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

Chapter 2: Pledge of incorporeal movables (Nantissement de meubles incorporels)

Old article 2071 C. civ. defined the pledge nantissement as “the contract by which a debtor transmit a good to his creditor for securing the debt.” With the reform of 2006, the definition has dramatically changed. The nantissement is now coupled with incorporeal movables and it can no longer be associated with the corporeal movables or other immovables. With the Order n°2006-346, the nantissement or pledge of incorporeal movables is the allotment of an incorporeal movable or a set of incorporeal movables, actual or future, as a security of an

obligation.102

The Grimaldi group proposed to update the provisions related to the pledge by examining its 3 most common types: Pledge of receivables le nantissement de créances, pledge of scriptural money le nantissement de monnaie scripturale, and the pledge of financial instruments

le nantissement d'instruments financiers) in 3 separate sections.103 The Order of 2006 followed this proposal only in part. Regrettably, the text of Chapter III of the pledge of incorporeal

movables104 is a patchwork, it does not offer clear divisions allocated to the different sections, leaving it for the doctrine to figure them out.

We will study in 3 different sections the following pledges:

I. Pledge of incorporeal movables other than receivables

II. Pledge attached to an account

III. Pledge of receivables

102Art. 2355 C. civ.

103Grimaldi, supra note 5 at 13.

104Art. 2355 to 2366 C. civ.

41

I. Pledge of incorporeal movables other than receivables

This type of pledge is briefly referred to in the last paragraph of Article 2355 C.civ., which states that: “failing special provisions, the pledge of incorporeal movables other than receivables is generally governed by the rules laid down for the pledge (gage) of corporeal

movables.” This is the case of the life insurance p olicies for instance,105 which unlike the pledge

of a financial instruments’ account, 106 and the pledge of the business establishment (fonds de

commerce),107 are not governed by any other special provision.

Based on the above, the rules concerning the constitution, the perfection and the enforcement of the pledge of corporeal movables should apply here without difficulties, as well as, the rules governing the opposability, when the pledge of incorporeal movables is registered. But, if the pledgee is in possession of the incorporeal movable, it is hard to conceive the

transposition of these opposability rules unless the incorporeal belongs to the bearer.108

II. Pledge attached to an account

The Grimaldi group was enthusiastic about the adoption of the pledge of deposit

money109 monnaie scripturale:

105Jean Stoufflet, Présentation de la Réforme des Sûretés: Le Nantissement de Meubles Incorporels

[Presentation of the Reform of the Security Interests: The Pledge of Corporeal Movables], JurisClasseur Civil Code Art. 2284 à 2488 Fasc. 10: (14 Août 2008 ) at114.

106Article L. 431-4 C. mon. fin.

107Articles L.142-1 to L.142-5 C. com.

108Stoufflet, supra note 105 at116.

109Deposit money is “money existing in book-entry form only (nowadays an entry in a computer database) and consisting of deposits at banks and other financial institutions.” Definition of Bank of Canada available at http://www.bankofcanada.ca/fr/glossaire/glossmonnaiescript.html

42

“It would be an extremely important innovation to i ntroduce [it] in the Civil Code […t]he pledge of deposit money would be defined as the convention by which the pledgor affects in security the funds in a frozen account opened in its name in a firm entitled to receive them.

Its effectiveness would be great the way it is proposed because, on the one hand, no one can withdraw the secured funds as a long as the secured debt exists, and, on the other hand, the creditor can recover them in payment within the limit of the amount of the unpaid debts. The opening of an insolvency procedure would be here without incidence.” 110

Ultimately, this “innovation” was not adopted. Alte rnatively, Mr. Stoufflet proposed that

the pledge of deposit money be regulated by the general rules of the pledge of incorporeal

movables.111

Article 2360 C. civ. governs the pledge attached to a bank account. This pledge concerns

the provisional or final balance of an account which does not have to be frozen and, therefore, is

different than the pledge of deposit money. Art. 2360 c. civ. set an autonomous legal regime for

the pledge attached to an account, it states:

“Where a pledge attaches to an account, the pledged receivable is understood as being the credit balance, provisional or final, on the closing date of the security under the condition of regularization of the current transactions, following the rules provided for in the civil enforcement procedures.

Under this same condition, in case of the opening of a procedure of safeguard, of judicial recovery or of a procedure for the treatment of situations of overindebtedness of private persons against the pledgor, the rights of the creditor involve the balance of the account on the date of the opening judgment jugement d'ouverture.” 112

110Grimaldi supra note 5 at 13.

111Stoufflet supra note 105 at 121

112Art. 2360 C. civ.

43

It results that the pledge can be attached to an unblocked account opened in the name of the pledgor in a financial institution. The pledgor has the right to use the money in this account which might be risky for the pledgee as the balance can be debit at the provisional closing date. This balance is determined after “regularization of the current transactions” (i.e.: the activities and inscriptions must be adjusted.)

However, in case of insolvency of the pledgor, the adjustment can only be made at the date of the opening judgment with which the safeguard procedure, the judicial recovery procedure and the procedure for the treatment of situations of over-indebtedness begin. The creditor will have to wait for this opening judgment in order to adjust the inscriptions, which is risky and very difficult with for the creditor. Until the day an opening judgment has been made, the pledgor might be still losing money and consequently reducing the chances for the creditor to be paid in full. In practice, the pledgee is always keen on setting contractual limits to preserve a

minimum amount of money in the account.113

a. Scope

Any operating account can be pledged. Such is the case of the deposit account or the

current account.114 Article 2360 C. civ. does not limit the scope of the accounts as to their nature, which leads us to assume that a consumer, as well as a business account can be pledged. Mr.

113Dominique Legeais, Nantissement de Meubles Incorporels: Nantissement de Créance[Pledge of Incorporeal Movables: Pledge of Receivables], JurisClasseur Civil Code Art. 2356 à 2366, Fasc. unique (Cote : 05,2008) at 70.

114Id. at 69.

44

Legeais believes that the accounts subject to special regimes (i.e.: savings account or the savings

plan) should not be able to be pledged.115

b. Creation

The pledge attached to an account is a variety of the pledge of receivables which entails

that the rules applicable to the latter should apply to it.116 Therefore, it must be concluded in writing under the sanction of nullity, an account number and the name of the account holder (i.e.:

the pledgor) should be specified.117 “

c. Perfection

The law did not provide any special rules concerning the perfection of this pledge –or maybe it did, who knows?!- therefore, in application of Article 2361 C. civ. the pledge attached

to an account should be opposable against third parties at the date of the contract.118 Some scholars considered that since the new provisions did not regulate the issue of priority and, because this pledge confers a monopoly right to the pledgee from the moment that it is opposable

to third parties, the pledgee should have a priority right over the posterior creditors.119 Mr. Legeais criticized this view which grants the creditor an unjustified monopole over the account

and results in transforming this pledge into a mere transfer of property.120

45

III.Pledge of receivables

The Grimaldi group noted that the pledge of receivables suffered from a burdensome formalism and from modes of realization unsuitable to incorporeal movables. “It was used more

as a means to step over other prior ranking creditors than an efficient security.” 121 They proposed to update this pledge which “has ability to apply t o any receivable without prejudice to specific legislations, as the one concerning the rights of exploitation of the software (Article L. 132-34

Code of intellectual property).” 122

Consequently, the reform of 2006 “reinforced the ef fectiveness of this security interest and provided the secured creditor with a direct right to receive the proceeds of the pledged

receivables,” 123 and it did not cancel the preexisting forms of pledge of receivables, “subsequently the receivables resulting from a bill of exchange or a promissory note still exist and can be subject to pledge by a pignoratif endorsement (Articles L. 511-13 and L. 512-3 C.

com.).” 124

The French doctrine differentiated between the pledge of civil receivables and commercial receivables, where the pledge would be commercial if attached to a commercial debt. They differ with regards to jurisdiction (civil or commercial courts) and the applicable

statute of limitation.125 The receivable is deemed commercial if it is related to an act of

121Olivier Hubert, Security over movables an international handbook. Oxford. Edited by William Johnston. Chapter 13 at 179.

122Grimaldi, supra note 5 at 1314

123Hubert, supra note 121 at 179.

124Stoufflet, supra note 105 at 93.

125Legeais, supra note 113 at 17-18.

46

commerce as determined by Articles L. 110-1 and L. 110-2 of the Commercial Code.126 This distinction hardly makes any sense and will create major difficulties. For instance, if the receivable is related to a civil act such as the rental payments for Vic’s private residence in Paris, no major qualification difficulties will appear, but if the lessor pledges Vic’s promises of rental payments to Bank B in exchange for a secured loan to enable the lessor to build 10 buildings and rent out 100 apartments, the debt, should be deemed commercial. Then, which court should have jurisdiction and which statute of limitations apply?

In the pledge of receivables the right conferred to the creditor is a right against the person of the account debtor. The reform righteously differentiated between this pledge and the pledge of movables, thus breaking with the tradition set in the Civil Code to consider the pledge of

receivables as a variety of the possessory pledge.127

47

a. Scope

This pledge has a wide sphere of application. Chapter 3 of book IV of the Civil Code permits the pledge of all types of receivables of a sum of money, present or future, commercial as well as civil, contractual or judicial. Are excluded only the receivables that are legally

inalienable or those that cannot be subject to contract.128

b. Creation

The pledge of receivables shall be concluded in writing under the sanction of nullity, and

the written instrument shall designate and identify the secured and pledged debt(s),129 or a

fraction thereof if the debt is divisible.130 The Order of March 23, 2006 seems to allow

successive pledges on the same debt as long as they are sufficiently identified.131

Future debts have been also permitted to be used as collateral by the reform as long as the security agreement allows their identification or contain elements which make it possible, such as the indication of the debtor, the place of payment, the amount of the debts or their estimate

and, if it is possible, their due date.132 The law does not specify the sanction in case of absence of these requirements. Should the pledge then become not opposable?

128Id. at 28.

129Art. 2356 C.civ. paragraphs 1and 2.

130Art. 2357 and 2358 C. civ.

131“a set of incorporeal movables.”

132Art. 2356 C.civ. paragraph 3.

48

c. Perfection

The provisions of the pledge of incorporeal movables do not foresee any registration whatsoever in order for the pledge to take effect and become opposable against third parties. The

date of the instrument is sufficient.133 However, Mr. Simler and Delebecque were skeptical as to the conclusive character of the date and they encouraged the creditors to register their

agreements to avoid any bad surprises.134 In any case, we believe that the secret pledgee should be entitled to claim her statutory right of priority against someone who claims a right upon a non statutory form of notice.

Art. 2361 C. civ. states that the future debt is opposable to third parties at the date of the instrument, however, this provision should be coupled and read in connection with Article 2357

C.civ. that gives effect to future debts from the date of their advent.135

As to the debtor, in order for the pledge to be opposable against him, he must be notified

of this pledge or he should have intervened in the constitution of the instrument.136 Failing

which, only the pledgor will duly receive payment of the debt.137

133Art. 2361C. civ.

134Simler & Delebecque supra note 77 at 22.

135Art. 2357 and 2361 C. civ.

136Art. 2362 C. civ.

137Id.

49

IV.Comparison of the pledge of receivables with similar devices

Many French legal mechanisms can, in fact, serve as devices for the assignment of receivables and coexist with this pledge of receivables governed by Articles 2355 to 2366

C.civ.138 We will envisage briefly the assignment of receivables of the Civil Code, the delegation of receivable and focus and the assignment of receivables as security.

1) The assignment of receivables of the general law (du droit commun)

The assignment of receivables is provided for in art. 1689 to 1701 of the Civil Code

under the title relevant to the sales.139 It is a straightforward transfer of the title of the relevant

receivables to the creditor.140 Before the reform in 2006, the pledge and the assignment of receivables were related with regards to their formalities, as they both needed to be notified to the debtor or accepted by him in the authentic instrument acte authentique. However, they diverged –and still doas to their effects. In the pledge, the creditor has only an in rem right over

the relevant receivable, in the assignment, the receivable is transferred to the creditor.141

138Such as: the assignment of receivables of the Code civil, the assignment Dailly, the fiducie, delegation of receivables, securitization, letter of exchange, check, warrant, assignment of contract, factoring, subrogation, novation, etc…

139Title IV of book III of the Code civil.

140Art. 1689 C. Civ.

141Legeais, supra note 113at 6-7.

50