A consuming question
January 10, 2016 § 20 Comments
“Lending” is a contract where the borrower is personally on the hook for return of the principal amount of the loan to the lender. This is traditionally called a “mutuum”.
St. Thomas Aquinas defines a loan as a contract in which “the borrower holds the money at his own risk and is bound to pay it all back”: that is, the lender has recourse to the borrower himself to recover the loaned amount.
Today this kind of loan is called a “full recourse loan”, as contrasted to a “non recourse loan”1. So usury is charging interest on a full recourse loan.
A personally guaranteed loan or mutuum is a loan which is ‘consumed in its use’ — not necessarily in the sense that the proceeds are literally destroyed, but in the sense that once they are used in the manner authorized by the contract they are no longer in the possession of either the borrower or lender. The lender’s claim is against the personal IOU of the borrower, not confined to some specified property which either the borrower or lender possesses.
The final paragraph has been added to the Usury FAQ, to get the equivalence of ‘personal guarantee’ and ‘consumed in its use’ in defining a mutuum loan out there up front. Plenty of FAQ skimmers seem to miss the fact that a mutuum authorizes the consumption – in the pertinent sense – of the loan proceeds, and that this is precisely why the lender’s claim rests in the personal IOU of the borrower not in any particular property. I haven’t updated the e-book.