Pledging ("nantissement") of motor vehicles: securing the creditor's position (Bill 1.102 amending Ordinance-Law no. 676 of 2 December 1959)

Bill no. 1.102 amending Article 4 of Ordinance-Law no. 676 of 2 December 1959 on the pledging ("nantissement") of motor vehicles, as amended (2024-12, 16 September 2024), received by the Parliament (Conseil National) on 11 October 2024, was tabled in Public Session on 15 October 2024 and referred to the Legislation Committee.

SUMMARY

The main purpose of Bill no. 1. 102 is to enshrine the principle of retroactivity from the date of registration of the pledge to the date of registration of the vehicle in order to "secure the situation of the creditor during the period of registration of the pledge" in Article 4 of Ordinance-Law no. 676, adding that "By issuing the receipt referred to in the previous paragraph stating that the application for registration has been validated, the creditor will be deemed to have registered his pledge on the date of registration of the vehicle".

The Explanatory Memorandum to Bill no. 1.102 states that "the establishment of a principle of retroactivity will have no impact on the exercise of another security interest over the pledged vehicle, which means that another creditor will still be able to seize the vehicle and the original creditor will still benefit from a preferential right over its sale price. This is justified by the fact that, under Monegasque law, the registration of a pledge on a motor vehicle does not have the effect of giving the creditor a fictitious right of retention on the property".

Bill no. 1.102 also envisages specifying in Article 4 of Ordinance-Law no. 676 the content of the receipt ("récépissé") issued to the creditor by the Service des Titres de Circulation after the registration of the pledge has been completed "which will indicate that the registration of the pledge has been validated or refused".

* * *

IN DETAIL

The pledge ("gage") of motor vehicles purchased on credit is a collateral pledge ("nantissement", the general name given to securities), a written undertaking by which a borrower gives the vehicle as security for the debt he is contracting. The pledge creates a privilege for the benefit of the creditor, who has priority of payment over other creditors.

The request for registration of a pledge with the Service des Titres de Circulation must be accompanied by the pledge deed previously registered with the Direction des Services Fiscaux. The application for registration of the pledge is drawn up by the pledgee.

The 2022 reform: extension of the time limit for registering pledges and the length of the lien retention period

Law no. 1.529 of 29 July 2022 containing various economic and legal provisions:

• extended to 30 days after the date of issue of the registration certificate the initial period of 15 days provided for in Article 5 of Ordinance-Law no. 676 given to the creditor to register with the Service des Titres de Circulation, which "proved to be too short, insofar as this pledge must first be registered with the Direction des Services Fiscaux". (Explanatory memorandum to Bill no. 1.102);
• also doubled the period of retention of the privilege provided for in the said article, extending it from 5 to 10 years.

The reform introduced by Bill no. 1.102

The extension of the registration period to 30 days under the 2022 reform has the effect of "increasing the risk that, between the date of registration of the vehicle and the date on which the pledge is registered, the creditor who financed the purchase of the vehicle will have to deal with a resale of the vehicle to a third party. Under the terms of Ordinance-Law no. 676 of 2 December 1959, a motor vehicle pledge is enforceable against third parties from the time it is registered. Consequently, in the event of resale of the registered vehicle to a third party between the time when the vehicle is registered and the time when the pledge is registered, the creditor who financed the purchase of the vehicle will only be able to request cancellation of the resale on the basis of the "action paulienne" provided for in article 1022 of the Civil Code, which proves impossible when the third party is acting in good faith." (Explanatory memorandum to Bill 1.102)

The legal and practical justifications for enshrining this principle of retroactivity from the date of registration of the pledge to the date of registration of the vehicle:

• From a legal point of view, the principle of retroactivity is already applicable to other forms of security, such as the protective measures of pledging the debtor's business (Article 762 bis of the Code of Civil Procedure) and the judicial mortgage on his real estate (Article 762 ter of the Code of Civil Procedure, and Court of First Instance, 3 March 2005, Copropriété de l'Immeuble"Le S.-A." c/ Mme D., M. D.).
• From a practical point of view, the principle of retroactivity would strengthen the creditor's rights in that he would benefit "during the period of registration of the pledge, from an effective right of resale with the effect of forcing the third party, even in good faith, to return the vehicle he has acquired. The creditor will therefore be considered to be protected upstream of the pledge procedure, and the uncertainty linked to the implementation of a paulian action in the event of resale of the vehicle to a third party in good faith will disappear. Retroactivity also acts as a deterrent to debtors wishing to resell the pledged vehicle in fraud of the creditor's rights."

Finally, the clarification that the receipt issued to the creditor by the Service des Titres de Circulation after the registration of the pledge has been completed "will indicate that the registration of the pledge has been validated or refused" is intended "to dispel the various misinterpretations according to which registration is granted solely by the issue of the receipt without it being necessary to obtain validation of the registration from the Service des Titres de Circulation, or that receipt of the application for pledge is acknowledged and that the applicant will subsequently be notified of the validation or refusal of the pledge".

* * *