Loan Refusal After Agreement in Principle: Can the Bank Incur Liability? – Cass. com., 10 Jan. 2012, No. 10-26.149; CA Colmar, ch. 1 a, 4 Apr. 2018, No. 16/03480; Cass. com., 8 Nov. 2005, No. 1399 FS-D

Cour de cassation, Commercial Chamber, 10 January 2012, No. 10-26.149; Colmar Court of Appeal, Chamber 1A, 4 April 2018, No. 16/03480; Cour de cassation, Commercial Chamber, 8 November 2005, No. 1399 FS-D

I. The Agreement in Principle: A Mere Commitment to Continue Negotiations

A. Fundamental Distinction Between Agreement in Principle and Loan Offer

The first thing to understand in order to grasp the issues at stake is the crucial distinction between an agreement in principle issued by a bank and a genuine loan offer in the legal sense of the term. This distinction is not merely a matter of vocabulary: it determines the scope of the commitments undertaken by the bank and, consequently, the remedies available to the borrower in the event of a final refusal.

Legally, a mortgage loan offer is a document strictly regulated by the French Consumer Code (Articles L 313-24 et seq., formerly L 312-7). It must be presented on a detachable form, set out in an exhaustive and precise manner all the conditions of the loan (amount, duration, annual percentage rate, repayment terms, required security, total cost of the credit, etc.), and allow the borrower a minimum reflection period of ten days. A valid offer is binding on the bank for a minimum period of thirty days. Once it is accepted in the required form, the loan contract is concluded and the bank can no longer withdraw.

Conversely, an agreement in principle, sometimes called a “financing certificate”, “preliminary agreement” or “letter of intent”, does not constitute a firm loan offer. Even if it includes indicative figures (proposed amount, approximate duration, indicative rate), it does not satisfy the formal and substantive requirements of a preliminary credit offer. The case law of the Cour de cassation is consistent on this point: such a document does not bind the bank to conclude the loan. It merely reflects the bank’s favourable intention, subject to further verification and final approval of the application.

B. “Customary Reserves”: A Clause Preserving Freedom of Contract

When a bank issues an agreement in principle, it frequently includes the phrase “subject to customary reserves” or “subject to usual conditions”. This wording, far from being inconsequential, carries considerable legal significance. It explicitly means that the final credit terms remain to be determined and that the bank retains the ability to verify all elements of the application before making a definitive commitment.

The Cour de cassation clearly reaffirmed the scope of this clause in its ruling of 10 January 2012 (No. 10-26.149). In that case, a bank had sent borrowers an agreement in principle “subject to customary reserves” for a mortgage in which the amount, duration, rate and arrangement fees were specified. After requiring that one of the co-borrowers obtain a permanent employment contract (a condition that was met), the bank ultimately refused the loan, citing an excessive debt-to-income ratio. The borrowers, who had in the meantime signed a preliminary sale agreement subject to a condition precedent of obtaining the loan, brought proceedings against the bank for liability.

The Aix-en-Provence Court of Appeal had found the bank liable, considering that by issuing an agreement in principle specifying the essential elements of the loan, it had committed to making a conforming offer and was obliged to continue negotiations in good faith solely on ancillary matters. The Cour de cassation overturned this reasoning and quashed the appellate ruling. It set out the following principle:

“An agreement in principle given by a bank ‘subject to customary reserves’ necessarily implies that the final conditions for granting its support remain to be determined and merely obliges it to continue, in good faith, the negotiations in progress.”

This formulation is crucial: it means that even if the document mentions an amount, a rate and a duration, these elements are merely a basis for discussion. The bank retains the freedom to adjust its terms, to request additional security or, where appropriate, to refuse the loan if an in-depth analysis of the application reveals problematic elements (excessive indebtedness, insufficient security, unfavourable change in the borrower’s circumstances, refusal by the guarantee provider, etc.).

C. Absence of a Loan Contract: Legal Consequences

As long as no loan offer has been formalised in accordance with the statutory rules and accepted by the borrower, no loan contract exists in law. This is a fundamental point that case law continues to reaffirm. Even if the parties are at an advanced stage of their discussions, even if the borrower has already provided numerous documents and taken certain steps (signing a preliminary sale agreement, paying a deposit, carrying out preparatory works), the bank is not obliged to release the funds as long as the loan contract has not been concluded in the required form.

The Cour de cassation reiterated this in a landmark ruling of 19 September 2007 (No. 06-15.223): it is for the borrower who accuses a bank of refusing to perform a loan to prove that the loan contract was validly concluded, i.e. that a valid loan offer was issued and accepted under the statutory conditions. In the absence of such proof, no action for specific performance of the loan can succeed, and the bank cannot be ordered to release the funds.

This rigour is explained by the consensual nature of the loan contract and by the protective requirements of consumer law. For a mortgage credit agreement to be validly formed, not only must the parties’ wills concur, but formalities designed to protect the borrower against ill-considered commitments must also be observed. As long as these formalities are not observed, the bank retains its freedom of contract.

II. The Duty to Negotiate in Good Faith: A Safeguard Against Arbitrary Conduct

A. The Principle of Good Faith in Pre-Contractual Negotiations

While the bank retains its freedom not to conclude the loan, this freedom is not absolute. It remains governed by a fundamental principle of contract law: the duty of good faith. Article 1104 of the Civil Code (formerly Article 1134, paragraph 3) provides that “contracts must be negotiated, formed and performed in good faith”. This duty applies not only during the performance phase of the contract, but also during the negotiation phase, i.e. pre-contractual discussions.

In practical terms, this means that even if no contract has yet been concluded, the parties discussing its conclusion must behave loyally towards one another. They must not lead their counterpart to harbour false expectations, must not make proposals they know to be insincere, and must not terminate discussions abruptly and without legitimate grounds when the other party legitimately believed that the contract was about to be concluded and had incurred expenses or taken steps accordingly.

This duty of good faith in negotiations is widely recognised by case law, including in banking matters. It derives directly from the general principle of loyalty that governs all legal relationships. The Cour de cassation has had occasion to reiterate it on numerous occasions, particularly in cases where a credit institution had abruptly terminated negotiations after holding out the prospect of financing to its counterparts.

B. Wrongful Termination of Negotiations: Assessment Criteria

The termination of negotiations is not, in itself, wrongful. Each party is free to end discussions if it considers that its interests are not being served or if it judges that the project does not offer sufficient guarantees. This is the corollary of freedom of contract: no one can be compelled to conclude a contract they do not wish to enter into.

However, this freedom to terminate negotiations becomes wrongful when it is exercised abusively, i.e. in conditions that violate the principle of good faith. Case law has progressively established several criteria for assessing whether a termination is wrongful or not. These criteria are not cumulative: they constitute factors that the court examines holistically to determine whether the bank has been at fault.

First criterion: abruptness of the termination. A termination is considered abrupt when it occurs suddenly, unexpectedly, without consideration or notice, while discussions were at an advanced stage and the other party could legitimately believe that the contract was about to be concluded. For example, if the bank has repeatedly given verbal or written assurances that it was “ready to support the project” and then withdraws overnight without explanation, this abruptness may constitute a fault.

Second criterion: absence of legitimate grounds. The bank may always invoke objective grounds to justify its refusal: excessive debt-to-income ratio, insufficient security, unfavourable market conditions, refusal by the guarantee provider, substantial modification of the initial project, etc. If these grounds are serious and verifiable, the termination will generally be considered legitimate. Conversely, if the bank invokes spurious, pretextual or manifestly disproportionate grounds, a fault may be established.

Third criterion: stage of advancement of the negotiations. The more advanced the discussions, the greater the legitimate reliance of the other party, and the more the bank must exercise caution and transparency in its decision to withdraw. If the bank has already conducted in-depth verifications, if it has given a detailed agreement in principle, if it has encouraged the borrower to sign a preliminary sale agreement or to incur significant expenses (architect’s fees, notary’s fees, preparatory works), it cannot, without valid reason, reverse course at the last moment.

Fourth criterion: expenses and commitments incurred by the other party. If the borrower, relying on the bank’s assurances, has incurred significant expenses (payment of a deposit, signing of a preliminary agreement with penalties for non-completion, advisory fees, moving costs, etc.), the unjustified termination of negotiations causes them concrete loss. A bank that terminates in such circumstances without legitimate grounds commits a tortious fault.

C. Case Law Illustration: The SCI Le Pont d’Or Case

An important ruling of the Cour de cassation perfectly illustrates the application of these principles: the judgment of 8 November 2005 (No. 1399 FS-D), handed down in the case between SCI Le Pont d’Or and the company l’Hôtellerie figeacoise against Société Générale.

In this case, a family had set up two companies to develop a hotel and restaurant project in a building requiring renovation. They had approached Société Générale to obtain the necessary financing. On 8 December 1999, the bank had communicated its “best financing terms”, specifying that these offers were valid until 9 January 2000 and that any rate variation beyond that date would apply. These initial proposals were not accepted within the prescribed period.

On 5 May 2000, following a meeting between the parties, Société Générale confirmed in writing that it was “willing to support” the hotel establishment project on terms that it set out, while specifying that its proposals would only become final “upon the signing of a loan offer in due form setting out the terms of rate, repayment and arrangement fees agreed upon between the parties”.

On 7 July 2000, the two companies asked the bank to release part of the necessary funds. Société Générale then refused to comply, notifying the parties that its proposals did not constitute a firm commitment on its part and that it did not intend to follow through. The companies brought proceedings against the bank, accusing it of having wrongfully withdrawn its financing offer or, at the very least, of having wrongfully terminated the negotiations.

The Agen Court of Appeal had dismissed all the claims, finding that the offers of 8 December 1999 had expired without being accepted, that those of 5 May 2000 presupposed that an agreement be reached and a loan contract signed, which had not occurred. According to the appellate court, the bank could therefore not be accused of having terminated negotiations that had not been undertaken, nor of having breached contractual commitments that had not been entered into.

The Cour de cassation overturned this reasoning and quashed the appellate ruling. It noted that it followed from the appellate court’s own findings that Société Générale had, on 5 May 2000, informed its counterparts, without expressing any reservation, that it was willing to support their project on terms remaining to be defined. Then, without legitimate grounds, it had abruptly and unilaterally, without any further prospect of negotiation, terminated the discussions, forcing the two companies to seek, urgently, alternative financing.

The Cour de cassation deduced that, admittedly, the bank could not be accused of having, in the absence of a duly concluded contract, refused to release the requested funds (since no loan contract had been concluded). However, the bank had breached the good faith that must govern commercial relations by abruptly terminating the negotiations without legitimate grounds. In doing so, it had committed a tortious fault giving rise to liability.

This ruling is fundamental because it draws a clear distinction between two types of liability: on the one hand, the impossibility of compelling the bank to perform a contract that does not exist (contractual liability excluded); on the other hand, the possibility of sanctioning the bank for wrongful termination of negotiations on the basis of tortious liability (Article 1240 of the Civil Code, formerly Article 1382).

III. Cases Where Liability Arises: When the Bank Is at Fault

A. Abrupt Termination Without Legitimate Grounds

The first situation in which the bank’s liability may be established is that of an abrupt termination of negotiations, occurring without legitimate grounds, when the borrower could reasonably believe that the loan was about to be concluded. This scenario is illustrated by the SCI Le Pont d’Or case discussed above.

In practical terms, a termination is considered abrupt when the bank, having multiplied contacts, assurances and encouragements, suddenly withdraws from the project without serious justification. For example, if the bank has held several meetings with the borrower, studied their application in detail, validated the various aspects of the project (personal contribution, security, insurance), and then announces overnight that it will not proceed, this conduct may be characterised as abrupt.

The absence of legitimate grounds is also decisive. The bank cannot invoke any pretext to extricate itself. If it refuses the loan on grounds that, upon examination, prove to be unfounded or artificial, its liability may be engaged. For example, if it cites an excessive debt-to-income ratio that was already known at the time the agreement in principle was given, or if it manipulates calculations to arrive artificially at a prohibitive debt ratio, its refusal may be characterised as wrongful.

B. Spurious or Pretextual Reasons

Case law particularly sanctions cases where the bank invokes spurious or manifestly pretextual reasons to justify its refusal. A reason is spurious when it is objectively incorrect or when it is based on a deliberately erroneous interpretation of the application’s elements.

Consider the case heard at first instance by the Strasbourg Tribunal de Grande Instance, then on appeal by the Colmar Court of Appeal in its ruling of 4 April 2018 (No. 16/03480). In this case, a borrower had applied for financing to purchase a mixed-use property (residential and rental). On 12 October 2013, the Caisse d’Épargne had sent her an agreement in principle “subject to verification of the information provided, final approval of the SACCEF guarantee company and obtaining loan insurance”.

On 11 December 2013, the bank had issued a certificate of “final financing agreement”, indicating that the financing application had “received final approval from our institution and our guarantee company SACCEF”. On the strength of this certificate, the borrower had signed, on 10 January 2014, a preliminary sale agreement subject to a condition precedent of obtaining the loan, paying a deposit of €20,000.

However, despite the borrower’s repeated follow-ups to obtain the signing of the loan offers, the bank never issued them. It first cited an overdrawn account, then finally notified its definitive refusal to grant the loan on 12 June 2014, citing “reservations” from the guarantee company — even though it had previously stated that this company had given its final approval.

The Colmar Court of Appeal held the bank liable. It noted that the certificate of 11 December 2013 constituted a firm commitment by the bank regarding the granting of the credit and the guarantee company’s approval. The bank could not, after having thus reassured the borrower, refuse to formalise the loan without being at fault. The court also noted that the bank successively invoked different reasons (overdrawn account, modification of the project, reservations from the guarantee provider), which demonstrated the absence of any legitimate and serious ground for justifying its refusal.

The court ordered the Caisse d’Épargne to pay the borrower €20,000 in compensation for material loss (corresponding to the deposit lost following the failed acquisition) and €2,500 for non-pecuniary harm. This ruling is remarkable because it sanctions a bank that, after having issued a “final financing agreement”, refused without legitimate grounds to honour that commitment.

C. The Caisse d’Épargne d’Alsace Case: A “Final” Agreement Certificate Constituting a Promise

The Colmar Court of Appeal ruling of 4 April 2018 merits closer examination, as it illustrates a particular case where the bank’s liability was established not merely for wrongful termination of negotiations, but for non-performance of a genuine credit promise.

The court noted that the Caisse d’Épargne had sent the borrower a certificate of “final financing agreement” dated 11 December 2013, worded as follows: “The financing application for the acquisition of a property located on rue Cuvier in La Wantzenau by Ms X has received final approval from our institution and our guarantee company SACCEF.”

This wording, which contained no reservation, was interpreted by the court as constituting a firm commitment by the bank. In other words, it was no longer a mere agreement in principle obliging the bank only to continue negotiations in good faith, but a genuine unilateral promise to lend. The court moreover expressly stated: “A credit promise is a contract by which a banker promises to make funds available to their client. Non-performance of this promise gives rise to contractual liability towards the client.”

In this case, the court found that the loan contract had never been finalised “despite the bank’s firm commitment regarding the granting of the credit and the guarantee company’s approval”. To avoid liability, the bank invoked a modification of the borrower’s project. The court dismissed this argument, noting that “a reading of the exchanges between the parties rather demonstrates a modification of the contributions and other elements at the bank’s initiative following Ms X’s repeated requests, without any substantial modification of the property project being shown”.

The court also rejected the argument that the absence of a loan offer at the time of signing the preliminary agreement exonerated the bank. On the contrary, it held that “the absence of a loan offer at the time of signing the preliminary agreement is not such as to exonerate the bank from its liability for non-performance of its promise”, as the borrower had legitimately believed, in view of the final agreement certificate, that the financing was secured.

The court awarded the borrower compensation of €20,000 corresponding to the deposit paid under the preliminary sale agreement and retained by the seller (the company having since been dissolved, making restitution impossible), as well as €2,500 for non-pecuniary harm, Ms X having been “deprived of the realisation of her property project, which was close to her heart”.

IV. The Limits of Compensation: Strictly Defined Recoverable Losses

A. Tortious Liability, Not Contractual

In the vast majority of cases, when the bank’s liability is established for wrongful termination of negotiations, it is a matter of tortious and not contractual liability. This distinction is essential because it determines the extent of recoverable compensation.

Indeed, as long as no loan contract has been concluded, there is no contractual relationship between the bank and the borrower. Consequently, the bank’s fault (abrupt termination of negotiations without legitimate grounds) constitutes a civil tort within the meaning of Article 1240 of the Civil Code (formerly Article 1382): “Any act whatsoever by a person that causes damage to another obliges the person by whose fault it occurred to make reparation.”

This tortious liability is governed by different rules from contractual liability. In particular, it does not permit specific performance of the unconcluded contract, nor compensation equivalent to the benefits that contract would have provided. The court cannot compel the bank to conclude the loan, nor award the borrower a sum corresponding to the gain they would have realised had the loan been granted (for example, the expected capital gain on the property, or the difference in rate between the refused loan and the loan eventually obtained from another institution).

B. Exclusion of Loss of Chance to Conclude the Contract

Case law has progressively defined the boundaries of recoverable loss in the event of wrongful termination of negotiations. An important development came with the reform of the law of obligations in 2016, followed by the Act of 20 April 2018 which introduced Article 1112, paragraph 2, of the Civil Code. This provision now states:

“A party who wrongfully terminates [negotiations] or pursues negotiations without any intention of concluding incurs extra-contractual liability under the conditions of general law, without being able to avoid the particular provisions relating to contracts subject to a specific validity regime. In no case may reparation for the loss resulting from these acts have the purpose of compensating either the loss of the expected benefits of the unconcluded contract, or the loss of the chance of obtaining those benefits.”

This provision, which codifies earlier case law, establishes a clear principle: wrongful termination of negotiations cannot give rise to compensation corresponding to the expected gains from the unconcluded contract. In other words, the borrower cannot claim damages equal to the benefit they would have derived from the loan had it been granted (for example, the property capital gain, the expected rental income, or the interest rate differential).

This exclusion is explained by a simple principle: as long as the contract has not been concluded, no one can claim its benefits. Recognising a right to compensation for the loss of chance of concluding the contract would, in practice, amount to indirectly compelling the party who terminated the negotiations to compensate the other as if the contract had been concluded. The principle of freedom of contract prevents anyone from being forced to conclude a contract against their will.

The Cour de cassation had already affirmed this position before the 2016 reform. In a ruling of 28 June 2006 (No. 04-20.040), it held that “the termination, even if wrongful, of negotiations, which results from the exercise of the right not to contract, is not the cause of the loss consisting in the loss of a chance of realising the gains that the conclusion of the contract would have afforded”. Similarly, in a ruling of 26 November 2003 (No. 00-10.243), it overturned a court of appeal that had ordered a party to compensate the loss of chance of realising the anticipated benefits of the unconcluded contract.

C. Recoverable Losses: Negotiation Costs and Wasted Expenditure

While the expected gains from the unconcluded contract are not recoverable, the costs and expenses incurred in the course of negotiations are. Article 1112, paragraph 2, in fine, of the Civil Code expressly preserves the recovery of these losses by specifying that the exclusion of expected gains applies only “without prejudice to compensation for the costs incurred or the losses suffered”.

In practical terms, the borrower may obtain compensation for the following heads of loss:

1. Negotiation costs proper. These are all costs incurred in conducting discussions with the bank and preparing the financing project: lawyer’s or legal adviser’s fees, appraisal fees (property valuation, technical survey), travel expenses for meetings with the bank, costs of assembling the application (photocopies, registered mail, etc.). These costs are directly linked to the negotiations and would not have been incurred had the negotiations not taken place.

2. Expenditure incurred in anticipation of the contract’s conclusion. These may include costs related to the property project itself, insofar as they were incurred in reliance on the legitimate expectation created by the bank: architect’s fees for drawing up renovation plans, notary’s fees for drafting the preliminary sale agreement, surveyor’s fees, feasibility studies, etc. These expenses, although not strictly “negotiation costs”, are recoverable because they were incurred to no avail as a result of the wrongful termination.

3. Lost deposit. In many cases, the borrower, relying on the bank’s agreement in principle, signs a preliminary sale agreement and pays a deposit (typically 5 to 10% of the purchase price). If the loan is ultimately not granted and the purchase cannot proceed, the deposit is retained by the seller (unless the condition precedent of obtaining the loan applies, but this depends on whether it was properly drafted). This loss is recoverable where it results directly from the legitimate expectation created by the bank. This is precisely what the Colmar Court of Appeal held in its ruling of 4 April 2018, awarding €20,000 corresponding to the lost deposit.

4. Non-pecuniary harm. Wrongful termination of negotiations may also cause non-pecuniary harm, particularly where the property project was of particular importance to the borrower (purchase of a primary residence, life project, family investment). This loss, although difficult to assess, is recoverable. In the case decided by the Colmar Court of Appeal, the borrower obtained €2,500 on this basis, the court noting that she had been “deprived of the realisation of her property project, which was close to her heart”.

5. Damage to reputation or business relationships, where applicable. In certain cases, particularly for a company, the abrupt termination of financing negotiations may have consequences for its reputation (difficulty in finding alternative financing, loss of credibility with business partners, etc.). If this loss is proven, it may give rise to compensation.

V. Strategies for the Rejected Borrower: How to Assert Your Rights

A. Building a Strong Case

For a borrower who considers themselves the victim of wrongful termination of negotiations by their bank, the first step is to gather all the evidence capable of establishing the bank’s fault and the loss suffered. The burden of proof falls on the claimant: it is for them to demonstrate that the bank was at fault in terminating the negotiations under disloyal conditions.

The essential documents to assemble are as follows:

1. All exchanges with the bank. All letters (paper or electronic), all emails, all text messages, all meeting minutes and all handwritten notes from interviews must be carefully preserved. These documents enable the course of negotiations to be traced chronologically and the stage of advancement of the discussions to be demonstrated. They also make it possible to highlight the assurances given by the bank and, where appropriate, contradictions or inconsistencies in its explanations.

2. The agreement in principle or financing certificate. This document is obviously central. Its terms must be carefully analysed: does it contain express reservations? Does it mention conditions precedent (approval by the guarantee provider, obtaining insurance, verification of the application elements)? The firmer the wording and the fewer the reservations, the stronger the bank’s commitment and the more difficult it will be for the bank to justify a subsequent refusal.

3. The preliminary sale agreement and proof of payment of the deposit. If the borrower signed a preliminary sale agreement relying on the bank’s agreement in principle, a copy must be produced, together with proof of payment of the deposit (cheque, bank transfer, notary’s receipt). The wording of the condition precedent of obtaining the loan must also be verified: is it precise? Does it specify the characteristics of the expected loan (amount, duration, maximum rate)? A properly drafted condition precedent permits, in principle, recovery of the deposit if the loan is not obtained. But if this condition did not operate (for example because it was too imprecise or because the time limit expired), the loss suffered is all the greater.

4. Supporting documents for all expenses incurred. To obtain compensation for expenditure, it is essential to substantiate it with invoices, fee notes and bank statements. All documents evidencing expenses incurred in anticipation of the loan’s conclusion and the property project’s completion must therefore be assembled: lawyer’s or notary’s fees, appraisal fees, architect’s fees, travel expenses, etc.

5. Correspondence regarding the reason for the refusal. It is essential to retain a record of the reason or reasons given by the bank for its refusal. If the bank successively advanced several different reasons, this may constitute an indication of bad faith. Similarly, if the reason given is manifestly unfounded or disproportionate (for example, a debt-to-income ratio calculated erroneously), this strengthens the case for wrongful termination.

B. Demonstrating Legitimate Reliance and Commitments Made

For the bank’s liability to be established, it is not sufficient to prove that it terminated the negotiations. It must also be shown that this termination was wrongful, i.e. that it occurred in breach of the duty of good faith. To this end, it must be established that the borrower could legitimately believe in the imminent conclusion of the loan and had made commitments or incurred expenses accordingly.

Several elements can demonstrate this legitimate reliance:

• Stage of advancement of negotiations. The more advanced the discussions, the more legitimate the borrower’s reliance. If the bank carried out a thorough study of the application, requested numerous supporting documents (payslips, tax returns, proof of assets, financial statements for a company), had a detailed loan simulation prepared, or sought approval from a guarantee or insurance company, all these elements demonstrate that the negotiations were conducted seriously and that the conclusion of the loan appeared imminent.

• Assurances given by the bank. If the bank, orally or in writing, encouraged the borrower to pursue their project, indicated that it was “willing to support” the project, stated that the application was “progressing well”, or scheduled appointments for the signing of the loan offers, all these assurances create legitimate reliance. The more reassuring and firm the bank’s language, the more difficult it will be for it to justify a subsequent termination.

• Commitments made by the borrower. If the borrower, relying on the bank’s agreement in principle, signed a preliminary sale agreement, paid a deposit, gave notice to their current landlord, terminated their lease, had preparatory work carried out, or commissioned studies or surveys, all these acts demonstrate that they legitimately relied on obtaining the loan. The more significant and irreversible the commitments, the greater the loss suffered in the event of refusal.

C. Proving the Loss Suffered

Finally, to obtain compensation, it is not sufficient to demonstrate the bank’s fault: it is also necessary to prove the loss suffered and establish a causal link between the fault and the loss. In other words, it must be shown that the damage suffered results directly from the wrongful termination of negotiations.

As we have seen, recoverable losses are limited to costs incurred and losses suffered, to the exclusion of expected gains. These costs and losses must therefore be precisely quantified:

• Quantifying negotiation costs and preparatory expenditure. All costs incurred in anticipation of the loan’s conclusion and the property project’s completion must be totalled: lawyer’s fees, notary’s fees, architect’s fees, appraisal fees, travel expenses, etc. Each item of expenditure must be substantiated by an invoice or supporting document. The total of these costs constitutes the recoverable material loss.

• Assessing the lost deposit. If the deposit could not be recovered due to the failure of the acquisition, it constitutes a direct loss. Proof of its payment (cashed cheque, bank transfer, notary’s receipt) and proof that it was not returned (letter from the notary, deed recording the buyer’s default, dissolution of the selling company making restitution impossible, etc.) must be produced.

• Assessing non-pecuniary harm. This head of loss is by nature more difficult to quantify. The court must be told of the importance of the project to the borrower: was it the purchase of a primary residence to start a family? A rental investment to prepare for retirement? A business project (purchase of commercial premises, creation of a business)? The more important and personal the project, the more significant the non-pecuniary harm. Courts generally award sums of between €1,000 and €5,000 on this basis, but the amount may be higher in exceptional circumstances.

• Establishing the causal link. It must be shown that the costs incurred and the losses suffered are the direct consequence of the bank’s wrongful termination of negotiations. For example, if the borrower paid a deposit relying on the bank’s agreement in principle, and that deposit was lost because the loan was ultimately not granted, the causal link is obvious. Similarly, if the borrower incurred architect’s fees to prepare renovation work on the property they intended to acquire, and those fees became useless due to the loan refusal, the causal link is established.

Once the case has been assembled, the borrower may attempt an amicable negotiation with the bank, by sending a reasoned formal notice claiming compensation for the loss suffered. If this approach fails, proceedings may be brought before the competent court (Tribunal judiciaire) on the basis of tortious liability under Article 1240 of the Civil Code. The limitation period for this action is five years from the date on which the loss was known or ought to have been known.

It is strongly recommended to seek the assistance of a lawyer specialising in banking law, who will be able to analyse the documents in the case, assess the prospects of success, draft the procedural documents and argue effectively before the court. Case law on wrongful termination of banking negotiations is complex and requires specialist legal expertise.

Conclusion

The question of a bank’s liability when it issues an agreement in principle but ultimately refuses to make a loan offer perfectly illustrates the tension between two fundamental principles: freedom of contract and the duty of good faith. French law has struck a subtle balance by affirming that while the agreement in principle does not contractually bind the bank to conclude the loan, it nevertheless obliges it to negotiate loyally and not to terminate negotiations abruptly without legitimate grounds.

Case law has thus drawn a clear line of demarcation: on the one hand, the borrower cannot compel the bank to grant the loan nor obtain compensation for the expected gains from the unconcluded contract; on the other hand, a bank that wrongfully terminates negotiations incurs tortious liability and must compensate the borrower for the costs incurred and the losses suffered.

For the rejected borrower, the stakes are therefore twofold: first, demonstrating that the bank was at fault in terminating the negotiations abruptly, disloyally or without legitimate grounds; and second, proving the loss suffered and its causal link with that fault. This requires building a strong case, supported by written evidence and precise documentation.

The case law decisions analysed in this article — the landmark SCI Le Pont d’Or ruling of 2005, the Cour de cassation ruling of 10 January 2012, and the notable Colmar Court of Appeal ruling of 4 April 2018 — demonstrate that the courts are attentive to sanctioning disloyal conduct by banking institutions, while preserving their legitimate freedom of contract.

If you are faced with a loan refusal following an agreement in principle, it is essential to act quickly, to gather all the evidence, and to seek the advice of a specialist lawyer. The firm lebot-avocat.com assists individuals and companies in their disputes with banking institutions and applies its expertise to the defence of your rights. Do not hesitate to contact us for a personalised analysis of your situation.

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