Condition Precedent for a Loan: Applying for a Rate Below the Maximum Can Cost the Immobilisation Indemnity (Cass. 3e civ., 25 June 2026, No. 24-14.137)

French Supreme Court, Third Civil Chamber, 25 June 2026, appeal No. 24-14.137

What happened in this case?

The facts are deceptively commonplace, and that is precisely what makes this judgment so instructive. By notarial deed of 31 July 2019, a couple of owners promised to sell a building to a buyer. As in the vast majority of property sales financed by credit, the promise was made subject to a condition precedent that the buyer obtain a loan offer, at the latest by 21 October 2019. This deadline was later extended, by mutual agreement, to 8 December 2019.

The promise precisely framed the financing sought: a loan with a maximum amount of €1,475,000, a maximum term of 25 years, at a maximum nominal interest rate of 1.75% per annum. Above all, it contained a remarkably effective clause, the wording of which is worth reproducing: “any application that does not comply with the contractual stipulations, in particular as to the amount borrowed, the rate and the term of the loan, shall result in the fictitious fulfilment of the condition within the meaning of the first paragraph of Article 1304-3 of the Civil Code”.

The buyer paid €73,750 to the notary, on account of an immobilisation indemnity set at €147,500 (exactly half paid in advance, in line with a classic pattern in unilateral promises to sell).

The sale did not go through. The buyer, relying on loan refusals, summoned the sellers to have the promise declared lapsed and to obtain the return of the sum held in escrow. The sellers retaliated: they counterclaimed for payment of the immobilisation indemnity as well as damages.

The Paris Court of Appeal, in a judgment of 16 February 2024, found for the buyer: it declared the promise lapsed, dismissed the sellers’ claim for the immobilisation indemnity and even ordered them to compensate the buyer’s financial loss. The Paris judges noted that she produced evidence of two loan refusals concerning applications for €1,475,000 over 300 months, at a nominal rate of 1.30%, and considered that this rate, lower than the 1.75% ceiling, was “not disproportionate” to the stipulations of the promise, which did not provide for a minimum rate.

The sellers appealed on points of law. And the Third Civil Chamber found for them on every point, quashing the judgment in its entirety.

How does the condition precedent of obtaining a property loan work?

The mechanism rests on a delicate balance between two opposing interests. On the one hand, a buyer who relies on credit must not be definitively bound if the banks refuse to finance them: this is the protective function of the condition precedent. On the other hand, the seller, who ties up their property for several months, must be protected against a buyer who, having changed their mind, would hide behind convenient or procured loan refusals in order to withdraw at no cost.

It is to arbitrate this conflict of interests that notarial practice specifies, in the promise, the characteristics of the financing sought: maximum amount, maximum term, maximum rate. These characteristics define the scope of the buyer’s obligation: the buyer must make serious efforts to obtain a loan matching what was agreed. If the buyer applies for a different loan (larger, shorter, or at a lower rate), they make obtaining the financing more difficult than the contract provided for, and distort the operation of the condition.

The whole question, in the case decided on 25 June 2026, was therefore whether the condition precedent had failed “without fault” on the part of the buyer. The sellers argued that it had not: in their view, the buyer had herself prevented the fulfilment of the condition by applying for loans that did not match the stipulations of the promise. And this is where Article 1304-3 of the Civil Code comes into play.

Why is a loan application at 1.30% not compliant with a maximum rate of 1.75%?

What does Article 1304-3 of the Civil Code provide?

This provision, which stems from the 2016 reform of the law of obligations, takes over and modernises the rule of former Article 1178 of the Civil Code. It is the seller’s main weapon against a buyer suspected of having engineered the failure of the condition. Case law applies it consistently in matters of property credit: the buyer must show that they applied for a loan matching the characteristics stipulated in the promise. Failing that, they run the risk of the condition being deemed fulfilled.

What role did the clause in the promise play?

The promise of 31 July 2019 did not merely refer to the general law. It expressly stipulated that “any application that does not comply with the contractual stipulations, in particular as to the amount borrowed, the rate and the term of the loan, shall result in the fictitious fulfilment of the condition”. In other words, the parties had contractually defined what would constitute a wrongful prevention: any application departing from the agreed amount, rate or term.

This clause changes the nature of the debate. Without it, the judge has sovereign discretion to assess whether the gap between the loan application and the stipulated characteristics genuinely compromised the obtaining of financing. With it, the non-compliance of the application is, in itself, enough to trigger the fictitious fulfilment of the condition. The sellers’ appeal relied precisely on this wording: since the buyer had applied for loans at a nominal rate of 1.30%, whereas the promise referred to a maximum rate of 1.75%, her applications were not compliant.

What did the French Supreme Court decide on this first point?

The Paris Court of Appeal had thought it could save the buyer through a reasoning that looked logical: since a rate of 1.30% is lower than the maximum rate of 1.75%, the application remained within the framework of the promise, which set no minimum rate. The Paris judges added that this rate was “not disproportionate” to the stipulated ceiling.

The Third Civil Chamber censured this reasoning on the basis of Article 1304-3, first paragraph, of the Civil Code, for a contradiction between the findings and the outcome: “in so ruling, while noting that the beneficiary had applied for two loans at a rate lower than the terms set out in the contract, the Court of Appeal, which failed to draw the legal consequences of its own findings, infringed the aforementioned provision”.

The message is clear: since the lower courts themselves noted that the loan applications concerned a rate lower than the terms set out in the contract, they could not, without contradicting themselves, find those applications compliant and rule out the fictitious fulfilment of the condition. The underlying economic logic is irrefutable: the lower the rate requested, the more likely the bank’s refusal. A buyer who demands 1.30% when the promise allows them to accept up to 1.75% is themselves tightening the conditions of their financing, and correspondingly increasing the chances of the condition precedent failing.

Must loan refusals be disclosed before requesting an extension of the deadline?

What did the sellers complain of against the buyer?

The second ground of appeal opened a separate front, on the terrain of contractual good faith (loyauté contractuelle). The sellers argued that when the buyer requested the extension of the deadline for fulfilment of the condition precedent (from 21 October to 8 December 2019), she had already suffered several credit refusals, which she had taken good care not to disclose to them. Had they known of these refusals, they maintained, they would never have agreed to extend the deadline and could have put their property back on the market without waiting.

The Court of Appeal had dismissed the argument out of hand: the promise did not require the beneficiary to communicate loan refusals “as and when the banks responded”. No contractual duty of disclosure, therefore no fault.

Why does the French Supreme Court censure this reasoning?

On the basis of Article 1104, the Third Civil Chamber faults the Court of Appeal for a lack of legal basis (manque de base légale): the judges were required to examine, as they had been invited to do, “whether, by requesting an extension of the deadline for fulfilment of the condition of obtaining a loan without informing the promisors of the loan refusals notified within the originally agreed deadline, the beneficiary had breached her duty to perform the promise in good faith”.

The Court of Appeal’s reasoning suffered from a blind spot: the absence of a contractual duty of disclosure does not dispense with the statutory duty of good faith. Even if the promise contained no clause requiring loan refusals to be communicated, contractual good faith may require the buyer not to request an extension of the deadline (an act that prolongs the immobilisation of the property to the seller’s detriment) while keeping silent about loan refusals that made the failure of the condition highly probable. Concealment turns the request for an extension into a potentially disloyal act: the seller agrees to prolong their commitment on the strength of a situation they believe to be open, whereas the buyer already knows that the financing is seriously compromised.

The French Supreme Court does not itself rule that the buyer acted disloyally: it censures the lower courts for not having carried out this examination. It will be for the Versailles Court of Appeal, as the court of remittal, to decide this point on the merits.

What is the scope of this judgment for buyers and sellers?

A dual reading framework for promises to sell?

The judgment of 25 June 2026, although not published in the Bulletin, condenses into two grounds the essence of the litigation surrounding the condition precedent of a loan. First lesson: the compliance of the credit application with the stipulated characteristics is assessed rigorously, and the rate is not exempt from this requirement, especially where the promise contains a clause treating any non-compliant application as a fictitious fulfilment. Second lesson: good faith runs through the whole life of the promise, including its amendments: a buyer who negotiates an extension of the deadline cannot disregard the decisive information they hold.

For sellers and their advisers, the decision confirms the strategic value of two cumulative levers: the objective ground of the non-compliance of the loan application (Article 1304-3), and the behavioural ground of bad faith in performance (Article 1104). The second may succeed even where the first raises difficulties of proof, since it rests on the chronology of loan refusals and extension requests, which are dated and documented elements.

A rigorous reading of the “maximum rate”: is the solution immune from criticism?

It must be said plainly: the solution, taken literally, is surprising. To stipulate a “maximum” rate of 1.75% is, in everyday language as in mathematical logic, to admit all rates lower than or equal to it. The Paris Court of Appeal had said nothing else: a loan at 1.30% falls within a ceiling of 1.75%, and the promise contained no floor rate. From this standpoint, the French Supreme Court’s analysis, which treats the application at 1.30% as concerning “a rate lower than the terms set out in the contract”, may seem to invert the function of the stipulated ceiling.

This criticism must nevertheless be qualified at once, because the Court’s reasoning can be understood on two conditions. First, the reference to the maximum rate in a promise does not describe the loan the buyer hopes for: it describes the loan the buyer undertakes to seek and to accept. A buyer who applies for 1.30% is not asking for “less” than what the promise allows; they are asking for credit that is harder to obtain than the one they undertook to seek, and it is this unilateral raising of the level of requirement that characterises prevention within the meaning of Article 1304-3. Second, and above all, the promise contained an express clause treating as a fictitious fulfilment “any non-compliant application […] in particular as to the rate”. The parties had therefore themselves made the compliance of the application, rate included, a condition of the protection. It is not certain that the solution would have been the same in the absence of such a stipulation, and prudence dictates not attributing to this judgment, delivered by a restricted panel and unpublished, a normative scope that it does not claim.

A grey area remains that the judgment does not dispel: from what gap does an application cease to be compliant? Would a requested rate of 1.70% against a ceiling of 1.75% attract the same sanction? The Paris Court of Appeal had tried to introduce a proportionality criterion (the 1.30% rate being “not disproportionate” to the ceiling), which the French Supreme Court refuses to endorse. This rigour has the merit of predictability, but it shifts the whole weight of the litigation onto the drafting of the clause: it is now at the stage of the promise that the buyer’s protection is determined.

What precautions should be taken in practice?

What should a buyer applying for a property loan do?

The first reflex is to model the loan applications scrupulously on the characteristics stipulated in the promise: the same amount (or a lower one), the same term (or a shorter one), and a requested rate that does not fall below the agreed ceiling without necessity. In practical terms, the buyer should ask their bank for financing “on the terms of the promise”, expressly referring to the stipulated amount, term and maximum rate, and keep written proof of these applications.

The second reflex concerns certificates of refusal: a loan refusal has useful evidentiary value only if it states the characteristics of the rejected application (amount, term, rate). A terse certificate, without any indication of these elements, leaves the judge unable to verify the compliance of the application and considerably weakens the buyer’s position.

The third reflex, which this judgment turns into a survival rule: transparency when requesting an extension. A buyer who has already received loan refusals and who requests additional time must inform the seller. Concealment now exposes the buyer to an action for damages for breach of good faith, which may be added to the loss of the immobilisation indemnity.

How can the seller protect themselves?

On the seller’s side, the judgment validates the effectiveness of express compliance clauses: stipulating that any application that does not comply as to amount, rate or term entails the fictitious fulfilment of the condition provides a powerful litigation lever. A prudent seller will also require, before agreeing to extend the deadline, a precise written statement of the steps taken by the buyer: applications filed, banks approached, responses received. This document fixes the chronology and makes any concealment easy to demonstrate.

Finally, if the sale fails, the seller should not merely look at the loan refusals produced by the buyer: they must check their compliance with the stipulations of the promise, line by line. As this case shows, a gap of 0.45 points in the requested rate can be enough to reverse the outcome of the dispute.

What should be taken from the judgment of 25 June 2026?

This judgment is a reminder that the condition precedent of obtaining a loan is not a disguised right of withdrawal: it is a protection conditional on the buyer’s good faith and diligence. A buyer who applies for credit at a rate lower than the stipulated maximum departs from the terms set out in the contract and is exposed to the fictitious fulfilment of the condition, and therefore to payment of the immobilisation indemnity. A buyer who negotiates an extension of the deadline while keeping silent about loan refusals is further exposed to liability for breach of good faith. For buyers and sellers alike, everything is decided in the drafting of the promise and in the rigorous documentation of the financing steps. In the event of a dispute over a condition precedent for a loan, an immobilisation indemnity or the lapse of a promise, being assisted by a lawyer who is well versed in property credit litigation makes it possible to assess precisely the compliance of the loan applications and the chronology of the exchanges, the two keys to this litigation.

FAQ: Condition Precedent for a Loan and Immobilisation Indemnity