From Substitution to Security

There can be no doubt that in the second century ad, express licences to sell, which were coupled with a surplus/deficit clause, were still widely used. Less certain, but still plausible, is that in this period the creditor was, in the absence of an express licence to sell, also impliedly authorized to sell the pledged property (although perhaps still based on forfeiture).^[687] ^{^[688] ^[689] ^[690] It is only from the late classical period that the transmitted legal sources unequivocally indicate that the creditor is entitled by operation of law to sell pledged objects and that the creditor is obliged by operation of law to pay the superfluum to the debtor.}

There are, however, also jurists' opinions already from the second century ad from which it could be derived that the creditor may have become obliged by law to pay the surplus to the debtor. In particular, the writings of Pomponius suggest that this was the caseTh⁶ This same jurist certainly makes clear that the debtor would be liable for any deficit remaining after the sale of pledged assets, and would be liable also in the absence of a clause to that effect. The most plausible interpretation is that in the course of the second century ad, the right of pledge evolved into a true security interest, with the creditor having the right to sell the pledged objects and to take recourse against their proceeds for the amount of the secured debt: nothing more, nothing less. Thus, already in the second century ad, an equilibrium may have been reached by operation of law in which the interests of creditors and debtors were more or less balanced.

From forfeiture to sale

Finley is one of the few historians of the ancient economy who has fully recognized the importance of real security.^⁷ He even devoted a whole book to real security on land in classical Athens.

In its preface he wrote: ‘since security is the external link between land, the basic form of wealth in the Greek economy, and credit, a full examination of this bond appeared essential as a prelude to the larger work on business practices'.^⁸ In respect of the evolution from forfeiture to sale Finley observed:

In its early form, security is always substitution, a forfeit. X owes Y something, an object, money, a performance, which he does not render, and Y accepts a substitute—land for money—in full satisfaction of X's obligation to him. Athenian security practice remained on that level right down to the

Roman conquest, and perhaps for centuries thereafter. Occasional exceptions were made when the two parties had special reasons for introducing them, but the original conception continued unbroken. Collateral security involves economic thinking of quite another order. The security now becomes a guarantee of payment, not a substitute; default entails not simple forfeit but compulsory sale and a division of the proceeds according to the respective monetary values of the debt and the property. Between substitution and collateral there lies a profound economic transformation.¹"

According to Finley, the cause of this ‘profound economic transformation' lies outside the law of security and has everything to do with the growing importance of credit. Credit providers are not interested in obtaining ownership of the charged object as such: they want to liquidate it as soon as possible, in order to be able to take recourse against the proceeds and satisfy their claims. At the same time, debtors wish to lay their hands on the surplus value of the collateral they provided. In a monetary economy the enforcement of a pledge by way of sale achieves a much more finely tuned method of execution than forfeiture.²⁰⁰ This method was already comprised in transactional practices of the first century ad and may have been provided for by Roman law itself in the second century ad“¹

The sale of pledged assets did not, however, always yield economically optimal results, as is attested by Plinius the Younger.

In a letter to Calvisius Rufus (written 97-102 ad), Plinius asks for advice on the purchase of an agricultural estate adjoining one of his own estates. After listing a number of advantages (e.g., economy of scale) and disadvantages (e.g., no spread of risk), Plinius comes to (what he himself calls) his main point. ‘The last owner, on more than one occasion, sold up the tenants' possessions, so that he temporarily reduced their arrears but weakened their resources for the future, and consequently their debts mounted up again.'202 This passage illustrates that the Romans realized that an eagerness to sell the tenant's pledged objects can be a bad long-term economic strategy. The secured debt is temporarily reduced, but so is the tenant's earning capacity and his solvency in the future.

1” Finley 1953: 266. 200 _Manigk 1916: 355.

201 Also, in the late Republic, pledges were enforced through execution sale, as Servius attests in Ulp. D. 47.10.15.32. A ‘compulsory sale' was only provided for in the imperial constitutions of the third century ad (Alex. C. 8.34.1) and even by this time, alternative execution methods were still available (e.g., conditional sale to creditor against market value: Marci. D. 20.1.16.9). See chapter 11.

202 Plin., Ep. 3.19.6, LCL 55: 229-31. Pliny himself granted remissions to tenants who were unable to pay the rent and introduced a sharecrop-arrangement for tenants who were still in arrears after five years. See Broekaert and Zuiderhoek 2020:102 n 7 (with reference to Plin., Ep. 9.37).

Certainly in times of economic troubles, scarcity of tenants, and diminishing returns from land, Plinius considers it to be a better strategy to ensure that tenants continue to be able to work the land and even to provide them with the means to do so (give them a ‘good type of slave'). The sale of pledged assets may also fail to yield economically optimal results in times of high inflation or depressed markets.²⁰³

Legal basis of creditor’s power of sale: authorization by debtor

In the course of the second century ad, the legal basis for the creditor’s ability to transfer the pledged objects to a purchaser after an execution sale changed.20⁴ We have seen that this basis was originally the creditor’s ownership after forfeiture had taken place.²"⁵ In the second half of the second century AD this no longer appears to have been the case, certainly not where a licence to sell had been expressly agreed.

Julian says in D. 18.1.39 pr. that where the debtor repurchases the pledged property from the creditor, he is a purchaser of his own property. In Julian’s case, the debtor must have failed to repay the secured debt, which triggered the creditor’s power of sale. This would seem to indicate that in Julian’s time a power of sale was no longer based upon forfeiture: had this been the case then the debtor would have purchased the creditor’s property?'⁶ A main witness of such an ownershipindependent power of sale is Gai. Inst. 2.64.

Gai. Inst. 2.64. item creditor pignus ex pactione (alienare potest), quamvis eius ea res non sit. sed hoc forsitan ideo videatur fieri, quod voluntate debitoris intellegitur pignus alienari, qui olim pactus est, ut liceret creditori pignus vendere, si pecunia non solvatur.

Again a creditor has the power to alienate a pledge pursuant to agreement, although the thing is not his. But here perhaps this happens, because it is understood that the pledge is alienated with the debtor’s will, who has previously agreed that the creditor shall be authorized to sell the pledge if the money is not paid.

203 See sections 11.3-11.5.

204 Perani 2021 was published too late to be taken into account other than incidentally.

205 Section 5.3.

206 Flor. D. 13.7.35.1 (ownership remains with debtor); Pap. D. 13.7.40 pr. (debtor cannot buy his own property from creditor); Paul. (Jul.) D. 47.2.67 pr. (creditor cannot institute the actio furti as owner).

Gaius mentions the transfer of the pledged object by the creditor pursuant to a contractual licence to sell as an example of a situation where someone other than the owner can alienate property. This jurist somewhat hesitantly suggests that the transfer of ownership might perhaps be based on the owner's consent. Gaius's contemporary Scaevola expresses no doubts at all. Where it has been agreed that upon failure to pay the creditor shall be authorized to sell (‘convenerit, nisi pecuniam solvisses, licere ex pacto pignus vendere’), the creditor can sell the property even when later the actual sale takes place against the debtor's will.

The reason is that ‘if you have not paid the money, you are then treated as having acquiesced in the sale at the time when you entered into the contract' (‘iam enim illo in tempore, quo contrahebas, videri concessisse venditioni, si pecuniam non intulisses’).^[691] ^{^[692] ^[693] According to Kaser, the idea that an owner can, at the time of granting the pledge, conditionally authorize someone else to transfer ownership demonstrates advanced legal thinking, which can only be reached in a legal system's mature state.20⁸ My view is that this idea is more associated with a transitory state. Originally, the creditor's power of sale was based upon forfeiture, then on the debtor's consent (Gai. Inst. 2.64; Scaev. D. 44.3.14.5), and finally upon a power of sale which is an attribute of the right of pledge itself (Ulp. D. 13.7.4).20⁹ The ‘fundamental detachment' of the Verkaufspfand (sale) from the Verfallpfand (forfeiture), which took place in the second century ad, is specifically Roman. In Greek-Hellenistic laws, the licence to sell would always remain an ancillary agreement to the forfeiture pledge/¹"
Licence to sell
There is evidence from the second century ad, as we shall see later in this section, that the creditor's power of sale did not have to be expressly agreed. There are, however, many legal opinions from this period which were seemingly rendered on the assumption that a pactum de vendendo had been expressly agreed. From the early second century ad, here is an opinion by Aristo, which was recorded by Paul.
D. 20.3.3. Paulus libro tertio quaestionum. Aristo Neratio Prisco scripsit:... Denique si antiquior creditor de pignore vendendo cum debitore pactum interposuit, posterior autem creditor de distrahendo omisit non per oblivionem, sed cum hoc ageretur, ne posset vendere, videamus, an dici possit huc usque transire ad eum ius prioris, ut distrahere pignus huic liceat.
Quod admittendum existimo: saepe enim quod quis ex sua persona non habet, hoc per extraneum habere potest. Writing to Neratius Priscus, Aristo said:... Further, if the first creditor made an agreement with the debtor that the pledged property might be sold, and the second creditor failed to agree on sale, not because he forgot but because it was intended that he could not sell, we must see whether the right of the first passes to him, so that he can sell. I think he can. It often happens that a person can acquire via a stranger something which he does not have in right of his own person.
In the second secured loan discussed by Aristo, a pactum de vendendo was deliberately omitted because it was the parties' intention that the second creditor should not have a power of sale. Aristo's opinion could be interpreted as saying that where the parties simply forgot to include an express licence to sell, it could still be implied in the pledge agreement. This is also what Pomponius and other jurists after him hold: the parties' articulated intention that the creditor shall not be authorized to sell must be respected as a matter of law. But where no such intention existed, the creditor does have the right to sell the pledged property upon default.
In a legal opinion on the valuation of a share in a jointly owned farm, which (the share) had been pledged by one of the co-owners, Julian reportedly said that ‘the arbitrator appointed to divide common property should reduce the valuation of the share in view of the fact that the creditor is able to sell it under the pact' (‘quod ex pacto vendere eam rem creditor potest’).^[694] In another opinion, however, Julian routinely speaks of the sale (with an in diem addictio) of pledged property without mentioning a pactum de vendendo.^[695] This could indicate that a licence to sell was so common that it was deemed to be agreed. After all, in Julian's time even the granting of a right of pledge itself was in certain cases presumed to have taken place impliedly (invecta et illata).^[696] A particularly relevant opinion is D. 13.7.8.4, taken from book 35 of Pomponius’s commentary on Sabinus. The first sentence says that ‘a pactum de vendendo pignore should be framed in rem so as to reach everyone’.²¹⁴ This sentence probably reflects the opinion of Sabinus, who obviously considered it important to ensure that the creditor’s heirs would have the right to sell the charged property. Pomponius adds that even if it only mentioned the name of the creditor, his heir would still be able to sell.21⁵ This could be interpreted as, according to Pomponius, that a power of sale was implied in the conventio pignoris, so that it was not necessary to frame the licence to sell in rem (i.e., as not being granted to the original creditor personally). Another text from Pomponius’s Sabinus commentary does support this interpretation.
D. 13.7.5. Pomponius libro nono decimo ad Sabinum. Idque iuris est, sive omnino fuerint pacti, ne veneat, sive in summa aut condicione aut loco contra pactionem factum sit.
The same rule applies whether there is an absolute pact against sale or an infringement only of an agreement as to amount, condition, or place.
The transaction practice, existing at the time of Pomponius’s commentary, that the parties would expressly agree that no sale shall take place, implies that without such contractual prohibition, the creditor was authorized to sell the property. For what would otherwise be the reason for such pacTh¹⁶ From the third century ad there are imperial constitutions that still mention the sale of pledged objects taking place pursuant to a contractual licence to sell.21⁷ This demonstrates that the existence of a practice of express licences to sell does not exclude that also without such provisions the creditor would be entitled to sell.
Reliquum and superfluum
From Pomponius there is an opinion saying that the standard clause commonly inserted in pledge agreements, providing that the debtor is liable for
214 According to Lenel this text was concerned withfiducia. See also Burdese 1949: 40-7. According to Kaser 1982: 76 n 103 its substance applies to both fiducia and pignus. Noordraven (1999: 283) holds that Lenel’s conclusion was based on the wrong assumption that book 35 of Pomponius’s ad Sabinum was concerned with fiducia.
215 See also Pomp. D. 13.7.8.5, holding that when pledged property can be sold pursuant to a pact, it can be exercised not only for the principal sum but also for interest accrued and expenses.
216 In the same sense Kaser 1982: 21. Also a text like Marcell. D. 20.1.27 appears to presuppose that the creditor was impliedly authorized to sell the pledged property upon default.
217 Gord. C. 8.27.8: degem venditionis exercuit’ The reference to lex is to a contractual clause, not to legislation.
the deficit, is superfluous, as it is also the situation by operation of law.^[697] So, apparently, at the time of Pomponiuss commentary, pignus was no longer a ‘substitution pledge. The datio pignoris had ceased to be a datio in solutum. The right of pignus had evolved into a proper security interest, which is aimed at a complete repayment of the secured debt.²¹'² Where the proceeds of an execution sale were insufficient to do so the debtor remained liable for the reliquum. From Pomponius and Scaevola we know that in the second half of the second century AD the express licence to sell was in practice still coupled with a surplus/deficit clauseTh⁰ These texts show that, although from a legal perspective this was no longer necessary, creditors were still adamant that any shortfall could be recovered from the debtor. As D. 46.1.63 clearly illustrates, this shortfall manifests itself when the pledged property is actually sold.
D. 46.1.63. Scaevola libro sexto responsorum. Inter creditricem et debitorem pactum intercesserat, ut, si centum, quae mutua dederit, ubi primum petita fuissent, non solverentur, ornamenta pignori data intra certum tempus liceret ei vendere et si quo minoris venissent, quodque sortis vel usurarum nomine deberetur, id creditrici redderetur, et fideiussor acceptus est: quaesitum est, an fideiussor in universam summam obligari potuerit. Respondit secundum ea quae proponerentur teneri fideiussorem in id, quod minus ex pignoribus venditis redactum esset.
It was agreed between a (female) creditor and her debtor that if the hundred which she advanced were not repaid when first asked for, it would be lawful for her to sell ornaments given in pledge within a certain period and that any shortfall on the sale and what was due as interest should be rendered to her; a surety was also taken; the question was whether the surety would be liable in full. His answer was that on the facts stated, the surety would be liable for the deficiency on the sale of the pledges.
The fact that at the time of Pomponius, the debtor was liable for the deficit by operation of law might already be an indication that also the creditor's liability for the surplus arose by operation of law. The other writings of Pomponius also seem to indicate that in the second century ad, the creditor was obliged to pay the surplus to the debtor. In D. 13.7.6.1 Pomponius says that where the creditor has sold the pledged land for a higher amount than the secured debt and has lent the surplus against interest to a third party, or has used the surplus proceeds himself, he must pay interest to the debtor. Where, on the other hand, he has safekept the money he does not have to pay interest.²²¹ All this presupposes that the debtor was entitled to the superfluum.²²² The same Pomponius also holds (as reported by Marci. D. 20.1.13.2) that in case of a pignus nominis the creditor, once the pledged claim is realized, must set it off against his own claim.²²³ This reference to set-off would again appear to indicate that if the amount of the pledged claim exceeded that of the secured debt, the creditor was obliged by operation of law to pay the surplus to the debtor. In Afr. D. 30.108.13, someone had pledged pearls to his creditor, Titius. Later, he made his son heir and disinherited his daughter and asked the same Titius to be his trustee: ‘I request you, Titius, and charge on you as a fideicommissum that you sell the pearls I left you as a pledge and after deduction of all that is due to you deliver all the residue to my daughter.' Although the sale does not seem to have been an execution sale, the arrangement does reflect that the debtor is entitled to the surplus. It could also be argued that the pledge of the superfluum to a second pledge creditor, as first attested in Gai D. 20.1.15.2,22⁴ lends support to the existence of the creditor's duty to pay the surplus already in high classical law because granting a right of pledge of the superfluum seems to presuppose that the debtor was entitled to dispose of it.
²²¹ In D. 13.7.7 Paul adds that where the creditor returns the money too late, he is liable to pay default interest.
²²² See also Pomp. D. 46.3.26: ‘If the creditor should sell pledged land and recover what was due to him, the debtor will be released.'
22 ³ See section 8.3. 224 s_ee sections 7.2 and 7.3.}

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

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