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

2) Distinction with the delegation of receivables

The delegation requires the consent of three parties, the creditor, the third party and the debtor. The latter’s consent might be difficult to obtain, as he undertakes to pay a specific debt to the third party (the assignee which is typically a bank) in accordance with instructions given by

its creditor (the assignor who is typically a landlord).142 The delegation of rents is a common

operation and is hardly identifiable of the pledge or of the assignment of receivables.143

In the delegation, the assignor remains responsible towards the creditor. The creditor benefits of the principle of non-opposability of exceptions. In this sense, the delegation is a better security

than the pledge.144

3) The assignment of receivables as a security (cession de créance à titre de garantie)

The assignment of receivables as a security consists for an obligor to assign to the creditor the property of the receivable(s) to secure the extended loan, with the commitment of the creditor to reassign it in the event of payment of the loan; should the obligor default on his payment

obligation, the assigned receivable becomes the property of the lender.145 In case of a “collective

procedure” 146 of the obligor, the success of the assignment of receivables as a security interest is

142Hubert, supra note 121 at 180.

143Legeais, supra note 113 at 16.

144Id.

145Dominique Legeais, La Cession de Créance à Titre de Garantie, hors les cas prévus par la loi, est constitutive d'un simple nantissement de créance[The Assignment of Receivable as a Security Interest, in the absence of specific legal provision, is constitutive of a Mere Pledge of Receivables],La Semaine Juridique, Ed. Gén. n° 16, 18 Avril 2007, II 10067.

146The “collective procedure” is a term that includes one or more of the following three types of remedies or

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more certain than the pledge nantissement. The creditor does not have to worry about the

priorities and the lengthy process of the procedure.147

The prohibition of the “ pacte commissoire” which prevented the secured creditor from an extr a- judicial enforcement of the pledge before the reform of 2006, was argued to oppose the legality

of the assignment of receivables as a security not constituted under the law “Dailly.” 148 In the absence of a general system for the assignment of receivables as a security interest, the French

bankers and financiers had recourse to parallel methods149 provided for in special laws:

“assignments of public markets,” 150 the “assignment Dailly,” 151 the “pension operations,” 152 The

treatments to debtors in difficulty: 1- the safeguard procedure, which allows the debtor to anticipate its difficulties and to reorganize to avoid cessation of payments (art. L.620-1 code de commerce); 2- the judicial recovery or reorganization, which is open for the debtors that cannot pay their dues with their available assets and it is intended to allow the continuation of the activity of debtor, the protection of employment and discharging the liability (art. L. 631-1 code de commerce) ; and, 3- the judicial liquidation, which puts an end to the activities of the debtor (art. L. 640-1 code de commerce).

147Franck Auckenthaler, Cession de créance en garantie: le serpent de mer se déchaîne [Assignment of Receivable as a Security Interest: The Sea-Snake Goes Wild], La Semaine Juridique Entreprise et Affaires n° 40, 4 Octobre 2007, 2187.

148Art. L. 313-23 et. seq. C. mon. fin. available at http://www.legifrance.gouv.fr/affichCode.do; jsessionid=D35605AF742D3495690DD99884C74B69.tpdjo15v_3?idSectionTA=LEGISCTA000 006184682&cidTexte=LEGITEXT000006072026&dateTexte=20090514 (last visited on May 14, 2009).

149Alexandre Bordenave, La cession de creance a titre de garantie, Un an après l’arret de la Chambre Commerciale de la Cour de Cassation du 19 Dec. 2006 [The Assignment of receivable as a Security Interest, One Year After the Decision of the Commercial Section of the Court of Cassation], Lexbase hebdo n. 297. Ed. Privee generale.

150Art. 106 et. seq of the Code des marches publics. (Law of January 4, 1978) available at http://www.legifrance.gouv.fr/affichCode.do;jsessionid=D35605AF742D3495690DD99884C74B69.tpdjo1 5v_3?idSectionTA=LEGISCTA000006161221&cidTexte=LEGITEXT000005627819&dateTexte=200905 14

151Art. L. 313-23 et. seq. C. mon. fin

152Art. L. 432-12 et. seq. C. mon. fin. (Law of December 31, 1993) repealed by virtue of Order n 2009-15 of January 8, 2009.

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“guarantee of the financial instruments,” 153 the assignment in guarantee of “financial

obligations,” 154 the fiducie,155 and the cession-bail or lease-back.

In a decision of December 19, 2006 the Chambre Commerciale de la Cour de Cassation

has refused the validity of the assignment of receivables as a security and it disqualified it into a

pledge.156 157

Cass. com., 19 déc. 2006, n° 05-16.395, FP P+B+R+I, Sté DIVA c/ Caisse fédérale du crédit mutuel du Nord de la France : Juris-Data n° 2006-03 6663

REPUBLIQUE FRANCAISE

IN THE NAME OF THE PEOPLE OF FRANCE

THE COURT OF CASSATION, COMMERCIAL, FINANCIAL AND ECONOMIC CHAMBER, HAS RENDERED THE FOLLOWING JUDGMENT:

[…]

In view of articles 2075 and 2078 of the Civil Code in their applicable version:

Considering that, as per the attacked judgment, that by agreement of January 7, 1992, the Foncière forum 20 has acquired the property of a commercial centre, by the means of a loan from the CGER bank, in order to have it secured, in guarantee of all the sums that could be due to Foncière forum 20, it has been agreed to an assignment of the rents due by the lessees, among which is the company Pills Music which controls the company DIVA; that the Caisse fédérale du crédit mutuel du Nord de Paris (the caisse), benefiting from an assignment of the receivable resulting from the loan extended by the CGER bank and dated May 30, 1997, has notified the assignment to the debtor assignee, the Foncière forum 20;

153Art. L. 431-7 C. mon. fin (Law of January 2, 1996) repealed by virtue of Order No. 2009-15 of January 10, 2009.

154Art. L. 431-7-3 et. seq. C. mon. fin. (Order of February 24, 2005) repealed by virtue of Order n 2009-15 of January 10, 2009.

155Law number 2007-211 of February 19, 2007

156Bull. 2006, IV, n° 250, p. 275. (Cass. com., Dec.19 , 2006, JCP E 2007, 1131, rapport M. Cohen-Branche, note D. Legeais).

157Attached to this thesis a copy of this decision as Appendix C.

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that the caisse, in its capacity of debtor assignee of the assignment of rents, has subpoenaed the company DIVA to pay, Diva maintained that the assignment was only stipulated as a security and had not had as effect to keep the receivable contentious rents out of the patrimony of the company Foncière forum before it becomes subject to the reorganization procedure instituted on June 27, 1995 and as such, the caisse was devoid of any right against it;

Considering that, to sentence the company DIVA to pay to the caisse the sum of 125 049,47 euros as well as the interest, the judgment rules that it resulted of the agreement of January 7, 1992 that the assignment of the receivable rents in favor of the CGER bank, has been stipulated as an additional security in guarantee of all the sums that could be due to it, it resulted therefrom that the CGER bank has acquired the property of this receivable as of that date and that this receivable could have been assigned to the caisse by the agreement of May 30, 1997;

Considering that ruling this way, while in the absence of specific legal provision, the agreement in which the debtor assigns and transfers to his creditor, as a security, all his rights on the receivables, constitute a pledge of receivables (nantissement de créance), the court of appeal has violated the above texts;

BY THESE MOTIVES, […]

REPEAL AND ANNUL, in all its dispositions, the judgment passed, between the parties, by the court of appeal of Paris;

The issue presented to the cour de cassation was whether the assignment of receivables

segregates the receivables and keeps them out of the patrimony of the debtor-assignor in case of

a collective procedure. The cour de cassation was radical and expressed its hostility to the

assignment of receivables as a security interest by ruling that in the absence of a specific legal

provision the property of a receivable cannot be assigned as a security interest.

In the facts, a company (Foncière forum 20) has acquired a commercial centre by the

means of a loan extended by a bank (CGER). The receivables due to Foncière forum 20 from the

lessees in its commercial centre were assigned to CGER as a security for this loan. CGER has

assigned afterwards its receivables resulting from the loan to another financial institution

(Caisse) who notified the assignment of receivables to the tenants and requested one of them to

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pay its rent, in the meantime, a reorganization or recovery procedure was initiated against the borrower-assignor Fonciere and, due to that, the tenant (Diva) refused to pay alleging that the assignment of receivables as a security interest does not have as effect to keep the receivable contentious rents out of the patrimony of Fonciere (i.e. to segregate them) and therefore Caisse has no rights against it. The Court of Appeal confirmed the right of Caisse over the assigned receivables and sentenced the account debtor (Diva) to pay them. The commercial section of the cour de cassation repealed this judgment and ruled that “in the absence of a specific legal provision, the agreement in which the debtor assigns and transfers to his creditor, as a security, all his rights on the receivables, constitute a pledge of receivables” not an assignment of receivables.

Even though the reform had already legalized the “ pacte commissoire” 158 at the date of the ruling, this judgment has been passed according to then repealed Articles 2075 and 2078 C.

civ.159 The old law was applied to this case because the law does not generally have a retroactive effect, therefore the issue at hand had to be decided according to the legal provisions in force at

the time the facts occurred.160 Subsequently, the pactum commissorium was assumed to be illegal.

The French doctrine was divided as to the importance and consequences of this ruling.

158Legeais supra note 113 at 8.

159By virtue of the order of March 23, 2006 and replaced by articles 2356 and 2365 C. civ.

160According to art. 2 C. civ.: “the legislation prov ides only for the future, it has no retroactive effect.”

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On the one hand, some authors considered that this judgment should be deemed ineffective after

the enactment and the acceptance of the pacte commissoire161 and the new dispositions on the fiducie.

Some other authors agreed with the outcome of this judgment and said that it should remain valid. They maintained that the law has provided for special types of assignment of receivables

as a security available only to professionals of the financial market.162 They added that the law of

February 19, 2007 which instituted the fiducie,163 had a limited scope of application,

consequently excluding any other form of assignment of receivables.164

This controversy and disagreement has divided the French doctrine until the issuance of the

Order of January 30, 2009 which introduced Articles 2372-1 to 2371-6 to book IV of the Civil Code. This Order has finally acknowledged “the assignment of a prop erty as a security interest,”

the property of a “movable asset” or of a “right.” 165 Article 2372-1 C. civ., states that: “the property of a movable asset or right can be assigned as security of an obligation by virtue of a fiducie agreement concluded in application of Articles 2011 to 2030 of the Civil Code.”

Unsurprisingly, there is no official definition for the assignment of receivables in the French law. Mr. Gerard Cornu defines it as “the agr eement by virtue of which the assigning

161Legeais supra note 113 at 9.

162Philippe Dupichot, Propriété et garantie au lendemain de l'ordonnancerelative aux sûretés[Property and Guarantees at the Day After the order relating to the Security Interests], Rev. Lamy Droit civil juill.-août 2006, supplément au n° 29, referring to the assignment Dailly.

163Art. 2011 C. civ.

164Legeais, supra note 113 at 9.

165Art. 2372-1 C.civ.

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creditor transfers to the assignee its receivable against the debtor.” 166 Under the U.S. law it can be defined as “the right to payment of a sum of mon ey, whether presently or in the future, for

goods supplied, services rendered or facilities made available”. 167

We will follow the organization of the French legislations and study the assignment of receivables as a security by the light of the fiducie, and we will compare it to the assignment

“Dailly.”

A. The fiducie

After several unsuccessful attempts over the past 20 years to pass a legislation instituting and organizing the roman fiducia, the French legislature has finally enacted Law n 2007-211 of February 19, 2007 instituting the fiducie which is considered as the equivalent of the Anglo-

American trust.168 A new title XIV has been added to the Civil Code entitled “of the fiducie.”

This fiducie can serve as management device or as a security device.169 This study will just analyze the latter where the movable asset or the receivable becomes the exclusive property of the trustee (fiduciaire). If the trustee is not the creditor, then the receivables should be transferred to the creditor who, in principle, has priority over other creditors. Indeed this ownership is not

166G. Cornu, Cession de créance[Assignement of Receivable], Vocabulaire juridique, PUF.

167R.M. GOODE, Legal Problems of Credit and Security,106 (2nd ed. 1988).

168François Barrière, La Loi Instituant la Fiducie: Entre Equilibre et Incohérence[The Law Instituting the Fiducie: Between Balance and Inconsistency], La Semaine Juridique Entreprise et Affaires n° 36, 6 Septembre 2007, 2053 at 1-3.

169Id. at 6.

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the ordinary one, it has certainly all the legal elements of the ownership right but the trustee can

only use these elements to realize the purpose of the fiducie.170

a. Scope of application

The fiducie is an autonomous security interest.171As per Article 2011 C. civ. it concerns the transfer of movables or immovable, corporeal or incorporeal goods, rights or security interests. The fiduciary assignment of receivables has a more extensive scope of application whereby it is not limited only to professional receivables, and it concerns the receivables against natural and moral persons. Nonetheless, if the law allows the fiduciary assignment of future

receivables, it does under the condition that they are certain and not only possible.172

In the original version of 2007, the constitution of the fiducie was limited to the moral

persons subject to corporate tax.173 The law of August 4, 2008 removed these limitations and extended the scope of the persons involved with the fiducie. “The fiduciary assignment has become a general institution of civil law accessible to moral as well as to physical persons even

if they were not acting in connection with their business activities.” 174

170Francois Barriere, La Fiducie, Commentaire de la loi No. 2007-211 du 19 fevrier 2007 (deuxieme partie)

[The Fiducie, Commentary of the Law No. 2007-211 of Feb 19, 2007], Bulletin Joly Societes 2007.

171Jean-François Adelle, L'adoption de la fiducie a-t-elle remédié à la prohibition des cessions de créances en garantie de droit commun?[Has The Adoption of the Fiducie Remedied to the Prohibition of the Assignment of Receivables as a Security Interest?] Revue de Droit bancaire et financier n° 2, Mars 20 07, étude 5. Referring to the annex of the minutes of meeting of the session of February 8, 2005 concerning the bill instituting the fiducie presented by Philippe Marini.

172Art. 2018 C. civ.

173Art. 2014 C.civ. (repealed).

174Victoire Lasbordes - De Virville, La cession de créance à titre de garantie [The Assignment of Receiva ble as a Security Interet], Revue de Droit bancaire et financier n° 1, Janvier 2009, dossier 3.

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However, according to the law n. 2007-211 and in order to avoid money laundering, only banking and service institutions, insurance and investment enterprises were allowed to become

trustees, law n 2008-776 of August 4, 2008 added the professional lawyers to this list.175

b. Creation

The fiducie agreement must be completed in written and must, under the sanction of nullity, determine the following:

1.The assigned assets, rights or security interests. In case they are future, they should be determinable.

2.The duration of the assignment, that cannot exceed 99176 years as of the signature of the contract.

3.The identity of the settlor(s).

4.The identity of the trustee(s).

5.The identity of the beneficiaries, or the rules allowing their designation.

6.The mission of the trustee(s) and the extent of their powers of administration and of disposal.177

In addition to these designations required for all types of fiduciary assignments, Article 2372-2 C. civ. (law number 2009-112 of January 30, 2009) adds 2 designations required when the fiducie is constituted as a security interest by a physical person: 1) “the designation of the secured debt and, 2) the estimated value of the good or the right transferred to the assets of the fiduciary.” The omission of these designations is s anctioned by the nullity of the agreement. It is worth mentioning that Article 2372-6 C. civ., states that the dispositions of the assignment of ownership as a security are not applicable to fiducies constituted by legal entities. This was due

175Art. 2015 C. civ.

176It was 33 years until its amendment by the law n 2008-776 of August 4, 2008

177Article 2018 C. civ.

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to the limited latitude to legislate conferred to the government, it only concerned “the

constitution of fiducie by natural persons.” 178

Ms. Lasbordes - de virville suggested that “by prud ence, the contract of fiducie could also allow the settlor to allot the assigned property in guarantee of debts other than those mentioned in the security agreement [the same assigned property will secure more than one debt belonging to one or more creditors]. In this case, the settlor will be able to enter into a “recharge agreement” 179 with the initial creditor or a new creditor even if the first has not been paid.” 180

Beyond these, the parties can freely determine the conditions of their agreement, provided that they do not violate the public order. Article 88 of the order of December 18, 2008 which has become Article L. 632-1 of the Commercial Code declares null the fiducie constituted after cessation of payment.

c. Perfection

Art. 2018-2 which was created and added to the Civil Code by the law n 2008-776 dated August 4, 2008 stated that “[t]he assignment of rec eivables realized within the scope of a fiducie is opposable against third parties at the date of the fiducie agreement... It is not opposable to the

debtor of the assigned receivable unless and until he is notified by the assignor or the trustee.” 181

This article seems inconsistent with the provision of Article 2020 C. civ. that provides for the

178Philippe Dupichot, La fiducie-sûreté en pleine lumière- À propos de l'ordonnance du 30 janvier 2009 [The Fiducie as a Security Interest under the Spot Light – Concerning the order of Jan. 30m 2009], La Semai ne Juridique Edition Générale n° 14, 1er Avril 2009, I132.

179Art. 2372-5 C. civ. See infra the rechargeable fiducie.

180Lasbordes-De Virville, supra note 174.

181Art. 2018-2 C.civ.

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