Suspensive Condition of Loan: When Applying in the Name of a Company in Formation Causes the Sale to Fail

Imagine: you own a building plot in Plan-de-Cuques, near Marseille. You sign a promise of sale with purchasers, subject to the suspensive condition of obtaining a loan. Months pass, the notary tells you the condition is not fulfilled: the purchasers have not obtained their loan. Except that, upon closer inspection, the loan application was made in the name of a civil real estate company (SCI) in the process of being formed, and not by the purchasers themselves. Who bears the failure of the sale? This question, which seems technical, has very concrete consequences for all real estate professionals, as we shall see.

The question every seller-owner asks: if the purchaser does not take the necessary steps to obtain their loan, can they withdraw without consequence? Conversely, can a purchaser who has done everything correctly be forced to buy if the bank refuses? The answer depends on how the suspensive condition (a clause that suspends the sale until the occurrence of an event, here the obtaining of the loan) was performed.

The decision of the Court of Cassation of 27 February 2013 (No. 12-13.796) provides a clear answer: if the purchaser made the loan application in the name of an SCI in formation, and not in his own name, he did not comply with the terms of the deed. The condition is then deemed fulfilled, meaning the purchaser is obliged to buy, even without a loan. A radical solution, but logical in light of the law of obligations.

The Facts: A Story Like Those That Happen Every Day

Mr. and Mrs. X, a couple residing in Cassis, wish to acquire a building plot in Plan-de-Cuques to build their family home. They sign a promise of sale subject to the suspensive condition of obtaining a loan of €200,000 over 20 years at a rate of 3.5%. The preliminary contract provides that the purchasers must justify at least one loan offer conforming to the stipulated characteristics. However, for tax reasons, they decide to create an SCI to hold the acquisition. The loan application is made in the name of the SCI "Les Pins", in the process of being formed, and not in their own names. The bank refuses the loan, citing the company's lack of track record. The purchasers then turn against the seller to obtain the restitution of their deposit, arguing that the suspensive condition has not been fulfilled.

The seller, Mr. Y, refuses. He argues that the purchasers did not take the necessary steps: they should have applied for the loan in their personal names, not via an SCI. The case is brought before the Tribunal de Grande Instance of Marseille, then before the Court of Appeal of Aix-en-Provence. The trial judges rule in favour of the seller: the condition is deemed fulfilled because the purchasers prevented its fulfilment by making a non-compliant loan application. The purchasers appeal to the Court of Cassation, but the Court of Cassation dismisses their appeal on 27 February 2013.

The Reasoning of the Court — Dissected

The reasoning of the Court of Cassation relies on Article 1178 of the Civil Code (in its wording prior to the 2016 reform, but the principle remains the same), which provides that the condition is deemed fulfilled when it is the debtor bound under the condition who prevented its fulfilment. In other words, if it is the purchaser's fault that caused the loan application to fail, the condition is considered fulfilled, and they must buy the property.

In this case, the Court of Appeal had noted that the promise of sale provided that the loan application must be made by the purchasers themselves. However, the application was made in the name of the SCI in formation, without the purchasers exercising the right of substitution (the possibility of being replaced by another person) provided for in the deed. The court deduced that the application did not conform to the stipulated characteristics and that the purchasers thus prevented the fulfilment of the condition. The Court of Cassation approves this reasoning: the condition is deemed fulfilled.

However, note: this case law only concerns cases where the purchaser did not comply with the terms provided in the deed. If the loan application had been made in their own names but refused for a legitimate reason, the condition would simply have failed, and the sale would be cancelled without penalty. What few people know is that case law requires strict performance of suspensive conditions: any deviation, even unintentional, can be fatal.

In short, the Court of Cassation confirms that purchasers cannot circumvent the obligations provided in the deed. They must act in their own name, unless a substitution clause is provided. This is a solution consistent with the principle of binding force of contracts, but it may surprise unwary purchasers.

What This Changes for You — Concretely

This decision has major practical implications for all real estate professionals. For seller-owners, it is a protection: if the purchaser does not take the steps correctly, you can compel them to buy or retain the deposit. For example, in Cassis, a seller of a plot worth €250,000 could be blocked for several months if the purchaser wrongfully withdraws. Thanks to this case law, they can demand specific performance of the sale.

For purchasers, the message is clear: be rigorous in your loan procedures. If you plan to acquire through an SCI, first make the loan application in your personal name, then effect a substitution after the condition is fulfilled. Alternatively, expressly provide in the preliminary contract that the application may be made in the name of the SCI. A careless mistake can cost you dearly: you could be forced to buy a property without financing, or lose your deposit (often 5 to 10% of the price).

For real estate professionals (agents, notaries), this decision reminds of the importance of drafting precise suspensive conditions and advising parties on the terms of their performance. undefined, I have encountered cases where the absence of a clear substitution clause led to lengthy and costly disputes. Advice: always sign an addendum if the purchaser wants to change the legal entity borrowing.

In terms of time limits, if you are in this situation, you must act quickly. The limitation period for an action for specific performance is 5 years (Article 2224 of the Civil Code). But it is preferable to consult a lawyer as soon as the loan is refused to assess the risks.

Four Tips to Avoid This Type of Dispute

• Check the conformity of the loan application: ensure the application is made in the name of the individual purchaser, unless otherwise stipulated. If you create an SCI, first make the application in your name, then effect the substitution after obtaining the loan.
• Include a substitution clause in the preliminary contract: if you plan to acquire through an SCI, include a clause authorising the substitution of the purchaser by a legal entity. This will avoid any subsequent challenge.
• Keep all supporting documents: keep acknowledgements of receipt of loan applications, refusal letters, and certificates of non-obtainment. In case of dispute, these documents are essential to prove that you took the required steps.
• Consult a lawyer before signing: a professional can detect ambiguous clauses and advise you on best practices. The cost of a consultation (€45 for 30 minutes) is negligible compared to the stakes of a real estate sale.

Further Analysis: Related Case Law and Developments

This decision is part of a consistent line of case law from the Court of Cassation, which shows severity towards purchasers who do not strictly perform suspensive conditions. For example, in a judgment of 14 November 2012 (No. 11-24.294), the Court held that the condition was deemed fulfilled when the purchaser had submitted a loan application at a higher interest rate than that stipulated in the preliminary contract. Similarly, in a judgment of 5 December 2018 (No. 17-25.418), it considered that the purchaser who had not approached a sufficient number of banks (where the preliminary contract required at least three) was at fault.

The trend is therefore towards a strict application of contractual clauses. Judges do not hesitate to sanction purchasers who do not comply with the stipulated terms, even if the defect is unintentional. For the future, it is likely that this strictness will continue, as it guarantees legal certainty in transactions. Professionals must therefore be particularly vigilant in drafting suspensive conditions, and individuals must read them carefully before signing.

What You Absolutely Must Remember

FAQ on Suspensive Condition of Loan

• What if I want to acquire through an SCI? Make the loan application in your personal name, then, after obtaining the loan, exercise the right of substitution provided in the deed. If the deed does not provide for it, request an addendum before signing.
• Can I lose my deposit if the bank refuses my loan? Yes, if the loan application does not comply with the terms of the preliminary contract (wrong amount, wrong rate, wrong borrower). Conversely, if you made a compliant application and the bank refuses, the condition fails and you get your deposit back.
• What are the time limits for challenging? You have 5 years from the date of the sale to take legal action. But it is advisable to act quickly, as soon as the loan is refused or the non-fulfilment of the condition is notified.
• Can a notary be held liable? Yes, if the notary did not properly advise the parties on the consequences of applying for a loan in the name of an SCI. Their professional civil liability may be engaged for breach of their duty to advise.
• Does this case law apply to all types of property? Yes, whether it is a building plot, an apartment, or a house. The principle is the same: the suspensive condition must be strictly performed according to the terms of the contract.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →