Bank Liability for Refusing to Grant or Extend Credit: A Case Study

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May a bank be held liable when it refuses to grant a credit, or refuses to extend an existing one? The question matters to lawyers, bankers and in-house counsel alike. Freedom of contract is a fundamental principle of Belgian civil law. A bank is not obliged to finance every applicant. But can it abuse its right to refuse?

Refusing to extend a credit: the legal framework

The same principle governs the refusal to extend the maturity of a credit. In some situations, the law requires the bank to state reasons for a credit refusal. The refusal may nonetheless be reviewed through the lens of abuse of rights, as the Brussels Court of Appeal has recalled.

Case study: refusal to extend a bullet loan (Brussels Court of Appeal)

A bank had financed a client’s purchase of a castle for more than one million euros. Works of a similar amount were also partly financed by the bank. Pending resale, the owner received a bridge loan, repayable on the date of sale and at the latest on 1 October 2012. No sale occurred by that date. The bank offered a single extension of the bridge loan, or a new five-year fixed-term credit, subject to an updated review of the borrower’s financial situation. On that basis, the bank ultimately refused to extend the credit. Enforcement proceedings against the property followed. They were suspended for three months to allow a private sale.

Legal analysis and outcome

The Court of Cassation has held that refusing to enter into a credit agreement can amount to an abuse of rights where the freedom not to contract is exercised unreasonably. In this case, however, the refusal to grant a further payment period was found to be neither an abuse of rights nor imprudent conduct on the banker’s part.

One element supported the court’s reasoning: the client had not obtained financing from any other bank either.

References

• Brussels Court of Appeal, 3 March 2020, unreported, R.G. 2015/AR/1757.
• Court of Cassation, 7 October 2012, C.10.0227.F.

This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.