Beware of appearance

Tue 24 March 2020, Philippe Ropenga Estate management

French ownership rules (1) should not dissuade the practitioner from checking powers (2).

1 Ownership

Ownership is extremely simple in a succession context: an undivided estate (1.1) is owned by several heirs (1.2).

1.1 An undivided estate

In French law, any heir entitled to an estate is entitled to the estate as a whole. It makes things very simple in theory since the undivided estate is owned by each heir until they agree on a liquidation plan and receive their share. This temporary regime is called indivision It has been seen in a previous post¹ that French law followed an owner-centric approach to answer the following questions:

• Who does what?
• Who can deal with the property?
• To what extend are the stakeholders liable?

Legal title gives powers to manage property. It is very simple to use once each heir has received its own share because he is entitled to manage his property without having to discuss his options with anyone. What happens during the indivision phase when several heirs have concurrent ownership rights? A case decided by the French Cour de cassation, i.e., the supreme court that deals with civil, commercial, and criminal cases reminds the practitioner not to rely too heavily on the legal title.

Article 815-3 of the French civil code in its Legifrance translation provides that:

The co-owner or co-owners in indivision holding at least two-thirds of the undivided rights may, by this two-thirds majority:

1° Carry out acts of administration relating to the undivided assets.;
2° Give a general mandate of administration to one or more of the co-owners in indivision or to a third party.;
3° Sell the undivided movables in order to pay the debts and charges of the indivision;
4° Conclude or renew leases other than those concerning immovables with respect to uses that are agricultural, commercial, industrial, or craft-based.

They are bound to inform the other co-owners of such acts. If they do not, decisions made may not be opposed to the other co-owners. Nevertheless, consent of all of the co-owners in indivision is required to carry out every act that does not arise out of the normal handling of the undivided assets and to carry out all acts of alienation other than those addressed in 3° above.

An administrator has been appointed by a court to administrate an estate and has renewed farming leases without the informed consent of co-owners who held two-third of the rights to the land. Concluding these leases requires a special authorization in case of indivision since they are long-term leases that protect the tenant.² An heir claimed that the tenant could not rely on the leases and argued that the Court of Appeal wrongly judged that the fact that a court-appointed administrator had concluded the leases with the assistance of a notary could have led the tenant to legitimately believe that the executor had been authorised by the heirs to conclude the leases on their behalf. The Cour de cassation applied the well-known appearance theory and dismissed the claim. It has noted that an entity related to the French ministry of Agriculture and to that of Economy and Finances had announced that it was looking for people to run the farm, that the tenant had answered to the public offer, and that the leases mentioned the court-appointed executor, and that the notary had attached the court decision appointing the executor. It decided that these factual circumstances could lead the tenant to legitimately believe that the court-appointed executor had the power to conclude the leases on behalf of the co-owners. The tenant could thus oppose his rights as tenant to the heirs although the court-appointed executor had exceeded his general power to administrate the property. This case illustrates once again³ the fact that the Cour de cassation closely examines facts to decide whether the Court of Appeal has correctly applied a given legal provision to factual circumstances.

Let us now see how a practitioner can approach French ownership to avoid the issues described above.

1.2 Several heirs

The intervention of a court to appoint an executor, that of a well-known French entity (a SAFER) that specialises in land allocation and land structuring, and that of a notary who has a monopoly over formalities that affect the land register can legitimately give the impression that all requirements regarding the leases have been met. French succession law can seem complex to a practitioner who has been educated primarily in a jurisdiction of common law. He may think that French heirship rules tend to complicate a situation since one has to take them into account and balance them with the principle of testamentary freedom.⁴ Furthermore, some heirs are forced heirs while others are not. Forced heirship has lost much of its strength in French private international law although it remains an important principle.⁵ One has also in practice not to forget that a surviving spouse may claim specific rights such as a pension paid from the estate⁶, and that some very common assets such as a life insurance policy⁷ are not part of the deceased's estate! One may thus understand that all these tightly intricate rules may cause a practitioner to fall into the pitfall that has been noticed by the Cour de cassation in the case that is being analysed. When several heirs are involved in a succession dispute, legal title is closely linked to management issues that arise when someone thinks that his interest has been overlooked by others. Hence, it is interesting to combine legal title with stakeholder's interest.⁸ An Anglo-Saxon practitioner probably follows such an approach with greater ease than his counterpart with a civil-law background.⁹

It has been seen that indivision might not match the legal title, especially when the succession involved a plurality of heirs. Co-owners in indivision often disagree about something done by one of them. Hence, powers are very important in practice.

2 Powers

The appearance theory shows that belief is strong (2.1) while reality may be shaded (2.2) in practice.

2.1 Strong belief

Appearance theory has not been codified until recently but has been applied by courts. A person may argue that even if he has concluded a contract with a person who did not have the power to enter into it, facts support his legitimate belief in the power of the apparent agent. Technically speaking, the contract is not valid, but the apparent principal cannot argue that the apparent agent did not have the power to enter to the contract. Hence, if the legitimate belief is established, the apparent principal is obliged to a person who signed the contract with the apparent principal. The case has been decided by relying on law as it was before the recent codification of appearance theory. The Cour de cassation has relied on article 1998 of the French civil code that is still in force and deals with agency. Its Legifrance translation provides that The principal is bound to perform the obligations contracted by the mandatary, in accordance with the authority granted to him.

He is bound for what his mandatary may have done beyond his authority, only when he has expressly or tacitly ratified it.

As one can see, even when there is a praetorian creation, it has to be based on black-letter law. It makes sense to rely on this provision that deals with power or authority to claim that the tenant might have legitimately believed that the executor was acting within his authority.

The reform of French law of obligations by the Ordinance No 2016-131 of 10 February 2016 has codified appearance theory giving it an autonomous base that is not necessarily related to agency or ownership, for example. You may wonder why I have mentioned powers instead of authority. This is an excellent question that leads to a very interesting theoretical debate regarding the legal base of the right to act for someone else. The text of the new article 1156 of the French civil code considers agency with some distance and still deals with representation.¹⁰ When one acts for another person, does one represent the latter? A similar question is relevant in trust law. I have a power to distribute. Does it mean that I have a duty to distribute? I am sure that you know how to answer this question and you also know that the impact of powers largely depends on legal context. The word "powers" is a generic word in this post that refers to the ability to do something for someone else. After all, the three questions mentioned in §1.1 may arise notwithstanding the legal context, be it a trust, an inter vivos gift, or a company. This case is interesting since the legal context, i.e, the tenant's belief shaded the invalidity of the leases. There are not valid, but the tenant can rely on them. A legitimate belief in a power is stronger than the power itself!

A practitioner is not an idealist: he works in the real world. A situation that perfectly matches textbooks is often too bright to be real.

2.2 Shaded situation

The theory of appearance teaches us that reality is not a formal matter. Formal requirements have been met in this case, and there was no doubt that the executor had concluded the leases beyond his authority. The tenant won by proving that an appearance of power existed even if this legitimate belief was erroneous. The weakness of reality is no surprise to the trust practitioner since family relationships are a fertile ground that allows ambiguity to grow if one does not pay enough attention to his legal situation. Legal situation does not always perfectly overlap legal structure, and a trust practitioner may perceive the likeliness of a resulting trust by looking at a relationship from a different perspective than his client.¹¹ Paying attention to appearances is necessary to take the legal context of a given matter into account. It also gives more room to accommodate foreign legal issues in a cross-border context.¹² Let us take appearances for what they are: a shade that dims a situation.

It has been seen that a party's belief was not necessarily misleading and had to be taken into account.

In brief, a practitioner has to determine where appearance leads him to appreciate the use of power in a given matter.

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