Promise of sale not binding if reason at law exists not to appear for contract

The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Albert J. Magri and Mr Justice Tonio Mallia, on February 25, in the case “Architect Joseph Galea vs Guerrino Giuseppe Barbirato”, held, among other things, that a promise of sale was not binding if there existed good reason at law for a person not to appear for the final contract.

The facts were as follows:

Architect Joseph Grech promised to sell and transfer to Guerrino Giuseppe Barbirato, one-hall undivided share of a property in Bisazza Street, Sliema consisting of a building site for the price of Lm200,000 in terms of a promise of sale agreement (konvenju) dated May 22, 1991.

The property included tenements, Numbers 17-20, Bisazza Street, Sliema.

It was agreed that Mr Barbirato as buyer would pay a substantial amount of the price on the date of the konvenju and the balance upon the publication of the final contract.

The promise of sale was made subject to the condition that all relative permits had to be obtained from the competent authorities.

The final contract had to be published not later than December 31, 1991.

On February 25, 1993, the parties signed another agreement, to extend the period for a further five years.

The contract of sale was never published as the necessary permit to allow Mr Barbirato to acquire property in Malta (AIP) was never granted.

In fact, as not all relative permits had been obtained, as mandated under clause 5 of the promise of sale (konvenju), the contract could not be published.

Mr Barbirato failed to appear for the contract of sale.

Architect Grech as seller claimed a balance of Lm15,000 of the purchase price. It was stated that Mr Barbirato had obtained in bad faith the registration of a special hypothec for the amount of Lm400,000 in security of his right for a refund of the deposit of Lm185,000 paid under the konvenju.

On March 23, 1998, Architect Grech proceeded to file a lawsuit against Mr Barbirato in Malta to enforce the konvenju. He requested the Court:

to condemn Mr Barbirato to appear for the contract of sale;

to pay the balance of the price due; under the konvenju (Lm15,000);

to order the cancellation of the special hypothec;

to appoint the day, time and place for the publication of the contract; to appoint a notary to publish the notarial contract and to appoint curators to represent him in case, he was contumacious.

Mr Barbirato represented by Dr Schembri as curator, in reply, contested the legal action.

It was stated in defence that the konvenju was subject to the issuance of all permits from the authorities, including the AIP in order to allow Mr Barbirato, a foreigner, to acquire immovable property in Malta, which permit had not been granted and was, in fact, refused by our authorities. As it was not legally possible for him to buy the property without a permit, the konvenju was no longer binding upon the parties, he argued. Mr Barbirato claimed that Architect Grech was obliged to refund the deposit with interests and that, the hypothec securing his refund should not be cancelled.

Mr Barbirato subsequently forwarded additional submissions where he pleaded that the konvenju was not registered with the Inland Revenue and this violation of legal notice 7 of 2004, which was brought into effect by chapter 364, the Duty on Documents Act, and in violation of article 3 (6) of Chapter 364 which provides:

‘‘Notwithstanding the provisions of any other law a promise of sale or of a transfer of immovable property or any real right thereon shall not be valid unless notice thereof is given to the Commissioner within such time and in such manner, and containing such particulars, as may be prescribed.

Such notification shall be accompanied by a provisional payment equivalent to twenty per centum of the amount chargeable in terms of articles 32 and 40.’’

Legal Notice 7 of 2004, Article 7 and 8 provide:

‘‘Every document mentioned in this Act shall be preserved by the owner thereof for at least four years after the day on which duty thereon has or ought to have been paid, and any person who destroys or mislays or fails to produce any such document before the lapse of the said period shall be liable to the same penalty as if the duty had not been paid.

“Saving any other provision of law, if a document contains or relates to several distinct matters, it shall be separately and distinctly charged as if it were a separate document in respect of each of such matters.”

On October 30, 2008, the First Hall of the Civil Court decided in favour of Mr Barbirato, it accepted that he had good reason at law not to appear for the final contract without the necessary AIP permit, and refused to order the cancellation of the hypothec.

The court considered that once the promise to sell was accepted, the buyer became obliged to pay the price within the agreed time and to receive the object of sale. However, a promise of sale was not binding if there existed good reason at law, for a person not to appear for the final contract. Reference was made to give Charles Gatt Baldacchino et vs G. Arcidiacono et dated January 17, 2007 (CA).

Clause 5 of the konvenju stated: ‘‘This agreement is being made subject to all the relative permits being obtained from the competent authority.’’

It resulted that the permit had not been granted as Mr Barbirato already owned property in Malta. It also appeared that he intended acquiring the property in question for speculation.

The First Hall of the Civil Court maintained that Mr Barbirato produced good evidence not to appear for the final contract. Without the AIP permit, it was not lawful for him to enter the contract of sale: E. Borg Cardona et vs Davinia Leasing Company led dated May 7,1998 (CA); J.A Pleasant et vs Carmelo give Lino Caruana dated May 7,1998 (CA), and A. Galea et vs T. Calleja pro et noe dated May 25, 2001, (CA). Contracts had to be performed in good faith, pointed out the First Hall of the Civil Court.

Aggrieved by the decision of the First Hall of the Civil Court, Architect Grech entered an appeal, calling for its revocation. It was submitted that the permits had not been issued, as Mr Barbirato acted in bad faith. It was alleged that Mr Barbirato was to blame for not obtaining the necessary permit.

Architect Grech in addition, claimed that the hypothec should not have been for Lm400,000 but for half the amount.

On February 25, the Court of Appeal gave judgment by dismissing the appeal and by confirming the decision of the First Hall of the Civil Court.

The following reasons were given for the courts’ decision.

While the court appreciated Architect Grech’s pleas that it should not allow abuse and that it should not permit a party to take advantage, it maintained that it had to restrict its considerations to the enforcement of the konvenju.

It was noted that one important condition had not been satisfied. This court could not order Mr Barbirato to buy the property without having the necessary permit and act, contrary to law. For this reason the Court of Appeal dismissed Architect Grech’s requests and appeal. It concluded furthermore that because the hypothec was registered with Architect Grech’s consent, he remained obliged to refund Barbirato the purchase price with interests.

The court accordingly declared that the hypothec should not be cancelled.

Dr Grech Orr is a partner at Ganado & Associates.