Stocks and Bonds

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McHugh–Callan, Moral Theology

John A. McHugh, O.P., and Charles J. Callan, O.P. — 2 passages

Vol. II, Pt. II, Q. II, Art. 3. The Subjective Par…, The Objects of Commutative Justice · Vol. II, Pt. II, Q. III, Art. 1. The Duties of Memb…, Stocks and Bonds

Vol. II, Pt. II, Q. II, Art. 3. The Subjective Par…, The Objects of Commutative Justice

n. 1749.

Forms of Contract

Forms of Contract.—The chief forms of contract are the following:

(a) gratuitous contracts, which are those that confer advantage on only one of the contractants, or those in which no payment or compensation for his acts or goods is made to one party by the other party. They include unilateral contracts, which produce obligation on one side only (e.g., a promise, gift, testament), and bilateral contracts, which produce obligation on both sides. The bilateral contracts are also known as bailments, or understandings whereby a thing or business is transferred from one person to another in trust, on condition that a return will be made to the owner, They include the following contracts: loans, in which return must be made of the identical things borrowed (commodatum), or of a thing similar in kind (mutuum); deposit, in which a thing must be returned after safekeeping (depositum); an agency, in which one conducts the business of another with the obligation of making returns, either from express contract (mandatum) or from imputed agreement (negotiorum gestio). In commodatum and mutuum the advantage is had by the bailee, in the other three by the bailor;

(b) onerous contracts of certain event, which are those that confer an advantage on both parties, and in which the thing agreed on is certain and definite. They include contracts in which one party transfers ownership to the other (e.g., buying and selling, barter, loan at interest, contracts for annuities, stocks and bonds) or useful dominion (e.g., lease of property, contractor’s agreement, hire of labor), and contracts in which both parties transfer rights to a moral person of which they are the members (partnership);

(c) onerous contracts of uncertain event, which are those that confer advantage on both parties, but in which the thing agreed on is contingent and uncertain. Examples are insurance, wager, gaming contracts, lottery, and stock market speculation;

(d) subsidiary contracts, which are those that are made in order to give security to principal contracts to which they are annexed or for whose sake they are made. Such are guaranty and surety, pledge and pawn, and mortgage.

Vol. II, Pt. II, Q. III, Art. 1. The Duties of Memb…, Stocks and Bonds

n. 2605.

Is It Lawful for Clerics to Purchase and Sell Stocks and Bonds?—(a) If this conduct has the character of gambling or trading for profit, it is forbidden by Canon 138 or 142, as the case may be, and is gravely or venially sinful according to the circumstances. Thus, pure speculation or mere betting on the market is a game of chance, and the frequent purchase of stocks with the thought of quick sales and huge profits from sudden changes of the market is lucrative trading.

(b) If the gambling or trading element is absent, the conduct in question is not forbidden by Canon Law. It is generally admitted that bond investments are permissible, since they are only a loan of one’s money at interest. There are two views about stock dealings: the stricter view regards them as always containing the character of forbidden trading (since all the notes of strict negotiation are found in them), or at least as being a game of chance; the milder view, which is common, holds that they are no more an affair of chance than many other business undertakings, and that there is no strict negotiation, if the stockholder is not a member or director of the corporation, since the buying and selling is done neither directly nor indirectly by him. Buying of stocks, then, may be nothing more than a prudent investment of money in a deserving enterprise with the hope of a reasonable return, and selling out the stocks at a large profit may be nothing more than the disposal of superfluous goods which it would be inconvenient to retain. It must be remembered, though, that it is unlawful to cooperate with a company whose purpose is evil or suspect, or to have part in frauds, or to give disedification.