Court declares that mistake was no mistake

The Court of Appeal held that from the evidence produced and the agreements signed, a former shareholder had correctly paid a bank loan, although he believed he should not have. This was decided by Mr Justice Anthony Ellul in Patrick Cutajar -v- Mario Vella on 16 December, 2016.

Patrick Cutajar had appealed from a Magistrate’s Court judgement of 23 April, 2015, which turned down a claim for Mario Vella to refund €6,871 he had paid to HSBC between 2001 and 2003. He claimed that the payments were made in error. He filed an unjustified enrichment action against Mario Vella. Cutajar explained that he was Vella’s partner in Target Trading Limited and in an agreement they signed, they agreed to liquidate the company and that Cutajar was to remain responsible for all guarantees for loans with the bank before and after the liquidation.

Cutajar purchased the company and paid Vella Lm10,000. When this agreement was drawn up, both had taken out a Lm9,000 loan which was given to Target to cover its loans. The company was paying Lm118 per month as a loan repayment. After the 2001 agreement Cutajar continued paying in the defendant’s account. This continued until 2003. Cutajar believed this loan was to be paid by Target Trading. 

The First Court concluded that Target Trading was to pay an overdraft of Lm18,000, therefore the two shareholders took out personal loans of Lm9,000. The parties decided that these two loans were to be paid by the company and were considered as a shareholders’ loan. The company was paying the loan and was paid directly to the personal loan account of Vella. These two loans were in fact for the company and in the agreement of 2001 it was mentioned Cutajar was to be responsible for all guarantees. The Court commented that on the face of it, it does not appear that Cutajar was to take over the loan of Target Trading, and that the agreement limits itself to the guarantees in favour of the bank. Article 1009 Civil Code reads:

“In case of doubt, the agreement shall be interpreted against the obligee and in favour of the obligor.”

Vella testified that the agreement was in fact that Cutajar was to be responsible for the loans of Target Trading, while he was to be responsible for loans of another company.

The Court pointed out that the plaintiff, Cutajar, did not produce evidence that the company in fact had any loans and the guarantees it had in place. There is no evidence on the payments made. Furthermore the plaintiff had testified that he took over Target Trading and he paid Vella Lm10,000 for goodwill. Therefore, if Cutajar took over the company, the Court understood that he was to pay for its loans also.

The parties are not disputing that they gave Lm9,000 each to Target Trading to pay off its debt with the bank. Cutajar had testified that he paid his Lm118 per month because he knew that these were loans of Target Trading. In fact, from the company’s accounts the payments were being registered. These were payments made to the defendant Cutajar and therefore, the Court held that it was irrelevant from where the money was coming. It was evident that this was not a mistake, since Cutajar knew well that these payments were being made to pay the debts of the company, which he controlled since 2001.

The Court dismissed the appeal.

Dr Malcolm Mifsud, Partner, Mifsud & Mifsud Advocates