A bank debtor may, in certain situations, demand the return of instalments already paid. An opportunity not only for “frankowicz” borrowers.

On 16 February 2021, the Supreme Court issued a resolution stating that a party who, in performance of an invalid loan agreement, repaid the loan is entitled to a claim for the return of the repaid monetary funds as an undue benefit (Article 410 § 1 in connection with Article 405 of the Civil Code), regardless of whether they are the bank’s debtor for the return of the unduly received loan amount. Case reference number of the resolution – III CZP 11/20.

Dispute over the loan in Swiss francs

The case concerned a borrower’s claim for the return of monetary payments made as instalments of a loan in Swiss francs, which was deemed invalid (due to abusive clauses included in it). The district court upheld the claim only regarding the principal amount, which was also the difference in the loan repayment.

However, the dispute was brought before the appellate court, which expressed doubts whether, in light of Articles 405 and 409 of the Civil Code, in the case of declaring an indexed loan agreement invalid due to abusive clauses, where unjust enrichment occurs on both sides of the contract, the borrower can effectively demand from the bank the return of payments made in the form of capital and interest instalments in Polish currency or foreign currency, when the borrower has not returned the nominal amount of the loan disbursed by the bank.

The regional court accused the first-instance court of applying an incorrect method of dispute resolution. The district court adopted the so-called “balance theory”, according to which, in the case of an invalid bilateral contract, the subject of the restitution claim is not each of the fulfilled performances separately, but only the surplus of one over the other; the individual reciprocal performances serve only as accounting values (they are not subject to the principle of enrichment actualisation), resulting in only one restitution claim, and the debtor is the party to whom that surplus (positive balance) accrued (and was not subsequently lost).

According to the appellate court, claims of the bank and the borrower should be treated as independent (according to the so-called theory of two condictions). The regional court noted that applying the balance theory could conflict with the objectives of the invalidity sanction, which aims to eliminate the legal and factual effects of concluding a contract with ex tunc effect. Furthermore, the court noted that Articles 497 and 496 of the Civil Code indicate that even in the case of an invalid bilateral contract, the legislator treats each claim arising from these legal events separately, only granting a right of retention as a guarantee that each undue performance will be returned.

Position of the Supreme Court

The Supreme Court adopted a resolution that when a contract is invalid, the party who repays the loan is entitled to a claim for the return of the paid monetary funds as an undue performance (Article 410 § 1 in connection with Article 405 of the Civil Code), regardless of whether and to what extent they are a debtor of the bank for the unduly received loan amount.

According to the court, Article 410 § 2 of the Civil Code implies that a performance rendered in execution of an invalid obligation is – subject to so-called validation cases – an undue performance and thus, pursuant to Article 410 § 1 in connection with Article 405 of the Civil Code, is subject to return as a property benefit obtained unjustly at the expense of the performer, generally without the need to determine whether and to what extent the performance enriched the recipient, or whether the performer’s assets decreased. The mere fact of performing the service fulfils the criterion of impoverishment on the part of the performer, and obtaining that performance by the recipient fulfils the criterion of enrichment.

According to the court, in the case of an invalid loan agreement, the undue performance should primarily be qualified as the transfer by the bank of monetary funds to the prospective borrower, who pursuant to Article 410 § 1 in connection with Article 405 of the Civil Code becomes obliged to return them, with the enforceability of this obligation depending on the unjust enrichment recipient’s summons to return the funds pursuant to Article 455 of the Civil Code.

The Supreme Court in its resolution put an end to the so-called “balance theory”, stating that it lacks statutory justification. The court emphasised that the balance theory was not intended as an alternative to set-off for simplifying the settlement of performances under reciprocal or bilaterally binding contracts, nor as protection of one party of a prospective contract from insolvency of the other, nor as protection from earlier limitation of one party’s claim. Such needs are basically met by other civil law institutions, whose application generally requires a decision and activity by the party to whom they have been entrusted.

Opportunity for Borrowers

The Supreme Court’s decision enables borrowers of all loans (the court used the phrase “including indexed loans”) to sue banks for the return of paid performances.