The parties of a contract should enter into that contract in good faith and thus the execution of that contract should be in terms of that contract. This was held in FS Design Limited vs Adrian Fenech and Roberta Fenech on 17 March 2025 by Magistrate Dr Joseph Gatt.
The Plaintiff Company asked the Magistrates Court to order the Defendants to pay them €10,000 representing what was agreed by means of an agreement of sale on 26 June 2019.
The Defendants said no penalties were due and therefore, they should not be held responsible. The Defendants explained that in June 2019 they signed a contract for a garage in Gzira.
This contract was subject to the Plaintiff Company guaranteeing “full and unrestricted enjoyment of and good title to the property transferred hereon…” Therefore, the Defendants held they enjoyed unrestricted use of the garage. However, they contended that Clause 8 contradicted this expectation since if the garage was to be used commercially, they must pay a further €10,000.
The Defendants also invoked Article 993 of the Civil Code which states that a contract should be entered into in good faith. The Defendants further argued that they did not cause any damage to the Plaintiff Company, but in fact it was the inverse since the Plaintiff Company was objecting to Planning Authority applications.
The Director of the Plaintiff Company testified by means of an affidavit. He explained that the Defendants agreed to purchase a garage which was part of a block and it was agreed that the garage was to be used only to keep cars or personal effects. If the Defendants were to use the garage as a shop, they were to pay an extra €10,000. The garage was next door to a bed and breakfast owned by the Defendants.
In October 2022, the Plaintiff Company had to have a look at the garage because there was a water leak and discovered the place was being used as a shop. There was also a pending PA application to convert it into a coffee shop.
Roberta Fenech testified that when they purchased the property the vendors guaranteed peaceful possession. It was also agreed that the property was not to be used as a shop for the first five years. She applied to the Planning Authority a few months before the five-year deadline and found that the Plaintiff Company was objecting to the planning application.
Adrian Fenech told the court that he was aware of the clause in question only after the company asked for €10,000.
The clause subject to the court action reads: “The garage shall be used exclusively for the parking of motor vehicles and/or storage of personal effects in accordance with the Planning Authority permit (PA9272/17). It is hereby being agreed upon by both Vendor and Purchasers that if they start using the garage for commercial reasons or/and apply to the relative authorities to change the use to commercial premises and/or shop, the exclusive permission of the Vendor shall be needed for this and the Purchasers shall be bound to pay to the Vendor a one-time penalty fee of €10,000, which sum shall not be disputable in any tribunal and/or Court of law.”
The Court held that Article 992 of the Civil Code states that a contract is binding on the parties to it. Pacta sunt servanda, which means obligations found in the contract cannot be changed unilaterally. Contracts should also be entered into in good faith. In the judgement Luca Toccafondo vs Sara Grech Limited decided on 7 October 2022, the court had held that the parties to a contract should assure themselves the contract is executed in a manner they both agreed to. Once the conditions are clear, the court should interpret it as such. In Lino Gauci Borda et vs Carmela Azzopardi et decided 29 October 2004, it was explained that the court should not substitute the meaning of what was agreed as long as what was written was clear.
Furthermore, in MAC Properties Limited vs Madliena Village Limited, decided on 27 October 2017 the court held that it should not look for the intention of the parties, but in an objective manner see how the words were used by the parties.
In the case under examination, the Court held that there was no difficulty in interpreting the disputed clause. If the new owners apply for commercial use, they should seek permission from the Plaintiff Company and pay €10,000. This did not happen.
As to the defence that the Plaintiff Company gave a guarantee on peaceful possession, this guarantee is given to protect the purchasers against third parties.
The Court then upheld the claims and ordered the Defendants to pay €10,000.
Av. Malcolm Mifsud
Founding Partner
Mifsud & Mifsud Advocates
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