General Pledges and Special Pledges: Ranking

The floating charge of the modern common law systems allows the debtor company to deal with its assets freely in the ordinary course of its business so that subsequent dispositions by the company will take place free from the charge, while subsequent grantings of fixed charges will take priority over the floating charge.^{[1051] [1052] In Roman law this was certainly different for subsequent special charges.}

Prior tempore principle applies

There can be no doubt that where slaves and other assets pledged as invecta et illata were also pledged to other creditors, the ranking of the competing pledges would be determined by the prior tempore principle.“⁶ The Roman jurists and the imperial chancery also consistently applied the general principle of priority to the ranking between general pledges and subsequently granted (special and general) pledges over the generally pledged assets.

In one of the first opinions on the general pledge (Scaevola D. 20.4.21 pr.) Titius had pledged all his present and future goods to Seia in order to secure his liability to her as tutor. Later, Titius borrowed money from the imperial treasury and this time pledged all his present and future goods to the treasury. Scaevola held that Seia's general pledge took preference over the treasury's general pledge.^{[1053] [1054] [1055] [1056] The applicability of the principle of priority to general pledges, also in relation to special pledges, remained firmly entrenched in Roman jurisprudence. In Ulp. D. 20.4.7.1 Marcellus treats the ranking between a general pledge of all the debtor's future assets and a conditional special pledge of land still to be acquired in exactly the same way as where two special pledges were granted in respect of property subsequently acquired.“8 In Pap. D. 20.4.2 Papinian holds that the creditor to whom a gen­eral pledge was granted could take recourse against land which the debtor later had specially pledged to another creditor. In Pap. D. 20.5.1 a creditor (C1) had first taken a special pledge of land and later a general pledge of all the debtor's assets. This creditor sold some of the debtor's goods (but not the specially pledged land) to third parties by way of execution sale. This sale was an unauthorised sale, because in respect of the debtor's other assets the (gen­eral) pledge granted to another creditor (C2) had been granted earlier than the (general) pledge granted to the selling creditor (Cl).“9 The creditor (C2) with the first ranking general pledge over the debtor's other (sold) goods could, according to Papinian, institute the actio Serviana against the purchasers of these goods from C1. Indeed, to hold otherwise would have rendered the stronger position of the creditor with the first ranking general pledge illusory. This line of legal opinions is continued by the imperial chancery.}

Subsidiary nature of cetera bona pledge: transactional practices

The general rule is that where several goods were (specially or generally) pledged for the same debt, it was completely at the creditor's discretion which of these goods would be sold by way of execution (Mod. D. 20.5.8). The fact that some of the goods were pledged to other creditors did not change this: the creditor was at liberty to take recourse against these assets, even where the debtor still owned assets which were not pledged to others.^{[1057] [1058] [1059] [1060] This would originally also apply to cetera bona pledges?22 The creditor was at liberty to take recourse against other assets of the debtor than those specially pledged to him. This would also be the case where these other assets had in the meantime been (specially or generally) pledged to other creditors.}

D. 20.4.2. Papinianus libro tertio responsorum. Qui generaliter bona debitoris pignori accepit eo potior est, cui postea praedium ex his bonis datur, quamvis ex ceteris pecuniam suam redigere possit. quod si ea conventio prioris fuit, ut ita demum cetera bona pignori haberentur, si pecunia de his, quae generaliter^{[1061] [1062] accepit, servari non potuisset, deficiente secunda conventione secundus creditor in pignore postea dato non tam potior quam solus invenietur. Someone who accepts a general pledge over a debtor's assets has a stronger position than he who subsequently is given a piece of land in pledge from those assets, even if he can recover his debt from other assets. But if the agreement with the first creditor was that the remaining assets were pledged only if the money could not be recovered from those accepted as gen­erally pledged, if the second agreement does not become operative the sec­ond creditor is the sole rather than the preferred pledge creditor.}

What precisely happened is impossible to reconstruct from this (probably heavily interpolated) text, but there cannot be much doubt about its gist. Papinian's opinion first sets out the principle: where all the debtor's goods are pledged to C1 and subsequently a piece of land is pledged to C2, C1 can take recourse against this land, even though the proceeds of the other assets would have been sufficient. This is different, however, where the debtor and C1 have created a cetera bona pledge and have agreed that the debtor's remaining assets shall be conditionally pledged, subject to the condition precedent that the secured debt cannot be recovered from the specially pledged asset.

As in the intermediate stage in the evolutionary trajectory of the multiple pledge and the special pledge of future property,^⁶ the parties use the con­struction of a conditional pledge in order to realize the desired result. The text appears to indicate, however, that even if the condition materialized, C2's pledge would rank ahead of C1's cetera bona pledge. This is because the last sentence of D. 20.4.2 appears to say that if the conditional cetera bona pledge becomes operative, C2 shall be the preferred (‘potior’) pledge creditor. Could the reasoning behind this have been that the ranking of a conditional pledge would be determined by the time at which the condition materializes? This is unlikely: it would go against the tendency in Roman jurisprudence that the creditor to whom the pledge has been conditionally granted must be pro­tected against dispositions made in the period between the conditional grant and the materialization of the condition.^{[1063] [1064] Moreover, if C2's pledge were to have had priority over Cl's conditional pledge, not many creditors with a cet­era bona pledge would voluntarily have agreed to such a far-reaching form of subsidiarity. The purpose of the agreement discussed by Papinian rather is that Cl has a first priority right of pledge over all the debtor's assets, subject to the proviso that (first priority) recourse can only be taken against the cetera bona if and when it appears that the proceeds of the specially pledged prop­erty are insufficient.^8}

Subsidiary nature of cetera bona pledge: imperial constitutions

A constitution from Septimius Severus and Caracalla from 204 ad rules that the creditor with a cetera bona pledge should first sell goods which are spe­cially (‘specialiter) pledged and the remaining goods shall only be sold if it appears from the first execution sale that there is a deficit.

Sev.-Ant. C. 8.13.2. Quamvis constet specialiter quaedam et universa bona generaliter adversarium tuum pignori accepisse et aequale ius in omnibus habere, iurisdictio tamen temperanda est. 1. Ideoque si certum est posse eum ex his, quae nominatim ei pignori obligata sunt, universum redigere debitum, ea, quae postea ex isdem bonis pignori accepisti, interim non auferri praeses iubebit.

Although it is clear that your adversary accepted as a pledge some property specially as well as all his goods generally, and he has an equal right to all of it, nevertheless the law should be applied with restraint. 1. So if it is certain that he can collect the entire debt from property pledged to him specially, the governor will order that the property you afterwards received as a pledge from the same goods not be taken from you in the meantime.

This constitution concerns a case where a special pledge has been combined with a general pledge in favour of the same creditor (C1), while some gener­ally pledged assets have subsequently been pledged to another creditor (C2) by way of possessory pledge. The constitution first puts forward the general principle that C1's preferential rights of recourse exist equally in respect of specially and generally pledged assets. Judicial ‘temperance, however, requires that this principle sometimes be set aside for the benefit of other creditors. As long as no execution sale of the specially pledged goods has taken place, the creditor with an anterior general pledge cannot recover remaining assets which were subsequently pledged to another creditor.^{[1065] [1066] [1067] In the period anticipating the execution of the specially pledged goods, creditors with lower-ranking rights of pledge presumably would also not be entitled to take recourse against the debtor's remaining goods. This is only possible after it has become clear that the proceeds of the specially pledged goods are sufficient to discharge the debt owed to the first ranking creditor with a cetera bona pledge?30 Therefore, only if after execution of the specially pledged goods it turns out that there is still a deficit, the creditor with a first ranking cetera bona pledge can take possession of (one or more of) the debtor's other assets and sell them by way of execution. The cetera bona pledge had become a subsidiary security interest, which cannot be enforced against lower-ranking pledge creditors if the specially pledged assets offer sufficient security to the first ranking creditor. The equitable solution reached for an incidental case in C. 8.13.2, which protected both the debtor and lower-ranking creditors, would because of its economic rationality also be applied in other cases where similar competing rights of pledge existed.131}

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