Commercial Law — Financial law — Commercial sureties — Security for debt

Date Citation Note
13.01.1965 Court of Cassation, Commercial and Financial Chamber. Case N° 41
Application for Review N° 62-11.872.
Case Augier v. Manufacture Générale de Munitions et Autre
Article L521-3 of the Commercial Code (formerly Article 93) provides, in its first paragraph "In case of failure to pay on the expiry of the term the creditor may, after giving notice to the debtor &.cause the pledged objects to be sold by public auction; and in its last paragraph Any clause which purports to authorise the creditor to take over the pledged objects or to sell them without the formalities laid down above is null". These provisions, similar to those of Article 2078 of the Civil Code, constitute the formal prohibition in French law of what is known as the pacte commissoire or forfeiture clause. French law has traditionally not allowed the use of title to property as a security device, although an exception now exists in the form of what is known as the cession Dailly, a technique which allows title to receivables to be transferred to banks by way of security. This case is a classic example of the application of this prohibition to a document which purported to transfer title to shares to a lender by way of security.