Loan and Nominee Borrowers: The Complicit Bank Cannot Claim Repayment (Paris Court of Appeal, 19 June 2024, No. 22/09218; Cass. 1st civ., 11 March 2026, No. 24-19135, F-B)

Paris Court of Appeal, Pôle 5, ch. 6, 19 June 2024, RG No. 22/09218; Cass. 1re civ., 11 March 2026, No. 24-19135, F–B

Can a Bank Lend to “Nominees” to Conceal a Financing?

One readily imagines banking litigation as having a single face: a solid bank claiming repayment of a loan from a defaulting borrower. The judgment handed down by the Paris Court of Appeal (cour d’appel) on 19 June 2024 overturns the picture. Here, it is not the borrower who deceived the bank; it is the bank that built, together with the borrowers’ father, an arrangement designed to have a five-million-euro financing carried by two young people with no resources, so as to avoid appearing as the direct financier of a fragile industrial group.

The legal question is an old one but formidably topical: when a credit institution does not merely know that its customer is only a “straw man” (homme de paille), but actively participates in organising this misleading appearance in its own interest, can it then turn against that customer to obtain repayment? The Paris Court of Appeal answers firmly in the negative. The loan is declared unenforceable against the borrowers.

For a firm that defends borrowers, guarantors and customers against banks, this judgment is a textbook case: it shows that an overly “clever” banking arrangement can backfire entirely on its author. One must still measure its scope exactly, and, as we shall see, take account of what the French Supreme Court subsequently made of it.

What Happened in the €5 Million Loan Case?

On 2 February 2004, a bank, Natexis Banques Populaires, to whose rights the company Natixis succeeded, granted a brother and sister an unrestricted personal loan of €5,000,000. The deed states that this loan is “intended to finance their personal needs pending the sale” of shareholdings held within the family sphere. Its term is short: seven months, with repayment due by 3 September 2004 at the latest.

The mismatch is striking. At the time of the loan, the two borrowers were 24 and 25 years old (the judgment also mentions 23 and 25). One was unemployed, the other a business school student. Neither was liable to tax or had income that could, even remotely, support a commitment of five million euros. To “secure” the transaction, the bank took a personal guarantee from the borrowers’ father for €5,500,000 and a pledge over company shares.

Such a loan, to such borrowers, obviously only makes sense if the money is not intended for them. That is precisely what the Court of Appeal was to find.

How Did the Funds Actually Flow?

The path of the funds speaks for itself. The €5,000,000 was first credited to the female borrower’s account at another institution. Then, “by express derogation from the payment instructions provided for in Article 1 of the loan agreement“, it was immediately transferred to the father’s account, then to that of a civil-law company (société civile), then to that of the group’s industrial company, all within a few days, from 5 February 2004. At no point did the money remain in the assets of the two young borrowers.

A decisive element: an internal bank memo dated 21 January 2004, produced only in 2019 on the order of the pre-trial judge (juge de la mise en état), records a preparatory meeting. It describes the objective of “setting up a €5M financing for the industrial Pôle” and contains this admission: “Despite the setting up of a personal loan, we cannot rule out, in the event of insolvency proceedings, that the path of the financing may be brought to light.” In other words, the bank knew it was financing the group and sought to conceal this “path”. The industrial group was, moreover, placed in court-supervised reorganisation (redressement judiciaire) on 24 November 2009, then in liquidation on 28 January 2010.

What Is Simulation Through the Interposition of Persons?

To understand the decision, one must grasp a mechanism of contract law: simulation. It is the heart of the case.

In our case, the court holds that the two young people “manifestly served as nominees“, their status as genuine borrowers “and also as beneficiaries, direct or indirect, of the sum lent being incapable of being seriously maintained“. It goes further by characterising the loan as “truly fictitious“, in the sense that “it was not the [G] siblings” who consented to a use of the sums different from that stated in the deed. The simulation is therefore fully established.

Ostensible Act and Counter-Letter: What Is the Difference?

Simulation rests on an essential distinction in civil law.

Here, the court notes an important point: “As the bank relies on no counter-letter that could have effect between the contracting parties, the loan must be declared unenforceable against the [G] siblings.” In the absence of a written counter-letter, the appearance (the loan displayed in the names of the two young people) cannot be turned against them for the benefit of the bank that organised that appearance.

Why Did the Court of Appeal Hold the Loan Unenforceable Against the Borrowers?

The first-instance judgment (Paris Court of First Instance (tribunal judiciaire), 6 April 2022) had declared the loan void, ordered the borrowers to repay the €5,000,000, but also ordered the bank to pay them €3,500,000 in damages for breach of its duty to warn and advise. The bank appealed.

The Court of Appeal chose a different basis, and a much more radical one for the bank: not nullity accompanied by restitution, but unenforceability of the loan. It finds that “both the bank” and the father and children, who “cannot in good faith claim to have been beneficiaries of a €5 million loan to meet personal needs when they were students“, “were perfectly aware that the loan was not genuine“.

How Does the Bank’s “Knowing” Participation Change Everything?

The pivot of the reasoning lies in one word: the bank’s active participation. In principle, the nominee remains personally bound to their counterparty, even if the latter knew of their status as a straw man. But there is a major exception: where the counterparty has knowingly participated in the simulation, it can no longer rely on the apparent act against the nominee.

The court says so bluntly: “the [G] siblings rightly argue that the bank, which was not content merely to be informed of the nominee arrangement but knowingly participated in the simulation of the statements of the loan in its own personal interest, cannot rely on this ostensible act against them.” It expressly refers to the founding judgment of the Third Civil Chamber of the French Supreme Court (Cour de cassation) of 9 July 1992 (No. 90-12.452).

This solution is not new. It extends settled case law according to which “a bank that has knowingly participated in the simulation of the statements for which the authentic instrument is conclusive evidence” cannot rely on the ostensible act against the persons who acted as nominees (Cass. 3^rd civ., 9 July 1992, No. 90-12.452, published in the Bulletin). In practice, the difference always turns on a fine line: did the bank merely know, or did it participate? Merely knowing of the nominee arrangement is not enough; active participation is required. Here, the internal memo of 21 January 2004 and the very organisation of the flow of funds tipped the balance.

What Are the Financial Consequences for the Bank?

The consequences are heavy, and this is where the practical interest of the appeal judgment for borrowers lies:

• No repayment of the principal. Since the bank cannot rely on the loan against the borrowers, its claim for repayment of the €5,000,000 is dismissed. The order for repayment made at first instance disappears.
• Loss of contractual interest. “Given the bank’s participation in the simulation, it must be dismissed from its claim for compensation seeking redress for the loss of the contractual interest on the loan“, as well as from a claim for €50,000 in damages.
• Order to pay all the costs. The court places all the costs on the bank, overturning the 70/30 split made at first instance.

A shift of scale also occurs: the question of the €3,500,000 in damages for breach of the duty to warn, awarded by the court, becomes moot in the appeal operative part. The court no longer reasons in terms of liability in damages, but of pure unenforceability. The economic result remains very favourable to the borrowers, who repay nothing, but the legal basis is no longer the same.

Why Was the Assignment of the Claim to a Third Party Annulled?

The case involved a further complication. On 28 December 2005, the bank had assigned its claim for repayment to a third party (a former banker), for a price payable in instalments. This assignee had paid only the first two instalments, totalling €153,962.13, before ceasing payment. The bank was therefore suing him for payment of the balance of the assignment price.

The court applies an implacable logic: one cannot assign to a third party a contract that one cannot enforce against one’s own debtors. “The assignment of the loan agreement by the bank to Mr [W] is void since the bank could not validly assign to a third party a contract that it could not enforce against its original debtors“, so that the bank “must be dismissed from all its claims against him“. The court specifies that the loan could be validly enforced against the assignee only on condition that he knew of the simulation at the time of the assignment, which had not been sufficiently demonstrated.

Consequence: the bank must repay the assignee the €153,962.13 already paid (€53,962.13 with interest at the statutory rate from 28 December 2005, and €100,000 with interest from 31 March 2006). Here again, before the Court of Appeal, the transaction backfires entirely on the bank. It is precisely this aspect, the annulment of the assignment, that the French Supreme Court will quash, as we see below.

What Is the Link With Abusive Credit Support?

The internal memo of 21 January 2004 provides the key to the arrangement. The court finds that “the use of the [G] siblings as nominees was motivated […] by the bank’s wish to prevent the “path of its financing” in favour of the company […], in the event of “insolvency proceedings”, from being brought to light […] in order to avoid the risk of being accused of abusive credit support“. The use of nominees was therefore not a whim: it served to protect the bank against a clearly identified liability risk.

A telling detail noted by the court: the bank could not, without contradicting itself, invoke the appearance of a personal loan to claim its repayment while having itself organised that appearance in order to escape the risk of abusive credit support. The simulation it had put in place “in its own personal interest” backfires on it. The court also stresses that the reality or the materialisation of the risk of abusive credit support is “irrelevant“: what matters is the intention to conceal, which suffices to establish the simulation.

What Became of This Judgment on Appeal to the Supreme Court? What the French Supreme Court Upholds and Quashes (11 March 2026)

The bank appealed on points of law. By a judgment published in the Bulletin (French Supreme Court (Cour de cassation), First Civil Chamber, 11 March 2026, No. 24-19.135), the Court rejected the bank’s main ground and then, on a ground raised of its own motion, partially quashed the appeal judgment. Two clear lessons emerge.

What the Supreme Court Upholds: The Loan Is Unenforceable Against the Borrowers

The bank argued that the loan could not be fictitious, since the funds had actually been paid out and the borrowers had personally undertaken to repay. It also criticised the Court of Appeal for accepting the simulation without a written document, in disregard, in its view, of the rule requiring written proof under former Article 1341 of the Civil Code. The French Supreme Court dismisses all of these arguments.

First, proof of the counter-letter “may be established by any means in the event of fraudulent intent on the part of the parties“: by bringing out this fraudulent intent, the Court of Appeal could find the loan to be fictitious without breaching the rule on proof. Second, and above all, “having held that the [N] siblings had acted as nominees, that the real borrower was the company Arbel and that the bank was not a third party to this concealment operation […], since it had participated in it in its own personal interest in order to avoid the risk of being accused of abusive support, the Court of Appeal rightly deduced […] that the bank could not rely, as against the [borrowers], on the apparent loan agreement“.

In other words, the core of the solution, the bank complicit in the simulation cannot claim repayment from the apparent borrowers, is upheld, and now enshrined in a judgment published in the Bulletin. This is a valuable anchor for anyone used as a nominee: the protection no longer rests on a single appeal decision, but on the French Supreme Court itself.

What the Supreme Court Quashes: The Annulment of the Assignment of the Claim

The partial quashing does not affect the borrowers. It concerns only the fate of the assignment of the claim granted to the third party. The Court of Appeal had annulled this assignment on the ground that one cannot assign a contract that one cannot enforce against one’s own debtors. The French Supreme Court quashes this reasoning, citing former Article 1321 of the Civil Code, for two reasons.

First, “simulation is not in itself a ground of nullity of the act to which it relates“: the loan, even if simulated as to the borrower’s identity alone, exists, and the sum was actually paid out, so the assignment was not “devoid of object“. Second, a counter-letter “is not enforceable against the good-faith assignee of a claim“: the third-party assignee, who was not shown to have known of the counter-letter, could rely on the apparent act and “pursue payment against the [borrowers]“.

The Court therefore quashes the judgment insofar as it annulled the assignment, ordered the bank to repay the assignee the sums received (€53,962.13 and €100,000) and rejected the assignee’s claim for payment against the borrowers. The case is remitted to the Paris Court of Appeal, differently composed, on these points alone.

The practical consequence is crucial. The borrowers are definitively protected against the bank: it can claim nothing from them on the basis of the loan. But unenforceability does not operate against a good-faith third-party assignee: that assignee may try to sue the apparent borrowers for repayment. The nominees’ victory against the bank therefore does not necessarily extinguish the debt: it changes the creditor.

What to Remember If Your Bank Sues You for Repayment of a “Sham” Loan

Beyond this case, several reflexes emerge for anyone sued for repayment of a credit of which they were never the real beneficiary.

1. Identify the real nature of the transaction. A loan manifestly disproportionate to the borrower’s situation (young, without income, without assets) and whose funds immediately leave their assets for a third party is a sign of possible simulation. Reconstructing the flow of funds precisely is the first step.

2. Gather evidence of the bank’s participation. The decisive characterisation is not mere knowledge, but active participation. The bank’s internal documents, transfer instructions departing from the agreement, the consistency (or inconsistency) of the security taken, and preparatory exchanges are all items to demand, if necessary by an investigative measure before any trial or a formal demand for disclosure.

3. Choose the right basis. Unenforceability, nullity for unlawful cause, lack of genuineness of the act: the characterisations do not produce the same effects, notably on the regime of restitution. The choice calls for a fine-grained analysis, to be carried out with a lawyer well versed in banking law.

4. Anticipate the question of restitution. The difference between unenforceability (no repayment of the principal, as on appeal here) and nullity (reciprocal restitution, except where the lender is at fault in releasing the funds) is crucial and may represent, as in this case, several million euros.

If you are affected by banking proceedings in which you believe you served as a “nominee” or straw man, an individual review of your case by a banking law lawyer is essential: every arrangement has its flaws, but also its evidential traps.

In Conclusion

The Paris Court of Appeal judgment of 19 June 2024 illustrates, with rare clarity, a truth that banks prefer to forget: whoever builds the appearance cannot then rely on it against the person they have used. By depriving the bank of any recourse against two young “nominees” whom it had knowingly used to finance, covertly, a group in difficulty, the court reminds us that the sophistication of an arrangement is never a guarantee of impunity; it may on the contrary become the weapon of the weaker party.

The French Supreme Court, on 11 March 2026, validated the essentials of this analysis: a bank that actively participates in a nominee arrangement, in its own interest, cannot rely on the loan against the apparent borrowers. Enshrined in a judgment published in the Bulletin, this principle now provides solid support for people used in such arrangements. The only reservation concerns the fate of the claim assigned to a good-faith third party: unenforceability protects the borrower against the bank, but not necessarily against the assignee, who retains the right to sue. Faced with a bank that has organised the appearance, the balance of power is not what one might think; one must still identify precisely who, at the end of the chain, actually holds the claim.

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