In a situation where a vendor (the original vendor) has sold a property by way of a contract of sale, and his purchaser (Purchaser A) later contracts into a second contract of sale with a second purchaser (Purchaser B), the question is – would Purchaser B be bound by the conditions of the original contract between the original vendor and Purchaser A?
This delicate question can only be answered after considering two distinct, however interlinked, sub-questions which shall be tackled hereinafter. Firstly, one must consider whether Purchaser B in his capacity as a third party to the original contract of sale, would succeed to Purchaser A’s obligations. Secondly, whether the contractual conditions of the original contract are considered to be real rights or personal rights, wherein it is only the former which can be transferred. These questions have been a cause of debate in both jurisprudence and doctrine for many years, however the First Hall Civil Court has recently delved into the matter at hand in detail in the case Mercury p.l.c. vs Persona Limited, dated 10th October 2019 and presided by Mr. Justice Grazio Mercieca. The Court’s considerations were the following:
1. Does Purchaser B in his capacity as a third party to the original contract of sale, succeed to Purchaser A’s obligations?
At face value, in terms of Article 998 of the Civil Code, it would seem that Purchaser B’s rights and obligations are derived from the original vendor, as it provides that:
- Every person shall be deemed to have promised or stipulated for himself, for his heirs and for the persons claiming through or under him, unless the contrary is expressly established by law, or agreed upon between the parties, or appears from the nature of the agreement.
However, where one had to take inspiration from the commentaries of Italian Jurists such as Giovanni Lomonaco, who in his book ‘Delle Obbligazioni e dei Contratti in Genere’ (1912) delved into a similar article 1127 of the Italian Civil Code dated 1865, now abrogated, he submitted that “gli aventi causa sono a titolo universal e a titolo particolare… nella seconda categoria… vanno compresi il compratore…” Therefore, according to Lomonaco, purchasers should be considered as successors in title limited to a particular capacity and should therefore be considered as third parties to the original agreement. Profs J.M. Ganado adds to this interpretation and provides that while universal successors continue the personality of the deceased, particular successors like purchasers are aventi causa because their title is deriving from the original vendor with regards to rights, but with regards to obligations is a different matter.
By way of practical example, in the case of lease, which is a personal contract, if the lessor sells his property, Purchaser A, as a particular successor, would have no obligations to recognise the lessor’s original lessee. In fact, in virtue of this potential circumstance, the Napoleonic Code introduced a specific disposition for the lessee to be recognised by Purchaser A. The inclusion of this disposition within the Code therefore implies that it is but a derogation from the general principle that particular successors are not tied down to that which their predecessors conducted in title.
In conclusion, the court held that Purchaser B with a particular title, is not bound by the original contract in which he was not a party of, as in this case he should be considered as a third party.
2. Are the contractual conditions of the original contract considered to be real rights or personal rights?
The conditions inserted into a contract can be classified as either real rights (ob rem) or personal rights (propter rem). In the case of a personal right, purchaser B would be considered as a third party to the original contract and would therefore not be bound thereby. In other words, the original vendor only binds his purchaser (purchaser A), and purchaser A only binds purchaser B. On the other hand, real rights are tied to immovable properties, and therefore can be succeeded.
Focusing on real rights, and whether a condition in an original contract can be categorised as a real right in the context of a second contract of sale, the Court considered that a contract cannot create new instances of real obligations because of two principles: i) the principle of relativity of the contract; and ii) the principle of the numerus clausos of the real rights.
The Court admitted that the former principle is growing in its application, as some have justified that certain obligations can be extended onto third parties, and therefore, the Court exemplified the importance of the second principle. The second principle, although not codified, is a remnant of Roman law and is considered to be a principle of public order. This principle is premised on the simplification of real rights with the objective of protecting the property in question from the limitations arising from the creation of atypical real rights through contract. In this context, the Court quoted Giovanni Balbi in ‘Le Obbligazioni Propter Rem’ (1950) and held:
“Si ritiene eccessivo attribuire a singoli soggetti il potere di delimitare la sfera di liberta` altrui. Da un punto di vista sociale si ribadisce che tale facolta` creerebbe sulla proprieta` fondiaria una serie intricata di vincoli dannosi all’economia.”
Lastly, worth considering is, can obligations of the original contract be considered as servitudes? Here, the law is clear that for a servitude to be constituted by an act inter vivos, it must be registered in the Public Registry in terms of article 458 of the Civil Code. Moreover, the Courts have consistently held that servitudes must also be clearly stipulated in the contract, highlighting which is the dominant and which is the servient tenement, and this not simply through a general clause.