Contractum trinius
Encyclopedia
A contractum trinius was a set of contracts devised by Europe
an bankers and merchants in the Middle Ages
as a method of circumventing canon law edicts prohibiting usury
. At the time, most Christian nations heavily incorporated scripture into their laws, and as such it was illegal for any person to charge interest
on a loan of money.
To get around this, a set of three separate contracts were presented to someone seeking a loan: an investment
, a sale of profit and an insurance
contract. Each of these contracts were permissible under Church
law, but together replicated the effect of an interest-bearing loan.
The way this procedure worked was as follows: The lender would invest a sum equal to the amount of financing required by the borrower for one year. The lender would then purchase insurance for the investment from the borrower, and finally sell to the borrower the right to any profit made over a pre-arranged percentage of the investment. This system replicated the effects of a loan with any interest rate agreed between the two, yet provided protection to the lender against default
, while the borrower remained under the protection of the law when it came to collection of the money by threats or force (loan shark
ing).
The Church proved utterly unable to legislate against the contractum trinius, and the idea quickly spread to merchants and bankers across Christendom
. It was accepted by writers such as Gabriel Biel
; it helped in part to improve public perception of the practice of usury by moneylenders, and ultimately the doctrine was rewritten by the School of Salamanca
, and the ban on interest-bearing loans overturned in many Protestant countries, starting with England
by Henry VIII
.
Some Muslims are of the view that the present practice of Islamic banking
relies on devices similar to the contractum trinius as a means of working around a ban of riba
(usury) in religious scripture.
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an bankers and merchants in the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...
as a method of circumventing canon law edicts prohibiting usury
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
. At the time, most Christian nations heavily incorporated scripture into their laws, and as such it was illegal for any person to charge interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
on a loan of money.
To get around this, a set of three separate contracts were presented to someone seeking a loan: an investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
, a sale of profit and an insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
contract. Each of these contracts were permissible under Church
Catholicism
Catholicism is a broad term for the body of the Catholic faith, its theologies and doctrines, its liturgical, ethical, spiritual, and behavioral characteristics, as well as a religious people as a whole....
law, but together replicated the effect of an interest-bearing loan.
The way this procedure worked was as follows: The lender would invest a sum equal to the amount of financing required by the borrower for one year. The lender would then purchase insurance for the investment from the borrower, and finally sell to the borrower the right to any profit made over a pre-arranged percentage of the investment. This system replicated the effects of a loan with any interest rate agreed between the two, yet provided protection to the lender against default
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
, while the borrower remained under the protection of the law when it came to collection of the money by threats or force (loan shark
Loan shark
A loan shark is a person or body that offers unsecured loans at illegally high interest rates to individuals, often enforcing repayment by blackmail or threats of violence....
ing).
The Church proved utterly unable to legislate against the contractum trinius, and the idea quickly spread to merchants and bankers across Christendom
Christendom
Christendom, or the Christian world, has several meanings. In a cultural sense it refers to the worldwide community of Christians, adherents of Christianity...
. It was accepted by writers such as Gabriel Biel
Gabriel Biel
Gabriel Biel was a German scholastic philosopher and member of the Brethren of the Common Life born in Speyer. In 1432 he was ordained to the priesthood and entered Heidelberg University. He succeeded academically and became an instructor in the faculty of the arts.- Life :His studies were pursued...
; it helped in part to improve public perception of the practice of usury by moneylenders, and ultimately the doctrine was rewritten by the School of Salamanca
School of Salamanca
The School of Salamanca is the renaissance of thought in diverse intellectual areas by Spanish and Portuguese theologians, rooted in the intellectual and pedagogical work of Francisco de Vitoria...
, and the ban on interest-bearing loans overturned in many Protestant countries, starting with England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
by Henry VIII
Henry VIII of England
Henry VIII was King of England from 21 April 1509 until his death. He was Lord, and later King, of Ireland, as well as continuing the nominal claim by the English monarchs to the Kingdom of France...
.
Some Muslims are of the view that the present practice of Islamic banking
Islamic banking
Islamic banking is banking or banking activity that is consistent with the principles of Islamic law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money...
relies on devices similar to the contractum trinius as a means of working around a ban of riba
Riba
Riba means one of the senses of "usury" . Riba is forbidden in Islamic economic jurisprudence fiqh and considered as a major sin...
(usury) in religious scripture.