Continuation of Older Practices

In the Digest and Codex there are a number of texts on a transactional practice pursuant to which the debtor would either rent the pledged object from the creditor or hold it pursuant to precarium.¹⁶⁷ This transactional construction is also attested forfiducia cum creditore and may have Greek origins?'⁸ Although from a legal perspective we are still dealing with a possessory pledge—the texts often expressly state that possession is with the creditor—from a prac­tical perspective this pledge was equivalent to non-possessory security: the debtor could continue to use the charged objects.

1'2 See on Pomp. D. 13.7.3, Kaser 1982: 91-2.

I'³ Ulp. D 13.7.36 pr. and Paul. D. 41.3.4.21. See Kaser 1982: 87. More cautiously Schwarz 1954: 136, according to whom one cannot exclude the possibility that Sabinus did not yet know the actio pignera­ticia contraria in the function of an independent claim for damages.

1'4 On this action, see Kaser 1982: 222-34, generally following Schwarz 1954. See also Scheibelreiter 2020: 72-7 (with further references), who considers it ‘well defendable' that the contrary action was in ius concepta and did have a bona fides condition.

1'5 See in particular Paul. D. 13.7.16.1. Kaser 1982: 87 n 163, with reference to Schwarz 1954: 142; Scheibelreiter 2020: 70, 89-90.

1'' On the question whether the creditor could sue the debtor for the granting of a substitute right of pledge on property he did own, see Scheibelreiter 2020 (who thinks that this reflects Justinian law at most, but certainly not classical law).

1'7 See in particular Kaser 1982: 168-83. For convenience's sake I will use ‘charge and lease-back' as the generic terms for secured transactions in which the debtor is entitled to use the collateral, pursu­ant to either a locatio conductio orprecarium, although literally this term only covers the first situation.

1'8 Gai. Inst. 2.60.

As late as the third century ad Ulpian writes that it is daily (‘cottidie") practice that pledged assets are left with the debtor pursuant to precarium.^[799] In this section I will discuss why this practice originated and why it persisted. One would expect the practice of pledge and lease-back to have been mostly used in respect of farms, houses, and land. Beside the pledge and lease-back, we find in the legal sources another practice in relation to real estate, which continued to exist after the purely contractual pledge was recognized: the granting of pledge by handing over ‘title documents’. At the end of this section this prac­tice will be reviewed.

Pledge and lease-back

The point of departure in case offiducia cum creditore must have been that the debtor did not only convey ownership through mancipatio but, certainly in case of movable res mancipi, would also transfer possession to the creditor?⁷⁰ Where possession would return to the debtor before the secured debt was repaid, the creditor would run the risk of losing his security ownership inter­est through usureceptio.¹⁷¹ This would be different, as Gaius informs us, if the creditor would allow the debtor to use the collateral pursuant to a special legal construction: the debtor is allowed to use the objects serving as collateral pur­suant to locatio conductio or precarium. Exactly the same construction was used in respect of pledged objects. These are three of many jurists’ opinions attesting the practice of ‘charge and lease-back’.

D. 43.26.11. Celsus libro septimo digestorum. Si debitor rem pigneratam precario rogaverit, soluta pecunia precarium solvitur: quippe id actum est, ut usque eo precarium teneret.

If a debtor has asked by precarium for a thing that has been pledged, then when the money is paid off, the precarium is dissolved; for the intention is taken to have been that the precarium would only hold until then.

D. 41.2.36. lulianus libro tertio decimo digestorum. Qui pignoris causa creditori tradit, intellegitur possidere. Sed et si eundem precario rogaverit, aeque per diutinam possessionem usucapiet: nam cum possessio creditoris non impediat capionem, longe minus precarii rogatio impedimento esse

170 Wubbe 2003: 12.

171 See section 4.6.

non debet, cum plus iuris in possessione habeat qui precario rogaverit quam qui omnino non possidet.

A person delivering land to his creditor by way of pledge is deemed to pos­sess it. Now if he should seek a precarium of it, nevertheless, he can acquire it by long possession; for the creditor’s possession is not preventing such acquisition, still less should holding by precarium be an obstacle; for one possessing by precarium has a better possessory title than one who does not possess at all.

D. 13.7.35.1. Florentinus libro octavo institutionum. Pignus manente pro­prietate debitoris solam possessionem transfert ad creditorem: potest tamen et precario et pro conducto debitor re sua uti.

Pignus transfers only possession to the creditor, while ownership remains in the debtor. The debtor, however, can have the use of his property either as precarium or on hire.

Celsus’s and Julian’s texts have been taken from their treatises on fiducia.^[800] Nevertheless, their content is in line with opinions (such as Flor. D. 13.7.35.1) which undoubtedly do concern pignus.^[801] The transfer of (‘natural’) posses­sion to the creditor presumes that a traditio has taken place, while at the same time the debtor can continue to use the pledged object pursuant to precarium or a rental agreement. There is, therefore, again a large degree of similarity between both forms of real security, which is caused by their common func­tion as security interest and perhaps even their common originTh^[802] Although usureceptio finds its origin in archaic law, we do not know when this transac­tional practice originated in respect offiducia.^{[803] [804] Given the economic neces­sity for the debtor to be able to continue to use res mancipi, this is likely to have taken place early.}

In Roman legal practice, precarium and locatio conductio were used in order to construct a functional equivalent of a non-possessory pledge. Where an institution fails to perform its functions, the response often is the adapta­tion of the existing institution rather than the creation of an entirely new one. When this is not possible, existing institutional elements may be used to build a new institution.^⁸ Such recombination of existing institutional elements (pignus and locatio conductio/precarium) happened here. Where in all likeli­hood the right of pledge originated as a possessory pledge, some legal basis had to be found for allowing the debtor to continue to use the objects of pledge while still accepting that a traditio would be necessary for a fully effect­ive right of pledge.17⁹ Before Julian, non-possessory security was already cre­ated through transactional constructions which were based on traditio or equivalents thereof: bringing the pledged objects on the premises (invecta et illata), renting storage units in a warehouse (TPSulp 45 and 46), having a slave monitoring pledged cargo (maritime loan). The ‘pledge and lease-back' is yet another example of a possessory pledge with a diluted possessory elem­ent, by making the debtor a detentor for the creditor through locatio conductio or precarium. We can see this in a text like D. 13.7.37, where Paul says that when a creditor rents out the pledged asset which had been ‘delivered' (tradi­tum) to him by the debtor, the creditor retains possession.

177 Kaser 1971: 388.

178 Greif 2006:194-5; Deakin 2003: 40; Luhmann 2012: 309; Granovetter 2017: 177.

179 Moreover, in early classical law the actio pigneraticia contraria and perhaps even the actio Serviana may not yet have been available to the creditor, which may also explain why the creditor would wish to have a possessory interdict and a remedy based on locatio conductio or precarium.

18° Kaser 1982: 180 n 193.

Persistence of pledge and lease-back

Even after it became accepted that a pledge could be granted nuda conven­tione and a traditio was no longer necessary, the transactional practice of pledge and lease-back continued to be used. How can this be explained? In all cases (purely possessory pledge, purely contractual pledge, pledge with locatio conductio, pledge with precarium) the debtor would continue to be the pos­sessor for the purposes of usucapio. This, therefore, cannot have been the rea­son. Krämer has tentatively suggested the following explanation for the combination of pignus and precarium or locatio conductio.^{[805] [806] [807] The purpose of this construction could have been to prevent that the debtor would after one year reacquire the unencumbered ownership of the object of pledge through usureceptio. Krämer relates this to the exceptio annalis pignoris italici, a rem­edy supposedly to have given a defence against the creditor's actio Serviana when the pledged object had been in the possession of someone other than the creditor for more than a year?82 The problem with this explanation is that according to Ulpian this exceptio was only available to third parties in pos­session, and not to the debtor.}

This entails, in particular, that the creditor with such hypotheca does not have possession for the purposes of the possessory interdicts. This is different in case of a pledge and lease-back, whether based on locatio conductio or precar­ium. Here the creditor would continue to have possession for the purposes of the possessory interdicts, because the debtor acted as his holder (detentor). A creditor may have preferred interdicts over Serviana proceedings, because he then did not have to prove that the pledged property had been in bonis debito­ris at the time the pledge was granted. The interdict procedure may also have been quicker.^{[808] [809]}

What would be the specific advantages of a pledge coupled with locatio conductio in comparison with precarium? In Marcian. D. 41.2.37 real estate had been pledged and possession had been transferred (possessione tradita) to the creditor, and the debtor had subsequently rented the property from the creditor. The debtor must, according to Marcian, be considered as a colonus in case of land and as inquilinus in the case of buildings. Through these persons the creditor is regarded as possessing the property. This is in line with what we have seen so far for pledge and lease-back generally (including precarium). However, from Marcians express reference to the debtor's position as colonus and inquilinus it might be inferred that the invecta et illata or natural fruits of the pledged real estate would also be pledged to the creditor, also given the fact that in the course of the classical period tenant's pledges (urban real estate) and pledge of crops (rural real estate) no longer had to be expressly agreed, but were implied.^⁵ The specific remedies attached to tenant's pledges would then also be available to the creditor. The creditor could use the inter­dictum Salvianum in order to obtain actual possession of objects present on the pledged farms and land and would be able to employ the self-help remedy of perclusio in respect of objects present in urban properties. In case of a pledge coupled with precarium these remedies would not be available. Another rea­son for preferring locatio conductio over precarium could have been that the rental agreement would generate extra income for the lender, perhaps to cir­cumvent the statutory maximum interest rate. In case of precarium the debtor did not have to reimburse the creditor for the use of the pledged property, which will have been the main motivation for the ‘daily practice' mentioned in Ulp. D. 43.26.6.4. In addition, in contrast with a debtor using the property pursuant to locatio conductio, the debtor could—as precario habens—also invoke the possessory interdicts.

Handing over ‘title deeds’

In a constitution from 287 ad, Diocletian rules that where a piece of land had been pledged by way of a chirograph to a (female) creditor, the pledge must be deemed to have been released when she had the chirograph returned.^[810] It has been suggested that this practice demonstrates the difficulties in depart­ing from the principle that only possessory pledges could be created.^⁷ This is, however, not very likely, as by the time of Diocletian the pledge created nuda conventione was firmly established. There is also a constitution by Septimius Severus and Caracalla from 207 ad on a case in which the deed of sale of land had been handed over to the secured creditor.^ The constitution states that when someone has pledged the deed of sale of his land he must have intended to pledge the land itself. The fact that a pledge could be granted by agreement (‘pignus consensu contrahi’) is used as the argument to rule that a person who pledged the deeds of sale of his lands must have intended to pledge these lands. Nevertheless, one cannot rule out that this practice origin­ated in a time in which a traditio was still required for a fully effective right of pledge. Giving possession of the title deeds may for the purposes of granting a possessory pledge, perhaps in connection with other outward signs (e.g., presence of the parties on the land), have been treated as equivalent to a tradi­tio pignoris causa of the pledged land itself.

The imperial constitutions demonstrate, in any case, that the practice con­tinued long after it had been settled by Julian that a pledge could be created nuda conventione. The creditor’s possession of the deed of sale certainly could still have practical advantages, one of which could be the protection against false wealth. It could make a prospective secured creditor or purchaser suspi­cious if the seller would be unable to produce the deed of sale. In addition, as the Severan constitution demonstrates, the handing over of title documents could serve as evidence of the pledge. Moreover, possession of the deed of sale could enable the creditor to sell the property more easily when the debtor was in default. Also, as Scaev. D. 19.1.48 demonstrates, documents concerning real estate were used in order to determine which rights the seller’s predeces­sor had over the property sold: this could also be relevant for the creditor who took security over real estate.

187 Wagner 1968: 59-60.

188 Sev.-Ant. C. 8.16.2.