MUTUO. — It is the contract by which one party (the lender) delivers to the other (the borrower) a specified quantity of money or other fungible things, and the latter undertakes to return an equal quantity of things of the same kind and quality (CIC, art. 1813).
I. LEGAL PROFILE
Since the m. is a real contract, delivery of the thing is essential to it; thus, prior to delivery, there may be—provided the relevant requirements are met—a promise of a loan, but not a loan properly so called (art. 1822). Since mere use generally consumes a fungible thing, the former cannot be separated from the latter. Consequently, delivery of the thing necessarily transfers to the borrower not merely its use but also its ownership (art. 1814), and with it every risk. The lender, however, remains liable for damage caused to the borrower by defects in the thing when, despite knowing of them, he has failed to disclose them (art. 1821). The thing lent must be returned in due course (arts. 1816–17). Fungible things other than money are to be returned with things equal in quantity, kind, and quality to those lent; nor are fluctuations in their economic value during the entire period of the m. relevant. For the repayment of money, it suffices that the sum repaid and the sum lent correspond to the same nominal value (the nominalist principle), even when their intrinsic value, for whatever reason, is different (art. 1277). Only if the m. was made in metallic currency (gold or silver), and repayment in the same kind of currency was also agreed, must it be made according to the intrinsic value that the currency had at the time of performance (art. 1280).These explicit provisions of Italian law also apply to the fulfilment of natural obligations of conscience, at least in Italy and insofar as justice requires; equity, depending on the circumstances, might call for appropriate modifications to the benefit either of the lender or of the borrower. Thus, on the basis of the nominalist principle maintained in Italian law, monetary devaluation (v.) results in harm to the creditor alone. From the moral point of view, therefore, it is necessary to examine concretely the benefit and advantage that the m. has brought to the debtor, in order to determine any compensation due to the creditor. Often—and this is ordinarily the case when loans are issued by commercial companies, public bodies, etc.—the obligation of repayment is guaranteed and embodied in special credit instruments (e.g., bonds), which have value on the market and may therefore be the subject of negotiations, thus enabling the lender and subsequent holders to realize their market value even before the maturity of the m.
In addition to repayment of the thing, interest must also be paid at the rate of 5%; however, the parties’ agreement may modify the rate of interest or abolish it altogether (art. 1815). The m. is extinguished by repayment, which may be established in instalments; but failure to pay the interest or any instalment entitles the lender to demand early performance of the contract (art. 1820).
II. MORAL PROFILE
1. Granting the m
By the natural law of fraternal charity, the m. ought to be granted to one’s neighbor, poor or rich, who has need of II. The sum necessary to seize the opportunity of a good business deal does not constitute a genuine need for an m., when the applicant’s general economic circumstances are proportionate to the requirements of his own life and that of his family. The more serious the neighbor’s need and the fewer the disadvantages accruing to us from granting it, the greater is the obligation to grant the m. Fr. Vermeersch (Theol. mor., II, Rome 1924, n. 449,5) very appropriately suggests discreet almsgiving instead of an m. that would be of little benefit to the applicant and highly risky for the lender.2. Interest and its amount
Whatever the fungible things lent may be, as a matter of fact interest at the rate established by law is certainly licit (CIC, can. 1543). But, as a matter of law, what title justifies acquiring ownership of it? The ancient theological-moral literature on this subject is exceedingly abundant (v. usura). Today, apart from its historical importance, the principles it established provide a sure criterion for determining the maximum and minimum limits within which the rate of interest may licitly fluctuate. When the m. is analyzed solely in terms of its constituent elements, the right and duty to interest is plainly excluded. Since mere use consumes the fungible thing, it has no economic value when considered in itself, as separate from the thing; therefore, through the mere return of the thing, the lender receives everything that juridically belongs to him. Any additional amount lacks any supporting title: neither the provision of the thing, which is returned to him in its entirety, nor the provision of its use, which, independently of the thing, has no economic value. The reality of this principle is particularly evident in the m. for the purpose of consumption, the only kind generally possible in ancient times. Canon law, even today, accepts and sanctions this principle in the first part of can. 1543; Italian civil law presupposes it in the definition it gives of the m. in art. 1813. In practice, however, the m. does not take place according to the abstract configuration of its essential constituents alone; concrete circumstances, dependent upon the economic position either of the lender or of the borrower, enter into it, modifying its consequences. In fact, it may happen that, by lending the thing, the lender either in some way impairs his economic position (damnum emergens), or diminishes its effectiveness (lucrum cessans). Moreover, the borrower’s unstable economic position might make the return of the thing appear either uncertain (risk of the thing) or at least deferred (danger of delay). Now these four circumstances—damnum emergens, lucrum cessans, risk of the thing, and danger of delay—have economic value and therefore, when they actually occur, may constitute corresponding titles to the right to proportional compensation in addition to the return of the thing. They nevertheless always remain extrinsic titles to the m., which, as a contract, is essentially gratuitous in itself.Only extrinsic titles to the m., when they actually occur, can justify the right and duty to interest and determine its proper amount. In the light of this most ancient doctrine, the juridical institution of the m. takes shape within the framework of the modern social economy.
The guarantees of bills of exchange or credit instruments, as are usually received when granting an m., neutralize the risk of the thing and the danger of delay; these therefore generally cannot today be invoked as titles to the right to interest. By contrast, lucrum cessans has become the customary effect of the m. For in the modern economic system opportunities for trading in things of every kind and in money itself have been greatly facilitated and multiplied; consequently, the great majority of mutua today are made for purposes of profit. It is therefore legitimate to presume that every m. entails, to the lender’s disadvantage, lucrum cessans, for which proportional compensation is due. This justifies the right to interest, now generally associated with the contract of m. The legal rate of 5% is presumed to represent the average profit among the many possible ones. But since factual conditions differing from these presumptions may occur, the parties are juridically permitted and morally entitled to agree either on a rate higher than the legal rate or on the exclusion, even total exclusion, of interest. Finally, damnum emergens, which occurs only with difficulty, could also, in particular cases, constitute a new title to the right to interest and raise its rate.