учебный год 2023 / Chalhoub, Study of The French Law of Security Interest on Movables

ABSTRACT

This thesis analyzes the creation, perfection and the order of priorities of various security interests of movables provided for in the French Civil Code, especially the gage (pledge on corporeal movables), the nantissement (pledge on incorporeal movables), and the retention of title. These various security interests were reformed in 2006 in an effort by the French legislature to modernize the law of security interests, making it more efficient and clear. Unfortunately, this attempt failed. The law of security interests on movables is still scattered between various codes and governed by multiple inconsistent regimes, mainly under the above two forms of pledges. The subsequent attempts to modify and add new types of security interests to it did not alleviate the confusion.

The most important types of pledges on movables provided for in other French codes will also be mentioned and compared to those of the Civil Code. Admittedly, this legal patchwork is confusing and inefficient, a solution would be to unify the legal regime of all the security interests on movables and adopt a unified registry for their perfection.

12

Introduction

The first version of the Civil Code of France (1804) provided for various forms of

security interests. At that time, the gage1 was the nantissement2 of a movable, and the antichrèse

was the nantissement of an immovable.3 This thesis will focus on the security interests of movables under French law. In the 20th century, many new security interests were enacted in France, and eventually inserted in the various codes: the Commercial Code, the Monetary and Financial Code and the Code of Intellectual Property).

As a result, the law regulating the security interests in France was unorganized.

In 2003, the French Minister of Justice formed a group of professionals4 to study the state of the French law and propose its reform. In 2005, the Grimaldi group published its report on the reform of the law of security interests. The group declared that the Civil Code is the “civil Constitution of France” and, therefore, should be r eestablished as the privileged seat of the law

of security interests.5 This appears bizarre since the Civil Code is applies to transaction that result in no profit, whereas secured transactions mainly concern profit making and commercial transactions. In any event, the group proposed to create Book IV in the Civil Code especially reserved for the new, old and amended types of security interests provided for in the Civil Code.

1Old Art. 2072 C. civ. stated that “the nantissement of a movable good is called gage.”

Old Art. 2073 C. civ. stated that “the gage confe rs to the creditor the right to be paid on the pledged good in privilege and preference over the other creditors.”

2Old Art. 2071 C. civ. defined the nantissement as “the contract by which a debtor transmit a good to his creditor for securing the debt.”

3Art. 2071 C. civ.

4The Grimaldi group was formed of university professors, attorneys, bankers, a notary public, a Court of Appeal magistrate and presided by Professor Michel Grimaldi.

Report Grimaldi available at http://www.justice.gouv.fr/index.php?rubrique=10047&ssrubrique=

10049&article=11940 at 3. (last visited August 11, 2009).

13

They aimed to bring back “the qualities of readabi lity and accessibility” to French law on security interests and to “promote its harmonizatio n,” “modernize the obsolete rules” and “to adopt innovative solutions in order to develop the credit and safeguard the legal

competitiveness” of the French market. 6 To that effect, the group proposed new solutions favorable to the credit (i.e.: adoption of the pledge of stocks and recognizing security interests guarantying future debts). The new proposal remained loyal to the French tradition of consumer protection, and equally protective of the debtors' interests. This led to the proposal of creating

“equilibrated solutions” to protect the debtor. 7

Article 24 of the law “for the confidence and mod ernization of the economy” authorized

the French government to reform the law of security interests by issuing Orders ordonnances.8

Consequently, in 2006, the President issued Order n° 2006-346 related to the security interests

adopting many of the recommendations of the Grimaldi group. This Order created Book IV9 in

the Civil Code entitled “About Security Interests.” 10 Book IV was made up of two titles: 1) “About Personal Security Interests” ( Des sûretés personnelles)and 2) “Real Security Interests”

(Des sûretés réelles). Since then, several new legislations and regulations came into force11 removing, adding, and amending the provisions of the Order thus diminishing the legibility that the Grimaldi study had attempted to implement.

6Id. at 3-4.

7Id.

8Law. n° 2005-842, July 26, 2005 : Journal Officie l 27 Juillet 2005.

9It is worth mentioning that Book IV of the code civil is not exhaustive or exclusive of the different types of security interests sûretésregulated under the French law. They are dispersed and numerous, this study will attempt to identify them when relevant.

10In fact, the French law uses the term “s ûretes” which is literally translated as security. H owever, in this thesis, we will use the correct legal translation of “security” or “security interest.”

11And other legislations are expected to be voted on soon during this parliamentary session.

14

The present study will focus on the major types of the real security interests on movables (sûretés mobilières) as provided for in the Civil Code in light of the 2006 reform and its numerous subsequent amendments. Then, it will analyze and compare similar security interests provided for in the Commercial Code and the Monetary and Financial Code.

It is important to begin the analysis with Article 2329 C. civ., which enumerates four types of security interests for movables:

1)Prior charges on movables (les privilèges mobiliers);

2)Pledge of corporeal movables (le gage de meubles corporels);

3)Pledge of incorporeal movables (le nantissement de meubles incorporels); and,

4)Retention of title as a guarantee (la propriété retenue à titre de garantie).

The “prior charges on movables” are not conventio nal but legal privileges which need not be recorded to take effect. They are listed in Chapter I of the second sub-title of the new Book IV of the Civil CodeError! Bookmark not defined., which reproduces the dispositions of the old articles 2100, 2101 and 2102 C.civ. New articles 2330 to 2332-3 C. civ. deal the privileges on

movables which can be general or special.12 The new article 2331 C. civ. enumerates the general privileges on movables by order of priority (1- legal expenses; 2- funerary expenses; 3- expenses of the last sickness; 4- salaries and remunerations for the past and current year, etc.). The new article 2332 C. civ. enumerates the special privileges related to certain movables (1- rents of immovable, on the fruits of the year’s harvest, and on the price of what adorns the rented house or the far; 2- debt on the pledge of the seized creditor; 3- expenses undertaken for the conservation of the good; etc.). The 2006 Order also added an additional section entitled

15

“Classification of the privileges.” Article 2332-1 C. civ. asserts that in general special privileges

have priority over generals.13

We will turn now to analyzing the three conventional security devices provided for in Article 2329 C.civ.

16

Chapter 1: Pledge of corporeal movables (gage de meubles corporels)

As stated above, the Civil Code used to define the gage as nantissement (pledge) of a

movable.14 For over two hundred years, to be effective, the gage required the surrender of the

pledged good to the creditor or to a predetermined third party.15 This requirement limited the debtor's ability to conduct daily business because the pledged good ceased to be in the debtor's possession.

Moreover, the definition of the gage confused the two security devices (gage and nantissement). The reform of 2006 removed this confusion by specifying that the gage concerns

contractual security interests on corporeal movables,16 and the nantissement concerns the

security interests on incorporeal movables.17 The reform also abandoned the real (réel)character

of the gage, which is considered by some authors18 as “the major innovation of the reform,” and consequently, the gage with dispossession (I will use the term non-possessory gage or pledge

instead) becomes a reality, and the gage on stocks becomes possible.19 The abandonment of the real character must be understood as the abandonment of the requirement to transfer possession

14See supra note 1.

15Art. 2076 C. civ.: “In all cases, the privilege d oes not survive on the gage unless the gage has been conveyed and left in the possession of the creditor, or an agreed upon third party.”

16Article 2333 C. civ.: “A pledge is an agreement b y which the pledgor gives to a creditor the right to be paid in preference to his other creditors out of a corporeal movable or a set of corporeal movables, actual or future.

The secured debts may be actual or future; in the latter case, they must be determinable.”

17Article 2355 al 1 C. civ.: “A pledge of an incorp oreal thing is the allocation of an incorporeal movable or of a set of incorporeal movables, actual or future, as security for an obligation.”

18Dominique Legeais, Le gage de meubles corporels [Pledge of Corporeal Movables], La Semaine Juridique, Ed. Gén. n° 20, May 17, 2006, I 4 at 5.

19Id.

17

of the collateral to the creditor. However, the gage without dispossession (I will use the term possessory gage or pledge instead) subsists and allows the retention of the movable by the

creditor, which is major advantage in case of insolvency.20 The possessory and the nonpossessory pledges will be discussed in two different sections, keeping in mind that articles 2333 to 2354 C.civ. regulating the pledge gage do not contain a formal division between possessory and non possessory pledges. This further complicates the determination of differences between the two types.

I. The possessory pledges (gages avec dépossession)

Under the possessory pledge, the law differentiates between 1) the general possessory pledge (gage avec dépossession de droit commun) and 2) other special possessory pledges, subject to particular regimes.

These types of pledges are losing grounds to modern forms of non-possessory security interests that tend to encourage and promote lending and business activities. As a result, the discussion will be basic and short.

18

A. The general possessory pledge

This is a contractual pledge where the pledgor gives a creditor the right to be paid from one or more corporeal movable(s), present or future, determined or determinable before his other

creditors.21

a. Creation

This pledge is established by the owner of the pledged good in writing and contains the description of the secured debt, the quantity of the pledged goods, as well as their type /and

nature.22 Moreover, Articles 2341 and 2342 C. civ. confirm that the secured goods can be fungible.

This type of pledge may be given by the debtor or a third party,23 but if the third party is not entitled to create it, then the pledge is void and may give rise to damages if the creditor did not

know that the collateral belonged to another.24 Note that the creditor is not protected by the rule

“in matters of movable, possession is equivalent to title.” 25

b. Perfection

Before the reform, a pledge would cease to exist once possession was transferred. Since the reform, however, even if the creditor is not in possession of the pledge, third parties

21Art. 2333 C. civ. supra note 16.

22Art. 2336 C. civ.

23Art. 2334 C. civ.: “A pledge may be given by the debtor or a third party; in the latter case, the creditor may only bring a claim concerning the property transferred as security.”

24Art. 2335 C. civ.

25Art. 2279 C. civ.

19

cannot claim interest in it.26 The delivery of the good is no longer a requirement for the

validity of the pledge; it is just a condition for its opposability against third parties.27 In other words, the pledge will be valid between the debtor and the creditor, but third parties may still acquire superior rights if the creditor does not take possession.

The general possessory pledge is opposable against third parties either by registration

in a special registry28 (where the modalities are not fixed) , or by transfer of possession of the

collateral to the creditor or an agreed third party (e.g., creditor’s agent). 29 The possession

must be efficient, apparent, permanent and unequivocal.30 As to the pledge of fungibles, the creditor is required to keep them separate from similar goods in his possession, unless the

parties agree otherwise. In the latter case, the creditor acquires their ownership.31 The transaction seemingly makes the creditor look more like a co-owner, but Article 2341 C. civ. specifies that full effect to the authorization of the pacte commissoire be given, thus passing full ownership of the fungibles to the creditor. In case of payment of the debt, the creditor is to return the fungible in the same quantity and quality as initially acquired.

26Dominique Legeais, Gage de Meubles Corporels: Opposabilité du Gage [Pledge of Corporeal Movables: Opposability of the Pledge], JurisClasseur Civil Code Art. 2337 à 2340 Fasc. unique (Cote : 03,2008) at 23.

27Art. 2337 C. civ.

28Art. 2338 C. civ.

29Art. 2337 para. 2. C. civ.

30Legeais, supra note 26 at 22.

31Art. 2341C. civ.

20