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

REPUBLIQUE FRANCAISE213

product, according to plans established by the customer, can only be analyzed as a service agreement; that in this case, the court of appeal, which, after having noted that the company Bio-alternative had conceived and provided the plans of the industrial unit, as well as the specific characteristics of the materials, had, however, decided that the contract concluded between this company and the company Ateliers de Nissan corresponded to a sale, did not draw the legal conclusions from its own observations in the eyes of article 1787 of the Civil Code;

[…]

But considering, on the one hand, that the good delivered pursuant to a service agreement can be the subject of a reserved property; (emphasis added).

[…]

It follows that the means is not founded in any of its branches;

By these motives,

Rejects the Appeal. [….]

Also, the commercial section of the cour de cassation ruled in 2003 that: “considering

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that the seller of a good whose property is reserved to him can claim the unpaid price by the sub-

purchaser, if the latter has received the good in its initial state, was this pursuant to a service

contract.” 214

The French clause of retention of title, unlike its German homologue,215 can only

guarantee the payment of a countervailing obligation.216 Mr. Crocq explained that:217

“This constitutes an important difference between t he French law and the German law where the retention of title known as "broad" (erweiteter Eigentumsvorbehalt) can guarantee the payment of other debts of the purchaser with regard to the seller (Kontokorrentvorbehalt) under the condition of not being excessive, what would be the case if the value of the good subjet of the broad retention of title notably exceeded the amount of the debts remaining due […]. Before January 1, 1999, the broad retention of title could even guarantee the payment of debts of the purchaser with regard to other suppliers belonging to the same consortium as the seller (Konzernvorbehalt). Since then, this is prohibited, by virtue of § 449, subparagraph 3, BGB. This difference between the German law which allows the broad retention of title, even if this admission is nowadays limited, and the French law which prohibits it, is, however, moderated by the decision of the commercial section of the Cour de Cassation on January 16, 2007. According to this decision, when the retention title having for object an equipment guarantees the total price of the whole contract including the sale of this equipment and the realization of several works, the payment of this total price constitutes a single debt excluding the application of articles 1253 and 1256 of the Civil Code concerning the allocation of payments, which results that the payment of only the first two installments of this price cannot have as a consequence that the price of the equipment can be considered as paid, even if the sum of these two installments would exceed the share of the total price corresponding to the sale of the equipment (Cass. Com., January 16, 2007, n° 05-14.4 52: N° Juris-Data 2007037013;). De facto, this jurisprudence leads to admit a form of widened retention of title in the particular case of an entire contract.”

214Cass. com., Nov. 5, 2003, Juris-Data [n° 2003-020 806.]

215Crocq, supra note 208 at 127.

216Para. 2 of article 2367 C.civ.: “the retained tit le is the accessory of the debt whose payment it secures.”

217Crocq, supra note 206 at 46.

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Consequently, according to the principle accessorium sequitur principale or the accessory follows the principal, when the secured debt is transferred, the creditor should not be

denied the right to claim it (revendication).218 Nevertheless, being a security interest,219 the retention of title has an objective to guarantee the performance of the contract and “it entails that

the seller remains owner of the good until full payment of the debt,” 220 which, in principle,221 it gives her the right to claim the good back in case of non-payment. And, on another note, it entails that she remains responsible for its loss according to the adage res perit domino, unless the parties waived this rule or agreed to its contrary.

b. Creation

According to the letter of Article 2368 C.civ. “the retention of title is agreed upon in writing,” (i.e.: must be agreed upon in writing). T he words “agreed upon” assume that it cannot be stipulated unilaterally by the creditor. Nevertheless, Article L. 624-16 C. com., before it was repealed by the Order of March 23, 2006, permitted the unilateral stipulation of the retention of

title.222 The jurisprudence has already set up this principle where the clause should be “stipulated by the creditor in a sufficiently apparent, clear and legible manner in order to be knowingly

accepted by the debtor.” 223 Yet, the cour de cassation has tempered this principle224 and ruled

218Crocq, supra note 206 at 47 – 49.

219As provided for in article 2329 C.civ.

220Crocq, supra note 206 at 50 – 53.

221See below for the limitations to this rule.

222Article L. 624-16 C. com: “ Notwithstanding any contrary clause, the clause of retention of title is opposable against the buyer and the other creditors, unless the parties have agreed in written to waive it or modify it”

223Crocq supra note 206 at 27.

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that the acceptance by the buyer has not to be in writing and does not require his signature,225 and that the acceptance of the clause of retention of title can result from the conscious execution

of the agreement.226 The French highest civil court ruled that “the onl y mention of the clause of retention of title at the back of the delivery orders does not imply that this clause was ignored by purchaser and that he did not accept it by the execution of the contract with full knowledge of the

facts.” 227

c. Perfection

A writing is required in order for the retention of title to be opposable against third

parties.228 But, Article 2368 C.civ. did not specify whether this a condition of validity of the

retention of title, as Articles 2336 & 2356 C.civ. did for the pledges gage & nantissement.229

The Order of 2006 did not follow the proposal of the Grimaldi commission with regard to the

obligatory publicity requirement.230 231

224Id.

225Id. referring to Cass. com., Feb.19, 1985 Bull. civ. 1985, IV, n° 68, p. 59; Cass. com., March 17, 1998 [Juris-Data n° 1998-001247.]

226Id referring to Cass. com., Dec.12, 1984 : Bull. civ. 1984, IV, n° 347.

227Cass. com., October 13, 1998 [Juris-data 1998-003994] available at http://www.legifrance.gouv.fr/affichJuriJudi.do?oldAction=rechJuriJudi&idTexte=JURITEXT0000073958 90&fastReqId=1444517359&fastPos=1

228Art. 2368 C.civ.

229Crocq, supra note 206 at 58.

230Crocq, supra note 208 at 135.

231Grimaldi, supra note 5 at 15. The group proposed the following: “L astly, because the choice of the property-guarantee could not allow the contractors to elude certain rules of publicity and subsequently to compromise the legal security, and also by concern of the transparency and coherence of the reform, it would be expected that the reserve of the property of a corporeal movable of a value exceeding a sum fixed

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The rules232 governing the credit-bail require publication in order for the retention of title

to be opposable against third parties.233 In addition, the Decree of October 21, 1994 envisages an optional publication allowing the seller to benefit from an enhanced protection provided for in Article. L. 624-10 C. com. where she does not need to abide by the 3-month time limit to file an action for the claim of her property. As inferred from Article R. 624-15 C. com., the seller can either publish the contract providing for the retention of title on the special register of the creditbail agreements, or in the register of the clerk office of the tribunal of grande instance where the

judgments instituting collective procedures are published.234

Article 2368 C.civ. does not specify when the writing should be performed leaving an exit to the debtor to favor one of her creditors by adding a retention of title clause a posteriori to

the agreement235 which could be either a fraudulent act or fiducie, knowing that, as explained above, Article L. 632-1 C. com. declares null the fiducie constituted after the cessation of payment.

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d. Priority of creditors and effects

Once opposable against third parties, the retention of title gives the creditor an exclusive right on the secured good whereby she has not to worry about the priority issue with other

creditors.236

In general, the retention of title is incompatible with other security interests, in a way that a retained good cannot be subject to pledge or other types of securities. However, in what could be a sign that this principle might change, the Cour de Cassation has ruled that the retention of title can coexist with the privilege of a seller of an immovable, knowing that the creditor was the

same and both security interests were stipulated in the agreement.237

The transformation of the secured movable by the debtor or its incorporation could result

with the loss of the creditor of his right of retention.238 According to Article 566 C. civ. the one

from whom comes the main part of the whole good is deemed to be the owner.239 Moreover, the jurisprudence has adopted the “preservation of the identity of the good” as a decisive factor to decide whether the creditor loses her right to claim the good after its transformation or

incorporation with another good.240 The jurisprudence has also ruled that the fungible goods can be claimed in restitution by the secured creditor having the right of retention, as long as they are

236Id. at 5.

237Id. at 6 referring to Cass. com., Sept.28, 2004[Juris-Data n° 2004-024983.]

238Articles 565 to 577 C.civ.

239Art. 566 C. civ. provides: “Where two things belo nging to different masters, which have been so joined as to form one whole, are nevertheless separable, so that one may subsist without the other, the whole belongs to the master of the thing which forms the main part, subject to the obligation of paying to the other the value, appraised at the date of payment, of the thing which has been joined..”

240See Crocq supra note 206 at 75-97.

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individualized and identifiable. As such if secured fungibles have been mixed up with other

goods the creditor would lose his right of retention.241

However, the reform has set up a controversial242 regime to further protect the rights of

the creditor by assuring that “the retained title o f a fungible good can be exerted, to the limit of

the remaining due debt, on goods of the same nature and of the same quality detained by the

debtor or for his account.” 243 Also, the Order of March 23, 2006 provides that “the incorporation

of a movable good subject of a retention of title with another good does not hamper the rights of

the creditor when these goods can be separated without being damaged.” 244

Pursuant to Articles 2279 and 2280 C. civ., the right of retention has also been

historically hindered when debtors disposed of or sold the secured good to a bona fides245 third

party, Article 2280 C. civ. provides that: 246

“Where the present possessor of a thing lost or sto len has bought it at a fair or market, or at a public sale, or from a merchant selling similar things, the original owner may have it returned to him only by reimbursing the possessor for the price which it has cost him.

A lessor who claims, under Article 2102, the movables displaced without his consent and which have been bought in the same conditions, must likewise reimburse the buyer for the price which they have cost him”

241Crocq, supra note 206 at 91 Art. 2367 à 2372 referring to: Cass. 1re civ., Feb. 7, 1989, Bull. civ. 1989, I, n° 57; Cass . com., March 25, 1997, Bull. civ. 1997, IV, n° 84.

242Id. at 93.

243Art. 2369 C. civ.

244Art. 2370 C.civ.

245Art. 2268 C.civ.: “Good faith is always presumed, a nd it is on the person who alleges bad faith to prove it.”

246Art. 2280 c.civ.

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Nonetheless, Article 2372 C.civ., echoing the provisions of Article L. 624-18 C. com., specifies that “the ownership right is carried over on the de bt of the debtor with regard to the sub-

purchaser or on the insurance indemnity subrogated in the good.” 247 The carry over and subrogation maximize the protection of the creditor’s priority right.

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Chapter 4: Order of Priorities of the Privileges and Security interests on movables

In the present chapter, I merely translate a table published in the JurisClasseur Notarial

Civil that set out the legal privileges and security interests in order of priority.248

Privileges having the same number are in contest.

248This table does not take into consideration the special case of art. L. 622-17 C. com. which states the following:

I- Claims arising in a proper manner after the issuance of the commencement order for the needs of the proceedings or the observation period or as consideration for goods and services provided to the debtor with respect to its professional or activity during this period, shall be paid as they fall due.

II - Where they are not paid as they fall due, these claims will be paid according to their preferential lien before all the other claims, whether these are secured or not by preferential liens or guarantees, except for those claims secured by a lien provided for in Articles L143-10, L143-11, L742-6 and L75115 of the Labor Code, those claims secured by a lien for legal fees and those claims secured by the lien created by Article L611-11 of this Code.

III - Their payment shall be made in the following order:

1. claims of wages and salaries for which funds have not been advanced in compliance with Articles L143-11-1 to L143-11-3 of the Labour Code;

2. legal fees;

3. loans and claims arising from the performance of continued contracts according to the provisions of Article L622-13 and where the other party accepts deferred payments. These loans and the moratorium shall be allowed by the supervisory judge within the limits necessary for the continuation of business operations during the observation period and shall be published. In the event of termination of a contract that had been continued in a proper manner, compensation and penalties will be excluded from this article.

4. sums that have been advanced in application of Article L143-11-1 (3°) of the Labor Code; 5. other claims, according to their priority.

IV - Unpaid claims will lose the lien provided for by this article if they have not been notified to the court nominee and the administrator, where one has been appointed or, where these persons have ceased their functions, to the plan performance supervisor or the liquidator within a year from the end of the observation period.

249The heading in the original French text did not include the security interests.

250The right of retention did not appear in the original French text.

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