Promise of Sale and Loan Refused: Who Must Prove What?

Imagine: you are a homeowner in Lunel, you sign a promise of sale for your house for €250,000. The buyer's loan application is refused, the sale falls through. You lose three months, and you want to claim damages. But who must prove that the buyer actually took the necessary steps? This is exactly the question the Court of Cassation decided in a judgment of 6 October 2010.

Many sellers think that the buyer must demonstrate that he applied for a compliant loan. However, the High Court has reversed the burden of proof: it is for the seller to provide evidence that the buyer prevented the fulfilment of the suspensive condition (i.e. that he did not take the steps or refused a compliant loan offer).

This judgment is a major decision for every seller or buyer. It protects the buyer acting in good faith and requires the seller to prove bad faith. Let us analyse this decision and its practical consequences together, with concrete examples in Lattes and elsewhere.

The Facts: A Story Like Many Others

Mr and Mrs X, owners of a property in Lunel, sign a promise of sale with Mr Y, the buyer. The preliminary contract contains a suspensive condition regarding the obtaining of a loan: the sale is cancelled if the buyer does not obtain financing. The buyer must, according to the clause, "take all necessary steps to obtain the loan."

Mr Y submits a loan application to his bank, which is refused. He informs the seller and requests the return of the deposit. But the seller considers that the buyer did not make sufficient efforts: he should have applied to several banks, or accepted a loan offer that the seller claims was presented. The seller sues the buyer for damages, arguing that the suspensive condition was not fulfilled due to the buyer's fault.

The Court of Appeal rules in favour of the seller, considering that the buyer does not prove that he took all steps. The buyer appeals to the Court of Cassation. The Court of Cassation quashes the appellate decision: it holds that it is for the seller, who alleges the buyer's fault, to prove that the buyer prevented the fulfilment of the condition. However, the buyer had demonstrated that he had submitted at least one loan application compliant with the stipulated characteristics. The seller did not provide evidence that the buyer had refused a compliant loan offer or had not taken the necessary steps. The sale is therefore cancelled without fault on the buyer's part.

The Reasoning of the Court — Explained

The Court of Cassation relies on Article 1178 of the Civil Code (former Article 1178, now replaced by Article 1304-3). This article provides that a suspensive condition (a future and uncertain event on which the formation of the contract depends) is deemed fulfilled if the debtor (here, the seller) prevented its fulfilment. But here, it is the opposite: the seller accuses the buyer of preventing the condition. The Court therefore applies the general principle of the burden of proof: he who demands performance of an obligation must prove it (Article 1353 of the Civil Code, former 1315). The seller, who claims damages, must prove that the buyer failed to fulfil his obligation to pursue a loan.

In other words: the buyer does not have to prove that he took all steps; it is sufficient that he demonstrates that he submitted a compliant loan application. Then, it is for the seller to prove that the buyer refused a compliant loan offer or did not carry out the required steps. This decision is a confirmation of previous case law (Civ. 3e, 30 April 2003, No. 01-17.555) and not a reversal. It mainly clarifies the allocation of proof.

The Court also rejects the seller's argument that the clause in the preliminary contract required the buyer to "take all necessary steps": this does not imply that he must multiply applications without limit. A single compliant application is sufficient, unless there is a very explicit clause to the contrary. The decision is therefore protective of the buyer, but it imposes on the seller increased vigilance from the drafting of the promise.

What This Changes for You — Practically

For the buyer: you are now in a position of strength. If you have submitted a loan application compliant with the characteristics in the preliminary contract (amount, term, interest rate), and this application is refused, you can obtain the return of your deposit without fear of legal action. Concrete example: you buy a flat in Lattes for €180,000, with a deposit of €20,000. You apply for a loan of €160,000 over 20 years at 3.5%. The bank refuses. You inform the seller and request the refund of your deposit of €18,000. The seller cannot claim damages from you, unless he proves that you refused a compliant loan offer (for example, an offer at the same rate and over the same term).

For the seller: the lesson is clear. If you want to challenge the failure of the suspensive condition, you must gather evidence that the buyer did not take the steps or refused an offer. For example, if the buyer told you that he only applied to one bank when the preliminary contract required contacting at least three, or if he refused a loan offer on terms identical to those stipulated. Without proof, you will lose. In a recent case, a seller in Lunel lost €10,000 in agency and notary fees because he could not prove that the buyer had refused a loan.

For the estate agent or notary: ensure that you draft precise suspensive condition clauses, listing the characteristics of the loan (amount, term, maximum interest rate) and specifying the number of banks to be approached. Without this precision, the buyer can content himself with a single application.

Four Tips to Avoid This Type of Dispute

• Draft a detailed suspensive condition clause: specify the exact loan amount, term, maximum interest rate, and the minimum number of banks to approach (e.g., at least two lending institutions). The more precise the clause, the less room for interpretation.
• Keep all evidence of your steps: as a buyer, keep acknowledgements of receipt of your loan applications, refusal letters, and correspondence with banks. A simple email may suffice, but a recorded delivery letter or receipt is better.
• Require proof of loan refusal: the seller has the right to ask the buyer to provide the refusal decision(s) from the banks. Include this obligation in the preliminary contract. This avoids later disputes.
• Anticipate disputes at the time of signing: include a conciliation or mediation clause before any legal action. This allows the dispute to be resolved at lower cost. In Lattes, a successful mediation allowed a seller and buyer to reach an agreement on sharing agency fees, avoiding a two-year trial.

Further Analysis: Related Case Law and Developments

This decision is part of a consistent line of the Court of Cassation. Already in 2003 (Civ. 3e, 30 April 2003, No. 01-17.555), the Court had held that a buyer who proves a loan refusal compliant with the suspensive condition is presumed to have fulfilled his obligations. In 2015 (Civ. 3e, 10 June 2015, No. 14-14.153), the Court specified that a clause requiring the buyer to "take all necessary steps" does not oblige him to apply to an indefinite number of banks; a single serious application suffices, unless there is a clause to the contrary.

The trend is therefore clear: judges protect the buyer acting in good faith. But beware, is a reversal possible? Nothing suggests so, but the legislature could intervene to balance interests. In the meantime, caution remains for sellers: if you want to secure the sale, impose stricter suspensive conditions, but accept that this may deter some buyers.

Checklist Before Taking Action

Practical FAQ

• Q: What if the seller refuses to return the deposit after a loan refusal?
  A: Send a formal notice by recorded delivery with acknowledgement of receipt, enclosing proof of the compliant loan refusal. If the seller persists, apply to the judicial court (summary proceedings for rapid restitution).
• Q: Can I content myself with a single loan application?
  A: Yes, if the preliminary contract clause does not specify a minimum number. But to avoid any risk, it is better to apply to at least two institutions.
• Q: What are the time limits for legal action?
  A: The limitation period is 5 years from the date of the loan refusal (Article 2224 of the Civil Code). However, act quickly to prevent evidence from disappearing.
• Q: Can the seller force me to accept a loan with different terms (higher rate, shorter term)?
  A: No, you are only obliged to accept offers strictly compliant with the characteristics provided in the preliminary contract. Any different offer may be refused without consequence.
• Q: What if I have already signed a preliminary contract with an imprecise clause?
  A: Consult a lawyer to assess your risks. It is sometimes possible to renegotiate an addendum before the deadline of the suspensive condition.

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 →