III LENDING AND BORROWING

i.    Loans

Loans could be arranged in a number of different ways.

There was, however, no need for a stipulatio. Simply handing over money as a loan created an obligation on the part of the recipient to repay it. This was the contract known as mutuum. The contract came into being, as the Romans put it, re, by the very fact of delivery of the money. The obligation to repay was of precisely the same extent. Such a loan accordingly did not include any provision for interest. For this reason, it seems likely that mutuum was one of the range of contracts which were employed primarily between friends. Friendship evidently imposed such duties (Cic., ad familiares 14.1.5, 14.2.3). Indeed, a good deal of the bor­rowing in Rome seems to have taken place, just as it did in Athens (Millett 1983: 47; 1991: 218), between friends and relatives, and much of it would be purely for the domestic purposes of consumption or meeting problems of liquidity, rather than for investment. So a loan, although a contract, was not necessarily a commercial transaction: instead it fitted into an elaborate network of obligations owed by one friend to another. Some of these would be ultimately repaid only by a bequest (chapter 3 above; Garnsey and Saller 1987: 154—6).

Whenever the mutuum was employed in more commercial dealings, in which interest would have been demanded, it would have been neces­sary to enter into a separate contract for the interest. That could have been done by stipulatio; on the other hand, if a stipulatio had to be made for the interest anyway, it is not unlikely that it would have been extended to cover the principal too.

Maximum interest rates were legally fixed from time to time. The history and the details are rather obscure, although it is tolerably clear that throughout the classical period the maximum rate was the so-called centesimae usurae, 1 per cent per month, and so 12 per cent per year (Zimmermann 1990: 166—70).

The documents of practice illustrate a variety of approaches to loans; although it is important to note that very similar examples are also found in the Digest (Paul, D. 12.1.40 and D. 45.1.126.2), so theory and practice here go hand in hand. Here is one of the Murecine tablets:

[29 August ad 38] I, C. Novius Eunus, have written that I owe Hesychus Evenianus, the slave of C. Caesar Augustus Germanicus, 1130 sesterces which I received from him as a loan (mutuum) and shall repay either to him or to C. Sulpicius Faustus, as soon as he demands them. And Hesychus Evenianus, the slave of C. Caesar Augustus Germanicus, stipulated and I, C. Novius Eunus, promised that the 1130 sesterces above mentioned were duly paid in good coin. Transacted at Puteoli. (TP 17)

Here the loan is a mutuum, but it appears to have been reinforced by a stipulatio. This raised a legal question: did a mutuum come into being at all, or was the whole transaction just a stipulatio? Or did the stipulatio novate an existing mutuum? Or did both subsist concurrently? The later classical jurists appear to have favoured the view that it was just a stipu­latio (Pomponius, D. 46.2.7; Ulpian, D. 46.2.6.1). In the case of this doc­ument, however, there is some reason to believe that both transactions were regarded as subsisting, so that the creditor would have a choice which type of action to pursue (Wolf and Crook 1989: 22).

There is an interesting development in the following year, in which another document (TP 18) attests a loan transaction between the same parties, this time for 1,250 sesterces, again reinforced by a stipulatio, but this time also by an oath to repay the principal sum on or before 1 November.

2.   Bankers

An interesting feature of the tablet just cited (TP 17) is that it mentions C. Sulpicius Faustus as an alternative payee to whom repayment of the loan could be made. He was the banker in whose archive this tablet was found, together with a large number of other documents of loan and security and other matters (some of which are discussed below). These tablets confirm that, although Rome had no banking system as such, and much credit and lending appears to have taken place on the basis of per­sonal rather than commercial relationships, there were none the less bankers in the sense of people who accepted deposits, on which they might pay interest, who acted as paying agents, and who lent out money against interest. The leading study of Roman banking concludes that bankers tended to operate at a local level (Andreau 1987: 652); this finds some support in the case of the Sulpicii, who appear to have been a banking ‘house' at Puteoli: three generations of them are attested, all apparently freedmen.

So far as loans made by bankers are concerned, only a little need be added here to what has been said already. Comparison of the two doc­uments just mentioned indicates that, as would be expected, bankers varied the stringency of the terms of their loans, presumably taking account of the attractiveness of retaining the particular customer.

It is interesting that the document cited above (TP 17) requires repay­ment of the loan on demand.

So far as bankers' borrowing money or taking deposits is concerned, clearly a loan (mutuum) could be made to a banker as to any other indi­vidual. A more interesting possibility, however, was to make not a loan but a deposit (depositum). Under the ordinary contract of deposit, the depositee was not entitled to use the object deposited and to do so was a breach of contract. This form of deposit would therefore be of inter­est to bankers only for safe deposits or where the money was not going to be touched at all. In general, however, bankers will have wished to make use of the money and return not the precise coins deposited but the equivalent value.

The details of this arrangement are extremely controversial. What is at least clear is that it was imported from Hellenistic practice and even­tually acclimatized in Rome. At least in late classical law it appears to have been accepted - although still not without dispute - that, where the depositee (the banker) used the money, he came under an obligation to pay interest: the jurists could deduce this consequence from the fact that deposit was a good faith contract (Scaevola, D. 16.3.28: Papinian, D. 16.3.24). The Digest contains evidence of deposits where the money was not to be touched and those where it was, as well as deposits where inter­est was to be paid and those where it was not (Ulpian, D. 42.5.24.2 and D. 16.3.7.2). The difference between these types emerged most clearly if the bank failed: those whose money had not been touched and who could identify it as theirs could simply claim their property back; those whose money had been used but who had not received interest had a preferential claim in the insolvency; whereas those who had received interest ranked together with ordinary creditors of the banker (Andreau 1987: 529-44; Bürge 1987: 552-8; Zimmermann 1990: 215-19; Kaser ^I97^i: 53⁶⁾·

This evidence seems to suggest that there was a range of possibilities open to a Roman who had cash to spare, and which option he chose would depend on what risk he was prepared to accept (cf. perhaps Plin., ep. 10.54-5). Or, viewed from the other perspective, it seems likely (just as is the case today) that bankers with less good credit ratings would have to offer better interest rates in order to encourage customers to deposit with them.

3.    Investment and securities

All the evidence points to land constituting the main and most impor­tant element in wealth in Roman times.

Two main categories of security have to be considered: personal secur­ity, in which another person guarantees that the debtor will pay; and real security, in which property is pledged to the creditor to guarantee payment. Nowadays, although personal security is by no means extinct (loans to private companies are regularly secured by personal guarantees granted by their directors), real security is the commoner form, most typ­ically in the form of a mortgage secured against land. A critical difference between Rome and the modern world is that the Romans had a marked preference for personal rather than real security. It is quite pos­sible that there is a question of status involved here: a wealthy Roman’s word was his bond, and security as potent as any pledge. The same may not of course have been true at the lower levels of the social scale.

4.   Personal security

There were three main types of personal security, sponsio,fidepromissio and fideiussio, which differ in a number of more or less technical respects. The details are avoided here, and what follows is very much a broad-brush picture. All three types of security were founded on a stipulatio, in which the promisor or surety undertook an obligation towards the creditor, just as the principal debtor had done. The obligation might be for the same amount as the debtor's liability or it might be for less, but it could not be for more. How easy it was to find someone to undertake this obligation would of course vary from case to case, but there is little doubt that undertaking personal security was part of the code of (mainly upper­class) social duty which was based on friendship and good faith. As Fritz Schulz said, ‘Roman friends made mutual claims on each other which would in many cases cause a modern “friend” to break off the friendship without delay' (Schulz 1936: 233; Konstan 1997: 80).

The two obligations, of the principal and the surety, were interrelated: each was regarded as being an obligation for the same thing (eadem res). The most important practical consequence of this was that, because it was not possible to sue for the same thing twice, when the creditor sued either the principal debtor or the surety, the other was automatically released from liability. This meant that it was important to choose cor­rectly whom to sue; although it appears to have been regarded as improper to sue the surety without first calling on the principal to repay (Cic., Att. 16.15.2; Gaius, D. 47.10.19). But the basic conception of Roman suretyship which this reveals was that the whole of the debt should be recovered from one person. In order to maximize the (fiances of being able to do this, the creditor had an interest in maximizing the number of sureties, in the hope that at least one would be solvent at the time the debt fell due.

Another form of personal suretyship is also attested, which proceeds upon a different basis: here the surety undertook only to indemnify the creditor against the amount he was unable to recover from the principal debtor. Obviously, in this instance the creditor had to proceed first against the principal. But since in this case the obligation undertaken by the surety was not the same as that of the principal debtor, the action against the principal debtor would not extinguish it (Celsus, D. 12.1.42 pr.).

Once the surety paid the creditor, he in effect acquired the creditor's own claim against the debtor. It is not possible to go into the details here; in essence, however, the surety was treated as having been given a mandate by the principal debtor to become his surety. Once he had per­formed the mandate, in accordance with general principles he was enti­tled to reimbursement (Gaius, Inst. 3.127).

Personal security was evidently of the greatest importance. That is clear not just from the steady refinement of the rules, tending to increase its practical utility, but also from the extraordinary volume of legislation which dealt with it. For the details we are indebted to one of Gaius's historical excursuses, in which he lists no fewer than five repub­lican statutes which altered the rules on personal security (Inst. 3.121-7). Their dates are not entirely clear. A lex Publilia gave the surety an action against the principal debtor if he was not reimbursed within six months; a lex Apuleia (after 241 bc?) ruled that one of several sureties who had paid off the creditor in full could recover part of his payment from the other sureties; a lex Furia (before 81 bc) limited the liability of each of several sureties to a proportionate share of the whole debt, and also released them after two years; a lex Cicereia required a debtor to declare the amount of the debt and the number of sureties and, if he failed to do so, released the sureties; and a lex Cornelia (81 bc) limited the amount for which one could in any given year stand surety for any given indi­vidual to 20,000 sesterces. The obvious conclusion from all this legisla­tive activity is that there was great concern to relieve the position of the surety.

Legislation continued under the empire. A ruling of Hadrian re­affirmed that if a surety could prove that there were other solvent sure­ties, the creditor had to restrict his claim against him to his proportionate share.

5.    Real security

Real security in Roman law can be divided into three types.

(1)   The first, fiducia, was a form of security in which the debtor trans­ferred ownership of some property to the creditor. The creditor under­took to reconvey the property to the debtor when the debt was repaid. The creditor was full owner of the thing for the time being, but his own­ership was qualified by the terms of his undertaking (orfiducid): on repay­ment he must reconvey the property; meantime he had to look after it, he could not (yet) sell it, and he had to offset profits made through the thing against the debt owed. A fairly complete example of such a trans­action is preserved in a tablet from Spain dating from the first or second century ad (FIRA 3.92).

But this undertaking was a purely personal one in favour of the debtor, and the debtor's rights against the creditor were therefore only in personam: that is, they were good only to enforce this personal agree­ment. If the creditor breached the fiducia and conveyed the property to a third party, the debtor had no right to recover it, since he was not the

owner. This seems to be true even if the third party knew of the exis­tence of the fiducia.

It will be obvious that this form of security placed the creditor in a very strong position — as owner of the security — and the debtor in a cor­respondingly weak one. Whether any given transaction made use of fiducia will therefore have depended to some extent on the bargaining strengths of the respective parties. But there would be other relevant considerations too. Since fiducia made the creditor owner, there was no need for him to retain possession of the secured property; he would anyway be able to recover it from a person in possession of it by using the owner's action for recovery of property (vindicatio'). This is important, since it meant that the creditor could let the debtor continue to use the property, either informally or under a rental agreement, and would not thereby jeopardize his security. And the advantage to the debtor was that he could pledge even property which he needed in order to generate income to repay the debt. (As we shall see, this was not true of another form of real security, pignus.)

The advantages and disadvantages of fiducia are therefore more finely balanced than at first appears. Although fiducia was abolished by Justinian, and therefore does not appear in the Digest, a good deal of documentary evidence survives indicating that it was used throughout the classical period.

(2)   Pignus was a form of security in which the debtor remained owner of the property he was pledging, and what he transferred to the creditor was possession. From the point of view of the debtor this was an improvement in one respect, since if the creditor parted with the prop­erty, the debtor, being owner, was able to recover it. But it suffered from the drawback that, since the creditor was in possession, the debtor would be deprived of the use of his property. That was a critical restriction on what he could pledge, since any property he depended on to cultivate his land or to operate his business could not be used as security. It follows that he was in effect limited to pledging property which was surplus to his requirements. Even the creditor could not use the pledged property unless this was agreed; if he drew income or fruits from it, these had to be set off against the interest payable on the loan, failing which the capital.

To overcome this inconvenience, the law seems to have developed so as to allow pledges to be made, for example, of a tenant's basic agricul­tural equipment, without his having to give up possession (Labeo, D. 20.6.14). This seems, however, to have required express agreement; by contrast, in an urban tenancy the tenant's belongings were impliedly pledged against payment of the rent (Neratius, D. 20.2.4). Further exam­ples of pledges without possession are discussed below in connexion with hypothec.

On default by the debtor, the creditor had two remedies. First, an interdict to recover possession of the pledged goods from the debtor or anyone else who had them; this was known as the interdictum Salvianum (Gaius, Inst. 4.147). Clearly this would be needed only if the pledge cred­itor lost the possession which he was initially given. Second, the creditor had an action to recover the property if it had been disposed of to a third party. The dates at which these remedies were developed are unclear, but it may be that they go back to the first century bg (Kaser 1971: 472—3).

(3)   Under a third, evidently later, form of security, hypothec, the cred­itor obtained neither ownership nor possession but had only the right to take possession when the debt fell due, if it was not then paid. The same remedies were available to the creditor under this form of security; the difference was of course that the creditor would need to use one of them to obtain possession in the first place.

Hypothec offered the clear advantage to the debtor that he could realize the equity value of things — including land, with which there is some reason to associate this form of security — while he continued to use them to earn his living and to repay his indebtedness. Indeed, since the debtor did not have to surrender any specific property, it was possible to interpret a hypothec as creating a security right over goods the debtor would acquire in the future. This could clearly be of the greatest value for businesses, which turned over their stock on a regular basis. Here is an example:

A debtor pledged a stall (taberna) to his creditor. It was asked whether this was a nullity or whether he was to be regarded as having pledged, under the term taberna, the goods which were in it. And if, over the course of time, he had sold those goods and had bought others and brought them into the taberna, and he had then died, would the creditor be able with his action (actio hypothecaria) to claim all the goods found there, even if the types of goods had changed and different ones brought in? He replied: the goods which were in the debtor’s taberna at the time of his death are regarded as being subject to the pledge. (Scaevola, D. 20.1.34 pr.)

The fact that the debtor did not need to surrender ownership or posses­sion of the security had one other major consequence: he was able to offer the same property as security more than once. The principle is the same as in a modern mortgage of land: a borrower who has already bor­rowed against the value of his land is able to take out further loans, pro­vided there remains equity in the land against which creditors are pre­pared to lend. Plainly this introduces a complication which the other forms of real security do not involve: it becomes necessary to be able to find out how much equity is left in the property offered for security, and to regulate the priority of the various secured creditors. The second point seems to have caused some analytical difficulty for a while; the ear­liest cases suggest that the validity of the second security was treated as being conditional on the discharge of the first, so that there was an insis­tence that only one pledge could be valid at a time (Africanus, D. 20.4.9.3). But this view was gradually overcome, and a second pledge which was valid independently of the first was recognized by the mid- to-late second century ad (Marcellus, D. 20.4.12.7; Paul, D. 44.2.30.1; Ulpian, D. 20.1.10). Once this stage was reached, it became established that an earlier creditor took priority over a later (prior tempore potior iure: C. 8.17.3 (ad 213)), and that a later creditor, by paying off an earlier one, could succeed to his place in the security ranking.

Much more problematic was the first point: knowledge of the exis­tence or extent of prior charges. That is regulated nowadays at least for charges on land or company charges by a register of charges: the exis­tence of such a register makes it possible to say that a creditor knew (or ought to have known) of the existence of prior charges against the secured property. But the creation of such registers for movable property is plainly difficult, now as in Rome. The closest to this sort of solution that we seem to find in Rome is a constitution of the emperor Leo in ad 472, which provided that pledges which were publicly documented should take priority over those that were not, even if they had been established earlier (C. 8.17.11). During the classical period, however, there does not seem to have been any adequate means of addressing this problem. Attempts to compel full disclosure seem to have been half­hearted. For example, it was made a crime for a debtor to mislead a cred­itor as to the extent of existing borrowing against a property which he was offering as security (C. 9.34.1 (ad 231); C. 9.34.4 (ad 244)). The offence fell under the generic heading of fraud, stellionatus, literally ‘behaving like a gecko'. Geckos have not so far been confirmed as tending to act in this way. But, just as the debtor leaves the creditor empty-handed, so the gecko escapes by shedding its tail in its predator's hands or jaws, leaving him cheated of his main prize (Stein 1990: 82—3).

In classical law it is difficult to see how a creditor could have had much confidence that any property which was still in a debtor's possession was not subject to a prior charge. Nor would this be a problem only for hypo­thec, since any prior charge would also be good against a subsequently created fiducia or pignus. Matters can only have been made worse by the tendency in later classical law to subject property to implied or tacit hypothecs for worthy causes (such as the hypothec of a child over prop­erty bought by his tutor in his own name but with the child's money; or the hypothec of the fisc for taxes and certain other claims; see Kaser 1971: 466). For all these reasons, it is not clear that classical law ever came to an adequate solution of this problem. The result is that a potentially powerful instrument remained blunt, and the law of real security less useful and versatile than it might have been.

Some documents of practice are interesting on the subject of the various types of security. One recounts, much along the lines of the tablet (TP 17) cited earlier, the making of a loan by Evenius Primianus through his slave Hesychus to C. Novius Eunus, repayable on demand. It continues:

And for these 10000 sesterces I have given him a pledge [pignus or arrabo] of approximately 7000 modii of Alexandrine wheat and 4000 modii of chickpeas, spelt, monocopi and lentils in 200 sacks. All this I have stored in my possession in the Bassian public stores of Puteoli. I declare that I bear the risk. (TP 15, 28 ^June ad 37)

From this it is clear that C. Novius Eunus pledged his goods without giving up their possession: this was therefore a case of hypothec. It is worth noting in passing that the value of the pledge greatly exceeded that of the loan: at a conservative valuation of 3 sesterces per modius, the wheat alone was worth 21,000 sesterces (Duncan-Jones 1982: 145-6; on arrabo, Millett 1990: 175—6).

Four days later C. Novius Eunus borrowed a further 3,000 sesterces and evidently did give up possession in favour of the creditor: this we can tell not just from the absence in the second document of any reference to his retaining possession but (much more emphatically) from the fact that on the same day the creditor entered into an agreement to rent the part of the public store which held the pledged goods (TP 7 and 16, both 2 July ad 37; Wolf and Crook 1989: 17—20). It is interesting to note that no additional security was taken for the second loan: there was still sufficient equity remaining in the initial security to cover the second advance to the borrower. We seem here to have a picture of increasing desperation on the part of C. Novius Eunus, or of increasing harshness on the part of his creditor: not only is the value of the security demanded very high in relation to the sum advanced, but security with possession is almost immediately taken.

It is time to sum up on securities. The extraordinary concern with reg­ulating the details of personal security suggests that it was regarded as particularly important. Probably those with landed wealth but tempo­rary problems of liquidity would have found little difficulty in arranging for personal guarantors and so managed to secure loans without much personal inconvenience. But it does not seem likely that this would be true very far down the scale of status or wealth. At that point real secur­ity is likely to have played a much more vital role.

In the area of real security, on the one hand, there is a good deal of flexibility in the development of different forms of security, so that what the creditor received might be ownership or possession or simply the right to take possession. But, on the other hand, there remained prob­lems: an ordinary pignus cannot have been useful for the debtor who needed to retain possession of income-generating property, although concessions were admittedly made to overcome this difficulty. Hypothec, although much more versatile, was much weakened by uncertainty about the extent of prior charges, and in later classical law by a multi­plicity of implied hypothecs.

Owing to these inadequacies in the law of real security, small, under­capitalized landowners may have had difficulty in raising cash against the value of their land except by entering into fiducia. But security of that sort involved transferring title to the creditor. Probably it was not uncom­mon for the debtor to continue to farm the land as the tenant of his cred­itor. Some tenants would find it difficult to redeem thefiducia. It is at least possible that in this way the law of real security contributed to the decline of the class of small owner-farmers and the rise of great ten­anted estates (Schulz 1951: 403-5; cf. de Neeve 1984: 156).

6. Sea loans and insurance

lang=EN-US style='font-size:10.0pt;line-height: 109%'>A special kind of loan was the sea loan (fenus nauticum or pecunia traiecticia; Millett 1983; de Sainte Croix 1974), which appears to have originated in Hellenistic practice. Here the borrower negotiated a loan from the cred­itor in order to finance a voyage and the purchase of goods. The char­acteristic feature of these loans was that if the ship foundered there was no obligation to repay the loan. On the other hand, if the ship returned safely, the loan had to be repaid at a substantial rate of interest. In effect, the sum payable in interest covered not just conventional interest but an insurance premium; for that reason these loans were not subject to the normal rules on maximum interest rates. It seems that dealing of this sort fell outside the ordinary scope of banking practice, although bankers might act as paying agents for the creditors (Andreau 1987: 603—4). Similarly, in Greek practice it seems that there were professional moneylenders who specialized in such loans (Millett 1983: 51; 1991: 188-96).

A well-known example is cited in the Digest. The main terms were these: Stichus, on behalf of his owner, lent money to Callimachus in Beirut; Callimachus was to buy goods with the money and ship them to Brindisi; there he was to sell the goods, buy new goods and ship them back to Beirut; on both legs of the voyage the goods were at his risk; he was also liable to maintain any slave of the lender's who travelled on the voyage with him. The loan was made for a period of 200 days, during which the journey there and back must be completed; the return journey was to begin on or before the ides of September (13 September); if it did not do so, the whole of the loan and interest would fall due as if the voyage had been completed (Scaevola, D. 45.1.122.1). These terms were set out in a stipulatio.

Winter sailing was extremely hazardous, and the borrower had to be encouraged to complete the voyage well before the weather deteri­orated. That is the reason why, in effect, the risk of the venture was placed entirely on the borrower, Callimachus, if he did not embark on the return journey before 13 September. In the event the goods were loaded in time, but the return journey was not commenced until after 13 September. The ship sank. Callimachus was liable.