Chapter five
The Paulian or Revocatory Action
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SCHOOL OF LAW A THESIS SUBMITTED IN THE, CHALLENGES OF CASE MANAGEMENT IN SOMALILAND HIGH COURT
The Paulian or Revocatory ActionThere is something worse for creditors than the negligence of the debtor and that is his bad faith. A debtor burdened with debts, who is threatened with suits, is naturally tempted to conceal his assets from his creditors. For that purpose, he can have an understanding with a third party who will be reputed as having acquired his property by purchase or donation, and who will secretly recognize that he is not the real owner; he can liquidate his visible property, which could easily be seized and replace it by cash or other securities easy to conceal, he can even from ill intent and without profit to himself agree to transactions which enrich his relatives and friends and impoverish him. In this regard, where it is possible to discover the act which is fraudulent, Article 1995 of the Civil Code opens the right to what is called "actio pauliana" by the name of the Roman jurist Paul, who created it, or "revocatory action." The Paulian or revocatory action is an action given to creditors to obtain the revocation of acts done by their debtor in fraud of their rights. The creditor will have to prove the fraud to his rights and thus obtain the annulment of the disputed agreement. An act is deemed to a fraud, in the meaning of Article 1996 of the Civil Code, when it was intentionally made by the debtor so as to become insolvent, or with the intention of becoming insolvent. This often happens where the debtor tries to "save" certain assets with the complicity of a third party, who pretends in fact to buy them when his intention is only to keep the asset out of the creditor's reach to return it to the debtor or to let the debtor continue enjoying it. For instance, the debtor sells his car to a friend for a very low price, and the friend, legally the owner, then lets him use it "free of charge" pretending it is a friendly loan. Note here that the action is brought by the defrauded creditor in his own name and not as a representative of his debtor as in Article 1993. If he commits a fraud, if he tries to make his assets disappear in order to avoid paying his debts, his conduct gives birth to a new action in favor of his creditors, distinct from the first, for the fraud is a civil act and as such produces an obligation to repair the damage caused. The creditor thus sinned with a special action ceases to suffer the effect of the fraudulent act. This is because he is the direct victim of the fraud. Its object is to place the creditors in the same situation in which they were before the fraudulent act. Accordingly, the Paulian action may be used to reconstitute an impoverished patrimony but not to enrich it. Question: What is the creditor required to prove to the satisfaction of the court to succeed in his revocatory action against the debtor's act? The creditor is required to show two conditions which are to exist cumulatively. These are: 1) the act must have caused a prejudice to the creditor. A prejudice to creditors is said to have been caused where the act augments a pre-existing insolvency and the act be related to property that is subject to attachment by the creditors and that it forms part of their common pledge. 2) The prejudice must have been known by the debtor because fraud strictly speaking consists in the intention to harm. Similarly, Article 1996(1) provides that an act is deemed to have been done in fraud of the rights of the creditors where it was done by the debtor so as to become insolvent or with the knowledge that he was thereby increasing his insolvency. Apart from the above requirements, the creditor who attacks an act of his debtor should prove that his credit arose prior to the act attacked. If the credit arose after the fraudulent act, the creditor cannot complain of such act. The creditor could not have counted on property which has already left the patrimony of the debtor. Regarding the effects of the revocatory action, the prime object of the revocatory action is to make reparation to the creditors for the damage they have suffered by the fraud committed against them by the debtor. When the conditions are satisfied, the fraudulent act is only annulled in the interest of the defrauded creditor and remains effective with all its consequences with regard to all other person. Accordingly, you must note that the thing restored does not re-enter the patrimony of the debtor, nor does it become the common pledge of all his creditors; it can only be distributed to the creditor(s) who pursued the action. This seems the underlying difference between revocatory and oblique actions. In the case of oblique action, the creditor exercises a right belonging to the debtor with the effect of return of the property claimed into the common pledge of the creditors. On the other hand, revocatory action is pursued by the creditor as a personal action belonging to him and the result, therefore, can profit only those who took the action. The revocation is to be pronounced only to the extent of the damage suffered by the creditor who took the action. As a consequence, if the damage is less than the value of the thing reclaimed, the third party has a right to keep it on satisfying the claim of the creditor. The fraudulent act, according to Article 1991, does not lose its effect in the relations of the third party with the debtor and regarding other creditors of the debtor. On top of this, the action has to be brought within two years form the act challenged (Article 1998 of the Civil Code). Its effect is that the act declared fraudulent cannot be opposed to the creditor. Article 1998 set a two year period within which the creditor is to begin a revocatory action. Such period is to be calculated from the date of the formation of the fraudulent act which is challenged. However, two limitations are set out concerning alleged fraudulent acts. The first one is payment of mature debts, which are in fact rarely fraudulent, may not be challenged by the creditor (Article 1996(2)). Second, third parties may resists the action of the creditor on the basis of fraud, if they prove the double condition of their own good faith and the fact that the act itself of the act through which the third party acquired his rights, were done for a consideration (Article 1997). When the third party has transacted with the debtor under an onerous title, i.e. by way of purchase or an exchange, etc, the creditor cannot succeed against him unless he establishes the bad faith of such third party. If, on the other hand, the third party transacted with the debtor on a gratuitous basis, the creditor obtains the revocation of the act without the necessity of proving that the third person was conscious of the fraud. This rule is incorporated under Article 1997. Article 2000 refers the creditor to the rules governing bankruptcies, when the debtor is declared bankrupt, and where the creditor wishes to exercise the debtor's rights or the "actio pauliana". This provision limits the scope of application of Articles 1995 through 1999 by providing that these provisions are not to be applied in cases of bankruptcy. This is because there are special provisions in relation to actions that may be taken against fraudulent acts of a bankrupt debtor. Download 53.56 Kb. Share with your friends:
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