The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Albert J. Magri and Mr Justice Tonio Mallia, in the case Stefan and Klaus Mifsud and others vs Architect Joseph Grech, on March 25, 2011, held, among other things, that a contract should be rescinded if it was impossible to perform.

The facts in this case were as follows.

The family Mifsud and architect Joseph Grech entered into a public deed, dated June 16, 1986, whereby it was agreed that they would transfer their undivided 4/5 (four fifths) of a house in Għar il-Lembi Street, Sliema. In return, Mr Grech obliged to build a new block of apartments on this site, and assign 4/5 of the third floor apartment to them.

The plan was to sell this flat and to share the proceeds proportionately. Architect Grech guaranteed a minimum of Lm5,000 for each 1/5 share.

The agreement stipulated that either party, the Mifsud family and or Mr Grech had the right to negotiate the sale of this flat. It was stated the interests of the Mifsud family in the property was sold “for the price of fifteen thousand Maltese liri (Lm15,000) which price the purchaser binds himself to pay to the vendors by means of assignment of three fifths of the third floor flat which purchaser is to build on the site of the said house”.

The agreement stipulated also that “the parties hereby agree that the above mentioned flat is to be sold and the price apportioned between the vendors according to their shares. Should the flat fetch a price of less than five thousand Maltese liri (Lm5,000) per one fifth share, that the purchaser binds himself to pay the difference between the price recovered and the Lm5,000 so as to guarantee a minimum price of Lm5,000 per one fifth share.’’

Architect Grech, however, could not initiate works to demolish and construct the new apartment block as a certain third party, Austin Agius and his family, occupied this house and refused to vacate. Separate legal proceedings in fact were filed by Mr Grech for the eviction of Mr Agius.

The Mifsud family, on the other hand, proceeded by instituting legal action against Mr Grech, on May 18, 1999.

They claimed that they had not yet been been paid after the lapse of over 13 years after transferring their rights over their immovable property in Sliema.

By this action they wished to compel Mr Grech to perform his contractual obligation within a time limit to be fixed by the court and, if he failed to perform his obligations, to cancel the contract and to restore the parties to the position obtaining prior to the 1986 agreement.

The Mifsud family requested the court:

1. To impose a time limit to perform his obligations;

2. To declare that architect Grech acted in bad faith;

3. To liquidate and condemn Architect Grech to pay damages, with interests on the amount, which it liquidated;

4. And, in case architect Grech failed to perform his obligations, to rescind the 1986 contract of sale.

Mr Grech, in reply, contested the legal action. It was stated in defence that his obligations under the 1986 contract were subject to a condition, which had not yet occurred.

He claimed that he was prevented from starting works, for reasons beyond his control.

In addition, Mr Grech argued that it was not possible to claim, in the same legal action, the performance of contractual obligations as well as the revocation of the very same contract.

On November 8, 2007, the court of first instance declared that:

1. The obligations of Architect Grech were subject to a condition, which needed time to perform;

2. There was no proof of damages suffered by the Mifsud family. In addition, in the contract, the Mifsud family had renounced any right to interests;

The court of first instance gave architect Grech one year to perform his obligations and, if he failed to honour his commitments, within this time limit, the public deed of June 16, 1986 between the parties would be deemed to be cancelled, with effect from the lapse of the time limit.

The court said that it was legally possible to request, in the same lawsuit, the performance of an obligation as well as to request the revocation of the contract, in case of default. Article 1069 (I) of the Civil Code provides that “where the resolutive condition, whether express or implied, relates to any case in which one of the parties fails to fulfil his engagement, the party who is the creditor in the undischarged obligation may, at his option, upon the accomplishment of the condition, either demand the dissolution of the contract, or compel the other party to perform the obligation, if this is possible”.

The obligations of architect Grech were conditional in terms of Article 1052 of the Civil Code. The project could not be initiated unless Mr Aguis vacated.

Article 1077 of the Civil Code stipulated that “where no time has been fixed for the performance of an obligation, it shall be carried into effect forthwith, unless the nature of the obligation, or the manner in which it is to be carried into effect, or the place agreed upon for its execution, implies the necessity of a time to be, if necessary, fixed by the court”.

While, on the one hand, the contract did not impose any time limit upon architect Grech, the first court took into account that the Mifsud family had assigned their share in an immoveable property in respect of which they had received nothing in return.

The court said that it was not correct to say that the Mifsud family’s action was premature. The Mifsud family were not expected to wait indefinitely.

They also had presented a judicial letter against him, to demand performance of his obligations.

The first court felt that it was appropriate in the circumstances to give Mr Grech a reasonable time limit to perform his obligations and, if he failed to perform his obligations, the contract would be cancelled, in application of the proviso to article 1068 Civil Code, which provides that “a resolutive condition is in all cases implied in bilateral agreements in the event of one of the contracting parties failing to fulfil his engagement; provided that, in any such case, the agreement shall not be dissolved ipso jure, and it shall be lawful for the court, according to circumstances, to grant a reasonable time to the defendant, saving any other provision of law relating to contracts of sale”.

Aggrieved by the decision of the first court, Mr Grech entered an appeal, calling for its revocation. It was argued that the first court was incorrect to impose a time limit.

On March 25, 2011, the Court of Appeal gave judgment by accepting the appeal in part. It declared that it did not make sense to impose a time limit for the performance of Mr Grech’s obligations which were impossible to perform. Instead, it revoked the contract of sale dated June 16, 1986, between the parties, with immediate effect.

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

The court noted that:

• The Mifsud family sold to architect Grech their undivided shares of the house, collectively amounting to four-fifths.

• The minimum guaranteed price per one-fifth share was Lm5,000. Payment was not effected at the time of the contract. Instead architect Grech agreed to assign four-fifths of the third floor flat, which was to be built on the site.

• Payment was to be made out of the proceeds of the sale of this flat.

• As the house remained occupied, the block of apartments was never constructed, and the Mifsud family never received payment.

In the circumstances, the Mifsud family was well aware that the house was occupied by a third party. This in fact explained why no time limit and interests were imposed.

The court considered that architect Grech had lost the case to evict the third party from the house, and it became virtually impossible for him to perform his obligations. The legal maxim Impossibilium nulla est obligation (a person could not be obliged to do the impossible) was to be applied, maintained the court.

It made no sense to give him a time limit to perform his obligations and instead rescinded the public deed dated June 16, 1986.

Dr Grech Orr is a partner at Ganado & Associates.