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

B. The special possessory pledges

Unfortunately, the reform did not unify the regime or the types of the different pledges. They are still scattered between the civil and the commercial codes. Two special possessory pledges will be briefly addressed: 1.The Commercial Pledge and 2. The Pledge for Motor Vehicles.

1. The Commercial Pledge

Article L. 521-2 C.com. limited the effects of the commercial pledge to cases where a pledge was placed and remained in the possession of the creditor. However, once the reform

abrogated the “real” character of the pledge with , this article was repealed.32

a. Creation and perfection

Paragraph 1 of Article L. 521-1 C.com. specifies that “the security constituted either by a trader, or by a non-trading individual, for a commercial act, must be registered in accordance with the provisions of Article L.110-3 C. com., for the purposes of the contracting parties and

those of notice to third parties.” Consequently, it can be proven by any means.33

With respect to negotiable instruments, the commercial pledge can be perfected through regular endorsement indicating that the instruments have been given as guarantee. Moreover, it

32Legeais, supra note 26 at 32.

33Art. L.110-3 C. com.: “With regard to traders, co mmercial instruments may be proven by any means unless the law specifies otherwise.”

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can be perfected by inscription on the company records or on the Public Debt registry when it

concerns the company shares and registered bonds. 34

2. Pledge of Motor Vehicles

Before the reform, the pledge of motor vehicles was governed by the law of December 29, 1934 and the decree of September 30, 1953, both of which instituted automobile credit in France. The two legislative acts allowed creditors to efficiently secure their debts and interests

through right of retention.35 In fact, the existence of the right of retention makes this pledge a

possessory type pledges even if the possession is fictitious.36

The reform has integrated the pledge of motor vehicles into the Civil Code37 without major changes, except for the expansion of its scope by eliminating the limitation on the identity

of the creditors who can benefit from it.38 In other words, it is no longer limited to the sellers and the creditor which extended the loan.

a. Creation and Perfection

The motor vehicle pledge applies to all terrestrial vehicles that have an engine.39 It is opposable against third parties through a declaration to the relevant administrative authority

34Art. L.521-1 para. 2 C. com.

35Dominique Legeais, Le nouveau droit du gage portant sur un véhicule automobile [The New Law of the Pledge of Motor Vehicles], La Semaine Juridique Entreprise et Affaires n° 16, 1482 (April 19, 2007).

36Id.

37Articles 2351 to 2354 C. civ. entered into force by July 1st 2008.

38Legeais, supra note 26 at 33.

39Art. 2351 C. civ.

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under the conditions provided for by a decree.40 The details of this declaration remain unknown because the decree has yet to be issued. In any event, a receipt of the declaration is given to the

creditor who is deemed to have retained the collateral.41 The detention of the receipt is in fact equivalent to the detention of the motor vehicle, which confers the creditor of this gage with the right of retention of title.

b. The issue of prohibition of successive pledges on the same vehicle

Several French scholars asserted that no more than one pledge may be made on the same

vehicle.42 This solution prevailed before the reform and is coherent with the beneficiary's right of

retention.43 However, the Civil Code did not prohibit such plurality. Mr. Legeais argues that successive pledges can generate many difficulties concerning the rights of successive

beneficiaries and the transfer of the right of retention…. 44 However, the difficulties or the “fictitious possession” should not prevent the crea tion of successive pledges, especially since the law does not prohibit such plurality.

II. Non-possessory pledge

The Grimaldi report proposed to add a chapter in the Civil Code called “About the pledge a non-possessory conventional real movable security” ( Du gage d'une sûreté réelle mobilière

40Art. 2351 C. civ.

41Art. 2352 C. civ.

42Michel Cabrillac Juris-Classeur Commercial, Fasc. 380, n° 47 (in French); M. Cabrillac et Mouly, Droit des sûretés, n° 708; Traité de droit civil, LGDJ, Les sûretés éelles,r tome II, n° 878.

43Cabrillac, id.

44Legeais, supra note 35.

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conventionnelle sans dépossession), “which should be polyvalent” 45 (i.e.: versatile). The report

added:

Inspired by the security interest instituted by Article 9 of the Uniform Commercial Code of the United States of America, but without being a mere copy, the non-possessory pledge that the Group wishes to adopt, would not only reinforce the attractiveness of the French law, but also facilitate the recognition in France of certain securities constituted in accordance with foreign laws.46

The 2006 Order set up dispositions concerning this new and modern form of pledge.

According to Mr. Legeais, the reform has only reaffirmed preexisting types of non-possessory

pledges, which “have often been qualified as nantissement. In reality, they were analogous to

mortgages hypothèques on movables.” He added that:

The maintenance of the term pledge to indicate the non-possessory pledges is regrettable. It is contestable to designate by the same appellation “pledge”, two security interests that are fundamentally different: possessory and non possessory. But, it is known that the writers preferred a classification which adopts as criterion the nature of the property which is subject to the guarantee. What justifies the qualification of pledge is that the security interest involves movable corporeal property.

However, as in the past, the new non-possessory pledge is closer to the mortgage hypothèques than it is to the possessory pledge. It is based on publicity (notification) by inscription in a registry. It does not confer right of retention to its beneficiary. Only the other effects of the guarantee justify a rapprochement between pledges with and without possession. 47

In fact, now there are two types of non possessory pledges. The first is general and is

regulated in the Civil Code. The second is a pledge on stocks and is regulated in the Code de

45Grimaldi, supra note 5 at 10.

46Id.

47Legeais, supra note 26 at 35.

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commerce. This duality has revived the criticism of the “ob solete” distinction between civil and

commercial laws.48

A. The general non-possessory pledge

“For the authors of the reform, the non-possessory pledge is a true pledge, which does not

require a special section in the code.” 49 Unfortunately, this statement is true, and hardly contributes to the improvement of the legibility of the law. In any event, the scope of this pledge is quite similar to the possessory pledge. They only diverge on few points. The non-possessory does not confer a right of retention to the creditor and is opposable against third parties by inscription in a registry which makes it possible to constitute several security interests on the

same property.” 50

a. Creation

The general non-possessory pledge is created pursuant to the same rules governing the

creation of possessory pledges.51 However, the rules differ with respect to the perfection..

b. Perfection

In order to be opposable against third parties, this non-possessory pledge should be published through registration in a special registry administered by the clerk of the commercial

48Id.

49Id. at 38.

50Id. at 38-39.

51See supra the creation of the possessory pledge.

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court which has jurisdiction over the pledgor’s place of registration, seat or residence.52 This registry has not met the expectations of the scholars so as to be a sole and unique for all types of

non-possessory pledges.53 Logically, the non-possessory pledge may be executed at the debtor's premises. For example, a so-called “field” warehous eman is hired to enclose or segregate the collateral such as inventory or raw materials, supervise the amount of collateral in the enclosure, and make sure fungible replacements are brought in for each one sold.

Decree No. 2006-1804 provides for two methods of registration of the general non-possessory pledge. Both paper and electronic filing are acceptable forms of registration.

i.Paper filing:54

The registration of the pledge envisaged in Article 2338 C.civ. is made at the request of the creditor at the special registry mentioned above. To fulfill the requirements of Article 2335 C.

civ., the creditor must provide the clerk’s office with the following documents:55

-an original of the private deed establishing the gage or a copy of the authentic form,

-a schedule of initial registration in two specimens.

The schedules should mention:

-the parties' designation:

*for a natural person: the last name, first names, the date and place of

birth, the residence, the unique identification number56, completed if

52Art. 1 of the decree n. 2006-1804, available at http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000000273729&fastPos=1& fastReqId=617363909&categorieLien=cid&oldAction=rechTexte (in French) (last visited May 14, 2009).

53Legeais, supra note 26 at 78.

54The official form of the registration is attached to this thesis as Appendix A.

55Art. 2 of the decree No. 2006-1804.

56It is a nine-digit number, unique to the entity or the natural person and conferred by the National Institute of Statistics and Economic Studies (Insee). (www.insee.fr)

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possible, by the mention of RCS [Registry of Commerce and Companies Registre du Commerce et des Sociétés] followed by the name of the city where the registration at the clerk’s office has occurred.

* for a legal entity: indication of the form, name, address of head quarter, the unique identification number, completed if possible, by the mention RCS followed by the name of the city where the registration at the clerk’s office has occurred.

-the date and nature (private or authentic) of the deed constituting the gage,

-the amount of the principal secured debt, its due date and the interest rate,

-the mention of the pactum commissorium if it was stipulated in the deed constituting the pledge,

-for potential future debts, the elements allowing their determination,

-the designation of the pledged good(s) present or future with the indication of the elements allowing their identification, particularly, their nature, color, quantity, their place, and if necessary their brand, and the serial number. In case of shares in companies, the schedule indicating the name of the issuer of the shares, its registration number, the number of pledged shares and their nominal value.

-the possible option left to the pledgor to alienate the fungible things pledged under the conditions of Article 2342 C. civ.

-the category to which the pledged good belong, by reference to a nomenclature fixed by decree,

-the mention of registration of the pledge, that is, the date and number of registration and its number.

After the documents have been submitted, the clerk can proceed with the registration by entering the data (the name of the pledgor and the category to which the pledged good belongs) to the

national electronic file instituted by the decree No. 2006-1804 of December 23, 2006.57 Finally, the clerk hands the creditor a schedule whereby he certifies that the registration has been

completed.58

The goods affected in guarantee are classified (a list known as the Nomenclature of the Goods Affected in Guarantee)59 in the following categories:

57Art. 9 of the decree No. 2006-1804.

58Art. 3 of the decree No. 2006-1804.\

59Arrêtéof February 1st 2007 concerning the nomenclature provided for in article 2 (6°) of the decree n° 2006-1804.

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1 - Animals (category 1)

2 - Watches and jewelry (category 2)

3 - Musical instruments (category 3)

4 - Materials, movables and products for professional use, not envisaged in other categories (category 4)

5 - Materials of nonprofessional use other than those used for data processing (category 5)

6 - Materials related to sports (category 6)

7 - Data processing materials and accessories (category 7)

8 - Movable furniture (category 8)

9 - Incorporeal movables others than companies’ shares (category 9) 10 - Currencies (category 10)

11 - Objects of art, art collections or antiques (category 11) 12 - Company shares (category 12)

13 - Products of publication, the press or other graphic industries (category 13) 14 - Non-edible liquid products (category 14)

15 - Textile products (category 15)

16 - Food products (category 16)

17 - Other (category 17)

ii. Electronic filing

The registration of the general non-possessory pledge can be done in electronic form.

This is a great innovation of the reform that follows the modern trends of the secured

transactions laws. But, unfortunately, advantages given in theory have been taken away in practice.

Article 1 of the Decree60 states that the registry at the clerk's office can be in electronic form, so

long it follows the provisions of Article 1316-4 C. civ. and Decree No. 2001-272 of March 30,

2001. Therefore, this e-registration is not available to the public and is exclusive to those

beneficiaries who use a protected electronic signature, fulfilling the requirements of the above

mentioned decree.

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However, the electronic registry is publicly accessible on the internet and is free of

charge.61 Article 11 of the Decree sets forth the following search rules:

To consult the national file, the applicant must indicate the following elements: 1. About the pledgor:

a)If she was a merchant natural person: the last name, first names, the date and place of birth, the residence, the completed unique identification number, and if possible, the RCS number, followed by the name of the city where the registration had occurred.

b)If she was a non-merchant natural person or a nonprofessional pledgor: last name, first names, date and place of birth, and the residence;

c)If it was a legal entity: identification of the form, name, address of the head quarters, the completed unique identification number, and possible, the RCS, followed by the name of the city where the registration occurred;

2. About the good:

The category to which the good belongs by reference to the nomenclature envisaged in paragraph 6 of Article 2.

Each consultation can only be conducted about the same person and the same category of goods.

The website of the National Council of Business Registrars and Commercial Courts

(Conseil National des Greffiers des Tribunaux de Commerce - C.N.G )62 provides a link called “register a pledge,” where interested parties can o btain brief information about the registration procedure and a list of the required documents.

The search of the database is rather complicated. The search can only be conducted about one category of pledged items (there are seventeen total categories). In addition, the search function requires that the name of the pledgor be provided. This means that if the beneficiary

61Art. 9 of the decree n° 2006-1803.

62http://www.infogreffe.fr/infogreffe/afficherGageSansDepossession.do (last visited on May 14, 2009).

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does not receive the good directly from the pledgor, he might not be aware the existence of the

pledge.63

The applicant is informed whether a good has been registered in the name of a particular debtor. Furthermore, the national council of commercial tribunals' clerks is authorized with processing the information through electronic means, which in case of registration, allows the applicant to obtain at her expense a statement of the registration from

the relevant clerk’s office.64

c. Modification of the registration65

Any modification affecting the information related to the pledgor, the creditor or the

pledged good(s), is published on the margin of the existing registration. The applicant66 should prepare two schedules of the modified registration and deposit or transmit it to the clerk's office were the initial registration was carried out, notwithstanding the change of headquarters or residence of the pledgor. Upon receipt, the clerk assigns a number and affixes the date, then proceeds with the registration of the modification in margin of the original registration. The clerk preserves the first copy of the schedule along with the modifying deed and returns the second

one to the applicant.67

63Legeais, supra note 26.

64Art. 12 of the decree n° 2006-1803.

65The official form of the modification of the registration is attached to this thesis as Appendix B.

66The decree uses the term “applicant.” We believe that creditor is entitled to request a modification, and

the debtor the debtor might have the right to this request if s/he satisfies the requirements of art. 8 of the decree explained below.

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