Very few people would use the word ‘interesting’ to describe law.
Enthralling? Even less.
But to the keen observer, law can be quite fascinating. It sets out rules of conduct ostensibly floating in a vacuum, which are then used in a myriad of scenarios which the legislator himself would not have predicted in the first place.
Take for example the case of ‘Cyril Worley et v Emanuel et’, decided on March 27 (952/12AE). Different legal points were at play, at first glance unrelated, but which when cooked together, created an enthralling legal decision worthy of notice.
The respondents had loaned some money to plaintiffs. A few months later, the plaintiffs (the debtors) transferred onto the respondents (the creditors) a property they owned for the price of €93,000. In the contract of sale, it was stated that the plaintiffs could continue to reside in the property sold.
Then, less than a year later, the respondents sold the property, freshly theirs, for the price of €230,000, making a staggering profit. The plaintiffs further renounced to their right to live in the property, while the respondents declared that all was due to them had been paid and released the plaintiffs from all obligations towards them.
Clearly, this contract had a lot to do with the debt due, although the parties did not agree how.
Then, a few days later, the parties entered into a separate private writing. Here, the plaintiffs (the debtors) received the sum of €27,500 from the respondents (the creditors) and both agreed that “following the execution of this private agreement and the relative payment contemplated therein, the parties hereto have no further pending matters in relation to each other”.
The plaintiffs filed a lawsuit, claiming that the understanding between the parties had not been respected. They stated that the idea at the time was that the respondents would try and sell the property acquired. Then, both would sit down, calculate the debt still due plus interest and any extra derived from the sale of the property would be returned to the plaintiffs. This notwithstanding, the plaintiffs lamented they had only received the sum of €27,500. According to their calculations, they had to get more.
A contract is law between the parties
Simply put, their plea was that a large chunk of the ‘extra’ (save those €27,500) had been kept by the respondents. To the plaintiffs, this was nothing but an appropriation of a sum as interest higher than that permitted by law. To the plaintiffs, the fact that the property was sold short its market price was sufficient evidence that there was an underlying agreement between the parties, and one which was not respected.
As a result, the plaintiffs asked the court to order the respondents to pay that sum which it quantified to have been illegally retained, after considering the maximum rate of interest payable at law.
The relevant laws are articles 1852 and 1853 of the Civil Code, Chapter 16 of the Laws of Malta.
It is stated by our law that the rate of interest cannot exceed eight per cent per year; any higher interest agreed upon shall be invalid and is thus to be reduced to the said rate. So too, if a higher interest than that fixed by law has been paid, the excess shall be deducted from the capital. Any contract which is made to evade this rule may be rescinded.
In this case, the respondents had merely asked for reimbursement of the ‘extra’ and not for the rescission of the contract.
In a judgment dated January 30, 2015, the Civil Court, First Hall had stated that since the contract of sale was not being challenged, then it could not do anything other than to consider that contract as a mere contract of sale, despite any reservations it may have. The court is bound by law to determine the issues brought before it and none more; it cannot second-guess a contract which it was not specifically asked to rescind.
Furthermore, the plaintiffs had even declared in the last private writing (when they received the sum of €27,000) that they had no further claims against the respondents and they could not now attempt to turn back time to receive more money than they had initially accepted to receive.
As a result, the first court threw out the lawsuit. The plaintiffs appealed.
The Court of Appeal decisively endorsed the considerations of the first court. It stated that a contractual agreement binds the parties under the principle known as pacta sunt servanda − it is the law between them, and, as a result, it cannot be retracted, unless by agreement, or for reasons provided by law. It is a long-standing principle that no oral testimony is to be permitted as evidence against what is written in the contract, particularly when the parties’ intention is clear – contra scriptum testimonium non fertur.
It was no use for the plaintiffs to argue that the contract of sale was to be understood as a loan contract, for the contract stated otherwise. There was no attempt by the plaintiffs to challenge the contract on the basis of ‘simulation’ (an action for rescission of a contract in which the parties would have pretended to perform a transaction different from that in which they really were engaged in); thus, the first court was correct to state that the contract could only be regarded as a contract of sale, and only that.
Had there really been an agreement for the plaintiffs to receive any residue from the further sale of the property, it was their responsibility to see that the condition was put in writing. Lacking this, there was no room for any other interpretation.
Furthermore, they had then freely signed yet another agreement (the last one) in which they released the respondents from any further claim. If contracts can be retracted just like that, then contracts would be of no use. The Court of Appeal reiterated that a contract is law between the parties; they cannot be erased just because either party has a change of heart.
As a result, it confirmed the decision of the Civil Court, First Hall and ordered the plaintiffs to pay the costs of the case.
Carlos Bugeja is a partner at Azzopardi, Borg & Abela Advocates.