Legal regime of pledges with or without dispossession
A pledge over movable property is a common security interest under French law, used to secure the payment of a debt by granting the creditor a preferential right over tangible movable assets. French law allows such pledges to be created with or without dispossession of the debtor, including over inventory, equipment, and even cash.
This article sets out the legal framework applicable to pledges over tangible movable property, in accordance with the French Civil Code and the French Commercial Code.
1. Pledge of movable property with or without dispossession
Tangible movable property may be the subject of a pledge with dispossession of the debtor or without dispossession (French Civil Code, Articles 2333 to 2350).
In both cases, the debtor grants the creditor the right to be paid in priority over other creditors, out of one or more tangible movable assets, whether present or future. The secured claims may themselves be present or future, provided that future claims are determinable (French Civil Code, Article 2333).
A pledge may also relate to movable property immobilized by destination. In the event of a conflict between a pledge creditor and a mortgage creditor, priority is determined by the dates on which the respective security instruments were published (French Civil Code, Article 2334).
French law expressly allows the taking in pledge, with or without dispossession, of fungible goods (French Civil Code, Article 2342). As a result, money itself may be taken in pledge.
2. Right of retention in pledges without dispossession
Among those entitled to invoke a right of retention, Law No. 2008-776 of 4 August 2008 added the beneficiary of a pledge without dispossession (French Civil Code, Article 2286, 4°).
This reform raised significant doctrinal debate. The practical scope of this right of retention was further reduced by Ordinance No. 2008-1345 of 18 December 2008. Under this ordinance, the judgment opening safeguard or reorganization proceedings automatically renders unenforceable the right of retention conferred by Article 2286, 4°, during the observation period and the performance of the plan, unless the pledged asset is included in a business transfer (French Commercial Code, Article L. 622-7, I, paragraph 2).
3. Formal requirements of a pledge over movable property
The pledge is perfected upon the signing of a written instrument specifying:
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the secured debt;
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the quantity of the pledged assets;
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the type or nature of the pledged assets
(French Civil Code, Article 2336).
However, the pledge becomes enforceable against third parties, and in particular against other creditors, only if the written instrument is followed by one of the following:
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dispossession of the pledged asset into the hands of the creditor or an agreed third party;
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delivery of the document representing the asset (such as a bill of lading);
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registration in a special register
(French Civil Code, Article 2337).
The debtor may request cancellation of the registration or return of the pledged asset only after full payment of the secured debt, including principal, interest, and costs (French Civil Code, Article 2339).
4. Multiple pledges over the same movable asset
Where the same movable asset is subject to several successive pledges without dispossession, the ranking of creditors is determined by the order of registration. The first registered creditor takes priority over subsequent pledge creditors.
Where an asset pledged without dispossession is later pledged with dispossession, the preferential right of the prior pledge creditor remains enforceable against the subsequent pledge creditor, provided it was duly published, notwithstanding the latter’s right of retention (French Civil Code, Article 2340).
5. Rights of the pledge creditor in case of default
In the absence of payment of the secured debt, the pledge creditor may pursue the sale of the pledged asset. Such sale must take place in accordance with the rules governing civil enforcement proceedings, namely by public auction. The pledge agreement may not derogate from these rules.
Where the pledge secures a professional debt, the creditor may arrange for the pledged assets to be sold at public auction by a notary, a judicial officer, or a sworn commodities broker, eight days after simple service on the debtor and, where applicable, on the third-party pledgor (French Civil Code, Article 2346).
As an alternative to sale, the creditor may apply to the court for attribution of the pledged asset in payment. If the value of the asset exceeds the amount of the secured debt, the surplus is paid to the pledgor or, where there are other pledge creditors, deposited (French Civil Code, Article 2347).
6. Partial security of a debt: case law illustration
A bank overdraft is secured by movable assets up to an amount of 250,000 francs (€38,112). Upon public sale, two consoles find no buyer. The auctioneer pays the bank the proceeds of the sale, namely 305,000 francs (€46,497), which the bank credits to its client’s account. The auctioneer then returns the two consoles to their owner.
The bank challenges this return, arguing that it remains a creditor for an amount exceeding 305,000 francs. The judges dismiss the challenge, holding that the pledge secured the overdraft only up to 250,000 francs (Court of Cassation, Plenary Assembly, 6 November 2009, No. 08-17.095).
7. Pacte commissoire in movable pledges
It may be agreed, either at the time the pledge is constituted or subsequently, that in the event of non-performance of the secured obligation, the creditor will become the owner of the pledged asset. This arrangement is known as a pacte commissoire.
The value of the asset is determined, on the date of transfer, by an expert appointed by agreement or judicially, in the absence of an official market quotation. Any clause contrary to these rules is deemed unwritten (French Civil Code, Article 2348).
8. Impact of collective proceedings
In the case of a pledge over a current account, where collective proceedings are opened against the debtor, the creditor’s rights relate to the balance of the account as of the date of the judgment opening such proceedings, subject to the adjustment of transactions in progress (Court of Cassation, Commercial Chamber, 21 June 2023, No. 21-23.143).
Conclusion
Pledges over movable property, inventory, or cash constitute a powerful security interest under French law. Their effectiveness depends on strict compliance with statutory formalities, proper registration, and careful anticipation of enforcement and insolvency risks.
For creditors, lenders, and investors, professional legal assistance is often decisive in ensuring that a pledge operates as an effective debt-recovery tool.
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enforcement of security interests;
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debt recovery and insolvency proceedings in France.
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