The socio-economic picture of pre-revolutionary France drawn by the Oxford History in an earlier chapter1 remained the same by the time that Napoleon Bonaparte had become France’s head of state in 1799. Despite the bleakness of the economic conditions of the post-revolutionary France that Bonaparte governed, Napoleon’s view of these conditions was much rosier than that of the Oxford History. On December 31, 1804, only five years after he became the head of the French government, he addressed France’s legislature and summed up France’s state of affairs as follows:
Everywhere useful enterprises are in progress….
The civil code has fulfilled the expectations of the public; all citizens are acquainted with it; it serves as their guide in their various transactions, and is everywhere lauded as a benefaction…. The code of procedure and the commercial code are still where they were a year ago, for pressing cares have diverted the emperor’s attention elsewhere.
…
The emperor’s decrees have reestablished commerce on the left bank of the Rhine. Our manufacturers are improving, although the mercenaries subsidized by the British government vaunt, in their empty declamations, her foreign trade and her precarious resources scattered about the seas and in the Indies, while they describe our shops as deserted and our artisans as dying of hunger. In spite of this, our industries are striking root in our own soil and are driving English commerce far from our shores. Our products now equal theirs and will soon compete with them in all the markets of the world.2
Paradoxically, and despite his assessment and prognostication, the loss of net welfare experienced by France during his reign was between three and four percent per annum.3 Given the economic decline experienced by France’s population as a whole, it is very unlikely that the commercial class did any better. In fact, as will be discussed shortly, there is every indication that the dominant class continued to be the bourgeoisie and its system of landholding and privileges remained undisturbed. One such privilege was the reliance on expensive notarial deeds, not so much to provide public notice of the transaction, but to insure an easier and quicker attachment and 328foreclosure on the property involved.4 According to Napoleon, the Code Civil had fulfilled the expectations of the public (and particularly that of the bourgeois class) and served as its guide in their various transactions. It is not surprising that the drafting of a commercial code, intended for the class of merchants, was not one of Napoleon’s pressing cares. In fact, it was quite the contrary.
As noted by a Cambridge University account of the Napoleonic rule (hereinafter Cambridge History), the examination of commercial legislation for codification purposes began in France in 1789.5 Colbert’s 1673 Ordinance on inland commerce and 1681 Ordinance on maritime commerce were still in force,6 but were “variously interpreted and overspread with a luxuriance of local custom, needed pruning and adaptation.”7 On April 3, 1801, Bonaparte appointed a committee of six to draft a commercial code. That committee produced a draft, but apparently it was submitted to the wrong administrative agency, “where it slumbered peacefully in its pigeonhole for several years.”8
The mistakenly-submitted draft was brought back to life in 1806. The precipitating event was the fraudulent bankruptcy of M. Récamier’s bank, a leading financial institution. Napoleon heard about it while campaigning in Germany and sent a rescript to the Council of State (Conseil d’Etat) demanding the enactment of a severe bankruptcy law. The Conseil replied that such a law would be part of the newly drafted Code de Commerce.9 Thus, the discussions on the redrafted code began on November 4, 1806 and ended on August 29, 1807. Napoleon was mostly interested in two subjects and participated in the drafting of the rules that addressed them.10
The first subject was the application of the commercial law to non-merchants who had expressly or tacitly intended to be bound by it, especially when using negotiable instruments such as promissory notes and bills of exchange. Unlike the commercial court’s decision in the Red Ink case11 (which, as will be remembered, acted out of humanitarian and Christian concern for the welfare of a destitute prostitute and her future children), Napoleon worried that non-merchants would sign commercial instruments that could land them in jail because of their lack of familiarity with these instruments. Cambridge History summarizes Napoleon’s “rich and effervescent eloquence”12 on this issue (expressed to the Drafting Commission) as follows:
[F]or the … [non-merchants], credit was a misfortune and a lure to dissipation. For … [Napoleon’s] part, he was unwilling to see bills of exchange or other negotiable instruments used by those who were not in 329business. Such a practice would lead to the mobilisation of fortunes, and [would] spread alarm among the fathers of families. [In Napoleon’s words,] “A courtesan who had extorted a promissory note from a young man might drag him before the commercial Court and get him sent to prison.”13
This not-so-vague reference to the Red Ink case reflected not only what Cambridge History describes as Napoleon’s “hatred of speculation”14 and distaste for the “mobilisation of fortunes”15 (implying the destabilization of the bourgeoisie whom he regarded as the strongest economic class in France), but a very different reading of the facts than the one attributed to Judge Bedos. Rather than assuming that the plaintiff was a destitute young woman taken advantage of by a cunning seducer, Napoleon saw her as a “courtesan who had extorted a promissory note.”16 The effect of Napoleon’s reading of this case was apparent as recently as in a 1935 version of Article 636 of the Code de Commerce:
Where pay to the order bills of exchange bear the signatures of non-merchants and were not issued in connection with commercial, banking or brokerage transactions, the commercial court shall transfer the case to the civil court if requested by the defendant.17
Simply put, Napoleon did not want courtesan-inspired extortions or Judge Bedos’ type of remedies in connection with bills of exchange. His was not a concern for providing the legal world with a definitive listing of commercial acts for the benefit of merchants in search of commercial code certainty and informal, quick and fair or equitable adjudication; it was to protect non-merchants, and especially the bourgeois, from tricky consequences associated with commercial instruments.
The second major subject of concern for Napoleon was the law of bankruptcy. As described by Cambridge History, the law of bankruptcy of the ancien régime assumed that the insolvent merchant had suffered a misfortune, much like the commercial court’s unlucky importer of goods seized by pirates, until his fraud on his creditors was proved, “and in other respects it was characterised by objectionable laxity.”18 As part of the new Code de Commerce, the Conseil d’Etat proposed, at first, to expropriate the bankrupt person’s remaining assets and transfer their administration to provisional syndics. Thereafter, the bankrupt person’s conduct would be subject to an inquiry that might be conducted by a correctional or a criminal court, depending upon whether negligence or fraud was involved. This process was to be in the hands of a public prosecutor, not the creditors.19 As described by Cambridge History:
These proposals were severe, but they were not severe enough for Napoleon. “Bankruptcies,” he said, “take away men’s fortunes without destroying their honour; and that is what it is important to destroy.” He argued in favour of 330incarceration in order to prevent the bankrupt flaunting his triumph of indifference. The creditors could not be trusted to humiliate the bankrupt, for their sole interest was to recover their debts as soon as possible. But prison would do it, even if it were but for an hour. It was also desirable that in every case the woman should share the misfortune of her husband.20
Given Napoleon’s interest in them, it was not surprising that the rules on bankruptcy occupied a full one third of the original version of the Code de Commerce. Recently, Pierre-Cyrille Hautcoeur and Nadine Levratto, French law and economics scholars, summarized the Code de Commerce’s treatment of bankruptcy as follows:
Bankruptcy (faillite) was defined as the state of having stopped payments (cessation de paiements), but the procedure was started only by a judgment stating that a person or a company (société) was in that situation. The procedure could be started either at the initiative of the bankrupt himself (… depôt de bilan), by his creditors (requête) or by the court itself (d’office). The bankrupt was supposed to be jailed, and the judge to name a trustee (syndic) responsible for the management of the [assets and liabilities and the overall] procedure in the interest of the creditors; this supposed either finding a composition (concordat), an agreement with the creditors allowing the perpetuation of the firm (which usually included a reduction and a new schedule for the debts), or organizing the complete liquidation of the debtor’s estate (union)…. The trustee then divided creditors in secured and ordinary ones. The normal situation was to repay first all creditors holding mortgages, other security or special priority, and then grouping the ordinary creditors in a compulsory class (the masse) who had to decide on the concordat on a majority basis.21
Cambridge History quotes the renowned jurist Pardessus’ criticism that the Code de Commerce was the most carelessly drafted of any of the Napoleonic series of codes despite that “it was the Code for which there existed the most abundant materials.”22 As examples of neglectful drafting, Cambridge History lists:
[T]he whole question of purchase and sale is disposed of in a single unimportant clause. There is not a word concerning price, promise of sale, or earnest money; nothing upon the conditions of weights, measures, and assay; nothing on patents or copyrights, on contracts of apprenticeship, or contracts between workmen and manufacturers or shopkeepers, on bank commissions or on the various kinds of loans which are used in commerce. The Second Book … [on Maritime Commerce], being copied from the Ordinance of 1681 with little alteration save what was derived from later experience or later laws…. The Third Book, on bankruptcy, is said by Pardessus to contain some excellent dispositions, with others so full of objectionable matter that it is difficult to believe they could have passed uncorrected…. The Fourth Book, on the competence and procedure of the commercial Courts, is far from 331being either clear or precise, and is distinguished by the curious omission of any clause dealing with imprisonment for debt….23
In the mid-twentieth century, Georges Ripert, the “Dean of French commercial law commentary,” was similarly critical, but more understanding of the reasons for its shortcomings:
The Code de Commerce is not comparable to the Code Civil, it is a mediocre work with the exception of the Second Book devoted to maritime commerce…. The overall plan is not excellent, the drafting is clumsy and archaic. But one must acknowledge that the drafters faced a difficult situation. The corporate [guild] regime had disappeared and no law existed to govern the commerce. The commercial courts had been preserved, but their jurisdiction was uncertain…. as was also the extent to which one could do justice to the major principle of civil equality.24
According to Pierre-Cyrille Hautcoeur and Nadine Levratto, “[c]ommercial credit was already a very old practice at the start of the nineteenth century, but the industrial revolution required its extension.”25 In all likelihood, the commercial credit referred to by these authors was the same unsecured credit described by Professor Kessler in the preceding chapter as “book debts.”26 It will be recalled that this credit was unsecured and likely quite costly, largely because of the risks related to nonpayment and to the widespread condemnation of usury.27
Nonetheless, as the French economy started growing after the middle of the nineteenth century,28 larger markets led to a greater need for larger firms producing standardized goods for customized markets, and this “required”” investment in equipment and in distribution facilities. Commercial credit had to be made available for these increasingly complex commercial transactions.29 The effects on the bankruptcy provisions of the Code de Commerce and the increasingly sharp conflict between bourgeois and merchant interests were soon apparent:
Property-owners, who were to dominate the political elite up to 1830 at least, and owned much of the nation’s financial assets, didn’t favour the emergence of new elites who could use bankruptcy as an instrument for reneging on their debts, and they preached that reputation and experience should be more valued than risk-taking and innovation…. The special protection of mortgage and secured debt under bankruptcy law was the result of a compromise: property-owners accepted that merchants could defect (sic) on their debt as long as that debt was due to other merchants, not to them. The organization of the commercial court was another one: their independence in normal operations was counterbalanced by the ultimate control of civil-law judges through the appeal courts and the Cassation court…. The power of the civil judges was reinforced by their right to judge a merchant for banqueroute (which supposes an offence or a crime)….
The 1830 Revolution, bringing to the power liberals and especially bankers (two of the regime’s prime ministers), was then essential in the passing of the more liberal 1838 bankruptcy law.30
It should be noted that these reforms, enacted barely three decades after the Code’s enactment, affected more than one third of its original text.
Among the most influential features of the Code de Commerce were the rules on its scope, or on the transactions that it would govern. Numerous commercial codes throughout the civil law world adopted its so-called “objective” approach, i.e., a scope determined by the commercial transactions it listed, rather than by the commercial status of those who participated in these transactions. This latter criterion is known as the “subjective” approach and it is usually associated with the German Commercial Code, which will be discussed in a later chapter.31
It is worth remembering that Napoleon Bonaparte’s goal was to protect non-merchants, particularly from the misfortunes of credit transactions that so frequently led to the “mobilization” and loss of fortunes and to the dissipation of family assets (as in the Red Ink case).32 As just noted, he strongly wanted to discourage the use of bills of exchange or other negotiable instruments by those who were not in business, and especially by bourgeois fathers of family. Yet, as will be discussed shortly, despite this specific context, the listing of acts of commerce by the Code de Commerce was regarded in societies far removed from Napoleon’s bourgeoisie and dangerous courtesans as a legal-scientific breakthrough applicable universally to the nascent discipline of commercial code drafting and interpretation.
From a legislative standpoint, it was necessary to ensure that those whom the emperor wanted to protect from the perils of commerce would be governed by the Code 333Civil rather than by the Code de Commerce. As was discussed in an earlier chapter,33 such protection applied to transactions that were mostly face-to-face. In transactions that entailed the transfer or mortgage of real property, the Code Civil prescribed formalities such as notarial deeds. It encouraged their strict or literal method of interpretation and relied on special remedies such as the rescission of sales of land when their price was below a certain percentage of its market value.34 Further, their causa was omnipresent and traveled with the contractual promises it was supposed to have inspired.35 Frequently, its immorality or illegality would render such promises unenforceable. Undoubtedly, all of these features reflected a morality peculiar to the civil transactions (meaning not-for-profit transactions) of the Code Civil. Such morality contrasted with the morality of the Code de Commerce, whose ultimate purpose was to encourage and protect the activities of merchants.
By constructing the Code de Commerce around “acts of commerce,” its drafters wanted to avoid the impression that its distinguishing features were privileges granted to merchants. Privileges, it should be remembered, were anathema to the revolutionary principle of equality before the law. Thus, if the Code de Commerce required fewer contractual formalities and shorter periods for trials and execution and statutes of limitation than the Code Civil, it was because of the requirements of the listed types of commercial transactions. Similarly, it was argued by the defenders of the objective scope that if the Code de Commerce allowed foreclosure and statutes of limitations or the discharge of debts following bankruptcy, it was because they were attributable to the habitual performance of certain commercial acts or transactions.
Yet the difficulties of using a criterion that would determine the scope of the Code de Commerce by separating “actes de commerce” from the status of merchants who performed them became apparent from the moment that code was enacted. On the one hand, Article 1 defined merchants as those “who perform acts of commerce and make it their habitual profession” (“ceux qui exercent des actes de commerce, et en font leur profession habituelle”).36 On the other hand, Article 721(3) stated that commercial courts had jurisdiction over cases arising from the performance of acts of commerce, regardless of who performed them.37 At its root, the contradiction arose because the drafters of the list of actes de commerce attempted to reconcile irreconcilable goals; one aimed at avoiding the appearance of granting privileges to merchants and the other at carving out a legal regime that would encourage the practice of the commercial profession.
The original version of the list of acts of commerce appeared in Articles 632 and 633 of the Code de Commerce:38
Article 632: The law recognizes, as commercial acts,
Every purchase of merchandise or produce, in order to be sold again, whether in its natural state, or after undergoing some change by labour and art, or even in order simply to let out the use of it.
Every enterprise of manufactures, of commission, of transportation by land or water.
Every contract to furnish provisions or merchandise, every undertaking of agency, or general business, establishments of auctions and theatrical exhibitions.
Every operation of exchange, banking, and brokerage.
All the operations of public banks.
All contracts between merchants, shopkeepers and bankers.
Remittances of bills of exchange, or of money, from place to place, between persons of any description.39
Article 633: The law likewise recognises, as commercial acts,
All contracts for the building, the purchase, sale and resale of vessels for foreign and inland navigation.
All maritime shipments.
All purchases or sales of rigging, apparel, and provisions.
All contracts for freight, bottomry, and respondentia loans, insurance, and other contracts concerning maritime commerce.
All agreements and stipulations for the pay and wages of ships’ crews.
All engagements of seamen, in the service of merchant vessels.40
The above list of acts of commerce did not result from an empirical study of the peculiar features of each of the numerous businesses that existed in pre-codification France.41 Instead, it was a list that was quickly and carelessly put together. In addition to the omission of businesses that Pardessus noted,42 it left out others that Fernand 335Braudel had characterized as part of Europe’s “high commerce,” which included, among others, warehousing and non-maritime insurance.
The Code de Commerce list did not specify if it was open or closed in number (numerus apertus or numerus clausus). The main argument against treating the list as closed was commerce itself, an activity as changing and self-invigorating as the imagination of its practitioners. An argument in favor of a numerus clausus interpretation was the repeated presence in Articles 632 and 633 of all encompassing adjectives such as “every” or “all” agreements and the absence of “analogical” clauses such as “and similar transactions” or “like contracts or enterprises.”
However, the most important reason in favor of the numerus clausus approach was, in my opinion, the scholastic method of reasoning employed by the first and most influential interpreters of the Code Civil and Code de Commerce known as “exegetes.” To establish the meaning of ambiguous or incomplete texts, these interpreters relied solely on the existing texts. Nothing outside of those texts was an appropriate tool or basis of interpretation.43 Thus, the exegetes’ interpretation was as closed to extrinsic or empirical evidence of legislative intent as was the text of the definitions and classifications of contracts drafted by Pothier, among others.
It will be recalled that when Pothier drafted his definitions and classifications of French contracts, he fixed the meaning of the term “contract” for all places and time (for those who accepted his definition). He did the same thing with his classification of contracts, i.e., contracts could only be bilateral, unilateral, consensual, real, etc. Mutatis mutandi, the exegetes assumed that the number and meaning of the acts of commerce were limited by what appeared within the decreed list. Not surprisingly, Georges Ripert concluded that it was the “exegetic school that felt obliged to give the list of Articles 632 and 633 a limited [closed] character.”44
Yet, if the list of acts of commerce was closed, what law applied to acts that, although unlisted, were indispensable to those listed? In Chapter 11,45 the reader will find a description of how Nathan Rothschild, one of Europe’s preeminent eighteenth-century wool merchants, did his buying and selling. In order to buy wool at the best possible price, he supplied many of his English manufacturer-sellers with raw materials and dye. Yet, as literally and strictly interpreted by exegetes, Nathan 336Rothschild’s supplies of raw materials and dyes to his manufacturers were not acts of commerce as listed by Articles 632 and 633.
Similarly, consider the case of a retail merchant’s purchase or rental of vehicles not for resale or lease, but as the equipment that would deliver goods sold by his business. How could such unlisted purchases or leases be governed by Article 632? Conversely, would the Code de Commerce apply to acts such as the purchase of school supplies for their resale (an act listed as commercial) when it was carried out by a non-merchant “civil” professional such as a manager of student housing (maître de pension)? Convinced by the exegetic’s approach, France’s Supreme Court as late as 1931 decided that such an act was civil, despite the housekeeper’s intent to profit from it.46
As a result of the gaps in the lists of Articles 632 and 633 and their progeny, there developed an academic cottage industry of Aristotelian-influenced definitions of the terms “commerce” or “commercial” and of classifications of interstitial acts of commerce. I will illustrate it with selections from the four volume Elementary Treatise of Commercial Law by the late Argentine commercial law professor Carlos Malagarriga.47
After quoting French, Italian, and English nineteenth- and twentieth-century authors, Professor Malagarriga found what appeared to be a convincing line of thought. He quoted a German author who found the essence of what was commercial in “the massive traffic”48 of goods. Thereafter, Malagarriga quoted the writings of the respected Spanish professor, Joaquín Garrigues. Garrigues added that a commercial activity requires “a large number of transactions, and that they be of a similar and typical nature.”49 At this point of his enumeration of definitions (three pages into it), Malagarriga referred to the views of Professor Lorenzo Mossa of the University of Pisa, Italy. Mossa found in the notion of “enterprise” the true essence of what is commercial.50 This is a concept, incidentally, that, despite its literary connotations, was closely connected with Mussolini’s fascist attempts to place capital, industry and labor under his political control.
Interestingly, the concept of enterprise (impresa) informed not only the drafting of the Italian Civil Code of 1942, but also of commercial codes in Latin America, supposedly imbued with an ideology contrary to fascism.51 For example, the Commercial Code of Honduras of 1950, unlike the Italian Civil Code of 1942, was drafted by Professor Joaquín Rodríguez Rodríguez, a Spanish Marxist who found refuge in Mexico during the Second World War and whose writings were highly 337regarded in Mexico and Central America. As will be discussed shortly, the mere fact that the same essence informed codes written by fascists and Marxists is in itself not without significance.
The Italian Civil Code of 1942 was referred to as “unified” because its chapter on obligations applied equally to civil and commercial transactions. Accordingly, Malagarriga quoted Mossa for the definition of commercial law as “the law of an organized economy”52 and the enterprise (empresa) as “the economic person regulated by commercial law.”53 This would suggest that the idea of empresa could be regarded as a subjective approach to codifying commercial law, yet in reality, it is a product of commercial legal scholasticism. After a search for what is “commerce,” it came up with the notion of “enterprise” or what it means to be “entrepreneurial.” Does it help a code interpreter to define the scope of any commercial code in order to ascertain if it is “devoted to enterprise”? In this author’s opinion, there is enough reason to doubt its helpfulness; the code’s “devotion” to enterprise is ultimately a metaphysical question.
Approaching the end of his lengthy enumeration of definitions of the term “commercial,” Professor Malagarriga acknowledged that he was not convinced by the preceding definitions, especially those of the impresa type. He reasoned that they did not take into account isolated commercial acts that should still be entitled to be treated as commercial, nor did they answer the criticism by Professor Tulio Ascarelli, another famous Italian professor. Ascarelli had pointed out that commercial codes and their commentators had traditionally regarded agricultural enterprises as non-commercial and yet they were enterprises by Professor Mossa’s definition. He also pointed out that the definition of the essence of commerce, as the intermediation between producers and consumers for a profit, did not cover such an important commercial activity as the issuance, discount and negotiation of negotiable instruments.54 As his pièce de résistance, Professor Malagarriga offered his own definition of what was commercial. In words at first reminiscent of Pothier’s Aristotelian definition of the term contract, he stated:
Simply, in our opinion, [that which is commercial law is] a branch of private law that deals with certain activities, however not from all points of view, carried out or not in an accidental manner, [activities] which for various reasons have been deemed necessary or convenient not to be the primary object [of regulation] of civil, ordinary or general law.55
When I read this definition, I was struck first by its euphemistic use of “simply” and then by the qualifications of each of its elements after taking into account the previous definitions of “commercial.” In true scholastic and Aristotelian fashion, Malagarriga started his definition by placing the species, i.e., commercial law, within the genus of “private law,” much as Pothier started his attempt to define contract by placing it within the genus of voluntary obligations. Having done this, the empirical support for his definition was found solely within the scholastic definitions of commerce 338he had listed in the previous five pages. He does not provide a single reference to what were easily observable commercial activities in the professional activities of Argentine merchants. Simply put, observation or any other empirical means of acquiring or refining knowledge on a proffered seminal legal institution such as acts of commerce were not tools of this definitional effort. Either someone else’s observation (wherever and whenever it took place) was trusted to have provided the factual universe for the definition or the factual universe was simply secondary.
Take, for example, the assumed non-commercial nature of agri-business referred to in the section devoted to Professor Ascarelli’s views above. It just so happens that one of Argentina’s most flourishing and vital businesses was agribusiness. To this day, Argentina has remained one of the largest suppliers of grain to the world. Moreover, as a result of man’s industrial use and misuse of arable land, presently, more than ever before in its history, agribusiness is an essential component of local and international trade. Are present day commercial codes or statutes supposed to ignore this physical and economic reality because of a definition or classification of commerce inspired by a medieval-feudal view of the nature of land exploitation?
The same question should be asked about the commercialization of real property transactions, especially those involving the public sale of commercial paper backed by mortgages or other real property liens. Despite the fact that low- and middle-income housing is now being financed in many countries and continents by these transactions, should they still be governed by civil codes? This is especially problematic because these codes assume that these transactions seldom take place, are highly individualized, and are at a given point of their existence “causal” (as opposed to abstract or negotiable in nature) and thus subject to costly and lengthy formalities as well as to causal defenses?
Finally, is it not telling that a concept like empresa can inspire a code drafted by law professors supported by a fascist state to do its bidding and by a Marxist scholar intent on providing a developing nation with the best of his legal science? Such a use of empresa shows its divorce from its socio-economic context and from marketplace realities, so much so that it renders such a reality legally meaningless. Despite its alleged conceptual precision, empresa can equally justify unrestricted profit-making and monopoly as it can consumer protection against excessive prices and anti-monopoly legislation.
While exegetes and some later commentators treated all unlisted acts as non-commercial, regardless of whether they were carried out by merchants and contributed to the viability of the listed acts, Georges Ripert pointed out that many of these acts were not merely “accessory,” but essentially commercial.56 As examples of accessory acts, he referred to the earlier mentioned acquisitions of raw materials by merchants intending to finance their craftsmen (l’achat du matériel), the rental of vehicles (la location des véhicules), and the opening of banking credit (l’ouverture de crédit chez le banquier).57
Nathan Rothschild would have heartily agreed with Georges Ripert’s analysis. For as it turned out, his success was not as much due to the lower-than-market prices at which he sold his wool, but to his lower costs in the acquisition of the wool. Operating at a much smaller, but also successful scale, my father would have heartily agreed with Nathan Rothschild and Georges Ripert. I once asked him to what he attributed his success in retail and wholesale. He replied: “Once you establish a good reputation for your products and prices, your success will depend upon how much you can lower all your costs, not only of acquisition, but also of production and distribution.”58
Yet, if they were characterized as “accessory acts of commerce,” the transactions that enabled such savings could only come into the list of acts of commerce as interstitial categories under the shadow, so to speak, of listed acts. The application of a commercial law to them thus became questionable. The commercial nature of these accessory acts would require the not so easy proof of how much they contributed to the viability of the listed acts.
All too frequently, a contract or transaction would take place in which one of the participants performed one of the listed commercial acts and the other an “essentially civil” act. For example, say the seller was an automobile dealer who sold one of his cars and the buyer was a bourgeois father of a family who purchased the automobile strictly for family use. The solution most consistent with the “cordon sanitaire,” or quarantine line, which Napoleon advocated in an effort to separate the acts of commerce, would apply the Code de Commerce to the seller’s rights and duties and the Code Civil to the buyer’s.59 Yet, aside from the procedural and evidentiary conundrum such a solution would create, what could the judge do about the frequent conflicts between these codes? For example, if according to the Code Civil a certain formality was essential for that type of civil contract, would the judge dismiss the case in which a defendant buyer had unjustly enriched himself or would he require restitution and if so, of what or how much?
In the case of another commonly mixed act, the issuance of negotiable instruments such as promissory notes or bills of exchange by a non-merchant and their negotiation by a merchant or banker, Article 636 of the Code de Commerce opted, as noted earlier, for an inconclusive solution: the non-merchant signer, endorser or endorsee could have the dispute removed from the commercial to the ordinary civil courts, yet it said nothing about the choice of substantive law for that or any other act of commerce.60 A decision handed down by the Cour de Cassation on May 8, 1907 appeared to supply the rule that governed the choice of substantive law:
In the case of litigation between two parties in which only one is a merchant or with respect of a non-commercial act for one of them, the party who is not a merchant or who has not engaged in a commercial act has the right to have the case decided by the competent civil jurisdiction, or to bring an action, at 340his choice, against the commercial defendant before a civil or commercial tribunal.61
Implicit in this choice of law rule was the assumption that the Code Civil would be the one applied by the “competent civil jurisdiction.”62 Dalloz’s annotated version of the Code de Commerce cites similar decisions handed down during 1908, 1930, 1944, and 1965.63 This choice clearly preferred the interests of the buyer and his likely choice of the Code Civil. Accordingly, a seller or lender who acted in good faith (as he is generally presumed to have acted by the Code Civil) could not rely on the law with which he was most familiar (including customs, usages, and practices), a law that allowed informal contracts and that he had every reason to believe would apply to the transaction in question. His contract could well lose its binding force under the Code Civil because of lack of an essential or solemn formality.
Surprisingly, Georges Ripert’s research led him to a contrary conclusion:
Case law [which Ripert does not cite] do[es] not content itself with deciding that the acts carried out by merchants in the exercise of their profession are commercial, but presumes that the acts engaged in by merchants are needed for the exploitation of his business.64
Elsewhere, Ripert noted that the choice of law would have been simplified had the courts simply said that acts of commerce are those carried out by professional merchants.65 While I agree with the wisdom of a presumption in favor of commercial acts, particularly in a world in which many non-traditional merchants continuously perform acts that are either listed as commercial or are interstitial to them, this presumption conflicts with his own suggestion that everything would be easier if acts of commerce were defined as carried out only by professional merchants. Please notice that most of the small and micro-businesses in developing nations are not carried out by professional merchants. What effect would the requirement of professionalism have upon the viability of such businesses?
By now, the reader should be able to envisage the predicament of a commercial lawyer in an acts-of-commerce jurisdiction who is asked to advise his clients on the law applicable to unlisted or interstitial acts of commerce or on unilateral or mixed acts. If his client, say an automobile dealer, asks him to draft a sale agreement for vehicles that will be sold to another merchant who will use them primarily in his business, this seemingly simple task could require considerable research only to conclude that the law is uncertain.
The drafter will have to consider the buyer’s intent at the time of purchase, the time devoted to the business use of the vehicles as contrasted with the time for the buyer’s personal use, the possibility that the automobiles would be resold or leased 341after a certain period of time, etc. He would then have to weigh the consequences of applying the rules of each possibly applicable code or statute (such as a consumer protection law). These codes may require diverse formalities, methods of interpretation and adjudication, and possibly result in different outcomes depending upon the case being heard by a commercial, civil, or consumer court, or by an administrative body.
While lecturing at the Aix-en-Provence Law School in the early 1980s, I asked French graduate students and practicing lawyers how they coped with the uncertainties caused by the many gaps in their law on acts of commerce. Some agreed with Georges Ripert’s conclusion that courts would ordinarily presume the commercial nature of mixed acts. Thus, they would assume that generally the disputes involving merchants and non-merchants would be heard by commercial courts except on issues that were clearly of consumer protection law. Others insisted on the need to consult the latest case law digests. I then asked, “What if you did not have such digests or if the judicial opinions were divided or unclear?” Silence prevailed.
Imagine, then, the predicament of lawyers in jurisdictions that lack a corpus of commercial, civil and consumer law decisions such as France’s. The only source of law these lawyers could rely on would be commercial, civil and consumer law doctrinal writings, many of which would be in sharp conflict with each other. It should also be remembered that one of the most serious problems posed by the scholastically-inspired commercial law writings is their inconsistency with market practices and with prevailing custom and usage.
One case illustrates the consequences of disregarding local custom and usage when deciding upon the effects of acts of commerce, even where the custom and usage pertains to something as basic as commercial nomenclature. One of the most famous commercial law disputes in Costa Rica during the 1960’s was Picado Guerrero v. Rojas Dias.66 A fraudster forged bonds of the Central Bank of Nicaragua and offered them for sale to one of the few Costa Rican sellers of securities, Sr. Rojas Dias (hereinafter RD). RD was approached by one of Costa Rica’s most prominent lawyers, Lic. Picado Guerrero (hereinafter PG), who inquired if he had heard about any good high-yielding government bonds he could purchase. RD told him that he had been told about the availability of high-yielding Nicaraguan bonds. PG asked that the bonds be sent to the Costa Rican Central Bank for verification of their authenticity. RD did this and was informed that the bonds appeared to be genuine. PG paid RD for the bonds; RD retained a commission and paid the remainder of the purchase price to the seller, supposedly a Nicaraguan government official. In fact, the bonds were forged and the fraudster was captured, but not the stolen money. PG decided to sue RD.
PG alleged that he had engaged in a civil purchase of securities from RD whom he characterized as a professional commission agent (comisionista). PG also alleged that RD had performed a commercial act which consisted in the resale of forged bonds with the intent to profit therefrom. This commercial act, as listed in the Commercial Code of Costa Rica, differed from the commercial act of brokerage (corretaje) in that a 342commercial agent (as the defendant allegedly was) acts in his own name and warrants to his purchasers the genuineness of what they bought from him.
In his response, RD argued that while it was true that he advertised his services as a comisionista, the meaning of this term in the Costa Rican marketplace was similar to that of broker (corredor) and that all of his clients, including PG, knew that RD’s acts of commerce were only as an intermediary who did not assume liability for what the original seller sold. He and many of his clients testified before the trial court that he always made it clear to his customers that he was a mere intermediary without the staff or resources, including insurance, to warrant anything to his buyers. The marketplace in San Jose was small for his acts of commerce. He estimated that out of a population of approximately 250,000 inhabitants, he sold securities and land to no more than fifty buyers in a good year. He further testified that he and his customers knew each other well and that the plaintiff was one of the most knowledgeable investors and as such, was aware of the conditions under which the defendant acted.
Consistent with the strictly legal appeal (“casacion”) procedures before the Supreme Court, the only issue before the court was the legal import of the acts of commerce by a “comisionista” as opposed to that of a “corredor” and whether RD acted as one or the other. Lacking national case law and doctrinal commentary on the legal implications of RD’s act, the Supreme Court of Costa Rica turned to Mexican commercial law writings, which were taught in Costa Rican law schools and influenced the drafters of the Costa Rican Commercial Code. These writings convinced the court that RD advertised himself as a comisionista, acted as one, and sold on his own behalf. Since he introduced no documentary evidence before the trial court of his customary disclaimer of liability, the court had to assume that RD was responsible for the damages suffered by PG as a buyer of the forged bonds.
During my two-year stay in Costa Rica, I asked a number of RD’s clients whether they were all aware that he only acted as a broker, despite his title of comisionista. They answered that they were aware he served as a broker. They also said that they would not have expected him to assume liability for the genuineness of the securities that they had bought from a third-party seller through him.
This case illustrates the perils of relying on scholastic definitions and classifications at odds with market practices, course of dealing, usages and customs. It also illustrates how scholastic definitions and classifications disregard the purpose of a list of acts of commerce. Surely acts of commerce were not drafted to provide a battle ground for academics eager to prove the brilliance of their deductive and definitional powers. Their purpose was to provide quick and reliable answers to the most basic of legal questions concerning a participant in a marketplace transaction: What law governs this transaction?
The Mexican Federal Commercial Code of 1889 also listed its acts of commerce and broadened the Code de Commerce’s definition of merchants to include, among others, certain farmers:
Article 4: Those persons who accidentally, with or without a principal place of business, perform any commercial act, even though they are not legally considered merchants, shall be subject to commercial laws. Therefore, 343farmers and manufacturers, and generally those who have set up a warehouse or store in a town in order to sell fruits grown in their land or products manufactured by their industry or work, just as produced in their unaltered state, shall be deemed merchants in everything that is related to [trade in] their stores or warehouses.67
Article 75: The law deems acts of commerce:
I. All purchases, sales and leases entered into for the purpose of commercial speculation, of maintenance, [of] moveable property or merchandise, whether in their natural state or after having been worked upon or manufactured;
II. The purchase and sale of realty when carried on with said purpose of commercial speculation;
III. The purchase and sale of participations, shares and bonds of commercial business associations;
IV. Contracts related to governmental obligations and other negotiable instruments currently traded in the marketplace;
V. Enterprises devoted to make provisions and supplies available;
VI. Enterprises devoted to public and private construction work;
VII. Enterprises devoted to manufacturing;
VIII. Enterprises devoted to the transportation of persons or carriage goods, either over land or by water;
IX. Enterprises devoted to the selling of books as well as editorial and printing enterprises;
X. Enterprises devoted to commissions, agency, offices carrying out commercial negotiations and public auctions or sales;
XI. Enterprises devoted to public entertainment;
XII. Transactions of commercial agency;
XIII. Contracts of intermediation [brokerage] in commercial transactions;
XIV. Banking transactions;
XV. All contracts related to maritime commerce and navigation, either by sea or by inland waterways;
XVI. Insurance contracts of all types, as long as they are issued by enterprises;
XVII. Contracts of deposit as a result of commercial transactions;
XVIII. Deposits in warehouses, and all transactions with certificates of deposit and pledge receipts or bonds issued by them;
XIX. Checks, bills of exchange or other transfers of money made from one commercial place [plaza] to another among all types of persons;
XX. Commercial receipts or other commercial instruments payable to order or bearer, and other obligations undertaken by merchants; unless it is shown that they stem from non-commercial acts or transactions;
XXI. Obligations among merchants and bankers, unless they are of an essentially civil nature;
XXII. Contracts and obligations of the employees of merchants as long as they are connected with the commercial activities of the merchant who employs them;
XXIII. The sale of agricultural products from the estate or parcel of and by the owner or grower;
XXIV. Operations contained in the General Law of Titles and Credit Operations;
XXV. Any other acts of an analogous nature to those set forth by this Code.
In case of doubt, the commercial nature of an act shall be determined by judicial decision.68
…
Article 1049: Commercial trials are those whose object is to hear and decide controversies that, pursuant to Articles 4, 75 and 76, derive from acts of commerce.69
Article 1050: When, pursuant to the previous Articles 4, 75 and 76, one of the parties to a contract is performing an act of commerce and the other an essentially civil act, and litigation arises from such contract, the dispute will be governed by the provisions of this Book if the party performing the act of commerce is the defendant to the dispute. On the other hand, when the defendant is the party that performed an essentially civil act, the dispute will be governed by the rules of ordinary Law.70
While broadening the scope of Mexico’s acts of commerce to include agribusiness, Article 4 characterizes as commercial only that business conducted by the producer of the fruits of the land in his own store or warehouse “in town” (presumably close to where they were produced) as long as the products are in an “unaltered state.” On the other hand, Sections I and II of Article 75 are willing to include agriculture and real estate as part of commerce. Why did the Mexican legislator hesitate to include agricultural activities as acts of commerce? Contrast these provisions with Section 3(1) of the German Commercial Code, which includes as merchants agriculture and forestry farmers who voluntarily register as such:
§ 3(1) [on voluntary registration] § 2 applies to an agricultural or forestry undertaking with the provision that the proprietor is entitled, but not obliged, to effect the registration in the Commercial Register….71
Assume that “A” buys a widget from “B” in B’s store in a transaction where B intends to make a profit and A intends to use the widget as any other consumer would. In accordance with Article 1050 of the Mexican Federal Commercial Code (1889), this transaction would be governed by a commercial law which is not particularly protective of consumers, especially in their ability to rescind a sale because of “subjective lesion.” This is a remedy that the Federal Civil Code of Mexico (not Mexico’s Federal Commercial Code) awards when one party takes advantage of the other’s “severe ignorance, notorious inexperience or extreme misery.”72
In contrast with this Civil Code remedy, Article 385 of the Mexican Federal Commercial Code provides, in its relevant part: “Commercial sales shall not be rescinded because of lesion….”73 On the other hand, Mexico enacted a Federal Consumer Protection Law in 1992 and substantially amended it in 2004.74 Article 10 of the Federal Consumer Protection Law states:
Suppliers may not use coercive and unfair commercial practices or methods, or unconscionable clauses or conditions….75
Thus, if a commercial seller or supplier uses practices or methods that are coercive or unfair, his consumer buyer does have a remedy which may, and frequently does, differ from the rescission remedy provided by Article 17 of the Mexican Federal Civil Code.
Meanwhile, the history of the amendment of Article 1050 of Mexico’s Federal Commercial Code reflects the difficulties experienced with the listing of acts of commerce and the choice of applicable Mexican law. As previously provided, the original (1889) version of Article 1050 stated:
When, pursuant to the previous Articles 4, 75 and 76, one of the parties to a contract is performing an act of commerce and the other an essentially civil 346act, and litigation arises from such contract, the dispute will be governed by the provisions of this Book if the party performing the act of commerce is the defendant to the dispute. On the other hand, when the defendant is the party that performed an essentially civil act, the dispute will be governed by the rules of ordinary Law [las reglas del derecho común].76
This rule was similar to that in the landmark decision by the French Cour de Cassation discussed earlier.77 However, the Mexican provision did not make clear what it meant by the term “derecho común.” Most interpreters assumed that it meant the law found in the civil codes of each of the Mexican states. Was it that of each state or that of the Federal Civil Code, which served as a model for most states? “[T]hose … in favor [of] the application of the state civil code [of the defendant’s residence] argued that any statute which deprived them of their right to be governed by their own state law [either by applying the Mexican Federal Commercial Code or the Mexican Federal Civil Code] would be unconstitutional.”78 They invoked Article 73 of the Mexican Constitution,79 which expressly reserves to each state the power to enact its own civil code.80 “Yet, as if the above constitutional complexities were not enough, some states [such as the State of Sonora] … [have] granted state courts concurrent civil and commercial state … [trial courts], albeit governed respectively by the state civil code and the Mexican Federal Commercial Code.”81
In response to the many uncertainties created by its original text, a 1989 amendment was made to Article 1050 of the Mexican Federal Commercial Code. It now reads as follows:
When, in accordance with commercial law, an act is of a commercial nature to one of the parties, and of a civil nature to the other party, any controversy derived from it will be governed by commercial laws.82
However, Mexico’s commercial law does not preclude the application of its Federal Consumer Protection Law when the facts and circumstances warrant it. Does this the end the torturous saga of the application of Article 1050 to mixed sales or commercial transactions in Mexico? What do you think?
If confusion prevails with respect to the law applicable within each jurisdiction as a result of attempting to apply the list of acts of commerce, imagine the confusion that results when the contract involved is international, especially in Latin America, where many such lists are still in force. The amelioration of this confusion was a major reason 347behind the enactment of the Organization of American States’ (OAS) 1994 Convention on the Law Applicable to International Contracts.83
One of this convention’s most useful features is the parties’ autonomy to choose the applicable law regardless of the connections of such a law with the place where the contracts were entered into or where the acts of commerce took place.84 Another useful feature is its encouragement to courts to apply widely followed international commercial usages and customs.85 Hopefully, this convention will convince courts in the Western Hemisphere to turn to more predictable, fair and equitable sources of commercial law than those that now result from the application of the continuously uncertain lists of acts of commerce.
What would be the response if one were to ask the Von Ihering-inspired question, “Judging by the experiences with the Code de Commerce and the Mexican Federal Commercial Code, did their lists of acts of commerce accomplish their purpose?” The answer would have to be in the negative. Both France and Mexico have had to struggle with serious uncertainty of applicable law, including, in the case of Mexico, constitutional issues, and both have had to add new acts of commerce to their original lists.
If not as a guide to commercial contract dispute resolution, how useful have the lists of acts of commerce been? Aside from helping to justify the enactment of a commercial law that would replace feudal and guild law, were there other problems resolved by the listing of these acts?
The preceding comparative analysis of the socio-economic context of the enactment of the Code de Commerce shows that however valid the French commercial-civil code dichotomy was when protecting the bourgeois from a commercialized economy, including dangerous courtesans, present-day French and Mexican societies are quite different and so are their civil codes. Therefore, neither the fear of the commercial, as entertained by Napoleon and the bourgeois, nor the desire to be subject to a civil versus a commercial justice, as supposedly entertained by a large segment of the civil 348population, has the same meaning in our society as it did at the beginning of the nineteenth century.
It is true that the Mexican Federal Civil Code echoes some of the general principles of the Code Civil. One such principle, subject to some exceptions, is the parties’ freedom to bind themselves with the form and substance they choose.86 Yet its drafters made it very clear that what they understood by civil law, as found in their code, was not a law for the bourgeois, but a “private social code” (Código Privado Social), one that reflects that:
The social revolutions of the present century have prompted a complete revision of the basic principles of social organization, and have brought down the traditional dogmas….
…
[And so it replaced a] civil Code, which was the product of the economic and legal needs of other eras…. When … the legal order was governed by an exaggerated individualism …87
Moreover, this Code governs large segments of a Mexico that is becoming one of the world’s leading exporters of industrial and commercial products and services. It is, in brief, a highly commercialized society with volumes of credit large enough, especially in the construction field,88 to give Napoleon Bonaparte a fatal dose of concern about the fate of his “fathers of bourgeois families.” Is this the civil code, “civil law” or the Mexican derecho común that the drafters of the Code de Commerce or the Mexican Federal Commercial Code intended to rescue from the clutches of commercialization and such tricky instruments as bills of exchange, checks, credit and debit cards, and investment securities both material and dematerialized, including mortgages and trust deeds?
Further, to the extent that the Mexican Federal Civil Code was concerned with the protection of the weaker, more ignorant or inexperienced contracting parties, as expressed in Article 17,89 it was not the same concern expressed by the Code Civil when protecting the bourgeois seller of land.90 In fact, the closest parallel was Germany’s Civil Code Section 138.91
In other words, if Mexico’s listing of its acts of commerce is an attempt to protect someone when contracting with merchants, it behooves the legislator or adjudicator to establish who that someone is. If that someone was a consumer, presumptively deemed 349the weaker party in the transaction with a merchant, then the applicable law should not have been an undefined and unpredictable “civil law,” but a narrowly defined and predictable consumer protection law. The inevitable conclusion, then, is that the uncertainty of the Mexican law of acts of commerce is not because its interpreters were concerned with protecting a segment of the population from the perils of commercialization, but rather because they attempted to elucidate the abstract (devoid of socio-economic context) meanings of concepts such as “essentially” civil or commercial acts. The badly-needed legal reform, then, should focus on the elimination of the uncertainty of commercial law, especially as it now affects commercial litigation in Mexico.92
As a result of the uncertainty of the applicable commercial law to contractual disputes in Mexico, merchants have been reluctant to bring their disputes before the courts, whether civil or commercial. This complaint about Mexican commercial justice is not only heard from Mexican and foreign merchants doing business in Mexico, it is also heard from appellate judges.93 A recent study by Mexico’s prestigious Autonomous Technological Institute (Instituto Tecnológico Autónomo de México) (ITAM) on the execution of contracts in Mexico concluded that judicial procedures were less than good.94 It blamed many, if not most, of the problems of failed execution of contracts on the lack of judicial resources. Inexplicably, it did not take into account the effects of an uncertain commercial law upon the court’s poor performance.
I believe that had the effects of the uncertain commercial law been taken into account, including the scholastic rather than factual or empirical examination of the issues and the application of trade usage and custom, the need for a different legislative and judicial approach to the application of this law would have been starkly apparent and would have encouraged the necessary efforts at legal modernization and reform.
Another consequence of the uncertain nature of the list provided by Article 632 of the Code de Commerce has been the need to enact frequent amendments and expansions of its coverage. This continuous expansion accompanied by some occasional contractions led an exasperated Aix-en-Provence law student, who was having 350difficulties locating the law in force for one of my research assignments, to refer to the Code de Commerce as an “accordion-like” code. The following is the 2008 version of the list of acts of commerce in this code:
TITLE I—The Commercial Act
Article L110–1 [former Article 632 of the Code de Commerce (1808)]
The law deems as acts of commerce:
1) All purchases of chattels in order to resell … [them], either in kind [as acquired] or after having [been transformed or] worked … [upon];
2) All purchases of real property in order to resell … [it], unless the purchaser has acted in order to construct one or more buildings and to sell these en bloc or site-by-site;
3) All transactions by intermediaries for the purchase, subscription or sale of real property, sales of commercial establishments [bulk sales], shares or participations in real property companies;
4) All chattels rental undertakings;
5) All manufacturing, commission and land or water transport undertakings;
6) All supply, agency, business office, auction house and public entertainment undertakings;
7) All exchange, banking or brokerage transactions;
8) All public banking transactions;
9) All obligations between dealers, merchants and bankers;
10) Bills of exchange between all persons.95
Article L110–2 [former Article 633 of the Code de Commerce (1808)]
The law also deems commercial instruments to be:
1) All transactions leading to the construction, and all purchases, sales and resales of ships for inland and foreign-going navigation;
2) All sea shipments;
3) All purchases and sales of ship’s tackle, apparatus and foodstuffs;
4) All chartering … and bottomry loans;
5) All insurances and other contracts relating to maritime trade;
6) All agreements and conventions on crew wages and rents;
7) All engagements of seamen for the service of commercial ships.96
What follows is a summary discussion of the “accordion-like” text of the 2008 Code de Commerce as illustrated in some of its representative provisions. Therefore, the purpose of this section is to provide the reader with a flavor of what the Code de Commerce is in our day. By representative provisions, I mean those that best reflect the policies and values of the French drafters as well as their legislative method. The appendix contains extracts of court decisions that are particularly revealing on the scope of the code.97
Title II of Book I of the Code de Commerce lists the requirements to acquire the status and contractual capacity of a merchant, including the status of foreign merchants doing business in France. One of the features of dispute resolution before fair and consular courts, reflected in Article L110–3 (Title I, Book I), states: “With regard to traders, commercial instruments [acts or transactions] may be proven by any means unless the law specifies otherwise.”98 Similarly, Article L110–4 (Title I, Book I) sets forth a number of short statutes of limitation on commercial obligations or claims.
As was done by the original Article 1 of the 1808 version of the Code de Commerce, merchants (traders) are defined as “those who carry out commercial instruments [acts or transactions] and who make this their usual profession.”99 The concern with protecting non-merchants and consumers from the risks and evils of commerce is still apparent in this 2008 version of the Code. Thus, “[m]inors, even when declared of full age and capacity, may not be traders.”100 The “[s]pouses of traders shall be deemed to be traders only if they carry out a separate commercial activity from that of their spouse.”101 And, in a departure from the openness to foreign traders typical of the Champagne and other fairs, the Code de Commerce forbids foreign merchants to carry out on French soil a commercial or industrial enterprise or craft that requires registration of the company or trade without the consent of the prefect of the department where the foreigner will initially carry out the activity. However, this provision does not apply to nationals of the European Union member states.102
Chapter III of Title II sets forth the statutory and administrative obligations of a merchant, including the duty to register as a legal person in the Companies’ Register. A failure to comply with this duty is punishable with the hefty fine of 3,750 Euros. In addition, the non-compliant merchant may be deprived of the right “to vote in, and to 352stand in, elections to the commercial courts, the chambers of commerce and industry and the industrial tribunals for a period of up to five years.”103
Another important obligation is that of keeping accurate books and accounts. Merchants are directed to record their transactions “chronologically” and to take stock at least once every twelve months of the “existence and value of the assets and liabilities of the undertaking.”104 In addition, they are required to prepare annual accounts at the end of the financial year in view of the entries made in the accounts and the stock taking. “These annual accounts shall consist of the balance sheet, profit and loss account [statement] and an annex which shall form an inseparable whole.”105 These provisions still reflect the absence in France of a developed commercial credit system where lenders specialize in different types of loans (on inventory, accounts receivable, equipment, intellectual property, etc.) and thereby require account methods consistent with the need of accurate and timely “snapshots” of the state of their collateral.
Title II also governs the life of business associations of the traditional and not-so-traditional types. The not-so-traditional types stem from late nineteenth- and early twentieth-century attempts to support the activities of small businessmen and business associations, particularly by their “bigger brothers.” Among these supporting associations are: Cooperative Associations of Retailers (Articles L124–1 to L124–16); Collective Shops of Independent Traders (Articles L125–1 to L125–19); and Mutual Guarantee Schemes (Article L126–1). The last of these associations was designed to facilitate credit, especially for small- and medium-sized “traders, industrialists, manufacturers, craftspeople, commercial companies, members of the professions and owners of property or property rights”106 by means of suretyships and other assumptions of secondary liability. Another business association in the category of “support of others” is one whose purpose is to help others draft business plans involved in the creation or takeover of a business activity.107
As will become apparent during a later discussion of pricing and competition rules and policies, there is a distinct and almost organic link between the duties of larger or more successful business associations and their smaller, weaker brothers.108
Title III is devoted to brokers, commission agents, other commercial agents, and carriers. Article L131–1 lists the authorized brokers as “commodities brokers, shipbrokers, and land and water transport brokers.”109 The long shadow of guild exclusivity is apparent in Article L131–3 as it restricts the brokering of land and water transportation exclusively to land and water transport brokers. In addition, these brokers are forbidden from combining “their functions with those of the commodity 353brokers or shipping brokers designated in Article L. 131–1.”110 An even more pronounced influence of the guild system is found in Article L131–5: It specifies what kind of broker can be involved in the sale or purchase of metals (investment and commodities brokers) and then states that “[t]hey alone shall be entitled to fix the prices of these [metals].”111
Unfortunately, traditional methods of doing business, while quaint, are often at odds with contemporary international practices, especially in the financial marketplace. For example, the requirements imposed by Article L132–9 on French issued ocean bills of lading (a provision nestled among the rules on maritime brokers) are at odds with the requirements of banks worldwide that issue, confirm or negotiate commercial letters of credit.112
Title IV is the French law equivalent of the Anglo-American “Bulk Sale” or “Sale of a Business.” It is one of the most detailed sections of the Code. Not only does it set forth all of the requirements of bulk sales, but it also includes ancillary transactions such as the leases of real estate that belonged to the sold business and provides:
Notwithstanding any clause to the contrary, any contract or agreement under the terms of which the owner or operator of a business or a craft establishment grants the lease thereof totally or partially to a manager who operates it at their own risk shall be regulated by the provisions of this chapter.113
Chapter V of Title IV similarly regulates commercial leases.114 Taking into account the scarcity of commercial space that has prevailed in France’s largest cities since the end of the Second World War and the considerable amount of litigation caused by this type of contract, the extended coverage of commercial leases is understandable.
Book II is devoted to the traditional types of business associations and “economic interest groups.” Article L210–1 makes it clear that the mere utilization of a business association format or its object (presumably the acts of commerce it engages in) determines the commercial status of the entity. General partnerships, limited partnerships, limited liability companies and joint-stock companies are commercial “by virtue of their form, irrespective of their objects.”115 Because of its popularity among French businesses, the joint-stock company or the corporation, whether closely or publicly held, is given the most extensive treatment, including a good number of public and criminal law provisions.
The Code de Commerce allows the creation of limited partnerships with shares of stock116 and simplified joint-stock companies. The latter statute was used as one of two models in Colombia’s simplified business corporation law.117
Book III governs, in part, transactions seldom regulated in such detail by other codes. They include “closing-down,” “warehouse,” “clearance” and “factory” (retail) sales.118 The detail reflects a degree of paternalistic protection that can only be implemented by a huge bureaucracy. In reading the following excerpt of the definition of a “closing down” or “bulk sale,” one wonders how many government officials would have to be involved in supervising the compliance therewith. According to Article L310–1, a closing-down sale is one:
[A]ccompanied or preceded by advertising and presented as being intended, through price reductions, to achieve rapid disposal of some or all of the goods held by a commercial establishment following a decision, regardless of the reason therefore, to cease, seasonally suspend, or change its business activity, or to substantially alter its mode of exploitation, are deemed to be clearance sales.
Clearance sales must be declared in advance to the relevant administrative authority having jurisdiction over the location of the clearance sale. The declaration thus made shall state the reason for and duration of the clearance sale, which shall not exceed two months. It shall be accompanied by an inventory of the goods to be disposed of. If the event giving rise to the clearance sale has not taken place within six months, at the latest, of the declaration being made, the declarant is required to inform the relevant administrative authority thereof.
The offering for sale of goods other than those indicated in the inventory in respect of which the prior declaration was made is prohibited for the duration of the clearance sale.119
The policy behind this extensive regulation is not altogether clear. The reader is left wondering if the purpose of these rules is to protect the buying public against misrepresentation, the protection of creditors of the closing business, the protection of the stability of prices in the marketplace or all of the above in similar or varying degrees of interest.
Book IV regulates pricing freedom and competition as well as anti-competitive practices.120 However, before concluding that these provisions, especially those related 355to pricing, are the French equivalent of United States antitrust and fair pricing legislation, it would be helpful to review Article L410–2:
Except in cases where the law specifies otherwise, the prices of goods, products and services … shall be determined by the free play of competition.
However, in sectors or areas where price competition is limited by either monopoly situations or long-lasting supply problems, or by acts or regulations, a Conseil d’Etat decree may regulate the prices after the Council on Competition has been consulted.
The provisions of the first two paragraphs shall not prevent the government from ordering against excessive price increases or reductions, through a Conseil d’Etat decree, temporary measures motivated by a crisis situation, exceptional circumstances, a public disaster or a clearly abnormal situation in the market in a given sector. The decree shall be adopted following consultation of the National Consumer Council. It shall specify its period of validity which may not exceed six months.121
Five or so years ago, I had conversation with Horacio Gutierrez, Esq., Deputy General Counsel of Microsoft and a former Member of the Board of Directors of NLCIFT. He, shared some of his impressions on the reasons for the December 28, 2004 European Union court dismissal of Microsoft’s appeal of the 2004 ruling which found the company had abused its dominant position in the European market.122 According to Mr. Gutierrez, the European Union Court visualized the preservation of competition as a duty of the larger competitors by doing whatever was in their hands to prevent the smaller companies from going under as a result of the technological innovations or other competitive advantages enjoyed by the larger and more successful competitors. I told him that I had the same impression based upon duties of assistance in access to credit and business know-how, including how to best merge with other companies and how best to avoid insolvency imposed upon the larger and better competitors by the Code de Commerce.123 Does this remind you of the guild system or of Judge Bedos’ description of the virtuous behavior of the eighteenth-century Commercial Court of Paris?
Book V deals with promissory notes, bills of exchange and secured transactions.124 France adopted the Geneva Convention on Bills of Exchange and Promissory Notes Providing a Uniform Law for Bills of Exchange and Promissory Notes of 1930,125 as did a majority of civil law countries. With the exception of Article 10 of the Geneva Convention, the remainder was fully transcribed by the French Code de Commerce. As pointed out elsewhere, there are some significant differences between U.C.C. Article 3 356and the Geneva Convention on the qualifications of a holder in due course, liabilities for fraud and forgery of a drawer and endorser’s signature, and others.126
The law of secured transactions has become a critical component of the contemporary law of commercial contracts. Increasingly, economic development is tied to the success of secured lending laws. After lagging behind other developed nations for almost a century, France adopted secured lending provisions in its commercial and civil codes in 2003 and 2006. Unfortunately, the results have been disappointing. Because of the leading role of French legislative efforts throughout the civil law world, these statutes will be discussed in some detail hereafter.
Prior to the 2003 compilation of commercial code provisions, the large number of security interests were dispersed among a large number of statutes covering different types of pledges.127 The 2003 compilation and subsequent revisions did not gather them all under the same legislative roof. The same is true with the 2006 amendments to the Code Civil. This dualism of legislative sources creates, by itself, considerable uncertainty in an area of commercial contracts law where certainty is essential for everyday lending. After the 2006 amendments to the Code Civil, the interpreter has to ask himself, among many other questions: Is my security interest a commercial security interest governed by the commercial code and perhaps subsidiarily by the civil code, or is it a civil pledge without dispossession, governed principally and finally by the civil code? These problems illustrate the many uncertainties encountered in both sources.
For example, Chapter I of Title II of Book V of the Code de Commerce seems to be governed by the principle of “constitutive” notice. According to Article L521–1, a security interest created in connection with a commercial act either by a merchant or a non-merchant must be recorded in compliance with Article L110–3. Such a recording is necessary both to create rights and duties between the contracting parties (lender and borrower) and to give notice to third parties (actual or potential lenders and bona fide purchasers of the collateral, and trustees of syndics in bankruptcy).
This principle stands in sharp contrast with the “adjective” or pure notice filing system that governs most contemporary secured transaction statutes,128 and which does not require filing for the purpose of creating rights between the lender and the 357borrower, but does require filing to affect the rights of third parties by placing them on notice of what has been recorded.129
The commercial code security interests may be possessory or non-possessory, although some collateral, such as negotiable instruments, require endorsement and possession to perfect the security interest in them. Other instruments such as corporate shares and partnership interests can also be used as collateral, but notice of the creation of the security interest requires a recording in the appropriate corporate or partnership records or in the Registry of Public Debts.
For a commercial type of jurisdiction, the foreclosure procedure set forth in Article L521–3 seems leisurely, if not detrimental to collateral that is highly perishable:
If payment is not made in the due date, the creditor may, eight days after simple notice served on the debtor and any third party holding a landlord’s lien for rent, sell the articles held as security at public auction.130
The Code Civil provisions on pledges without dispossession compound the confusion created by the 2008 compilation of commercial statutes. The Code Civil pledges (whose nature is supposed to be non-commercial) often wander into a gray zone where civil transactions become indistinguishable from commercial ones. For ease of identification, the gray zones will be italicized in the following provisions.
Article 2329 of the Code Civil sets forth four types of security interests in movables:
1) Privileged charges over movables;
2) Pledge of corporeal movables;
3) Securities of incorporeal movables;
4) Retention of title as a security.131
The Code Civil defines a priority charge as a right whose type of debt provides the creditor with priority over other creditors, including real estate mortgagees.132 Article 2331 lists eight categories of priority charges, which include court costs, funeral expenses, and expenses relating to the latest illness. In addition, this provision lists a large number of owed, or likely-to-be owed, debts to laborers of all types, including wages of domestic staff for the year elapsed and the current year, deferred salary payments, debts of the surviving spouse “relating to the development of commercial and artisanal undertakings and to the improvement of their economic, legal and social environment,”133 severance pay, special compensation for lack of job security, allowances for failure to provide proper notice, allowance for paid holidays, and many more. This provision does not make clear whether these priority charges apply to 358collection proceedings against a solvent, insolvent or deceased debtor. Caution would suggest that it could apply to one or two of these three situations.
In addition to the above “general” priority, Article 2332 sets forth special priorities for a number of debts that take precedence in proceedings involving the foreclosure of designated movable property. These specific priority charges resemble the “statutory liens” of United States law, although their scope of application is more specifically laid out. Among them are:
1) Rents and farm-rents of immovables on the fruit of the year’s crop, and on the price of everything which garnishes the house rented or the farm, and of everything which is used for the working of the farm: namely, for everything which is due, and for everything which shall become due, where the leases are authentic, or, where being under private signature, they have an undisputable date; and, in both cases, the other creditors have the right to relet the house or the farm for the remainder of the lease, and to profit by the leases or rents, on condition, however, that they pay the owner everything which may still be owed to him.
…
The same prior charge exists for the repairs incumbent upon the tenant and for everything relating to the execution of the lease. It also exists for all debts resulting, for the benefit of the owner or tenant, from the occupation of the premises, regardless of the basis thereof.
Nevertheless, the sums owed for seeds, for manure and ameliorators, for anti-cryptogamic and insect products, for products designed for destroying animal or plant parasites harmful to farming, or for the expenses of the year’s crop, shall be paid out of the proceeds of the crop, and those owed for implements out of the proceeds of those implements, in priority to the owner in either case.134
The Code Civil also introduced amendments to the traditional (dispossessory) pledge. It distinguished between the pledge of corporeal and incorporeal movables, and allowed these pledges to be created for present and future debts.135 This represents a major advance over nineteenth-century pledges. Yet, immediately in Article 2335, the amendments repeated an ownership requirement which the contemporary law of secured transactions rejects as incompatible with the fragmented and limited nature of ownership in personal property. For it is not only conceivable but also necessary for secured lending that holders of rights to the possession of the same collateral be able to sell or pledge their rights in the collateral, even if they fall short of absolute or historical ownership of that collateral.136 This development was, ironically, foreshadowed by Article 2279 of the same Code Civil (1804 version): “In the case of movables, possession is equivalent to a title.”137
Thus, anachronistically and contrary to the spirit of Article 2279 Code Civil (1804 version), the current Article 2335 of the Code Civil now states:
The pledge of the thing of another is void. It may give rise to damages where the creditor did not know that the thing belonged to another.138
In addition, in a manner contrary to the constitutive notice principle of Article L521–1 of the Code de Commerce, which predicates the enforceability of the security agreement between the parties and its notice to third parties upon its recording, Article 2336 of the Code Civil rejects such a constitutive effect:
A pledge is complete by the establishing of a writing which contains the description of the debt secured, the quantity of the pledged units of property, as well as of their species or nature.139
Article 2337 emphasizes this differentiation when it states that a pledge is enforceable against third parties by its publicity140 and does not mention the same requirement for the agreement between the creditor and debtor.
Many other problems occur with the remainder of the Code Civil and Code de Commerce amendments. Hence, rather than clarifying the import of contemporary secured lending in French law, the amendments to the Code de Commerce and Code Civil have rendered this law more uncertain. The lack of delineation between a commercial security interest and a civil pledge without dispossession subjects both to numerous and contradictory rules and qualifications, such as rules on formalities, perfection and priorities (both general and special). In addition, the anachronistic requirement that the debtor be the owner of the collateral hangs like a Damocles sword over the enforcement of the security interest or pledge. It would be enough for the debtor, or a third party, to offer evidence that other debtors or creditors hold an ownership interest (of the many co-existing ones in the same collateral) for the transaction to be voided.
In sum, it is clear that both sets of amendments depart significantly from the best national and international secured lending law and practice.141
Chapter II of Title II of Book V of the Code de Commerce deals extensively with deposits in bonded warehouses, apparently one of France’s most popular security devices.142 Chapter III deals with the pledges on hotel equipment and furniture,143 Chapter IV with security interests in oil warrants144 and Chapter V with security interests in professional tools and equipment.145
Chapter VI of the same title and book provides the French law equivalent of a United States “homestead” protection from attachment of property of the individual businessman and his spouse: “[A] natural person whose name appears in an occupational … register or who is engaged in an agricultural or independent business may declare his rights over the real property which constitutes his principal place of residence to be exempt from seizure.”146
Despite the attempt to include all of the commercial legislation of France in the Code de Commerce, some important commercial contracts were left out and are regulated by their own law. One such law is the Insurance Code.147 It applies to “non-marine” (fire, hail and livestock mortality, personal, bodily injury and material damages, third party liability, natural disasters, terrorism, legal expenses, and technological disasters and life insurance) as well as to marine transportation losses. Marine insurance covers not only the traditional maritime insurance, but also inland waterway and lake transportation insurance. In addition, it sets forth the law applicable to insurance contracts for risks located in the territory of one or more state parties to the European Space Agreement and agreements named therein.
Other examples include the provisions on Maritime Law found in several statutes, such as Law No. 66–420 on Freight Contracts and Maritime Transportation, and the Code du Domaine Public Fluvial et de la Navigation Intérieure (Code of Public Waterways and Inland Navigation). Perhaps the most important recent statutory addition on the formalities of commercial contracts is found. Notice that many of those rules are amendments to the civil and not commercial code, why? Notice that they encompass informal electronic contracts, offers and acceptances and promises especially those in an electronic format.148
Surprisingly, the latest revision of the Code de Commerce has adopted a casuistic style of drafting reminiscent of the U.C.C. In addition, it evidences a paternalistic-guild approach which merges with the goals of a socialist or mixed (capitalist-socialist) economy. On the one hand, it interjects governmental bodies into the process of doing business by deciding the better methods for drafting a business plan, preparing for a takeover or merger, avoiding insolvency, etc. And, as if that were not enough, critical institutions for the development of a sound financial marketplace, such as the law of secured transactions, were drafted with little regard for best legal and market practices, both national and international.
Where does this insufficient, confusing and inept coverage leave the merchant and the code interpreter? First of all, it is important to acknowledge the continuous growth in the number of non-merchants who become parties to commercial contracts with merchants and other non-merchants alike. Commercialization has been on the ascent for more than two centuries.149 Presently, commercialization is especially apparent in 361the meteoric growth worldwide of countless virtual places such as websites for doing business. In brief, any attempt to limit the acts of commerce to those listed in 1808 and subsequent revisions, or whenever the next addition or amendment is drafted, risks obsolescence as soon as promulgated.
In light of this growth, it is necessary for commercial law to open its doors as widely as possible. Whether the opening mechanism is provided by open lists of acts of commerce or by other approaches discussed in a following chapter is not as important as making sure that the new law reflects sound market practices and protects consumers.
Hardly a legislative term goes by without the enactment of a consumer protection law or the creation of an administrative or judicial office entrusted with such a protection. Whether such a regulation is part of the commercial or a consumer code is often a matter of legislative convenience. However, where it is an essential part of the commercial transaction, such as the protection of “buyers in the ordinary course of business” in secured lending law, its best place is in the commercial statute.150
It should also be kept in mind that, as mentioned earlier, in societies where consumers are often merchants and vice versa, the boundaries between consumer protection law and the commercial code are not easily drawn, as the student of the French Code de Commerce and the United States’ U.C.C. will soon discover. What is fairly safe to predict is that the civil-commercial code dichotomy of Napoleonic France and many of the legal institutions it engendered will soon become a subject mostly for legal historians and antiquarians.
The following exercises will familiarize the reader with Code Civil and Code de Commerce research. Answers are provided at the end of this elementary exercise.151
1) A and B are partners under partnership C. B was designated as manager of the partnership. B decides to purchase a vehicle, both for the use of the company and for his own personal use. Does B have sufficient powers to execute the purchase of the vehicle? What provisions of the Code de Commerce apply?
2) In a limited partnership, the limited partner is granted a power of attorney in order for him to purchase real estate property for the partnership. After purchasing the real property, the limited partnership accepts no liability for the purchase contract executed by the limited partner. Did the limited partner have the power to execute a purchase-sale agreement for real estate property on behalf of the limited partnership? What provisions of the Code de Commerce apply?
3) In the same scenario as in Exercise 2 above, what provisions of the Code Civil would govern the purchase-sale agreement of real estate property?
1) B does not have sufficient powers. See Article L221–5.
2) The limited partner has no powers to act on behalf of the limited partnership. See Article L222–6.
3) Of Contracts and of Conventional Obligations in General, Book III, Title III (Articles 1101 through 1369–11); Articles 1582 et seq.
U.R.S.S.A.F. de Lyon c. Astruc
Facts:
A hat-maker, who was registered at the occupational registry but not at the registry of commerce, worked as an independent contractor, was assisted only by some employees, and used equipment appropriate for a craftsman but not for a merchant, failed to pay her debts to [a financial entity-lender known as] U.R.S.S.A.F. This entity brought a claim to the commercial court seeking the defendant’s involuntary declaration of bankruptcy and also claiming a certain amount as the owed principal and interest. The claim was rejected as inadmissible.
Decision:
The Court: On the only issue on appeal: Considering that the lower court (Lyon, May 26, 1967) declared inadmissible the claim for the declaration of bankruptcy filed by U.R.S.S.A.F. of Lyon, against Mrs. Astruc, who owes the principal amount of 17,440.08 Francs, plus interest and fees for the period from January 1, 1963 to June 30, 1965. [Considering that it was] rejected on the ground that Mrs. Astruc is not a merchant … the claimant relies on factual evidence that shows that the defendant’s business largely exceeds the amount ordinarily associated with a craftsman’s business, and that Mrs. Astruc was engaged in commercial speculation by paying for the work of her waged employees and for raw materials and merchandise and reselling the final product, all of which would qualify as a commercial act in accordance with Articles 1 and 632 of the Commercial Code. Yet, on the other hand … the court of appeals did not (properly interpret) Article L. 645 C. Secur. Soc., pertaining to the main activity of waged employment and by decree of March 1, 1962 … on the conditions under which someone is employed as a craftsman….
Considering … that the court of appeals held that Mrs. Astruc was registered at the registry of her occupation at the time she became indebted of the now disputed debts, that she is not registered at the registry of commerce; that her business is that of a craftsman who makes hats and that she works independently … with the help of five waged employees hired as apprentices … that she does not use any other equipment apart from three sewing machines, that the value of the labor used is higher than the value of the merchandise used … that in fact, the purchase of merchandise is limited to that needed for crafting hats, that she has never had any surplus available stock or that she has not drawn any negotiable instruments; that she has never performed, but exceptionally, two purchases for reselling hats that were crafted in a two-year period on which there was a report; that it has not been established that Mrs. Astruc speculated on the merchandise crafted by others; that from the findings and the holding, the court of appeals was able to find that Mrs. Astruc’s main activity is craftsmanship, thus not a commercial activity, and that she does not perform any secondary acts susceptible of being qualified as commercial, therefore not having a commercial nature.
On the other hand, considering that the U.R.S.S.A.F. of Lyon, according to the findings of the appeal, is bound to justify the commercial nature of Mrs. Astruc, without objecting to her craftsman nature…. For these reasons it is dismissed….
Regardless of the silence of the Code de Commerce, case law normally has held that a craftsman—meaning an independent manual worker—is not subject to the rules of commercial law. Therefore, it is important to distinguish between a craftsman and a merchant and determine the elements that legally define a craftsman. Case law has provided for the definition of a non-merchant craftsman, and, as happens with most case law, this definition is not devoid of uncertainties. On the one hand, all craftsmen may purchase movable property to resell it, provided that they manually work on it and create a work of their own with it (Article 632, Code de Commerce). But on the other hand, case law has recognized that there may be a commercial manufacturing business even in the absence of purchases made for their resale. Nevertheless, case law has recognized that a non-merchant craftsman is the person who performs manual labor, whether independently or with the assistance of the members of his family; in addition, for purposes of his work he may purchase raw materials, use equipment, hire waged employees and apprentices, and have an establishment and a trademark. However, he may not speculate on the products or on the work of others. In summary, the preponderance of manual labor in crafting the products and the absence of speculation are features that identify a non-merchant craftsman.
Why should France’s private and public law insist, in this day and age, on distinguishing between merchants and craftsmen who sell what they produce? As is apparent from this decision, this is not an academic distinction. It requires different registers (for craftsmen or artisans and merchants) and legal regimes (for example, bankruptcy rules that are applicable only to merchants, and which assume that craftsmen make only an exceptional use of negotiable instruments, as indicated by a rather questionable finding of fact). Incidentally, why was it questionable—even in 1969—that a person who employs five employees, who continually buys raw material and sells hats has not, as part of her everyday business, ever drawn commercial paper 364such as promissory notes, drafts, or the ever-popular French postal or bank giros? Is the reason for this distinction an official desire to protect craftsmen from the “sins, perils, and ravages” of “commercial speculation?” Simply put, is the guild system truly dead in French law or is it still ruling from its grave?
What are the economic consequences of enforcing the questionable distinction between craftsmen and merchants? If a craftsman is not a merchant, could commercial credit, i.e., one dependent upon repayment of commercial assets such as accounts receivable, negotiable instruments, and other commercial paper, be made available to them officially, or would it have to be made available only on a clandestine, under-the-table basis? What are the economic implications of barring artisans and craftsmen from the bankruptcy regime?
The Court: (Appellant’s alleged mistaken interpretations by the lower court): On the first issue on appeal, the infringement of Articles 1, 437, and 638 of the Commercial Code, and 7 of the Law of April 20, 1810, Articles on which the appealed decision was [allegedly] erroneously based to support Mr. Robert’s bankruptcy filing in connection with his alleged business operations, [these allegations related to] his work on the forests located on land of his property, however, the agricultural nature of such work does not warrant the holding that he was engaged in commercial transactions.
Considering that the findings of law and facts in the appealed decision indicate that Robert, a merchant of wood in Bourriot-Bergonce, in 1916 made a deal with the Army Intelligence for the supply of 10,000 cubic meters of pine wood; along with several financial stipulations, he, first of all, acquired all of the pines sold by the Viallotte forest; … that to succeed in this endeavor he hired Mr. Escudero to cut down the pines and to craft the wood, and that the final amount owed to his creditor was 5,593,75 Francs; that he also agreed to repay some important loans with the successors of A. Pelletier, who were wood merchants in Bordeaux, and that in payment for his debts he signed as acceptor a number of negotiable instruments which are overdue and their payment was claimed on their due date, and that he did the same thing with respect to other unpaid creditors.
Considering that the main findings of fact show that Robert, as a businessperson, in fact processed and crafted the products for their sale, hired labor and conducted … a commercial business that involved, among others, making continuous and ordinary commercial transactions. Consequently, considering that, in the appealed decision the court was able to infer from the facts that Robert was a merchant because he performs commercial transactions and such is his ordinary business, and that he filed bankruptcy because he was unable to fulfill payment of his debts; therefore, far from infringing the Articles alleged in this appeal, the court made a proper interpretation of these provisions; for these reasons, the appeal is dismissed….
The Court: The issue at bar pertains to the erroneous application of Articles 631, 632, and 638 of the Commercial Code, the rules of jurisdiction, and Article 7 of the Law of April 10, 1810…. The appealed decision found that the commercial jurisdiction was the appropriate one to decide on the claim for damages against M. Brunet (defendant below and appellant). Appellant was an agricultural merchant and the action against him involved an accident that occurred while he was performing his obligations, not as a commercial manufacturing business, but as a business incorporated mainly for farming, given its purpose and the nature of his business operations. Considering the authority and the reasoning discussed in the appealed decision, we find that Brunet, in his ordinary course of business, performed acts consisting of “processing through mechanic means the products he received from producers.” Hence, considering that, the decision made by the court of appeals, far from infringing the Articles at issue, applied them properly and the court provided sound legal grounds for its decision; for these reasons, the appeal is dismissed.
An agricultural business implies the carrying out of commercial transactions—The Cour de Cassation held that Mr. Brunet performed commercial transactions by “processing through mechanic means the products he received from producers.” Is such an activity regulated by Articles 632 and 633 of the Code de Commerce that provide a list of commercial transactions? Article 632 establishes that a processing company is a commercial transaction. On this matter, we first need to take into consideration that the purpose of such companies is to process purchased goods and later proceed to their sale. However, this provision has been slightly modified by doctrine and case law, broadening its scope of application. Therefore, the Court found Mr. Brunet “in his ordinary course of business … process[ed] through mechanic means the products he received from producers.”
Compatibility of the agricultural and commercial nature of a business—The Supreme Court has implicitly admitted that an agricultural business may have a commercial nature. Therefore, is it important for [a farmer] claiming the performance of acts of commerce to allege that his agricultural business has a commercial nature? Is it required to differentiate between a farmer engaged in the production of goods and one in the trade of goods?
The reader may wonder whether the translator of these cases is unaware of redundancies. After all, if a business is referred to as agricultural by the courts, why distinguish it from a commercial business? Is not a business a business, whether engaged in by shopkeepers or by farmers? Furthermore, is not a business by definition a commercial endeavor? Apparently this is not the case in French judicial decisions, at least for quite a while following the enactment of the Code de Commerce. This goes back to one of the issues dealt with throughout this chapter: Why did the legislators, courts and commentators strain so hard to draw these distinctions?
In light of the origin of the distinction between farming or owning farmland and commerce involving land or its products, and taking into account the extraordinary importance of agribusiness in our time, what are the legal and economic benefits derived from attempting to preserve this distinction?
Code Civil Article 1844–10: Annulment of a company may only result from the infringement of the provisions of Articles 1832, 1832–1, paragraph 1, and 1833 or from one of the general causes for the annulment of contracts.
Any clause of the memorandum or of the articles of incorporation contrary to a mandatory provision of this Title shall be deemed as not written, provided that the infringement of such provision is not penalized with the annulment of the company. Annulment of transactions or resolutions of the branches of a company may only result from the infringement of a mandatory provision of this Title or from one of the general causes for the annulment of contracts.
Code Civil Article 1845: The provisions of this Chapter shall apply to all non-commercial companies, unless they are repealed by the special laws that govern some of these types of companies. Companies to which the law does not grant another form because of their structure, nature or purpose are deemed to be non-commercial.
Code de Commerce Article L210–1: The commercial nature of a company shall be determined by its form or by its objects.
General partnerships, limited partnerships, limited liability companies and joint-stock companies are trading companies by virtue of their form, irrespective of their objects.
Whereas, according to the appealed decision (Paris, April 1, 2005), the National Union of Agriculture and Farming—Green France—and the Departmental Union for the Defense of the Rights of Farmers and several other entities and individuals have requested the nullity of the regional accounts held by (civil cooperatives/unions) at and by the Crédit Agricoles Mutuel (CRCAM), arguing that the commercial nature of the acts pertaining to those accounts results in an illegal object and, therefore, they must be annulled;
Whereas, an appeal was brought against the appealed decision that dismissed the claim for the nullity of the accounts of the CRCAM, claiming:
1) That the main business of a civil cooperative/union may not be a commercial activity; that the accounts held at the CRCAM are of a civil cooperative; that in holding in the appealed decision that they may perform 367acts of commerce provided that they do so in a civil form, the Court of Appeals infringed Articles 1844–10, 1845, second paragraph of the Code Civil, and L210–1 of the Code de Commerce;
2) That the appealed conclusions are immaterial to the case, that in support of the claim for the nullity of the accounts of the CRCAM, the means used for financing the offer made by CRCAM for an acquisition with Crédit Lyonnais did not take into consideration the mandatory provisions applicable to cooperatives/unions and that its members had therefore been illegally deprived of their property; that in rejecting this argument, the only—yet inoperative—reason was that they conducted an investment operation pursued by CRCAM without there being an investigation on whether the provisions applicable to cooperatives/unions had been taken into consideration and whether the interests of its members had been protected, the Court of Appeals infringed Article 455 of the new Code Civil Procedures;
3) That the Judge should have verified that a certain legal provision has been implicitly repealed because it contradicts provisions found in subsequent laws, and that the principles that justified the former legal provision have ceased to be applicable; that in this particular case, a law enacted on April 18, 1922—which is now codified in Article L512–30 of the Code Monétaire et Financier—eliminated the obligation of recording the accounts of the CRCAM at the Registry of Commerce and Companies; that this provision is incompatible with Article 44 of the Law of May 15, 2001 which mandates that all companies must be registered at the Registry of Commerce and Companies, and is justified by the fact that the accounts of civil cooperatives/unions have the purpose of providing and guaranteeing activities related to agricultural and farming production and equipment required by its members; that the purpose and scope of several provisions found in laws and regulations have been broadened so as to allow funds and accounts of CRCAM to be used, in general, as they would be used in banking operations, therefore, performing acts of commerce….
However, considering in the first place that the Court of Appeals is not bound to follow the line of argument presented by the parties, the Court of Appeals has rightly held that the exercise of a commercial activity through a credit establishment with the status of a cooperative or union does not necessarily result in the nullity of its activities;
In second place, considering that the specific provisions of Article L512–30 of the French Monetary and Financial Code (Code Monétaire et Financier), that exempt CRCAM from registering its accounts at the Registry of Commerce and Companies, are in no way implicitly repealed by Article 44 of the Law of May 15, 2001, unless there is an express provision stating otherwise;
Hence, it follows that none of the claims on appeal have legal grounds to support them. For these reasons, it is dismissed.
Does the act of investing savings or surplus funds of a civil (i.e., non-commercial or not-for-profit) agricultural cooperative for the presumably-lawful purpose of preserving, if not growing, the cooperative’s savings violate French public and private 368law, including the prohibition of a civil, not-for-profit entity from engaging in commercial acts? In arguing that it does, the National Union of Agriculture and Farming—Green France—pushed the civil versus commercial act dichotomy to its logical limits: Not-for-profit means not-for-profit, and investment with the intent to obtain a profit is a commercial and thus a “speculative” profit-seeking act. Yet, can any entity, for-profit or not-for-profit, survive in an investment-driven marketplace such as ours without earning interest for its deposits? As the Spanish proverb has it: “Stationary vessels earn no freight,” and without said freight, it will not be a vessel for much longer. From religious entities at one end of the spectrum, to communist governments at the other end, no one in today’s global marketplace can afford to allow surpluses or reserves to remain idle. Yet, if the “civil” not-for-profit category is pushed to its limit, business-minded entities such as civil associations of lawyers or other professionals would also be prevented from investing their savings. Not surprisingly, the Cour de Cassation held in this important decision that the exercise of a commercial activity through a credit establishment with the status of a cooperative or union does not necessarily result in the nullity of its activities. One is left to wonder how much a chemically-pure, civil not-for-profit category of transactions will be left in French law in another generation or two.
Article 1384: One is responsible not only for the damages caused by one’s acts, but also for those caused by persons that one is responsible for or of the things under one’s own custody.
…
[Paragraph 5] Masters and those who entrust others with the commission of acts [are responsible] for the acts of their employees within the scope of their employment.
Article 1787 [Performance of Work]: When someone is entrusted with performing work the parties may agree that the party doing the work will supply only his work or industry or will also supply the material.
Article 1792–1:158 The following will be deemed builders (constructeurs de l’ouvrage):
1) Any architect, entrepreneur, technician or any other associated with the owner by a contract for the performance of construction work;
2) Any person who sells, once the work of building is finished, a building that he or she has built or has commissioned;
3) Any person who, acting as an agent of the owner, carries out a mission equal to that of the building contractor.
Article 1793: When an architect or builder agrees with the landowner to build the building as detailed in a building plan and for an all-inclusive price, he cannot raise this price even though the price of wages or materials has risen, or changes or augmentations have been made in the plan unless these changes and augmentations appear in a writing agreed by the landowner.
Article 1794: By paying the builder for all the expenses incurred and the profits he would have obtained from the completion of the building, the landowner can rescind an all-inclusive contract unilaterally, even though construction started.
Article 1795: The contract for the performance of work shall be terminated by the death of the worker, the architect or the builder.
Article 1796: However, the landowner shall pay to their [the builder’s] heirs the value of his works in proportion to the agreed-upon price.
Article 1984: The mandate or procuration [agency] is an act by which one person gives to another the power to do something for and in the name of the principal (mandant)….
Article 1986: The mandate is gratuitous, unless otherwise agreed.
Article 1987: It is special or just for one transaction or for certain affairs only, or general or for all the transactions of the principal (mandant).
Article 1988: Conceived in general terms, it only covers acts of administration….
Article L110–1 (Former Article 632):
The law deems as acts of commerce:
3) All transactions by intermediaries for the purchase, subscription or sale of real property, sales of commercial establishments [bulk sales], shares or participations in real property companies….
The Court: Whereas, the contract of performing work [contrat d’entreprise] is an agreement by which a person [client] directs another, a fully independent contractor [entrepreneur] to perform work that entails simple material acts and does not confer upon the contractor any power of representation. Whereas … E instructed M [a specialist in selecting builders for residential homes] to find a builder who could build their home subject to certain specifications such as the type of home and an all-inclusive price, and that this was no more than a simple, vague and gratuitous 370mandate. Whereas the proven facts show that Dame O was instructed to perform a juristic act [act juridique] in accordance with Article 1984 of the Code Civil and not the performance of material acts [as involved in a contract for the performing of work] as was mistakenly concluded by the Cour d’Appel Bordeaux 28 Sept. 1964, for this reason this decision is reversed.
Apparently, the Cour de Cassation decided to fashion its own category of juristic acts. The following doctrinal comments illustrate the perils of such a venture, particularly when “the facts on the ground” of the respective contracts or transactions do not appear to have been carefully taken into account by the Cour’s mostly scholastic “juristic versus material acts” dichotomy.
As is customary with decisions that deal only with questions of law, the facts provided by this appellate decision are minimal. Nonetheless, it leads to the conclusion that if E entrusts M, a residential housing specialist, with the selection of a builder for a family dwelling and gives her the parameters of her choice, such as the type and size of the dwelling and an all-inclusive price, E’s contractual relationship with M amounts to a “vague and gratuitous mandate.” Please notice the court’s effort to fit E’s instructions within a type of contract that, for reasons peculiar to the Rome of two thousand years ago, was characterized by jurists as gratuitous. In the Cour de Cassation’s words, E entrusted M, “to find a builder who could build their home subject to certain specifications such as the type of home and an all-inclusive price, and that this was no more than a simple, vague and gratuitous mandate.”160
Notice that the contents of a “simple mandate” have remained fixed as a gratuitous contract since Roman times, regardless of the market practices ever since. And because E only asked M to perform a “juristic act” in accordance with the provisions of Article 1984 of the Code Civil and not a “material act,” the lower court’s disregard of this distinction misinterpreted Article 1787, among other provisions of the Code Civil. I should add that the term “material act” was not defined by this court. Nonetheless, for purposes of our discussion, let us assume that it means an act that produces something material such as movable or immovable property.161
In his commentary, an annotator (identified only as Doucet) points out that:
The distinction between the contract of performance of work [in this case, a building contract] and that of agency carries with it numerous implications, among them: 1) the acts of the builder with respect to third parties do not bind his client [referred to in the law as the landowner]; in contrast, the principal (mandant) in an agency relationship is bound by the law of agency and representation; 2) the builder is not a subordinate (preposé) of his client in the sense of paragraph 5 of Article 1384 and the client cannot be sued for the crimes or torts committed by the builder during the course of the building work; in contrast, the principal (mandant) can be made responsible for the acts of his agent while acting as his subordinate …; 3) the client is not responsible for the damages suffered by the builder during the course of the building; on the contrary, Article 2000 of the Civil Code imposes upon the principal the obligation to indemnify his agent for all of the losses suffered 371during his agency; finally, 4) when an agent is paid a salary, case law has established that his compensation may be revised in a manner to reflect the importance of the mandate, whereas the price convened with a builder is deemed of strict compliance by Article 1793 of the Code Civil; however, case law has not been uniform on this point and some courts have not hesitated to apply the rules of agency to building contracts….162
Thus, as with the other classifications of contracts in the Code Civil, serious consequences follow from the placement of either contract in an assigned legal pigeonhole. Still, it is far from easy to distinguish between “juristic acts” and “material acts” because, contrary to the Cour de Cassation’s assumption, these are not “chemically pure” categories: Some juristic acts entail the performance of material acts and some material acts are indistinguishable from juristic acts. As pointed out by Doucet:
The distinction between the contract of agency and that of construction is a subtle one … in both cases an individual undertakes a mission on behalf and for the profit of another…. [However] this distinction is not one found systematically [in practice] … [a] principal can confer wide discretion upon his agent to accomplish his mission [including the performance of material acts] and content himself with receiving a report at the end of the agency … conversely a building contract may be so fashioned as to restrict considerably the discretion of the builder … as is the case of a builder who is supposed to do his work under the strict control of an architect.163
The adoption of a “chemically pure” dichotomy by the Cour de Cassation (echoing that of the essentially civil and commercial acts in Article 632 of the Code de Commerce) prompted the following commentary by another annotator, (identified only as Cornu):
It is remarkable that [this decision] adopts as the basis for its legal analysis a contract that the law has not even defined, especially when it is not related to this or that species of contract … but to the generic notion of performance of work [enterprise].164
Doucet adds that the combination of a contract of mandate or agency and performance of work or enterprise is common in commercial practice.165 For example, in a typical contract of transportation, the carrier agrees to carry out the specific mission of transporting persons or things but also agrees, in an accessory manner, to perform a number of juristic acts for his client such as collecting the cost of the merchandise, insuring the cargo, etc. Conversely, an agent may perform some “material acts.”166 In the final analysis, Cornu concludes that it is up to the trier of facts to determine if the party in question contracted as “a simple intermediary or a subordinate worker.”167
Article 1792–1 of the Code Civil (transcribed above,168 please re-read it now) was promulgated in 1978 (approximately ten years after the Montigaud decision discussed above). Do you believe it clarified the ambiguities created by the impure dichotomy of mandates (to perform juristic acts) and contracts for the performance of work (to perform material acts)?
Article 1986, also transcribed in relevant part earlier in this Appendix,169 refers to the mandate as a gratuitous contract, unless otherwise agreed to. Do you believe that this is a realistic definition in our day, or even in its day? Is this true for most present-day recipients of powers of attorney such as lawyers, brokers and commission agents? What is the effect upon the commercial world of each of these recipients of mandates having to prove that their mandate was not a gratuitous transaction? Can you imagine stock brokers having to do this on the floor of the stock exchange in order for a transaction to be deemed concluded?
Article 1787 of the Code Civil (also transcribed above)170 distinguishes between a contract to perform work in which the worker only supplies his work and another in which he will also supply the material involved in doing the work. Implicit in this distinction is the contractual relationship in which the party who commissions the work also supplies the material. Is this the first time the reader has encountered this relationship? How significant does the reader believe this relationship has been in the development of present-day capitalism?
The Code de Commerce, whose origin and drafting was discussed in the principal chapter, lists in Article L110–1 (former Article 632 of the Code de Commerce) as acts of commerce: “All transactions by intermediaries for the purchase, subscription or sale of real property, sales of commercial establishments [bulk sales], shares or participations in real property companies….” How does this provision differ from Article 1792–1 which, as part of the Code Civil (and thus a civil transaction), is applicable to:
2) Any person who sells, once the work of building is finished, a building that he or she has built or has commissioned;
3) Any person who, acting as an agent of the owner, carries out a mission equal to that of the building contractor.
The legal consequences of applying Code Civil provisions on the contract of mandate and on the performance of work were illustrated by annotator Doucet. Consider now the consequences of applying Code Civil provisions to the following transaction, and after that, consider the consequences of not knowing which provisions of which code to apply:
The city of T, located in a civil law jurisdiction, decides to build a toll road whose construction costs will be paid by the issuance of municipal negotiable bonds sold to the public. The repayment of these bonds, including their principal and interest, will be guaranteed by the receipts of toll fees paid by motorists. In order to put together this arrangement, the city of T contacts ML, a specialist in this kind of transaction, and provides him with a general description of the project including a maximum amount of construction expenditures, type of road, number of lanes and length of the road. ML is 373supposed to select a builder, set up an entity that will sell the bonds, collect the toll revenues, pay the builder and repay the bond holders.
How easy would it be to characterize the relationship between T and ML on the basis of the above-discussed decision and the transcribed provisions of the Code Civil? What are the likely consequences of having to apply these provisions to this transaction?
The illustration below was inspired by discussions on the law of commercial contracts of Mexico during a Judicial Workshop conducted at the Judicial Training School of Mexico’s Federal Superior Tribunal during the last week of June 2009 by the NLCIFT.171 It should highlight the difficulties of applying code provisions (whose drafting was inspired by scholastic methods of legal reasoning) to a present-day transaction unknown to the drafters of the codes, yet much needed in the contemporary real estate marketplace. Since the transaction takes place in Mexico, the applicable provisions would be those of the Mexican Civil and Commercial Codes. Nonetheless, I would like you to examine first the relevant provisions of the French Code Civil and Code de Commerce as enacted in 1804 and 1808, respectively. The reason for this peculiar sequence is to allow you to assess the lasting effect of some of these provisions on the feasibility of contemporary transactions. The French and Mexican codes are accessible in their original languages as well as in non-official English language translations.172
“B” is a United States real property developer interested in buying real property “X” located on the outskirts of Mexico City from “S,” the Mexican owner of the property. B needs to ascertain that the property can be used for certain business purposes and estimates that it will take him 60 days to determine whether these purposes can be met. Accordingly, he needs an option that would bind S not to sell the property during the “due diligence” period. B is willing to pay S’s asking price provided S grants him a 60-day option for which he will pay one percent of the asking price upon the signing of the option and the remainder upon obtaining the final deed of sale from S. If the property does not meet his requirements, he will forfeit the one percent; if it does, he will pay the remainder against tender of a signed deed of sale from S. Yet, after studying this book, B becomes aware that options to purchase X are not easily 374enforceable by Mexican courts. As with some Romanistic and medieval laws and as with the Code Civil, contractual obligations are classified in Mexico’s Civil Code (among other types) as obligations “to do” and “to give” something, and courts derive some unsettling consequences from this classification.173 S’s final obligation under the proposed option to execute a deed of sale conveying the real property to B is generally characterized by Mexican courts as an obligation to do something. As such, S can refuse to sign the final deed of sale until forced to do so by a court of law or the court does it in his name.174 After becoming aware that his action could entail a long and costly judicial delay,175 B suggests to S that they execute instead an “escrow account” or “an escrow agency agreement” as used in United States real property transactions.176 B and S agree to do so and appoint “T”, a third party real estate broker located in Mexico whom they both trust. Since the terms “escrow account” and “escrow agent” are unknown to Mexican lawyers, B and S decide to appoint T to act as their “custodian-fiduciary agent” (depositario-fiduciario) subject to a set of instructions agreed upon by B and S. Accordingly, T will act as a depositary of the payments (down payment and final payment) that are supposed to be provided by B. Upon receipt of the full purchase price from B and upon receipt from S of his executed deed of sale, T will transfer the payment to S and his deed to B. If S refuses to do so, and based upon the instructions agreed upon by S, T as an empowered fiduciary agent of S will execute the deed of sale to B.
As a scholastically-trained lawyer, you are asked to ascertain if such an escrow agreement is feasible under the Code Civil and Code de Commerce and subsequently under their Mexican counterparts.
In all likelihood you would commence your search for the applicable law by attempting to ascertain whether the engagement of T amounts to a contract as defined by the Code Civil. This was a code that Sir Harry Lawson, one of my most insightful comparative law teachers, referred to as “the constitution of France’s private law.” Can you surmise the logical reasons why the scholastic searcher would look first at the Code Civil for a definition of what is an enforceable “contract”? Does this approach have anything to do with the Aristotelian and scholastic concern with things general and particular? You may wish to consult Chapters 8–9 on the interaction between the civil and commercial codes. You might also wish to review the excerpt from Aquinas’ Summa Theologica in § 5:7(B)(1) for possible clues on the scholastic reasoning from the “general to the specific.”
Once immersed in the Code Civil, the searcher will find the definition of a contract in Article 1101:
A contract is an agreement by which one or several persons bind themselves, towards one or several others, to transfer, to do or not to do something.177
Assuming that this definition answers the question whether the relationship among B, S and T is a contractual one, can you surmise which would be the next scholastic question? What about: “What type of a contract is it”? And indeed, the Code Civil definition of contract is followed by classifications of contracts based upon the essential features of each type, such as their mutuality, bilateral or unilateral nature, risk assumption, gratuitousness or onerousness, and so on.178 Please notice the neutral, almost vague, manner in which the Code Civil defines “onerous” contracts as agreements in which each of the parties gives or does something presumably without profiting from their performances.179 Can you suggest a reason why it does so? Could it be that since the Code Civil was not intended for commercial, profit-making transactions it prefers to avoid language that may give the impression that the onerous contract it refers to is or could be a commercial one? And if so, what effect would this fact have upon the application of the Code Civil to our factual hypothetical? Would it disqualify the application of the Code Civil to our projected escrow agreement as a likely profit-making transaction? These and other features provided by the classification of contracts are intended to facilitate the placement of the contract in question in the normative “box” reserved for each species.
In our case, the contracts involved in the “escrow agency” proposal would have to be identified by their definition and classification. The Code Civil has definitions for contracts whose facts seem close enough to those discussed by B and S—in contracts labeled “deposit” and “agency” or “procuration.”
In the absence of provisions governing the escrow agreement in the Code Civil or Code de Commerce please search for provisions that most closely resemble the escrow transaction: perhaps the contract of deposit?180 How close is the escrow agreement to any of the transactions covered by these articles? If you do not find them close enough, search for the provisions on the contract of agency or “procuration” (Articles 1984–2010).181
Consider also the provisions of the Code de Commerce on commercial acts182 and commercial agents.183
How compatible are the provisions on deposit agreements with the intent of the parties as set forth in the factual hypothetical: Article 1915 and its obligation to restore the deposited object in kind; Article 1917 and its “essentially gratuitous” contract; Article 1919 and its “actual” delivery (meaning delivery of the contractual res) prior to the existence of obligations on either side? Do these provisions reflect the type of agency desired by B and S? Could an agent act for two counter-parties to a contract or for potentially adversarial principals?
Under which of the above acts of commerce would the escrow agreement be subsumed? What would be the consequence of its failure to qualify for inclusion in this list? Does the commercial agency contract under the Code de Commerce fit the mold required by an escrow agreement? What is missing, if anything? What does it contain that is incompatible with the activities of an escrow agent, if anything?
Please repeat the same search of provisions on contracts and their types in Mexico’s Federal Civil and Commercial Codes.
__________________________
1 See supra § 8:6.
2 Napoleon Bonaparte’s Statement to the Legislative Body on December 31, 1804, cited in James Harvey Robinson, II Readings in European History: From the opening of the Protestant revolt to the present day 491, 493–94 (1906) (emphasis added).
3 Kevin H. O’Rourke, The Worldwide Economic Impact of the Revolutionary and Napoleonic Wars 28 (Nat’l Bureau of Econ. Research, Working Paper No. 11344, 2005), available at http://www.nber.org/papers/w11344.pdf.
4 See infra § 10:1(B) (discussing the amendments to the Bankruptcy provisions of the Code de Commerce).
5 IX The Cambridge Modern History 177 (A. W. Ward, G. W. Prothero & Stanley Leathes eds., 1907) [hereinafter Cambridge History].
6 Id. at 176–77.
7 Cambridge History, supra note 5, at 177.
8 Id.
9 Id.
10 Id.
11 See supra § 9:2(E)(3)(c).
12 Cambridge History, supra note 5, at 177.
13 Id.
14 Id.
15 Id.
16 Id.
17 C. Com. (Fr.) art. 636 (Dalloz 1992–93) (emphasis added): “Lorsque les billets à ordre ne porteront que des signatures d’individus non négociants et n’auront pas pour occasion des opérations de commerce, trafic, change, banque ou courtage, le tribunal de commerce sera tenu de renvoyer au tribunal de grande instance, s’il en est requis par le défendeur.”
18 Cambridge History, supra note 5 at 178.
19 Id.
20 Id.
21 Pierre-Cyrille Hautcoeur & Nadine Levratto, Legal versus Economic Explanations of the Rise in Bankruptcies in 19th Century France 4 (Paris School of Economics, Working Paper No. 47, 2007), available at http://www.parisschoolofeconomics.eu/docs/hautcoeur-pierre-cyrille/wp200747.pdf.
22 Cambridge History, supra note 5, at 178.
23 Id. at 178–79.
24 Ripert, at 15 (author’s translation). As a visiting professor at the University of Aix-en-Provence Law School, I was assigned to lecture in the lecture room Salle Ripert. I was frequently told: “There was only one Georges Ripert in French commercial commentary.”
25 Hautcoeur & Levratto, supra note 21, at 6.
26 See supra § 9:2(E)(3)(a).
27 See generally Robert Somers & L. Wolowski, The Scotch Banks and System of Issue: including translation of “Les Banques D’ecosse” (1873) (comparing bank credit available in France and Scotland). The author is a French Member of a Prestigious Academy; whose views on available credit in France even in 1873, revealed a continuous condemnation of usury, and a pejorative assessment of France’s credit system or lack of it, particularly in the countryside. “[M]ortgage is all that exists in lieu of the cash credit; and rude barter still keeps at a distance monetary and civilized exchange.” Id. at 83.
28 See generally Jean-Laurent Rosenthal, The Fruits of the Revolution: Property Rights, Litigation, and French Agriculture 1700–1860 (1992). See also World History at KMLA, France 1870–1890: The Economy, http://www.zum.de/whkmla/region/france/france18701890ec.html (revealing statistics on the French economy from 1870–1890, which shows an increase in the French railway net from 15,544 km in 1870 to 33,280 km in 1890; it also includes a table of French governmental revenues and expenditures during the same period of time).
29 Hautcoeur & Levratto, supra note 21, at 6.
30 Id. at 6–7 (citations omitted).
31 See infra chs. 11–12.
32 See supra § 10:1(A).
33 See supra § 8:8.
34 Id.
35 Id.
36 C. Com. (Fr.) art. 1 (1807).
37 C. Com. (Fr.) art. L721–3 (2008). Unless otherwise indicated, all the English translations of the Code de Commerce provisions belong to Legifrance (see Frequently Cited). This article stated that commercial courts shall take cognizance “of those disputes related to acts of commerce among all persons” (“3° de celles relatives aux actes de commerce entre toutes personnes”).
38 See The Commercial Code of France, with the Motives, or Discourses of the Counsellors of State, Delivered before the Legislative Body, Illustrative of the Principles and Provisions of the Code (John Rodman trans., 1814). This was the closest text to the original version of Article 632 of the Code de Commerce that I was able to find in law libraries in the United States. I am very grateful to Mary Johns, Electronic Services Librarian of the Paul M. Herbert Law Center, Louisiana State University for locating this text and double-checking its contents with me.
39 C. Com. (Fr.) art. 632 (1807).
40 Id. art. 633.
41 In contrast, see § 6:2(F) for Braudel’s description of the various types of merchants doing business in France in the 17th and 18th centuries.
42 See supra § 10:1(A).
43 This method of interpretation was not peculiar to France. As will be discussed in Chapter 13, similar tendencies could be found among leading nineteenth and early twentieth century German and Italian commercial law professors such as Heinrich Thöl and Alfredo Rocco. The latter was quite emphatic about the “positivistic” nature of his exegesis. See Alfredo Rocco, Principios de Derecho Mercantil, Parte General 101 (Revista de Derecho Privado trans., Editora Nacional undated) (1931). In the summary of each of the chapter’s headings Professor Rocco states:
26. Civil Law is not a source of Commercial Law (El Derecho civil no es fuente del Derecho mercantil).
27. Commercial Law is the only Source (La “ley mercantil” es la única fuente). Neither are [sources of commercial law] case law, equity, the nature of things, general principles of the law nor foreign law (No lo son la jurisprudencia, la equidad, la naturaleza de los hechos y principios generales del Derecho, ni las leyes extranjeras).
Id. (author’s translation).
44 Ripert, at 155 (author’s translation).
45 See infra § 11:4.
46 Cour de cassation [Cass.] [supreme court for judicial matters] civ., Apr. 30, 1931, D. 1931, 314, cited in Ripert, supra note 24, at 155.
47 Carlos C. Malagarriga, I Tratado Elemental de Derecho Comercial (1963). The author describes how he wrote this treatise and quotes one of its reviewers who compared it favorably to the most erudite publications in foreign lands. Id. at IX.
48 Id. at 3 (citing to an otherwise unidentified German author whom he refers to as Hech).
49 Id. at 3 n.13 (citing to Emilio Langle, another Spanish author).
50 Id. at 3 n.14.
51 See infra § 27:4(B) (on the remedy of excessive onerousness and for a discussion on the influence of the Italian Civil Code upon the Honduran Commercial Code and other Latin American codes).
52 Malagarriga, supra note 47, at 3.
53 Id.
54 Id. at 5 (citing to Tulio Ascarelli, Panorama del Derecho Comercial 4–5 (1949)). I have added to Malagarriga’s reference to the “intermediation” definition, because this was the definition that I was taught as a commercial law student as providing the truest of essences.
55 Id. (author’s translation)
56 Ripert, at 155.
57 Id.
58 Abram Kozolchyk, this author’s father (circa 1956).
59 Roberto Goldschmidt, Curso de Derecho Mercantil, Parte General 32 n.1 (1964).
60 See supra § 10:1(A).
61 Cour de Cassation [Cass.] civ., May 8, 1907, D.P. I 1911, 222 (Fr.).
62 C. Com. (Fr.) art. 631 (Dalloz 1992–93).
63 Id.
64 Ripert, at 155 (author’s translation).
65 Id. at 155–56.
66 Boris Kozolchyk & Octavio Torrealba, II Curso de Derecho Mercantil: Texto y Material de Estudio 139 (1971).
67 Cod. Com.(Mex.) art. 4 (1889).
68 Id. art. 75.
69 Id. art. 1049.
70 Id. art. 1050.
71 HGB (Goren, 1998), at § 3 (1).
72 Mexican C.C.F. art. 17 (1932). The current version reads as follows:
When someone, exploiting the extreme ignorance, notorious inexperience or extreme misery of the other, obtains an excessive profit which is evidently disproportionate to what he is obligated to perform, the aggrieved party has the right to elect between requesting the annulment of the contract or the equitable reduction of his obligation, in addition to compensation for the damages suffered.
Mexican C.C.F. art. 17 (2008).
73 Cod. Com.(Mex.) art. 385 (1889). This provision remains unchanged in the Federal Commercial Code currently in effect in Mexico. For a survey of the remedies available for breach of contracts, see chs. 25–30.
74 Up until the enactment of the Federal Consumer Protection Law in Mexico (L.F.P.C.), Article 385 of the Mexican Federal Commercial Code precluded the application of lesion found under Article 17 of the Mexican Civil Code on “subjective lesion,” where the sale was commercial for one of the parties. Consequently, the protection of Article 17 of the Mexican Civil Code was unavailable to consumer purchasers, or to “the weaker party when it is most needed, i.e., when he deals with an expert.” Kozolchyk, Fairness, at 228 n.40 (citation omitted).
75 L.F.P.C. (Mex.) art. 10.
76 Cod. Com.(Mex.) art. 1050 (1889).
77 See supra § 10:2(B)(4).
78 E-mail from Lic. Eduardo Estrella Acedo, practicing trial lawyer and notary public, Obregon, Sonora, Mexico to Dr. Boris Kozolchyk, Executive Director of NLCIFT (July 18, 2008) (author’s translation) (on file with author).
79 Mex. Const. art. 73 (1917).
80 See Roberto L. Mantilla Molina, Derecho Mercantil 74–77 (9th ed. 1966).
81 E-mail from Lic. Eduardo Estrella Acedo, supra note 78.
82 Cod. Com.(Mex.) art. 1050 (2008).
83 Organization of American States, Inter-American Convention on the Law Applicable to International Contracts, Mar. 17, 1994, O.A.S.T.S. No. 78, 33 I.L.M. 732, available at http://www.oas.org/juridico/English/treaties/b-56.html [hereinafter Inter-American Convention]. See also Boris Kozolchyk, The UNIDROIT Principles as a Model for the Unification of the Best Contractual Practices in the Americas 46 Am. J. Comp. L. 151, 175 (1998) (citing to the transcript of the OAS CIDIP-V Meeting of Experts from November 11–14, 1993).
84 On the determination of applicable law, Article 7 states:
The contract shall be governed by the law chosen by the parties. The parties’ agreement on this selection must be express or, in the event that there is no express agreement, must be evident from the parties’ behavior and from the clauses of the contract, considered as a whole. Said selection may relate to the entire contract or to a part of same.
Selection of a certain forum by the parties does not necessarily entail selection of the applicable law. Inter-American Convention art. 7.
85 Id. art. 10. The article provides as follows:
In addition to the provisions in the foregoing articles, the guidelines, customs, and principles of international commercial law as well as commercial usage and practices generally accepted shall apply in order to discharge the requirements of justice and equity in the particular case.
Id.
86 See, e.g., Mexican C.C.F. arts. 1832 & 1839 (1932). As will be discussed in Chapter 14, despite the broad formulation of these principles, certain formalities and causal elements are still required.
87 Leyes y Códigos de Mexico, Codigo Civil: para el Distrito Federal 7–8 (Editorial Porrúa, S.A., Mexico 1977) (on the “Motivos del Código Civil”) (this author’s translation).
88 See Kozolchyk, Closing Remarks, at 437.
89 See supra note 74 and accompanying text.
90 See C. Civ. (Fr.) art. 1674 (Barrister 1804).
91 Section 138 of the BGB states:
(1) A legal transaction which is contrary to public policy is void. (2) A legal transaction by which a person exploiting the need, inexperience, lack of sound judgment or substantial lack of will power of another, causes to be promised or granted to himself or to a third party in exchange for a performance, pecuniary advantages which are in obvious disproportion to the performance is also void.
See BGB § 138 (Goren, 1994).
92 NLCIFT, USAID Project: Mexico Trade Capacity Building Project—Enhancement of the Business and Legal Environment and Trade Capacity through Legal Reform and Improvements in the Administration of Justice by Commercial Courts in Mexico (2006–2012).
93 See Enhancement of Mexican Commercial Adjudication by Improved Transactional Fact-Finding, Application of Equitable Principles, and Drafting of Standard Contracts and Best Contractual Practices, 27 Ariz. J. Int’l & Comp. L. 325, 434 (2010). “Despite the admonition of Articles 278–279 of the Code of Civil Procedure of the D.F., judges have failed to participate in the development of a case’s evidence” (“desarollo de pruebas”). Id. (citation omitted)
94 See e.g., Consejo Coordinador Financiero, Ejecución de Contratos Mercantiles e Hipotecas en las entidades Federativas, Indicadores de Confiabilidad y Desarrollo Institucional Local 50 (Mar. 2007), available at http://www.abm.org.mx/temas_actualidad/LIBRO%20EJECUCION%20DE%20C131B51.pdf (Baja California, Evaluación de los Poderes Judicial, Ejecutivo y Legislativo, Poder Judicial: “Estructura y funcionamiento de los tribunales y servicios auxiliares, posición: 15 de 32, puntuación: 1.88.”) Id. The average for Baja California is 1.88, which is less than good, according to the indicator scale. Id. at 15.
95 C. Com. (Fr.) art. L110–1 (2008).
96 Id. art. L110–2.
97 See infra § 10:8.
98 C. Com. (Fr.) art. L110–3 (2008).
99 Id. art. L121–1.
100 Id. art. L121–2.
101 Id. art. L121–3.
102 Id. arts. L122–1, L122–2. For an explanation of the status of European Union nationals, especially the free movement of workers, see European Commission, Free Movement—EU Nationals, http://ec.europa.eu/social/main.jsp?catId=457&langId=en.
103 C. Com. (Fr.) art. L123–4 (2008).
104 Id. art. L123–12.
105 Id.
106 Id. art. L126–1.
107 Id. arts. L127–1—L127–7.
108 See infra § 10:4(B)(8).
109 C. Com. (Fr.) art. L131–1 (2008).
110 Id. art. L131–3.
111 Id. art. L131–5.
112 Contrast id. art. L132–9.
113 C. Com. (Fr.) art. L144–1 (2008).
114 Id. arts. L145–1—L145–60.
115 Id. art. L210–1.
116 Id. arts. L226–1—L226–14.
117 Id. arts. L227–1—L227–20. For an enlightening discussion on the legal transplantation of French as well as U.S. law to Latin American legislation, see Francisco Reyes, II Latin American Company Law 75–83, especially 79 n.284 and accompanying text (National Law Center for Inter-American Free Trade ed., 2013).
118 C. Com. (Fr.) arts. L310–1—L322–16 (2008).
119 Id. art. L310–1.
120 Id. arts. L410–1—L470–8.
121 Id. art. L410–2.
122 See Westlaw, [2004] ECRII-4463 (EU: Case T-201/04).
123 See infra § 10:4(B)(13).
124 See C. Com. (Fr.) arts. L511–1—L526–4 (2008).
125 Convention Providing a Uniform Law for Bills of Exchange and Promissory Notes, June 7, 1930, 143 L.N.T.S. 257, available at http://www.jus.uio.no/lm/bills.of.exchange.and.promissory.notes.convention. 1930/doc.html.
126 See Kozolchyk, III United States Law, at 22–19—22–21, § 16 (some of the main differences between the Geneva Convention and Article 3 of the U.C.C.).
127 See Ulrich Drobnig, Secured Credit in International Insolvency Proceedings, 33 Tex. Int’l L. J. 53, 58 (1998):
France is atypical because of the great number and diversity of relevant statutes on pledges. Specific French legislation exists for pledges in no fewer than ten types of assets: enterprises; automobiles; farm equipment and crops; industrial equipment; goods in warehouses; certain raw materials and industrial products; equipment and commercial furniture of hotels; petroleum stocks; films; and, the most recent addition to this catalog, the right to exploit software.
128 See U.C.C. §§ 9–201 & 9–203. See also Model Inter-American Law on Secured Transactions arts. 5, 10, 34 (2002), available at http://www.oas.org/dil/cidip-vi-securedtransactions_eng.htm; Ley de Garantias Mobiliarias [Law on Secured Transactions], Decreto No. 51–2007, Vol. CCLXXXIII Official Gazette, arts. 10, 15 (Nov. 16, 2007), available at http://natlaw.com/interam/gu/pp/st/stgubk00031.pdf.
129 See generally Kozolchyk & Wilson, The New Model Inter-American Law; Kozolchyk & Furnish, A Comparative Analysis.
130 See C. Com. (Fr.) art. L521–3 (2008).
131 C. Civ. (Fr.) art. 2329 (2008). Unless otherwise indicated, all the English translations of the Code Civil provisions belong to Legifrance (see Frequently Cited).
132 Id. art. 2324.
133 Id. art. 2331 (emphasis added).
134 Id. art. 2332 (emphasis added).
135 Id. art. 2333.
136 See generally Kozolchyk & Wilson, The New Model Inter-American Law; Kozolchyk & Furnish, A Comparative Analysis; see also NLCIFT, 12 Principles.
137 C. Civ. (Fr.) art. 2279 (Barrister 1804); see C. Civ. (Fr.) art. 2276 (2008) (the current language). See also Kozolchyk, Commercialization; Kozolchyk & Wilson, The New Model Inter-American Law; Kozolchyk & Furnish, A Comparative Analysis.
138 C. Civ. (Fr.) art. 2335 (2008).
139 Id. art. 2336.
140 Id. art. 2337.
141 See UNCITRAL, Legislative Guide on Secured Transactions (2010), available at http://www.uncitral.org/pdf/english/texts/security-lg/e/09–82670_Ebook-Guide_09–04–10English.pdf; Model Inter-American Law on Secured Transactions arts. 5, 10, 34 (2002), available at http://www.oas.org/dil/cidip-vi-securedtransactions_eng.htm; NLCIFT, 12 Principles.
142 C. Com. (Fr.) arts. L522–1—L522–40 (2008).
143 Id. arts. L523–1—L523–15.
144 Id. arts. L524–1—L524–21.
145 Id. arts. L525–1—L525–20.
146 Id. art. L526–1.
147 See generally Code des Assurances [C. assur.] (Fr.).
148 See § 8:9(C)(4).
149 See generally Kozolchyk, Commercialization.
150 Kozolchyk & Furnish, A Comparative Analysis, at 244 (describing the commercial and consumer credit pyramid that characterizes the credit systems of market economy nations since the late eighteenth century). Retailers, moneylenders and their consumer borrowers were at the base; wholesalers and their bankers and factors were found at the next ascending levels. Id. At the top of the pyramid was the Bank of England as lender or discounter of paper produced at the lower levels of the pyramid. Id. Unless the consumers at the base of the pyramid were protected in their purchases (as “bona fide purchasers” or “buyers in the ordinary course of business”), they would no longer purchase with confidence, and the streams of income flowing from the base of the pyramid to the top would suffer consequently. Id.
151 C. Com. (Fr.); C. Civ. (Fr.) (in French, English and Spanish).
152 The cases in this appendix have been translated and abridged by the author, Mariana Silveira, and Cristina Castaneda.
153 U.R.S.S.A.F. de Lyon c. Astruc, Cour de Cassation [Cass.] [supreme court for judicial matters] com., May 12, 1969, Bull. civ. IV, no. 159 (Fr.).
154 REQ. Feb. 4, 1925, Robert C. Duffau et autres (et al.), (D.H. 1925.138).
155 REQ. Dec. 11, 1944, Brunet C. Goutssard (D. 1945.213, opinion by Gabolde).
156 Case on Appeal No. 05–16219; Appeals No. G05–16.219 and J 05–16.220 before the Cour de Cassation, Commercial Chamber, Public Hearing held on November 20, 2007.
157 The provisions hereafter translated by the author appeared in their original form in C. Civ. (Fr.) (Dalloz 1969–70 & 1982–3) which, as best as I was able to ascertain, were still those applied by the court decisions transcribed and referred to in the principal text.
158 See Loi n 78–12 du 4 janvier 1978 [Law 78–12 of January 4, 1978] Journal Officiel de la Republique Française [J.O.] [Official Gazette of France], Jan. 5, 1978 (amending Code Civil art. 1792 and creating art. 1792–1).
159 Dame Montigaud C. Epoux Etchebarne, Cour de Cassation [Cass.] [supreme court for judicial matters] 1e civ., Feb. 19, 1968, D. 1968, 393 (Fr.), in Henri Capitant, Alex weill & Francois Terre, Les Grands Arrêts de la Jurisprudence Civile 664 (7th ed. 1976). The summary of the facts was done by the author.
160 Id. (emphasis added).
161 I hasten to add that some codes consider rights in movable property as movable things, and rights to immovable property as immovable.
162 Capitant et al., supra note 159, at 665–66.
163 Id. at 666.
164 Id. at 667 (citing to Cornu, obs. Rev. trim. dr. civ. 1968, at 558).
165 Id.
166 Id. at 668.
167 Id.
168 See supra § 10:8(E)(1)(a).
169 Id.
170 See supra § 10:8(E)(2).
171 See NLCIFT, 16 Novedades (No. 3, Sept. 2009).
172 The French Code Civil and Code de Commerce are available in their French language versions in the Dalloz collection of codes available in most United States comparative and foreign law library sections. In this chapter I use C. Civ. (Fr.) (Barrister 1804) as an English translation of the original Code Civil of 1804, as well as the English translation in C. Civ. (Fr.) (2008). The English translation of the Code de Commerce is from C. Com. (Fr.) (2008). The reader should be aware that the translations are not always accurate and are only available for informational purposes. In the case of the Mexican Federal Civil and Commercial Codes, the original versions, as well as their updated versions in Spanish, are available at http://www.diputados. gob.mx/LeyesBiblio/index.htm; they are also available in annotated versions through Ediciones Fiscales ISEF S.A., as Agenda Civil and Agenda Mercantil, respectively. There is an English translation of the Mexican Federal Civil Code (1932) and of the Federal Commercial Code by Abraham Eckstein and Enrique Zepeda: Mexican & Commercial Codes (Abraham Eckstein and Enrique Zepeda trans., 1995).
173 C. Civ. (Fr.) art. 1101 (2008) states: “A contract is an agreement by which one or several persons bind themselves, towards one or several others, to transfer, to do, or not to do something.” In turn, Article 1792 of the Mexican Federal Civil Code defines it as: “an agreement of two or more persons to create, transfer, modify or extinguish obligations.” This definition reflects the influence of the German concept of the “juristic act” (Rechtsgeschäft), see infra § 12:3(C). However, art. 1824 of the same Mexican Federal Civil Code reverts to the Code Civil’s definition and classification by stating: “The objects of contracts are: (I) the thing that the obligor must give, (II) the thing he must or must not do.”
174 See e.g., infra § 22:10(K), for a discussion on the Supreme Court decision on the appeal by María Trinidad Gómez, No. 1205/1954.
175 Id.
176 See infra § 28:2(B) for a shortened version of a typical escrow agreement in use in New York’s real estate transactions.
177 C. Civ. (Fr.) art. 1101 (2008) (emphasis added).
178 See C. Civ. (Fr.) arts. 1102–1106 (2008).
179 Id. art. 1106.
180 Id. arts. 1915–1963.
181 Id. arts. 1984–2010.
182 C. Com. (Fr.) art. L110–1 (2008).
183 Id. arts. L134–1—L134–4.