The Court of Appeal, composed of Chief Justice Vincent De Gaetano, Mr Justice Joseph A. Filletti and Mr Justice Geoffrey Valenzia, on May 14, 2010, in the case Reginald Vella and his wife Anne Vella Nightingale vs Angela Galea in her own name and on behalf of her minor children Terence, Nykkie, Pauline and Stephan Galea, held, among other things, that once the parties agreed that the deposit paid at the time of a konvenju was forfeitable, there was no need for the vendor to file a lawsuit to retain the deposit. A judicial letter was sufficient.

The facts in this case were as follows.

By virtue of a konvenju (agreement promising to buy and sell) dated August 26, 1999, in the acts of Notary Dimech, Mr and Mrs Vella undertook to acquire and purchase from Angela Galea the location No. 42 Independence Square, Victoria, Gozo, for the price of Lm70,000.

Vella paid Lm7,000 deposit to Notary Dimech who, according to the agreement, was “authorised to release them to the vendor within 10 (ten) days from this day unless agreement lapses as established in paragraph (5) below”. It was stated that “the said deposit will be forfeitable in favour of the vendor should the purchasers fail to honour this agreement without any valid reason at law. Should purchasers avail themselves of the option established in clause 5 (five) hereunder, the said deposit shall be refunded to the purchasers. The balance of the price shall be paid on the final deed and shall be signed by not later than eight (8) months from today”.

It so happened that the konvenju was allowed to lapse and the sale of the property was never finalised.

At issue was whether Mr and Mrs Vella were entitled to recover their Lm7,000 deposit or whether Angela Galea was justified to retain it.

Vella put forward the argument that as neither party appeared for the final contract of sale and as no legal proceedings to enforce the konvenju were taken in terms of article 1357 (2) Civil Code, the konvenju had expired. It had lost its efficacy with the effect that both the vendor and they as buyers returned to their original status quo ante, obtaining before signing the konvenju.

Vella demanded the refund of the Lm7,000 deposit, which was allegedly paid as part-payment of the final price. He claimed that this amount was certain, liquid and due, and that vendor Angela Galea had no legitimate defence.

Faced with this situation, Mr and Mrs Vella proceeded by filing special summary proceedings requesting the court to condemn Angela Galea to return their Lm7,000 deposit with legal interests.

Article 1357 (2) provides that “the effect of such promise shall cease on the lapse of the time agreed between the parties for the purpose of or failing any such agreement on the lapse of three months from the day on which the sale could be carried out, unless the promisee call upon the promisor by means of a judicial intimation filed before the expiration of the period applicable as aforesaid, to carry out the same and unless, in the event that the promisor fails to do so, the demand by sworn application for the carrying out of the promise is filed within 30 days from the expiration of the period aforesaid”.

Article 1359 Civil Code stipulates that “where, in any promise to sell, earnest has been given, each of the parties shall be at liberty to recede from the contract: the party giving the earnest forfeiting such earnest and the party receiving the earnest returning double the amount thereof, saving any other usage in regard to the particular contract in respect of which earnest has been given”.

In reply, Angela Galea contested Mr and Mrs Vella’s legal action. In defence she submitted that the deposit had been paid as kapparra (earnest), which was forfeitable to the vendor insofar as the buyer had failed to appear for the final contract without valid reason.

It was submitted that Mr Vella had no good reason not to come forward to purchase the property, and that the Lm7,000 deposit had been forfeited by application of article 1359 Civil Code.

The fact that no action was taken to enforce the konvenju released the parties from their obligation to buy or sell, but it did not also mean that the deposit which was paid as kapparra could not be forfeited according to the agreement.

On November 5, 2005, the Court of First Instance decided in favour of Mr and Mrs Vella, condemning Galea to return the Lm7,000 deposit.

The First Court considered that a konvenju which was not enforced lost its effectiveness.

The result was that the parties reversed to their original status as though the agreement had never been signed.

It followed that the buyer could request the refund of the deposit which was paid at the time of the konvenju. But for the kapparra to be forfeited the vendor had to serve a judicial letter on the buyer.

The First Court noted that the vendor had not sent any judicial letter on Mr and Mrs Vella; that the konvenju had expired; and that Vella had a right to recover the deposit whether or not it had been paid as part-payment or as kapparra.

Aggrieved by the decision of the First Court, Angela Galea entered an appeal, calling for its revocation. Her grievances were that the First Court had failed to consider that she had in fact served a judicial letter on the buyers, and that the First Court should have investi­gated the reasons why the final contract had not been con­cluded.

It should have considered whether Mr and Mrs Vella had good reason not to appear for the final contract. Mr and Mrs Vella had to prove that they were entitled to claim back their deposit.

Mr and Mrs Valla, on the other hand, denied receiving notice of a judicial letter or of any legal proceedings taken against them in terms of article 1357 (2) Civil Code.

On May 14, the Court of Appeal gave judgment by accepting the appeal and by revoking the decision of the First Court. It ordered that the acts of this case be remitted to the First Court for continuation.

The following reasons were given for the court’s decision.

The nature of the deposit, whether it was a kapparra or part-payment: In the circumstances, the court said that the deposit paid by the buyer was a kapparra, as it was forfeitable insofar as the buyer had not appeared for the final contract without good reason: re: George Cassar vs C. Grech (CA) dated June 16, 1995.

Forfeiture of the earnest (kapparra The court felt that once the parties agreed that the deposit was forfeitable, there was no need for the vendor to file a lawsuit to keep the deposit. A judicial letter was sufficient. The buyer, if at all, had to initiate legal proceedings if he claimed to have good reason not to appear for the final contract and wished to recover the deposit.

Contrary to the First Court, the Court of Appeal was satisfied that the vendor had indeed served a judicial letter on Mr and Mrs Vella.

By this lawsuit the buyers Mr and Mrs Vella did take legal action against the vendor; and although their claims were not formulated as the court would have expected, for reasons of economy of actions this court was prepared to accept this suit for the purposes of requesting a refund of the deposit. Unless Mr and Mrs Vella established that they had had good reason not to appear for the final contract, it followed that Angela Galea was justified to retain the deposit.