owed from contract. The second, more common and more probable opinion denies it, but says they are to be paid pro rata; because from positive law no such preference is had; but from natural law the obligation which arises from commutative justice is the same in contract as in delict; and delict is blotted out by repentance, not by restitution. - L. 688.

Note: It is certain that debts from a gratuitous title, even pious ones, are to be paid in the last place, because these always include the tacit condition: unless something prevents. - L. 688, 689.

Whether common creditors, prior in time, are to be preferred to later ones? It is controverted. "The first opinion holds that satisfaction must be made to all these pro rata.... The reason is that not the goods of the debtor, but the person, is bound to these, and he is equally subject to all." But positive right establishes no preference among them. Indeed Roman Law establishes: "it is licit for someone, by adding a creditor to himself, to make the condition of his creditor worse." The second opinion "teaches that the earlier ones are to be preferred from Reg. 54 of Law in the Sixth: He who is prior in time is stronger in right. For although civil law speaks thus only of mortgage creditors, nevertheless canon law speaks of all, and is founded on natural right; for an earlier personal creditor, although he directly has the person of the debtor bound, nevertheless indirectly also has his goods bound, in which he ought not to be prejudiced by a supervening creditor. Each is probable, but the second more probable." L. 690.

Whether poor creditors ought to be preferred to the rich, or to those not in need? It is controverted. The first probable opinion denies it, because such preference is had neither by positive right nor by natural right; for commutative justice does not attend to persons. The second probable opinion affirms, "because the obligation of restitution is given for repairing the damage of neighbor; but a poor man suffers more damage if restitution is not made to him than one not in need." L. 691.

Whether it is licit to pay first the one first asking, even if he is later in time? Resp. Negatively, if the creditor prior in time is privileged or mortgage-holding; and therefore one acting otherwise is held for the damage. If the creditor prior in time is common, and he asks for payment in court, affirmatively. Thus commonly, "because the laws give preference also in conscience to the matter, to him who first obtained sentence, and after it also the debtor must pay him in conscience." L. 692.; C. I. 1970.; C. G. 2123. But if he asks outside court, it is controverted. The first opinion denies it, because prejudice is done to earlier creditors, to whom preference belongs. The second opinion more probably affirms, because a personal creditor has action against the debtor, and, by asking for the whole debt, pursues his right. L. 692.

Whether a debtor knowing his state to be tottering can satisfy integrally even one not asking? - Resp. Negatively. For since all are equal in right, and no one becomes stronger by diligence in asking, from natural equity restitution cannot be made to one with detriment to the others. Wherefore, speaking of itself, a debtor sins gravely against charity and justice by secretly admonishing one of the creditors about his tottering state, or in that case by offering integral payment to only one. Yet there are not lacking those who permit the debtor to admonish a creditor, because it is licit for him to advise what it is licit for the creditor to do. But it can be urged in reply that it is not licit for him to advise what he himself cannot do, and the adversaries themselves admit this. L. 692.; Lugo d. 20, n. 174.

Whether a creditor who, in this last case, accepted payment is held to restitution toward the other creditors? - It is controverted. The first probable opinion affirms; because he has no right that payment be made to himself integrally with detriment to the others. The second probable opinion denies it, because he received his own; and since he has the right of exacting even outside court, he violates the right of no one by accepting payment. Except, however, the cases in which such payment is declared invalid by law. L. 692, 693. From C. I. 1237.; C. G. 1235.; repetition of what has been paid is not admitted as regards natural obligations which someone has voluntarily satisfied. Yet from the same C. I. 1235.; C. G. 1167., creditors have the right of impugning all acts which the debtor performed in fraud of them. From C. H. 1291, 1292, 1297, 1298., payment of this kind, as also generally such debtor's contracts, whether gratuitous or onerous, are rescindible. One receiving anything in bad faith in fraud of creditors is held to restitution and to reparation of damages. - C. L. 1030-1045.

324. Principles. - 1. If the debtor can certainly satisfy all debts, no order is to be observed, provided that payment is made to each at the due time.

2. If he cannot pay all, but some must be without payment totally or partially, and therefore he makes a cession of goods, the order prescribed by law is to be observed, at least from the moment at which the cession is juridically declared:

a) Real debts are to be preferred to personal debts. Whence another's things: stolen, deposited, leased, lent, found, etc., if they still exist in themselves, must be restored whole to the owner, because the thing cries out for its owner, who has in it an absolute right in the thing; on the contrary, if the thing exists only in an equivalent.

b) Among personal debts, before all come privileged debts which from a special reason are to be preferred to the rest, for example, judicial and funeral expenses according to the condition of the deceased; the stipends of physicians and all expenses made in the last illness and the wages of servants (for a year); debts for food (for six months), and many others according to the order established by law.¹

¹ A thing sold, the price not having been paid, can be reclaimed within 8 days from delivery, and if it is not reclaimed, the price will be privileged (a. 2102; a. 20 § 5, Belgian law of 16 Dec. 1851).

c) Then come hypothecary debts, to which also there is given a right in the thing, but conditioned; they are to be paid according to the order of inscription, so that those come first which were inscribed first, which in our law is understood according to the day, in accordance with what is to be said in n. 609.

d) Afterward all merely chirographary and common debts, which are equal by law: in these, however, debts from an onerous title are to be paid before debts from a gratuitous title, if this can be done conveniently and without injury to a third party; likewise certain debts are to be preferred to uncertain debts; but not debts to the poor.

These things are to be understood thus: to those who come in the first place satisfaction must be made integrally before creditors of the following order receive anything; but to those who come in the same order, payment is to be made to each for a proportional part proportioned to the debt. Whence if payment is made in another order with notable damage to other creditors, restitution is owed to these who have been damaged.

3. Before a cession of goods has been made, another's things which cry out for their owner always excepted, per se no order is to be observed among creditors; nevertheless, privileged creditors, those prior in time, or those asking first, if they ask legitimately, can be preferred.

325. What things must be observed in conscience concerning the order of debts?

R. 1) After a cession of goods: the prescriptions of civil law, as determinative of the right of property, obligate in conscience even before the sentence of a judge.

2. Before cession, in many regions it is established by civil law that a payment made is invalid not only after the juridical declaration of cession, but also within a few days before this declaration, lest, namely, the debtor unjustly favor certain creditors before others. This also holds in conscience, at least after the sentence of a judge.

Thus according to the French and Belgian Code, payments made within ten days.

3. Outside the cases determined by law, a creditor who knows the debtor to be unequal to paying all can exact by legitimate means that which is owed to him: for laws profit the vigilant. Nor is the debtor prohibited from satisfying the creditor asking first, even if he foresees that others will suffer damage therefrom, provided that the fixed time at which the debt is to be paid is already present: for then the creditor has a strict right to the thing owed.

4. A debtor who, knowing himself to be unequal to paying all, without a just legal or moral cause offers to one an integral payment or a greater payment than that which the others equal in law will have, sins against charity, and more probably against justice, because he injures the right of the others that satisfaction be made to them at least for a proportional part. Besides, here there is not parity with the preceding case: a) because the creditor asking does not have to watch over the goods of the rest, but the debtor must watch that all his creditors receive the proportional part; b) if the matter is now public, the law ought not to favor some, because vigilance is now lacking.

Here it is necessary to deal only with the case in which the debtor is unequal to satisfying all his creditors; for otherwise no order necessarily must be observed in paying debts.

I say. In the first place satisfaction must be made to the privileged, then to mortgage creditors, and finally to common creditors. The reason is clear of itself, and is taken, as regards privileged creditors, from positive laws, and as regards mortgage creditors, from a special contract and from the very nature of the thing. - Note, however, that privileged credits are diverse according to the diversity of regions. In the case of cession of goods, among privileged debts with us by force of the law of the year 1898 and of the amendment made in the year 1903 are the salaries of workers and servants, on account of work performed within three months before the legal process was begun, provided the sum owed to each does not exceed three hundred dollars. - Cf. Kenrick, tract. 10, n. 91. - Kent, Comment., vol. 2, lect. 37, n. 419. - Wells, Every Man, etc., p. 594.

You Will Resolve. - 1st. Debts from delict are not necessarily to be paid before debts from onerous contract, because from no law is their preference clear. But both must be preferred to debts from gratuitous title, for he who promises gratuitously always places a tacit condition: if I am able to furnish it conveniently. - Cf. St. Alphonsus, nn. 688 and 689.

2nd. Neither poor creditors over rich, nor earlier creditors in time over later, are necessarily to be preferred, both because from no source is this preference of law clear, and because the person of the debtor, which alone is obligated, bears itself in an equal manner to all the said creditors. - Cf. St. Alphonsus, nn. 690 and 691. - Lugo, disp. 20, n. 161. - Vogler, n. 439.

Question. Whether a debtor knowing his own state to be unstable can satisfy some creditor not petitioning in full?

Resp. Negatively, because, since all creditors are equal in right, and none among them prosecutes his own right, and therefore by diligence no one becomes preferred in petitioning, natural equity demands that full restitution not be made to someone with prejudice to the others. - If, however, some creditor has accepted payment in this way, without having petitioned it, probably he is not held to restitution. The reason is that he could have urged payment, even outside judgment, without doing injury to the other creditors; therefore he can also accept it without their injury. - But the case in which such payment is declared invalid by law must be excepted. Moreover, among us, payment made to a creditor petitioning extrajudicially is held invalid if this creditor could have known the unstable state of the debtor and it was made within the four months preceding cession of goods; and also payment made within six months by a debtor knowing his own state to be unstable. - Cf. St. Alphonsus, n. 692. - Wells, Every Man, etc., p. 599.

The question arises when the debtor cannot satisfy all his creditors; for if he could satisfy all, it would matter nothing whether he restituted to one rather than to another, provided he restituted to all.

I say: In the first place, a thing existing in its own species, whose dominion the debtor has not acquired, however he may hold it — whether justly, as a pledge, a thing given in commodatum, hired, deposited, found, bought in good faith; or unjustly, by theft or rapine — must be given back to its owner, all other creditors being set aside, so that, even if the owner is unknown, it must be spent according to his presumed will on pious uses; because the thing cries out for its owner, and the debtor cannot restitute to his creditors from the goods of others, but from his own.

In the second place, privileged debts must be paid before all the others, even before mortgaged debts. Privileged debts are: 1° necessary and moderate funeral expenses for a husband, wife, child, or another person whom the debtor was bound to bury, L. penult. de Relig. sumpti. fun. 2° Expenses for drawing up and opening the will, for making the inventory, for physicians, surgeons, and apothecaries, l. ultima, c. de iure deliberandi.

3° Necessary expenses for preserving the debtor's goods or the house of the deceased. The reason of these, besides the laws cited, is partly that most of them are for the benefit of the creditors, partly that they are necessary and not to be omitted, so that satisfaction may be given to the creditors. Now no one is found who would be willing to provide them unless he were certain of repayment. And for this reason, in certain provinces, debts incurred for necessary food enjoy the privilege of priority, likewise the wages of servants and maids ^{430 430} Ita Cod. Gall., art. 2101.

Roman law, as regards the expenses mentioned above, passed into the modern laws, in which among privileged credits are ranked judicial expenses, funeral expenses, medical expenses for the last illness, the wages of servants, debts for maintenance, and the fees of architects and workmen for the construction of buildings.

Privileges affect either movables, or immovables, or both at once, according as the creditor has the right that what is owed to him be paid out of these before all others. Moreover, privileges are general or special, according as they extend to all movables or immovables, or only to certain of them.

The order among privileged creditors is fixed not by priority of time, but by the quality of each credit, to which the law assigns its place or degree of precedence. Regard must be had to the law of each region. ^{431 431} Cod. Gall., art. 2095-2113; Ital., 1952-1963. In Austria viget lex 15 dec. 1868; in Germania, lex 10 febr. 1871.

In the third place follow mortgaged debts.

Note. — A hypothec exists when a thing is given or assigned in security of a debt. If the thing is movable, it is called a pledge; if immovable, a hypothec. It is twofold: general, when all the debtor's goods, both present and future, are assigned or bound in security of the debt; particular, when a definite part of the goods is assigned, for example, this house or this estate. Again, one kind is express, when the stipulation concerning it is made expressly in the contract and before a magistrate; another tacit, which by force of the laws is inherent in certain contracts even though it is not expressed in the contract. Thus, if someone lends money for building, preserving, or repairing a house, a ship, etc., the house, ship, etc. remain bound to the lender by disposition of the law, l. Qui potiores, and l. Licet, c. eod. tit.

[A judicial hypothec is further distinguished, established by the judge's sentence in favor of those who have won their suit, by which all the immovable goods of the condemned party are burdened with the charge of repairing the damage.]

Mortgaged debts, therefore, whether express or tacit, general or particular, are to be preferred only to simple or chirographary debts, privileged debts excepted, of which we spoke in the preceding number: both because the hypothec or pledging was introduced by law so that the creditor might have priority or security for his debt; since the mortgage creditor has bound not only the person of the debtor but also his very property, while non-mortgage creditors have only the person of the debtor bound.

When, however, there are several mortgage creditors, regard being had to the nature of the thing, such is the order among them. Those holding an express hypothec are preferred to those holding a tacit one, and those holding a general one to those holding only a particular one.

Among several holding a similar hypothec, the earlier is preferred to the later; for in this case that rule of law above all prevails, 54ª in 6°: « Qui prior est tempore, potior est iure, » he who is first in time is stronger in right. And the reason is that a later hypothec cannot take away a right previously acquired by another.

I said, « regard being had to the nature of the thing; » because by disposition of positive law several cases are excepted, in which a tacit hypothec is preferred to an express one, and a later to a prior. Consult our greater Work, or the jurists, about these cases.

[Under the new laws: 1° the mortgage privilege avails only from the day of inscription in the registry of the conservator of mortgages. 2° No order is observed among those who inscribe on the same day, or under the same number, but they come in together, each for a proportional part of his credit. For the others, however, who inscribe on different days, or under different numbers, the rule of law cited above holds ⁴³²] ⁴³² Cfr. Cod. Gall., art. 2114-2203; Ital., art. 1964-2075.

You will ask 1° whether debts from delict and from onerous contract ought not to be restituted before debts from gratuitous contract, for example, promise, donation, etc.

I answer affirmatively; because no one reasonably intends to bind himself by a gratuitous contract to the detriment of those to whom he is bound in justice. Hence every gratuitous contract includes this tacit condition, unless something stands in the way of the promised thing being handed over.

You will ask 2° whether there is any order between debts from onerous contract on one side and debts from delict on the other.

I answer, more probably in the negative; because positive law nowhere establishes any order between these debts, nor does any reason show that an order must be established by the natural law. Since on both sides there is an equal unjust detention of another's property, the obligation is equal on both sides, for the obligation arises from the unjust detention. ^{433 433} S. Lig., lib. IV, n. 688.

You will ask 3° whether the creditor who, among creditors neither privileged nor holding a mortgage, is the first to press his claim is to be preferred?

I answer affirmatively; because, according to the laws, l. Pupillus, l. Quae in fraudem creditorum, lib. 42, tit. 8, « diligence made his condition better, » and it acquired for him the right of preference; for « the civil law was written for the vigilant. »

[If that creditor presses his claim juridically, there is no doubt; because the sentence of the judge confers the privilege. Outside of court, he exercises a personal action against the debtor, and by demanding the whole debt he pursues his right; and if the debtor is in default toward the other creditors, this must be imputed to their negligence. This solution, which St. Alphonsus ⁴³⁴ calls the more probable, seems to us certain. ⁴³⁴ Lib. IV, n. 692.

You will ask 4° whether a poor creditor can be given precedence over a rich one.

I answer with St. Thomas, Opusc. LXXII, c. 18: « If one man is rich and the other poor and more in need of those things of which restitution must be made, and it is equally clear in both cases, restitution can justly be made to the poor man sooner than to the rich man, because he was more injured by the taking away of his goods, and because he stands more in need. » For the rich man would without reason object. What is said of restitution for damage inflicted must be said a fortiori of the payment of a debt arisen from a just cause. This, however, is understood on the supposition that by this payment the debtor does not become unable to pay the other debts integrally.

You will ask 5° whether a debtor who knows that he is already unable to pay all his debts can fully satisfy even a creditor who is not pressing his claim.

I answer in the negative; because since all creditors are equal in right, and none of them pursues his right, and consequently none of them has been made the stronger claimant by his diligence, natural equity demands that integral payment not be made to anyone to the prejudice of the others. ^{435 435} Id., ibid., 3°.

You will ask 6° whether a creditor who in this case received integral payment is held to restitution toward the others.

I answer. It is disputed. Some deny it; because a creditor holding a personal right, since he can juridically press for payment, does not sin the more by accepting it when freely offered. Others affirm absolutely; because no creditor has the right to be paid integrally to the detriment of the others. Others distinguish. If the creditor accepted in good faith, he may keep it; for he is not held to restitute, neither on account of an unjust acquisition, because the acceptance was not formally unjust; nor on account of an unjust detention, because he acquired dominion over the thing paid. On the natural law the affirmative opinion seems truer, because all the creditors had an equal right to payment pro rata of the means remaining in the debtor's hands. ^{436 436} Id., ibid., n. 693.

There is no doubt if such payment is declared invalid by positive law. Thus in France, by the law of 28 May 1838, payment made within, or after, the ten days elapsed before the cession of goods declared by the commercial tribunal is altogether invalid.

In practice, since it would be difficult to persuade a creditor who in good faith received integral payment before the legally fixed time that he is held to restitution, he is commonly left in his good faith: both because positive law does not constrain him to restitution, and because an opinion not lacking probability supports him. But to the one who received after the time fixed by law, restitution is to be imposed absolutely, even if he was in good faith; because the payment was invalid.]

Human Laws are given prescribing order in restitution, and they bind in conscience, as Azor teaches, tract. 3. lib. 4. cap. 36. quaestio 7. Turrianus 2. 2. disput. 19. dub. 4. num. 5. cap. 10. Vasquez de restit. cap. 11. dub. 2. num. 50. Fagundez Lib. 7. cap. 35. num. 17. Valentia disp. 5. quaest. 6. puncto 10. The reason is, because the law could give the creditor a right before another, whether it be a municipal Law, or the civil law for the public good. But they observe, if the debtor is able to pay all, no order is necessary.

Therefore, first, by the law of nature certain debts are to be paid before uncertain ones, as they commonly admonish, gathered by Valentia loco citato, Sylvestrum V. Restitutio, Fagundez Lib. 7. cap. 35. num. 19. Tanner. disput. 4. quaest. 6. num. 412. Bassaeum V. Restit. 4. § 6.

Second, among certain debts, those are to be restored first by the law of nature, if they exist, whose dominion always remained with the creditor, and which therefore were to be restored the same in specie, as the cited Doctors admonish, as deposits, pledges, or things lent for use: And this is the common opinion in Tanner, num. 412. Leg. si curator, ff. de iure fisci.

Third, among certain debts of things which do not exist, and are not to be paid the same in specie, those at least by civil law are to be paid first which are specially called real debts, because the goods of the debtor are determined to their payment by an express hypothecation, or pledge, or because the price of the thing had not yet been paid by the debtor, and therefore the thing remained specially liable to payment, although it passed into the dominion of the debtor. So Medina quaest. 2. dub. 5. Caietanus, Nauar. Valentia, Tanner. num. 414. and others agreeably Lege 2. ff. Quibus causis, pignor. vel hypothec. tacite contrahuntur. For such debts are of a stricter obligation than mere personal debts, to whose payment no particular thing is assigned; and this order seems to be of the law of nature. Hypothecary creditors outrank personal creditors,² Leg. 2. 4. 5. Cod. qui potior in pignore. ² Editor's note: the print reads 'Hypothecarios sue edunt creditores personales', ungrammatical as printed; rendered per sense required by Cod. 'qui potior in pignore' — hypothecary creditors are preferred to personal creditors (iure antecedunt).

Fourth, Therefore, among certain debts not real but personal, those seem by the law of nature to be paid first which were contracted from a just contract, rather than those from a delict, as Nauarrus, Caietanus, and Valentia think. Yet they limit it, lest it be understood also of one convicted, through whom he who owes from a delict (as a usurer) has been made poorer.^{1 1} Editor's note: the print/OCR reads 'fieri[t] factus pauperior' — both the scan transcription and the OCR dump agree on this garbled wording; rendered as 'has been made poorer' as the most plausible sense.

In truth, those things are to be paid first which are held from a delict; say Medina supra, Salon. 2. 2. quaest. 62. art. 8. Emanuel Rodriguez part. 2. cap. 46. and others.

To me it is more probable that they are equal, as very many teach, gathered by Fagundez Lib. 7.; except the case in which someone sold a thing, and it remains the same in specie, and the seller has not received the price. I shall refer the Doctors casu 8. So also Tanner. num. 421. with Sylvestro, V. Restitutio, Aragon. quaest. 62. art. 5. Petrus Nauar. Lib. 4. cap. 4. Less. cap. 15. dubio 7. Bass. 4. num. 39. according to L. 6. Cod. de bonis authoritate Iudicis.

Fifth, among personal debts, apart from delict, those are to be paid first by civil law which are called privileged, as the Dowry of a wife, and what is owed to the Fisc. So Sylvest. V. Restitutio, quaest. 5. Nauar. supra n. 50. Valentia loco citato, and others. For these are preferred to others not having express hypothecations Leg. assiduis, Cod. Qui potest in pignor. hab. et Lib. Quamvis de Privil fisc. See Sylvestrum.

Sixth, among personal debts not privileged, those tacitly hypothecated are first to be paid; then, those contracted under the title of deposit (since the deposited thing no longer exists, or is not to be returned the same in specie), unless it were rather a Mutuum than a Depositum.

Seventh, in each genus of all the aforesaid debts of the same reason, those are to be paid first which are older, as is had in the Law: Prior in time, stronger in right. For the longer the creditor has lacked his own; the more strictly is it owed to him. So Sylvester, Medina, Valentia, Salon. loco cit. which Malderus, tract. 4. cap. 6. says is the more probable opinion.

I judge, however, that in conscience they are to be divided pro rata, computing the greater loss of the older creditor. So Malder. supra, Bassaeus V. Restitutio, §. 4. num. 26. Bonacina de Restit. disp. 1. quaest. 8. punct. 2. num. 19. Lessius Lib. 2. cap. 15. dub. 6. D. Anton. 2. part. tit. 2. cap. 7. §. 3. Molina Tom. 2. disp. 536. Vasquez opusc. de restit. cap. 11. disp. 2. a num. 48. Caspensis disp. 1. sect. 12. Fagundez Lib. 7. cap. 34. nor is a rule of law given except for real debts with a hypothecation, or the like, from Leg. 1. ff. de separationibus. EIGHTH, as to debts from delict, those are to be paid first which were contracted with greater guilt, Valentia and Medina hold.

Yet the OPPOSED opinion is more probable, that no order is given among these, for instance between stolen goods and goods seized by rapine, unless some offense has been added in these, which must first be made good. So Toletanus L. 4. de restit. cap. 6. dub. 8. num. 43. Azorius tract. 3. Lib. 4. cap. 36. quaestio 2. Sayrus L. 10. tract. 5. cap. 20. dub. 6. Lessius L. 2. cap. 15. dub. 3. Turrianus 2. 2. disp. 19. dub. 2. Vasquez opusc. de restitut. cap. 11. dub. 2. Nauar. summa, cap. 17. a num. 88. Fagundez Lib. 7. cap. 33. num. 7. who admit neither an order between debt from contract and from delict; nor any order among debts from delict. Caspensis says nearly the same, disp. 1. sect. 12.

The RATION is, because the injury, abstracted from the thing taken away, does not have its Commutative compensation in the thing itself, but in another order, as the cited authors note.

Restitution for each of the individual debts of Commutative and Distributive Justice is to be treated in the following disputations.

AMONG those cooperating in harm, the principal is he who commanded efficaciously, who had the authority of sending, as a Judge over a subject, a lord over a slave.

After him follows the executor of the harm: After him one who counsels, or commands; then the receiver: Likewise one who does not impede, when he was bound by his office. But among these the first place is held by him who has the thing formally, or in equivalent, in his possession. See D. Bonavent. cit. quaest. 3. D. Thom. quaest. 62. art. 7. Vasquez de restitut. cap. 9. num. 52. et 56. §. 1. Petrus Nauar. lib. 4. cap. 4. num. 75. Sayrum lib. 10. tract. 5. cap. 12. Sylvium loco cit. D. Thom. Bassaeum num. 27.

If the creditor remitted the principal, the others are freed; not so if less than the principal; But if an equal amount, the others are still bound in solid, the remitted part deducted. See Valentiam quaest. 6. puncto 3. Medin. quaest. 8. Vasquez cit. cap. 9. disput. 3. §. 1. Bonac. quaest. 8. punct. 1. Bassaeum num. 28.

IF however the prior Creditor is wealthy, and the later one poor and needy, restitution is to be made to him first, says Azorius part. 3. lib. 4. quaestio 4. The Ratio of D. Thom. and Medina loco citato, is, because one must first depart from the greater injury; but a greater injury is done in retaining the goods of the poorer than of the richer: But this Ratio is not approved by Azorius; who assigns another, supposing the poor Creditor to labor in such indigence as to be an object of mercy; and then he says restitution is owed to him; because, with this twofold precept of Justice and of mercy concurring, obedience is to be rendered to both rather than to Justice alone; and the richer creditor is bound to consent.

BUT the prior Ratio is indeed firm enough, nor would Azorius so easily have rejected it, if he had perceived that it coincided with his own; For therefore a greater injury is inflicted on the poor man, by subtracting his goods and not restoring them; because beyond Justice, since the burden of the blow falls above both creditors, the unjust appropriator was bound rather to relieve the poverty of the poor man, by giving to him of his own (if indeed he could), than to burden him further; wherefore the magnitude of the injury arises from the violation of mercy, which outweighs Justice in that case; and which the citizen is bound to restore; wherefore restitution to be made to the poor creditor does not then prevail from the concurrence of a twofold precept; but rather from mercy: For even if he were bound to restore by no debt of Justice; nevertheless by the law of Mercy he would owe to give to the needy, not to the rich creditor.

BUT if two Creditors are equal in right, but unequal in the Debtor's friendship, Medina says the whole debt cannot licitly be paid to the friendly Creditor; since by right it would have to be divided between both; yet if it has been paid to one before the other, he says he can be bound; which does not please Azorius; and indeed deservedly; For if the debt was to be divided with equal lot, so that both be satisfied; the part owed to one, and paid to the other, ought to be paid to the former; wherefore he says that he to whom it is paid unduly cannot retain it; since no friendship ought to harm Justice; likewise, if of two creditors, the later in time is the prior in receiving the debt, by whose payment the debtor becomes unable to pay the prior; then Azorius says, ad finem quaestio 7. that the later Creditor is bound to satisfy and restore to the prior, since he unduly received the latter's debt.

Titius, burdened with an enormous debt, spoke of his most wretched condition with Caius, his friend and creditor, and received from him the advice that he should surrender his goods as soon as possible, lest the condition of the creditors become worse. At the same time, however, Caius asked him to repay to him before the surrender what he had borrowed from him. Titius did this and a little afterward became bankrupt. Moreover, by this surrender the remaining creditors received scarcely a third part of what was theirs. Conscious of this, and having suffered anxieties of conscience on that account, Caius approached a theologian who was his friend in order to lay them aside, and disclosed to him that he had in fact received from Titius what was his in full, to the prejudice of the other creditors, but with these special circumstances: namely, that the other creditors had lent this man money at interest, whereas he himself had lent it gratuitously out of charity; that they were very rich, whereas he himself was poor in comparison with them; and, besides, that he was the first who had sought restitution. Hence it is asked:

1. In what order is restitution to be made?

2. Does a surrender of goods excuse from complete restitution, and under what conditions?

3. What is to be said of the case?

1. In what order must restitution be made?

If the debtor is solvent, the order of paying his debts is immaterial. If he is not solvent, he will be adjudged a bankrupt, and his property will be distributed ratably among his creditors, with the exception of some, to whom the law gives preference. English law gives such a preference to rates and taxes, and to certain salaries and wages.¹

1 Manual of Moral Theology, vol. i, p. 429.

2. Does bankruptcy excuse from full payment of one’s debts, and on what conditions?

The answer to this question will depend upon the law of the country. According to English law, a bankrupt who has conformed in all things to the law, and has paid at least ten shillings in the pound of his debts, may be granted an absolute discharge, the effect of which is to make him a clear man again. Large discretion is given to the judge to defer, or to grant on condition, or to grant absolutely, a bankrupt’s discharge.²

2 Stephen, Commentaries on the Laws of England, vol. ii, p. 260. Manual of Moral Theology, vol. i, p. 451.

3. The case. We have to do with Caius primarily. The payment of his debt in full, when it was morally certain that Titius was insolvent, would in all probability be regarded in English law as a fraudulent preference, and if it came to the knowledge of the official receiver or trustee in bankruptcy, the money would have to be refunded. However, no moral fault would seem to attach to Caius. His debt was due, as we suppose; he had a right to ask for payment, and having got it, he may keep it, unless compelled by law to refund it. Titius was not justified in paying Caius in full under the circumstances, according to strict law. He paid not to avoid pressure, but in order that a friend might not suffer from his bankruptcy. In the eyes of the law, he would, in all probability, be held guilty of fraudulent preference, and this would prevent him getting his discharge.³

3 Manual of Moral Theology, vol. i, p. 434.

Julius lent his friend Caius, a merchant, one thousand pounds sterling; but when the business did not prosper, Caius was compelled to surrender his goods. A few days before he directed a petition to the court, Caius, on account of their old friendship, as he said, handed the thousand pounds in full to the grateful Julius. Afterward, however, his goods, distributed among the other creditors, scarcely equaled half of the sum owed to each. Hence Julius, a very good Catholic, moved by scruples, approached a confessor, who, when he had heard everything, compelled Julius, as a cooperator with Caius in the unjust damaging of the other creditors, to make restitution to them. Hence it is asked:

1. What are the roots of restitution?

2. When a debtor is not solvent, to what is he bound, whether by natural law or by municipal law?

3. Can a confessor, relying upon a probable or even a more probable opinion, impose the obligation of restitution upon a penitent?

4. What is to be said of the case?

1. This question is answered above, p. 270.

2. When a debtor is not solvent, what is he bound to do by natural or municipal law?

As soon as a debtor recognizes that he can not pay his debts in full, and that there is no reasonable probability of his being able to do so, he is bound to take steps to enter into a composition with his creditors, or to have himself declared bankrupt. If he goes on to contract new debts after recognizing that he is hopelessly insolvent, he does an injury to his creditors and renders himself liable to have his discharge suspended, if not altogether refused.

3. Can a confessor impose an obligation on a penitent of making restitution when there is a probable, or more probable opinion, in favor of the obligation?

No; he can not. An obligation must not be imposed unless it is morally certain that it exists.¹

1 St. Alphonsus, book i, nos. 26, 87; book vi, no. 604.

4. The case. Caius by a fraudulent preference just before bankruptcy paid a debt of £1000 in full owed to his friend Julius. The other creditors received hardly half of what was owing to them. Julius mentioned this in confession, and his confessor compelled him to restore on the ground of co-operation in the unjust action of Caius.

The confessor did wrong, for Julius had a right to the money, and he did no injustice to the other creditors by taking it when it was offered by Caius. Caius indeed had obligations toward the other creditors on account of his contract with them, and if he could not pay all in full, he was bound to pay all ratably. They had all a certain indefinite claim against his estate. Caius did wrong in preferring Julius, but when it was offered, Julius could lawfully take the £1000; it did not belong to anybody else; it became his on acceptance as payment for his debt. His co-operation with Caius was material, not formal, and lawful as it is lawful to accept a usurious loan from a usurer. There is at any rate good ground, both intrinsic and extrinsic, for this view.²

2 Lehmkuhl, vol. i, no. 1027.

Titius, a Catholic merchant, when he perceived that within a short time he would necessarily have to surrender his goods, sent two thousand pounds to the rector of the college where his two sons were being educated, which sum would suffice to pay the expenses of the whole future education of his sons. The matter happened as he had foreseen; but, after paying fifteen shillings for each pound owed, he received a legal discharge (absolute discharge), without the creditors knowing anything about those two thousand pounds. While making his Easter confession, Titius disclosed all these things to his confessor. Hence it is asked:

1. What is a fraudulent surrender of goods?

2. After one who has surrendered his goods has received a discharge, is he still bound to pay his debts in full?

3. What is to be said of the obligations and manner of acting of Titius?

1. What is fraudulent bankruptcy?

Bankruptcy may be fraudulent in many ways. A few instances may be given. “1. If the bankrupt does not, to the best of his knowledge and belief, discover to his trustee all his property, and the mode in which he has disposed of any part thereof; except in the ordinary way of his trade, if any, or in the ordinary expenses of his family. 2. If he does not deliver up all such part of his property as is in his custody or control, and which he is required by law to deliver up. 3. If, after the presentation of a petition, or within four months before, he conceals any part of his property to the value of £10 or upwards, or conceals any debt due to or from him. 4. If within the same period he removes any part of his property to the value of £10 or upwards.”¹

1 Stephen, Commentaries, vol. ii, p. 244.

2. This question was answered above, p. 284.

3. What about the obligations and the way of acting of Titius? Titius is a fraudulent bankrupt, and his discharge will not avail him in conscience. The greater part at least of the £2000 which he sent to the rector of the college belonged to his creditors, and the effect of his action is that his sons are being educated at the expense of his creditors. Titius may allow the rector to keep practically all that is due to the college for the education of the two boys up to the present, but either the rest of the £2000 or a sum equal to it he should distribute among his creditors.

Casuistry is a word with a rather bad connotation in the English language. Its secondary meaning, according to the Century Dictionary, is “ over-subtle and dishonest reasoning.” I am not concerned to deny that there may be good historical grounds for something of the evil reputation which the word possesses. It is apt to be associated in men’s minds with the tortuous reasonings of the Scribes and Pharisees, with their exaggerations of lighter duties and their explaining away of the weightier matters of the law. Their desire to make the yoke of the moral law in certain places more easy for men’s shoulders may also have had its parallel among some Catholic theologians; not every Catholic theologian catches or represents the mind of the Church.

Still, casuistry should not suffer for the sins and errors of some of those who have cultivated the science of conduct. Not all who profess themselves mathematicians or physicists write wisely about those branches of knowledge, and yet mathematics and physics are not held responsible for their vagaries. Neither should the great and useful science of casuistry suffer because some casuists have by their labors endangered the supremacy of the great moral law.

It is difficult to see how any one who admits that there are moral laws or rules of conduct, can reasonably refuse to admit a science of casuistry. Anarchy and confusion would quickly prevail in a country where the interpretation of the laws was left to the judgment or caprice of private citizens. Well-trained and practised intellects are required if law is to be applied with justice, equity, and consistency to particular cases. And so, too, in morals, or the science of right and wrong, the ordinary Christian cannot be expected to apply correctly the rules of Christian conduct to all cases as they arise. He may be able to see, without much difficulty, what the noble, self-sacrificing line of conduct would prescribe in any given case; but that may not be what he is prepared to do. It would doubtless be best if we all on all occasions followed the counsels of perfection, but there is no obligation of so doing, and while human nature remains what it is, there is no likelihood of the attempt being generally made. And so the question constantly arises in daily life— What am I bound to do under these circumstances? What must I do to avoid moral guilt?

Such questions are frequently of great difficulty and intricacy, as every one will acknowledge. The judgment of the expert is not less required to solve them, than it is required to solve the nice points of the civil law. This, then, is what the Catholic moral theologian proposes to himself to do. He tries, by taking the Gospel and the Church as his guides, to draw the line between what is lawful and what is unlawful. He does not take upon himself the office of the preacher, and recommend all to follow the decisions he gives. This he no more thinks of doing than does the judge while sitting in his Court. It is not for him to raise as much as possible the standard of Christian conduct, or to make people better than he found them. He is content with the humbler task of laying down what is forbidden and what is not forbidden, and leaving to others the nobler office of tracing the deeds that are becoming to the generous and the self-sacrificing.

Much of the abuse which has been heaped on Catholic and especially on Jesuit casuistry originated from not considering this scope which moral theologians proposed to themselves, and the point of view from which they regarded questions of morality. Most of the great writers on moral theology have been men of saintly lives, who never dreamed of being content in their own conduct with attaining the standard of morality which they kept before their minds in their writings. There they laid down the principles of right and wrong, discussed real or imaginary cases with all conceivable manner of circumstances in order to illustrate those principles, but they never dreamed of limiting their personal aspirations to the mere avoidance of evil. They well knew that we must aim high to attain even a passable mediocrity in conduct, and in many cases they were men who were not content to aim high, they aspired to and attained a great measure of Christian perfection. As in their own lives, so in their training of others, they did not propose the moral standard of their works on casuistry as the ideal of the Christian life. It was the least that was required, it was the line below which no one who wished to save his soul might sink, though he might rise indefinitely above it, according to the gifts which he had received from God.

And let no one say that such work as the moral theologians of the Catholic Church have set themselves to do is useless or unnecessary. It has always had the encouragement of the Church, though some of the sectaries who broke from her at the time of the Reformation affected to despise and repudiate it. They professed to take as their guide the spirit of the Gospel as interpreted by the individual conscience, and they professed to look down upon the ecclesiastico-legal view of morality as one of the errors of Rome. However, the whirligig of time in this as in so many other departments seems to be proving that the action of the Catholic Church was and is right after all. Good and able men among the non-Catholic religious bodies are realizing the necessity of a sound casuistry as a guide of Christian conduct. Thus in the January number of the Hibbert Journal, in an interesting symposium on the “ Alleged Indifference of Laymen to Religion,” Sir Edward Russell, the well-known editor of the Liverpool Daily Post, writes: —

Is there any obvious disconnection, more conspicuous among Christian than among members of other faiths, between their religion and their practically unavoidable daily lives? The reply is twofold: Firstly, this ought not to be. . . . But, on the other hand, secondly, an uncomfortable, illogical, unintelligent state of conscience is maintained by the growing up of, and acquiescence in, customs of business, practices of speculation, usages when in distant countries, and non-moral rules of peace and war and acquisition—to instance a few examples. Efforts should be made by Christian authorities to formulate and apply ethical Christian dicta in such matters. This would need to be done with great care, and with specially cultivated sound casuistry. But it ought to be done, because ‘‘whatsoever is not of faith is sin,’’ and laymen know they cannot serve two masters. (P. 246.)

This is well put, and justifies in a few words what Catholic moral theologians are constantly striving to perform according to the constantly changing wants of the Catholic clergy and people.

Very little experience within or outside the confessional soon convinces the Catholic priest of the practical necessity of a competent knowledge of casuistry. It is not sufficient for practical purposes to know the general theory of Christian morals. The judgment must have been trained by exercise, so as to be able to apply with accuracy the general doctrines to particular questions as they arise.

Some years ago a friend I had known at college called on me. He held a responsible position in one of the great Manchester places of business. In course of conversation he asked me what I was doing. “ Trying to teach the moral theology of the Catholic Church,” I modestly answered. “Oh!” he replied, “I am often puzzled by questions which I suppose you have to treat of in your official capacity; ” and straightway he proposed a few. The questions were practical cases of conscience arising out of modern business relations, and it may be of interest if I put down here the result of thought and reading bestowed on them and other similar questions. I will deal in this paper with some difficulties arising out of the law of bankruptcy.

John was a younger member of a family that had always tried to cut a figure in the world. The members of the family had been accustomed to live up to the very limit of their means, and John, who was a dashing and handsome young man, after marrying a wife of similar disposition to his own, set up an establishment for himself. John and his wife soon found that it was impossible to make ends meet with their limited resources, and in the space of a very few years they had been adjudicated bankrupt no less than three times. The worthy couple did not trouble themselves much about the matter; the only inconvenience to their mind lay in the fact that they found it more and more difficult to obtain credit. Even this difficulty, however, was to a considerable extent overcome by judicious changes of residence; they found that people who knew them only imperfectly were very confiding in the matter of loans to such an engaging and well-connected couple, and so they had a tolerably merry time of it; in short, they made bankruptcy pay.

It is obvious that John and his wife had been living largely at the expense of their too confiding creditors ; they had been doing wrong in contracting debts which experience taught them there was little probability of their being able to pay, and if they want to lead honest lives they must lower their style of living and try to balance expenditure with income.

A difficulty may arise about the time of declaring one’s self unable to pay one’s debts. It is sometimes possible by borrowing again and by other means to avert threatened bankruptcy for a time at least. Is it lawful to have recourse to such means?

The answer to be given to this question will depend upon circumstances. If there is any reasonable probability of being able to meet the new obligation at the proper time, there need be no scruple about contracting it, and saving one’s self from bankruptcy. If, however, there is no reasonable probability of being able to do this, it becomes a fraudulent contract,— the debtor undertakes to do what he knows he will not be able to fulfil, and so he sins against justice. As to what constitutes a reasonable probability is a question which depends upon the circumstances, and it must be settled by the debtor himself, after taking the advice of his friends, if he cannot make up his own conscience on the point.

Thomas was a man of about sixty years of age, and for some time he had not been able to give that attention to his business which was required if he was to succeed. In spite of all his efforts he sank deeper into debt, failed to meet his obligations as they became due, and was adjudicated a bankrupt. He was afraid that he would be left destitute, so he kept back $500 for his private use, but surrendered all his other property to his creditors. He swore that he had made a full and true statement of his affairs, though he made no mention of the $500.

Thomas did wrong in keeping back and rendering no account of the $500, and he committed perjury by swearing that he had given a true account of his affairs. The law makes provision for the necessary support of the bankrupt, and so there was no solid ground for Thomas’ fear that he would be left destitute, and consequently no good ground for failing to account for the $500.

However, if the law made no provision for the necessary and immediate wants of the bankrupt, and if he had no prospect of being able to earn enough for his decent support and that of such as were dependent on him, so that the only prospect before him was to starve or to go to the workhouse, natural equity would then redress the too great rigor of the law, and permit the bankrupt to keep what was necessary for decent support. An unfortunate debtor cannot be justly compelled to reduce himself to destitution in order to satisfy the claims of his creditors, and the laws of modern civilized nations do not attempt to impose such an obligation.

The laws of bankruptcy in modern English-speaking countries are just and humane, and they confer a great benefit on the bankrupt by juridically relieving him of an insupportable burden of debt. They are, it is true, in some instances exacting with regard to the conditions on which the benefit is granted, but that is no more than the public good requires; grave abuses, as we know from the history of legislation in this matter, would inevitably result from a lax law of bankruptcy. It is only right then that stringent conditions should accompany the granting of relief to the bankrupt; the State has a right to impose them, and the subject is bound in conscience to observe them, especially if he is required to affirm on oath that he has done so. The confessor then should urge a penitent, who has had the misfortune to be brought into the Bankruptcy Court, to act in a straightforward way according to the laws of his country, and then he may with a safe conscience take advantage of what the law allows to the unfortunate bankrupt.

George had invested large sums of money in house property. He had borrowed a considerable portion of the purchase money under a well-grounded belief that the property would rise in value and enable him to reap a profit from his bargain. What was his dismay when, instead of rising, it steadily fell; he could not realize any portion of it, and he saw no prospect of being able to pay his debts as they became due. In his straits he went to his brother, who was one of his principal creditors and asked his advice. His brother advised him to make a declaration of inability to meet his obligations, and that as soon as possible. George promised to do so, volunteering to pay his brother in full beforehand, so that so much money at any rate should remain in the family, as he said. The brother agreed and took full payment for what was owing to him, although the other creditors had to be satisfied with fifty cents on the dollar.

George committed an act of injustice by paying his brother’s debt in full, while he knew that his other creditors would have to be satisfied with less than what was due to them. He knew that his property was not sufficient to pay all his creditors in full; they had equal right to receive their due proportion of payment; he defrauded his other creditors of their due proportion when he gave more than his share to his brother, so as to keep the money in the family.

Such transactions are against natural justice, they tend to defeat the chief end of bankruptcy laws, which is to secure an equitable distribution of the property of the debtor among his creditors, and they are rightly forbidden by positive law. In England as well as in the United States such preferences are declared null and void, or at least voidable, if made within the period fixed by the law of the country. In the United States the period fixed is four months previous to the filing of the petition, in England three months. If it were discovered that such a fraudulent preference had been given to one of the creditors, the official receiver or the trustee in bankruptcy could claim the money and add it to the assets to be distributed among the creditors according to law.

A doubt might arise as to whether a bankrupt would be justified in conscience in paying a creditor in full on account of his poverty or for some such extrinsic reason. Some theologians hold that, apart from any bankruptcy law, a debtor who could not pay all his debts might for such a reason prefer one creditor to another. However, it would seem to be unlawful to do this when one contemplates bankruptcy. The law allows of no such distinction, and if the bankrupt is to take advantage of the law for his relief, it is imperative, even from the point of view of conscience, that he should conform to the requirements and conditions which the law lays down. The law is his title to relief, and the law grants relief on certain conditions; those conditions then must be loyally observed by the debtor.

There is another question of some nicety connected with fraudulent preferences. The bankrupt does wrong in giving such a preference, as we have seen. Is a creditor who receives a fraudulent preference justified in keeping the money, or is he bound to make restitution?

There is some slight difference between the law of the United States and that of England with regard to fraudulent preferences, but we may here abstract from them, and consider the question from the purely moral point of view.

Such a creditor will of course be bound to make restitution, if the matter comes to the knowledge of the Court, and he is ordered to do so. Whether he is bound in conscience independently of such an order to make restitution is not free from doubt. He has after all only received what he had a right to, according to the terms of his contract with the debtor. The debtor did an injustice to his other creditors in paying this one in full; but the preferred creditor has no contract with the other creditors of the debtor; he is not bound like the debtor to safeguard their rights and satisfy their claims as far as possible; if he has no such obligation, and only receives what is due to him from his own contract, he does not seem to violate justice by taking payment of his debt in full, and so he is not bound to make restitution. I am confirmed in this opinion by what Mr. Brandenburg writes in his authoritative work on Bankruptcy: —“ There is involved,” he says, “no element of moral or actual fraud. It is simply a constructive fraud established by law upon the existence of certain facts and prohibited by it. There is nothing dishonest or illegal in a creditor obtaining payment of a debt due him from a failing debtor; nor in his attempting by proper and ordinary effort to secure an honest debt, though such act may afterwards become a constructive fraud by reason of the filing of a petition and adjudication in bankruptcy.”¹

¹ B. G. Brandenburg, The Law of Bankruptcy, 3d ed., p. 699 (1908).

And again: “While such a transfer is fraudulent and voidable, it is not so because morally wrong, but because the act says it is.” (P. 604.)

Against this view it may be urged with some plausibility that as the property of the bankrupt was not sufficient to pay all his creditors in full, no single creditor had a right to receive more than his just share, so that the preferred creditor sinned against justice by taking more than his share. To this, however, it may be answered that the argument holds when the property has been divided into portions, and assigned to satisfy the claims of the several creditors; but that it does not hold while the property is still undivided. When it is divided, each creditor has a right to his share, and injustice would be committed if he did not obtain his fair share; but while it remains, so to say, in bulk, all that can be said is that each creditor has a somewhat undetermined claim against the whole of the property. When therefore one creditor has received payment in full, it is not clear that he is bound in conscience, before any decision of the Court, to surrender a part for the benefit of the other creditors.

Another question of importance is whether a bankrupt who has obtained his discharge after paying his debts in part only, is bound in conscience to pay in full if he subsequently becomes able to do so.

The question does not arise when the creditors in consideration of the part payment which they have received expressly release the debtor from all further obligations, as, of course, they are competent to do. It is clear, too, that the natural obligation to pay one’s debts in full remains in spite of bankruptcy, unless it is extinguished by competent authority. Moreover, the obligation will certainly remain, if the law of the country expressly so decides, as did the Roman Law, which the scholastic theologians generally had in view when they discussed this question. Most modern European codes contain similar provisions. However, it seems equally certain that the law of the country can extinguish the obligation of making further payments, if it pleases to do so in favor of an honest bankrupt. We say “in favor of an honest bankrupt,” because the law does not intend to favor a dishonest bankrupt, nor has it the power to free such a one from his obligations. For the law cannot favor and promote injustice, as would be the case if it released a dishonest debtor from the obligation of paying his debts. The law can, however, for the public good release the honest bankrupt; for with just cause it can transfer property from one to another owner. This it certainly does by the law of prescription, and in other cases. In a commercial community there will not be wanting good reasons for such an exercise of power, for a load of debt pressing on the shoulders of the poor debtor kills enterprise, and injuriously affects trade. The common understanding with which debts are contracted will gradually accommodate itself to such a law, and thus by virtue of the implicit consent of the creditor, the legal discharge of the bankrupt debtor will be absolute and final, if the law so make it.

The whole question then is reduced to one of fact — What is the law of the country on the point, and what is its effect? With regard to the United States theologians have commonly held that a discharge in bankruptcy does not free the debtor in conscience from liability to pay his debts in full, if he subsequently become able to do so. However, several theologians of note thought the contrary a probable opinion.² Great weight should obviously be given in such a matter to the opinion of lawyers of repute; they are most likely to know the effect of the law. Mr. Brandenburg, in the work quoted above, expressly lays it down that the United States Bankruptcy Law does not free the conscience. “Since the discharge,” he writes, “is personal to the bankrupt he may waive it and, since it does not destroy the debt but merely releases him from liability — that is, removes the legal obligation to pay the debt, leaving the moral obligation unaffected — such moral obligation is a sufficient consideration to support a new promise,” etc. (P. 257.)

² Marc, n. 1022; Kenrick, II., n. 207.

In England on the contrary both theologians and lawyers commonly hold that the law of the land frees the debtor in conscience, if the discharge be absolute and unconditional. Otherwise, of course, the obligation will remain.

The same solutions would seem to hold, when after having made a composition with one’s creditors, the same question arises with regard to future acquired property. The law of the United States as well as that of England regulates such compositions, and decides that when confirmed they shall have the effect of a discharge. So that in the United States one who cannot pay his creditors in full, must make up the deficiency afterwards if he can, whether he makes a composition with his creditors or goes into the Bankruptcy Court; in England, if he has acted honestly and obtained an absolute and unconditional discharge, there will be no obligation to make good any deficiency, though the conduct of a bankrupt who should volunteer to do so would be highly approved by his creditors.

3 Crolly, III., n. 1232; Stephen, II., p. 188.