€23,293 deposit ruled refundable, not forfeited ‘kappara’

Mr. Justice Lino Farrugia Sacco, presiding over The First Hall of the Civil Court on 11 June 11 2013 in the case Raymond Grima et al v. Pio Chetcuti et al held that when the Commissioner of Inland Revenue is not notified of a promise of sale and, furthermore, when no tax is paid to the Commissioner in terms of Article 3(6) of the Duty on Documents and Transfers Act for the promise of sale, it is rendered invalid. The court was of the opinion that the deposit paid was not paid as a 'kappara', or a forfeitable deposit, and therefore was to be reimbursed to the applicants.

Raymond and Lourdes Grima entered into a promise of sale agreement on 25 March 2009 for six months with defendants Pio Chetcuti, Jacqueline Chetcuti, Joseph Chetcuti and Antoinette Chetcuti for the purchase of a penthouse in Attard, including its airspace. The agreement was never duly registered by a notary.

The applicants claimed that they filed legal proceedings to be refunded the sum of €23,293 together with interest as from 25 September 2009, since the defendants had never instituted proceedings to enforce the deed of sale. The sum had been paid by way of deposit on the promise of sale.

In September 2009 the defendants served the applicants with a judicial letter to appear on the final deed of sale. They claimed that that applicants had acted illegally and abusively when they failed to pay the notary 1% tax and as a result, the promise of sale agreement was not registered. The applicant never returned the keys to the apartment, thereby denying the defendants the free and unencumbered enjoyment of the property.

In their counterclaim, the defendants cited damages from 25 March 2009 and asked the court to grant the return of the keys and possession of the apartment. In reply, the applicants denied ever having acted in bad faith and, therefore, responsibility for any damages, though they were willing to return the keys.

Citing the judgment 'Maria mart Vincent Cascun et al v. Carmelo Scicluna pro et noe (Citaz.Nru.42/88) deciza fis-27 ta' Jannar, 2009', the court explained that Article 3(6) of the Duty on Documents Act states that a promise of sale shall not be valid unless notice thereof is given to the Commissioner within such time and in such manner and containing such particulars as may be prescribed, together with a provisional payment equivalent to 20% of the amount chargeable in terms of articles 32 and 40. The court claimed that there was no evidence that this was fulfilled. Therefore the promise of sale could not be considered valid.

The court also examined whether the €23, 293 deposit paid was paid in the form of an earnest kappara or as a deposit 'on account of' the price, which would make it refundable.

The court noted that jurisprudence has not been consistent in its interpretation of the nature of a deposit paid, but agreed with the interpretation of 14 May 2010 in the case Reginald Vella et al v. Angela Galea pro et noe. The Court of Appeal noted that if the deposit was paid as a forfeitable deposit, it was not to be reimbursed if the person who effected payment failed to appear on the final deed of sale without a valid reason. Also, there was no need for legal proceedings to be instituted in terms of Article 1357 of the Civil Code. Only if the other party believed that he or she had a valid reason for not appearing on the contract could he or she file proceedings to have the deposit returned.

The court was of the opinion that, in this case, the sum paid was a deposit 'on account of' the price. It agreed with the applicants' interpretation that even though the defendants insisted that they had filed a judicial letter, the court had never seen it, but they definitely never followed it by a court application as contemplated under Article 1357 (2) of the Civil Code, so the applicants were entitled to the return of their deposit.

The court also concluded that the defendants had failed to prove that the applicants had acted deceitfully and in bad faith and that the defendants had suffered any damages. The applicants might have been wrong by keeping the keys to the property, but, similarly, the defendants acted wrongly when they retained the deposit and never followed up the judicial intimation with a court case. The claim for damages could no longer be tenable.

For these reasons, the First Hall of the Civil Court rejected the defendants' counterclaims and reply. It ordered the defendants to pay the applicants the sum of €23,293, with interest due as from the date of judgment.

Since the applicants had kept the keys to the property, judicial costs were condemned to two-thirds for the defendants and one-third for the applicants.

Greta Mifsud is an associate at Mifsud & Mifsud Advocates