TRANSACTIONS IN DERIVATIVES AND BANK BONDS
LexInter | October 25, 2005 | 0 Comments

TRANSACTIONS IN DERIVATIVES AND BANK BONDS

IN THE NAME OF THE FRENCH PEOPLE

THE COURT OF CASSATION, COMMERCIAL, FINANCIAL AND ECONOMIC CHAMBER, delivered the following judgment:

Whereas, according to the judgment under appeal (Paris, May 2, 2003), that in 1996, Mr X …, employee of the company Cap Gemini, was offered the acquisition, at a unit price of 30 francs, of 20,000 warrants giving him the option to acquire as many shares of this company at a price of 80 francs upon exercise of the option which was to take place in the first half of 2000; that to acquire these good, Mr. and Mrs. X … contracted a loan with the General society (the bank), with which MX … also concluded a convention entitled “Contract of options on quoted actions”; that under this agreement, Mr X … undertook to exercise the options to purchase shares in January 2000 and that it was stipulated that if the price of the shares was, on that date, less than 118, 42 frank, representing the sum of the price of the bond, the price of the share and the cost of the credit, the bank would pay him the difference between this amount and the actual price and that, if this was greater than this amount, the bank would pay him the capital gain within the limit of a maximum price of 290.13 francs; that at the time of the outcome of the operation in January 2000, the share price was greater than 1,500 francs; that Mr. and Mrs. X …, alleging to have been victims of a fraud by reluctance, requested the cancellation of the contracts concluded with the bank and alternatively requested the cancellation of the stipulation of interest included in the loan contract by invoking the absence of any indication of the overall effective rate; the bank would pay him the difference between this amount and the actual price and that, if the latter was higher than this amount, the bank would pay him the capital gain within the limit of a maximum price of 290.13 francs; that at the time of the outcome of the operation in January 2000, the share price was greater than 1,500 francs; that Mr. and Mrs. X …, alleging to have been victims of a fraud by reluctance, requested the cancellation of the contracts concluded with the bank and alternatively requested the cancellation of the stipulation of interest included in the loan contract by invoking the absence of any indication of the overall effective rate; the bank would pay him the difference between this amount and the actual price and that, if the latter was higher than this amount, the bank would pay him the capital gain within the limit of a maximum price of 290.13 francs; that at the time of the outcome of the operation in January 2000, the share price was greater than 1,500 francs; that Mr. and Mrs. X …, alleging to have been victims of a fraud by reluctance, requested the cancellation of the contracts concluded with the bank and alternatively requested the cancellation of the stipulation of interest included in the loan contract by invoking the absence of any indication of the overall effective rate; that at the time of the outcome of the operation in January 2000, the share price was greater than 1,500 francs; that Mr. and Mrs. X …, alleging to have been victims of a fraud by reluctance, requested the cancellation of the contracts concluded with the bank and alternatively requested the cancellation of the stipulation of interest included in the loan contract by invoking the absence of any indication of the overall effective rate; that at the time of the outcome of the operation in January 2000, the share price was greater than 1,500 francs; that Mr. and Mrs. X …, alleging to have been victims of a fraud by reluctance, requested the cancellation of the contracts concluded with the bank and alternatively requested the cancellation of the stipulation of interest included in the loan contract by invoking the absence of any indication of the overall effective rate;

On the first plea:

Whereas Mr. and Mrs. X … object to the judgment of having rejected their request for the cancellation, for fraudulent reticence, of the contracts concluded with the bank then, according to the means:

1) that, whatever the contractual relations between a client and his bank, the latter has the duty to inform him of the risks incurred in speculative transactions on the futures markets; whereas this knowledge must be assessed on the basis of the degree of experience in the financial field concerned and the complexity of the product; that in the present case, Mr X .. maintained that the understanding of the hedging mechanism and its implications presupposed advanced knowledge and specific skills, which he did not have, being perfectly new to transactions carried out on derivative products , operations reserved for companies and institutions; that by limiting himself to noting that Mr X … was a graduate of the ENA and former inspector of finances,

2) that the bank is bound by a pre-contractual obligation to provide information, which is all the more precise as the transaction concerns derivative products on an over-the-counter market; that in the present case, Mr X … maintained that the document presenting the financing and hedging offer provided by Societe Generale included false indications in that it indicated in particular that the proposed hedging solutions ensured a gain minimum to the beneficiary at maturity, when only the risk of loss was partially covered and no information had been given to him on the internal mechanisms used to cover the risk of price fluctuations, failing which he could not apprehend the construction of the option contract by Société Générale; that

3) that Mr. and Mrs. X … criticized the bank for not having informed them of the existence of other formulas for hedging the risk of price fluctuations, which it could not ignore as a specialist in products derivatives, and which had the advantage of allowing the client to receive a share of the realized capital gain, with no cap on potential gains; that by limiting itself to stating that the bank could not be criticized for having designed its hedging formula by anticipating an upward trend in share prices, since “forecasting enters into the main function of the markets department of a banking institution, which cannot be criticized for assessing the future of the market according to various parameters,

But given that the failure to comply with a pre-contractual obligation to provide information, even if it has been established, cannot be sufficient to characterize fraud by reluctance, except for the observation of the intentional nature of this failure and of a decisive error caused by this one ; that the means, which is limited in its three branches to invoke breaches of the bank in its pre-contractual obligation of information, without alleging that these breaches would have been committed knowingly with the intention of provoking in the mind of Mr X … a decisive error of his consent, cannot be accepted;

And on the second means:

Whereas Mr. and Mrs. X … still complain to the judgment of having rejected their request for the cancellation of the stipulation of conventional interests contained in the loan contract then, according to the means:

1) that the limitation period for the action for nullity of the clause stipulating conventional interest for failure to indicate the overall effective rate is five years from the signing of the loan contract; that considering that this action was subject to the two-year foreclosure period of Article L. 311-37 of the Consumer Code, the Court of Appeal violated this text, together with Articles L. 313-2 of the same Code , 1304 and 1907 of the Civil Code

2) that in any event, by not responding to the plea raised by Mr. and Mrs. X … alleging that the bank, by concluding the options contract on June 28, 1996, is prior to the conclusion of the credit opening agreement, July 25, 1996 had deprived, de facto, the borrowers of the option of withdrawal of seven days provided for by Article L. 311-5 of the Consumer Code, which excluded the will of the parties to submit to consumer credit regulations resulting from Articles L. 311-1 et seq. of the Consumer Code, the Court of Appeal violated Article 455 of the new Code of Civil Procedure;

However, having noted that it follows from the clauses of the contract that it is subject to the provisions of the law of 10 January 1978, the court of appeal, which thus ruled out the contrary interpretation to which the second refers branch, correctly applied, to the action for annulment of the stipulation of interest, the two-year foreclosure period provided for in Article L. 311-37 of the Consumer Code, in its version prior to the law of December 11, 2001; that the means is founded in any of its branches;

FOR THESE REASONS :

DISMISSES the appeal;

Condemns Mr and Mrs X … at the costs;

Considering article 700 of the new Code of Civil Procedure, rejects their request and condemns them to pay the total sum of 2,000 euros to Société Générale;

Thus done and judged by the Court of Cassation, Commercial, Financial and Economic Chamber, and pronounced by the President in his public hearing on June twenty-eight, two thousand and five.

Leave a Comment

Your email address will not be published.


CAPTCHA Image
Reload Image