Laesio Enormis

Catholic social teaching from the Middle Ages right up to the modern day has stressed the economic concept of equality in contracts, which means that privately agreed upon contracts or transactions must conform to an objective standard of justice which is independent of the arrangement agreed upon by the parties. Since the advent of the modern period, however, the cornerstone of classic liberal economics has been the absolute autonomy of parties when entering into a contract. This autonomy means that the "just price" or "just wage" in the Catholic sense of the terms does not objectively exist; what is "just" is equivalent to what is agreed upon by the parties, even if one side in the transaction enjoys benefits extremely disproportionate to the other. Catholic Tradition, however, has never sanctioned such a concept. Our Tradition affirms the existence of just prices and just wages and summons all individuals to exercise the virtue of justice in economic transactions. In this article, we will examine the medieval concept of laesio enormis and see how Christendom attempted to address the issue of inequality in commercial exchanges.

The Source and Text of the Laesio Enormis Principle

The principle of laesio enormis ("enormous damage") was a legal principle that allowed for legal redress in cases where a legal contract was excessively disparate in favor of one side or the other. As a legal concept, it first enters western tradition with the Corpus Iuris Civilis of the Emperor Justinian, promulgated in a series of edicts between 529 and 534. The famous law code of Justinian was meant to be a compilation and reconciliation of all the laws of Rome issued from the time of Hadrian (117-138) up to his own day. The principle of laesio enormis is mentioned only briefly in the Code, in headings 4.44.2 and 4.44.8, concerning sale of property. The well-known and briefer formulation of the principle in 4.44.2 is as follows:

Rem maioris pretii si tu vel pater tuus minoris pretii distraxit, humanum est, ut vel pretium te restituente emtporibus fundum venditum recipias auctoritate intercedente iudicis, vel, si emptor elegerit, quod deest iusto pretio recipies. Minus autem pretium esse videtur, si nec dimidia pars veri pretii soluta sit.

A rough rendering into idiomatic English reads:

"If either you or your father adjust the thing to be sold to either a higher or lower price, it is just that that you should either receive from a judge a warrant of protest against restoring the price to the buyer, or if the buyer chooses, that he receive the just price which he lost. But if the price is seen to be less, if it is not half the true price, it may be unchanged."

The phrasing is clumsy, and the origin of the passage is debated. Many date this principle from the time of Diocletian, who attempted to manipulate the Roman economy on a scale unparalleled in the ancient world. Others, however, point to the fact that there is no evidence that Diocletian ever modified private contracts, and the principle does not appear in the Codex Theodosianus in the late 4th century. Some propose the principle has its foundation in Justinian himself, while still others believe it is a Justinianic reformulation of a principle originally dating from the time of Dioceltian; this would not be implausible, given the somewhat jumbled nature of the Latin that suggests a compilation of parts dating from different centuries.

Regardless of the ultimate source of the principle, it is believed that Justinian included it in his code as a means of protecting the rural poor against  urban capitalists who sought to buy up property far below its real value. The historical locus for this prescription was most likely the series of poor harvests in the early 530's, which devastated the rural areas of the Empire and would have given occasion for the exploitation of the rural poor by urban land speculators. The inclusion of the principle of laesio enormis would have thus represented an amendment Justinian's Codex included in response to a specific crisis. [1] Whether or not laesio enormis was initially meant to be a general legal principle or an ad hoc measure to deal with a particular state of affairs is not certain, and the principle was invoked with any regularity until the 9th and 10th centuries, either in Byzantium or the West.

Application of Laesio Enormis

In the principle of laesio enormis as found in the CIC 4.44.2, the Roman Emperor allows the vendor to rescind the contract if he has sold a tract of land for less than half its true value; the purchaser, however, is given the opportunity to avoid this scenario by making up the true value. The basic moral premise at work here is that a contract can be so one-sided, so disproportionately in favor of one side or the other that legal intervention is required. Pagan Rome had tolerated a total autonomy in private contracts, parallel though not identical to similar ideas in classical liberalism. With the advent of the Christian order, however, the latter Roman emperors and jurists sought to introduce the element of morality into economic interactions. This was the idea of aequalitas contractum, contractual equality, whereby an economic transaction had to be not only agreeable to the two parties, but also conform to an objective standard of morality.

Because laesio enormis was a fundamentally Christian concept meant to ensure justice in financial arrangements, it is not surprising that the application of laesio enormis grew with the expansion of Christendom. The principle was whole heartedly accepted by medieval jurists and expanded to such a degree that became a general cornerstone of medieval contract law. Between the 10th and 13th centuries it was extended beyond land sales to apply also to houses and even movable goods; later it was extended still to rents, hiring, compromises, exchanges and even donations, so that by the high middle ages, in the West and among the Byzantines, almost every economic exchange was subject to the principle of laesio enormis.

There were various ways of applying the principle in concrete situations, some favoring purchaser, some the seller; different legal codes offered various means of redress. The fundamental difficulty in applying the law was in determining what exactly was the iustum pretium, the just price, of a good, and the related problem of how much was a "just profit." In Byzantium, an edict of Patriarch Nicephorus I (806-815) attempts to define a just profit at a flat 10%. In the West a fixed just price or just profit were more or likely defined on a margin approach in which any price between an accepted low and high price was deemed just.

In some rare cases, an extremely disproportionate purchase could invalidate the whole contract. The Byzantine Emperor Romanus I issued what is perhaps the strictest application of the principle of laesio enormis in an edict of 934 issued in the wake of a famine, stipulating that if the sale price of land acquired after the famine was less than half of the just value, the sale was annulled and the buyer lost the money he had paid. If the sale price was not that low but still caused great harm to the seller, the sale was still annulled but the buyer had a right to recover his money. [2] Laesio enormis also extended to labor-wage negotiations in Byzantium during the same period, annulling them if the wages were lower than the just wage, but allowing them to remain if they were higher. In France and Germany the 1/2 principle was modified, so for example, a 5/12 difference was required for laesio enormis to be invoked.

Despite its broad application, there were some transactions to which laesio enormis did not apply. The principle was never applied when the object in question was of such an uncertain nature as make fixing a fair price or value impossible (note the implication that it therefore was possible to fix a fair price for most other goods). Examples of transactions not subject to laesio enormis were sales of a future crop or catch, chance or future property, an inheritance, or anything of a speculative nature. Beginning in Holland in the 1500's, insurance contracts and insurance premiums were also exempt [3].

Yet, barring the exemptions outlined above, since most transactions in the Middle Ages were either of land or movable property, it is safe to say that laesio enormis was a generally accepted legal principle from France to Byzantium, though the exact application nevertheless varied from region to region.

Practical Difficulties Implementing Laesio Enormis

The multiplicity of ways in which laesio enormis could be applied and the many questions that arise over the concept of the just price led some medieval jurists to refer to the principle as a hydra. For example, the dictum of "half the true price" can lead to a quandary. Legal historian Reinhard Zimmermann in his history of Roman legal tradition explains it this way:

"Let us assume the true value of the object sold to be 100. The vendor would then enjoy the protection of the law if the purchase price was 49 or less, the purchaser only if it was 201 or more. Thus, on this construction, the purchaser seems to lose out, for from a purely arithmetical view the margin of what the law still expects him to tolerate before he can avail himself of a remedy is exactly double of what is laid down in the case of the vendor: the vendor can rescind if he has been overcharged by more than 50, whilst the purchaser must have been overcharged by at least 100. This is the reason why the glossators and commentators tended to reject the purely geometrical method (as they called it) of assessment if the purchaser had suffered laesio enormis and favored an arithmetical calculation: the purchaser should be entitled to remedy if he had to pay more than the true value plus half, i.e., in our example more than 150. On purely logical grounds, neither of these approaches can be faulted, and thus the dispute was never conclusively resolved." [4]

The fundamental problem in making laesio enormis workable as a legal principle was the question of what is the iustum pretium? If the workability of laesio enormis presupposes that there is a just price that can be deviated from, then it follows that the principle depends on finding a workable solution to determine the iustum pretium.

The principle of the just price was foundational to all medieval thinking on economics and has been incorporated into the Catholic Church's social teaching. St. Thomas Aquinas offers a succinct summary of the just price principle in the Summa Theologica. In answer to the question, "Is it lawful to sell a thing for more than it is worth?", Aquinas answers in the negative, offering this explanation in defense of the idea of the iustum pretium:

"We may speak of buying and selling in two ways. First, as considered in themselves, and from this point of view, buying and selling seem to be established for the common advantage of both parties, one of whom requires that which belongs to the other, and vice versa, as the Philosopher states (Polit. i, 3). Now whatever is established for the common advantage, should not be more of a burden to one party than to another, and consequently all contracts between them should observe equality of thing and thing. Again, the quality of a thing that comes into human use is measured by the price given for it, for which purpose money was invented, as stated in Ethic. v, 5. Therefore if either the price exceed the quantity of the thing's worth, or, conversely, the thing exceed the price, there is no longer the equality of justice: and consequently, to sell a thing for more than its worth, or to buy it for less than its worth, is in itself unjust and unlawful." [5]

Exactly how the Scholastics computed the iustum pretium has been a matter of considerable debate. Some Austro-Libertarian commentators have attempted to argue that the iustum pretium is nothing other than the free market price, and that when the Scholastics argue that it is unlawful to sell something for more than the just price, they are in fact stating that it is wrong to sell something above market price. The argument is woefully circular, however, for the market price, in classical liberalism, is nothing other than what an object is sold for, so to speak of selling something above or below market price would not make any sense. The sale price would always be the market price.

Thus, the Austro-Libertarian interpretation of the just price views proposes an ultimately subjective determination arrived at by some kind of market consensus, not an immutable and intrinsic value - a kind of "common estimation" of the things value under ideal market conditions.

Besides being circular reasoning, this explanation is also not faithful to what we know about medieval economics. Identifying the just price with the market price is much too simplistic. It is true that the just price was not viewed as an intrinsic, immutable value, but it is also true that much more was taken into account when determining the just price other than market consensus. Determining just price, according to Catholic economic historian, Heinrich Pesch, S.J., involved "a combination of 'subjective' and 'objective' factors, as these exert decisive influence on the price formation", including "the qualitative capacity of the goods for satisfying human wants, work and costs involved in producing and making the goods available," and "the general [objective] value estimation and the officially set price." [6] Pesch's comments about the "officially set price" calls to mind the reality that in the medieval world, high prices were often capped by the prince while low prices were fixed by guilds. While prices were not fixed per se, objective ranges were determined by law and custom. Thus, market price alone could never in and of itself be a certain criterion for determining just price.

The point is that whether or not jurists and theologians agreed on where the just price was located, they all agreed that such a thing existed. The problem was that prices exist on a continuum, and like any continuum, it is difficult to identify one specific cut off point where one has crossed a line, because there are no clearly identifiable lines. When princes or bishops attempted to draw lines, other questions and inequalities often arose.

The modern critique of laesio enormis, then, becomes that it is practically unworkable as a legal principle because there are too many complexities involved in determining the iustum pretium. A broader criticism from those who follow laissez-faire liberalism is that the very concept of just price implies an appeal to standards other than the market, such as the much maligned guilds. To accept laesio enormis is to necessarily accept an external limitation placed upon free negotiation, and an admission that negotiation must appeal to something beyond market forces. [7]

It is not surprising, therefore, that laesio enormis was gradually abandoned as the West moved from a medieval economy to a modern, capitalist economy. Material progress, however, was not solely responsible; really it was a philosophical shift in which personal or individualist ethics gained supremacy over metaphysical or  "natural law" based ethics. Once this transition began to happen in earnest, laesio enormis was dead. [8] In fact, it would not going too far to suggest that the whole evolution of the modern economy is based on the abandonment of the just price ideal. Consider Thomas Hobbes, who in his 1651 magnum opus Leviathan wrote that "the value of all things contracted for, is measured by the appetite of the contractors: and therefore the just value is that which they be contented to give." [9] Here we see the dawning of the modern capitalist concept of the equivalence of the just price with the market price.

By the 19th century, laesio enormis was a dead letter in most European countries, although it continued to play an important part in the legal systems of Germany and the Austrio-Hungarian Empire, and later Austria, right into the 20th century. To this day, most scholarly writing on the principle of laesio enormis has been conducted by German speaking scholars. Even though laesio enormis statutes remained on the books well into the 20th century, they were rarely invoked, considered a dead letter, and were the butt of jokes in the legal community as an example of unwieldy legal dilemmas that ensue when morality is introduced into economic transactions and sanctioned by law.

Laesio Enormis as a Moral Principle

It would be an interesting argument to try to look for ways to prove the legal practicability of laesio enormis in the modern day. But leaving aside the question of the legal complexities laesio enormis creates, perhaps it is more helpful today to consider laesio enormis as a moral principle. This is really nothing new; Church Tradition has always identified an extremely unbalanced economic transaction as a form of theft - for example, selling a bottle of water to a man dying of thirst for $2,000. The Catechism identifies economic exploitation specifically as a form of theft:

Even if it does not contradict the provisions of civil law, any form of unjustly taking and keeping the property of others is against the seventh commandment – for instance, forcing up prices by taking advantage of the ignorance or hardship of another” [10].

Note that the Catechism states that this form of economic exploitation remains sinful and immoral "even if it does not contradict the provisions of civil law." This supports the position that the concept of the just price and the economic agent's obligation to honor it remain morally binding despite the fact that current civil law does not recognize any right to redress such as embodied in the laesio enormis provisions of medieval law. Whether or not such rights are recognized by law, the Catholic has a moral obligation to sell his goods at a just price and to pay a just price for things he purchases, even if this is not the same as the asking price (an unjust financial arrangement does not become just simply because the two parties agree to it).

To this end, a familiarity with the Church's social teaching as found in such documents as Rerum Novarum, Quadrigesimo Anno, Centesimus Annus and Caritas in Veritate is absolutely necessary. Where the power of the law has failed to adequately define iustum pretium, the well-formed conscience of the Catholic steeped in the Church's tradition can succeed, even if for the time being the successes are merely on the moral or ideological level and not on the legal one.

Even so, the principles of laesio enormis are finding their way back into various legal codes. Some have even described this as a  'renaissance' of laesio enormis, brought about by modern movements for equality in exchange and consumer protection. Throughout the 1970's Germany and Austria introduced a series of laws that allowed contracts to be entirely voided if what has been promised exceeds the value of performance by 100%. The Louisiana Civil Code Article 2589 is entitled "Rescission for lesion beyond moiety" and states that the seller may rescind the sale of an immovable when the price, or the property it is exchanged for, is less than one half of the fair market value.

A legal reintroduction of the principles of laesio enormis may be possible and yet avoid the complexities of medieval custom if the determining factor in identifying "lesion beyond moiety" is not price discrepancy, but evidence of exploitation. From a purely legal standpoint, it is much easier to prove exploitation of one party (either due to ignorance, hardship, etc) rather than appealing to a just price. In places where legal provisions similar to the old laesio enormis laws have made headway in the modern age, they have done so by making the presence of exploitation the determinant. In our current situation in this country, appeals to iustum pretium, as morally sound as they might be, will not have as much legal force as evidence of exploitation.

We mentioned above the the iustum pretium exists on a continuum. There are many factors that go into determining a just price, and many times a specific just price cannot be indicated, but the fact remains that the just price or a just range of prices do in fact exist. The best way to determine what is and is not a deviation from the just price might be another legal formula famously coined by Supreme Court Justice Potter Stewart in 1964 when attempting to define obscenity: "I know it when I see it." [11] It is difficult to precisely define at any point along a continuum when a price becomes unjust and a case of laesio enormis occurs. Yet, when we hear stories of price gougers selling hotels to Hurricane Katrina victims for $1,500 a room, or oil companies offering elderly couples a $200 check to drill on their land when the rights are actually worth six digits, or when gasoline is sold for $8.00 per gallon in the midst of a natural disaster, our sensibilities and our natural sense of justice tell us that an offense has been committed, that the iustum pretium is not being honored. We could not always say what the just price is, but we would indignantly protest that it was certainly not $8.00 per gallon. You know it when you see it. This principle is already used, not only in determining obscenity, but in also in cases of blight. It would not be impossible to utilize this principle, in conjunction with the "exploitation" determinant, in creating a legal framework in which cases of extreme disproportionality in purchasing might be examined.


Notes

[1] Zimmermann, Reinhard, The Law of Obligations: Roman Foundations of the Civilian Tradition (New York: Oxford University Press, 1996), 261
[2] Laiou, Angeliki, The Economic History of Byzantium, vol. 3 (Washington D.C.: Dunbarton Oaks, 2002), 1133
[3] Van Niekirk, J.P. The Development of the Principles of Insurance Law in the Netherlands: From 1500 to 1800, vol. 2 (Hilversum: Uitgeverij Verloren, 1998), 734
[4] Zimmerman, 263
[5] St. Thomas Aquinas, STh, II-II, Q. 77 Art. 1
[6] Ederer, Rupert. Heinrich Pesch on Solidarist Economics, Excerpts from the Lehrbuch de Nationalokonomie (Lanham, MD: University Press of America, 1998), 218
[7]
Laiou, 1133
[8] Zimmermann, 267
[9] Leviathan, Part 1, Chap 15
[10] CCC 2409
[11] Jacobellis v. Ohio (1964)