In his book, Debt: The First 5,000 Years, anthropologist David Graeber traces the history of debt and its relationship with and effect on human societies. Among other things, Graeber focuses on the development of how the idea of “debt” is used today in explaining moral relationships, which he claims is a historical anomaly.

Palmer writes that the high-mortality rates of the black death threatened to destabilize credit, and thus the government sought to shore up the enforcement of debt obligations lest the “wealthy would shirk their debts.” (p. 59) It is interesting to me how penal bonds were one of the mechanisms used to help “stabilize credit relations and to reinforce commercial and social relationships.” (p. 63). These penal bonds carried penalties of default worth double the value of the underlying debt. Although Palmer does not directly address this point, and I am unsure whether my question is actually researchable, to what extent could a sense of morals have driven this development?

-- JulianAzran - 25 Sep 2014

A penal bond “with conditional defeasance endorsed on the back of the bond” was an innovation of 14th century England (first appearing sometime between the 1340’s and 1350’s) which “unified a bond with a separate indenture of defeasance into a single document,” with the aim of “provid[ing] a penalty for failure to perform a contract.” [1] The penal bond has been characterized as the dominant method for “framing substantial contracts in the later medieval and early modern periods.” [2] What is unusual about the penal bond is that it upended the usual method of setting forth a contract (it has been characterized by Simpson as ‘topsy-turvy’ because of this quality), in that it had the bond (the “written promise to pay a sum of money,” – the penalty) written on the front of the document, and the condition, whose performance by the obliged party would render the bond void, on the back of the document. [3] Legal proceedings to enforce the agreement were not brought as an action on the agreement (the condition on the back), but as “action[s] in debt on the bond.” [4]

The penal bond, although innovative, was not the first English attempt to attach “fixed, monetary penalties” for failure to perform on an agreement. [5] Penalty clauses, frequently used and well-known in Roman law, were imported into England through “the teaching of Roman law, the activities of the church courts and ecclesiastical officials, and trade with the continent.” [6] Penalty clauses make their first appearance in England as straightforward contractual provisions in written agreements. [7] In these early contracts, the agreement itself set out the respective obligations of the parties, and the penalty clause set forth a penalty for non-performance. [8] What was different about the penal bond was that “the obligation was the penalty and performance of the agreement discharged the obligation.” [9]

While seemingly more complicated, the rise of penal bonds was facilitated by the prevalence of penalty recognizances. [10] Recognizances concerning debt appear in the rolls at the beginning of the 12th century, and increased in use from there, evidently out of their efficacy to creditors. [11] Debtors had limited defenses to recognizances (they could not, for example, wage their law or appeal to a jury to prove payment) – they either had to produce a written acquittance or prove payment “recorded on the rolls with his recognizance.” [12] Recognizances “could include a penalty for non-payment.” [13] The recognizance “could itself be the penalty, defeasible by the performance of a side agreement,” this side agreement sometimes enrolled with the recognizance. [14]

In the 1340/50’s, when the penal bond first emerged, a number of methods for imposing a penalty for nonperformance were at the disposal of private parties: “agreements with penalty clauses, penalty recognizances, bonds with separate indentures of defeasance and similar letters of account, and bonds put in escrow.” [15] Penal bonds, however, may have had a number of advantages over its contemporaries:

(1) Putting the acquittance on the reverse of the bond itself “prevented plaintiff [creditor] from pleading that the conditional acquittance or indenture of defeasance [the language which spelled out the condition upon which the obligation to pay the stated sum on the front of the bond was voided] produced by defendant was not plaintiff’s deed.” [16] (2) “[M]aking the acquittance part of the bond prevented defendants [debtors] from alleging or producing strange conditions in defeasance of the bond.” [17] (3) Compurgators were excluded. [18] (4) “Debtors could plead payment without a written acquittance.” [19] (5) “[C]reditors could not take advantage of the conditions of defeasance to avoid being repaid purposely to double the debt.” [20] (6) Courts were willing “to enforce the penalty to the fullest,” but were sensitive to offsets from payments that had been made. [21] (7) Penal bonds “could be made anywhere and without prior approval of royal officials.” [22]

Although popular when introduced, the penal bond did not immediately replace the other methods for affixing a penalty for nonperformance of an agreement, and would not do so until well into the fifteenth century. [23]

It has been argued, despite the above mentioned advantages a penal bond might contain as against the competing forms, that there was no sound legal reason to prefer one method of affixing a penalty over another, and that it was really the role of custom and trade practice that led to the penal bond becoming ascendant. [24] Palmer, on the other hand, argued that “[t]he morality that allowed the extension of penal bonds after the Black Death . . . was part of the governmental concern to preserve traditional society by harshly coercing the upper classes to abide by their obligations.” [25]

Even if Palmer’s historical point about the implicit motivations driving the enforcement of penal bonds, penal bonds were not unique in their imposition of penalties, and other penalty provisions and schemes were routinely enforced. It is, therefore, impossible to say that moral motivations, solely or even primarily, pushed the move towards penal bonds and away from other methods of securing penalties for nonperformance, although it may well have been the case that moral disapprobation of those who wished to ‘shirk’ the debt obligations they had assumed was a motivating factor behind the routine enforcement of all types of penalty provisions.

[1] Biancalana, Joseph, “The Development of the Penal Bond with Conditional Defeasance,” 26 J. Legal His. 103 at 17, 1 (in the SSRN version) (2005). Robert Palmer in English Law in the Age of the Black Death, 1348-1381 (1993) asserts that the earliest penal bond with endorsed conditional defeasance did not appear until 1357 (at 85), contrary to Biancalana, who seems to suggest 1348 as the appropriate date. [2] Id. at 1, internal quotation and citation omitted. [3] Id. at 1. [4] Id. [5] Id. at 2. [6] Id. [7] Id. at 5. [8] Id. [9] Id. [10] Id. at 6. A recognizance is, generally speaking, “an obligation of record entered into before a court or magistrate requiring the performance of an act (as appearance in court) usually under penalty of a money forfeiture” (Merriam-Webster, “recognizance”). [11] Id. at 7. [12] Id. [13] Id. at 10. [14] Id. [15] Id. at 17. [16] Id. [17] Id. [19] Robert Palmer, English Law in the Age of the Black Death, 1348-1381 (1993) at 89. [20] Id. [21] Id. [22] Id. [23] Biancalana, at 20--22. [24] Id. at 25. [25] Palmer, at 91.

-- JimParks - 26 Sep 2014