Promissory Agreement: A Loan Lower Than the Maximum Stated Does Not Render the Condition Precedent Failed

You are a homeowner in Belfort and have signed a promissory agreement to sell your family home. The agreement provides that you must obtain a mortgage loan for a maximum amount of €200,000. The bank finally grants you €180,000. The seller claims the agreement is void, arguing that the condition precedent has not been fulfilled. A stressful situation, isn't it? The crucial question: does a loan lower than the maximum stated oblige you to give up the purchase? The French Supreme Court (Cour de cassation), in its judgment of 14 January 2021 (No. 20-11.224), clearly answers: no, this loan complies with the contractual terms. Analysis of this decision that secures many buyers.

The Facts: An Everyday Story

Mr. X, a resident of Beaucourt, signed on 4 November 2016 a promissory agreement to purchase a flat in Belfort. The price was set at €250,000, and the agreement included a condition precedent for obtaining a loan of a maximum amount of €200,000, repayable over 20 years at a rate of 2.5%. Mr. X submitted several loan applications. A bank granted him a loan of €180,000, i.e., €20,000 less than the maximum stated. Mr. X informed the seller, but the latter, considering that the loan was not compliant, refused to complete the sale by notarial deed. The seller sued Mr. X for a declaration that the agreement was void and for damages.

The Tribunal de grande instance of Belfort ruled in favour of the seller: it held that the loan below the maximum did not satisfy the condition precedent. Mr. X appealed. The Court of Appeal of Besançon overturned the judgment and declared the agreement void, dismissing Mr. X's claims. Mr. X then appealed to the Supreme Court.

The Cour de cassation, in its judgment of 14 January 2021, quashed the appeal decision. It recalled that the condition precedent stipulated in the agreement provided for a loan of a 'maximum' amount of €200,000. However, the loan obtained of €180,000 is less than this maximum. Consequently, it complies with the contractual terms. The Court of Appeal, by deciding otherwise, violated the law of the parties (Article 1134 of the Civil Code, then in force). The case was remitted to the Court of Appeal of Nancy.

The Reasoning of the Court — Analysed

The Cour de cassation relies on the principle of the binding force of contracts, set out in Article 1103 of the Civil Code (formerly Article 1134). This principle means that the parties are bound by the terms they have freely accepted. Here, the agreement stipulated a loan amount of 'maximum' €200,000. The word 'maximum' is essential: it sets a ceiling, not a specific amount. Any loan amount less than or equal to €200,000 is therefore compliant.

The seller argued that the buyer had to obtain a loan covering the entire financing need. But the Court recalls that the condition precedent only concerns the obtaining of the loan within the limits provided, not the adequacy of the loan to the purchase price. If the buyer obtains a lower loan, he may supplement the financing with his own funds or renounce the sale – but he cannot be forced to do so.

This decision confirms consistent case law (Civ. 3e, 19 March 2013, No. 12-14.866). It is neither a reversal nor an evolution, but a classic application of contract law. The Cour de cassation censures the Court of Appeal which had added a condition not provided for by the parties: that of a loan equal to the maximum. The lower courts must adhere to the letter of the contract.

In practice, this solution protects the buyer: he is not required to accept a loan exactly at the ceiling. The seller, for his part, cannot invoke the nullity for a simple difference in amount, unless he demonstrates that the loan obtained is insufficient to finance the acquisition (for example, if the buyer does not have a personal contribution). But in our case, nothing proved that Mr. X could not supplement the financing.

What This Changes for You — in Practical Terms

If you are a buyer: You can obtain a loan lower than the maximum amount provided for in the agreement without risking nullity. For example, if your agreement provides for a maximum loan of €200,000 and the bank grants you €170,000, you are in compliance. However, you must have the additional funds to cover the purchase price. If you do not have them, you can renounce the sale without penalty, because the condition precedent is deemed fulfilled (the loan obtained is compliant), but you are not obliged to sign the notarial deed if the total financing is not secured. Caution: if you renounce, the seller could claim damages if he proves an abuse.

If you are a seller: You cannot refuse the sale on the grounds that the loan is lower than the maximum. But you can require the buyer to prove his ability to pay the balance of the price. If he cannot, you may invoke the nullity for lack of overall financing, but this is not automatic. For example, a seller in Belfort will have to prove that the buyer does not have the missing €30,000. It is therefore better to check the buyer's financial situation before signing.

If you are an estate agent or notary: Draft the conditions precedent precisely. Avoid vague wording such as 'loan necessary for the acquisition'. Prefer a maximum amount and a repayment term. Mention that any loan lower than the maximum is deemed compliant. This will avoid litigation.

A concrete example: in Beaucourt, a buyer signs an agreement for a house at €180,000, with a maximum loan of €150,000. He obtains €140,000. He must bring €40,000 out of his own pocket. If he does not have it, he can request the nullity of the agreement for lack of total financing, but case law is strict: the condition precedent is fulfilled, so he cannot withdraw without reason. He will have to prove that the loan obtained is insufficient for the transaction (for example, if banks refuse a top-up).

Four Tips to Avoid This Type of Dispute

• Draft a precise condition precedent: mention a maximum amount, a rate and a term. Add a clause specifying that any loan lower than the maximum is compliant. Example: 'The loan shall be for a maximum amount of €X, any loan of a lower amount being deemed to satisfy the condition.'
• Consult a lawyer before signing: a professional can check that the terms of the agreement protect your interests. In Belfort, it is common to see ambiguous clauses that generate disputes.
• Keep all supporting documents: loan approval letters, refusals, correspondence with the seller. In case of a dispute, these documents will prove that you have fulfilled your obligations.
• Do not give up the sale too quickly: if the loan obtained is lower, consider whether you can supplement the financing. Sometimes a small personal contribution or a family loan suffices. Do not accept the nullity without legal advice.
• In case of the seller's refusal: put him on notice to complete the sale by registered letter. If he persists, apply to the tribunal judiciaire to have the sale declared perfect and claim damages.

Further Analysis: Related Case Law and Developments

The Cour de cassation had already ruled in the same sense in 2013 (Civ. 3e, 19 March 2013, No. 12-14.866): a loan of an amount lower than the maximum provided satisfies the condition precedent. More recently, in a judgment of 9 July 2020 (No. 19-15.534), it specified that the buyer is not required to accept a loan on terms less favourable than those stipulated (higher rate, shorter term). The trend in case law is therefore clearly protective of the buyer, provided that the buyer acts in good faith and does not unreasonably refuse a compliant loan.

Caution however: if the agreement provides for a loan 'necessary for the acquisition' without a maximum amount, the Cour de cassation requires that the loan cover the entire price (Civ. 3e, 15 December 2016, No. 15-27.315). Hence the importance of drafting.

In Practice: What to Do

FAQ:

Question: The loan obtained is lower than the maximum stated, but the seller refuses to sell. What should I do?
Answer: You can sue him to have the sale declared perfect. Case law is in your favour. Consult a lawyer quickly, as limitation periods are short (5 years from the signing of the agreement).

Question: Can I renounce the sale if the loan obtained is lower and I do not have the contribution?
Answer: Yes, but at your own risk. You must prove that the loan is insufficient to finance the acquisition. If the seller contests, a judge will assess your good faith.

Question: What is the time limit to act after a seller's refusal?
Answer: You have up to 5 years to apply to the court. But act quickly to prevent the seller from reselling the property to a third party.

Question: The agreement provides for a loan 'of €200,000' without mentioning 'maximum'. Is it the same?
Answer: No. If the amount is fixed, the loan must be exactly €200,000. A lower loan would not be compliant. Have the clause amended before signing.

Question: Can the seller claim damages if I renounce?
Answer: Yes, if he proves that you abused your right. For example, if you refuse without reason a compliant loan. But in practice, the courts are lenient towards buyers acting in good faith.

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 →