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Does a condition in a contract have a binding effect on subsequent owners?


Gauci-Maistre Xynou (Legal | Assurance)

Author: Dr. Joseph Bugeja

Mercury p.l.c. (C 27497) vs Persona Limited (C 48811) (Rik. Gur. Nru 103/14GM) dated 10 October 2019


The Facts

Tesborg Limited was the developer and owner of a block of forty nine apartments and eighteen basement garages. Mercury p.l.c. acquired the rights of Tesborg Limited through the merger of a number of business organisations, including Tesborg Limited.  

Through a public deed dated 29 December 1986, Tesborg Limited sold to St. Jude Medical Centre Limited the apartments numbered 33 and 42, Marina Court, Ta’ Xbiex. The contract of sale included a number of conditions, including that:

“9. The purchaser or its successors in title is bound to give first option to the company should purchaser or its successors in title decide to sell the aforesaid Flat (recte: flats).

“10. The purchaser binds itself to use the property being transferred for residential purposes or as offices only. No sign or placards shall be exhibited in or on the apartment transferred.

“11. The Company undertakes to impose on purchasers of garages the conditions, obligations and restrictions imposed on owners of apartments insofar as applicable.

“12. The purchaser binds itself to enforce on his successors in title all the conditions listed above”.

It resulted that St Jude Medical Centre Limited had from the start used the apartments as a clinic.

At first, Persona Limited leased the apartments and continued with the previous use, namely as a medical centre. On 21 December 2009, when Persona Limited leased the apartments from St. Jude Medical Centre Limited, a permit had been issued, which permit included the condition that “The premises shall be used as a doctors’ office, including any use falling within Class 5 of the Development Planning (Use Classes) Order 1994”.  This was due to the fact that the classification of the apartments was still that they were residential apartments.   

Through a contract dated 25 March 2011, St. Jude Medical Centre Limited sold the property to Persona Limited, subject also to the conditions included in its purchase agreement which Persona Limited acknowledged.  The Public Registry note also indicated that the apartments being purchased are  “as subject to and as enjoying the servitudes inherent in their position, otherwise free and unencumbered” and “subject to the terms and conditions mentioned in the deed of acquisition by the vendor”.  Mercury p.l.c. was advised about the sale of the property but Mercury p.l.c. chose not to exercise its right of first refusal, which right was included in the contract of 1986.   

Mercury p.l.c. requested the Court to declare that Persona Limited infringed the terms and conditions in the contract between Tesborg Limited and St. Jude Medical Centre Limited of 29 December 1986, which terms and conditions were acknowledged by Persona Limited and binding as per contract dated 25 March 2011 between St. Jude Medical Centre Limited and Persona Limited. Mercury p.l.c. also requested the Court to order Persona Limited to abide with the terms and conditions of the contract and to immediately desist from using  apartments 33 and 42 at Marina Court, Ta’ Xbiex, except as a residence or offices and to remove any advertisements or signs from the exterior walls of the apartments.   

Persona Limited replied that Mercury p.l.c. does not have any juridical interest, and that the alleged obligation is a personal obligation which does not affect Persona Limited given that Persona Limited did not negotiate with Mercury p.l.c. Persona Limited also noted that the pretension of Mercury p.l.c. and the obligations or conditions on which Persona Limited is basing its action (if these ever had any validity) do not bind Persona Limited vis-a-vis Mercury p.l.c. given that these were not registered according to law. Other pleas were also raised.

The Court’s Considerations

After having examined the provisions of Maltese and Italian law, including jurisprudence and the Napoleonic Code, the Court decided that as a general rule the person who acquires by a particular title is not bound vis a vis the original contract of which he was not a party; because in this case he should be deemed as a third party.   This effectively means that if the obligations are of a personal nature, and not real, Persona Limited is a third party with respect to the original contract and therefore should not be bound by same.  Persona Limited bound its buyer, who in turn bound Persona Limited, but this does not translate into a contractual relationship between Mercury p.l.c. and Persona Limited.  The Court reiterated that according to the principles outlined in the decision, Persona Limited is a third party to the original contract.  The Court noted that Mercury p.l.c. may have other remedies, though certainly not a direct action against Persona Limited.

The Court therefore concluded that the obligation contained in the contract dated 29 December 1986 does not bind Persona Limited.  

The GMX Commentary

With respect to the issue of servitude, the Court held that the law is clear and unequivocal, namely, that for the constitution of servitude, the servitude needs to be registered in terms of article 458 of the Civil Code. Therefore the Court held that the servitude in question is not included in the original contract of sale because the sale was described as free and unencumbered.  As a result, the concept of servitude should not apply.    

Consequently, the Court rejected Mercury p.l.c.’s requests that Persona Limited infringed the terms and conditions in the contract between Tesborg Limited and St. Jude Medical Centre Limited of 29 December 1986, that Persona Limited was not bound with the terms and conditions of the contract and that Persona Limited could continue to use apartments 33 and 42 at Marina Court, Ta’ Xbiex for its present use.

Yet the Court rejected Persona Limited ‘s preliminary plea, namely, that Mercury p.l.c. does not have any juridical interest, agreed with Persona Limited’s second and third preliminary pleas and abstained from taking cognisance of the fourth, fifth and sixth pleas of Persona Limited.

An appeal has been filed from this judgement.

GMX Law Firm
GAUCI-MAISTRE XYNOU Legal can assist you with further legal and judicial advice on matters pertaining to lease agreements, including the drafting of lease agreements.

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