Contract
Law

The law does not generally limit what kind of contract one might want to enter into, as long as that contract is not contrary to law. The law, in article 960 of the Civil Code, states that a contract is an agreement or an accord between two or more persons by which an obligation is created, regulated, or dissolved.

An agreement, even if verbal, can be valid at law. However, not all agreement can be made verbally. The law provides for a certain class of contracts which need to be reduced to writing, and another set of contract which are invalid unless done by a public deed, that is by a contract before a Notary Public. For instance a promise of sale agreement is invalid unless it is done in writing, and the transfer of an immovable property is invalid if it is not executed through a proper public deed.

An obligation without a consideration, or founded on a false or an unlawful consideration, shall have no effect. The consideration is unlawful if it is prohibited by law orcontrary to morality or to public policy. Therefore for instance, if two parties enter into a contract whereby the one promises the other a sum of money for executing a robbery mandat, that contract cannot be enforced into a court of law if one of the parties does not honour his obligations as agreed to.

The law provides for a system of automatic contracts, or ‘quasi-contract’. A quasi-contract is a contract created by force of law, even without the intention of both parties. Article 1012 of the Civil Code defines a quasi-contract as ‘...a lawful and voluntary act which creates an obligation towards a third party, or a reciprocalobligation between the parties’. The classic quasi-contract can be described in a situation where a person receives a thing which is not due to him. There is a quasi-contract at law which bounds him to restore it to the person from whom he has unduly received it.

Commodatum or loan for use, is a contract whereby one of the parties delivers a thing to the other, to be used by him, gratuitously, for a specified time or purpose, subject to the obligation of the borrower to restore the thing itself once the time expires, or whem the purpose does not exist any longer. The contract of commodatum can be done in verbally or in writing. The gratitious aspect of this contract is vital, and if there is a consideration paid for the loan for use, then it is no longer a commodatum, but something else.

Our law, in article 992(1) of the Civil Code, gives contracts the power of law. This power-conferring tool by means of legal intervention is also manifested in the well-known principle of ‘pacta sunt servanda’. Pacta sunt servanda is a derivative of the more comprehensive principle of ‘pacta conventa quae neque contra leges neque dolo malo inita sunt omnimodo observanda sunt’, meaning that, contracts which are not illegal, and do not originate in fraud, must in all respects be observed. This is where the law comes to play – in order to ensure that contracts voluntarily reached (and only those) are well observed. This is also the general spirit of article 992 (1); once the contract is legally entered into, it shall have force of law between the parties.

It is a staple of Maltese law that oral evidence cannot trump what seems to have been agreed upon in writing. Despite the fact that this law is not properly part of Maltese codified law, it is a historical idea that may be found in old Roman laws. Renowned Maltese judge Paolo Debono, had written – back in 1897 – that written agreements should be held in higher regard than the simple recollection of witnesses.

Article 1424 of the Civil Code obliges the seller to warrant the thing sold against any latent (hidden) defects which render it unfit for the use for which it is intended, or which diminish its value to such an extent that the buyer would not have bought it or would have tendered a smaller price had he knew about those defects, unless it would have been stipulated that the seller shall not in any such case be bound to any warranty (article 1426). In such cases, the purchaser can either institute the actio redhibitoria, to restore the thing and have the price repaid to him, or, institute the actio aestimatoria, to retain the thing and have a part of the price repaid to him which shall be determined by the court (article 1427). Article 1390 of the Civil Code provides that if the thing which the seller offers to deliver is not of the quality promised, or is not according to the sample on which the sale was made, the buyer may elect either to reject the thing and demand damages, or to accept the thing with a diminution of the price upon a valuation by experts.

When two enter into a promise of sale agreement, more often than not, the purchaser pays a sum of money to the vendor (many times, held for a period of time by the Notary Public) in order to guarantee his appearance on the final deed of purchase. The law does not oblige the purchase to pay a deposit or a kapparra, and the parties have a free-hand in this respect. ‘Deposit’ and ‘kapparra’ are not the same thing; when one pays (or receives) a ‘deposit’, he is still obliged to appear for the final deed of sale. When a sum is paid in earnest, neither of the parties is legally bound to appear at the final contract of sale, but the defaulting party will be liable to pay a ‘penalty’.

The institute of compensation (sometimes known as ‘set-off’, and in Maltese, ‘tpaċija’) lives to cater for the existence of a multiplicity of obligations and a concurrence of reciprocal dues. The idea is that two corresponding debts may serve to extinguish each other on the basis of a total or partial set-off of what is due. Legal compensation (or set-off) takes place automatically (ipso jure) even with out the knowledge of the parties; the instant money is simultaneousl owed, the debts are extinguished in respect of each other in their corresponding amounts.

Mandate or procuration is a contract whereby a person gives to another the power to do something for him or her. A power of attorney is essentially a form of mandate, and it gives a lot of responsibility to be borne by the mandatary. A mandate can either be special (for a particular purpose) or general (for all affairs of the mandator).

A penalty clause is an agreement whereby a party promises the other to pay a sum of money in damages for the delay or the non-fulfilment of an obligation in contract. The penalty represents the compensation for the damage which a person sustains by the non-performance of the principal obligation. Penalty clauses are very common where a party has to perform certain obligation and a penalty clause is introduced a priori instead of leaving it open to the other party to seek damages in the case of non-fulfilment. In this manner, the parties would have already agreed on the amount of the penalty and when such payment of penalty is to arise.

Suretyship is a contract whereby a person binds himself towards the creditor to satisfy the obligation of another person, if the latter fails to satisfy him. The contract of suretyship is an accessory contract. The surety binds himself to satisfy the obligation of the principal debtor. There cannot be a suretyship without a principal obligation. Another important characteristic of the contract is that the surety binds himself personally. In the instance of other guarantees, such as hypothec, pledge and antichresis, a real right is created over the property of the debtor of a third party. In the case of suretyship, the surety is personally bound with all his property, present and future.

The seller is in law bound to warrant the buyer against any eviction which deprives him, in whole or in part, of the thing sold, and against any easement or burden on the same, claimed by others, and not stated in the contract. The warranty of peaceful possession emanates from the duty of the seller to transfer his rights to the buyer. A failure to do so entails an infringement of this obligation and the impossibility of guaranteeing the peaceful possession of the thing sold. The seller can only guarantee the peaceful possession of the thing sold if the title he conveyed onto the buyer was a “good” title, i.e. not affected by any vices. The right due to the buyer to be guaranteed against eviction is derived from the very nature of the contract of sale; that is, from the seller's obligation to transfer to the buyer all the rights which constitute the right of ownership.

Force majeure is a common contract clause that essentially releases both parties from liability or obligation when an extraordinary event or circumstance beyond the parties' control, such as a war, strike, riot, crime, epidemic, or sudden legal changes, prevents one or both parties from fulfilling their contractual obligations. An occurrence classified as an "act of god" may excuse a party from fulfilling his obligations at law.