The oil warrant: operation of an old stock guarantee

By Yasmine EDDAM17 April 2025

Inventory financing is a major issue for many companies, particularly those handling large volumes of raw materials such as petroleum products. Historically, the need to mobilise the value of these assets to obtain credit, without having to physically move them, led to the creation of appropriate legal mechanisms. The oil warrant was one of these tools.

This was a form of non-possessory pledge, enabling companies holding stocks of crude oil or derivatives to pledge them as collateral for their loans, while keeping them in their own facilities. This system had the particularity of covering fungible, i.e. interchangeable, assets. Although this mechanism was repealed in 2021, an understanding of how it worked provides an interesting insight into the development of security interests in France. This parallel can also be drawn with the history and mechanisms of the hotel warrant, another missing safety feature. This article sets out to detail the workings of the oil warrant as it has existed in the past.

What was the oil warrant?

The oil warrant was therefore basically a pledge on stocks of crude oil, derivatives or residues, without the company that owned them (the borrower) having to physically dispose of them. It was used to secure a debt, usually a bank loan. What made it special was its object: assets that were fungible by nature. Unlike a traditional pledge on a single object, the warrant covered a certain quantity of a product defined by its quality, without the need to physically isolate this quantity from the rest of the stock held by the company.

Introduced by a law of 21 April 1932, its origins lie in the import regime for petroleum products introduced in the 1920s and 1930s. At the time, importing companies were obliged to build up large reserve stocks, a costly obligation. To enable them to finance these immobilised stocks, the legislator created this "home" warrant, avoiding the use of general shops which were not equipped for such volumes and types of products. The provisions of this law were later incorporated into the French Commercial Code, in articles L. 524-1 et seq.

Legally, the oil warrant was considered to be a commercial act by nature. Any dispute relating to its application therefore fell within the jurisdiction of the Commercial Court.

It is important to note that this system is no longer in force. Ordinance no. 2021-1192 of 15 September 2021 reforming the law on securities repealed the oil warrant system, deeming it to have fallen into disuse. To find out more about a stock warrant that is still in force, you can consult our practical guide to the general shop warrant. The explanations that follow therefore describe a law that is no longer applicable.

How was an oil warrant put together?

The introduction of an oil warrant was subject to specific conditions, both in terms of content and form.

Basic conditions

Initially reserved for holders of special import authorisations, access to the oil warrant was subsequently extended. Following the liberalisation of imports (in particular by the law of 31 December 1992), any "operator" holding stocks of crude oil, derivatives and residues could potentially make use of it, in accordance with the former article L. 524-1 of the French Commercial Code.

The warrant could therefore relate to these different types of petroleum products. It was drawn up for a specified quantity and quality, without it being necessary to physically separate the warranted products from the other similar products held by the borrower. The same stock could even be the subject of several successive warrants, in favour of the same creditor or different creditors. For a technical analysis of inventory security that is still relevant today, please see our article on general shop warrant: definition, creation and essential information.

Although the law was primarily aimed at guaranteeing loans, legal writers considered that an oil warrant could also guarantee other types of contractual debt, such as payment of the price of a purchase on credit.

Form and publication requirements

The warrant was drawn up by the clerk of the commercial court in whose jurisdiction the stocks to be warranted were located. On the basis of the borrower's declarations, the clerk drew up the document. This document had to state :

The nature, quality, quantity and value of the products pledged.
Their precise location.
Whether or not you have insurance (with the name and address of the insurer, if applicable).
The amount of the guaranteed debt.
Any special conditions agreed between the parties.
The names, occupations and residences of the parties.

The warrant had to be signed by the borrower (the debtor). It was valid for three years, but could be renewed.

To ensure that third parties were informed and that the guarantee was enforceable, the court clerk had to transcribe the warrant into a special register held at the court registry. This transcription was mentioned on the warrant itself, along with any pre-existing warrants on the same stocks. It was this publicity that gave the pledge a certain date and made it effective vis-à-vis other creditors or potential purchasers of the stock.

Anyone could ask the registry for a list of warrants registered in the name of a borrower (for less than five years) or for a certificate attesting to the absence of registration. The registration remained active for three years, but was automatically struck off after five years if it had not been renewed before the expiry of the initial three-year period. Renewal within the time limit extended the effects for a further three years. In the event of repayment of the debt or agreement between the parties (discharge), the entry was cancelled and entered in the register.

Penalties for irregularities

Failure to comply with the rules of constitution led to sanctions.

A false declaration by the borrower or the creation of a warrant on products already warranted without informing the new lender exposed the borrower to criminal prosecution for fraud (on the basis of article 313-1 of the Criminal Code).
A warrant covering non-eligible assets (other than crude oil, derivatives or residues) did not have the value of an oil warrant. It could be used as a promissory note or simple acknowledgement of debt if it met the conditions.
The absence of a signature or the omission of information essential for identifying the products pledged also rendered the document ineffective as a warrant.
The omission of information relating to insurance could render the signatory or the clerk liable if this caused prejudice to the bearer (for example, the impossibility of asserting his rights to the insurance indemnity).
Lastly, and this is an important point, failure to make a transcription at the registry office rendered the lien of the pledgee unenforceable against third parties. The transcription was seen as the act conferring "fictitious possession" on the creditor.

Passing on the oil warrant

Like a commercial paper, the oil warrant was designed to circulate. Former Article L. 524-8 of the French Commercial Code provided that it was "transferable by endorsement". The presence of a clause "to order" was therefore not necessary to enable it to be transferred. On the other hand, a statement by the debtor that it was "not to order" would have limited its transfer to the form of an assignment of a civil claim (article 1690 of the Civil Code).

The endorsement had to comply with a certain formality: it had to be dated, signed and state the names, professions and residences of the endorser (the person transferring) and the endorsee (the person receiving). In this case, the law departed from the traditional law of exchange by prohibiting 'blank' endorsements (simple signature of the endorser without naming the beneficiary). This requirement was linked to another formality.

Indeed, any purchaser of the warrant by endorsement (discounter) was obliged to notify the clerk of the commercial court of this transfer within eight days, by registered letter or verbal declaration against receipt. The aim was to enable the original borrower to know at any time the current holder of the warrant, in particular to be able to exercise his option of early repayment. Failure to give this notice could render the negligent endorsee liable if the borrower suffered prejudice as a result.

However, the borrower could, by making a special note on the warrant, exempt successive endorsers from this obligation to notify the registry. In this case, as we shall see, the borrower lost a financial advantage in the event of early repayment, but retained the option of doing so.

What were the legal effects of this endorsement? Primarily, it provided a joint and several guarantee from all successive endorsers to the final bearer. If the borrower failed to pay on the due date, the bearer could take action against any of the previous signatories. In addition, as a commercial instrument, the oil warrant benefited from the principle of the unenforceability of defences: a bearer acting in good faith did not have to suffer any disputes that the borrower might have had against a previous bearer (for example, over the cause of the initial debt). To facilitate its financing, the law also provided that certain credit institutions could accept warrants with a single endorsement signature instead of the two usually required by their articles of association.

What were the rights and obligations of the parties?

The oil warrant created a set of rights and obligations both for the borrower, who kept the stocks, and for the holder of the security, who held the guarantee.

The borrower's rights and obligations

The borrower's first obligation was to conservation of warranted products. He remained their custodian and was responsible for maintaining their quantity and quality, without being able to claim compensation for this custody from the warrant holder.

In the event of the disappearance or significant reduction of the pledged stock, the holder could give the borrower formal notice, by registered letter, either to reconstitute the collateral within 48 hours, or to repay immediately all or part of the sum due. In the absence of a satisfactory response, the holder could demand repayment in full of the debt, which would be considered immediately due and payable. In this case, the borrower had to pay the full amount of interest due up to the initial due date, even if he repaid earlier, as a penalty. The misappropriation or deliberate deterioration of warranted products exposed the borrower to prosecution for breach of trust (article 314-1 of the Criminal Code). However, the mere sale of the products did not in itself constitute misappropriation.

The borrower retained the right to sell the warranted productseven before maturity and without the agreement of the bearer. This provided considerable flexibility for managing stocks. However, and this was the essential consideration for the creditor, the actual delivery of the products sold to the buyer could only take place once the warrant holder had been paid in full (discharged), as specified in the former article L. 524-6 of the French Commercial Code.

Finally, the borrower benefited from a right to early repayment. He could decide to repay his debt before the due date specified on the warrant. If the bearer refused this early payment, the borrower could free himself by depositing the sum with the Caisse des dépôts et consignations, in accordance with the procedure set out in the Code of Civil Procedure (formerly articles 1426 to 1429). The offer had to be made to the last known bearer by means of the endorsement notices given to the registry. Once the deposit had been made, the President of the Commercial Court could order the transfer of the pledge on the sum deposited. The advantage for the borrower was that in the event of early repayment (unless he had exempted the endorsers from notifying the registry), he paid only the interest accrued up to the date of actual repayment, plus a flat-rate period of ten days. He therefore saved the remaining interest up to the original due date.

Rights and protection of the holder

The warrant holder benefited from a number of protections to secure his claim.

Firstly, it was protected from depreciation of warranted products. As oil prices can fluctuate sharply, if the value of the pledged stocks fell by 10% or more compared with their initial value, the holder could require the borrower, by registered letter, either to increase the pledge (by adding other products or another guarantee), or to repay part of the sum loaned in proportion to the fall in value. If the borrower opted for partial repayment, he or she would benefit from a reduction in future interest (as with a conventional early repayment). If the borrower failed to comply within eight days of formal notice, the holder could demand immediate repayment in full.

Secondly, the holder had rights over theinsurance covering the products. If a loss occurred (fire, etc.), his rights (lien) were automatically transferred to the indemnity paid by the insurer. Although insurance was not compulsory (unlike for goods in general shops), if the borrower had insured the stocks, the bearer benefited from it. If the insurance ceased, the bearer even had the option of continuing it at his own expense (unless otherwise agreed) until his claim was paid.

At maturity, if the borrower did not pay voluntarily, the holder had to claim the paymentthen reiterate the request by registered letter with acknowledgement of receipt. If no payment was made within five days of this letter being sent, the bearer had to report the non-payment within fifteen days of the due date in order to retain his rights of recourse against the endorsers. This notification was made by means of a special notice given to the clerk of the court, who forwarded it to each endorser. This procedure replaced the protest, a more cumbersome formality under the law of exchange.

In the event of default, the holder had the right to choice of enforcement methods. He could either seek to sell the collateral (the oil stocks) or take direct action against the borrower or the endorsers under their joint and several guarantee. If he chose to start by selling the collateral, the law stipulated that he had to complete this procedure before taking action against the guarantors. This suggests that he could also choose to take action against the guarantors first.

If he opted for realisation of the pledgeIf the registered letter remained unanswered, the bearer could, fifteen days after the registered letter, arrange for the public sale of the goods. This sale required an order from the President of the Commercial Court, obtained on application, setting out the terms and conditions (day, time, place, advertising). A minimum of publicity (posting 8 days in advance) was required, which could be supplemented or replaced by announcements in the press or by trumpet call with the authorisation of the president. Borrowers and endorsers had to be notified 8 days in advance. It was also possible, if the borrower had consented by a special note on the warrant, for the sale to take place out of court, but always with judicial authorisation. Finally, the bearer could also apply to the courts for theassignment of the pledge in payment, i.e. to become the owner of the quantity of oil warranted, on the basis of an expert valuation (in accordance with article 2347 of the Civil Code).

A right of retention was generally granted to the warrant holder. Although he did not have physical possession of the stocks, publication at the registry created "fictitious possession" in his favour. In theory, this right enabled him to oppose delivery of the products to a buyer until he had been paid. Article 2286, 4° of the Civil Code now enshrines this type of retention for registered non-possessory pledges. Its practical effectiveness, particularly in the event of insolvency proceedings, was debated in the past but seemed to be accepted.

The wearer also benefited from a preferential right on the sale price of the warranted products (former article L. 524-13 C. com.). He had to be paid before the borrower's other creditors. However, this right was not absolute. It took precedence over the legal costs incurred in the sale, the "super lien" on wages and the costs incurred in preserving the products after the warrant had been issued. Its precedence over the lien of the public treasury (fisc) or that of the lessor of the premises where the products were stored was debated in legal doctrine.

As for a possible resale rightThe existence of this right for the oil warrant was highly controversial. The fungible nature of the goods (an undifferentiated quantity of oil) made it difficult to exercise such a right. If it had been accepted, it would in any event have been limited by the rule that "in the case of movable property, possession is equivalent to title" (article 2276 of the Civil Code), which protects purchasers acting in good faith.

The oil warrant and insolvency proceedings

What happens to the warrant if the borrowing company goes into receivership?

In the event of the initiation of safeguard or legal redressIn this case, the principle of the individual stay of proceedings applied. The warrant holder could no longer claim payment or initiate a forced sale of the stock. In addition, the warrant holder's right of retention (even if fictitious) was rendered unenforceable during the observation period and the possible implementation of a plan, except in the specific case of the sale of a business including the pledged asset (application of article L. 622-7 of the French Commercial Code).

If a continuation plan was adopted, the holder was subject to the payment deadlines imposed by the plan. However, if the company needed to dispose of the stock under warranty for its business, it could be required to pay the holder earlier than provided for in the plan in order to obtain the release of the pledge. If payment was made only on the due dates stipulated in the plan, the bearer would have priority over claims arising after the opening judgment and over salaries.
If a disposal plan was decided, the warranted stock could be included in the sale. In this case, the burden of the warrant (the guarantee) was transferred to the buyer, who had to pay for it in order to release the asset. If the stock was not included in the sale, it had to be sold separately.

In the event of compulsory liquidationThe holder's situation was slightly more favourable. His right of retention was once again fully enforceable. If the liquidator decided to sell the stock, the holder's right of retention was transferred to the sale price, giving him priority (after payment of priority claims such as salaries or certain legal costs). If the holder took the initiative to sell (or obtained judicial allocation), his right of retention gave him priority even over claims arising during the proceedings after the opening judgment (application of article L. 622-17, II of the French Commercial Code). He could also always request judicial allocation of the pledge.

Although the oil warrant is a thing of the past, the issues surrounding stock guarantees are still relevant today. If you have any questions about personal property security or the financing of your business, our firm can provide you with the advice you need. advice on commercial law. Contact us to discuss your situation.