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Cour de Cassation, First Civil Chamber, (pourvoi no. 02-11.759)Bull.civ.1, no. 205, p. 173
10 May 2005
Note and subsequent developments by Fr¿¿d¿¿ric Goldberg (translation by Raymond Youngs)
Translated by:
Tony Weir
Professor B.S. Markesinis

Although in principle contracts as such affect only the parties to them, they may constitute facts from which consequences affecting the rights of third parties may be inferable.

Given that the decision below is criticised by SELARL Pierre Aymard and its insurer for upholding the decision at first instance dismissing the defence of prescription and for declaring on no ascertainable principle that the loans were void and that SCI, M. Merz, the SELARL Pierre Aymard and its insurer were liable in damages whereas, according to them:

1. In holding that it followed in law from the avoidance of the contracts of sale that the loans could be rescinded without stating what rule had that effect, the decision lacked legal basis under article 12 of the new Code of Civil Procedure;

2. Under article 1304 Code civil prescription against a claim for the rescission of loans taken out to finance contracts of sale subsequently avoided starts to run when the claimant first becomes aware of the defects of the sale and not at the later date when the sale is avoided, as held by the court in violation of that text;

But given that the court adopted the reasoning below, that when a sale of land is declared void, this has a retroactive effect and the sale is treated as never having existed, even in the four months specified in article L. 312-12 of the Consumer Code, its decision that the loan taken out to finance the sale was legally void was consistent with that text; since the reason the loan was void was not that the sale was defective but that it been declared void, the court of appeal was right to hold that prescription of the action to avoid the loan started to run only from the decision that the sale was void; thus the first objection is factually inaccurate and the second baseless;

On the second ground of objection;

regarding the principles applicable after the annulment of the sale contracts, the extent of the liability of the parties responsible and the damages payable by them to the lenders whereas, according to the complainants,

1. the actions for the annulment of the contract of sale and that for the avoidance of the contract of loan being actions with different objects and parties, the court violated article 1351 Code civil in holding that the fault of the notary established in the former action must equally be held established in the latter action;

2. in deciding that the nullity of the loans was due to the fault of the notary without giving any reason, apart from a mere reference to the decision regarding the contract of sale, the court violated article 455 of the new Code of Civil Procedure.;

But given that the court was not applying the rule of res judicata but merely holding that the nullity of the contracts of sale was a fact which could be relied on against the banks and that it was entitled to hold regarding the notary, who was involved in both lawsuits, that his fault which led to the avoidance of the contracts of sale was also a cause of the consequential avoidance of the contracts of loan, the objection is unacceptable;

that the court of appeal did not respond to the argument that the Banque nationale de Paris could itself be responsible for failing sufficiently to advise the borrowers of the legal difficulties of which it must have been aware, but given that this was a mere assertion the court was not bound to reply to it;

On the collateral complaint made by the Banque populaire du Sud-Ouest:

The BPSO criticises the decision below for dismissing its claim that SCI, M. Merz, the SELARAL Pierre Aymard and its insurer were liable to them in full when, according to them,

1. since a liquidated damages clause in a contract cannot be invoked by third parties whose fault has caused the contract to be rescinded or declared void, the court violated articles 1382 and 1165 Code civil in holding that M. Aymard, whose fault it was that the contracts of loan were declared void and thus terminated, was liable only for the sum stipulated in the contract of loan as payable by the borrower on exercising his right to terminate it;

2. since the clause that the sum payable by the borrower on premature termination be less than the actual harm thereby caused to the lender was inserted into the contract of loan purely in the interests of the borrower, lest the value of his statutory right be diminished, the court below violated the principle of full damages laid down in article 1382 Code civil by failing to respond to the argument that the fault of the notary had caused the bank to lose the chance of making the profit which could have been expected from the contract of loan;

For these reasons, dismisses the main and collateral pourvois.

Subsequent Developments

As at the 1st August 2007, this judgment has neither been confirmed nor contradicted by another judgment of the Cour de cassation.

Academic writers have expressed reservations as to whether this judgment is of interest and Professors Mestre and Fages (RTD Civ 2005 p 596) could be cited: ¿¿¿the phenomenon of the opposability (effect on third parties) of the contract can be used not only for probative purposes by litigants who are at fault; it can also restore life to a void contract…¿¿¿

It is appropriate however to put this judgment in the perspective of two former judgments: Civ 1, 21st March 1972 and Civ 1, 3rd January 1996. The first civil chamber responds as follows to the subsidiary pourvoi: ¿¿¿even though in principle agreements only have effect with regard to the parties, they constitute juridicial facts, the legal consequences of which can be inferred with regard to third parties¿¿¿.