The nature of deposits in promise of sale agreements : in need of legal certainty?

Abstract

New practices regarding deposits in promise of sale agreements have developed over time and which have given rise to legal controversy. The difficulty has arisen with the introduction of the so called ‘forfeitable deposit’ which is a notion that was never directly regulated by the current provisions of the Civil Code (Chapter 16 of the Laws of Malta). Indeed, when the courts were challenged to give their interpretation of the nature of this particular brand of deposit, numerous attempts have been made to give it a legal character by attributing to it characteristics that are pertinent to other types of deposits which are regulated by law, namely earnest (Kapparra). These attempts unfortunately added to the confusion as the characteristics of the regulated types of deposit are not easily applicable to the notion of forfeitable deposit. Different and conflicting interpretations have been given by the courts and to make matters worse, by two different sets of the Court of Appeal, not only at different times but also, in some instances, at the same time. This situation of legal uncertainty in respect of the notion of forfeitable deposit as well as other aspects of the promise of sale agreement, indirectly impacting on the deposit, has not yet been eliminated as the courts have regrettably failed to give a coherent definition of ‘forfeitable deposit. This has also given rise to difficulties to legal practitioners, including notaries, in advising their clients in drawing up promise of sale agreements when the parties come to choose between the introduction of deposits either on account, or deposits by ‘earnest’ (Kapparra) and ‘forfeitable deposits’ as there is no consistency and uniform judicial opinion on the notion of ‘forfeitable deposits’. In view of these circumstances there is a need for a breakthrough by way of legislative intervention. It is high time that the legislator introduces new amendments to the Civil Code where promise of sale agreements are involved, not only to address the uncertainty but also to bring the law in line with innovative practices that have developed with time in promise of sale agreements particularly during the past two decades. In this report, I will be dedicating the first part of this report to an appreciation of the current provisions of section 1357 et sequitur of the Civil Code. I will then proceed to discuss the various challenges which have arisen with time, the controversies, and conflicting judgements which have fuelled uncertainties that continue to exist to this very day. Finally, in the final part I will be proposing amendments to the Civil Code that should, if introduced, shed more certainty on the nature of all types of deposits of money made in contemplation of promise of sale agreements.