Parties may not follow through on promise-of-sale if earnest (kapparra) is paid

If the purchaser pays earnest (kapparra) the parties may not contract the sale, however, the payment will have to be refunded or else the vendor will have to pay double the earnest. This was held by Magistrate Victor Axiak presiding the Magistrates Court on 11 April 2022 in Basile Elmabhouh et -v- Rashid Mohamed Sabri et.

The plaintiffs filed an application asking the court to order the defendant to pay them €15,000, after a promise of sale agreement fell through. The plaintiffs had paid €15,000 as a deposit on the price of a maisonette, but the defendant failed to appear on the final deed without a just cause.

The curator appearing for the defendants held that they were not aware of the facts of the case.

The Court analysed the evidence brought before it. The plaintiff held in his affidavit, that he and his wife entered into a promise of sale agreement with the defendant in order to purchase a property. They had made arrangements with the banks to take a loan, but after some time the defendant rang the plaintiff informing him that he does not want to sell the property any longer. He was informed that the property was to be sold to someone else. The notary also testified and confirmed that the Defendant failed to turn up for the contract.

The Court in its judgement held that the action is based on Article 1357(2) of the Civil Code which reads:

“(2)  The effect of such promise shall cease on the lapse of the time agreed between the parties for the purpose or, failing any such agreement, on the lapse of three months from the day on which the sale could be carried out, unless the promisee calls upon the promisor, 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 promisor fails to do so, the demand by sworn application for the carrying out of the promise is filed within thirty days from the expiration of the period aforesaid.“

The Court pointed out that neither of the parties extended the promise of sale agreement and therefore, the question lies on what happens to the deposit the plaintiffs paid. Maltese case-law gives conflicting judgements on the issue and fails to regulate what happens to a deposit.

From the promise of sale agreement, the €15,000 was “a deposit on account of the price”. If the vendor failed to appear on the contract, then the purchaser, being the plaintiff, will have a right to be refunded and take action in terms of Article 1357 of the Civil Code.

The Court then quoted Article 1359 of the Civil Code, which deals with earnest (kapparra).

Our courts have held that when earnest payments are done on a promise of sale agreements, each of the parties are free not to appear on the final deed for whatever reason, long as the prospective buyer is willing to lose the deposit paid. If the seller fails to sign the contract, then he would have to pay the buyer twice the sum of the deposit. This was held in Carmel Brincat et -v- Victor Galea et decided by the First Hall of the Civil Courts on 17 January 2013 and Edgar Cachia et -v- Prestige Apartments Limited decided by the Court of Appeal on 23 November 2020.

The Court held that it must examine whether the payment made by the Defendant was a deposit or earnest. The promise of sale agreement mentions that the sum was “a deposit on account of the price” If the vendor fails to appear on the final deed “the right to the immediate refund of the deposit”.

If it is the purchaser fails to appear, the promise of sale agreement allows the purchaser, who is the Plaintiff in this case to proceed in terms of Article 1357 of the Civil Code and to retain the deposit “by way of pre-liquidated damages”.

For there to be earnest there must be two elements. The first is that both parties to the agreement must have the same right not to conclude the sale and the second is that the consequences mentioned in Article 1359 of the Civil Code. In this case the parties did not understand that they could not conclude the sale. The Defendant did not have a choice in the promise of sale agreement that he could pay twice the deposit to exit from the agreement.

The Court quoted from an amendment to Article 1359 of the Civil Code, which is not yet in force, although it passed in 2010. The Court commented that this amendment to the law would avoid conflicting judgements on this article. This is a hybrid approach that the parties may agree that the deposit on the price may be lost if sale is not concluded without a valid reason and may be claimed without going to court and is handed over when the promise of sale agreement expires.

In this case the defendant did not want to extend to promise of sale agreement and therefore, it expired.

The Court then moved to order the defendant to refund the deposit paid which amount to €15,000.