Obligation a legal bond between two persons in virtue of which one of them is bound, in favour of the other, to do a certain act or abstain from doing an act or to create a right over a thing, or to transfer the ownership of a thing. The two parties involved in an obligation are the debtor, that is the person who is bound to make the performance and the creditor, the person who has the right to compel the performance. The right enjoyed by the latter is a personal right, that is a right against a designated person or persons or a defined class of persons. Causes of obligation - the classification adopted by the law of Justinian is relevant to our law: 1. contracts (ex contractu) 2. quasi-contracts (ex quasi-contractu) 3. delicts or torts (ex delictu) 4. quasi delicts or quasi torts (ex quasi delictu)
1. Ex contractu This is undoubtedly the most important category. The Romans abided by the rule that a person cannot enter into any type of contract. „Pacta‟ was very limited. The French, conversely, especially owing to Pothier`s ideas, asserted that people had to be given power to enter into any type of contract. Pothier developed the notion that for a contract to come into being there had to be 4 elements: Capacity - the attainment of 18 years of age marked the full capability of a person to contract. However there are various modifications under this age limit. Consent - which had to be free, informed and serious. The contract must be willed by a party. It may be effected by a vice: error, violence or fraud. French law includes another defect: lesion ( if the contract is to my disadvantage then there is something wrong, and thus there is lesion and the contract is annulled.) Object - the thing of the contract Consideration ( Kawza) - a very disputed element amongst authors as to what it really means. In fact certain legislators, have eliminated it as a requisite for a contract. Kawza can be described as the purpose of the contract. The kawza must not be illegal; the only restriction to the type of contract is that it is not unlawful and it is within the public policy of the particular country. 2. Quasi Contracts Their basis has always been disputed. Some authors ( Ricci) say that they are called so because you don‟t have the consent of both parties, but the consent of one and the presumed consent of the other. Others say that the basis is unjustified enrichment and the corresponding action is the actio de in rem verso. Others say that the basis of the quasi-contracts is that there is an obligation because the law says so.
The Italians have eliminated quasi contracts from their law. Torts and Quasi Torts harm caused voluntarily harm caused negligently Determination of amount of damages is the same in both cases The amount of compensation must supply for real damages and not moral damages. There must be some permanent injury/ permanent loss and thus the latter must be real and proven. 3. & 4.
Section 960 defines the term : A contract is an agreement or an accord between two or more persons by which an obligation is created, regulated, or dissolved. Section 961 distinguishes between BILATERAL and UNILATERAL contracts: (1) A contract is synallagmatic or bilateral when the contracting parties bind themselves mutually the one towards the other. (2) It is unilateral when one or more persons bind themselves towards one or more other persons without there being any obligation on the part of the latter. Section 962 distinguishes between ONEROUS and GRATITOUS contracts: (1) When each of the parties undertakes an obligation, the contract is termed onerous. (2) When one of the parties gratuitously procures an advantage to the other, the contract is termed gratuitous.
Section 963 describes a COMMUTATIVE contract: A contract is commutative, when each party binds himself to give or to do a thing which is considered as the equivalent of that which is given to or done for him. An example of a commutative contract is the case of lease, because the compensation is considered to be equivalent to the enjoyment. On the other case a non-commutative contract arises in the case of emphyteusis, because the ground rent is not equivalent to the enjoyment. Section 964 mentions ALEATORY contracts: When the advantage or loss, whether to both parties or one of them, depends on an uncertain event, the contract is aleatory. An example of an aleatory contract are insurance policies.
Other classifications which are not mentioned in our law are the following: Principal and Accessory obligations - the latter being the security, pledge, guarantee, hypothec etc… Solemn and Non-Solemn obligations - the former require certain formalities in order to arise, such as the contract of sale requires a public deed. Non-solemn obligations do not require any formalities to arise. Contracts of Adhesion - there are no negotiations; one has to sign or not sign, certain conditions are involved.
Of The Conditions Essential to the Validity Of Contracts
Section 966 states: The following are the conditions essential to the Validity of a Contract: (a) Capacity of the parties to contract; (b) the consent of the party who binds himself; (c) a certain thing which constitutes the subject matter of the contract; (d) a lawful consideration; (Kawza/Causa)
Of The CAPACITY of Contracting Parties.
Our law deals both with natural and legal incapacity. The Italian Code does not mention natural incapacity because it considers it obvious, i.e. a person who has not got the use of reason cannot make any contract. Natural incapacity. It is important to distinguish between incapacitation and interdiction. Interdiction a person cannot do any type of contract at all. Incapacitation a person is only prohibited from concluding certain contracts. When the court incapacitates a person, it must state from what contracts he is incapacitated. It is important to distinguish between the use of reason and interdiction. A person who does not have the use of reason may or may not be interdicted. If he is interdicted then it is clear that he cannot make any contract whatsoever and if no proof is necessary that at the moment when he signed the contract, he did have the use of reason. The same goes if he is incapacitated for that particular contract. It is absolute proof that he is incapable of signing the contract. If a person is not interdicted/incapacitated ( for the particular contract) it is always necessary to annul a contract to show that at the moment when the contract was signed, the person did not have the use of reason. It is irrelevant to show whether he
is habitually mad or not. One must prove that at the moment when he signed the contract he did not have the use of reason. This is sought very often when people make wills. It has to be proven that when a person is making a will he lacked the faculty of reason and this is very hard to prove and much depends on the evidence of the notary. Till now we have discussed 3 forms of natural incapacity: interdiction, incapacitation and lack of use of reason. With regard to deaf and dumb individuals, generally the courts have taken the view that people who are born deaf and dumb do not have the use of reason, but if they are born normally and eventually become deaf and dumb, than they do have the use of reason. However, this is just a trend adopted by our Courts and one can always prove otherwise.
Legal Incapacity. Minority - a minor‟s power of reflection is insufficient because he lacks that degree of mental development which is necessary to understand the importance of a contract, and his inexperience is insufficient to protect his interests. A minor is not equally incapable throughout the whole period of minority: Minors Under 7: Section 968: Any contract entered into by a person who has not the use of reason, or is under the age of seven years is null. The law treats on the same level a person who has no use of reason and a person under 7 years of age. Minors of the Age of 8: Although not mentioned in section 968, it is mentioned in 969(1) and any obligation is null. Minors between 9 and 14: Section 969: (1) Any obligation entered into by a child under the age of fourteen years is also null. (2) Nevertheless, where the child has attained the age of 9 years, agreement shall also be valid in so far as it relates to the obligations entered into by any other person in his favour. This is referred to as a lame contract as it relates to obligations entered into by another person in favour of the minor. This does not mean that the minor can choose from the contract those obligations which are in his favour and simply insist on their performance, while the minor himself not performing the corresponding obligations.
Ex. There is a contract where A sells a house to a minor. The minor cannot obtain the house because that is in his favour without paying the price. In other words we are speaking about whole contracts which are in favour of the minor. In the case of a donation, if it is awarded to a 6 year old then I can revoke it because that is null, but if I give it to one who is 10 year old, I cannot later revoke it, as that is an obligation in his favour. Minors between 14 -18: Section 970 states that the provisions of 969…shall also apply with regard to any person who has attained the age of 14 years, but has not attained the age of 18 years, if such a person is subject to parental authority, or is provided with a curator, saving always any other provision of law relating to marriage. In the case of parental authority the same rules as above apply. Section 971: (1) ….. any minor who has attained the age of 14 years, and is not subject to parental authority, nor provided with a curator, may not alienate or hypothecate his immovable property without the authority of the competent court. (2) Such minor may, however, enter into other obligations, saving, in regard to such obligations, any rescissory action which, on the ground of lesion, may be competent to him under the provisions of sections 1214 to 1219. A minor between 14-18 years who is NOT under the „patria potestas‟ has full capacity to enter into a contract, but this minor may always rescind the contract on the grounds of Lesion.. Such a minor has the faculty of using …any rescissory action which, on the ground of lesion, may be competent to him… Lesion occurs when there is a disproportion between what I am giving and what I am getting. Before, this ground of lesion was universally applicable to all contracting parties, even if they were over 18 years. In France it is still a good method of annulling contracts. Emancipation at 16: If a minor at 16 is emancipated according to the Commercial Code, he acquires full capacity for the purposes of trade and he cannot annul the contracts on the ground of lesion. If a person is between 14-16, not under „patria potestas‟ and not emancipated according to the Commercial Code, he can still enter into contracts but he can annul them on the grounds of lesion.
Nullity may not be set up by person capable of contracting.
Section 973 states Persons capable of contracting may not set up the nullity of the contract on the ground of disability of those with whom they have contracted.
Therefore the right to annul a contract on the ground of incapacity vests only in the minor himself or his representative, and not in the other party. This created the concept of „relative nullity‟. The contract is not absolutely but relatively null because it can only be annulled by one party.
Consent can be said to be the most important element in contracts. The law wants to make sure that no one is bound unless one freely gives his consent and with the intention to bind himself into that particular obligation. Consent must be free, informed and serious. The four main steps towards consent are the following; intention ( I must will my consent) expression (must be manifested) unity of expression (at least two people talking of the same thing) meeting of expression ( both consents must at a point meet) What happens if there is a distinction between intention and expression? The emphasis of the Code Napoleon and our code is based on the teoria della volonta (intention), while modern continental codes tend to protect the expression (teoria dell’affidamento). If between the intention and the expression there is no meeting point then there is a vice of consent which could take the form of error, violence or fraud, as clearly expressed in Section 974 of the Civil Code: Where consent has been given by error or extorted by violence or procured by fraud it shall not be valid. These defects/vices render the contract relatively null - the defect can only be brought forward by the person whose consent is defective and not by the other party. (i)
According to the general rule, the error has to be determining and excusable. By determining, we mean that it has to fall on something substantial to the contract and not incidental. The error must be such as to induce an individual to enter into a contract which he would not otherwise have entered. The error must also be excusable, that is one should not be negligent. If one makes an error through one‟s own fault, then he has himself to blame and it does not create a defect of consent. In Pisani vs Mamo 7/11/33 “la dottrina da acettarsi nella soggetta materia e` quella secondo cui l‟errore non puo` adursi quando e` affetto da grande negligenza.”
The court held that plaintiff could have easily realised that there was an error, even with a „lieve diligenza‟. In Schembri vs Azzopardi 1965 Plaintiffs had acquired under title of temporary emphyteusis certain fields which they had to use as quarries and on agreement that “jergghu iwittuh meta tispicca lenfitewsi.” They eventually discovered that the directus dominus was the government who had given fields on emphyteusis to defendants on condition that they transform these fields in cultivable land. Plaintiffs were claiming that they would have never entered into such contract had they known of such a condition and they were induced in it by error of fact. The Court rejected their pleas: “l-atti ta` l-akkwist jirriferixxu kontinwament ghallesistenza tal-kuntratt enfitewku originali u l-atturi setghu bl-akbar facilita jaccertaw ruhhom minn dak il-kuntratt jekk l-art setghetx tigi uzata bhala barriera. L-izball ta` l-atturi, jekk kien zball ma kienx skuzabbli.” “l-izball, skond id-duttrina u l-gurisprudenza, biex ikun hemm kawza ta` difett ta’ kunsens, irid ikun skuzabbli, tali li, anke jekk jorigina minn xi asserzjonijiet inezatti ta` xi wiehed mill-kontraenti, ma jkunx jista` jigi agevolment verifikat mill-kontraent l-iehor.” Therefore the emphasis is always on the fact that if a person does not take the necessary precautions to avoid error, he will not be able to make use of error as a defect of consent. Strict traditionalists do away with this element of excusability on the grounds that being excusable or not, my consent is in error and therefore the consent is defective. Although this idea has been put forward by some jurists it has not been accepted and in our courts it is generally taken for granted that the error has to be excusable.
In Borg vs Grima Comm. Court 3/6/94 Plaintiff was asked by defendant to go with him to the bank to sign a formula. What the plaintiff was really signing was a guarantee form for a loan of defendant. Eventually his friend did not pay the loan and the plaintiff was sued by the bank. Plaintiff argued that he did not realise that he was signing a guarantee form; but since he and defendant were about to join in a company, he thought he was simply signing a sample signature for the purpose of cheques. Court held that a guarantee form had written on it “GUARANTEE” and even if plaintiff was genuinely in error he should have seen „guarantee‟ written on top, and if he did not see it then he has only himself to blame. One realises that this theory of „excusability‟ was entered into by our Courts because of the question of proof. Strictly speaking, as some jurists argue, an error, even if not excusable, is always an error and as such vitiates consent. But if it is a stupid error, can the Court believe such person? How is the Court going to conclude that he was genuinely in error? Thus the requirement of excusability was entered into by jurists in order to avoid the problem of proof. Thus the court avoids entering into the issue of whether it avoids the defendant or not. Therefore it is today accepted doctrine that for an error to vitiate consent, it must be excusable.
An error may be of Person, Law or Fact.
Error of Person.
Section 976(2) states: The agreement shall not be valid if the error relates solely to the person with whom the agreement has been made, unless the consideration of the person has been the principal inducement thereof. It must be shown that I entered into a contract because of the person with whom I entered the contract. Had it been another person, I would not have entered the contract. Ex I sold my house only because my nephew was buying it. Therefore one has to prove that the contract was entered into because of the “consideration of the person” In Vincenza Roth vs Carmelo Abela 11/11/93 Court of Appeal.
This was a contract of lease made with a person whom the owner thought was a foreigner. A lease made in favour of a Maltese person is protected by law, whilst a lease made in favour of a foreigner is not. The owner eventually discovered that the tenant was a Maltese person and not a foreigner and sought to annul the contract of lease. The owner claimed that he had only entered into the contract of lease because he thought that Vincenzina was a foreigner. The Court said that the consideration of the person has to be taken to mean not only that Person A as distinct from person B, but also the quality of the person.] If I thought that a person had certain qualities and I entered into the quality because of such qualities, if it results that those qualities do not exist then I may annul the contract because of the fact of error of person.
Error of law.
This type of error was not a defect of consent in Roman times. It is now established in Section 975: An error of law shall not void the contract unless it was the sole or principal inducement thereof. It must be shown that I entered the contract because I thought I was bound to enter such contract because of the law In Borda vs Borg A landlord reduced his rent because he thought the law bound him to reduce the rent. Therefore the person entered into an obligation not because he wanted to enter into an obligation but because he had a mistaken idea of the law. Borsari makes a distinction between an act of omission and an act of commission. The plea of ignorance can only be raised if I acted in some way because of ignorance of the law, not because I did not act because of ignorance of the law. Error of the law is a defect only if it forces me to act, not if because of it I did not act.
Error of fact.
This is undoubtedly the most important element, as contemplated in Section 976(1): An error of fact shall not void the contract unless it affects the substance itself of the thing which is the subject matter of the agreement. Error in substantia should be distinguished from error in corpore or error in negotium: Error in corporean error as to the object of the thing. Ex I want to sell flat A and you want to buy B Error in negotioan error as to the nature of the contract. Ex I give you something as a deposit and you think it is a loan. The distinction is made because in the case of an „error in corpore‟ or „error in negotio‟, we are talking about an ABSOLUTE nullity, while in an „error in substantia‟ we have RELATIVE nullity. When there is an error in the object and an error as to the contract „in negotio‟, there is no consent at all and therefore no contract at all. Carbonnier in fact describes these two as an error obstacle - an obstacle to the creation of the contract, because consent does not exist. In an error in substantia, this does not disrupt the contract. The contract comes into being but it may be annulled by the person whose consent is vitiated. Therefore the contract is valid until it is annulled. What is the substance of the thing? Some writers, such as Turandot say that the substance of the thing emerges from the thing itself. What emerges from the thing is to be considered the substance, „ex natura rei‟. Others, such as La Rompier and Troplong, claim that the substance is that thing which the parties agree to be the substance of the thing. It is not something which emerges objectively from the thing itself, but it is that characteristic which in the mind of the parties is the substance of the thing. There must be an agreement of opinion. The most accepted view is that there need not be an agreement as to what the substance is. The substance of the thing is, what the individual who was in error, had in mind. Giorgi holds that “la parola sostanza significa quella qualita dell‟oggetto contrattuale che e` stata il motivo determinante del contratto.” What induced me to conclude the contract? The substance is subjective. Ex an antique gold ring. Is the substance the fact of it being antique or gold? This depends on the individual. If am going to buy that ring because it is an antique, then for me that is the substance of the thing. If I am going to buy that ring because it is made of gold, then that is the subject of the thing. Ricci states that the substance is any of the essential qualities of the thing; for error in substantia to be proved it must be shown that the quality of the thing about which
there is error must represent the sole reason why the obligee had entered into the contract in the first place. The obligee must prove that had he/she known the object of the contract lacked such qualities, he/she would not have entered into the contract at all. Pothier holds that the error annuls the contract when it affects the quality of the thing which the parties aimed at and which forms the substance of the thing. Laurent, on the other hand states that an error of substance is an error of quality, but not every error of quality is substantial - and it is the intention of the parties which determines whether it is a main one or not. In Emanuel Cutajar vs Carmel Petroni 15/7/69 Court of Appeal
The court held that “il-kriterji biex jigi stabilit jekk kienx hemm dan l-izball ghandu jkun suggettiv. Jigifieri, li wiehed ghandu jhares lejn il-mod li bih il-proprijent imqarraq kien qed jikkunsidra l-oggett tal-konvenzjoni.” In Cassar vs Pace 28/11/86 1st Hall Civil Crt.
Plaintiff bought a Landrover because of all its accessories. Whilst driving it, he was stopped by a policeman and he was told he could not drive the landrover with all those gadgets. He made an action to annul the sale on the ground of error in substanatia. He managed to show that he wanted to buy the Landrover because of all its accessories that came with it; he considered them the most important part of the car. The Court annulled the contract because it argued that the substance of a thing is a subjective view. In Abela vs Tabone 18/2/76 Commercial Court
Plaintiff entered into a contract with defendant for the purchase of butter on the guarantee that it contained only natural ingredients. In actual fact butter contained some artificial material. Court decided that there was a mistake on the substance of the thing and this was not a latent defect; hence the action available was that of nullity. Laurent points out that it is not necessary to consider a substantial error the wrong calculations which the contracting parties make, and the deceitful hopes to which they submit. This happens to industrial societies which whilst trading believe that they are making good bargains, and then find out is a complete ruin. He refers to a case where a company was set up for the construction of guns and manufacturing of gun powder in Prussia. Losses were made and an action for liquidation was instituted. The company directors sustained that whilst contracting they were lead to believe that the fall of water which was the essential element for manufacturing had a powerful force which in reality did not exist. The court decided that error on a quality which is more or less prosperous in a transferred business does not constitute error on the substance of the thing.
In Cutajar vs Petroni The error as to the substance of the thing, for it to lead to the annulment of the contract, is not only subjective but also unilateral. For our courts the other party is not considered and they have maintained the view of protecting the individual‟s consent. If I am in error when I give my consent, then my consent is in error and the contract can be annulled. Ricci, Giorgi, Laurent and Pothier also hold that the error is not only subjective but also unilateral. Ricci states that even though the error was on my part only, it still leads to the annulment of the contract because there has been no units of consensus on the substance. However, though both Ricci and Laurent are supporters of this subjective unilateral theory, they both consider the other party. Ex Laurent asks whether it is equitable that the other party did not know. Isn‟t it better for the buyer to tell him? Thus the traditionalists felt this difficulty. In fact, Ricci whilst giving the right to annul the contract to the individual who was in error, also gives to the other party the right to sue for damages. However, this remedy of damages to the other person in good faith was not accepted by other authors, such as Giorgi. According to the latter, Ricci‟s argument is illogical because if an error has been established in a contract, then the error is excusable and there is no question of damages. In our Courts, there has never been the awarding of damages to the other party in good faith. In Malta we are still very much bound by the traditional view that in consent the error has to be unilateral and subjective. In Camilleri vs Cuschieri Commercial Court The Court held that if the error is subjective, substantial and excusable on the part of one of the parties to a public deed, this rendered the contract null (and therefore this applies even in the case of a public deed) This trend of Malta does not follow foreign trends where the good faith of the other party is always increasingly taken into consideration.
Moral(Duress) acts upon the mind of the contracting party, and inspires such a fear of a future evil as to deprive him of his liberty of choice.
In Violence we must distinguish between: Physical and when effected by means of external force. This excludes consent altogether, because who consents in this way is simply an instrument in the hands of others.
Generally it is stated that what the law is talking about in this section is „moral‟ violence as distinguished from „physical‟ violence, because „physical‟ violence does not lead to a relative nullity of the contract, but to an absolute nullity of the contract ( as in the case of error in corpore or error in negotio.)1 Thus, Moral violence leads to a relative nullity - it can only be raised by the individual whose consent has been vitiated. The general characteristics of violence are not stated in the law. Authors hold that moral violence must have three characteristics: Unjust Grave Determining.
The threat must be of doing something unjust, contrary to the law. Ex If I threaten a person to take him to court that is not violence, as the threat is not unjust. In Huber vs Gasan 31/3/32 Commercial court
“la violenza non costituisce un vizio del consenso se non quando sia ingiusta ed illegitima…. La minaccia di venire alle vie legali non vizia per se stessa il consenso dato sotto la pressione di questa minaccia.” In Zammit Cutajar vs Debattista 27/7/89 Commercial court Defendant brought merchandise from the plaintiff‟s company and because he was in some difficulty, he issued some cheques which were not honoured by the bank. Plaintiff threatened to take the matter to the Police if the amount was not somehow settled. The parties, therefore entered into an agreement whereby the defendant produced a guarantor in order to make good the amount which he owed. Subsequently, he sought to annul the agreement on the basis of violence, because, he said, he had entered into the agreement under a threat. The court said: “ l-allegata minaccja ma twassalx ghal vizzju tal-kunsens. Ir-rimedju mhux kontra l-ligi u lanqas ma hi kontra l-ligi l-iskrittura.” But if one were to use his rights in order to acquire more than what he is entitled to, a threat in such circumstances would be considered unjust. Giorgi, holds that if one catches someone else doing an illegal act, and threatens to report to the Police unless some sort of compensation is given to him, that is to be considered an unjust threat.
The law only discusses instances of „relative nullity‟. The law never expressly deals with cases of „absolute nullity‟. In such cases there is no need for the law to say the contract is null.
Section 978(1) states: Consent shall be deemed to be extorted by violence when the violence is such as to produce an impression on a reasonable person and to create in such person the fear of having his person or property unjustly exposed to serious injury. (2) In such cases, the age, the sex and the condition of the person shall be taken into account. What is grave has to be determined by the subjective criteria and not on objective standards. What is grave is not something which can be decided a priori; it all depends on the individual. The threat could be on the person or property, a threat to one‟s honour has also been accepted as violence. The „condition of the person‟ is such a wide notion that it can cover any possible particularity of the contracting party involved in the matter.
Violence must be such that without it the party would not have concluded the contract. There must be this relationship of cause and effect. Violence - influencing contract under different terms and conditions Giorgi states that if the violence is such that I would still have agreed to the contract in spite of the violence, but I entered into the contract under different terms and conditions, then I would have entered into had it not been for the violence, in that case I cannot annul the contract but I would be able to sue for damages. Therefore these writers distinguish between violence which made me sign the contract ( which contract can be annulled) and violence which made me sign the contract under different terms and conditions, had it not been for the violence (only to be able to sue for damages) Violence exercised by third parties In the case of violence exercised by third parties, and an individual takes advantage of that violence, the consequence is not the annulment of the contract but a change in terms and conditions by the court in order to give a fair result to the contract between the parties. Ex. If A has burnt B‟s house, and B needs help and C comes along and offers his help for LM1000, C is taking advantage of the violence practised by A; the contract is valid but the court will fix the right amount ( rather, it will reduce it) in order to create a fair proportion between the service and compensation. In fact Section 977(2) states: Nevertheless an obligation entered into in favour of a person not being an accessory to the use of violence, in consideration of services rendered for freeing the obligor from violence practised by a third party, may not be avoided on the ground of such violence; saving the
reduction of the sum or thing promised, where such sum or thing is excessive. Violence by „force majeur‟ On the other hand, violence by force majeur is not contemplated by the law. Ex A is swimming and feels sick and begs another to save him. The latter says I will only save you if you pay me a substantial sum. Is there a remedy for such a person? Not all writers agree, but some say that this contract would be null. Others, such as Giorgi distinguish: if the offer for compensation is made by the victim, then the contract is valid. If the demand for compensation is made by the other party, then he would apply the rule that compensation will be reduced in proportion to the service. Others have held that the whole contract has to be annulled because one should not demand compensation for danger as a result of violence which is caused by a „force majeur.‟ Our courts have never expressed an opinion, but they normally follow Giorgi.
Violence against members of the family Section 979(1) states: Violence is a ground of nullity of a contract even where the threat is directed against the person or the property of the spouse, or of a descendant or an ascendant of the contracting party. Section 979(2) states: Where the threat is directed against the person or property of other persons, it shall be in the discretion of the court, according to the circumstances of the case, to void the contract or affirm its validity. In subsection(1) the law provides certain degrees as to which members of the family it protects, and as to other relatives there is no a priori rule a threat to other relatives may be considered as a threat depending on the situation ( in the discretion of the court). Reverential Fear. Section 980 states: Mere reverential fear towards the father, mother or other ascendants or towards the husband, shall not be sufficient to invalidate a contract, if no violence has been used. Torrente states that “..se il consenso e` emesso per non riuscire sgraditi verso la persona autorevole o per non ricevere da esse rimproveri, il negozio non e` annullabile.”
Economic Duress. The fact that a person has found himself in a severe economic position as a result of which he will have to enter into contracts which he would otherwise not have entered into, is not accepted by our courts as a ground for annulment of the contract. The reason is that the threat has to be directed and individualised. The threat must result from a person who threatens me. A bad economic situation is not something which is individualised and will not lead to an annulment of the contract, that is no one is actually threatening me. This was confirmed in Soler vs Campbell The Court held that “…..il-vjolenza trid tkun l-opra ta` persuna tezercita.” And basically excluded economic duress as a reason amenable to annul a contract. The English courts have tried as much as possible to balance out the conditions of the contract but in our case the courts have not accepted the theory that individuals should be put as much as possible on an equal bargaining power. The fact that one finds himself in a very weak position vis-a-vis the other, will be taken into consideration by the English Courts to try and balance as much as possible the conditions of the contract. An interesting English case of 1978 is North Ocean Shipping Company Ltd. Vs Hyundai Construction Company Ltd. The plaintiffs entered into a contract with Hyundai for the building of a ship. Half-way through the construction of the ship, Hyundai said that they would only continue the construction if the contract was changed and they were given more money. Obviously North Ocean did not want to pay extra money, but it had already entered into another contract with others so that the ship would be chartered at a substantial profit. Therefore to avoid being sued for damages and also of losing the substantial profit, North Ocean agreed to sign the contract and amend the terms of agreement. After the ship was ready, they sued Hyundai to recover the extra money they had paid because they claimed they had signed the new contract under Duress. The Court of Appeal accepted North Ocean‟s view and it annulled the second agreement, saying that this agreement was a result of economic duress and the court ordered Hyundai to give the money back. In England, they also have the doctrine of Frustration - mainly that a contract may be valid at its initial stage, but may become invalid on the date of its execution. It is not really a defect of consent because it refers to the moment of signing the contract. At the moment of signing the contract, everything was fair, but when I came to perform my obligation, circumstances have changed so much that if I were to perform that obligation, it would lead to my financial ruin. English courts have accepted that in this case, they would apply this doctrine of frustration and would annul the contract. This doctrine is nowhere to be found in our law, even in extreme cases. Ex A enters into a contract with B to supply clothes to B. A‟s employees go on strike and A is unable to supply the clothes. In England the doctrine of frustration would apply, but in Malta, the contract would still be valid, and A would have to pay damages to B because the contract is not annulled.
Section 981 (1) states that Fraud shall be a cause of nullity of the agreement when the artifices practised by one of the parties were such that without them the other party would not have contracted. Subsection (2) states that Fraud is not presumed but must be proved. Fraud is basically the deceit of the artifice carried out by 1 party as a result of which the other party is induced into error. Fraud is that artifice, deceit or simulation which is made use by 1 of the contracting parties in order to deceive the other and to induce him to enter the contract. If there is fraud on one party, there is error on the other, but the error as a result of fraud need not have the same qualities as „error‟ ( as a separate defect of consent). Error as a result of fraud need not have the same qualities ( excusable, in substantia) as error on its own. Giorgi holds that fraud as a defect of consent must be construed as „dolo nel senso ristretto di inganno o raggiro‟ and not „mala fede‟ For fraud to serve as a vice of consent, there are 4 main conditions: 1. there must be intention to deceive. The victim must prove that the other party intended to deceive him. They used to say that from the act itself, one can presume fraud but this is no longer accepted by our courts. Fraud in re ipsa is no longer accepted and it is necessary for the victim to prove the intention to deceive. 2. it must be grave. This is because the courts do not want to stifle too much trade. The Court in fact distinguishes between deceit so called and the normal lies of trade. It is obvious that a trader is going to praise his goods. This is not fraud, even though he may not be completely correct in his statements Courts have used the words „kredulita zejda‟ to refer to dumb persons who believe everything. In Cachia vs Cachia 1957 The courts said that “zeghil, attenzjoni, suggerimenti, insistenzi li ma jkunux akkumpanjati minn mala arte, minn artifizi ragonevoli, ma jammontawx ghal frodi.” and would not be allowed to annul a contract. The law does not encourage, but on the other hand does not condone “exaggerated praises of one‟s own works.”
Micallef vs Cuschieri
Exaggerated praises of one‟s own work have become an accepted practice and it would be contrary to public policy to annul such contracts just because of “a liberal dose of favourable adjectives.” Galgano refers to this esagerate vanterie delle qualita del proprio bene o della propria abilita proffesionale and states that the reasonable person knows that the vendor is exaggerating and thus the law would not annul a contract if one would have believed the exaggerations of the vendor. In Cauchi vs Borg 11/6/95 Court of Appeal Woman had a premise on lease and she wanted to buy the premise from landlord who however asked for a high price. The Tenant of a premise suggested to the owner that the premises needed repairs. She dropped a hint that her niece would be coming to live with her and thus she would become tenant upon the death of the old woman. The owner taking all this into consideration sold it to the old woman for a low price and consequently the woman sold it to a 3rd party for a considerable profit. The previous owner sued the former tenant arguing that she had deceived him. He claimed that there was fraud as he had been blackmailed. But the court held that although the tenant did in a certain way deceive the owner, the means she used were not serious, not grave so as to lead to an annulment of contract on the basis of fraud. The court held that something more is needed for the fraud to subsist. Ricci holds that “la frode deve consistere in quelle arti, maneggi e manovre che escono fuori dalla cerchia dell‟astuzia solite ad usarsi da tutti i contraenti…”. The normal tricks of „astuzia‟ are accepted and fraud means more than this. There isn‟t any established criteria and Giorgi states quite clearly that one cannot say what is acceptable and what is not. Everything depends on the particular case. The art of trade talk is referred to as dolus bonus and is to be distinguished from dolus malus. Dolus bonus according to del Giudice refers to the esaltazione delle merci o servizi, normalmente tollerata dalla pratica degli affari. He gives an example of this dolus bonus the fishmonger attracts the housewife in buying fish by declaring that it is fresh when in reality it is of medium quality. An example of dolus malus the same fishmonger induces the housewife to buy the fish making her believe that it is fresh when in reality it was frozen. 3. it must be determining. It must be shown that I entered into the contract as a result of fraud. The wording of Section 981(1) also shows this. The artifices must be such that the other party would NOT have contracted and not that the other party would have contracted under different terms and conditions. If the fraud only results in a change of conditions, then it cannot give rise to annulment, but only to a suit for damages. As the Italian author Lucarelli states there must be “una volonta reale di non modificare la situazione pre-esistente.” I would not have changed the situation had it not been for the fraud.
4. it must not result from the act of the 3
party. The fraud must take place with the participation active or passive of the other party.
In contrast to the case of violence the law does not admit as ground of annulment fraud practised by a 3rd party. If I am deceived by a 3rd party and as a result of which I entered into a contract with another, that contract is valid. However I can start an action for damages against the party committing the fraud. While violence by a third party can lead to annulment, fraud cannot lead to annulment. What if the contracting parties are more than one and it is only to one of them that dolo may be attributed- is it possible for the injured party to rescind from the contract against all of them? Giorgi holds that this can be done on the basis of natural equity.
Can SILENCE amount to fraud? Silence as a general rule cannot amount to fraud. I am not deceiving you by the fact that I‟m not saying anything. Of course, then there are certain contracts like insurance and sale where there is a duty of full disclosure. In Housing Authority vs Cilia 7/5/82 Court of Appeal] Person applying for housing unit has to give certain information and the fact that Housing Authority did not know that he had another house available, this amounted to deceit.
Manifestation of Consent
Consent exists when there is a union of the wills between 2 individuals. Consent on the part of an individual on his own can never give rise to an obligation in terms of law, unless there is a promise on one hand and acceptance on the other. In the absence of 1 of the 2, then one cannot really state that consent exists. The Stages for Consent to be completed are 4: It must exist internally; It must be externally manifested; There must be the identity between acts of volition of the contracting parties, that is the acts of volition must be the same ( errore in corpore and errore in negotio) There must exist the union of these acts of volition.
The Consent must exist internally
There must exist the will to bind oneself; the consent must be Free, Informed, Serious and Definitive. It has to be Serious - one has to have the will to enter a contract (it must not be a joke). Neither is a consent serious if one contracts an obligation for the mere sake of being courteous.
It must be Definitive - There must be a „definitive‟ yes. It is not definitive if negotiations are not concluded and when they are concluded is a question of fact. It must be Free - one should not be constrained in giving his consent.
The consent must be externally manifested.
I have to manifest the intention of entering the contract and this form of manifestation depends on the type of contracts we are dealing with. Generally, we distinguish between the Free form and the Solemn Form. The Solemn Form refers to when consent, according to law has to be manifested in a public deed or a specific form which the law requires, as in the case of sale of immovables. Free Form Express
As regards the Free form of consent, this is again subdivided into Express or Tacit. The express form of consent is again subdivided into oral or written, because there are certain contracts which although do not require a public deed, still require the written form for the manifestation of consent. Ex the promise of sale of an immovable must be in writing - public/private. Even the sale of a car must be the result of a written instrument. If the law does not say anything, then the oral form would be sufficient. The oral or written manifestation of ideas may be either Mediate: which takes place between absent persons or between persons who though in each other‟s presence cannot understand the language spoken by others. Such communication takes place by means of an interpreter, mandatory, telephone, etc.. … or Immediate: which takes place between persons who are in each other‟s presence and who understand directly by means of speech. The Tacit Form creates some problems. It is subdivided into Positive and Negative Acts. Tacit forms of manifestation are all those positive or negative acts which though they are not signs destined for the manifestation of ideas, implicitly show that the person who performs them wants to bind himself. The Positive Tacit form of consent has been often readily accepted; it is possible for one to give his consent without actually saying “Yes”, but by doing what one has been asked to do; Ex a building contractor who does not say “OK I‟ll start building your house tomorrow” but actually starts building it. When we talk of consent, we can consent to the creation of obligations and also its extinction or renunciation. Now, when we speak of Negative Tacit consent, there is a problem, especially in the context of renunciation to obligations. Can one be said to renounce to his rights simply by saying nothing? Here again there is the usual problem of the traditionalist and modern perspective.
The Traditionalists do accept a tacit negative form of consent, that is that there be a tacit renunciation to one‟s right. But one must always infer an intention to renounce. In other words, if someone does something against my rights, the fact that I do nothing on its own would not be sufficient for the Court to assume that there was a consent - unless there was the volonta` on my part to renounce to the right. The Modern View is that which supports the good faith of the other party: they do not look at my consent or intention, but they state that if by your inactivity, the other party would have assumed that you have renounced your right, then the law would protect his good faith. The moderns protect the affidamento of the other party. If I rightly put my faith in your inactivity, then my good faith is protected, whether or not you intended to renounce. Our Courts abide by the „teoria della volonta‟ and this was confirmed in Sammut vs Azzopardi Court of Appeal 29/11/93 The Court accepted that it is possible to renounce to his rights in a tacit form but on two conditions: 1. il-volonta preciza li d-dritt qed jigi abbandunat u li 2. il-fatt huwa assolutament inkonciljabbli mal-konservazzjoni tad-dritt. That is, the fact that I did not act has to be absolutely “contradictory” to my wanting to preserve my right - had I wanted to preserve my right, I would have acted. You find other cases which make the emphasis on the volonta`. For a court to accept a „rinunzja tacita‟, there must be proof of the „volonta`‟ to renounce to that right. In absence of evidence of this volonta` the Court will not presume. A strange case concerned A who had the lease of property X. The owner of X sold it to B and B took over possession of the property leased and started making alterations. A visited the site, saw the works being carried out and left without uttering a word. A did not do anything until the structural alterations were completed and B moved in. The Court here presumed the volonta` once it was proved that A had visited the site and saw B take over the possession and do nothing. It is not clear whether all judges would arrive to the same conclusion. Our courts do not protect the good faith of the other party but protect the individual‟s will. As held above there must be an external manifestation of consent. Now it is also important that what is externally manifested corresponds to what is intended. If there is a discrepancy between the internal will and the external manifestation then again there is a defect of consent. This discrepancy between the will and the external manifestation may be either VOLUNTARY INVOLUNTARY A person intends something but he This is the result of the vices of voluntarily manifests a different type consent already mentioned. i.e. of consent - Simulation. Error, violence and fraud. One of the parties simulates consent; I want to do something but he intends something but manifests because I am deceived I do intent for something else. something else.
Simulation ABSOLUTE RELATIVE when a person does not want to enter when a person wants to enter a into a contract, but apparently gives contract, but apparently consents his consent to it. to a different type of contract. In this case you have nothing, but In this case, you have something there is the appearance of something. but there is the appearance of something different. In simulation, the truth prevails over reality. Therefore if in the case of absolute simulation you prove that nothing was intended, then we have nothing, because though in reality he gave his consent to a contract, in truth he did not really intend to enter into a contract. Examples of simulated contracts: In relative simulation what is accepted by law would not be the contract apparently consented to, but it would be the contract originally intended.
1. A husband who is going to separate from his wife. He tries to dispose of his property so that he will not have to share it with her. He creates a contract of sale and gives property to his brother. In reality, he intends to give the property as a donation. If the wife can show, that the contract, was not intended but simulated, then the contract may be annulled and the property remains in the estate of the husband. 2. In succession a child is entitled to at least the legitim which is calculated as a proportion of the estate. Now a father may want to disinherit one of his children. So he sells his property to the other children, so that there would not be much on which the other child could claim legitim. If such „disinherited‟ child proves that there was no contract of sale ( ex the money was not passed) but a donation, then in that case the contract of sale would be annulled and the contract of donation would be valid ( and in this the child would be entitled also to a proportion of property given in donation.) In this case, the contract is null because the truth prevails, and what the father wanted was to donate. 3. To avoid paying duty or tax, contracts are sometimes simulated: ex, instead of entering into a contract of sale they enter into a contract of exchange, since less duty is paid on the latter. If government proves that what was intended was not an exchange but sale, then the government will be able to recover the full duty + the penalty imposed by law.
There must be an identity between the acts of volition of the two parties.
When we spoke earlier of „error of fact‟ we distinguished between „error in substantia‟ on the one hand and „error in negotio‟ and „error in corpore‟ on the other. While the first leads to relative nullity the error in corpore and error in negotio lead to absolute nullity.
Error in corpore (A would be thinking of Flat1 B of Flat 2) and Error in Negotio ( A is thinking of Sale B of Donation) fall right under this heading, for there would be a lack of identity between the act of volition/consent of the 2 parties. There could be disagreement as to the juridical modification of the same contract. While A is thinking of a guarantee in subsidium, B believes of a suretyship in solidum. There is not a unity of consent as to the modification. However, besides the above, there could be other instances because the consent of both parties must be identical before we reach the contract.
There must be the Union of these Acts of Volition.
Therefore the consent must be internally willed, externally manifested and identical and also the consents must meet. This might be a problem especially when we contemplate the instance of 2 persons who are not in each other‟s presence. If I am dealing with a person in England it is necessary that my offer reaches such person and that person accepts. When is the contract concluded?- when he declares his acceptance, when he transfers his acceptance to me or when I receive his acceptance/ This point is very important when we are dealing with the termination or the moment of conclusion of a contract, because according to PIL as a rule, the applicable law is that of the country where the contract is concluded. It is also important to determine whether an offer can be revoked, because generally speaking an offer can be revoked unless it is accepted. Various theories in this regard have been developed: The Theory of Declaration. As soon as the one receiving the offer declares his acceptance of the offer, then the contract is complete. The followers of this theory argue that as soon as there are 2 consents which exist at the same time, then the contract is concluded. That is if notwithstanding the distance, there is the co-existence of 2 consents, then the contract is concluded. It is clearly more advantageous to the offeree as it offers a freer hand for him to establish or renounce to the contract, while it undoubtedly burdens the offerer so as to provide evidence so as he might contradict allegation of offeree. It stands to the detriment of the offerer. The basis of this theory is that as soon as the declaration is made there is an objective co-existence and agreement of two wills, and this constitutes consent. Baudry-Lacantinerie states on the issue: “...l`accettazione basta. Razionalmente, non si scorge perche` dovrebbe necessitare un` altra condizione; alorche` l‟accettazione unita all` offerta, vi ha unione di due volonta`; ora questa unione si costituisce la convinzione e la costituisce da per se..” This theory is not accepted by most jurists. The Theory of Transmission. This states that one should not only accept the offer but it should at least leave one‟s patrimony- one should dispose or send his answer. Upon sending the answer it is no longer under my control - this theory is favoured in England.
The Theory of Reception. It is not enough that one only sends his acceptance but neither that it reaches the person who has made the offer. It is necessary and enough that the answer reaches its destination ( the place where the person who offered is). Ex if the answer is sent by post, as soon as the postman posts the letter at the address of the person who made the offer, then the contract is concluded. This theory of reception is favoured in Germany. The Theory of Information. What is required to complete the contract is not the „yes‟, not the fact that it is „sent‟, not the fact that it reaches the destination but that the person who makes the offer gets to know of the answer, therefore we have a full circle of information and as soon as the person who made the offer gets to know of the answer, the contract is concluded. There is a SUBJECTIVE CO-EXISTENCE OF 2 CONSENTS. This is favoured by the majority of jurists, as it completes the circle and it also has the advantage that the person who made the offer knows when it is accepted and it is only then that the contract is concluded. Thus there is the finalisation of the contract only when it has come to the actual knowledge of the offerer. This theory appears to be the only theory which bases the conclusion of a contract on the “union” between the different wills of the contracting parties, for the union of the wills really exists when the acceptance has become known to the party making the offer. This is the theory adopted in our Commercial code. It says clearly that a contract is concluded when the acceptance reaches the person ( and not only the destination) who made the offer. Although the Civil Code does not have a similar position and does not expressly deal with this theory, the general rule is that it also applies to the Civil Code. This has been confirmed by case-law.
When the 4 Stages for Consent are satisfied It must exist internally; It must be externally manifested; There must be the identity between acts of volition of the contracting parties, that is the acts of volition must be the same There must exist the union of these acts of volition. Then the consent is Final and Irrevocable.
According to Ricci, the object of the contract can be no other than the obligation itself, in so far as it creates, modifies or abrogates the juridical relationship between the parties concerned. Section 982(1) of the Civil Code states that Every contract has for its subject-matter a thing which one of the contracting parties binds himself to give, or to do, or not to do. Such thing is the object or subject-matter of the contract. Now, barring some exceptions, everything can form the object of a contract, even future things . We, thereby distinguish between 2 types of contracts concerning future things: 1) Pactum de re sperata (Pact of the thing coming into being) is a conditional contract and the contract will come into being if that thing we are contemplating comes into existence. Ex if you can produce 100 tonnes of wheat, I will buy them. If the future thing we are contemplating does not come into existence, then the contract would not subsist. 2) Pactum de Spei (Pact of Hope) is not a conditional but it is a risky contract. Whatever would come into being in the near future, I will buy for a fixed stated price. Therefore whether you have 1 store or a field full of wheat, I will buy for the stated price; that is why it is a contract based on risk. This has the advantage that the supplier knows that he is getting paid for whatever he produces; the buyer on the other hand may either make large profits or vice-versa. This was quite common especially in agricultural produce. One must also distinguish between a contract referring to a future thing and a contract referring to a thing which is inexistent at the time when the contract is concluded. In the former case, the contract is valid, subject that the future thing comes into being. But if we are contemplating something present, but this is inexistent, then the contract is null. Thus, one has to see whether the parties are contemplating some present or future object. In the case of a present object, if the latter is inexistent at the time the contract is concluded, then the contract is null. Moreover, the latter contract does not become valid by the fact that the thing which is inexistent comes into being in the future. The matter is different if we are contemplating something which we know does not exist and which we contemplate to come into existence in the future. Thus, it is possible to enter into a contract in relation to things which may exist in the future. But future successions cannot form the object of a contract. The law forbids a contract dealing with a future succession, because one would be contemplating the death of someone else. However, there are certain exceptions where they are possible. Ex pre-marital agreement of a future spouse with her parents - she may be given certain property before her marriage and then she could renounce to it. However these are exceptions to the rule.
Section 984 deals with this issue: (1) Future things can form the subject of a contract. (2) Nevertheless, it shall not be lawful to renounce a succession not yet devolved, or to make any stipulation with regard to any such succession, whether with the person whose succession is concerned, or with any other person, even though with the consent of the former; saving any other provision of the law in regard to any renunciation or stipulation made in contemplation of marriage, or upon the taking of religious vows. It is generally held that the object of a contract can be anything which is: In commercio Possible Lawful Specified or which may be Specified. In Commercio - as clearly expounded in section 982(2): Only the things that are not ‘extra commercium’ can be the subject of an agreement. Nowadays, there aren‟t much objects which are said to be „extra commercio‟ - sacred objects, public squares, etc. there is some dispute whether the „foreshore‟ is extra commercio or not. Today the foreshore is considered to be „extra commercio‟ and cannot be the object of a contract, although there are some who still argue that they can own the foreshore. With regard to what is considered to be a foreshore, we still follow the Roman Law definition as held in the case Busuttil vs Commissioner of land 26/6/92 1st Hall “Quel tratto di terra che la piu` alta ondata del mare puo` coprire nella stagione invernale.” It was moreover held that the foreshore does not belong to the individual but to the public. Possible - we mean Physically possible. If the object of the contract is something which is not physically possible, then again the contract would be considered to be void. Only objects which are completely Impossible would lead to the nullity of the contract. Lawful - the subject matter of the contract has to be something which is lawful. Section 986(1) states that Stipulations ‘quotae litis’ are void. Subsection (2) holds that Saving the provisions of Section 1852 and any other provision of this Code or of any other law, any obligation to pay a rate of interest exceeding 8% per annum is also void in regard to excess. „Quotae litis”- a contract between a lawyer and his client, whereby the fee of the lawyer is a percentage of the win. In Malta like the UK, but as opposed to the US, this is unlawful. However in Malta, what is prohibited, is a portion of the winnings (ex 2%) but it is lawful for a lawyer to
agree with his client a stated sum if he wins the case. Ex an extra Lm1000 if I win the case, but not a percentage. Section 985 also states that Things which are… prohibited by law…may not be the subject matter of a contract. Moreover, certain cases widened the concept of „prohibited by law‟ and said that it is not necessary that the object be in direct conflict with the law, but it is enough if the object is tainted with unlawfulness to render the object/subject matter unlawful. In Vella vs Fenech Commercial Court 29/8/1990 This case referred to a sale of a house which was not covered by a building permit. A person bought a house and later discovered that the house had been built without a permit. He annulled the contract on the basis that the „object‟, the subject matter of the contract was unlawful. Specified - as stated in Section 983(1) The subject of an obligation must be a thing determinate, at least as to its species. Subsection (2) states: The portion or quantity of the thing may be uncertain, provided it is capable of being ascertained. Now by specified and determinate you do not necessarily mean „identified‟. Ex one can enter into an agreement whereby the vendor binds himself to transfer „a horse‟. This is a valid contract, even though he might not yet have identified the horse in question. Also, it is a normal thing if one buys a carton of milk, he is not interested whether he has this or that carton, so long as he has a carton of milk. Therefore specification of the thing could refer either to the particular thing (species) or to the class to which the object belongs (genus). This kind of relative specification (by genus) is sufficient, because although the genus and not the particular thing is laid down in the contract, there are means either agreed upon by the parties themselves, or, supplied by law, by which the particular thing to be performed may be determined. Ricci says that there are things which cannot however be determined by sole indication of species to which they belong. It is necessary to specify their quantity. If I undertake to sell you oil, wine and grain, this alone is not sufficient to establish the object of obligation. By failing to indicate the quantity of the wine sold, one may bind himself to provide a small quantity, which is not capable of giving rise to that interest, which is required for the existence of the obligation.
Exemption clauses in Standard Form contracts.
Standard form contracts are also known as Contracts of Adhesion. Special reference must be made to the exemption clauses one often finds in these types of contracts. David Yates held that “Mass marketing is not possible without mass contracting and this could only be achieved by the use of standard form contracts.”
It is hardly possible in today‟s age for businesses to be carried out on an individual bargaining basis. In fact very often the Courts accept „standard form contracts‟ without dispute. In Rizzo vs Dawson 1953 The court expressly stated that the fact that the agreement was in printed form and applies to various individuals, that does not detract from the juridical validity of that agreement. But then the tendency became that one includes various exceptions in these standard form contracts and the question is how valid are these „exemption clauses‟? In such a case you either accept the contract or you do not accept it and the consumer does not have much choice on deciding whether he wants a particular exemption clause or not. Normally such big enterprises (airlines) operate within these standard form contracts, or they don‟t operate at all. Abroad there is a tendency to protect the consumer as much as possible. In the UK there is the „Unfair Contract Terms Act 1977‟ whereby they introduced a general principle of reasonableness. Thus the exemption clause is only deemed valid if they are considered to be reasonable in the circumstances of the case. If the English Court does not consider the clause reasonable than it simply ignores it. In Italy Articles 1341/1342 holds that the exemption clauses (clausole vessatorie) are valid if the customer has given his written approval, so as in this way it is made sure that his attention would have been drawn to them. Trabucchi however holds that a legislative amendment providing some form of control is to be exercised on the contents of these standard contracts, so as to guarantee that if the clauses are against l‟equita and la ragionevolezza, they would not be able to bind the contracting parties. In Malta we have NOT gone that far (as in the UK) and in fact we do not have specific legislation dealing with exemption clauses or standard form contracts and the rules have to be decided on particular cases. In fact the Courts seem to offer 3 forms of Protection:
If an entrepeuner is relying on a particular clause, this must be brought to the attention of the consumer. Therefore a clause in small print, to which the attention of the consumer was not brought, would not be accepted. In Borg vs Calascione 1961 Plaintiff ordered crates of fruit to be delivered to his house. When the fruit was delivered, he was given a delivery note which he was asked to sign. This person took the note and signed. At the back of the note there was a condition that the vendor was not responsible for the condition of the fruit delivered, and the Court dismissed that clause. The Court held that before the contract was concluded, the attention of the customer was not brought to that clause. In Giordano vs Grech 1933
There was a notice attached to the back of a door of a hotel room saying that the hotel keeper was exempt from any liability. The Court again ignored this clause as the attention of the customer must be brought to the clause before the contract was concluded. Here the client entered the hotel, signed a book and then went to his room and found this notice. In Sammut vs Sullivan 16/10/1995 This case dealt with the question of an exemption clause within a travel brochure. This individual booked a tour with a particular company, and in this tour the company reserved the rights to change the tour, to alter the destinations or not to carry out the individual tours at all. But this particular clause was not brought to the attention of the client in question. And when he came back to Malta after certain tours were cancelled, he sued the company for compensation. The Court accepted his request because this particular clause was not brought to his attention before the contract was concluded. In Micallef vs Baldacchino 20/1/92 Under the contract of sale the vendor is responsible for latent defects. He can be exempted from giving this guarantee, and this was one instance. However no attention was brought to the purchaser about the existence of this clause. Thus in Malta the Courts grant a protection to the consumer, in that any clause affecting his rights must be brought to his attention.
Another tendency of the courts in relation to these exemption clauses is that of shifting the burden of proof in common types of contracts, between people who are used to these types of contracts. Ex Traders who export their products on a ship. These know that when the goods are exported on a ship, a bill of lading is issued and this bill has standard conditions at its back. Traders ought to know that what these conditions are because they are common and standard and so the attention of the trader need not be brought to the particular trader. But in order to somehow afford some protection to the trader, the Courts interpret this clause as not exempting completely liability on the owner of the vessel, but of shifting the burden of proof - I put my goods on a ship to be transported to the UK. If the goods result defective/lost/damaged, then I have to prove that the goods have been damaged by the members of the vessel. Also under the normal rules, if I deliver the goods in a good state of condition, then it would be up to the vessel to prove that it was not negligent. BUT, if there is a clause stating that the vessel is not responsible for any damage, our Courts have interpreted this as meaning that it is now no longer the vessel who must show that it was not negligent, but it is now the trader who must show that the vessel was negligent. Therefore instead of exempting the vessel from complete liability, the clause is interpreted as exempting the vessel from the burden of proof. In Rizzo vs Ellul Sullivan 14/10/87 Plaintiff company submitted that they had ordered „vireg tal-hadid‟ (longer than 12m) which had to arrive on the vessel „Olkusz‟ of which defendants are the agents. These „vireg‟ ended up „mghawgin‟. Plaintiff sued for damages.
Defendant pleaded that they were not responsible because according to the bill of lading single pieces or packages exceeding 12m in length are at the risk of the receiver in what concerns handling, loading, stowing and discharging.. It resulted that the iron was in a good state before unloading started, however upon unloading the iron „tghawweg xi ftit‟ Although these clauses cannot be used to exempt the vessel from total responsibility, at least it exempts the vessel from the burden of proof. It has the effect of transferring the burden of proof on the receiver of the cargo, to prove that the damage had occurred due to dolo or culpa of the captain. The only evidence brought by plaintiff was that when a certain witness saw the vireg on the quay “kienu mghawgin b‟mod li ma kienux utilizzabli” The Court confirmed the sentence of the Commercial court and concluded that taking into consideration all evidence “ma tezisti ebda prova illi t-tghawwig gie kkawzat waqt l-iskarikar ta` l-istess millistiva tal-barkun, jew li kien hemm traskuragni da parti tal-agent fil-process kollu ta` l-iskarikar. Anzi mhux eskluz li l-hsara setghet grat fuq il- moll.”
Recently there has been a tendency to follow English doctrine- the doctrine of Fundamental Breach. Basically this doctrine holds that a party cannot rely on a term of a contract if through his actions he has breached that contract. Thus there is a limit to the effects of an exemption clause. First you have to perform your contract before being able to make use of such exemption clause. This doctrine imported from English law has not been accepted expressly. In Farrugia vs Camilleri 11/6/93 The customer had ordered certain tiles for his house, and the company which supplied these tiles had rendered a clause that the company is not responsible for variations in the colour of the tiles. When the tiles were laid down on the floor, they eventually all became discoloured and ugly and the customer sued the vendor for compensation. The vendor tried to rely on the exemption clause but the Court held “…il-klawzola kien ikollha xi valur kieku kien il-kaz illi d-difetti naturali kienu jikkostitwixxu l-eccezzjoni. Imma f‟dan il-kaz…l-irham kollu kien difettuz u dan ibiddel l-istampa kompletament….. l-irham fornit huwa ta` kwalita inferjuri.” The company had therefore committed a fundamental breach of the contract and thus could not rely on the exemption clause. In Demajo vs Schembri 12/11/94 A person bought a painting from an auction and in the catalogue there is always an exemption clause stating that the auctioneer is not responsible for the restriction of goods. Demajo bought a painting by an artist Schreider, but when he took it home, He realised that it was not by Schreider, but it was a common painting. He, thus brought an action against the auctioneer to recover the amount paid and to annul the contract. The auctioneer relied on the exemption clause of the contract, but the Court dismissed it because it said that he simply did not perform his obligation of delivering a painting by Schreider. ( had the painting been of the school of Schreider the Court would probably have resorted to the exemption clause.)
In Sylvana Camilleri vs Swan Laundry & Dry Cleaning 14/11/94 A woman gave her wedding dress to the laundry and the result was that the wedding dress came out completely burnt and destroyed. The dress had pearls and the company did say specifically did it is not responsible if the pearls are lost. But then it also got burnt while it was being dried. The company tried to rely on an exemption clause that they are not responsible for any damage to the goods, but again the Court dismissed their argument and said that there was a fundamental breach of the contract. The Court held that the exemption clause applied to minor defects not fundamental breach of the contracts. Thus the court will ignore the exemption clauses if there is a fundamental breach of a contract. Therefore in our system we do not have a comprehensive principle dealing with „exemption clauses‟ and the protection given to the consumer has emerged through jurisprudence: 1 A particular clause has to be brought to the attention of the individual; 2 The exemption clause would have the effect of at least shifting the burden of proof. 3 Exemption clauses do not exonerate the individual from responsibilities in case of a fundamental breach of contract.
It has always been debated whether we should have this 4th element of Causa. In Roman law the contracts were nominate and all transactions had to fit in. With the creation of innominate contracts, any contracts is accepted upon giving the Causa. What do we understand by causa? Ricci, who is rather simplistic in his approach, states that it is “il movente che ha indotto chi si e` obbligato ad imporre una restrizione alla sua naturale liberta.” It is defined as being the why of the contract, “il perche`” Ricci looks at it from a purely objective point of view…. the causa of one is the object of obligation of the other. EX The sale of a house: Why is the buyer paying the money? Because the vendor is giving him the house. Why is the vendor giving the house to the buyer? Because the buyer is giving him the money. Thus this is why he defines it as il perche` of the contract. Critics of this theory hold that „causa‟ can be done away with since it is the object of obligation. Thus basically Ricci confirms that there is no reason for the existence of causa, because basically the existence of an object would serve the purpose of causa:
It is better to use this term rather than „consideration‟ since this has a different meaning in English law.
“La scienza non sa neppure trovare una ragione qualsiasi per distinguere l‟oggetto dell‟obbligazzione dalla causa, essendo che oggetto e` causa dell‟obbligazione non sono in fondo che una cosa sola.” Pacific Mazzoni builds on the idea of Ricci. He says that you have got two obligations: the obligation of the vendor to give the house and that of the buyer to give the money. If the house is lacking, the obligation of the vendor is defective, as the object is missing. But if the causa were no element of a contract, the buyer‟s object still exists ( he has the money) and strictly speaking the buyer would still have to give the money, even though, even though he‟s not receiving the house ( as he‟s got capacity consent and object). Pacifici Mazzoni says that this is why the „causa‟ is important - although the buyer has the object (the money), he has no reason ( no causa) to perform the contract. Indeed the function of the „causa‟ is to link the 2 objects - the object of the vendor and that of the buyer. Pacifici Mazzoni builds on the idea of Ricci by saying that it is true that the „causa‟ of one party is the „object‟ of the other, but this does not mean that there is no need for a causa, but on the other hand, that a causa unites both objects: “Quando trattasi dell‟oggetto, la prestazione dovuta da ciascuno delle parti e` considerata in se medesima e isolatamente; Quando trattasi della causa, le prestazioni reciprocamente dovute si considerano l‟una in opposizione all‟altra.” This theory still keeps us within the objective sphere. Therefore when we talk of nominate contracts such as sale, the causa is always lawful as it is established by law. In fact Galgano states that “I contratti tipici, perche previsti e regolati dalla legge, hanno tutti una causa…… e l‟assunzione dell‟obbligazione sono direttamente giustificati dalla legge.” “per i contratti atipici…il giudice deve accertare… se in essi ricorra il requisito della causa.” Torrente does in fact state that in case of nominate contracts the causa is always lawful, while in the case of innominate the lawfulness must be determined. French authors especially Planiol et Ripert went beyond the doctrine of Pacifici Mazzoni. They said that the causa should not have this limited function of determining “I perform mine if you perform yours.” Causa should also have the function of controlling the purpose behind the obligation. Thus the objective interpretation is „my causa exists if your object exists.‟ But then if the causa exists objectively, one should also seek the subjective interpretation : What is the purpose behind the contract? If the purpose is against the law, morality and public policy, then the causa is considered illicit and the contract falls through. Ex Objective causa - I pay the money to you if you give me the house. Subjective causa - Why do you want the house? Our Courts have adopted this dualist approach, examining both the subjective and objective theories.
When is a causa unlawful? Section 987 An obligation without consideration, or founded on a false consideration or an unlawful consideration shall have no effect. Here one uses the objective test. Ex I pay you a sum of money to repay you for a loan you have given me. Now it results that you never gave me that loan. Objectively the causa does not exist. Once the court determines that there objectively exists a „causa‟ one passes to see whether it is lawful causa, by adopting the subjective theory. Section 990 The consideration is unlawful if it is prohibited by law or contrary to morality or public policy. Therefore the subjective theory is to check whether the „causa‟ is unlawful. 1. prohibited by law There are various examples dealing with this: a) Usuary - Interest at more than 8%. Repaying at an amount superior to the 8% would be null since the causa is illegal. b) Sale of a house not built according to the building permit. The buyer of such a house annulled the contract on the basis that the causa was illegal. c) Person gives property on lease to a foreigner for 2 years without the required permit. Foreigner left the premises without paying and owner sued for 2 years rent. Court dismissed plaintiff‟s contract because contract was illegal. d) An electrician carrying out his work without the required permit. The electrician performed his job but the other person refused to pay. The electrician sued the latter. The latter brought up the subjective theory: Why was I paying? For something illegal and therefore the contract was null. e) Transfer of vehicles - these must be made in writing and must be registered by the police. In the past a fee used to be levied and thus no registration took place. Such transfers were illegal due to an unlawful causa. Vassallo vs Cuschieri Court of Appeal 14/11/96 and Melita Insurance Brokers vs Fenech 14/10/97 The issue of Promise of Sale was discussed. The two parties had not declared the full price of sale for tax purposes. One of the parties did not appear on deed. The other party sought to enforce the promise of sale. However, the other party raised the issue of the illegal causa. In fact this was confirmed as being against the law. In In Gauci vs Zammit 26/5/83 A company had to collect Lm 3000 from an individual X. Y told the Company how to collect this sum by providing some inside information, and in return be given an amount. The 1st Hall declared the contract to be illegal due to an unlawful causa, while the Court of appeal held there was no unlawful causa.
Everything must be examined according to the particular case in question. In Vassallo vs Cuschieri 18.5.93 1st Hall The Court said that any agreement which in any way goes against the fiscal laws would be contrary to public policy and contrary to the law. 2. contrary to public policy Generally what courts give as an example are creating of monopolies and the fixing of prices. In Aveta vs Pecorella 1936 This case deals with a society of self-drive car owners who fixed tariffs at a higher rate than the normal rates. Such an agreement was declared null because imur kontra l-interess pubbliku. 3. contrary to morality There are quite a few cases dealing with concubinage and prostitution a) If I give money to a prostitute for services rendered, that is an immoral causa and the contract would be null. b) If I live with a woman outside marriage. I give a loan to this woman ( because of her services) and I come to recover the money. The contract would be null because it is based on an immoral causa. But Courts have been careful to distinguish where the concubinage - was the reason of the contract from situations where the concubinage - was the occasion for the contract. In the former case the contract would be declared null. EX If Mr.X is living with Ms Y in an immoral state and he gives money to Y for the services being rendered. If X tries to recover the money, the contract would be considered null, because the reason for the obligation is an immoral one. If Mr.X is living with Ms.Y in an immoral state, and Y needs to buy something and X gives her money, if X tries to recover the money, the contract would be valid.
In Bajada vs Lumb 1954 “Dak li hu importanti hu jekk il-kawza ta` l-ghoti tal-flus jew oggetti ohra, ikunu meta jkunu moghtija, jkollix jew le rapport dirett mal-konkubinat jew ahjar jekk ilkonkubinat kienx il-kawza ta` l-obbligazzjoni jew kienx meriment l-okkazzjoni.” The same principles were enunciated in Dimech vs Aquilina 1983.
In Fenech vas Jubber 31/1/1983 Two persons were living together. The woman had a plot of land and the man was a contractor and he built the house himself. They quarrelled. The house was the woman‟s since it was built on her land. The man had to move out and he sued the woman for having built the house. The Court held that the house was built for an illicit purpose and so the causa went against morality. The man lost the case and the woman had a freely built house.
In Fenech vs Calleja 28/6/07 The Court of Appeal held that “la locazione di uno stabile per lo scopo di prostituzione e` nulla” - the lease of such premises would be immoral. Plaintiff was asking Court to order defendant to pay him what was due in rent of some premises in Valletta. However these premises were used for prostitution purposes and plaintiff was aware of it; so much so that he himself „tentando di speculare sull‟esercizio della prostituzione‟ had charged high rent. The Court confirmed the sentence of the First hall saying that such a contract “non ha nessun effetto giuridic perche` e` contrattazione immorale.”
The Court has recently held that an unlawful causa can be raised ex officio in the case Vassallo vs Cuschieri presided by said Pullicino. The court is duty bound to raise the issue „ex officio‟ even if the parties do not agree to raise the issue themselves. Section 991(2) states that If the consideration is unlawful in regard to both contracting parties neither of them, unless he is a minor, may recover the thing which he may have given to the other party, saving the provision of Section 1716. Section 991(1) holds that Where the consideration for which a thing has been promised is unlawful only in regard to the obligee, any thing which may have been given for the performance of the contract, may be recovered. Therefore if the consideration is unlawful for one and not for the other, the „innocent‟ party may recover what he has given, but not the other party. Ex If I give the property on lease and this property is used for prostitution purposes, but I did not know of that purpose, I can take the property back, because the contract would be null but the other party would not be able to take the money back. A case which clearly referred to „the motive‟ and its subjective test was: Scicluna vs Chetcuti 1951 “il-kawza jew motiv impellenti jew determinanti tal-kontraenti sabiex waslu ghallkonvenzjonijiet jew obbligazzjonijiet kienet kawza direttament kontra l-ligi u kwindi illecita.” Of course there is always the problem of determining what is the determining motive behind the contract. In the case of the electrician without a licence, the court held this to be an illicit causa and the electrician would not be able to sue for his dues. But there have been other case which have not followed this particular trend: Pisani vs Degiorgio A person sold cars without having a licence. The Courts did not see the fact of not having a licence as being the principle motive of the transaction. He was liable to a penalty but did not render null the contract.
To pinpoint what the motiv impellenti is the Courts have not always followed the same criteria. In some cases the Courts have held that any illegal aspect (such as the absence of a license) of a contract rendered the „causa‟ illegal; other cases held that it is the real intention itself behind the contract which has to be illegal and therefore absence of a licence doe not mean that the whole intention of a contract is illegal. Therefore to see whether Section 990 (The consideration is unlawful if it is prohibited by law or contrary to morality or public policy) is applicable, the test have varied.
The Inexistence of Causa With regard to the existence or otherwise of the causa the test has always been objective. Ex A gives B Lm100 because he thought he owed him Lm100 but in fact he didn‟t. The causa need not be mentioned in the contract itself. No rule imposes an obligation to lay down the causa in a contract. Also the causa need not be express so long as there is a causa behind the contract. The contract is still valid as long as the causa may still be proven: Section 998: The agreement shall, nevertheless, be valid, if it is made to appear that such agreement was founded on a sufficient consideration, even though such consideration was not stated. Referring to the existence of a causa one has to distinguish between: The existence of a causa at the moment of conclusion of the contract. The existence of causa at the moment of fulfilment of the contract. The courts do not often make this distinction. Strictly speaking the existence of causa should be determined at the moment of conclusion of a contract, because causa is an element of contract and would be discernible at the moment of conclusion. If causa ceases to exist later on when the contract comes to be fulfilled, one cannot really say that the contract lacks causa. EX of a case where there was an agreement between a seller and a buyer for a car. The contract was signed today, the parties agreed and the vendor had to import the car from abroad. In the time between the conclusion of the contract and the order of the vendor to import the car, a legal notice was issued and the importation of that particular car was prohibited. Here the Courts wrongly annulled the contract on the ground that it was without causa. But strictly speaking when the contract was signed there was a causa. What happened afterweards would render the contract unenforceable but not inexistent. A similar case is one where 2 persons agreed to set up a partnership and both parties had agreed to render their services to the partnership. One of the partnerships did his job, while the other stayed at home and did nothing. At the ened of the year the one who stayed at home wanted his share of the profits and therefore filed an action claiming his share of the profits. Here again the Courts held that his claim was without causa, because once he did not render services, then he has no right for compensation. But here again, the causa existed at the moment of conclusion of the
contract; What happened afterwards is lack of enforcement of the obligation. If the causa fails to materialise later, then the contract is ineffective and not inexistent. The causa existed at the moment of the conclusion of the contract; if something happens later, that is a different matter. Torrente uses this distinction between: mancanza genetica della causa e mancanza funzionale della causa La causa puo mancare fin dall‟origine, dalla genesi del negozio (mancanza genetica della causa). Puo anche avvenire che, pur esistendo originariamente la causa, per vicnede successive non sia piu realizzabile il risultato a cui il negozio era diretto (mancanza funzionale della causa). In the latter case, of the mancanza funzionale della causa, the contract is not null, but the party injured may rescind the contract. In the case Sister Sommers vs Fountain 4/6/80 Sommers was a Blue Sisters Nun. Fountain was a woman who had booked a labour room in hospital so that when it is her time to deliver, she would go there. But then, when the time came, she went to another hospital. The sister sued for the booking fee and the woman replied that she would not pay as she had not made use of the room. The Court held that at the time for which the room was booked the room was free and available to you for the time you had booked for. Therefore even though you did not make use of the room, you still have to pay for it. The Court held that the causa exists and it continues to exist because the room was made Available. Whether you mad use or not of the room is another thing. False Causa This is the 3rd type of a defective causa. Section 987 states An obligation…founded on a false…consideration shall have no effect. Here the situation is similar to when we discussed „relative simulation‟. In the case of a false causa, a causa does in reality exist, but the parties give the real causa a different appearance to make it look like a different causa. Ex you may want to gain something which is illegal and you therefore create a false legal causa in order to give the semblance of legality to the illegal obligation. Just as in simulation, Truth prevails over Appearance. Therefore when a declared causa is found to be false, the Court will see what is the real intended causa. Then if the real intended causa is against the law, the obligation would be null. If the real intended causa is valid, then even the contract is valid. So a false causa does not necessarily lead to the nullity, but it depends on the real intended causa. In fact Section 989 states: Where the consideration stated is false, the agreement may, nevertheless be upheld, if another consideration is proved.
In Borg vs Brignone 5/5/97 The Courts sought to enforce a private writing which purported to create a loan. Brignone did not pay the loan and Borg sought to recover. However the money owed was due not on the basis of a loan but as a gambling debt. There is evidently a false causa. The court had to discover the true intention, which was the repayment of a gambling debt. If the true causa was lawful then the contract would be upheld. The presumption is always that every contract is bound by a causa. The burden of proof is always on the person who alleges that causa is unlawful, or that there is no causa. A person says that the contract is not valid because there is no causa. What if no causa is declared in the contract? How is the person to prove that there is no causa? What he must do is to shopw that there is no possible causa on which the contract can be based. This would be a very difficult burden of proof. If the causa is declared, the party stating its inexistence has to prove what he is saying. Then it is up to the other party who is claiming that contract is valid to show the existence of some other causa
Of The Effects Of Contracts
Contracts affect the relationships: 1. Between the parties themselves and 2. Vis-à-vis third parties.
Between the parties themselves.
Section 992(1) states: Contracts legally entered into shall have the force of law for the contracting parties. Therefore contracts are positive law for the parties and the Courts will have to interpret the contract as it interprets any other law. Thus the courts will have to follow the terms of agreement between the parties. If the contract is in writing, and the wording is clear there is no scope for interpretation. Parties may even go against what is stated in the general law by virtue of their agreement, unless there is a prohibition by the law itself by way of mandatory rules or because of a prohibition of public policy. But barring these exceptions, private law may supersede the general rule. Section 992(2): They may only be revoked by mutual consent of the parties, or on grounds allowed by law. However, besides by mutual consent, or on grounds allowed by law, there exist contracts which the law states may be annulled by 1 of the parties: a) mandate
b) contract of works (appalt) c) civil partnership. Section 993: Contracts must be carried out in good faith, and shall be binding not only in regard to the matter therein expressed, but also in regard to any consequence which by equity, custom or law, is incidental to the obligation, according to its nature. Therefore the obligation is binding not only for what the parties are expressly stating; but also for what is incidental to the fulfilment of the contract. Therefore the contract has the force of law between the parties, not only for what is declared, but also for what is incidental. Moreover this is the only time the concept of good faith is referred to. While Continental law is moving towards the creation of good faith. In Malta once the contract is created it must be carried out in good faith. There is a presumption that when a person enters into a contract, he binds not only himself but also his heirs and persons claiming under him. In fact as held in section 998: Every person shall be deemed to have promised or stipulated for himself, for his heirs and for the persons claiming through or under him, unless the - contrary is expressly established by law, - or agreed upon between the parties, - or appears from the nature of the agreement. such as maintenance allowance. It is possible for the parties to exclude the heirs or limit the effect of their obligation, but it is not possible for a person signing a contract to bind only his heirs and excluding himself. This is not allowed under the general principles of law. Transfer of Ownership Section 994 states: When the subject matter of a contract is the alienation of the ownership, or of any right over a certain and determinate thing such ownership or other right is transferred and acquired in virtue of the consent of the parties, and the thing remains at the risk of the alienee, even though the delivery has not taken place. Therefore where the thing alienated is certain and determinate, the ownership or other right passes on to the other party, as soon as the 2 consents meet. As soon as the contract is concluded, the title is transferred and the delivery of the object or the payment of the price is immaterial.( This is not what was applicable in Roman times. In Roman law the transfer of title occurred only when the delivery took place.) Notwithstanding the delivery has not yet taken place and the thing is still not in possession of the new owner, the risk of damage/destruction of the goods passes on to the new owner as soon as the contract is concluded. Therefore the risk is transferred with the ownership. This is the rule of res perit domino. Section 995(1): Where the subject matter of the contract is an uncertain or indeterminate thing, the creditor does not become the owner of such thing
until it has become certain, or the debtor has specified it, and has given notice to the creditor that he has specified it. Section 995(2) Until the thing has become certain or has been specified, it remains at the risk of the debtor. Therefore ownership is not transferred with the conclusion of the contract if the thing is uncertain or indeterminate. It remains under the ownership of the alienor.
In regard to 3rd Parties.
a) Immovables The contract is binding on 3rd parties only when it has been registered. Once A and B enter into a contract relating to immovables, ownership is transferred, but for it to be effective against 3rd parties, it must be registered in the Office of the Public Registry, as stated in Section 996(1). Section 996(2) holds that Where the alienation is made by judicial auction the note for the registration shall be signed by the registrar of the Court under the authority of which the adjudication of the thing shall have taken place. b) Movables Free form is sufficient to transfer ownership between A and B but vis-a-vis C the contract becomes effective when there is a delivery. As stated in Section 997: Where the thing which a person has by successive agreements undertaken to give or deliver to 2 or more persons is movable by nature, or a document of title payable to bearer, the person to whom the thing is delivered, and who obtains it in good faith, shall have a prior right over the other or other and shall be entitled to retain it, even though his title is subsequent in date. c) Incorporeal Rights The contract is concluded when there is agreement between A and B, but it becomes effective against third parties, only when the debtor is informed of the transfer. Therefore the law introduces 3 rights of preference in cases of transfers to more than one person- registration for immovables, possession for movables and notification to the debtor in case of corporeal rights. Examples: a) If A sells house to B, and A sells the same to C. If C registers before B, C is the owner vis-à-vis 3rd parties. b) If A sells a book to B, there is agreement but there is no delivery as yet; if A hands over the book to C, we have delivery and C would be owner vis-à-vis 3rd parties. c) If A sells his credit to B, and then sells it again to C. If C informs the debtor before B does, then C is deemed to be the owner.
Although the law says that the contract is concluded as soon as there is exchange of consent, vis-à-vis third parties who are competing with me, something more is needed.
In England vs Gauci Borda 24/5/68 It was held that possession will give a preference not only to movables by nature but also to personal rights such as lease. Lease is classified as a movable and so if the same property has been leased to the same person, it is the person who takes the possession of the property first who is the tenant. In Ciappara vs Mifsud Meta jkun hemm zewg lokazzjonijiet successivi ta` l-istess fond jirbah dak li jkun ha lpussess tal-fond l-ewwel. In Baldacchino vs Pace December 1997 Judge Arrigo presiding in the 1st Hall held that movable by nature referred to in section 997 is extended to include also movable by law. If 2 persons are claiming the same shares of the company, preference is given to that person registered by the company.
Can a contract directly effect 3rd parties? Section 1001 states: Contracts shall only be operative between the contracting parties, and shall not be of prejudice or advantage to 3rd parties except in the cases established by law. A contract between 2 persons does not affect a 3rd party - a contract between A and B does not effect C, C does not benefit from it, neither is C being prejudiced by it. And C has to respect that contract. In this regard there is a common maxim: Res inter alios acta terzio neque nocet neque prodest. Torrente explains this maxim: il terzo non acquista alcun diritto da un contratto al quale e` rimasto estraneo, quando le parti non hanno alcuna intenzione di procurare al terzo l‟acquisto del diritto, ma non esclude che la volonta` dei contraenti possa essere diretta ad attribuire diritti ad un terzo: non si vede infatti, il motivo per cui questa volonta non possa essere rispettata. If A sells a house to B, B can stop C from entering into the house, as C has to respect the contract. Even if B has not yet registered his title, C is not entitled to enter the house. But if C also acquires the house from A and registers it before B does, then C has a preference over B. In our code we still abide by the provisions, unlike Continental law, to the effect that contracts affecting 3rd parties have to be limited in scope and effect, and thus they have to abide by the terms established by law.
In fact the general norm is that established in Section 999(1) which states that A person cannot by a contract entered into by his own name bind or stipulate for anyone but himself.
Nonetheless there are 2 exceptions: Promessa di Rato - Section 999(2) Nevertheless a person can bind himself in favour of another person, to the performance of an obligation by a 3rd party, but in any such case if the 3rd party refuses to perform the obligation, the person who bound himself or promised the ratification shall only be liable to the payment of an indemnity. This section deals with a promessa di rato, a promise by a person binding himself that he will get the consent of a 3rd party to that obligation. An example would be in the case of co-owners of property. The property is co-owned by A& B and there is a prospective buyer who does not want to buy A‟s share only, but wants to buy the whole property. B is not present, and so what A can do is to enter a „promessa di rato‟, whereby A first sells his share and also promises that B will transfer his share. That promise binds A, but does not bind B, and B may simply ignore the promise. But if B chooses not to perform this obligation, then A would be liable for damages. The 3rd party can refuse without giving any particular reason. Therefore the promessa di rato actually binds the person who is making the promise and not the person on whose behalf the promise is made. In Xuereb vs Pace 22/6/64 “l-obbligazzjoni li tigi ffurmata bhala oggett mhux il-fatt tat-terz, imma l-fatt proprju tal-promettent ghaliex dan jobbliga ruhu li jipprokura l-obbligazzjoni ta` dik it-terza persuna.” It was thought that upon the promessa di rato of one of the parties the possession passed and if after the 30 years the other co-owner did not sell his share, the buyer would have acquired by means of acquisitive prescription. The Court did not accept this argument. It held that possession gives title but one must possess animo domini. When one acquires property with promessa di rato there was no possession animo domini. The property is not his, he can never prescribe in his favour. Since this judgement the effects of the promessa di rato have been reduced. The buyer could sue the promissor for damages but he surely hasn‟t acquired ownership. Such action for damages would have to be made within a 5 year prescriptive period, and these 5 years start running from the moment in which that other person refused to perform that obligation. Recently, there was a case where the „promessa‟ was used with respect to a minor. The parents did this in order to avoid the permission of the 2nd Hall Civil Court so as they would be able to get authorisation for the sale of the thing in question. They also presupposed that the minor would ratify the contract entered into by his parents on his
behalf at the age of 18. But the minor, on reaching 18, refused to ratify the contract. The question arose whether the 5 year period starts to run from when the minor submitted the refusal. The Court of Appeal held that it starts running from the moment of refusal. Torrente gives the following example: If I bind myself to get you employed with X. X „che e` rimasto estraneo al negozio, non e` affatto vincolato per effetto dal mio impegno: saro io che dovro‟ procurare di convincere il mio amico a fare quanto ho promesso.‟ If X does not employ you „saro tenuto ad indenizzare l‟altro contraente dei danni che ha subito per avere fatto affidamento sull mia promessa.‟ Section 1000: It shall also be lawful for a person to stipulate for the benefit of a 3rd party, when such stipulation constitutes the mode or condition of a stipulation made by him for his own benefit, or of a donation or grant made by him to others; and the person who has made any such stipulation may not revoke it, if the 3rd party has signified his intention to avail himself thereof. The Italian Code has only one section in connection with contracts effecting 3rd parties (Art. 1411), stating that it shall be lawful for 2 persons to stipulate a contract for the benefit of a 3rd party, provided “che lo stipulante abbia un interesse, anche se solamente morale, all‟attribuzione di tale vantaggione al terzo.3” In our case Section 1000 is some what more lenghty as the stipulation has to constitute the mode or condition of a stipulation made by him for his own benefit. Section 1000 is contemplating that the contract has 2 parts in it ( benefit of both): (a) I bind you to do something in favour of X, if you do not do it you have to give me Lm 1000, or (b) I am selling you property: give Lm 9000 to me and Lm 1000 to X. Therefore in all cases the person who has entered into the obligation must have a benefit. In Italy, even a moral interest is enough and therefore the requirement is different under our law as in Malta, the contract must have some benefit for the party to that contract. (c) Another ex: I am transferring a business concern on condition that you maintain the contracts of employment with the current employees. I am selling the business and as a condition of that benefit which I am getting, I am imposing on you an obligation in favour of a 3rd party. Basically section 1000 is saying that such a situation should contain itself another stipulation which is to the benefit of the party to the contract. Such a situation has sometimes been used to justify the giving of life insurance policies. A pays a life policy, and upon A‟s death the insurance company will give a payment to B. We do not have a law dealing with life insurance policies, but this section has been invoked to make the policies „legal‟. However, some argue that A (or the one making the life policy) pays premiums every year, and does not get any benefit
himself. On A‟s death, it is B who is going to get the benefit. However, the Courts have given a wide interpretation to the phrase “benefit” and they said that the fact that A made a life insurance policy is of a moral benefit to A himself 4. Hence the Courts have also accepted the concept of a moral benefit and therefore a life insurance policy is seen as a valid contract under Section 1000. However, the Courts have not allowed a life insurance with a named beneficiary, that is on A‟s death the proceeds go to a specifically named person. That would be in violation of Section 984, whereby one cannot stipulate a contract dealing with future successions as I would be deciding what is going to happen with the funds before I die. Normally the proceeds of a life insurance would go to all my heirs - this avoids the possibility of by-passing the succession law. ( I could invest all my property in an insurance policy to go to Mr.C, thus leaving B& D without legitim.) In whatever type of stipulation, be it a donation or a grant, I can stipulate contracts in favour of 3rd parties, so long as I derive some benefit. Ex of a donation. It is quite common in wills to leave a legacy to a person on condition that he pays Lm2000 a year to his sister. One should also distinguish between a MODE and CONDITION. A contract made subject to a Condition, may be annulled if the condition is not performed. If the contract is made subject to a Mode, the contract cannot be annulled if the mode is not performed, but one can only insist on the performance of the mode. “A mode is a condition which dimishes the enjoyment of an acquired right, the non performance of which does not however effect the continued enjoyment of that right.” Ex I give you my business on condition that you give Lm 1000 a year to your sister. If such condition is not observed, the contract may be annulled. If the Lm 1000 a year is only a mode of the contract, that is I leave you the business, but the mode of carrying such out is to give Lm 1000 to your sister - then the contract may not be annulled but one may insist on the performance of the mode. There was a case where a person gave property in a will to a congregation of nuns subject to a mode or condition that the nuns had to give their religious doctrine to the children of the village. Because of a shortage of nuns they could not continue teaching this religious doctrine and the heirs sought to annul the contract and get the property back. The Court held that this teaching was not a condition but only a mode of contract and if the obligation is not performed, still the property was not lost5. In every case, the Court when deciding whether it is a mode or a condition, it looks at the intention of the parties and the type of wording used.
TM in 1998, has also equated the benfeits acquired by 3 rd parties from life policies to donations. TM in his 1998 version states that the „mode‟ of the contract, was that the nuns were to take care of the person who gave them the property, and since she was growing old they could not continue in this „mode‟ and thus sent her to a Church Home. The elderly sought to annul the contract on the basis of non-fulfilment of this condition. However the Court held that this was a mode, and thus does not suffice to annul the contract.
Section 1000 also stipulates that ….. and the person who has made any such stipulation may not revoke it, if the 3rd party has signified his intention to avail himself thereof.
This is similar to the provision in the Italian Civil code (1411), and in the words of Del Giudice “…con l’accettazzione del diritto, il terzo non diventa parte contrattuale, ma rende definitivo l’acquisto del diritto: a seguito di tale dichiarazione, lo stipulante non potrebbe piu` revocare (ritirare) o modificare il beneficio.” In Millard vs Said 14/09/88 A property was occupied by an old woman. She had no title of lease, but occupied the property with owner‟s consent. The owner sold the property to a 3rd party and bound the 3rd party not to evict the old woman until she dies. Subsequently, the owners changed their mind and made another contract of sale with no conditions at all. The old woman instituted an action to annul the second contract because she argued that it was a breach of obligations in her favour arising from the first contract. A number of points arose before the Court of Appeal: 1) With regard to whether the old lady could have started the case before an attempt had been made for her eviction, the Court said that once the 1st contract was cancelled by the second contract, the old lady had an immediate interest to make the action to have the 2nd contract annulled. “…l-azzjoni mhux intempestiva. Il-konvenuti jallegaw li l-attrici ma kellha ebda dritt li tikkostitwixxi l-kawza qabel ma d-drittijiet taghha jigu vjolati. Izda l-qorti osservat li l-vjolazzjoni saret bil-kuntratt u ghalhekk kellha kull interess tagixxi biex tipprotegi dawk li hija tippretendi li huma d-drittijiet taghha.” Thus as soon as the second contract was made, her rights had been violated. 2) With regard to against whom the old lady had to file the case: the Court held that the action had to be made against both parties to a contract: “il-kawza saret tajjeb kontra z-zewg kontraenti u t-tnejn li huma legittimi kontraditturi.” 3) The defendants argued that since the contract was between A and B, the old lady had no personal interest in the matter. But the Court said that once the obligation in favour of the 3rd party (old lady) had been made known to the 3rd party, and the 3rd party had accepted the obligation in her favour, then she becomes a party to that contract, and that contract cannot be changed without the consent of the 3rd party: ….. and the person who has made any such stipulation may not revoke it, if the 3rd party has signified his intention to avail himself thereof. Therefore any change to that contract would also require her consent: “l-attrici ghanda azzjoni personali u tista tagixxi a bazi ta Artiklu 1000, peress li bl-ewwel kuntratt bejn il-prokuratur u Said saret kundizzjoni favur terz, u r-rizerva kienet bhala kundizzjoni ta` l-istess koncezzjoni enfitewka u din il-kundizzjoni saret favur terzi, itterza giet infurmata bil-kundizzjoni favur taghha b‟ittra li ntbaghtetilha qabel ma sar it-tieni kuntratt u ghalhekk ma tistax titnehha minghajr il-kunsens tagha.”
In these types of contracts for the benefit of 3rd parties, once the 3rd party gets to know of this obligation and accepts it, he is no longer considered to be the 3rd party, but becomes a full party to the contract and as such he has a personal interest to secure the enforcement of that obligation in his favour. OF Proof of Obligations and their Extinguishment Sections 1232 - 1235 Section 1232(1): Where the law does not require that an obligation or its extinguishment should result from a public deed or a private writing, such obligation, or its extinguishment may be evidenced by means of witnesses or any other means allowed under the provisions of the COCP. Section 1232(2): A public deed is an instrument drawn up or received with the requisite formalities, by a notary or other public officer lawfully authorised to attribute public faith thereto. Section 1233(1): Saving the cases where the law expressly requires that the instrument be a public deed, the transactions hereunder mentioned shall on pain of nullity be expressed in a public deed or a private writing: (a) any agreement implying a promise to transfer or acquire, under whatsoever title, the ownership of immovable property, or any other right over such property; (b) any promise of a loan for consumption or mutuum; (c) any suretyship; (d) any compromise; (e) any lease for a period exceeding 2 years, in the case of urban tenements, or 4 years, in the case of rural tenements; (f) any civil partnership; and (g) for the purposes of the Promises of Marriage law, any promise, contract, or agreement therein referred to. (2) Where, in the case of a private writing, the writing is not signed by each of the parties thereto, it must be attested in the manner prescribed in Section 634 of the COCP. Therefore these transactions must be expressed in a public deed or a private writing under pain of nullity. Here one should carefully note the words „on pain of nullity‟, as in this case the writing is not a matter of form but a matter of substance. Therefore in Malta, in the cases mentioned in Section 1233, the writing is a question of validity - a matter of substance. The contract simply does not exist. If the consent is not expressed in writing, Ex, a verbal promise of sale to transfer an immovable it is invalid for the purposes of law. ( of course the Court is satisfied that the agreement did once result in writing, but the writing has been lost or destroyed, then the Court will still accept the validity of the agreement - therefore one need not
actually produce the document in Court in order to prove the validity of these agreements). One must also dstinguish between a private writing and a writing. There is a fundamental difference between the two. This difference appears also in the Italian Code, where we find per iscrittura (writing) or per scrittura (private writing). Does a private writing require the signature of both parties on the document? If I sign and the other party has assumed the obligation and is in possession of the document, but has not signed it, would that amount to a valid private writing? In Buttigieg vs Ellul 18/6/38 “F‟kaz li ssir skrittura privata u wiehed mill-partijiet ma jiffirmawhiex, il-fatt li l-parti ma tkunx iffirmata tkun zammet l-iskrittura ghandha, imbaghad tipproducieha f‟kawza bhala prova, jsir ekwivali ghal firma.” But in Spiteri vs Buhagiar 20/1/61 The Court said that the material possession of the writing in the hands of the party who failed to sign it could not supply the requirement of actual signature as required by law. The Court said that there cannot be a private writing if there at not at least 2 signatures- this is a requirement „ad validatem‟ and not „ad probationem‟. But in Brincat vs Falzon 17/6/91 The Court of appeal again revised that decision, but the Court emphasised that it was limiting its judgement to the facts before it. There was a bank guarantee ( which normally requires a private wirting) which was signed by the client but not by the bank. The bank had possession of the guarantee form and the Court held that this was a valid private writing. Would an exchange of letters amount to a private writing? Also the courts have held that an exchange of letters would NOT amount to a valid private writing. Ex A sends a letter to B asking him to buy his house for Lm 10,000. B answers in another letter and agrees to the sale. That is not a private writing. In Vella vs Cassar 24/4/67 The Court analysed past jurisprudence, examined autors and concluded that an exchange of correspondence does not amount to a privet writing. What is required is one documet signed by both parties, not necessarily contextual, but on the same document. Thus a private writing requires the signmatures of both parties, but does not require that such suignature be witnessed by a notary. But iof 1 of the parties does not know how to sigh his name, then it is necessary that he traces his mark in front of 2 witnesses, a notary and a lawyer. This was held in Zarb vs Pullicino 28/3/88 If the mark is not attested in such a way the mark is null.
Contracts which at least have to be carried out in a private writing (1233(1)) a) any agreement implying a promise to transfer or acquire, under whatsoever title, the ownership of immovable property, or any other right over such property; There is a dispute as to whether a mandate to sign a public deed needs to be done in writing. Our law states that a mandate is avlid even if carried out orally, but there are other authors such as Ricci, who argue that if I am authorising another person to sign on my behalf a contract relating to immovabkle property, that mandate has to result in writing by means of a public deed. Some local judgements have held that mandate could be carried verbally, however there is still some validity in Ricci‟s argument that a power of attorney to enter into a public deed should be manifested in a public deed itself. There have also been cases which have held that a promise to enter into a division of property does NOT require a private writing as in the case of a promise of sale. Therefore a partition has to be carried out be a public deed, but a promise to enter into a division need not be carried out by means of a writing. This has recently been confirmed in Caruana vs Caruana 30/5/85 1st Hall and Giordamania vs Dimech Where the courts held that a verbal promise to effect a partition suffices. This is because Section 1233 speaks about “any agreement implying a promise to transfer or acquire…” and a promise of contract of division or partition, whilst having declaratory effects does not actully transfer property. However in Sammut vs Sammut 14/2/95 The Court of Appeal held that a promise to effect a transfer requires a writing and this also applies to a promise to effect a partition. A contract of partition has declaratory effects and does not effect a transfer; on the basis of this one would tend to prefer the position taken by the other 2 judgements. b) any promise of a loan for consumption or mutuum; It is the promise of loan which has to result from a writing and not the loan itself. If I actually give a loan, no writing is required. c) any suretyship; If a person is guaranteeing the debt of someone else, that has to result in writing - a verbal guarantee has no effect. But the Courts have distinguished between a suretyship and when a person assumes the liability of someone else. I am not saying “if he does not pay, I will pay” ( a suretyship) but I am saying “the debt is mine and I will make good for that debt.”
Again, whether it is an assumption of liability or whether it is a suretyship depends on the wording used in the particular contract or on the circumstances surrounding that obligation.This is very important since a suretyship requires a private writing while an assumption of liability does not. So, the individual is not guaranteeing a debt, but is assuming the liability, he may do that verbally, without the need of a private writing. In Xuereb vs Cremona The Court had to interpret the phrase “Ahna naghmlu tajjeb ghalih” It concluded that this amounted to a guarantee and since there was no writing then it is not valid. d) any compromise; This is understood to mean “a compromise of a pending lawsuit”. Once the matter has been brought before the Courts, if the parties want to resort to a compromise, then that has to result in writing. But if there are 2 individuals who are involved, ex, in a traffuic accident and the matter is settled amicably and they do not involve the police, once the matter was not brought before the courts, a verbal compromise is sufficient. e) any lease for a period exceeding 2 years, in the case of urban tenements, or 4 years, in the case of rural tenements; A lease for 1 or even 2 years does NOT require a private writing. An issue arose when for example we verbally make a lease for over 6 years, would it be valif for 2 years or would it completely be invalid? The conclusion generally reached by the Court is that such a verbal lease would be completely null in its entirety. f) any civil partnership; g) for the purposes of the Promises of Marriage law, any promise, contract, or agreement therein referred to. Although the law mentions these contracts here in Section 1233, we must not assume that these are the only contracts that have to be carried out in writing. Ex annuities (section 1690), arbitration awards, sale and transfer of motor vehicles require a private writing.