Purchase Money Security Interests in Common Law and
the French System of Civil Law
Harry R. Sachse *
It is a mistake to consider the common law and civil law as
opposite systems of law. It is much more accurate to consider them as
closely related species within the same genus, namely western law.
This is true historically. England was part of the Roman Empire;
in the Middle Ages it was part of Christendom. It participated in
the Renaissance, the Reformation, the rise of the national state,
the rise of capitalism and the colonization of the New World. These
were experiences shared by most of the European nations. In terms
of culture, economy and tradition, France and England may have a
good deal more in common than France and Switzerland or Germany
and Italy.
This consanguinity means that the problems faced by the law
are likely to be the same, and that the desirable solutions are also
likely to be similar. The differences between the common law and
the civil law, then, tend to be in techniques and rationalizations
more than in results. This is often missed if statutes are compared,
rather than the working of the system. If there is no institution A
which seems essential, there is often an institution B that takes its
place.
This is true in the area of purchase money security interests.
Both the French civil law and the common law recognize some spe-
cial claim that a seller should have for the price of goods sold but
not paid for. The difference in technique, however, is significant
and crystallized by such a long history that it can be confused with
a difference in policy. This technical difference is one of the prob-
lems in making Article 9 of the Uniform Commercial Code useful
in a civil law jurisdiction.
The technical difference arises from the suppression of the chattel
mortgage in French law and the resulting rise in importance of
non-contractual devices. I have limited the title of this paper to a
comparison of the common law and the French family of civil law
* Associate Professor, Tulane University School of Law. This paper was
presented at the Conference on Comparative Commercial Law held at McGill
University, September 3-5, 1968.
McGILL LAW JOURNAL
[Vol. 15
because both Roman law and modern German law have a some-
what different technical development.
A certain amount of history might help bring out the problem.
A security right in either movable or immovable property could be
obtained in the older Roman law by a contract known as fiducia.
The essence of the contract was that the debtor transferred owner-
ship of his property to a creditor who ordinarily took possession
of it and agreed to re-transfer it to the debtor when the debt was
paid. While he held it, insofar as third parties were concerned, the
creditor was the owner. Fiducia was gradually replaced by pignus,
which corresponded more closely to the modern concept of pledge
in that the creditor was not recognized as owner and could not con-
vey valid title to a third party. Pignus cum fiducia let the collateral
be returned to the debtor in trust. As pignus was developing so was
hypotheca, which openly allowed the creditor to have a security
interest in goods not in his possession without the fiction of a pledge
and a return of the goods.’ There is a good deal of confusion as to the
exact development of the three institutions and the differences be-
tween them.2 Justinian’s Digest itself said that the only difference
between pignus and hypotheca was the sound of the name. How-
ever, it is clear that although Roman law developed no effective
recordation system, both movables and immovables could be used
as contractual security without dispossessing the debtor.
As this Roman system amalgamated with the Germanic system
in existence in France in the Middle Ages and earlier, the idea of
security interests in movable property was modified. In the first
place, with the rise of feudal society the distinction between mova-
bles and immovables became much more important because immova-
bles had a political as well as an economic significance. Additionally,
the Germanic view was that as to movable property, except in the
case of lost or stolen goods, a transfer of possession should transfer
ownership. The Roman idea of unrecorded yet enforceable rights
that could be exercised against innocent third parties seemed much
too sophisticated. Thus, in most of France, Roman possession-less
pledge or mortgage of movables was not allowed. In parts of France,
I Note that even the Romans took advantage of foreign phrases for legal
results that were not to be analysed. Hypotheca was a Greek legal term.
2 See generally, Sohm, R., The Institutes, 3rd ed., Ledlie transl., (London, 1907),
pp. 351-357; Buckland, W. W., A Text-Book of Roman Law from Augustus
to Justinian, 3rd ed., (London, 1963), pp. 473-481; Wigmore, J. H., The Pledge-
Idea: A Study in Comparative Legal Ideas, (1897-98), 11 Harv. L. Rev. 18.
3 “Inter pignus autem et hypothecam tantum nominis sonus differt”, Digest
20.1.5.1.
No. 1)
PURCHASE MONEY SECURITY INTERESTS
however, especially in the south where the Roman influence had
been particularly great, the mortgage of movable property was
maintained. However, as time went on, an accommodation was
made by holding that mortgages on movables are valid but only so
long as the debtor (not the creditor) still has possession of the
goods. The maxim, which became famous in French law, was “meu-
bles n’ont pas de suite par hypoth~que”. 4
The recordation of mortgages on immovable property was slow
to develop in France. Henry IV of England established a system
of recordation for Paris in 1424, but that went out with the Eng-
lish.5 Colbert tried it again in 1673, but the nobility was generally
opposed to the whole idea on the ground that it was a derrogation
of their honour to have their debts publicly exposed. The system
was discontinued within two years., Thus, the French Civil Code
in 1804, in providing for the recordation of mortgages on immovable
property, was experimenting with a new system. Possible systems of
security were discussed with a good deal of clarity by the redactors
of the Code.7 The solution adopted in 1804 was basically the follow-
ing. Conventional mortgages on immovables had to be specific and
had to be recorded. As to movable property the idea of recordation
seemed impossible because neither the property nor the domicile of
the debtor would necessarily remain fixed. Conventional mortgages
were therefore not allowed. The only conventional security device
was pledge, and it was made quite clear that the creditor must be
put in possession of the property and remain in possession –
no
hypotheca, no pignus cum fiducia, no secret mortgage.”
4 Planiol et Ripert, Trait6 pratique de Droit civil frangais, t. 12, No. 253;
Baudry-Lacantinerie et de Loynes, Trait6 thdorique et pratique de Droit civil,
t. 22, p. xx.
5 Planiol, op. cit., t. 12, No. 694, n. 3.
0 Baudry-Lacantinerie, op. cit., t. 23, No. 1431.
7 Fenet, P.A., Recueil complet de travaux pr~paratoires du Code civil, t. 15,
(Paris, 1827), pp. 223-524.
8Arts. 2076 C.N.; 2114-2120 C.N.; 2129-2130 C.N.
(corresponding Quebec
articles: 1970 C.C.; 2016-2020, 2022 C.C.; 2042 C.C. & 2087 C.C., no corresponding
article for 2180 C.N.). Legal and judicial mortgages on immovable property
were allowed to be general, that is, to apply to all the debtor’s property, present
and future, and certain legal mortgages did not have to be recorded. Nor was
recordation originally required for privileges affecting immovable property. The
system for recordation of mortgages on immovable property was reformed in
1855, Loi sur la transcription en mati~re hypothgcaire, Law of March 23, 1885,
D.P. 1885.4.27, and again in 1955, Dicret portant rgforme de la publicit6 fonci~re,
Decree of Jan. 4, 1955, D. 1955.44 (see also erratum on p. 73), Gaz. Pal. 1955.1.503.
See Planiol, op. cit., t. 12, No. 695.
McGILL LAW JOURNAL
[Vol. 15
At this point it might appear that not only had French law
deserted the free-wheeling secret security devices of the Roman
law, but that in fact it had approximated the English law of the
same period:
Until early in the nineteenth century the only security devices which were
known in our [Anglo-American]
legal system were the mortgage of real
property and the pledge of chattels. Security interests in personal property
which remained in the borrower’s possession during the loan period were
unknown. A transfer of an interest in personal property without delivery
of possession was looked on as being in essence a fraudulent conveyance,
invalid against creditors and purchasers.0
The difference was in the area of non-conventional security
devices. At common law, liens on personal property were tacit
pledges, giving the creditor the right to detain the property until
paid, but further limiting his right to the period of detention. The
civil law also had such tacit pledges and often for the same debts,
e.g., the right of a repairman over the goods that he had repaired,
and the right of an innkeeper over the baggage of his guest. But
the writers of the French Civil Code, while opposed to freely created
contractual non-possessory security interests, were not opposed to
certain secret interests created by operation of the law for the
security of commercially important debts. The most important of
these were the lessor’s privilege on the goods of his tenant, and
the vendor’s privilege on the item sold.le Together they meant that
movables, even inventory, could be used to secure the two most im-
portant commercial debts of the age, rent and the purchase of new
equipment and inventory.
The lessor’s privilege began as a custom of Roman landlords to
demand a mortgage on the goods in the premises as security for
the rent. It then became an implied condition of all leases of land
or buildings.” The privilege survived the French Civil Code’s clean-
ing up of things, perhaps because it affects only goods still owned
by the debtor on the creditor’s premises, and thus does not transgress
the negotiability of movables. The lessor’s privilege has also become
the law of a number of American states, and as such, is honoured by
a specific exclusion in 9-104(b) of the Uniform CommerciaZ Code.
The vendor’s privilege grew out of the transition from the Roman
law of sale that protected sellers by a reservation of ownership until
Sec. 2.1, p. 24.
9 Gilmore, G., Security Interests in Personal Property, vol. 1, (Boston, 1965),
10 Art. 2102 C.N. (corresponding Quebec articles: 1619 C.C., 1620 C.C., 1223
C.C., 1679 C.C., 1816a 0.C., 1996 C.C., 2000 C.C., 2001 C.C., 2005 C.C.).
“Buckland, op. cit., p. 480; Planiol, op. cit., t. 12, Nos. 142 ff.
No. 1]
PURCHASE MONEY SECURITY INTERESTS
the price was paid, to the French law that declared a sale complete
as soon as there was agreement as to the thing and price. 12
In the French system of civil law, a vendor, by operation of the
law, has a privilege for the purchase price of goods sold, so long as
the goods remain in the possession of the vendee. This vendor’s
privilege exists regardless of deception or insolvency, whether there
was an intention to give credit or not, without any writing or re-
cordation and without any necessity on the part of the debtor to
agree to the privilege.’3 It often enjoys a high rank of priority. 4
The effect of the vendor’s privilege, as should be apparent, is very
much like an unrecorded purchase money security interest in con-
sumer goods, or farm equipment under $2,500 value under the Uni-
form Commercial Code, but by operation of the law rather than
written agreement, and not limited to any particular category of
goods. 1
In addition to the vendor’s privilege, which gives the creditor
the right to have the goods seized and sold to satisfy his claim for
their price, the civil law provides an implied resolutory condition
that allows the sale to be set aside and the goods to be reclaimed
if the price is not paid.’6 Both the vendor’s privilege and the reso-
lutory condition exist in every sale and are lost only if the purchaser
no longer has possession of the goods.’ 7
The vendor’s privilege and resolutory condition are to be admired
as an early attempt to use movables as security effectively without
returning to unlimited secret agreements. They are also to be ad-
mired as devices minimizing paper work and technicalities. “No
boiler plate” was available or needed.’ 8 However, the system of
privileges has two major inconveniences. One is that, practically
12Planiol, op. cit., t. 12, No. 188; German law stayed with the Roman
system.
13Art. 2102(4) C.N. (corresponding Quebec article: 2000 C.C.).
14 “Privilege is a right that the quality of a debt gives to a creditor to be
(my
preferred to other creditors, even mortgage creditors”. Art. 2095 C.N.
translation) (corresponding Quebec article: 1983 C.C.).
15 See Uniform Commercial Code, 9-302(c),(d); 9-307.
16Art. 1654 C.N.
(corresponding Quebec article: 1536 C.C., however, the
resiliation of the sale may only take place in the case of moveables).
17 Art. 2279 C.N. (corresponding Quebec article: 2268 C.C.).
18A comment should be made on the importance of a procedural difference
between common law and civil law-namely, the rejection in civil law of agree-
ments for the private repossession of goods as against public order and good
morals. This requires expedient means of judicial seizure, but it also eliminates
the advantage to be obtained from some of the “boiler plate” in a security
agreement. The advantage in a contractual security device is thus further reduced.
In Louisiana, but for the effect of the Federal Bankruptcy Act, many merchants
McGILL LAW JOURNAL
[Vol. 15
speaking, goods can only be used as collateral to finance either rent
or their own purchase price. Thus, a merchant wishing to use his
inventory or other goods to raise money to pay taxes or some other
debt, is left only with pledge, a most inconvenient security device.
The second inconvenience is, of course, that the goods cannot be
followed into the hands of third parties. This is particularly disad-
vantageous in financing, inter alia, heavy machinery and automobiles
which maintain their value even after a number of sales.
The result of these inconveniences has been that in France itself,
from time to time, the legislature has provided for mortgages on
particular kinds of movables. Some of these are: the mortgage of
ocean-going vessels, crops, business establishments as a whole (ex-
cluding inventory), and motor vehicles. 19
Quebec, it appears, has resisted the mortgage of movable prop-
erty with more fierceness and purity than France itself, but as a
matter of fact, national laws regulating banks and several special stat-
utes provide general and special mortgages.19a Louisiana succumbed
sometime ago with a mortgage of crops in 1874,20 and a chattel
mortgage statute that began as a very limited statute in 1912, and
has been amended almost every two years since that date to finally
create a very broad chattel mortgage statute.21
Professor Gilmore has stated as to Anglo-American law:
(I)n the field of law with which we are concerned,
the most notable
contribution of the nineteenth century was the gradual abandonment of the
rule which had forbidden nonpossessory interests in personal property. The
process can be traced in sales law as the “conclusive presumption” that a
seller’s retention of possession of goods sold was fraudulent faded into a
rebuttable presumption- although it never became entirely clear exactly
what the facts were which served to rebut the presumption. In security law
the process led to the discovery, invention or creation of a series of what
came to be called “independent security devices”… the chattel mortgage was
the earliest in time.22
could rely almost exclusively on the vendor’s privilege because goods are rarely
traced into the hands of 3rd parties and mortgage affords no other advantage
in collection and adds overhead expenses.
19Loi qui rend les navires susceptibles d’hypothaques, Law of Dec. 10, 1874,
D.P. 1875.4.64; Loi sur les warrants agricoles, Law of July 18, 1898, D.P.
1898.4.91; Loi relative & la vente et au nantissement des fonds de commerce, Law
of March 17, 1909, D.P. 1909.4.91, S. 1909.3.852; Loi facilitant l’acquisition do
vihicules ou tracteurs automobiles, Law of Dec. 29, 1934, D.P. 1936.4.89.
19a See especially the rules on Agricultural and Commercial Pledge, Articles
1979a to 1979k C.C. and also the Bank Act, 14-15-16 Eliz. II, S.C. 1966-67,
c. 87, ss. 88(2), (3),
(5) and 89.
20 Now La.R.S., (1950), 9:4341-43.
21 Now La.R.S., (1950), 9:5351-65.
22 Gilmore, op. cit., vol. 1, pp. 24-25.
No. 1]
PURCHASE MONEY SECURITY INTERESTS
The point to be made is that this search for effective non-pos-
sessory security interest in personal property at common law, typi-
cally, took place through the ingenuity of lawyers as draftsmen and
of judges as surreptitious broadners of the law. The law grew through
contract and decision more than legislation, though all were im-
portant. By this time the civil law had already lessened the pressure
for the use of movable assets as security through legislation by
recognizing the lessor’s and vendor’s privilege. New crises were met,
at least in French civil law, through new legislation. Now we have
the common law, or perhaps more properly the law of the United
States, abandoning its former technique and turning to codification,
but to a codification based on a history of contractual creation of
security interests.
For civil law jurisdictions that have already adopted chattel
mortgage statutes, the cultural shock of adopting Article 9 is less.
Even in these jurisdictions, however, the reduced role of the lien
or privilege in the Uniform Commercial Code, and the concentration
on contractual devices makes Article 9 difficult and sometimes makes
it seem a bit backwards.
Article 9 takes quite good care of the seller when he contrac-
tually creates a security interest through a security agreement and
filed financing statement. 23 As to consumer goods and some farm
products, the seller receives special protection, even without filing
a financing statement, though with odd limits as to availability
against third parties. 24 The seller’s protection is a good deal less
when he has not contractually provided for a security interest. How-
ever, if we are to use a civil law analysis and recognize security
interests created by contract (mortgage, pledge) and security in-
terests created by operation of the law (privilege), then it is quite
clear that the creditor does receive some security interest by opera-
tion of the law under the Uniform Commercial Code. It is anathema
to say this to an American lawyer working in this field because
the effect of labeling a right given to the seller as a security interest
by operation of the law, risks that it will be held invalid under the
Bankruptcy Act.25 The failure to recognize both contractual and non-
contractual rights as security interests is, in my opinion, a failure
of legal analysis in both the Uniform Commercial Code and the
Bankruptcy Act. In the case of a sale, complete except for payment
23 Uniform Commercial Code, 9-312(3),
24 See supra, n. 15.
25 See Bankruptcy Act, s. 67 c. (1) (B), 11 U.S.C. 107, (as amended July 5,
(4).
1966, Pub. L. 89-495, 80 Stat. 269).
McGILL LAW JOURNAL
[Vol. 15
of the price, if it is recognized that the seller, despite the posses-
sion of the goods in the buyer, has an interest in the goods superior
to that of the buyer’s ordinary creditors, from any functional view-
point this is security interest in the goods. The debt secured is the
purchase price. The collateral is the goods sold. To describe the
security interest as one by operation of the law rather than by
contract is to describe how the security interest came into existence,
but not the function of the right once it is in existence.
Under the Uniform Commercial Code the rights of a seller, who
has not been paid and who has not obtained a contractual security
agreement, can be divided into rights before completion of delivery
and rights after completion of delivery.
1. If the seller discovers the buyer to be insolvent, he may
refuse delivery except for cash.26
2. If the seller has delivered the goods to a carrier and dis-
covered the buyer to be insolvent, or if the buyer has not paid on
time, the seller can stop delivery in transit under many circum-
stances. 2 7
These two rights functionally could be considered security in-
terests by operation of the law. In both cases the buyer has acquired
an interest in the goods, but the seller, for the protection of the
purchase price, is also given rights in the goods without any special
contract. In the first case the seller is given a tacit pledge, in the
second, a limited tacit mortgage. In American law the classification
of the right to refuse delivery may be unimportant because the
continued possession of the seller protects him from at least the
more obvious attacks in bankruptcy. But the right to stoppage in
transit, since it is a non-possessory interest and not valid against
a bona-fide purchaser, could run afoul of the strictures of the Bank-
ruptcy Act. 28
After the buyer has received the goods, the seller may reclaim
them within ten days of receipt, if they were sold on credit and
delivered to the buyer while he was insolvent. If there was a written
misrepresentation of solvency made to the seller within three months
before delivery, the ten day limitation does not apply.2 9
The right of reclamation is greatly weakened by 2-702(3) of
the Uniform Commercial Code in its original form which provides
26 Uniform Commercial Code, 2-702(1).
27 Ibid., 2-705.
2 8 See supra, n. 25.
29 Uniform Commercial Code, 2-702(1), (2).
No. 1]
PURCHASE MONEY SECURITY INTERESTS
that: “The seller’s right to reclaim… is subject to the rights of a
buyer in ordinary course or other good faith purchaser or lien
creditor under this article.” Because lien creditor had been inter-
preted to include the trustee in bankruptcy as representative of
ordinary creditors,30 the Permanent Editorial Board has recommended
the deletion of “lien creditor” so that there can be no doubt that
the seller prevails not only over a trustee in bankruptcy representing
ordinary creditors, but over other lien creditors. 31 Thus the seller does,
in some instances, have a kind of vendor’s privilege, or, perhaps more
accurately, a resolutory condition, but one a good deal more limited
than in the civil law.
It seems obvious that a civil law jurisdiction that wishes to
conform to the Uniform Commercial Code as to secured transactions
would be required to reduce its vendor’s privilege and resolutory
condition to the much more limited and perhaps confusing right of
reclamation. To do otherwise would not only modify Article 2, but
would play havoc with the ranking provisions of Article 9. How-
ever, lawyers and merchants in a civil law jurisdiction who have
become used to the idea of an effective automatically secured vendor’s
interest in goods sold show some reluctance in switching to the idea
that a security interest to be of any importance must be contrac-
tually created. An argument could be made that the civil law ap-
proach, despite its antiquity, is the more modern one because it
does not require repetitious contracts of adhesion under the fiction
of individual agreements.
On the other hand, the conflict between the vendor’s privilege
and resolutory condition on one hand, and contractually created
security interests on the other is a conflict that arises even within
the confines of a particular civil law jurisdiction once some sort of
chattel mortgage is allowed. For example, when the jurisdiction
creates a chattel mortgage on inventory, a choice has to be made.
If the vendor’s privilege, without any notice to the mortgagee, is
to prevail over the mortgage on inventory, then the value of the
mortgage is considerably reduced. If, on the other hand, the mort-
gage is to prevail, the vendor’s privilege has lost a good deal of its
effectiveness. One is forced into the kind of compromise created
by 9-312 (3) of the Uniform Commercial Code, in which the holder
of a purchase money security interest in goods going into mortgaged
80 In Re Kravitz, 278 F. 2d 820 (3rd Cir. 1960).
31 See 1966 Report of Permanent Editorial Board. There has been some
hesitancy on the part of the Board to admit that the inclusion of “lien creditor”
may have been an error in drafting.
82
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[Vol. 15
inventory must notify the mortgage holder of his security interest,
or be subordinated. The problem is not the intrusion of common law
into civil law, but -a change in the civil law system. What should
perhaps be recognized in the civil law is the duplication of function
of privileges and mortgages. As one is increased, the other can be
decreased. The French Civil Code relied too heavily on privilege, to
the exclusion of needed contractual devices. The Uniform Commercial
Code, from a civil law viewpoint, may rely too much on contractual
devices.
