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Three categories of grounds for terminating a credit agreement
In Belgian banking and credit law, various events can bring contractual relations to an end. Legal scholarship groups the grounds for extinction of a credit agreement into three categories [1]. First, the modes of dissolution specific to intuitu personae contracts, where a circumstance affects the party in whom the personal trust resides: death, bankruptcy, incapacity, insolvency or any other circumstance touching an element regarded as essential and personal to the contracting party. Second, the express resolutory clause, which allows the banker to end the credit where events shake the credit or disturb the borrower’s affairs. Third, the general principle applicable to contracts of indefinite duration, under which each party may terminate at any time, justified by the protection of individual and commercial freedom and by free competition [2].
For regulated credit (mortgage credit and consumer credit), termination is moreover strictly framed by the Code of Economic Law.
The most frequent grounds for challenging the banker’s decision
In credit termination disputes, the banker’s liability is most often challenged on the following grounds: the elements of the express resolutory condition are not met; the conditions for unilateral termination are not met; the reasons given for the termination are inaccurate, missing or insufficient; the contractual notice period is not respected; or the bank abuses its right. Outside these situations, and the strictly listed statutory grounds for regulated credit, the banker’s decision to terminate a credit is discretionary and need not be justified, subject to abuse of rights.
A particular case: the mandatory prior conciliation attempt (consumer mortgage credit)
A court case concerned the termination of two mortgage credits granted to consumers and governed by Book VII of the Code of Economic Law. Those rules require the mortgage creditor to summon the debtor before the attachment judge for a conciliation attempt prior to any enforcement measure [3].
The credits had fallen into arrears. The bank summoned the debtors in conciliation, in accordance with Article VII.147/24, paragraph 1 of the Code. A conciliation report was drawn up. It provided for payment of the arrears over 10 months, in addition to the contractual monthly instalment, and contained a forfeiture clause in the event of default under the report. The terms were not respected: no payment was made, except partially in the tenth and final month. The bank sent four reminders, then terminated the credits and registered the debtors with the Central Individual Credit Register.
The debtors challenged the termination under Article VII.147/20 of the Code, which allows termination only after a default of at least two instalments and after formal notice sent by registered letter. In their view, only two instalments were unpaid on the day of termination, regularised eight days later, and no prior formal notice had been sent.
Principles on conciliation before the attachment judge
The Court of Appeal upheld the validity of the termination and restated several principles. The attachment judge, who must meet the parties in chambers, plays an active role in the negotiation but may not give the impression of taking sides. The conciliation report is an authentic instrument, which may carry enforceable form under Article 733 of the Judicial Code, but has no jurisdictional character under Article 20 of the same Code. It cannot be argued that instalments not in arrears at the time of conciliation fall outside the agreement. Where the report provides for payment over X months in addition to the contractual instalment, the payments towards the arrears must be made alongside the current instalment and are periodic in nature. And the forfeiture clause is not limited to the arrears existing at the conciliation hearing: any default on a future contractual instalment suffices to trigger the forfeiture of the payment plan.
In short, the prior conciliation formality amounts to one single joker for the debtors. Any breach of the conciliation plan, or of a future instalment, allows the bank to pursue enforcement. The conciliation report does not merge into the existing mortgage credit, nor does it create a new mortgage credit that would oblige the bank to comply again with Article VII.147/20 where the agreed plan is breached.
A judgment of the Brussels Court of Appeal [4] further recalled that a banker cannot be criticised for choosing to terminate a credit rather than pursue its normal performance where the borrower never normally performed his contractual obligations. Only a brutal termination is capable of engaging the banker’s liability.
[1] J. Linsmeau, “Les responsabilités du banquier”, T.P.D.C., vol. 5, 2007, pp. 461-462, No II 623.
[2] P. Wéry, Droit des obligations, vol. 1, Brussels, Larcier, 2010, p. 825, No 980.
[3] Liège, 18 December 2019, unreported, R.G. 2018/RG/1117.
[4] Brussels, 15 September 2019, unreported, A.R. 2007/1168.
This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.
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