Promise of sale agreement

The court of Appeal, composed of (outgoing) Chief Justice Vincent De Gaetano, Mr Justice Joseph A. Filletti and Mr Justice Geoffrey Valenzia on September 6, 2010 in the case “N.I.B. Company Ltd and Schembri Barbros Company Ltd vs Joseph Bugeja and Antonia Bugeja held, among other things, that as a suspensive condition in the promise of sale agreement could not be satisfied, the time limit imposed in article 1357 (2) of the Civil Code commenced to run from the date when it was certain that this condition could not be met. In the circumstances this was the date of the planning authority’s refusal to issue the building permits.

The facts in this case were as follows:

Joseph Bajada and Antonia Bajada as sellers promised to sell 11 plots, in an area known as “Tas-Salib”, Qormi in terms of a promise of sale agreement (konvenju) dated June 18, 1991 as amended on January 31, 1992 to the companies N.I.B. Company Ltd and Schembri Barbros Company Ltd, as buyers. The agreement stated that:

• There was a penalty clause imposed of Lm20,000 in case a party failed to honour the agreement;

• Buyers were entitled to apply for a permit;

• The sale of any one of the plots could take place individually within three months from when a building permit was issued; and

• That any compensation granted by the government for any expropriation of land would be granted to the buyer.

The total price had to be paid upon the final contract.

It resulted that at the time of the konvenju building permits had not been issued.

In July, 1991 the sellers applied for a permit for plots numbers 5, 6 and 7. The authorities refused to issue a permit, on grounds that the area was located outside a development zone. Subsequently, the parties agreed to substitute plot number 7 with another plot. The promise of sale agreement did not indicate the time limit wherein the agreement expired.

It was stated that the agreement was valid for three months from the date of issuance of a permit. The sale of any plot had to take place within three months from the issuance of a permit for a plot. In the circumstances, it was not disputed that no permit was in fact issued.

The Planning Authority had refused to issue a permit for the development of three plots.

On June 4, 1996, the buyers requested sellers by way of judicial letter to appear for the contract of sale. Sellers in reply asked for a higher price.

Faced with this situation, on July 11, 1996, the buyers proceeded by filing legal proceedings against the sellers. They requested the court to:

• Condemn the sellers to appear for the publication of the contract of sale; and

• To fix the time and place for the publication of the final contract.

Sellers in defence claimed that the konvenju had expired, and that it was no longer enforceable. They said that the buyers failed to observe the legal requirements for execution of the promise of sale agreement, and that action to enforce this agreement was not taken within the time limits imposed by law.

Buyers, on the other hand, argued that the konvenju had not lapsed as the relative building permits had not been issued.

They put forward the argument that a konvenju could remain suspended indefinitely until such time as the permits were issued.

Buyers referred to article 2125 (a) of the Civil Code, which provides in regard to conditional rights, until the condition is fulfilled.

They argued that they were entitled to sue within five years from when the konvenju expired.

The sellers disagreed. It was stated that it was never intended to enter into an indefinite contract. They argued that the effects of a contract ended when it appeared that it could never take place.

On February 26, 2008, the first court dismissed buyers’ requests, on grounds that the konvenju was no longer enforceable at the time when this suit was filed.

It said that the promise of sale agreement was subject to a suspensive condition, and until this condition was met there was no obligation.

Once no time limit was stipulated, the rule was that the condition was deemed not to have occurred, only when it was certain that the condition could not take place. The court noted that no permits would be issued as the area was outside the development zone.

As soon as it was obvious that the condition would not be met, the time limit under article 1357 (2) of the Civil Code applied. Article 1357 (2) provides:

“The effect of such promise shall cease on the lapse of the time agreed between the parties for the purpose or, failing any such agreement, on the lapse of three months from the day on which the sale could be carried out, unless the promise calls 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.

It followed therefore that the time limit started to expire from the date of the authorities’ refusal, i.e. January 1992.

Within this period, neither party requested the other to perform his obligations in terms of article 1357. The court maintained that the konvenju therefore lapsed and the parties returned to their status quo ante. The fact that the authorities’ refusal related to only three plots did not give rise to any doubt as to whether the konvenju applied in respect of the other plots. The court said that it was evident that the area was outside the development zone. Nor had the konvenju been extended. There were clear indications that sellers did not feel bound by the konvenju. At the time, this suit was filed, the promise of sale agreement had lapsed with the effect that the buyers could no longer enforce this agreement.

Aggrieved by the decision of the first court, the buyers entered an appeal, calling for its revocation. They reiterated their argument that the konvenju was still in force, at the time when this suit was filed. It was submitted that at law the position was that if sellers did not wish to be bound by the promise of sale agreement, they had to request the court to impose a time limit for the condition to be satisfied. It noted that in the circumstances no party made such a request.

On September 6, 2010, the Court of Appeal gave judgment by dismissing the appeal and by confirming the decision of the first court.

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

Reference was made to the Court of Appeal decision in Vella Estates Ltd vs Maria Regina Farrugia et and Angelo Busuttil et vs Dr C. Apap Bologna dated June 2, 1988 where the Court of Appeal said that the term of three months commenced to run from the date of the notice of refusal.

It was from the date of refusal of the Planning Authority that buyers should have been aware that the condition for the issuance of a permit would not be met.

If the buyer wished to purchase, he had to do so within three months from the date of the Planning Authority’s refusal.

Buyers should have been aware that the konvenju expired by April 1992.

There was no doubt that the suspensive condition for plots 5, 6 and 7 occurred. Reference was made to the jurists Torrente and Schlesiger in their commentary Manuale Di Diritto Privato. They distinguished two district stages:

(1) “Pendenza della condiz­ione” where the condition was still pending;

(2) The happening or the impossibility of the condition – “avveramento o mancanza della condizione.”

The vourt noted that when the Planning Authority decided to refuse to issue the permits, there was the so-called “mancanza della condizione”. It had become clear that it was no longer possible for the building permits to be issued in respect of these plots. It was deemed that the condition would not be satisfied.

The fact that buyers did not apply for a permit did not trigger article 1058 (2) of the Civil Code.

This article provides that: “Where an obligation is contracted on condition that an event shall happen within an appointed time, such condition shall be deemed to have failed if the time expires without the event having happened.”

Buyers would have at their disposal this remedy, if sellers had not cooperated, so concluded the court.

Dr Grech Orr is a partner at Ganado & Associates.