§ 9 Partnership
The teaching on partnership contains such a complete disproof of the contention that the mediæval teaching on usury was based on the unproductivity of capital, that certain writers have endeavoured to prove that the permission of partnership was but a subterfuge, consciously designed to justify evasions of the usury law. Further historical knowledge, however, has dispelled this misconception; and it is now certain that the contract of partnership was widely practised and tolerated long before the Church attempted to insist on the observance of its usury laws in everyday commercial life.1 However interesting an investigation into the commercial and industrial partnerships of the Middle Ages might be, we must not attempt to pursue it here, as we have rigidly limited ourselves to a consideration of teaching. We must refer, however, to the commenda, which was the contract from which the later mediæval partnership (societas) is generally admitted to have developed, because the commenda was extensively practised as early as the tenth century, and, as far as we know, never provoked any expression of disapproval from the Church. This silence amounts to a justification; and we may therefore say that, even before Aquinas devoted his attention to the subject, the Church fully approved of an institution which provided the owner of money with the means of procuring an unearned income.
The commenda was originally a contract by which merchants who wished to engage in foreign trade, but who did not wish to travel themselves, entrusted their wares to agents or representatives. The merchant was known as the commendator or socius stans, and the agent as the commendatarius or tractator. The most usual arrangement for the division of the profits of the adventure was that the commendatarius should receive one-fourth and the commendator three-fourths. At a slightly later date contracts came to be common in which the commendatarius contributed a share of capital, in which case he would receive one-fourth of the whole profit as commendatarius, and a proportionate share of the remainder as capitalist. This contract came to be generally known as collegantia or societas. Contracts of this kind, though originally chiefly employed in overseas enterprise, afterwards came to be utilised in internal trade and manufacturing industry.1
The legitimacy of the profits of the commendator never seems to have caused the slightest difficulty to the canonists. In 1206 Innocent III. advised the Archbishop of Genoa that a widow’s dowry should be entrusted to some merchant so that an income might be obtained by means of honest gain.1 Aquinas expressly distinguishes between profit made from entrusting one’s money to a merchant to be employed by him in trade, and profit arising from a loan, on the ground that in the former case the ownership of the money does not pass, and that therefore the person who derives the profit also risks the loan. ‘He who lends money transfers the ownership of the money to the borrower. Hence the borrower holds the money at his own risk, and is bound to pay it all back: wherefore the lender must not exact more. On the other hand, he that entrusts his money to a merchant or craftsman so as to form a kind of society does not transfer the ownership of the money to them, for it remains his, so that at his risk the merchant speculates with it, or the craftsman uses it for his craft, and consequently he may lawfully demand, as something belonging to him, part of the profits derived from his money.’2 This dictum of Aquinas was the foundation of all the later teaching on partnership, and the importance of the element of risk was insisted on in strong terms by the later writers. According to Baldus, ‘when there is no sharing of risk there is no partnership’;3 and Paul de Castro says, ‘A partnership when the gain is shared, but not the loss, is not to be permitted.’4 ‘The legitimacy,’ says Brants, ‘of the contract of commenda always rested upon the same principle; capital could not be productive except for him who worked it himself, or who caused it to be worked on his own responsibility. This latter condition was realised in commenda.’5
Although the contract of partnership was fully recognised by the scholastics, it was not very scientifically treated, nor were the different species of the contract systematically classified. The only classification adopted was to divide contracts of partnership into two kinds—those where both parties contributed labour to a joint enterprise, and those where one party contributed labour and the other party money. The former gave no difficulty, because the justice of the remuneration of labour was admitted; but, while the latter was no less fully recognised, cases of it were subjected to careful scrutiny, because it was feared that usurious contracts might be concealed under the appearance of a partnership.1 The question which occupied the greatest space in the treatises on the subject was the share in which the profits should be divided between the parties. The only rule which could be laid down, in the absence of an express contract, was that the parties should be remunerated in proportion to the services which they contributed—a rule the application of which must have been attended with enormous difficulties. Laurentius de Rodulphis insists that equality must be observed;2 and Angelus de Periglis de Perusio, the first monographist on the subject, does not throw much more light on the question. The rule as stated by this last writer is that in the first place the person contributing money must be repaid a sum equal to what he put in, and the person contributing labour must be paid a sum equal to the value of his labour, and that whatever surplus remains must be divided between the two parties equally.3 The question of the shares in which the profits should be distributed was not one, however, that frequently arose in practice, because it was the almost universal custom for the partners to make this a term of their original contract. Within fairly wide limits it was possible to arrange for the division of the profits in unequal shares—say two-thirds and one-third. The shares of gain and loss must, however, be the same; one party could not reap two-thirds of the profit and bear only one-third of the loss; but it might be contracted that, when the loss was deducted from the gain, one party might have two-thirds of the balance, and the other one-third.4 In no case, of course, could the party contributing the money stipulate that his principal should in all cases be returned, because that was a mutuum. The party contributing the labour might validly contract that he should be paid for his labour in any case, but, if this was so, the contract ceased to be a societas and became a locatio operarum, or ordinary contract of work for wages. In all cases, common participation in the gains and losses of the enterprise was an essential feature of the contract of partnership.5
Before concluding the subject of partnership, we must make reference to the trinus contractus, which caused much discussion and great difficulty. As we have seen, a contract of partnership was good so long as the person contributing money did not contract that he should receive his original money back in all circumstances. A contract of insurance was equally justifiable. There was no doubt that A might enter into partnership with B; he could further insure himself with C against the loss of his capital, and with D against damage caused by fluctuations in the rate of profits. Why, then, should he not simultaneously enter into all three contracts with B? If he did so, he was still B’s partner, but at the same time he was protected against the loss of his principal and a fair return upon it—in other words, he was a partner, protected against the risks of the enterprise. The legitimacy of such a contract—the trinus contractus, as it was called—was maintained by Carletus in the Summa Angelica, which was published about 1476, and by Biel.1 Early in the sixteenth century Eck, a young professor at Ingolstadt, brought the question of the legitimacy of this contract before the University of Bologna, but no formal decision was pronounced, and, had it not been for the reaction following the Reformation, the trinus contractus would probably have gained general acceptance. As it was, it was condemned by a provincial synod at Milan in 1565, and by Sixtus V. in 1585.2
We should also refer to the contract of bottomry, which consisted of a loan made to the owner—or in some cases the master—of a ship, on the security of the ship, to be repaid with interest upon the safe conclusion of a voyage. This contract could not be considered a partnership, inasmuch as the property in the money passed to the borrower; but it probably escaped condemnation as usurious on the ground that the lender shared in the risk of the enterprise. The payment of some additional sum over and above the money lent might thus be justified on the ground of periculum sortis. The contract, moreover, was really one of insurance for the shipowner, and contracts of insurance were clearly legitimate. In any event the legitimacy of loans on bottomry was not questioned before the sixteenth century.1
§ 10. Concluding Remarks on Usury.
It is to be hoped that the above exposition of the mediæval doctrine on usury will dispel the idea that the doctrine was founded upon the injustice of unearned income. Far from the receipt of an unearned income from money or other capital being in all cases condemned, it was unanimously recognised, provided that the income accrued to the owner of the capital, and not to somebody else, and that the rate of remuneration was just. The teaching on partnership rested on the fundamental assumption that a man might trade with his money, either by using it himself, or by allowing other people to use it on his behalf. In the latter case, the person making use of the money might be either assured of being paid a fixed remuneration for his services, in which case the contract was one of locatio operarum, or he might be willing to let his remuneration depend upon the result of the enterprise, in which case the contract was one of societas. In either case the right of the owner of the money to reap a profit from the operation was unquestioned, provided only that he was willing to share the risks of loss. But if, instead of making use of his money for trading either by his own exertions or by those of his partner or agent, he chose to sell his money, he was not permitted to receive more for it than its just price—which was, in fact, the repayment of the same amount. This was what happened in the case of a mutuum. In that case the ownership of the money was transferred to the borrower, who was perfectly at liberty to trade with it, if he so desired, and to reap whatever gain that trade produced. The prohibition of usury, far from being proof of the injustice of an income from capital, is proof of quite the contrary, because it was designed to insure that the income from capital should belong to the owner of that capital and to no other person.1 Although, therefore, no price could be paid for a loan, the lender must be prevented from suffering any damage from making the loan, and he might make good his loss by virtue of the implied collateral contract of indemnity, which we discussed above when treating of extrinsic titles. If the lender, through making the loan, had been prevented from making a profit in trade, he might be indemnified for that loss. All through the discussions on usury we find express recognition of the justice of the owner of money deriving an income from its employment; all that the teaching of usury was at pains to define was who the person was to whom money, which was the subject matter of a mutuum, belonged. It is quite impossible to comprehend how modern writers can see in the usury teaching of the scholastics a fatal discouragement to the enterprise of traders and capitalists; and it is equally impossible to understand how socialists can find in that doctrine any suggestion of support for the proposition that all unearned income is immoral and unjust.
Notes
1 Ashley, op. cit., vol. i. pt. ii. p. 411; Weber, Handelsgesellschaften, pp. 111-14.
1 Ashley, op. cit., vol. i. pt. ii. pp. 412-14.
1 Greg. Decr., iv. 19, 7.
2 II. ii. 78, 2, ad. 5.
3 Brants, op. cit., p. 167.
4 Consilia, ii. 55; also Ambrosius de Vignate, De
Usuris, i. 62; Biel, Op. cit., IV. xv. 11.
5 Op. cit., p. 172.
1 Summa Astesana, iii. 12.
2 De Usuris, i. 19.
3 De Societatibus, i. 130.
4 De Societatibus, i. 130.
5 Ibid.
1 Op. cit., IV. xv. 11. Lecky attributed the invention of the trinus contractus to the Jesuits—who were only founded in 1534 (History of Rationalism, vol. ii. p. 267).
2 Ashley, op. cit., vol. i. pt. ii. pp. 439 et seqq.;
Cleary, op. cit., pp. 126 et seqq.
1 Ashley, op. cit., vol. i. pt. ii. pp. 421-3; Palgrave, Dictionary of Political Economy, art. ‘Bottomry’; Cunningham, Growth of English Industry and Commerce, vol i. p. 257.
1 See Rambaud, op. cit., p. 59.