Buyer will have to sign purchase contract even if he withdraws an application for a bank loan

The facts show that the promise of sale was to expire on 7 May, 2012 and that the bank loan had to be approved by 15 December, 2011, on the promise of sale a 10% deposit was paid by the defendant

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Malcolm Mifsud
31 December 2015, 8:03am
The first Hall of the Civil Courts presided by Mr Justice JR Micallef in Francis Spiteri –v– Lawrence Camilleri held on 21 December 2015, that a purchaser of a property cannot wriggle out of a promise of sale agreement, if he himself withdraws an application for a bank loan.

In a court application, the plaintiff, Francis Spiteri explained that both parties had entered into a promise of sale agreement on 5 November 2011 on a property in Marsascala. On 24 January 2012, the same parties entered into an additional agreement to clarify what works had to take place in this property prior to the signing of the final contract. However, the defendant, Lawrence Camilleri, failed to appear on the final sale contract and therefore, Spiteri asked the court to order the defendant to sign the sale contract.

In his statement of defence, Camilleri held that the action was not filed on time and that the works were not complete. 

Mr Justice Micallef in his judgement first examined whether the action was filed on time. The facts show that the promise of sale was to expire on 7 May, 2012 and that the bank loan had to be approved by 15 December, 2011, on the promise of sale a 10% deposit was paid by the defendant. The agreement of 24 January, 2012 was not an extension of the promise of sale, but a clarification on which works had to be carried out. 

The parties had met at the Notary’s office on a number of occasions to iron out problems. In one particular meeting the police had to be called in since a brawl erupted. Camilleri accused Spiteri of not keeping to the measurement of a garage door and on the quality of the floor tiles. The Notary in her testimony also pointed out that the defendant’s application for a bank loan was withdrawn and therefore, the contract could not have taken place. It seems that the parties did not produce evidence or make submissions on the first plea, but the court held that it would still be bound to examine this plea since it was not withdrawn. According to Article 1357(2) of the Civil Code the promise of sale is extended a further 30 days, if one of the parties files a judicial act calling on the other parties to appear on the final deed. 

In the event that no contract is signed, a court suit would have to be commenced within these 30 days. The judicial act need not be a judicial letter or protest, but may be the application of the court case. The evidence showed that before the 7 May, 2012, the parties met for a final time in April 2012 at the Notary to see whether they could proceed, but it was clear that no agreement was to be reached. The application filed by the plaintiff mentions a judicial letter dated 3 May, 2012, however, no copy was presented.  The Court commented that it was not up to the court to make its own verifications, however, Article 627(e) of the Code of Organisation and Civil Procedure says that acts registered in court are admissible as evidence without needing authentication. Since the plaintiff gave details of the judicial letter, it could and was verified, where the judicial letter called upon Camilleri to appear on the contract of sale of the property. The Court then turned down the plea.

On the merits of the case, the Court explained that there have to be serious reasons for one not to sign the sale contract and in general the reason would be justified if it brought about a grave consequence or else went contrary to what was agreed or else there was no value to the contract. 

The reason must not depend on any of the parties and must not be a result of bad faith. This must exist until the promise of sale is valid. For example if the promise of sale lists a condition that the purchaser obtaining financing from the bank and the facility is not given during the validity of the promise of sale, this would be a good reason for the purchaser to refuse to appear for the final contract. In this particular case, the promise of sale had two principal conditions. The first was that works be carried out in the property before the purchase and the second that the defendant obtains a bank loan. The principle at law is that the conditions of any agreement must be carried out as the parties intend. However, the court took into consideration two issues, the first being that the promise of sale was valid for a period of time and that time was never extended. The second issue is that the conditions were for the defendant’s benefit and not in the plaintiff’s interest. 

With regard to the condition that the defendant had to obtain a bank loan according to the promise of sale, this had to take place within three weeks from the signing of the agreement and he was to inform the plaintiff of this. It was discovered that the facility was granted by a bank and in fact, the Notary attended a branch to hand over a copy of the promise of sale agreement.  However, the defendant had withdrawn the application for his loan. The Court held that this condition was satisfied and the fact that the defendant withdrew the loan application, showed that he no longer required this condition and could sign the final sale contract without a loan. The defendant renounced himself this condition. Therefore, the defendant cannot argue that the promise of sale agreement was no longer valid, when he himself triggered the renunciation of a loan.

With regard to the issue on the works that had to be carried out, the court noted that it was not up to the plaintiff to carry out the works but merely to finance them. The main complaint was on works carried out and not on works which were not carried out – which included the quality of the tiles and if this was the case the law provided the defendant a legal remedy, however, he had no right not to conclude the sale of the property.

The Court then moved to uphold the plaintiff’s request and order that the sale be published in 22 January, 2016.

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Malcolm Mifsud is a partner at Mifsud & Associates.