Sale or Collection of Assets Levied Upon

• Author: Konstantinos D. Kerameus
• Position: Dr. iur, Dres.h.c. Professor of Civil Procedure, Athens University
• Pages: 1151-1159

Page 1151

Dr. iur, Dres.h.c. Professor of Civil Procedure, Athens University; President, International Academy of Comparative Law. This essay was written while working for the chapter on "Enforcement Proceedings" for the International Encyclopedia of Comparative Law. In preparing the chapter, I have enjoyed the valuable aid of two regional reports by Professors Stalev (Sofia) and Vescovi (Montevideo) on European Socialist and Latin American law, respectively.

I Introduction

As a rule, monetary enforcement on both movables and immovables includes three stages, i.e. levy, sale and distribution of the proceeds.¹ In dealing with the second stage,² we have to examine the position taken by the various legal systems vis-à-vis a series of typical issues connected with the sale (or other realization) of the assets levied upon. These issues refer to methods of averting, postponing or transforming an envisaged forced sale to more lenient forms of satisfaction of money claims, to the conditions for obtaining the highest bid possible at the auction, and finally to the transfer of ownership to the highest bidder and his protection against third parties. Attention also has to be paid to important deviations between enforcement on movables and enforcement on immovables.

II Central European Systems

German law includes a general provision under which the court of execution, i.e. the Rechtspfleger,³ may decline or temporarily suspend an act of execution if the act, "by giving full consideration to the need to protect the creditor, would pose due to entirely special circumstances a hardship which cannot be reconciled with morality."⁴ Beyond this general rule, the sale may, subject to an arrangement of time payments, be postponed up to one year for both movables and immovables;⁵in the latter case, however, requirements are more demanding since there must be a perspective that the forced sale may be avoided altogether, i.e. that the creditor may be satisfied during the period of postponement.⁶ While no private sale to be arranged by the parties themselves is provided, the Rechtspfleger may allow the Page 1152 transfer of a movable under levy to a particular person, including the creditor, at a fixed price.⁷ With respect to movables there must be a minimum period of one week between levy and public auction,⁸ with respect to immovables a minimum period of six weeks between notification and occurrence of the public auction.⁹ The lowest allowed bid is treated differently with regard to movables and immovables. In the former case, it must amount to at least half of the usual market value of the object.¹⁰ In the latter case, it basically depends on the value of real rights, regularly mortgages, that enjoy priority vis-à-vis the creditor and continue to subsist on the immovable even after the auction, plus the execution costs.¹¹ If, however, the bid does not cover at least 7/10 of the market value of the immovable, the knocking down may be refused.¹²

Only in exceptional cases may an envisaged forced sale be transformed into compulsory management.¹³ It seems now to be established that transfer of ownership to the highest bidder occurs through an official act rather than as a private conveyance. This qualification has prevailed with regard to movables by virtue of court decisions,¹⁴ and with regard to immovables through statutory pronouncement.¹⁵ As far as garnishment is concerned, the garnished claim is transferred to the garnishor according to his choice for collection or in lieu of payment at nominal value;¹⁶ in exceptional cases the court may order a different kind of disposal instead of a transfer, for instance sale at an auction or free sale of the garnished claim.¹⁷

Austrian law, while following in general the German pattern,¹⁸ deviates from it in three important points: First, there is no general clause on debtor protection or suspension of the auction like in Germany.¹⁹ Second, the compulsory management of an immovable goes before its forced sale so long as the median profit out of the management covers the claim seeking enforcement.²⁰ Third, again with regard to immovables, the lowest allowed bid is more closely connected than in Germany to the appraised value of the immovable. The lowest bid is computed Page 1153 as a fraction of the appraised value, depending on the kind of the particular immovable:²¹ the claims of secured creditors who enjoy priority vis-à-vis the charging creditor, rather than having a direct impact on the lowest allowed bid as in Germany,²² merely open the way to a complaint against the knocking down.²³And under adoption of a French rule,²⁴ the highest bid at which the immovable has been knocked down may still be improved on within fourteen days, provided that the new offer exceeds the highest bid by at least one-fourth.²⁵

In Switzerland the public character of ownership transfer through knocking down has been also established by the courts.²⁶ The relevant periods of time obviously have a different length.²⁷ There are two salient points of Swiss law: A debtor. with financial difficulties without his fault may apply for a postponement of the forced sale for up to seven months during which he pays by installments under a schedule determined by the execution officer; there is a frequent use of this device in practice.²⁸ Further, Swiss law also adheres, with regard to both movables and immovables, to the principle that the lowest allowed bid must cover all real rights with priority vis-à-vis the charging creditor (Deckungsprinzip).²⁹

III Romanic Legal Systems

In France, under the new law on enforcement, the forced sale of a movable may not take place before a month has lapsed after levy. Within this time the debtor may search for a voluntary sale whose terms have to be consented to, at least tacitly, by the creditor.³⁰ If this attempt fails, a public auction will take place. There is no appraisal of the movables levied upon,³¹ and the auction stops as soon as the highest bid has become large enough to cover the claims of the creditors Page 1154 (charging and intervening) and the costs.³² Only rarely does the levy on movables seem to lead to an actual auction.³³

Enforcement on immovables, on the other hand, is much more formal and complicated ³⁴. It is based on a document drawn by the creditor's attorney and containing the conditions of sale, including the starting price for the auction (cahier des charges). ³⁵ It is filed in the court clerk's office and subject to objections by the parties and modification by the court. ³⁶ The auction may be postponed "but only for serious and duly justified reasons"³⁷and also if one year's rental income from the property will be sufficient for payment of the debt. ³⁸ It must be conducted in court, and all parties are represented by their attorneys;³⁹ a slightly simplified form of auction depends on the agreement of the parties (conversion into voluntary sale).⁴⁰ The knocking down is pronounced by the court in its judgment. ⁴¹ If no bid is forthcoming, the property is struck down to the levying party for the minimum bid mentioned in the cahier des charges.⁴² In principle, the purchaser acquires the prior owner's title, subject to its infirmities; all mortgages are, however, cancelled and the mortgagees retain only a preference upon distribution of the purchase price.⁴³ Within ten days after the knocking down a new bid is allowed if it exceeds the price already obtained by at least ten per cent (surenchère).⁴⁴

In general, the creditor may not become owner or beneficiary of or otherwise sell the debtor's immovable property without complying with the requirements and procedures provided for by the law;⁴⁵ such clause de voie parée is prohibited.⁴⁶Case law has, however, reduced the prohibition only to stipulations inserted into the Page 1155 initial contract itself; subsequent stipulations entered into after the debt became due are considered valid.⁴⁷ The same is true, as far as movables are concerned, with regard to the pactum commissorium.⁴⁸

Belgian law differs from French law in two respects, both concerning execution on immovables: First, the auction is conducted before a notary rather than the court,⁴⁹ and the notary also draws the cahier des charges.⁵⁰ Second, numerical limits are provided for the amount of a new bid after the property has been knocked down.⁵¹

Italian law, on the other hand, is marked by several features that grant it a special place within the family of Romanic legal systems. Generally, there is in all kinds of monetary enforcement a larger and earlier participation of the judge who is called on to decide about the form of realization of the assets levied upon.⁵² Such form also includes the possibility of assigning the asset to the charging creditor or to any other creditor possessing an enforceable instrument.⁵³ While the forced sale of movables takes place within a public auction,⁵⁴ immovables may be sold either this way or through filing bids with the clerk of the court (vendita senza incanto).⁵⁵The latter alternative is more frequent.⁵⁶ As far as immovables are concerned, an eventual. new bid after the knocking down must be at least one-sixth more than the price already obtained,⁵⁷ and the judge of execution may transform an unsuccessful auction into judicial administration that purports to satisfy the creditors by installments within a period of up to three years.⁵⁸ In 1991, the postponement of a forced sale on the ground that it led to an unjust price was provided for.⁵⁹

IV Spanish Legal Family

Under Spanish law, the rules on sale and collection of assets are essentially the same with regard both to movables and immovables.⁶⁰ Unless there is an agreement by the parties as to the value, the...