Unjust Enrichment: What to Do When a Preliminary Sale Agreement Falls Through?

Imagine: you are the owner of a plot of land in Gien, in the Loiret. You sign a preliminary sale agreement (compromis de vente) with a property development company. Studies progress, costs are incurred, but before the notarised deed is signed, the buyer is placed into judicial liquidation. The sale falls through. You eventually sell the land to another company at a similar price. But the former buyer (or its liquidator) demands reimbursement of the sums received in advance? Are you entitled to keep them?

This is exactly the question that arose in the case decided by the Cour de cassation on 14 January 2003. The Di... spouses had promised to sell a plot of land to the company Espace Création. That company had paid sums and incurred costs. But, placed under judicial reorganisation on 14 June 1995, and then into judicial liquidation, the sale was never concluded. The spouses then sold the land to another company under similar conditions. The liquidator sought restitution of the sums paid.

The decision we are going to analyse answers this question by applying a fundamental principle: no one may unjustly enrich themselves at the expense of another. It specifies that when the preliminary sale agreement lapses (becomes void) due to the liquidation, the seller's enrichment no longer has a legitimate cause. Whether you are a seller, a buyer, or a real estate professional, this case law directly concerns you. Let's dive into the details.

The Facts: A Story That Happens Every Day

In 1994, the Di... spouses, owners of a plot of land in Pithiviers, signed a preliminary sale agreement with the company Espace Création, specialised in property development. The price was fixed, and suspensive conditions (clauses that make the sale conditional on certain events, such as obtaining planning permission) were provided. The buyer paid a deposit and began to incur costs for studies and marketing.

Alas, Espace Création encountered financial difficulties. It was placed under judicial reorganisation on 14 June 1995, then into judicial liquidation shortly after. The preliminary sale agreement was not concluded by a notarised deed. The Di... spouses then decided to sell their plot to another company, under conditions later deemed similar.

The judicial liquidator (the officer responsible for realising the assets of the company in liquidation) sued the Di... spouses for restitution of the sums paid under the preliminary agreement, arguing that they had enriched themselves without cause. The spouses resisted: according to them, the preliminary agreement was valid, and the sums received corresponded to a legitimate counterperformance (the promise of sale).

The Court of Appeal ruled in favour of the liquidator. The Di... spouses appealed to the Cour de cassation. But the Cour de cassation dismissed their appeal and upheld the Court of Appeal's decision: the spouses' enrichment no longer had a legitimate cause once the preliminary agreement had lapsed. A commonplace story, but with significant legal consequences.

The Reasoning of the Court — Dissected

The Cour de cassation relies on the principle of unjust enrichment, now codified in articles 1303 to 1303-4 of the Civil Code (since the 2016 reform of contract law). At the time, it was based on the maxim 'No one may unjustly enrich themselves at the expense of another' and on former article 1371 of the Civil Code.

The judges' reasoning is clear: for unjust enrichment to exist, three conditions must be met: 1) an enrichment (here, the spouses received sums and sold the land at another price), 2) a corresponding impoverishment (Espace Création lost the sums paid and the costs incurred), 3) the absence of a legitimate cause justifying this enrichment. It is on this last point that the problem lies.

The Di... spouses invoked the preliminary sale agreement as a legitimate cause. But the Court of Appeal had found that the preliminary agreement had lapsed (become void) due to the buyer's judicial liquidation. Consequently, the spouses' enrichment was no longer justified by any valid obligation. The Cour de cassation validates this reasoning: 'Held that, in so ruling, whereas it had noted that the preliminary agreement had been rendered ineffective and that the enrichment of the Di... spouses could no longer have this preliminary agreement as its legitimate cause'.

This decision is a classic application of the principle, but it is interesting because it shows that the lapse of a contract can retroactively eliminate the cause of an enrichment. The judges did not stop at the letter of the preliminary agreement: they looked at the economic reality. A lesson for all: a contract that is not performed cannot indefinitely justify a transfer of wealth.

What This Means for You — Practically

For a seller: if you sign a preliminary agreement and the buyer cannot conclude the sale for a reason beyond your control (liquidation, death, loan refusal), you cannot keep the sums paid if the sale does not go through, unless there is a valid penalty clause (fixed indemnity). Example: in Pithiviers, a seller receives a €10,000 deposit. If the buyer is liquidated, the liquidator can claim this sum from you, even if you have already resold the property.

For a buyer: if you pay sums (deposit, study costs) under a preliminary agreement and the sale falls through, you can demand their restitution, unless the contract provides a penalty clause attributing the default to you. This decision protects you in cases of force majeure or default by the seller.

For a real estate professional: be careful when drafting preliminary agreements. Clearly provide for the fate of sums paid in the event of non-completion, distinguishing according to the cause (default by the buyer, seller, or fortuitous event). A poorly drafted clause may expose your client to an action for unjust enrichment.

The amounts at stake can be substantial. Imagine a plot sold for €200,000 in Gien, with a 10% deposit. If the sale falls through, the seller must return €20,000, subject to costs actually incurred and justified. Without this decision, some sellers might have tried to keep the sum by invoking the loss suffered.

Four Tips to Avoid This Type of Dispute

• Draft a precise exit clause: in the preliminary agreement, explicitly provide for the fate of sums paid in the event of non-completion, according to the cause (default by the buyer, seller, or fortuitous event). Indicate whether the deposit is refundable or forfeited as a fixed indemnity.
• Require a suspensive condition for loan approval: for the buyer, this is an essential protection. If the loan is not obtained, the preliminary agreement lapses and the sums must be refunded without penalty.
• Keep all supporting documents for costs: if you are a seller and have incurred costs (surveys, land surveyor, notary), keep the invoices. In the event of a dispute, you can deduct these costs from the sum to be refunded, provided you can justify them.
• Use a lawyer to draft the preliminary agreement: a professional will be able to anticipate risks and draft clauses in line with case law. The investment is modest compared to the stakes.

Further Reading: Related Case Law and Developments

This 2003 decision is part of a consistent line of the Cour de cassation. An earlier decision of 2 December 1997 (appeal no. 95-22.062) had already held that unjust enrichment can only be invoked if the impoverishment has no source in any valid contract. More recently, the 2016 reform of contract law codified unjust enrichment in articles 1303 to 1303-4, adopting the conditions established by case law.

The trend of the courts is to protect the party that has been impoverished, especially when it is in good faith and the enrichment has no economic justification. Judges do not hesitate to set aside an apparent legitimate cause (a void contract) to restore balance. This means that, even if a preliminary agreement has been signed, its failure to be finally executed can call into question intermediate fund transfers.

For the future, we can expect the courts to continue to apply this principle strictly, particularly in real estate sales where the sums at stake are high. Current case law encourages clear drafting of restitution conditions.

What You Absolutely Must Remember

FAQ:

• Can I keep the deposit if the buyer is in judicial liquidation? No, unless the preliminary agreement provides a valid penalty clause and the default is attributable to the buyer. In the event of liquidation, the contract lapses, and the enrichment is without cause.
• What if I have already resold the property at a different price? You must refund the sums received from the first buyer, even if you have resold. However, you can deduct justified costs incurred for the initial sale.
• What is the time limit for bringing an action for unjust enrichment? The action is subject to a 5-year limitation period from the day the right-holder knew or should have known the facts enabling them to exercise it (article 2224 of the Civil Code).
• Can a real estate professional be sued? Indirectly, if they gave poor advice to their client. However, the action for unjust enrichment primarily targets the enriched person (seller or buyer).

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 →