The Forgotten Right of Redemption: Pactum de Retrovendendo in Maltese Law
The right of redemption
Among the institutions found in the Maltese Civil Code there are some which, although perfectly alive as a matter of codified law, have almost disappeared from ordinary legal practice. One particularly striking example is the conventional right of redemption, historically associated with the pactum de retrovendendo.
This concept is completely different and separate from the right of redemption of a groundrent under article 1501 of the Civil Code.
The institution is deceptively simple. A person sells property but, as part of the contract of sale, reserves the right to take it back within an agreed period upon returning the price and satisfying the other obligations imposed by law. Ownership passes to the purchaser. The transaction is therefore a genuine sale. Yet the seller's connection with the property has not been entirely extinguished: for a limited period, he retains the possibility of recovering it.
The arrangement immediately invites comparison with the far more familiar promise of sale. In both cases one encounters an obligation which may eventually result in a future transfer of property.
There is, however, a fundamental distinction. A promise of sale gives the prospective purchaser a personal right to demand a sale which has not yet taken place. In redemption, the sale has already taken place and the original seller seeks to recover property which has become the property of another.
The distinction is not merely theoretical. The Civil Code attributes to redemption consequences, particularly in relation to third parties, which are considerably stronger than those attaching to an ordinary promise of sale. It is this unusual combination of sale, re-sale and proprietary effect which makes an otherwise neglected institution worthy of closer attention.
Historical and Legal Foundations
The origins of the institution are found in Roman law, although the Roman sources do not present a comprehensive doctrine of redemption comparable to that subsequently developed in the civil law.
Two texts are of particular interest. In D.19.5.12 (Proculus, 11 epist.), a husband had transferred property to his wife on terms that, should the marriage come to an end and should he so wish, she would transfer it back to him for the same price. Proculus recognised a remedy where the purchaser refused to comply.
A clearer example is found in C.4.54.2, concerning parents who had sold a fundus under an agreement that, if they or their heirs offered the price, the purchaser would restore the property. Their son subsequently sought to enforce the arrangement against the purchaser's heir, and the imperial constitution recognised a remedy for that purpose.
What is noteworthy in these texts is that the original transaction was a sale. The purchaser acquired the property. The agreement concerning its eventual return did not prevent ownership from passing in the first place. It imposed, rather, an obligation connected with the possibility of a subsequent transfer back to the seller.
The practical purpose of such an arrangement is not difficult to appreciate. An owner in need of money could obtain immediate liquidity by selling property without necessarily abandoning every prospect of recovering it. The purchaser, on the other hand, acquired the property and enjoyed its benefits during the intervening period. The mechanism could therefore occupy a position somewhere between an outright permanent alienation and a transaction having an economic function connected with credit or security.
That historical background remains useful when considering the rather elaborate regime which survives in Maltese law.
The starting point is article 1440 of the Civil Code. It provides that, independently of the other grounds of dissolution or rescission, a contract of sale may, wholly or partly, be “dissolved by the exercise of the right of redemption”. Article 1441 then states simply that “[t]he right of redemption is created by agreement”.
Article 1458 gives the institution its more precise form. It permits the seller, “in the contract of sale”, to reserve the right of redemption, described by the legislator as the power of taking back the thing sold, by returning the price and paying the expenses and interest contemplated by articles 1443 to 1445.
There is an important limitation. Article 1458(2) provides that any agreement requiring the seller to return a higher sum is null in respect of the excess. The seller may therefore be required to restore the price and the expenses contemplated by law, but the parties cannot transform the redemption price itself into a higher contractual figure.
Seen against the historical use of transactions of this nature as a means of obtaining liquidity, the provision is particularly interesting. A transaction under which property is transferred for €200,000 and may be recovered shortly afterwards only upon payment of €250,000 begins to resemble something materially different from a simple sale followed by redemption. The statutory restriction prevents the right of redemption from being structured in precisely that manner.
The law also imposes a strict temporal limit. Under article 1459, the right cannot be reserved for more than five years from the date of the sale. If no period is stipulated, or if the parties purport to agree upon a longer period, the right cannot operate beyond five years. The period is peremptory and runs even against minors, interdicted persons and absentees.
The law thus tolerates the uncertainty produced by redemption, but not indefinitely.
The Juridical Nature of Conventional Redemption
It is important not to lose sight of the fact that the first sale is a genuine and completed transaction.
In the case of immovable property, article 1363 provides that the sale is null unless made by public deed. Article 1379 further provides that delivery of an immovable takes place ipso jure upon publication of the contract of sale.
The purchaser under a covenant of redemption therefore becomes owner. His ownership is not merely provisional possession pending some future sale.
Article 1461 makes this particularly clear. The buyer may exercise all the rights of his seller; he may prescribe against the true owner and against persons claiming rights or hypothecs over the thing sold and may avail himself of the benefit of discussion against the seller's creditors. The Code nevertheless imposes one notable restriction: he “may not … alter the form of the thing sold”.
The resulting position is unusual. The buyer has acquired ownership, but the property remains susceptible, for the agreed period, to the exercise of a right reserved by the person who sold it.
The comparison with the Maltese konvenju is unavoidable.
Article 1357(1) expressly provides that a promise to sell “shall not be equivalent to a sale”. Once accepted, it creates an obligation upon the promisor to carry out the sale or, if the sale can no longer be carried out, to compensate the promisee.
The right created by a promise of sale is therefore a personal right. The prospective purchaser has a claim against the prospective seller for the eventual transfer. He does not, merely by virtue of the promise, acquire ownership of the property.
Redemption begins from the opposite position. The transfer has already occurred. A has sold the property to B and B has become owner. What A has retained is a right which may ultimately require B to transfer the property back.
There is nevertheless a striking similarity between the two institutions. Indeed, the language employed by the Civil Code itself invites it. Article 1453 provides that the person against whom redemption is exercised is not bound to make the “re-sale” until the party exercising redemption has fulfilled his obligations under articles 1443, 1444 and 1445.
Why, then, is redemption not simply a promise of sale granted by the purchaser in favour of the original seller? The answer becomes apparent when third parties enter the picture.
Article 1460(1) provides that the seller of an immovable who has reserved the right of redemption may exercise it against a third party in possession, even where no mention of the right was made in the contract under which that third party acquired the immovable.
Article 1442 is equally significant. An action for recovery of an immovable pursuant to redemption may be instituted not only against the purchaser but also against any other possessor. Upon the re-sale, the property passes to the person exercising redemption free from any hypothec, easement or other burden imposed upon it by the purchaser or subsequent possessor, subject to the provisions governing leases.
This is difficult to reconcile with the proposition that redemption amounts merely to an ordinary personal undertaking to sell.
The right is certainly contractual in origin: article 1441 expressly says so. Its exercise ultimately produces what the Code calls a re-sale. Yet the legislature gives the right consequences which extend beyond the original contracting parties.
There is consequently good reason for caution before placing redemption neatly within either the category of personal rights or that of real rights. It is perhaps better understood as a sui generis right of contractual origin upon which the law confers significant proprietary effects.
The language of the Code itself reflects this conceptual difficulty. Article 1440 describes the original sale as being “dissolved” by redemption, terminology which might suggest the operation of a resolutive mechanism. Articles 1442 and 1453, on the other hand, speak of a “re-sale”, which suggests a second transfer rather than the retroactive disappearance of the first.
That tension is not merely semantic. It goes to the juridical nature of the institution itself.
Redemption, the Promise of Sale and Formal Requirements
The difference between redemption and a promise of sale becomes still clearer when their respective formalities are considered.
A promise of sale is preliminary to the eventual transfer. Article 1357 establishes the obligation and provides its own regime for preserving that obligation where the final sale is not completed within the applicable period. The promisee must call upon the promisor by judicial intimation before expiry and, if the promisor remains in default, institute the appropriate proceedings within the further period prescribed by article 1357(2).
Redemption follows a quite different structure.
First, article 1458 contemplates the reservation of the right “in the contract of sale itself”. Where an immovable is concerned, that sale must be made by public deed. The redemption right therefore forms part of the transaction by which ownership is actually transferred rather than constituting a preliminary agreement for a future first transfer.
Secondly, the exercise of redemption is governed by a specialised procedure. The Code requires the filing of a schedule of redemption in the registry of the competent court. Article 1449 further requires the person exercising the right, together with the schedule or within ten days of its presentation, to deposit a sum including the original price, the fees of the notary who received the original deed, Public Registry fees where applicable, and the other lawful expenses contemplated by the provision.
The ten-day period has substantive consequences. Article 1450 provides that if the deposit is not made within that period, the schedule ceases to have effect, subject to the exceptions and possibilities contemplated in the subsequent provisions.
This is not the procedural regime of an ordinary konvenju. The latter creates a personal obligation directed towards a sale which remains to be completed.
Redemption begins with a completed sale and provides a special statutory mechanism through which the former seller may procure the return of the property.
Nor does exercise of the right simply involve returning the original purchase price.
Article 1443 requires the redemptioner to return the price and the lawful expenses incurred in connection with the original sale, together with necessary and useful expenses made upon the thing by the purchaser or another possessor.
Article 1444 then deals with interest and fruits. The person against whom redemption is exercised is entitled to interest on the relevant disbursements, subject to deduction of the value of fruits which he or a previous possessor collected, or could have collected through the diligence of a bonus paterfamilias.
Alternatively, he may retain the fruits and waive interest.
These provisions make sense precisely because ownership genuinely passed. The law is not simply ordering performance of an outstanding promise. It must account for what occurred during a period in which another person owned, possessed and possibly improved or derived income from the property.
It is not difficult to understand why redemption is now rarely encountered. A person who merely wishes to secure a future acquisition can ordinarily employ a promise of sale or another contractual arrangement. A person seeking finance can provide security without transferring ownership of the asset to the financier. Modern legal practice offers mechanisms more closely tailored to those particular objectives.
Redemption is comparatively unusual. The purchaser becomes owner but remains exposed to the possibility that the former seller will exercise the reserved right. That possibility may persist for as long as five years and, in the case of immovables, may affect subsequent possessors. The purchaser is restricted from altering the form of the property, while eventual redemption requires compliance with a specialised procedure and an accounting for price, expenses, interest, improvements and fruits.
Yet its rarity should not obscure its significance. The institution remains expressly recognised and extensively regulated by Maltese law.
More importantly, it raises a question which remains conceptually interesting. A promise of sale confers a personal right to acquire property which still belongs to somebody else. Redemption operates only after the person exercising it has already ceased to be owner, yet the right which he reserved is capable of following the immovable beyond the hands of the original purchaser.
The pactum de retrovendendo therefore occupies an unusual position between sale, promise of sale and dissolution. The original transaction is a genuine sale; the eventual return is described by the Code as a re-sale; and yet the right to procure that re-sale is given effects which an ordinary promise of sale does not possess.
For an institution now rarely seen in practice, that is a remarkably sophisticated legal structure. It permits a person genuinely to sell his property while ensuring that, for a limited period, the sale need not necessarily represent the final chapter in his relationship with it.
Dr Carlos Bugeja is Partner at PROLEGAL Advocates.
Disclaimer: This article is not to be construed as being legal advice, and is not to be acted on as such. Should you require further information or legal assistance, please do not hesitate to contact Dr Carlos Bugeja at carlos@prolegal.mt.
