Cancel your loan: Heat pumps & Solar panels
If you have taken out a loan for the installation of a heat pump or solar panels and the seller has gone into compulsory liquidation and/or the contract contains irregularities, you should know that you can have this loan cancelled. Recent case law has confirmed that the bank may be held liable if it failed to properly verify the main contract before releasing the funds. This means that, in certain situations, you may not have to repay the borrowed capital and could obtain damages if the bank’s fault is proven.
However, the essential prerequisite is to seek the annulment of the main contract. Indeed, in the absence of nullity or termination of the main contract, the bank’s fault is not sanctioned by the deprivation of its right to restitution (CA Poitiers, no. 23/02381, 12 Nov. 2024).
Irregularities in the purchase order
What irregularities may lead to the cancellation of a heat pump or solar panel order?
To cancel a purchase order or sales contract for a heat pump or solar panel, several legal rules derived from the Consumer Code and case law may be invoked, including:
- The right of withdrawal within a 14-day period
- Non-compliance by the professional with pre-contractual information obligations
- Absence of express consent for additional payments
- Defects in consent, such as fraud or the provision of false or misleading information.
1. Right of withdrawal :
Under Article L221-18 of the Consumer Code, “the consumer has a period of fourteen days to exercise the right of withdrawal from a contract concluded at a distance, following telephone canvassing or off-premises, without having to give reasons for the decision or bear any costs other than those provided for in Articles L. 221-23 to L. 221-25”. This right of withdrawal allows the consumer to withdraw without justification within 14 days of the conclusion of the contract or receipt of the goods.
Furthermore, pursuant to Article L221-25 of the Consumer Code, no amount shall be owed by the consumer who has exercised the right of withdrawal if the express request was not obtained on a durable medium, and pursuant to Article L221-27 of the Consumer Code, the exercise of the right of withdrawal from an off-premises contract automatically terminates any ancillary contract, at no cost to the consumer.
The Court of Cassation has for example held that any contract performed before the expiry of the withdrawal period without the express request of the consumer is void (Civ. 1st, 1 October 2014, no. 13-24.848).
The Court of Cassation also upheld the annulment of a contract for the supply and installation of solar panels due to the irregularity of the purchase order. The Court held that “From the right offered to the consumer to exercise the right of withdrawal by means of a form that must be provided by the professional, it follows that the use of this form must not have the effect of impairing the integrity of the contract that the consumer must be able to retain.
Having found that the withdrawal form on the reverse of the purchase order contained, on one side, on a single page, the address to which it was to be sent along with the order references, the date and the consumer’s signature and, on the other side, the space for the consumer to sign the contract together with the seller’s identification details, a court of appeal correctly deduced that the sales contract had to be annulled” (Court of Cassation, First Civil Chamber, 20 December 2023, 21-16.491, Published in the bulletin).
2. Information obligation :
Article L221-14 of the Consumer Code provides that “for contracts concluded electronically, the professional shall remind the consumer, before the order is placed, in a legible and comprehensible manner, of the information relating to the essential characteristics of the goods or services that are the subject of the order, their price, the duration of the contract and, where applicable, the minimum duration of the consumer’s obligations under the contract”. Non-compliance with this information obligation may result in the nullity of the contract.
The Court of Cassation has for example upheld the annulment of a sales contract due to the absence of clear and precise information on delivery and performance deadlines, ruling that “the overall period of 4 months did not allow the purchasers to determine with sufficient precision when the seller would have performed its various obligations” (Court of Cassation, First Civil Chamber, 15 June 2022, 21-11.747, Published in the bulletin).
3. Express consent for additional payments :
Article L121-17 of the Consumer Code provides that “prior to the conclusion of a sales contract or a contract for the provision of services, the professional shall ensure the express consent of the consumer for any additional payment in addition to the price of the main item of the contract”. In the absence of this express consent, the consumer may claim reimbursement of the sums paid in respect of such additional payment.
4. Defects in consent, such as fraud or the provision of false or misleading information.
Defects in consent, such as fraud or the provision of false or misleading information, are factors that may lead to the nullity of a contract under French civil law.
Under Article 1130 of the Civil Code, “mistake, fraud and duress vitiate consent when they are of such a nature that, without them, one of the parties would not have contracted or would have contracted on substantially different terms”. The determining nature of these defects is assessed according to the persons and the circumstances.
Fraud is defined by Article 1137 of the Civil Code as “the act by which a contracting party obtains the other party’s consent through schemes or lies”. It also includes the intentional concealment of information that is decisive for the other party. However, “it does not constitute fraud for a party not to reveal to the other contracting party its own estimate of the value of the performance”.
Article 1112-1 of the Civil Code imposes a duty of disclosure on the party that knows information that is decisive for the other party’s consent, unless such information relates to the estimate of the value of the performance.
The Aix-en-Provence Court of Appeal, for example, annulled contracts on grounds of defective consent, in particular fraud, due to false information provided by the seller regarding the prospects of obtaining subsidies and the characteristics of the installations (Aix-en-Provence Court of Appeal, 13 February 2014, no. 12/02283).
Going further…
A linked credit, or tied credit, is a specific category of consumer credit designed to finance the acquisition of specified goods or services. Under Article L. 311-1, 11 of the Consumer Code, it is a financing contract serving exclusively to finance a contract relating to the supply of specific goods or specific services, thereby creating a “single commercial transaction” between the main contract and the credit. This contractual structure creates a substantial legal interdependence between the credit agreement and the main contract (purchase or service contract), thus defining a “single commercial transaction”. This article examines a recent development in French case law (Civ. 1st, 10 July 2024, no. 22-24.754), which reconsiders the restitution of borrowed capital in the context of linked credits when the seller becomes insolvent.
Context and Case Law Development
In recent years, disputes concerning linked credits, particularly those financing the installation of solar panels or heat pumps, have multiplied. Initially, case law favoured recourse to the special consumer law provisions, whose primary objective is to protect the consumer-borrower. However, the Court of Cassation supplemented and strengthened this protection (Civ. 1st, 10 July 2024, no. 22-24.754) by drawing on the rules of general civil liability law, in particular the theory of equivalence of conditions. This made it possible to ensure better protection for borrowers in situations where the seller was insolvent.
History of the Court of Cassation’s Case Law Development
The development of the Court of Cassation’s case law on linked credits reflects a progressive adaptation of legal rules to economic realities and to the need for consumer protection. Articles L. 312-55 and L. 312-56 of the Consumer Code (formerly Articles L. 311-32 and L. 311-33) provide that, in the event of a dispute concerning the performance of the main contract, the court may suspend the performance of the credit agreement until the dispute is resolved. If the main contract is rescinded or annulled, the credit agreement is likewise automatically annulled.
In 1989, the Court of Cassation established an initial important principle (Civ. 1st, 2 May 1989, no. 87-18.059): the annulment of the main contract entails the borrower’s obligation to return the capital paid by the lender to the seller. This principle was confirmed by the ruling of 9 November 2004 (Civ. 1st, 9 November 2004, no. 02-20.999).
However, the Court of Cassation also recalled that the lender has a duty of vigilance when setting up a linked credit. In particular, the bank must verify the regularity of the main contract, notably to ensure that the protective conditions for consumer consent are respected (Civ. 1st, 10 December 2014, appeals no. 13-26.585, 14-12.290; Civ. 1st, 26 September 2018, appeal no. 17-14.951).
The question of the consequences of a fault committed by the bank in failing to verify the validity of the main contract has evolved over the years. In 2018, the Court of Cassation held that such a fault could result in the bank being deprived of its right to claim restitution of the capital, which would relieve the borrower of their debt (Civ. 1st, 27 June 2018, appeal no. 17-16.352; Civ. 1st, 14 February 2018, appeals no. 16-29.118 to 16-29.122).
However, a ruling of 25 November 2020 (Civ. 1st, 25 November 2020, appeal no. 19-14.908) marked an important reversal. The Court of Cassation now holds that the bank may only be deprived of its right to restitution on the condition that the borrower proves damage causally linked to the fault committed by the bank. This position was confirmed by several subsequent rulings (Civ. 1st, 19 May 2021, appeal no. 19-20.992; Civ. 1st, 22 September 2021, appeal no. 19-24.817; Civ. 1st, 20 October 2021, appeal no. 20-12.411; Civ. 1st, 5 January 2022, appeal no. 20-11.970; Civ. 1st, 20 April 2022, appeal no. 20-22.457; Civ. 1st, 17 May 2023, appeal no. 22-16.429).
A portion of legal scholarship welcomed this development, emphasising that the sanction for a fault should only apply where actual damage is proven. This approach aimed to balance the interests of borrowers and lenders. The lower courts, however, remained divided on the question of whether the borrower’s inability to recover the purchase price from the seller constituted damage causally linked to the bank’s fault.
Some Courts of Appeal held that the damage is established by the impossibility of obtaining restitution of the price from an insolvent seller (Aix-en-Provence 25 October 2023 no. RG 22/02047; Bordeaux 20 March 2023 no. RG 20/02889; Grenoble 7 March 2023 no. RG 21/00; Lyon 5 January 2023 no. RG 21/05492; Paris 14 June 2023 no. RG 20/03044; Amiens, 22 December 2022, no. RG 21/02654; Dijon, 15 September 2022, no. RG 20/00314). Others held that if the installation functions and produces electricity, no damage is suffered despite the seller’s insolvency (Toulouse, 28 March 2022, no. RG 19/03996; Caen 23 November 2021 no. RG 19/02444; Nancy 7 October 2021 no. RG 20/02094; Colmar 1 September 2023 no. RG 21/02683; Metz 13 April 2023 no. RG 21/01050; Reims 17 January 2023 no. RG 21/01940; Caen, 21 June 2022, no. RG 20/01662).
Given these divergences, clarification was desirable and the scope of the decision of 25 November 2020 merited further precision. It is in this regard that the Court of Cassation ruled in its judgment of 10 July 2024 (Civ. 1st, 10 July 2024, no. 22-24.754).
The facts underlying this case
In this case, an individual had entered into an off-premises contract on 25 June 2014 for the supply and installation of solar panels and a thermodynamic water heater, financed by a credit taken out on 16 July 2014. Following irregularities in the purchase order, such as the absence of mandatory information regarding the terms of performance of the contract and imprecisions concerning the characteristics of the goods sold, the borrower summoned the seller and the bank to obtain the annulment of the sale and linked credit contracts, as well as the restitution of the sums paid. The seller was placed in compulsory liquidation by judgment of 17 December 2015, making it impossible to return the sums owed to the borrower. On appeal, the bank was ordered to compensate the borrower for the damage suffered, a decision upheld by the Court of Cassation.
After recalling its case law in a very didactic manner, the Court of Cassation considered, in this decision (Civ. 1st, 10 July 2024, no. 22-24.754), that the scope of the ruling of 25 November 2020 should be clarified as follows:
“16. If, in principle, following the annulment of the sale, the borrower obtains from the seller the restitution of the price, such that the obligation to return the capital to the bank does not, in itself, constitute recoverable damage, this is different when the seller is in compulsory liquidation.
17. Indeed, in such a scenario, on the one hand, given the annulment of the sales contract, the borrower is no longer the owner of the installation they had acquired, which must be capable of being returned to the seller or removed to avoid maintenance or repair costs.
18. On the other hand, the impossibility for the borrower to obtain the restitution of the price is, under the principle of equivalence of conditions, a consequence of the bank’s fault in examining the main contract.
19. Consequently, it should be held that when the restitution of the price to which the seller is ordered, following the annulment of the sale or service contract, has become impossible due to the insolvency of the seller or service provider, the borrower, deprived of the counterpart of the return of the goods sold, has suffered a loss equivalent to the amount of the credit taken out to finance the price of the annulled sale or service contract* causally linked to the bank’s fault which, before paying the borrowed capital to the seller, failed to verify the formal regularity of the main contract*”.
The scope of the ruling of 25 November 2020 is thus clarified: if, in principle, the annulment of the sale leads to the restitution of the price, when the seller is in compulsory liquidation, the borrower finds themselves deprived of the counterpart of the restitution. The damage is then recognised, and the bank may be held liable for the loss suffered by the borrower, provided that its fault contributed to this situation. This case law is fundamental, as it specifies the circumstances in which the bank may be held liable for the consequences of the seller’s insolvency. The Court opts here for the application of the principle of equivalence of conditions, according to which any factor that contributed to the occurrence of damage is taken into account (whereas in contractual matters, it is often the principle of adequate causation that is preferred).
The rationale behind this development was to strengthen consumer protection against imprudent banking practices.
Indeed, the tax incentive schemes developed by the State in recent years have created a considerable surge in demand for linked credits, thereby generating additional profits for banks but also a surge in opportunity for fraudsters of all kinds. Allowing banks to indiscriminately finance these installations without carrying out any basic legal verification and without any consequences for them would only have contributed to increasing the number of victims. The Court of Cassation’s clarification is therefore welcome.
Henceforth, by releasing the funds without verifying the validity of the main contract, the bank exposes itself to the possibility of having to bear the financial losses suffered by the borrower when the seller is unable to meet its contractual obligations.
Practical Consequences for Consumers and Banks
For borrowers, this decision strengthens legal certainty. In the event of the seller’s insolvency, the borrower does not have to bear alone the financial consequences of the contract’s annulment. This also implies that banks must strengthen their vigilance before releasing funds relating to a linked credit. The implementation of rigorous verification procedures regarding the validity of the financed contracts could become essential in order to limit the risk of future litigation.
For banks, this case law imposes an increased duty of diligence. In the event of a breach of this duty, banks could be required to compensate the borrower not only for the capital lent, but also for any damage relating to the loss suffered as a result of the seller’s insolvency. This obligation could lead to a strengthening of internal verification procedures, which would have repercussions on the availability and speed of implementation of linked credits.
Conclusion
The case analysed illustrates the growing intertwining of general civil liability law and special consumer law. By opting for the theory of equivalence of conditions, the Court of Cassation strengthens borrower protection against imprudent banking practices. This case law development is crucial for both consumers and credit institutions, which will need to adjust their practices in order to avoid further adverse rulings. Linked credits, which intrinsically tie the purchase and the financing, illustrate the risks associated with this interdependence and the need for the parties concerned to act with rigour and prudence.
This decision marks a decisive step in holding banks accountable in the field of linked credits, aiming to guarantee enhanced consumer protection against the risks inherent in commercial transactions. It also provides important clarifications on the characterisation of the damage suffered by borrowers, thereby contributing to a harmonisation of the positions of lower courts on this sensitive issue.
