Execution of Charged Property

By the end of the classical period not only were the creditor's power of sale and his duty to repay the surplus attached to the right of pledge by operation of law but enforcement by way of execution sale had become the general rule.^[1220] Pignus and hypotheca had evolved into the security interest whose essential traits are still with us today.

There is a repeating pattern: a transactional practice, which this time already emerged in the first century AD (and may have republican antecedents),^[1221] evolved into a mandatory legal arrangement from which the parties could not derogate. This not only protects debtors as structurally weaker parties but certain mandatory execution procedures, in particular public auctions,^[1222] may have the positive effect of generating the highest possible price for the charged property. This may benefit (in the case of a surplus) not only debtors but also secured creditors and lower-ranking creditors. Thus, rules providing for a compulsory sale of collateral and the return of the superfluum to the debtor, as had developed in Rome by the end of the classical period, resulted in an equilibrium in which the interests of creditors and debtors were more or less balanced. This equilibrium has proven to be extremely stable over the course of the centuries: one still finds it in Western legal systems today, albeit (as in late classical Roman law) with exceptions.

Realization by sale

In the final stage of the evolution of the execution of real security (pignus, hypotheca, and fiducia cum creditore), the creditor's principal legal right was to sell the charged objects to a third party in the event of default. A constitution by emperor Alexander Severus from ad 222 provides that the agreement to transfer pledged property to the creditor if a loan would not be repaid in time should be read as referring to the right of enforcement granted to the creditor ‘at common law', that is to sell the collateral to third parties.^[1223] This constitution unequivocally indicates that early in the third century ad the sale to a third party had become the ordinary manner of enforcing security.^[1224] Another constitution by Alexander Severus from ad 225 provides:

Alex.

C. 8.27.4. Creditor hypothecas sive pignus cum proscribit, notum debitori facere, si bona fide rem gerit, et quando licet testato dicere debet. si quid itaque per fraudem in pignore villae venditae commissum probare potes, ut inferatur actio, quae eo nomine competit, adi eum cuius de ea re notio est.

When a creditor advertises (the sale of) hypothecs or pledges, if he acts in good faith he should make this known to the debtor, and, if possible, in the presence of witnesses. So if you can prove that anything fraudulent occurred in the pledge of the villa that was sold, go before the person with jurisdiction in order to bring the action that lies on this account.

This constitution assumes that the creditor announces the execution sale to the public (proscriptio) and holds that in addition the creditor is obliged by good faith to notify the debtor of the coming sale (denuntiatio). The creditor's failure to do so does not invalidate the sale but makes him liable vis-à-vis the debtor with the actio pigneraticia directa. Yet another constitution from Alexander Severus provides that when, after all the required formalities have been performed, no interested purchasers can be found, the creditor can ask for the emperor's express permission (impetratio dominii) to retain ownership of the charged object.^[1225] The same constitution provides that where a general pledge has been granted the creditor cannot acquire the entire estate of the debtor.

The creditor's power of sale was no longer based upon forfeiture or on an (express or implied) contractual licence to sell^[1226] ^{^[1227] ^[1228] ^[1229] ^[1230] but attached to the right of pledge by operation of law. We can see this clearly in a legal opinion by Ulpian which makes clear, first of all, that the creditor not only has the right to sell the property but also a proprietary power to transfer ownership.“ Secondly, the text shows that a licence to sell no longer has to be agreed but is inherent to the right of pledge.1² In the absence of a contractual licence to sell the creditor is still entitled to sell and transfer the pledged property, by operation of law (‘iure utimur, ut liceat distrahere’).}

This is only different where the debtor and creditor have agreed that the latter shall not sell the property. Like lavolenus and Pomponius (long) before him, Ulpian says that selling pledged property in violation of an agreement not to sell constitutes theft. But Ulpian also says that such a pactum de non distrahendo can effectively be set aside by the creditor giving three notices of default (denuntiatio) to the debtor?³ This is important because it leaves no doubt that the creditor's power of sale is not based on an implied authorization by the debtor but has become attached to the right of pledge by operation of law. This is because not only in the absence of a contractual licence to sell but even in the case of a contractual prohibition to sell, the creditor ultimately does have a power of sale.

Superfluum

When exactly a legal duty to pay the surplus came into being is impossible to indicate, although this may already have been in the second century ad? In the third century ad this duty was firmly entrenched in Roman law. In the Corpus iuris civilis there are, however, only a few late classical texts unequivocally attesting the creditor's obligation to pass on the surplus of execution proceeds to the debtor. There is Papinian's opinion in D. 13.7.42, where he holds that the creditor is liable with the actio pigneraticia directa to pay the superfluum (and interest thereon) to the debtor. In D. 20.1.21.3 Ulpian says that where in Serviana proceedings against a third party in possession the latter is condemned to pay the value of the pledged property, the creditor must return any surplus, which the debtor can claim with the actio pigneraticia.^[1231] Likewise, in D. 13.7.24.2 Ulpian unequivocally provides that the creditor is obliged to pay the superfluum to the debtor, but only after he has received the purchase price from the purchaser?^[1232] Ulpian D. 36.4.5.21 seems to confirm that where, in the case of antichretic pledges, the proceeds of the fruits exceeded the principal and interest, the creditor was obliged to repay the surplus to the debtor.

From Marci. D. 20.1.16.9 it could be deduced that a legal duty to pay the surplus existed at the time of emperor Septimius Severus, and also when the pledged property was conditionally sold to the creditor himself.1^[1233] In a constitution from 294 ad Diocletian rules that where a creditor, who had sold pledged objects pursuant to a contractual licence to sell, had purchased a farm with the surplus proceeds, the debtor did not have an actio in rem (rei vindicatio) in respect of the farm?^[1234] However, according to the constitution, ‘there is an action in personam, i.e. on the pledge, for the surplus?^[1235] This was in all these texts an actio pigneraticia with a formula in ius concepta, which incorporated the concept of bona fides.^[1236] ^{^[1237] The main advantage of this more flexible formula, which may have been the reason for its origin, was that the ex fide bona clause allowed the iudex to condemn the creditor to return the superfluum to the debtor.21 Redemption
By the end of the classical period the debtor also had a right of redemption— the right to recover the charged object by satisfying the secured debt after default.22 A constitution by emperor Gordian from 239 ad provides that an execution sale is invalid when the creditor refuses to accept the money offered by the debtor before the sale took place.^[1238] This text must be interpreted as granting the debtor the right of redemption?^[1239] The constitution from Gordian unequivocally states that the execution sale cannot be revoked when the money was offered to the creditor after the creditor has exercised his power of sale.^[1240] ^{^[1241] ^[1242] In case of an execution sale to a purchaser, the debtor could only exercise the right of redemption against the purchaser if such right of redemption had been agreed between the creditor and the purchaser. In D. 13.7.13 pr. Ulpian refers to a written opinion by Julian and an imperial constitution, both saying that as a consequence of such agreement the debtor can institute the actio pigneraticia (directa) against the creditor, in order to compel him to assign his action on sale against the purchaser?⁶ Alternatively, the debtor can revindicate the pledged property from the purchaser or proceed directly against the purchaser with an actio in factum.}
Finally, the Codex Justinianus contains a regulation by emperor Justinian himself from 530 ad, which refers to the ‘ancient law' pursuant to which the debtor still had one year to redeem the property after default?⁷ This may have reflected the law of the post-classical period. The ‘watchful eyes of the courts’
From the second century AD onwards we can observe that, although the law of real security does remain by and large creditor-friendly, the imperial chancery intervened in order to provide a considerable degree of protection to debtors. The most fundamental change in favour of debtors was that creditors became obliged by operation of law to sell the pledged object and return the surplus proceeds to the debtor. But in addition to the right of redemption, the debtor's position was also improved in other respects. The sale of pledged property took place ‘under the watchful eyes of the courts'?⁸ but not in the sense that court permission was required for an execution sale or the court actually supervised the sale itself. The supervision would take place retrospectively, by the emperor ruling in favour of the debtor where the latter would institute legal proceedings against the creditor for not abiding by the execution rules laid down in imperial constitutions, or for failing to observe a duty of care.^[1243] In particular, the Severan (Alexander) ‘ius novum’ has many rules on properly conducting the execution of charged assets. In a constitution from 231 ad, Alexander Severus ruled that where a debtor is prepared to pay the remaining part of the secured debt, the provincial governor shall appoint an arbiter who shall determine the exact amount still to be paid.^[1244] ^{^[1245] ^[1246] ^[1247]} Where the creditor refuses to co-operate, by ‘rushing' to sell the pledged property, this improper alienation (improba alienatio) shall not deprive the debtor of his ownership. This could not only affect the creditor but also the purchaser of the pledged property.
Thus, a constitution by Alexander Severus from 222 ad provides that where the creditor had exercised his power of sale ‘in bad faith' (‘dolo malo’), he must be condemned to pay damages (C. 8.29.1). If such a creditor is insolvent and the purchaser had purchased the pledged fundus in bad faith (mala fide), the latter must be ordered to give back the land and its fruits. This would only be the case, however, if the debtor offered to pay the purchaser the purchase price plus interest. In other words, even a purchaser who knew that the creditor unlawfully sold the pledged property was protected, in the sense that he would get back the purchase price/¹ Alexander Severus also ruled that a creditor with a possessory pledge of agricultural land was obliged by operation of law to harvest its crops and reduce the secured debt with the value of the crops, including of those crops which he failed to harvest.32 The same constitution also shows that other protective measures were taken in favour of the grantor of an antichretic pledge, such as granting him a claim for damages caused by deterioration of the land. Likewise, Ulpian writes that the creditor shall be liable if he ‘mistreats pledged property or weakens slaves'. Ulpian even holds that the right of pledge will immediately cease to exist if the creditor ‘puts a slave-girl to prostitution or compels her to some other disreputable conduct'.33 A constitution by Diocletian rules that where the creditor used a ‘man of straw' to purchase the pledged property, in order to avoid a sale at arm's length to a third party, the sale would be ineffective.^[1248] ^{^[1249] ^[1250] ^[1251] ^[1252] At the same time, there are still many constitutions and jurists' opinions which can be characterized as creditor-friendly. Where the debtor had provided in his will that none of his praedia were to be sold and added as a penalty that they would otherwise be owned by the treasury, Septimius Severus and Caracalla ruled in C. 8.28.1 (ad 207) that this cannot adversely affect the creditor's power to sell praedia pledged to him to third parties. In C. 8.27.3 (223 ad) Alexander Severus confirms that the debtor remains liable for any deficit remaining after an execution sale. In C. 8.27.5 (231 ad) Gordian rules that the creditor retains his power of sale even when the major part of the secured debt has already been paid/⁵ In classical law the creditor could take physical control of the pledged property when the debtor was in default, in a similar manner as a landlord's perclusio pursuant to an urban tenant's pledge/⁶ From the late classical period we have evidence of such a self-help remedy available to creditors with a non-possessory pledge. Ulpian D. 47.2.56 says that when a pledge creditor takes the pledged object with him he is not regarded as wrongfully appropriating it but as looking after his pledge (‘pignori suo incumbere’).37 In an imperial constitution by Septimius Severus and Caracalla, this right to take possession is subjected to judicial control: in Sev.-Ant. C. 8.13.3, reference is made to secured creditors who enforce their pledge by taking possession of the pledged assets when their debtor is in default. According to the constitution, although they must not be regarded as having used force, the possession must be gained with the permission of the governor.
11.3}}

<< | >>

↑

Source: Verhagen Hendrik L.. Security and Credit in Roman Law: The Historical Evolution of Pignus and Hypotheca. Oxford University Press,2022. — 448 p.. 2022

Execution of Charged Property

More on the topic Execution of Charged Property: