DEBT, LATE PAYMENTS, INTEREST AND LEGAL WEAPONRY : THERE IS NO MERCY IN COMMERCE

OESTERHOUDT STRIKES

Nobody likes to default. It is a dirty word. It means that you failed to uphold your promises. But few people worry about staining their honor when they default. Rather, they worry about the massively stressful legal process that will soon befall them. Soon, they will receive harassing telephone calls, summonses, judgments, late payment assessments, lien notices and garnishment orders. They will experience firsthand the whole legal arsenal with which the law arms creditors. Worse, their creditors will call them “irresponsible people who do not consider the rights of others,” adding a wholly unnecessary moral dimension to purely legal questions. All for what? Because they ran out of money. Life threw them a curve; they couldn’t afford the payments anymore.

Contract law fascinates me because it allows private parties to create private law. Contrary to popular belief, private contracts do not directly implicate the State; the State only steps in to enforce them when deals go awry. In large part, however, contracts represent quintessentially private ordering. They allow private individuals to make their own, compulsory rules in order to obtain some material benefit from others. In theory, parties to a contract are equal. One party possesses something the other wants; each side gains exactly as much as the other loses, and vice versa. Yet this “equality” in bargaining power only exists in law textbooks. In modern commerce, most transactions involve gross disparities in power. One party (usually a corporation) has something others desperately need, leaving them to accept difficult terms in order to get it. Often, these difficult terms include high prices and an agreement to waive a jury trial if something goes wrong. More often, these difficult terms impose crushing penalties, fees and other procedural handicaps that make it hard—if not impossible—for the party to prevail if there is a dispute. In practice, contract law allows powerful parties to impose their will on those who wish to acquire things they possess—and it is all legal.

There is nothing surprising about this. When human beings deal privately with one another, they always attempt to secure maximum advantages for themselves while assuming minimum risk. If one party has something the other needs, he can leverage that need to his advantage by negotiating extremely favorable terms. Of course, the same party could not secure extremely favorable terms if the buyer could go to a different seller. But in many commercial settings, individual buyers must obtain their goods through much more powerful sellers. When they do not have enough money to buy things outright, they must seek financing; and debt places them at a consummate disadvantage. In our society, very few people have enough money to buy all the things they need. They are stretched to the limit. In many cases, even “honest, hard-working people” have no choice but to take out loans for necessary items. In so doing, they expose themselves to creditors’ virtually unbridled legal power. Debtors are glorified beggars; and creditors have immense power over them. In debt relationships, contract law gets even uglier than usual. Yet debt is unavoidable for most people. In that sense, most people find themselves in an extremely unfavorable legal position. They sign contracts that subject them to brutal sanctions if they miss payments. They need the money. They take their chances that their income stream will remain intact to make their payments.

Many debtors make their payments. But life is not so kind to others. Perhaps a breadwinner dies or suffers an injury that forecloses him from work. Perhaps a debtor loses his job. Perhaps a debtor moves and bills get lost in the mail. Perhaps intervening expenses arise that wipe out a debtor’s savings, making it impossible to repay existing obligations. Perhaps a debtor has children who drain his income more than he could have imagined when he took out the loan. In America, most people cling desperately to financial stability. Their money is generally spoken for the moment they make it: rent; mortgage; taxes; clothing; food; car note; gas; tuition; student loan; credit card bill; utilities; medical expenses; dental expenses; the list goes on until the last penny is gone. They calculate their expenses to match their income stream. If there is an interruption, the entire financial structure unravels. And when a creditor does not receive a bargained-for, contractually-mandated payment from the unfortunate debtor, the creditor’s legal arsenal grinds into action. At these moments, contract law shows its true, pitiless colors. When creditors assert rights, somebody starts suffering.

I always found it perversely entertaining when creditors informed me that I owed “late fees” and “interest payments” if I failed to make a scheduled payment. This is standard contractual stuff. Loan contracts say that you must pay so-and-so amount on so-and-so date every month, plus interest (which may be raised at will and added to the principal). Then they say you must pay a special “extra fee” if you miss a payment. Why do creditors do this? If a person fails to make a payment, doesn’t that lead a reasonable person to conclude that he did not have the money to pay it? If that is true, how can a creditor expect a person to pay the payment he could not afford and extra fees? If a person does not have $400, he cannot pay $400 plus $250 in fees. In my view, this is sadism. It is like kicking people when they are down. Still, the law squarely favors the creditor in this situation. In the law’s view, you bargained for all the terms in the contract, no matter how counterintuitive or cruel. When you default, you entitle the creditor to apply all those terms against you, no matter how apparently unfair or oppressive. If the contract says the creditor can charge late fees and interest on your late payment, he can. It does not matter that you are broke. It does matter that you have children to feed. It is the creditor’s right. And the law enforces private contractual rights. It does not query whether they are oppressive or even ludicrous in practical effect. In short, contract law allows superior parties to exercise their rights over those who default, no matter how shameless it may be to do so. Those rights include the right to charge all the fees they defined in the contract, as well as obtaining a judgment for the full loan amount now. Once they obtain the judgment, they can legally seize all your cash and property to “satisfy” it, the same way a zookeeper “satisfies” a hungry lion with raw meat.

From a legal perspective, this all makes perfect sense: The debtor defaulted; he owes the amount; the debtor must pay. Yet from a practical and humanitarian perspective, this result is perverse. If a debtor cannot pay a monthly payment, how can a creditor reasonably believe that he can pay the entire loan amount now? If a person does not have money to pay $400, he obviously does not have money to pay $125,000, plus interest, fees and attorney’s costs. It defies imagination to think that the creditor could reasonably make these demands. But they do—all the time. Why? In my view, it is because the law gives creditors a smug feeling of total entitlement. Creditors believe that, because the law supports their position, they can do whatever the contract says they can. No matter how absurd the demand, the law permits it; thus the creditor feels he can make the demand in good conscience. It may be utterly impossible to wring $125,000 from a penniless debtor, but it makes the creditor feel good to crush him with legal process simply because he has the right to crush him. When people have commercial rights, they exercise them to the fullest. After all, rights are about power; when a person has power, he will exercise it. There is something distinctly human about rights. When people feel entitled to do something, they feel much better about doing it than they would if there were no such official imprimatur. The law gives exactly such an official imprimatur to the exercise of private commercial power. To answer the question “why” a creditor charges late fees on a debtor who obviously has no money to pay them, we must simply cite the smugness that flows from legal rights: “They do it because they can.”

Some may call this cynical nonsense. But I challenge anyone to provide me an example of a creditor who chooses not to exercise power over a debtor when the law permits. Do banks show mercy? Do commercial actors forgive? Here, we see that forgiveness and mercy necessarily involve rights. Specifically, to forgive someone, you must first have the right to punish him. Those who forgive have the right to visit hardship and pain on those who aggrieve them. Yet they forgo exercising their right because they pity their debtors, or at least understand that it would serve no purpose to punish them. Such values are entirely inconsistent both with the values of modern commerce and human nature. In commerce, people want to win profits. If exercising commercial rights allows them to win profits, they will not “forgive” those from whom they could rightfully obtain money or property. And human beings like to exercise power over their fellow men. It is in their nature to dominate others. If rights make it easier to tyrannize and dominate others, human beings will not forgo the great satisfaction they experience when they exercise their rights. That is just the way we are.

Christ may have admonished us to “forgive our trespassers.” But Christ never lent money. Nor did he write finance contracts with capitalized interest clauses. In fact, we can reasonably posit that Christ hated debt relationships and commerce in general because he overturned the moneylenders’ tables and "cast them out." Matthew 21:12-14.

In sum, debt relationships bring out the worst in both people and the law. Although legal theorists praise contract law because it allows “responsible people” to “prudently allocate risk and make sensible rules for themselves,” modern commerce belies the contention that there is equality between buyers and sellers. Modern commerce provides plentiful opportunities for strong parties to brutalize weaker ones because the law permits it. This is the dark side of legal rights. When human beings feel entitled to visit misery on others, they rarely forgo the chance. When the natural human impulse to dominate combines with the commercial impulse to win profits, the result is grim. Put simply, debtors do not stand a chance. In America, at least, they find themselves between a rock and a hard place: They must borrow money to buy necessities, to care for their health and to educate themselves. In so doing, they subject themselves to creditors’ “legal rights.” Those “rights” enable creditors to ruin debtors’ financial lives if there is any interruption at all in their tenuous income stream. It is not a pleasant way to live. And it never feels good to know that your entire life hangs on your ability to make regular payments, especially when experience confirms that life circumstances can change overnight. Today, you may be healthy and employed. Tomorrow, you may be paralyzed or laid off. But that means nothing to a creditor; he has his rights and you have your obligations. Unforeseen tragedy or disruption has no effect on his right to sink you. And he will exercise that right if he can.

True, our economy would not work if creditors forgave their debtors all the time. A “merciful economy” is a contradiction in terms. Commerce is warlike; warriors do not spare their foes or let their enemies escape. But that does not make our economy thematically appealing. In my view, forgiveness and mercy are positive qualities. Does it not say something about our society that such positive qualities simply do not belong in commercial life? To be blunt, we are engaged in a death struggle to fulfill obligations. When the law allows, we like to dominate our neighbors. We die if we fail to make payments. The law allows us our creditors to brutalize us, and it allows us to die. Guilt has nothing to do with it. No, contract law knows only power and survival, not conscience.

Perhaps the lesson is this: When possible, be a creditor. It is always better to be on top; and it is always easier to have the law on your side.

JUSTICE ALITO REAFFIRMS HIS COMMITMENT TO SENSIBLE AMERICAN CRIMINAL LAW

WISDOM FROM OUR LEARNED SUPREME COURT JURISTS

By : Mr. Samuel A. Alito, Associate Justice, United States Supreme Court (2006-present) ; Former Circuit Judge, United States Court of Appeals for the Third Circuit (1990-2006); United States Attorney for the District of New Jersey (1987-1990); United States Department of Justice (1981-1987); Federal Prosecutor (1977-1981); Graduate, Yale Law School; Clear Moral Visionary; Charter Member, The Federalist Society; Founding Member, The Anti-Drug-Offender Institute of New Jersey; Board President, The Association of Justinian Lawyers for the Immediate Execution of Child Molesters Upon Suspicion Alone, Constitutional Qualms Notwithstanding, et alias honores.

Every day, I learn to love our American Republic more because Americans understand how to treat criminals. I have dedicated myself to public service since early adulthood, and the longer I live, the more I learn to respect our justice system. Put simply, American criminal law is great because it disrespects criminals—and criminals deserve no respect because they have banished themselves from society.

Criminals have no place in American society. We have an obligation to punish criminals severely. If individuals violate the ground rules that hold our society together, they deserve no grace from our State. In fact, our State has a duty to harshly punish criminals for several reasons. First, we want an orderly society. When the law harshly punishes criminals, we not only remove dangerous threats from our midst; we also send a clear message to other would-be lawbreakers that we will hunt them down and make them suffer. Second, we want a moral society. As an avowed Federalist, I believe the People have the right to enshrine their moral ideals in law. They have a right to criminally punish immoral vagabonds, ruffians and people who do not fit in. As a Federal judge, I respect the States. I refuse to interfere with States’ efforts to punish vicious thugs, porn peddlers, crack pushers and public urinators, except in cases in which the States do not punish conduct I find morally disgusting. In such cases, I do not support the States; rather, I punish criminals consistent with my own values as a Catholic, Republican, Yale-educated jurist in public service. In brief, American criminal law targets recalcitrant rebels who lost the right to live among us. We view criminals as dangers to be expunged. We have a great system. I am proud to serve it.

Yet there are Nations on earth that do not see the light. As a scholar, it is my duty to learn different perspectives about the law. Although America is the greatest country in the world because we believe in "freedom and the dignity of every life" (see State of the Union Speech of President George W. Bush, January 29, 2002), we can learn various new approaches to issues by studying other countries. Occasionally, Europe will devise a good idea about electronics or internet commerce. But in most cases, I have found that European ideas are dangerous, especially in legal and social fields. I read legal texts from many legal traditions. Thanks to my study, I have learned that American criminal law is definitely the best. European approaches to criminal law shocked me. And they should shock every American. Nonetheless, I am glad that I studied European law. In the end, I learned that there is no place like home—especially when it comes to dealing with criminals. Europeans forgive and forget. In America, we crucify and bury our scum. That’s the difference.

To illustrate, consider Germany’s Criminal Code (Strafgesetzbuch). In recent decades, Germany transformed from a National Socialist dictatorship into a liberal, federal republic that prizes self-determination, human dignity, social welfare and progressive thought. In so doing, it repealed harsh criminal laws and replaced them with mild, weak social “controls.” Through my extensive study, I learned that Germany prefers to tap criminals on the wrist rather than make them suffer. In so doing, the State disrespects morality, insults crime victims and lets wretched hooligans escape justice. In my view, this is a national disgrace. And the Germans should be ashamed of themselves, especially given their proud tradition of strict, effective penalties for even minor crimes (i.e., guillotine for distributing critical political leaflets; shooting in the back of the head for communist leanings, etc.).

To understand why German criminal law is so bad, we must uncover its stated principles. In his Introduction to the German Criminal Code, Dr. Thomas Weigend, a law professor at the University of Cologne, provides a good beginning: “When the law provides for the deprivation of liberty or property if certain rules are violated, it shows that society considers it absolutely necessary to adhere to these rules.” Einführung, Strafgesetzbuch, 45. Auflage (München: Deutscher Taschenbuchverlag 2008)(hereinafter “Introduction to the Criminal Code”) p. 9. I cannot argue with this assertion. In America, too, we believe that every society has a right to imprison or fine people who transgress against “extremely important” social rules. Dr. Weigend correctly points out that: “Every society needs an opportunity to express its moral disapproval for severe violations against the protected interests of others or the interests of the community.” Id. I could not agree more. Every society has both a right and a duty to condemn those who deviate from acceptable community standards. American communities must punish lawbreakers to remind everyone what is right and wrong.

Yet after a promising beginning, Dr. Weigend veers into dangerous territory. Concerning punishment objectives in the German system, he writes: “Criminal convictions…do not devalue the perpetrator's person,” and that criminal penalties serve the “notion that a convict should not be permanently excluded from society; rather, the State should make it easier for him to make his way back to a responsible life. In this sense, modern-day criminal law in the Social State of the German Constitution is unconditionally obligated to the principle of humanity.” Id.

This is utter nonsense. In America, we do not look with munificence on convicted criminals, nor do we accord them “humanity.” By deviating from fundamental social rules, criminals lose their right to be treated as citizens, let alone with humanity. They are no longer humans; they are criminals. Unlike the Germans, we believe that social miscreants should be permanently excluded from society; we reject wholeheartedly the idea that the State owes criminals the duty to “make it easier for them to make their way back to a responsible life.” In America, the State does not give anything to anyone, even to law-abiding citizens. If anything, the State takes away. It defies imagination to suggest that the State has an obligation to provide criminals a way “back to a responsible life.” The State does not even have an obligation to provide education or health care, let alone the “social means to get your life together.” In short, you only get one shot at life in America. If you mess it up, that’s your problem, even if you are not a criminal. The State does not help anyone find their way in life, let alone lawbreakers who trample on society. The State does not exist to help its citizens; it exists merely to provide a stable environment in which to do business. In short, I find it beyond absurd that Germany “obligates” itself to “humanity.” Criminals do not deserve such indulgences. They are the worst of the worst. If anything, they should be treated inhumanely, not humanely.

I hate criminals. It gets me really angry when I learn that foreign law treats them with respect. We have a duty as a civilized people to make criminals suffer for visiting harm upon our society. They do not belong among decent people. Criminals violate everything sacred about American life: Decency, hard work, thrift, sexual propriety, moral living, financial responsibility, honesty, goodness, compassion, generosity, forgiveness, mercy and Christian caring. When criminals rape, kill, steal, defraud and defile, they do not care about the pain they inflict on their victims. Yet the Germans overlook that pain and slap these barbarians on the wrist like naughty Kindergarteners. In my view, this denigrates both crime victims and American values. But according to Dr. Weigend: “[T]he prosecution of criminal law in Germany is understood to be the task of the governmental community; its purpose is not to provide satisfaction to crime victims.” Introduction to the Criminal Code, p. 11. So the victim is voiceless? What about terrified baby girls who have been burned, raped, tortured, sodomized and traumatized? What about the mother of a 17-year-boy killed by brutal gang thugs? What about a man paralyzed by a drunk driver? Are you telling me that the law should overlook these people’s profound outrage against the criminals who destroyed their lives?

In my view, the law has a duty to listen to victims—and their loved ones—in order to assess the true impact of criminal conduct. Unlike the Germans, we care about people in America. The criminal law is not an abstract encounter between a perpetrator and cold, neutral laws; it is a superheated emotional crucible in which the community expresses its outrage, sorrow and desperation against antisocial monsters. In our law, we care about a mother’s anguish when she loses a daughter to a savage rapist-murderer. We care about a brother’s sadness and loss when a vicious thug kills his sibling in a fight. It is not enough to merely show that a killer intended to kill a victim. We want to hear about the misery, terror, pain, loss and anger in the victim’s family. We want to express our outrage against those who author tragedy in society, even if that outrage has nothing to do with the narrow circumstances surrounding the criminal act. Crime affects the entire community; in America, we are determined to make criminals suffer for the horrific results they inflict on everyone, not just the immediate victim. We revisit the full quantum of pain, horror and misery on criminals that they visit upon their victims. This is true justice, not weak German “resocialization.” In a word, we do not want criminals back in our society. We want them to rot and die in rancid cells after writhing in pain on cold, hard floors for several decades.

Yet the Germans do not understand this. Dr. Weigend writes more about “humanity:” “The principle of humanity…obligates the State to treat even those who have grossly violated the rules of peaceful human coexistence as citizens and brethren, as well as to make every effort to win them back into the community.” Introduction to the Criminal Code, p. 10. If “humanity” means treating criminals like “people” and “winning them back” into our midst, we do not want “humanity” here. Quite the contrary, we would rather be “inhumane” than offer “humanity” to criminals. In America, we believe in fair deals. In our “social contract,” you promise to behave. If you break your promise, you pay the price. You do not get a second chance. Forevermore, you are a “criminal,” not a “person.” The Germans call this “inhumane.” We call it “responsibility.” We do not believe it is difficult to live a normal, law-abiding life. All you need to do is refrain from raping, killing, stealing, lying, defrauding and acting badly. It is not difficult. Just be quiet, live normally and do not make mistakes. It is not brain surgery. The State does not owe an “obligation” to be “humane” to anyone. Nothing in the United States Constitution or any State Constitution requires an American State to be humane. States maintain roads and collect taxes. They imprison criminals and assess parking fines. They operate schools and mental clinics. They have no further obligation; and they certainly have no obligation to act “lovey-dovey” with convicted mass murderers, child rapists, thieves, scoundrels and Bernie Madoff-style fraud artists. In response to any German invitation to introduce “humanity” into American criminal law, I say: “Hell no, we won’t go.”

There is nothing wrong with American criminal law. After studying German criminal law, I am reassured in my belief that we have the best system on earth. We are getting along just fine, thank you very much. In fact, I believe that America is the greatest Nation on earth because we understand that criminals are garbage to be discarded, not “recyclables” to be “re-used.” We understand that criminals are not “regular people.” These are people who have broken the social contract and thus deserve worse treatment than others. Criminals hold nothing sacred; they do not want to reintegrate into our society. We have no desire to “win them back” or “resocialize” them. If anything, we want to eliminate them. And we want them to suffer the same pain they inflicted on their victims. As a Federalist, I am not opposed to State efforts to execute criminals who do not cause death. See Kennedy v. Louisiana, 554 U.S. __ (2008)(Alito, J., dissenting, slip opinion at pp. 43-66). States have a right to decide whether conduct represents such a deviation from acceptable community standards that perpetrators deserve to die for it. Whether States decide to kill to jail criminals, the result is the same: We believe that criminals are worthless pieces of unwanted garbage. We do not try to “resocialize” garbage; we want to throw it away—permanently. This is how we view criminals in America. They are nothing but disgusting, worthless, nauseating trash; and States have a right to dispose of it as they see fit.

Of course, the Germans do not execute criminals because they want to “win them back” into society. They think they have “intrinsic worth” as human beings. See, e.g., Basic Law (Grundgesetz) Art. 1 ("The worth (or "dignity") of every human being is inviolable. It is the obligation of all governmental authority to respect and protect it."). That is their prerogative. All I can say is that Americans are smarter than Germans because we know where our garbage belongs. We do not bring garbage back into our living rooms. We toss it onto the trash heap or burn it. If something is worthless, you get rid of it. You do not keep it hanging around your house.

Americans will always face criticism. Europeans will always contend that forgiveness and “humanity” are better policies than draconian criminal penalties. They will even invoke Christianity to support their theories, including Jesus’ dictum: “How you treat the least of my brothers is how you treat me.” Matthew 25:40. I am a devout Christian and I fervently believe in Christ. Yet Christ’s words do not apply to criminals, because criminals are not “my brothers.” Moreover, criminals are not even people. They are lawbreakers. As such, different rules apply to them. In this sense, America faces no religious quandary when it mercilessly hunts down and punishes criminals. We can treat them as poorly as we wish without violating Christ’s word, because criminals are not “Christ’s brothers.”

I am reassured in my commitment to American criminal law. We view criminals as we should view them: As garbage to be discarded. Although we will always face criticism for what some perceive as repressiveness against criminals, we take refuge in the knowledge that we are right. America is dedicated to liberty, equality and justice for all. But as soon as you break the law, you have no right to anything but suffering and pain. You lose your worth and your status as a person. This is justice. We owe it to the victims. As a Supreme Court Justice, I will never deviate from these principles, no matter what the Constitution says. There are citizens and there are criminals. They are not the same. I will never treat them the same, either. In a word, I know what to do with my trash: I throw it away.