Legal Definitions - jus distrahendi

Jus distrahendi refers to the legal right of a creditor to sell assets that have been pledged as security for a debt, when the debtor fails to fulfill their repayment obligations. This right allows the creditor to recover the outstanding debt by liquidating the collateral.

Here are some examples illustrating the application of jus distrahendi:

• Example 1: Pawn Shop Transaction

  A person needs quick cash and pledges a valuable diamond necklace to a pawn shop in exchange for a short-term loan. The agreement states that if the loan is not repaid by a specific date, the pawn shop can keep and sell the necklace. If the person fails to repay the loan on time, the pawn shop exercises its jus distrahendi by selling the diamond necklace to recover the money it lent. The necklace, being the pledged good, is sold upon the debtor's default.

• Example 2: Business Equipment Loan

  A construction company secures a loan from a bank to purchase new heavy machinery, using the machinery itself as collateral. The loan agreement specifies that if the company defaults on its payments, the bank has the right to repossess and sell the equipment. When the construction company faces financial difficulties and stops making loan payments, the bank invokes its jus distrahendi. This allows the bank to legally seize the heavy machinery and sell it at auction to recoup the outstanding loan amount.

• Example 3: Secured Personal Loan

  An individual takes out a personal loan from a private lender, offering a valuable collection of rare coins as security. The loan contract stipulates that if the borrower defaults, the lender can sell the coin collection. If the individual subsequently loses their job and is unable to make the agreed-upon loan payments, the private lender can exercise their jus distrahendi. This means the lender can take possession of the coin collection and sell it to cover the unpaid debt, as the coins were the pledged goods securing the loan.