Cass. 1re civ., 29 May 2024, No. 23-12904
Cass. 1re civ., 4 April 2024, No. 21-12274
Cass. 2e civ., 3 Oct. 2024, F-B, No. 21-25.823
Introduction
In the context of mortgage loan agreements, the acceleration clause constitutes a powerful tool for banking institutions. However, its use is strictly regulated by case law, particularly regarding the protection of borrowers against unfair terms. This article explores the latest case law developments concerning the validity of these clauses, drawing on recent decisions, while offering a practical analysis of the consequences for professionals in the banking sector.
1. A frequently contested clause: overview of the legal principles
The acceleration clause allows the lender to make all sums owed by the borrower immediately due and payable in the event of default. However, its validity is subject to compliance with several criteria established by case law. These criteria were set out by the Court of Justice of the European Union (CJEU) in the Banco Primus judgment of 26 January 2017 (No. C-421/14) and have been reinforced by national decisions.
The CJEU identified four key elements for assessing the unfairness of these clauses:
- Does the breached obligation constitute an essential element of the contractual relationship?
- Is the breach sufficiently serious, taking into account the duration and amount of the loan?
- Does the clause derogate from the rules of general law?
- Are there effective legal remedies available to the borrower to mitigate the effects of this clause?
These criteria are neither cumulative nor alternative; they must be subject to an overall assessment (also confirmed by the CJEU in a judgment of 8 December 2022, No. C-600/21).
2. Notice periods: a crucial question
One of the main controversies concerns the length of the notice period stipulated in the clause. In a judgment of 29 May 2024 (Cass. 1re civ., 29 May 2024, No. 23-12904, Caisse regionale de Credit agricole mutuel de Lorraine), the First Civil Chamber of the Court of Cassation held that a 15-day notice period was unreasonable and therefore unfair. This decision follows a previous judgment of 22 March 2023 (Cass. 1re civ., 22 March 2023, 21-16.044, Published in the Bulletin), where an eight-day notice period had also been declared insufficient. As with the judgment of 22 March 2023, this was a reversal for violation of the law, and not for insufficient legal basis. The message from the highest court is therefore unequivocal: a 15-day notice period cannot be considered reasonable.
In this case, the general terms and conditions of the loan stipulated under the heading “acceleration” that in the event of default in repayment of sums owed by the borrower, the lender could invoke the immediate repayability of the loan in principal, interest and ancillary costs without the need for any judicial proceedings and following a formal demand that remained unanswered for 15 days.
The Court held that these short notice periods created a significant imbalance between the rights and obligations of the parties, in violation of Article L. 212-1 of the Consumer Code. It specified that the clause should be deemed unwritten, a position reinforced by the views of numerous commentators (notably N. Mathey in RD bancaire et financiere, 2024, comm. 87).
This solution is justified in the context of a mortgage loan, which is generally repaid over long periods of 10, 20 or even 30 years. However, it has significant consequences for lending institutions since, until recently, common practice was to provide for very short notice periods, often of 8 or 15 days.
As a result, a large majority of acceleration clauses contained in mortgage loan agreements could now be declared unfair. This strictness is heightened by the fact that the clause cannot be “corrected” after the fact by granting the borrower a longer period, for example in the formal demand or before the acceleration is declared, as was the case in this matter.
The CJEU has indeed specified that the unfairness of a clause must be assessed based on its initial wording, and not on the manner in which it is applied (CJEU, 26 Jan. 2017, No. C-421/14, Banco Primus, para. 73 to 75. See, in the same vein, CA Rennes, 2nd ch., 23 June 2023, No. 20/05045 – TJ Paris, 11 Jan. 2024, No. 23/00185 – contra CA Montpellier, 4th civ. ch., 8 June 2023, No. 20/01597).
This approach thus respects the distinction between the formation of the contract, which falls within the scope of unfair terms law, and its performance.
A crucial question then remains: what notice period can be considered reasonable? The CJEU judgment of 8 December 2022 (CJEU, 8 Dec. 2022, No. C-600/21) appears to provide an answer, reinforcing legal certainty: “A delay of more than 30 days in the payment of a loan instalment may, in principle, having regard to the duration and amount of the loan, in itself constitute a sufficiently serious breach of the loan agreement“. Thus, a notice period of at least 30 days could significantly reduce the risk of the clause being struck down.
3. Formal requirements of the formal demand: another area of vigilance
The sufficiency of the formal demand prior to declaring the acceleration was recalled in a judgment of 4 April 2024 (Cass. 1re civ., 4 Apr. 2024, No. 21-12274).
In this case, the formal demand letter merely required the borrowers to pay overdue instalments within thirty days under penalty of referral to the litigation department and the initiation of legal proceedings, without however indicating that the lender would invoke the acceleration clause in the event of failure to pay the overdue instalments within the thirty-day period.
However, according to the Court of Cassation, the formal demand must clearly and unequivocally indicate that the clause will be invoked in the event of failure to remedy the breach. In the absence of such a statement, the formal demand is invalid, as was the case here where the bank had only mentioned legal proceedings and not the acceleration of the loan.
This formal requirement is based on Article 1344 of the Civil Code, which provides that a formal demand must constitute a “sufficient interpellation”, and on Article 1225 concerning termination clauses. This formalism is intended to encourage voluntary performance of contractual obligations.
4. Consequences for borrowers
Recent decisions offer enhanced protection to borrowers against potentially unfair clauses. By invalidating clauses providing for excessively short notice periods, case law ensures that borrowers have a reasonable time to rectify their financial situation. This approach limits the risks of a sudden worsening of their situation, such as a premature acceleration that could lead to serious consequences, including property seizures.
Furthermore, borrowers can rely on the formal requirements imposed on banks, particularly regarding formal demands. A non-compliant formal demand can constitute an effective defence to challenge the validity of the acceleration and preserve their rights.
If the clause is deemed unfair and considered unwritten, the door to immediate repayability of the remaining sums closes for the bank (Civ. 2e, 3 Oct. 2024, F-B, No. 21-25.823). This may, for example, allow the borrower to halt a property seizure proceeding, as the full amount claimed by the bank is no longer due and payable.
The bank will then be forced to wait for each instalment before being able to take action. Moreover, it will probably have to wait until a certain number of unpaid instalments have accumulated to justify effective action, such as a property seizure, taking into account the value of the property relative to the individual amount of monthly payments. Ultimately, the contract will therefore have to be performed until its final maturity date, without the possibility of accelerating its outcome.
5. Recommendations for borrowers
When facing a situation of default and acceleration threatening the seizure of their property, borrowers should:
- Carefully read the terms of their mortgage loan agreement, particularly the clauses relating to acceleration;
- Ensure that any formal demand received complies with legal and case law requirements, including notice periods and the explicit mention of the intended sanction;
- Consult a banking law attorney to examine the validity of the procedures invoked by their bank, which may, in certain cases, help prevent a property seizure.
