Insights

Briefly the facts are as follows: the plaintiff company had, by virtue of a promise of sale agreement, entered into an obligation to purchase and acquire immovable property situated in Ħal Qormi which promise of sale was guaranteed by payment of a deposit of Lm10,000 (equivalent to Euro 23,293) ‘on account of the price’ of the immovable property. A provision in the said promise of sale stipulated that such deposit would be forfeited in favour of the seller as pre-liquidated damages should the purchaser fail to appear on the final deed of sale without a valid reason at law. Upon expiration of the promise of sale, both plaintiffs and defendants filed judicial letters calling on each other to appear on the final deed of sale. However the sale did not materialise and consequently, the plaintiff company filed proceedings in the First Hall Civil Court demanding the restitution of the above-mentioned deposit.

The First Hall Civil Court delved into the preliminary plea raised by the defendant company which plea was based on whether the action was time-barreed under the Articles 1027 and 2153 of the Civil Code. However, the aforementioned articles were deemed not to be relevant to the case at hand and thus the Court rejected the defence of prescription.

The principal matter of contention revolved around whether the plaintiff company had a valid reason at law not to appear on the final deed of sale. The Court held that notwithstanding the lack of imputability on the defendants, sufficient proof amounting to a reasonable cause (which is valid at law) is sufficient to justify the failure to appear on the final deed of sale and to demand the restitution of the deposit. According to the plaintiff, a warrant of prohibitory injunction had been personally issued by the spouse of the director of the plaintiff company which injunction prohibited the plaintiff from continuing to finance the purchase of the immovable property in question. The First Court concluded that the fact that the company could not finance the sale could be and should be considered as a ‘valid reason at law’ not to appear on the final deed.

The defendant companies appealed and the Court of Appeal made reference to Pont Gloria v J.L.J. Construction Co. Ltd., decided February 01, 2008, which referred to Bianchi v. JMA Developments Ltd, decided on May 26, 2008 and re-iterated that:

“a tenur tal-Artikolu 1357(2) tal-Kap. 16 ġialadarba tiġi ppreżentata ittra uffiċjali qabel ma jiskadi t-terminu tal-konvenju, dan l-att ġudizzjarju jestendi l-effetti tal-konvenju għal perjodu ta’ xahar sakemm jew l-aċċettant jagħżel li jersaq għall-kuntratt entro dak ix-xahar jew altrimenti sakemm tiġi preżentata l-azzjoni fejn jintalab li l-aċċettant (ossia dak li jkun wiegħed) iwettaq il-wegħda li jkun għamel permezz tal-konvenju.”

In view of the fact that the elements (a judicial letter and a case filed within 30 days following expiry of the deed of sale) comprising article 1357(2) are cumulative, both need to be satisfied; otherwise, as in this case, the promise of sale is rendered ineffective. The defendants’ entitlement to the deposit was untenable on account of the fact that the procedure prescribed by the aforementioned article was not adhered to. Furthermore, the promise of sale did not contain any ‘survival provisions’ which would render certain provisions enforceable even subsequent to the termination of an agreement. Thus, ‘il-ftehim taż-żamma tad-depożitu huwa intrinsikament marbut mal-ftehim tal-wegħda.’

Moreover, the retention of deposit ‘on account of’ is subject to a suspensive condition, which condition entails that the contract is not executed for a reason which is valid at law. The sole fact that the prospective seller failed to appear for the publication of the final deed does not necessarily bring about the fulfilment of such suspensive condition. An analysis of whether there existed a valid reason at law not to appear on the deed must take place, and if the Court is convinced that the reason is justified, then all parties must revert to the status quo ante.

In refuting the defendants’ second ground of appeal, the Court stated that when the method of finance of a prospective purchaser is disrupted for reasons which are not imputable to such person, then there is a valid reason at law not to appear for the publication of the final deed of sale.

Conclusively, the Court of Appeal agreed with the reasons of the First Hall Civil Court. It confirmed the decision of the latter, thus ordering the restitution of the Lm 10,000 (Euro 23,293) deposit paid ‘on account of’ to Gerit Company Limited.

Dr Julienne Portelli Demajo

Mr Calvin Calleja