What is a Promise of sale?
While a sale is a bilateral contract wherein the appearing parties reciprocally promise to each other to, on one hand, transfer and deliver the object of sale, and on the other hand, to acquire the sold object. In such an agreement, promises must be faithfully and honestly fulfilled along with the conditions stipulated attached to both parties.
The promise of sale is regulated by Article 1357 of the Civil Code. The acceptance of a promise of sale obliges the seller to carry out the sale and endows the buyer the right of requesting its specific performance. If the execution of the obligation is no longer possible, the buyer is entitled to claim damages and interest.
What elements need to be included in a promise of sale?
Any promise of sale agreement must contain several elements for it to be considered valid. First of all, it must be put down in writing. It must reflect the consent of the parties which is attested by their respective signatures. It must contain the promise of transfer which accordingly becomes the object of the agreement. It must clearly state the title by which such object is to be transferred and it must indicate the price for which the thing is being sold or transferred.
The seller is also obliged to warrant the peaceful possession of the object of the sale and warrant against latent defects in the preliminary agreement itself. He must guarantee that the property is free from any burdens, such as servitudes or hypothecs, or else ensure that the prospective buyer is aware of such burdens.
What is the term of validity of a promise of sale?
The promise of sale agreement shall cease on the lapse of the time agreed between the parties. If the agreement does not contain a specific period of expiration, the promise shall cease on the lapse of three months from the day on which the sale could be carried out.
If the formalities required by law are not observed, the promise of sale loses its effectiveness and on the date of expiration, the parties return to the position they were in before entering the agreement.
What is the difference between a sum paid in earnest (Kapparra) and a deposit?
Although it is not required by law, it often happens that upon appearing on a promise of sale agreement, the party promising to acquire the object of sale pays the prospective seller a price to secure the fulfilment of that obligation. This part-payment can be made by way of a deposit which is usually made on account of the final price or by way of earnest (kapparra). The consequences that will ensue should either one of the parties default in fulfilling the promise which they have made, depends on the form chosen of such payment.
An earnest payment is a form of deposit made in transactions to demonstrate that the party in question is serious and is acting in good faith to complete the transaction. Although when a sum is paid in earnest, each of the parties shall still be at liberty to recede from the contract, the defaulting party will face the following consequences:
- If the buyer withdraws he automatically forfeits the sum which he had paid in earnest.
- If the seller withdraws, he must give the buyer double the sum which the buyer had paid in earnest.
In the case of a deposit, the sum paid is considered to be a guarantee of the final sum which will be paid upon the finalisation of the sale. In this case, both parties are obliged to appear on the final deed. If the sum is paid as a deposit and the period within which the sale had to occur lapsed without any of the parties doing anything to force the other to appear on the contract, the parties would return to the position they were in before the agreement was made. Thus, the prospective buyer may demand the return of the deposit made so long as there is no mention in the promise of sale that the deposit was forfeitable.
If it is unclear whether the parties are paying a deposit or earnest, the Courts generally favour the idea that the sum was a deposit.
What are the remedies if either party fails to fulfil what was promised?
A legal remedy that is available to either one of the appearers is that of calling upon the defaulting party to appear on the final contract of sale through a judicial letter which is filed under the authority of the Court before the expiration of the promise of sale. Should the defaulting party persist in his position within thirty days from the expiration of the promise of sale, a sworn application can be filed before the First Hall of the Civil Court by the other party asking for the forced execution of the promise made and the delivery of the object of sale thereof. Alternatively, a claim for damages and interest can be made when the seller can’t execute his promise of sale.
Av. Rossana Farrugia
This article can also be accessed on Yellow.
For more information you can contact one of our Team Members at Mifsud & Mifsud Advocates.