Act no. 2011-850 of 20 July 2011 has radically transformed the system for auctions of new goods in France. Previously severely restricted, these sales are now authorised subject to conditions. This change marks the end of a centuries-old principle enshrined in the law of 25 June 1841, which prohibited "making public auctions a customary procedure in the exercise of one's trade".
The legal framework for these sales is governed by precise rules. Failure to comply can have serious consequences for both the seller and the auctioneer.
1. Liberalisation of sales of new goods
Article L.321-1 of the French Commercial Code now stipulates that "the voluntary sales of furniture by public auction may relate to new or second-hand goods". This opening is accompanied by a legal definition of goods considered to be "second-hand": those which "at any stage of production or distribution, have come into the possession of a person for his or her own use, by the effect of any act for valuable consideration or free of charge, or have undergone alterations which do not allow them to be offered for sale as new".
Case law had already clarified this concept. A ruling by the Criminal Division of the Court of Cassation on 10 July 1990 (no. 89-86.619) considered as new "goods that have never been in the possession of a consumer", regardless of their condition (out of fashion, faded or even with manufacturing defects).
A fundamental distinction is made between retail and wholesale sales. The latter concern "batches large enough not to be considered as within the reach of the consumer".
2. Public auctions of wholesale goods
Legal definition of wholesale
Before the 2011 reform, case law had to define the concept of wholesale. In a ruling dated 17 January 1939, the Court of Cassation defined wholesale as sales of "lots which cannot be considered as being within the reach of the consumer".
The legislator has enshrined this approach in Article L.321-1 of the French Commercial Code, which states that wholesaling concerns "lots large enough not to be considered as within the reach of the consumer". This criterion is left to the discretion of the lower courts.
One important restriction remains: wholesale sales may only involve "new goods from a company's stock".
Voluntary sales: conditions and procedure
Since 2011, the monopoly of sworn merchandise brokers for voluntary wholesale sales has disappeared. These sales are now governed by the ordinary law governing voluntary sales of furniture by public auction.
Article L.321-2 of the French Commercial Code stipulates that these sales must be organised by registered voluntary sales operators. There is just one restriction: voluntary wholesale sales of arms and ammunition require the prior authorisation of the Commercial Court (article L.322-8 of the Commercial Code).
The procedure complies with the standard rules for voluntary sales. It requires :
- The operator's declaration to the Conseil des ventes volontaires (Voluntary Sales Council)
- Drawing up a written mandate between the vendor and the operator
- Advertising the sale
- Drawing up minutes
Article 871 of the General Tax Code states that these sales may only be carried out by authorised persons: "furniture, effects, merchandise, wood, fruit, harvests and all other movable objects may only be sold publicly and by auction in the presence of and through the ministry of public officials [...] or declared operators of voluntary sales of furniture by public auction".
Judicial sales: scope and rules
Judicial wholesale sales mainly concern :
- Sales after judicial liquidation (articles L.322-2 and L.642-19 of the French Commercial Code)
- Sales after death or cessation of business (article L.322-14)
- Sales of seized goods (article L.131-29)
A monopoly remains for sworn merchandise brokers. Article L.322-4 of the French Commercial Code states that "public auctions of wholesale merchandise carried out in application of the law or ordered by a court decision are entrusted to a sworn merchandise broker".
The remuneration of these professionals is fixed. According to article L.131-31 of the Code, "in the case of judicial or forced public auction sales, the remuneration of sworn merchandise brokers is set by applying the tariff of judicial auctioneers".
3. Public auctions of retail goods
Forced judicial sales
Forced judicial sales concern goods sold after death or by judicial authority. Article L.322-1 of the French Commercial Code states that they "are carried out according to the prescribed forms and by the ministerial officers responsible for the forced sale of furniture".
These sales are the responsibility of judicial auctioneers, notaries or bailiffs. Sworn merchandise brokers are excluded.
The procedure is governed by the common law rules for forced sales of movable property set out in the Code des procédures civiles d'exécution (Code of Civil Enforcement Procedures). In particular, the authorised agent must stop the sale as soon as the price reached covers the claims of the distrainors and opposing parties (article L.221-4 of the CPCE).
Voluntary judicial sales
These sales concern cases of cessation of business or other situations requiring the authorisation of the Commercial Court. They are governed by article L.322-3 of the French Commercial Code.
The court must state the situation justifying the sale in its judgement. It may also order the sale in lots, the size of which it determines. It appoints the official responsible for the sale.
There is a territorial restriction: authorisation may only be granted to a "sedentary trader who has had his real domicile for at least one year in the district where the sale is to take place" (article L.322-3, paragraph 4).
Publicity measures are compulsory: posters mentioning the authorisation ruling must be displayed at the door of the place of sale.
4. Penalties for non-compliance with legal formalities
Civil penalties
Article L.322-5 of the French Commercial Code provides for damages for any breach of the rules governing such sales. Case law has specified that the competent ministerial officer may claim compensation from the person who improperly carried out the sale in his place.
In some cases, the sale may be annulled. The Court of Cassation has ruled that a sale made by an incompetent person may be annulled for failure to comply with a rule of public policy (Civ. 1re, 27 February 1996, no. 93-16.368).
Criminal penalties
Article L.322-5 of the French Commercial Code provides for the confiscation of the goods and a fine of €3,750, to be imposed jointly and severally on the seller and the public official or broker who assisted him.
Article L.322-6 extends these penalties to the sale of new goods that do not form part of the business or of the furniture offered for sale at judicial sales.
Disciplinary sanctions
Sworn brokers are subject to disciplinary sanctions. Article L.131-32 of the French Commercial Code states that "any breach of the laws and regulations relating to his profession or his duties as a sworn broker and any breach of probity or honour" exposes the broker to prosecution.
Penalties range from a warning to disbarment with permanent loss of the right to be sworn in again. Prosecutions are brought by the public prosecutor before the criminal court.
5. Special features of auctions of new goods
- The obligation to provide information: when new goods are offered for sale by the trader or craftsman who produced them, this must be mentioned in the documents and advertisements announcing the sale (article L.321-1 of the French Commercial Code).
- La re-bidding procedure (irresponsible bidding) In the event of non-payment by the winning bidder, this procedure allows a new auction to be held. The defaulting buyer is required to pay the difference between his bid and the resale price, if the latter is lower.
- No guarantee against hidden defects: in judicial sales, article 1649 of the French Civil Code expressly excludes this guarantee.
- Challenging sales: disputes relating to voluntary wholesale sales of goods are brought before the commercial courts (article L.321-37 of the French Commercial Code).
A precise knowledge of these regulations is essential for all businesses wishing to organise or take part in an auction of new goods. Failure to comply with the legal requirements can result in serious penalties. A specialised legal support can avoid these pitfalls and make operations more secure.
Are you planning to organise or take part in an auction of new goods? Contact us for a detailed analysis of your situation.
Sources
- Commercial Code, articles L.321-1, L.321-2, L.321-37, L.322-2, L.322-3, L.322-4, L.322-5, L.322-6, L.322-8, L.322-14, L.131-29, L.131-31, L.131-32
- General Tax Code, article 871
- Code of civil enforcement procedures, article L.221-4
- Civil Code, article 1649
- Law no. 2011-850 of 20 July 2011 on the liberalisation of voluntary sales of furniture by public auction
- Case law: Cass. crim. 10 July 1990, no. 89-86.619; Cass. req. 17 January 1939; Cass. civ. 1re, 27 February 1996, no. 93-16.368
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