Law is not a stranger to popular misconceptions, or myths that in the eyes of many become facts.
This is to be expected; law is a complex artefact, the logic of which may not be apparent to the untrained mind. Indeed, as one US Chief Justice once put it: “The beauty of law is that it is the product of the ages – wrapped in the opinion of the moment. The law takes from Aristotle, Coke and Aquinas and is applied to the disorder and unruliness of mankind – just as an artist borrows from Michelangelo, Botticelli and Van Gogh.”
One can hardly speak of misconceptions at Maltese Law without bringing up the concept of ‘deposit’ in promise of sale agreements (konvenji). It is an institute riddled with mistaken ideas as to what the law actually states.
Parties negotiating a sale of a property may agree on the payment of a deposit to be attributed on the final deed as part of the purchase price. It has become norm for the deposit to be in a sum equivalent to 10 per cent of the purchase price.
Contrary to popular belief, the law does not impose the payment of deposit; so there may be a deposit of 95 per cent, or no deposit at all. The law grants the parties a relatively free hand in this respect, and it is up to the parties to decide. The law will then respect the will expressed by the parties, in homage to the principle of pacta sunt servanda (a Latin brocard roughly meaning: ‘what is agreed to by the parties is the law between them’).
Most promise of sale agreements speak about ‘deposit’, but a few others have a different term shrouded in mystery, and once again, in myriad misconceptions – that known as ‘earnest’ (in Maltese: kapparra).
‘Deposit’ and kapparra are not the same thing; when one pays (or receives) a ‘deposit’, he is still obliged to appear for the final deed of sale. When a sum is paid in earnest, neither of the parties is legally bound to appear at the final contract of sale, but the defaulting party will be liable to pay a ‘penalty’.
A question which often arises is: what happens to the deposit if the promise of sale expires and for some reason or another, the final deed of sale is not published?
This was the question in the judgment of the Civil Court, First Hall in the names of Zammit Joseph noe v Tarcisio Galea Properties Limited (Mr Justice L. Mintoff, July 8).
The popular understanding (and a myth, one should say) is that the party who is not at fault is entitled to retain the deposit, by right. This is an incorrect presumption, shared by many, even, sadly, in the legal profession. Perhaps one is not to be faulted for thinking this way; it is indeed logical that the party in breach of the promise of sale is penalised, one way or another.
Contrary to popular belief, the law does not impose the payment of deposit
Fact, however, is that it is not that simple.
The law (article 1357 (2) of the Civil Code) states that on the expiration of the term agreed to in the promise of sale, its effects expire, unless the promise calls upon the promiser, 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 promiser 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.
This is the only solution available for a party in a promise of sale against the defaulting party – for presently, there is no action at law providing for the retention of deposit. Therefore, the party at the wrong end of the situation cannot opt to retain the deposit (or even request the court to authorise him to retain the deposit), but he is forced to request the fulfilment of the promise of sale, and only that.
Strange as it may sound – this is the law.
The law provides for a one two-part solution; and unless that path is taken, the promise of sale will cease to have effect, with no ifs and buts. With no valid promise of sale, one cannot request to retain the deposit, because there would be no valid promise of sale mentioning any deposit.
Really and truly therefore, there is no law that allows a party to just retain the deposit, no matter how creative one is in drafting the deposit clause in the promise of sale agreement. If one fails to follow to the letter the procedure indicated in article 1357 (2) within the relative timeframes, the promise of sale will simply cease to exist, and everything within will no longer be enforceable, including the deposit clause.
This question is not short of legal controversy. But time and time again, our Court of Appeal has confirmed this legal oddity, most notably, in the judgment of Gloria Pont v JCL Construction Limited (February 1, 2008), and other judgments that followed.
The question of course is: if there is next to no legal solution for a party to retain the deposit – what is really the point of the payment of ‘deposit’? That is indeed the big quandary.
In the judgment of Zammit Joseph noe v Tarcisio Galea Properties Limited, the Court considered that neither party to the promise of sale had proceeded in terms of article 1357 (2), which meant one thing: the promise of sale had expired. As a result, its effects would have completely evaporated into nothing, including any conditions relating to the payment of the deposit. Hence, the parties had to revert to the status quo ante, that is to their original position prior to the existence of the promise of sale.
As a result, the respondent company was ordered to return to plaintiff the sum of €29,117.17 originally paid as deposit.
Carlos Bugeja, Senior Associate at Azzopardi, Borg & Abela Advocates.