A Roman ‘Floating Charge’

In respect of all the variants of pledge that have been discussed in this book, it can be observed that the Roman jurists and the imperial constitutions generally reach economically sensible results.^ As soon as they would enter the debtor's patrimony (in bonis debitoris), the debtor's goods would automatically be charged.

For as long as these assets were in the debtor's patrimony, the creditor could institute the actio Serviana not only against the debtor himself but also against any possessor of generally pledged assets (including subsequent pledge creditors). When they were disposed of to third parties these assets would no longer be in bonis debitoris and could no longer be recovered with the actio Serviana. From an economic perspective, such a general pledge would have many advantages. The debtor could continue to dispose of his assets in the ordinary course of his business and buy new goods with their proceeds. Generally pledged slaves could be manumitted. At the same time, the creditor would have a preferential right of recourse against all the debtor's assets which were part of his patrimony at the time of execution. The general pledge (including the cetera bona pledge) would be like what one could call a ‘floating' charge over a dynamic fund of assets, pursuant to which incoming goods would be charged and outgoing goods would become free from the charge.^²

Things as Thing and Things as Wealth'

There are two different ways of treating things as a matter of law: ‘things as things and things as wealth'. In his brilliant essay, Bernard Rudden writes: A thing may be treated for itself and be possessed, used, and disposed of for its own qualities, however banal they be. In this case the legal regime applicable treats the object as unique: it is this house we own and live in, this book we sell and no other. On the other hand every thing may be treated merely as the clothing (in-vestment) worn by a certain amount of wealth.

In this case the relevant law accords it the modest role of a member of a class, perfectly replaceable and subject to an implacable regime of real subrogation.

The distinction between the uniqueness of things considered for themselves and their total convertibility when treated as wealth does not follow the classic line of fungibility: a pound of flour is unique if its owner wants to make bread with it; a Vermeer in the hands of a pension fund is just another investment.^[1107] ^{^[1108] ^[1109] ^[1110] ^[1111]}

According to Rudden, the Roman pledge ‘seems to be the oldest of the institutions in which a person treats an object only and always in terms of its value’.'84 The creditor is not interested in using the pledged objects (as things), but only in their monetary value (as wealth) if and when an event of default occurs. In that case the creditor becomes obliged to realize the value of the pledged object, by selling and returning the surplus value to the debtor. To the borrower the pledged object is both a thing and realizable wealth: he can both enjoy its use as a thing (hypotheca) and call upon its value in order to obtain credit.'⁸⁵

The most articulate manifestation of things as wealth is where things are treated predominantly as members of a class: ‘as an item in a portfolio every thing can be changed or converted. Nothing is unique’.'⁸⁶ The Roman general pledge may have operated in this way. Wubbe has put forward that a creditor who accepts a general pledge expects the debtor’s patrimony to have a more or less stable valueTh⁷ Where the debtor disposes of an asset, this is generally counterbalanced by the acquisition of another asset, which would then be subject to the general pledge. This process of substitution would normally repeat itself continuously. This idea that the debtor’s patrimony is a fluctuating fund with a (more or less) stable value, might explain why the jurists and emperors may have accepted that generally pledged assets could be disposed of free from the pledge.

At the same time it would also explain why in situations where this was typically not the case the debtor could not freely dispose of pledged assets.

Pledge of wealth

Not only the general pledge (including the cetera bona pledge) but also generic pledges would be like what one could call a ‘floating' charge over a dynamic fund of assets. Merchandise in a taberna is circulating capital, which is meant to be purchased and sold. If a right of pledge would have the effect that merchandise would be excluded from the circulation of assets, this would entail that it would be stripped of its essential characteristic. A creditor who takes a pledge of the goods of a taberna takes a charge of saleable commodities and is aware of the circulation process of money purchasing goods which are then sold for money, and so on.^[1112] ^{^[1113] Such a creditor accepts that sold merchandise will no longer be subject to the pledge, while newly purchased merchandise will automatically become pledged. For the creditor, ‘each moveable is merely an entirely replaceable element in a portfolio’.™⁹ Where a marble trader sells a batch of white marble for 100,000 sesterces and purchases black marble with these proceeds, the object of the creditor's general pledge will have changed from the white marble to the black marble. The charged ‘thing' has changed but the charged ‘wealth' has remained more or less the same. The scope of the pledge of merchandise in a taberna was confined to assets that were in bonis debitoris, both in respect of incoming and outgoing goods. They would only be charged if they entered the taberna (and the debtor's patrimony) and would no longer be charged when they had left it. One piece of collateral would be replaced with another piece, so that the collateral value of the aggregate of assets charged to the creditor would be more or less stable. It is plausible that the pledge of a herd operated in exactly the same manner: individual animals would be pledged from the moment they entered the herd, but would be released from the pledge when the debtor disposed of individual animals.™⁰ The value of the herd as a whole would be more or less stable and so would be the ‘wealth' available as collateral to the creditor to whom it had been pledged.}

Not only in respect of incoming goods but also in respect of outgoing ones the general pledge, the pledge of the stock-in-trade of a taberna and of a herd would have had the same effects.^[1114] ^{^[1115] ^[1116] There may even be a causal relationship between the differential legal treatment of incoming and outgoing goods pledged by way of general and special pledge, respectively. In the case of general pledges, future goods could already at a relatively early stage be pledged without qualification. This may have compensated for the fact that outgoing goods would no longer be pledged. By way of contrast, special pledges would remain attached to outgoing goods, so that there was less need to give the creditor access to the wealth represented by future assets.19²
Reduction of wealth
There are scenarios in which dispositions by the debtor free from the pledge would reduce the wealth available as collateral to a creditor with a general pledge. Where the debtor would be allowed to create higher-ranking pledges over specific assets, this could seriously damage the position of the creditor with a general pledge. The goods specially pledged to other creditors would no longer be available for recourse by this creditor. It is true that, in theory, the proceeds of the loan provided by another creditor would again be subject to the general pledge and so would any asset purchased with the newly borrowed money. In practice, however, these proceeds would often be used to discharge other creditors, or could even be applied in order to finance more risky investment strategies. The ongoing process of ‘conversion' (substitution) would be interrupted. The Roman jurists may have realized this when, in their opinions and in the imperial chancery, they consistently held that a general pledge could be invoked against subsequent pledge creditors.^³ Where the creditor with a general pledge did consent in the granting of security to another creditor, this consent could be given without prejudice to the general right of pledge (which, according to Ulpian, creditors commonly did).¹'⁹"¹ One can easily imagine why: the asset pledged to another creditor would otherwise no longer be charged under the general pledge and would not be substituted by another asset.
Also where the debtor would sell generally pledged assets, this could sometimes adversely affect the position of the creditor with a general pledge. Wubbe observes that the value of the debtor's entire patrimony will be much higher than the amount of the secured debt, so that small drops in value will not undermine the creditor's security.^[1117] This is, however, not always true. In particular, where the debtor's patrimony is relatively small, the value of all the debtor's assets and the amount of the secured debt may be more or less equal. A disposition by the debtor could in this case more easily disturb this balance. If the debtor, instead of buying replacement assets, used the money received from the sale of a pledged asset in order to pay other creditors, the position of a creditor with a general pledge would be weakened. The net balance of the debtor's assets and liabilities would remain the same, but for the secured creditor there would be fewer assets available for recourse. It would seem, however, that in the case of the sale of generally pledged assets the creditor was protected against larger transfers of wealth, which could compromise his security, by contractual good faith and rules of fraudulent preferences (fraus creditorum).^[1118] Above all, the creditor could secure his position by singling out one or more valuable assets for a special pledge and take a cetera bona pledge over the debtor's other assets.
Return of pledged slave by debtor to seller
A constitution from Diocletian from 294 ad deals with the situation where a general pledge had been granted to one creditor, while another creditor sold one of the debtor's assets (C. 8.27.17). The legal basis of this sale remains unclear. It may have been that this was an execution sale by an ordinary creditor, or that it took place without any legal basis at all. The constitution rules that a secured creditor does not lose his right to recover generally or specially pledged assets, if they were sold by another creditor to whom they were not pledged.
A different conclusion would have reduced the wealth available to the creditor with the general pledge: the proceeds of the sale were not paid into the debtor's patrimony, which prevented that they or the assets purchased with these proceeds would be caught by the general pledgeTh⁷ In the Corpus iuris civilis there is only one text which deals explicitly with a disposition of (possibly) generally pledged assets by the debtor himself, although not as a seller of generally pledged assets. This text again rather nicely illustrates that where the pledged wealth was in danger of being reduced, the Roman jurists were reluctant to accept that property would be released from the pledge. D. 20.6.4 pr. Ulpianus libro septuagesimo tertio ad edictum. Si debitor, cuius res pignori obligatae erant, servum quem emerat redhibuerit, an desinat Servianae locus esse? et magis est, ne desinat, nisi ex voluntate creditoris hoc factum est.
If a debtor whose assets were pledged returns a slave he has bought, can the Servian action be brought? The better view is that he can, unless the creditor agreed to the return.
The debtor had purchased a slave on a market, who upon delivery was charged by him in favour of one of his creditors. The aediles currules were annually elected officials who had jurisdiction over market transactions, among other things. They would (like the praetors) each year promulgate an edict on the remedies they would grant in the exercise of their jurisdiction. This aedilician edict for market sales contained remedies granted to a purchaser where sold slaves were defective or where warranted qualities turned out to be lacking. One of these remedies was the purchaser's right to return the slave and receive back the purchase price (actio redhibitoria) from the seller.^[1119] ^{^[1120] In the case discussed by Ulpian the debtor/purchaser must have exercised this actio redhibitoria and have redelivered the slave to the seller. Because at the time the pledge had been granted the debtor still owned the slave and repudiation of the sale did not have retroactive or proprietary effect, the creditor's right of pledge cont inued to exist. Therefore, in this particular case the debtor could not freely dispose of generally pledged assets. Although a generally pledged asset had left the debtor's patrimony, it would continue to be charged, unless the creditor would expressly waive his right of pledge.^}
Wagner and Wubbe consider it inequitable that in this case the creditor could institute the actio Serviana against the seller.^[1121] The purchase price had been returned to the debtor and would be subject to the general pledge.^[1122] Wubbe even goes so far as to say that because the result reached in D. 20.6.4 pr. is so blatantly inequitable, this text is implausible.202 The view endorsed by Ulpian may already have been controversial in antiquity. Ulpian calls it the ‘better view' (‘magis est’), which must mean that there were also jurists who were of the opinion that returned slaves could not be recovered from their sellers. However, the result is less inequitable than Wagner and Wubbe believe it to be. It is true that if the coins representing the purchase price would still be in the debtor's coffers when the creditor would execute his general pledge, his position would not have worsened when the slave would no longer be charged in his favour.20³ The same would be true if the debtor had used the purchase price to buy another slave, who would then be subject to the general pledge. There are, however, situations where the outcome of the return of a pledged slave is not ‘neutral' for the creditor with a general pledge. Slaves were relatively valuable assets, so it is not completely surprising that their return to the seller would require the pledge creditor's express permission/'¹⁴ Besides, it was the seller who sold a deficient slave or warranted certain qualities which proved to be absent. This could have contributed to Ulpian's decision to protect the creditor (for whom there would be no special remedies in the aedilician edict).}

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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

A Roman ‘Floating Charge’

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