Professional Credit and the Scrivener Law: When Consumer Protection Does Not Apply

You are an insurance agent in Vandoeuvre-lès-Nancy and you have just signed a finance lease for new management software. A few months later, the seller disappears, the software does not work, and the bank still demands its rentals. You think you can invoke the law of 10 January 1978 (known as the Scrivener law) to cancel the credit, as you would for a standard consumer credit? Mistake. The Court of Cassation ruled in 1989: this credit is professional, therefore outside the scope of this protective law.

Why is this distinction crucial? Because it determines whether or not you can rely on the protection mechanisms provided for consumers, such as the right of withdrawal or the cancellation of the credit in the event of the seller's default. The judgment of 10 May 1989 (No. 88-10.649) has become a reference: it recalls that the Scrivener law applies only to credits intended for non-professional needs. In other words, if you borrow for your professional activity, you are considered an informed professional, and consumer protections no longer apply.

This decision has concrete consequences for thousands of professionals, particularly in the real estate sector where finance leases and professional loans are common. It also concerns landlord-owners who take out credit to finance rental works: is this credit professional or personal? The answer depends on the use of the property. Let's delve into this case to understand the pitfalls to avoid.

The facts: a story like any other

In 1984, Mr X, an insurance agent in Vandoeuvre-lès-Nancy, needed to computerise his management. He entered into a finance lease with Locafrance for a computer system: hardware and software. The contract provided for the payment of rentals over 60 months. But quickly, the hardware proved defective and the software unsuitable. Mr X stopped paying the rentals, and Locafrance terminated the contract automatically, as permitted by the acceleration clause. Mr X then sued the seller and Locafrance, seeking rescission of the sale and, consequently, of the finance lease, on the basis of Article 9, paragraph 2 of the law of 10 January 1978. This article provides that, in the event of rescission of the sale, the credit agreement is also rescinded, and the lender must repay the sums received.

The Court of Appeal of Nancy ruled in favour of Mr X in 1987. It held that the finance lease was a credit agreement subject to the Scrivener law, and that the rescission of the sale automatically entailed that of the credit. But Locafrance appealed to the Court of Cassation. The stakes were high: if the solution were confirmed, all professional credits could be challenged by a simple default of the supplier, which would weaken finance leases and professional financing.

On 10 May 1989, the Court of Cassation quashed the Nancy judgment. It recalled that the law of 10 January 1978 applies only to credit operations intended to finance the needs of a non-professional activity. However, Mr X had taken out the finance lease for the needs of his professional activity as an insurance agent. Therefore, he could not invoke Article 9, paragraph 2. The case was referred back to the Court of Appeal of Dijon.

The reasoning of the court — analysed

The Court of Cassation relies on Article 1 of Law No. 78-22 of 10 January 1978, known as the Scrivener law, which provides that it applies "to credit operations [...] intended to finance the needs of a non-professional activity". In other words, the legislator intended to protect the consumer, a natural person who borrows for personal use, but not the professional who acts within the framework of his activity. The Court applies a strict interpretation here: only the purpose of the credit matters, not the quality of the borrower. An insurance agent may be a consumer for a personal credit (e.g. car loan), but not for a professional credit.

The reasoning is simple: if the credit is used to finance a professional activity, the borrower is presumed to have a certain competence and not to need the enhanced protection of the Scrivener law. Professionals are supposed to negotiate with full knowledge of the facts, and the risks related to the supplier's default are their responsibility. This is a confirmation of previous case law (notably Cass. civ. 1re, 13 October 1981, which had already excluded professional credits).

The Court thus rejects Mr X's argument that the protection should apply because the finance lease was a credit agreement in the broad sense. It specifies that the Scrivener law is a matter of public policy, but only within its scope. Outside it, the general law of contracts applies. Consequence: Mr X cannot invoke the automatic rescission of the credit. He must take action against the seller on the basis of the guarantee against hidden defects (Article 1641 of the Civil Code) or contractual liability (Article 1231-1 of the Civil Code), but without being able to involve the bank in the proceedings. Is the decision a reversal? No, it is a consistent application, but it has the value of a principle.

What this means for you — concretely

For landlord-owners: if you take out a loan to finance renovation works in a rental property, is this loan professional? Yes, if you act as a professional landlord (for example, if you are registered in the commercial register). No, if you are a private individual who rents out a single property as part of asset management. The line is blurry. Example: an owner in Lunéville rents out a furnished studio. He borrows €50,000 for works. If the property is rented as a professional furnished rental (LMNP status), the credit is professional. If it is rented unfurnished as a private individual, it could be considered personal. When in doubt, check with a lawyer.

For self-employed professionals (craftsmen, traders, liberal professions): you cannot rely on the Scrivener law for a finance lease or professional loan. If your supplier delivers defective equipment, you must take action directly against him, not against the bank. You cannot suspend your rentals or repayments on the pretext that the goods are defective. A clause of "automatic rescission" of the credit in the event of the seller's default? It exists only within the framework of the Scrivener law. Without it, you must continue to pay the bank, then take action against the seller.

For purchasers of real estate: if you buy a commercial premises with a professional loan, the same rule applies. The bank is not jointly liable with the seller. In the event of a hidden defect, you cannot seek cancellation of the loan. You must sue the seller alone. This is why it is crucial to properly qualify the transaction upfront, and possibly negotiate a joint liability clause in the loan agreement.

For co-owners: a credit taken out by the co-owners' association for works is a professional credit? No, the association is not a professional. But if a co-owner personally borrows to finance his share, it may be personal or professional depending on his status. Beware of mixed situations.

Four tips to avoid this type of dispute

• Qualify the credit before signing: ask your banker to specify in writing whether the credit is intended for professional or non-professional use. This qualification will determine your rights. If the credit is professional, you will not benefit from the right of withdrawal (14 days) nor from the protection against unfair terms specific to the Scrivener law.
• Negotiate a joint liability clause: in a professional credit, try to obtain a clause by which the lender undertakes to take recourse against the seller in the event of default. This saves you from having to pay while pursuing the seller.
• Keep records of the use: retain all documents showing that the credit is used to finance your professional activity (invoices, quotes, lease agreement, etc.). In the event of a dispute, this will help prove the professional nature and avoid an erroneous application of the law.
• Consult a lawyer before taking action: if you are in conflict with a supplier, do not stop your payments without legal advice. A poorly initiated action can cost you dearly: late payment interest, penalty clauses, or even listing on the file of payment incidents.

Further analysis: related case law and developments

This 1989 judgment is part of a consistent line. Already in 1981, the First Civil Chamber had ruled that the Scrivener law only protects consumers (Civ. 1re, 13 October 1981, No. 80-12.654). More recently, the Court of Cassation specified that for real estate loans, the law of 13 July 1979 (Scrivener real estate law) also applies to professionals in certain cases (Civ. 1re, 4 November 2011, No. 10-24.947), but this is a different law. The trend is therefore to maintain a clear distinction between personal and professional credits. However, European law tends to harmonise protections, notably with Directive 2008/48/EC on consumer credit, which also excludes professional credits. In the future, it is possible that the French legislator will extend certain protections to professionals, but this is not on the agenda.

Checklist before taking action

1. Have I correctly identified the nature of my credit? (professional or personal) → If professional, I cannot invoke the Scrivener law.
2. Is my supplier in default? → I must take action against him alone, not against the bank.
3. Do I have a contractual clause linking me to the bank? → Check if the contract provides for a direct action or joint liability.
4. What are my remedies? → Guarantee against hidden defects (Art. 1641 C. civ.), contractual liability (Art. 1231-1), or action for rescission of the sale (former Art. 1184, new Art. 1224).
5. Must I continue to pay the rentals? → Yes, unless a court decision states otherwise. Stopping payments exposes you to penalties.

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 →