By Dr. Aron Mifsud-Bonnici
Consideration, or “causa”, is one of the essential internal elements required by all contracts together with capacity, consent and object. The requirement of this element for a valid contract was the subject of great disquisitions but since section 987 expressly requires this element lest the contract be without effect, the controversy is not felt that much in the local arena. Maltese law is based entirely on the Italian and French position and this is often felt in judgements of Maltese Courts where there is a tendency to follow the writings of such continental authors such as Baudry-Lacantinerie, Giorgi, and Ricci.
One must look for consideration in the motive which every obligation must necessarily have. Every obligation is a restriction of the natural freedom of the contracting parties. Judge Camilleri in Pietro Muscat v. Adelaide Farrugia stated that
- “… gli uomini non si impongono un sacrificio senza un perché, senza qualche cosa che valga in un modo qualunque a compensarlo, o a renderlo ad essi gradito: dunque la causa dell’obligazione è costituita dal movente che ha indotto chi si è obbligato ad imporre una restrizione alla naturale libertà, e nei contratti bilaterali, importando questi una obbligazione reciproca tra i contraenti, la restrizione della libertà impostasi dall’altro, o, in altri termini, la obbligazione dell’uno è la causa dell’obligazione dell’altro.”
According to the traditional theory of “causa”, which is the theory followed by our Courts, the consideration of an obligation is the juridical motive for which such obligation was undertaken: the cur se obligavit. With regard to bilateral contracts, the consideration of one party is the correspective obligation. In the case of gratuitous contracts, the “causa” amounts to the spirit of liberality of the donor. While the Code Napoléon, the Italian Civil Code of 1865, and our Civil Code have followed this traditional notion of “causa”, the Italian Civil Code of 1942 departed from this theory and has adopted the objective theory. This objective theory treats “causa” by reference to the object of the obligation. Whether there is “causa” or not, is to be determined by the existence of the object. For example, in the case of a sale of a house, according to the objective theory, “causa” exists as long as both the house and the price exist.
Section 987 lists the three instances when the consideration is defective, namely, when the consideration is inexistent, when it is false, and when it is unlawful. On the inexistence of “causa” Giorgi has distinguished between three occurrences of such defect:
- quando questa non ha esistito mai;
- quando ha cessato di esistere;
- quando essendo relativa al futuro, non siasi verificata.
The first occurrence is hard to visualise since one will not usually bind himself for nothing. In such a situation various authors contend that either the person is lacking in sanity or he was forced to enter into the obligation. Baudry Lacantinerie maintains that there is a ground of nullity not only because there was no “causa” but also because there must have been a vice of consent of some sort or another which is also a ground of nullity. A more probable situation where consideration never existed is when one enters into a contract the object of which does not exist or is extra commercium. Also, when the contracting party binds himself not to do a particular act which he had already done there is no causa. If the obliger binds himself to perform an act beyond human possibility there can be no causa.
The second instance occurs when, due to a supervening circumstance, the obligation of one of the parties becomes impossible to perform and so the “causa” of the other party is terminated. This could arise if, say, Parliament legislates after the obligation is entered into to the effect that trading in the object of that particular contract is prohibited. The fact that the obligation is not performed implies lack of “causa” of one of the parties. It follows that the other party must be entitled not to perform his obligations for the sake of equity and because good faith in the defective party would be prejudiced. It is thus to be noted that consideration is not merely a promise of performance of an obligation but also the actual discharging of such obligation or else a benefit actually derived through such discharging. Such a contract having an obligation which cannot now be fulfilled will not be void. All depends on whether any part of the obligation which is now impossible to discharge had been in fact discharged; in such a case the contract will be inoperative only in excess of the obligation already fulfilled and it follows, therefore, that the other party must fulfil his share of obligations proportionately. Another example is the case where the consideration is constantly renewed and such consideration becomes impossible to renew at a point in time. Here, the obligation will terminate as soon as the “causa” has ceased to exist: a dissolution in respect of the future.
The third occurrence, namely, “quando essendo relativa al futuro, non siasi verificata” is demonstrated in the case Benedetto Axisa v. Salvatore Caruana decided on May 18th, 1956, by the Court of Appeal. In this case, the defendant had booked a vehicle from an agent and subsequently gave his right to the booking to the plaintiff for the sum of £150. Successively, government prohibited the importation of that particular model of vehicle and Axisa sued for the rescission of the sale since it was no longer possible that the vehicle be delivered. He also requested that the sum paid be returned. The Court upheld the plaintiff’s claim and opined that the contract lacked of the required element of “causa”. It stated that
- “Din l-impossibilità hija, kif trid il-ligi sabiex obbligazzjoni ma treggix, assoluta, u mhux relativa ghad-ditta Mizzi biss; … Ghalhekk, il-kawza tal-obligazzjoni fil-kaz prezenti hija inezistenti, ghaliex impossibli.”
Thus, in the words of the law, when a contract has no consideration it shall have no effect. However, section 988 qualifies this when it states that
- “The agreement shall, nevertheless, be valid, if it is made to appear that such agreement was founded on a sufficient consideration, even though such consideration was not stated.”
Various jurist contend that what is envisaged is the case of unilateral contracts since in bilateral contracts the written instrument will necessarily establish both obligations, thus also mentioning both considerations. This section has its genesis in article 1132 of the Code Napoléon: “La convenzione è però valida ancorchè la causa non vi si trovi espressa.” Thus, this provision enables the parties to prove that there is the element of consideration in the agreement thus avoiding that it be declared void, even though the “causa” was not therein expressly stated. Indeed, under the Italian Civil Code of 1865 the “causa” is presumed and may even be considered implied in the agreement. This line of thought is apparently followed by our Courts since in Emmanuele Pullicino v. Mamante sive Amante Mifsud Justice W. Harding on 10th January, 1950, stated that
- “… skond l-art. 1031 idem [today this is section 988], il-ftehim jibqa’ jiswa jekk jigi pruvat li kien hemm kawza bizzejjed ghalkemm mhux espressa. Hija bizzejjed ghaldaqstant, il-’causa sottointesa o presunta’, kif isejhilha l-Giorgi”.
A question which arises is who is to bear the burden of proving the existence of consideration in an agreement. Article 1121 of the Italian Civil Code of 1865 solved this matter in an uncomplicated manner when it stated that “causa” is presumed unless its inexistence is proved, thus placing the burden upon the debtor. Evidently, this was not the view of the Maltese legislator since section 988 upholds the agreement “if it is made to appear” that the agreement had sufficient consideration. Thus, according to this section the burden of proving the existence of consideration is shifted onto the creditor. This is confirmed by the above mentioned judgement of Emmanuele Pullicino v. Amante Mifsud which also stated that
- “… l-art. 1031 tal-Kodici taghna juri bic-car li, meta ma hijiex espressa, il-kawza ma hijiex presunta, izda ghandha tigi pruvata.”
This judgement also went into the question of false consideration. When the “causa” is false, according to section 987, then the obligation is considered without effect. However, the Code does not provide a description of what is to be deemed a false consideration. The judgement confirmed the opinion that a false consideration can be of two types, namely, “causa erronea” and “causa simulata”. In the former, any or both parties enter into an obligation, binding themselves for a fictitious consideration which they thought existed. Baudry-Lacantinerie explains that
- “Essa è erronea quando non esiste che nel pensiero di colui che si obbliga, egli crede all’esistenza di una causa che in realtà non esiste ed è quindi in errore relativamente alla causa…”.
Thus, if A binds himself to pay a sum of money to B with A’s consideration being that of paying back a loan, while in fact such money was lent to A by C, then there is a typical case of “causa erronea”. Since a loan between B and A never existed, A never had a valid consideration and his obligation is null. Indeed, although section 987 makes a distinction, it is not easy to discern between a “causa erronea” and an inexistent consideration. It is the view of many eminent jurists, including Laurent and Pothier, that no such distinction should be made. This was also the view of the Court in the Pullicino v. Mifsud case:
- “… il-konvenut ghandu ragun jghid li l-kawza falsa hi daqs kieku ma kienx hemm kawza.”
On the other hand, in “causa simulata” the parties enter into an obligation declaring a consideration which they know does not exist. This is likely to arise when the parties wish to create a specific relationship which they do not want to make known and they give it, thus, a façade of a different contract. Section 989 clearly states that
- “Where the consideration stated is false, the agreement may, nevertheless, be upheld, if another consideration is proved.”
In this case, therefore, the contract is not null if the true consideration is proved. A typical case would be when A owes B a sum of money which has originated from immoral activities. They would enter into a contract stating that A is the debtor of B due to a loan, thus giving it the façade of a perfectly moral transaction. Now section 989 must be qualified with respect to the true “causa” of the obligation. Since the true consideration may be either licit or illicit, one should presume that it is only in the former case that a contract will be upheld. Giorgi states that
- “Le obbligazioni contrattuali con causa simulata sono efficaci, per quanto sia valida la causa vera … sono valide se la causa vera non sia illecita, o impossibile: o se la simulazione non sia stata fatta per eludere qualche proibizione di legge.”
In Joseph Schembri v. Robert Butler decided on the 25th November, 1958, the Court confirmed the above when it held that
- “Skond l-art.1032 [today this is section 989], jekk il-kawza espressa tkun falsa, il-ftehim jista’, b’dan kollu, jinzamm shih, kemm il-darba jigi pruvat li kien hemm kawza ohra; kaz li jirrikorri meta jkun hemm simulazzjoni, billi jkun hemm f’dan il-kaz dik il-kawza mohbija jekk sufficjenti u lecita, izzomm l-ezistenza tal-obligazzjoni.”
Having mentioned the instances of false consideration, again one must ponder upon the issue of who is to prove that the consideration is false. It is Giorgi’s opinion that the “erroneità della causa” must be proved by the debtor who claims it. Likewise, it is the debtor who must prove that the consideration is false in the case of “causa simulata” and, thus, the obligation is invalidated. Nonetheless, the creditor is entitled to prove that there exists a real causa. This, of course, avails the creditor only if the real “causa” is possible and licit.
It is not simply the contracting parties who may attack the falsity in the obligation. This is indeed valid in all three defects of causa. In fact, the Court of Appeal in Camilleri noe v. Attard et stated that
- “La domanda per fare constare giudiziariamente la inesistenza o nullità del contratto fondata su causa falsa compete non soltanto ai contraenti, ma altresì a chiunque, non avendo avuto parte nella contrattazione dimostri aver un interesse a fare dichiarare l’inefficacia.”
This notion of false consideration is substantially different from the position under the Italian Civil Code of 1942, the latter enunciating a departure from the traditional approach by adopting the notion of “frode alla legge”.
With regards to the lawfulness of consideration, one will note that major exponents of the traditional theory refer the study of lawful “causa” to the discussion on lawful object. This has been accepted by our Courts. In the Giovanni Scicluna v. Filippo Abela judgement, concerning the sale of stolen property, the Court of Appeal maintained that
- “… huwa risaput ukoll illi fl-obbligazzjonijiet, kif inhu l-kuntratt ta’ bejgh, dak li huwa oggett ghal wiehed, huwa kawza ghall-iehor. Ghalhekk, kwalunkwe haga li tkun projbita mil-ligi bhala oggett, jew li tkun projbita mill-ligi bhala kawza ta’ dak il-kuntratt, permezz ta’ bejgh u xiri, ma tkunx tista’ taqa’ f’kuntrattazzjoni.”
Section 990 defines unlawful consideration when it states that
- “The consideration is unlawful if it is prohibited by law or contrary to morality or to public policy.”
This definition is quite general and rightly so, since it is intended to include all that is inadmissible in the interest of law and order in society. Laurent concludes that “vi è causa illecita quando il contratto lede un interesse generale.” It is within the powers of the Judge to decide whether the consideration of a particular obligation is illicit or otherwise. Indeed, in Rosario Borg v. Carmela Portelli E. Ganado J. held that
- “… dina hija kwistjoni unikament ta’ fatt illi ghandha tkun ezaminata minghand il-gudikant f’kull kaz specifiku skond ic-cirkostanzi ta’ dak il-kaz; …”.
It was inevitable that a wide assortment of hypothesis would come before the judge since the definition was so all-encompassing. In Mizzi v. Galea it was asserted that
- “… hlas ta’ rigal bhala kundizzjoni ghall-ghoti ta’ kiri tad-djar hu projbit mill-ligi. F’dan ir-rigward, projbit mill-ligi jikkostitwixxi ‘causa’ ta’ l-obligazzjoni u ghalhekk din l-obbligazzjoni hi illecita u bla effett.”
Joseph Peplow v. Ferdinando Galea was a case concerning usury in which the Court expressed the view that
- “… l-art. 1948 tal-kodici civili jillimita l-imghax ghal sitta fil-mija … l-obbligazzjoni ghal imghax ghola minn dik ir-rata ma jista’ jkollha ebda effett, u ghalhekk hija inezistenti u nulla b’mod assolut.”
Contrary to public policy would be an agreement intended to create a monopoly. Indeed, the 1936 case of Aveta v. Pecorella concerned a society of car-hire fleet owners, the aim of which was to fix high tariffs. The Rent Restriction (Dwelling Houses) Ordinance provides that one cannot accept a premium in view of a grant, renewal or continuance of lease. The Courts have maintained that where the consideration in an obligation consists of such premium, then the consideration is unlawful and the obligation void. In Doris Mizzi v. Edward Galea the Court asserted that
- “Dan ir-rigal projbit mill-ligi, jikkostitwixxi kawza u oggett tal-obligazzjoni bilaterali bejn il-kontendenti, u ghalhekk, anki f’dan ir-rigward, l-obbligazzjoni hija illecita u ma ghandha ebda effett.”
Most cases concerning morality as mentioned in section 990 involve the relationship of concubinage, or rather financial issues which arise once such a state of affairs is ended. If the obligation was “for services rendered” then it is certain that it is contrary to morality. It is extremely important to distinguish between an obligation which has a direct link to the current state of concubinage or otherwise. It is clearly not desirable that the termination of the concubinage become an occasion for annulling any contract at the whim of the parties. In Anthony Joseph Bajada v. Pauline Lumb, Caruana Colombo J. opined that
- “Dak li hu importanti huwa jekk il-kawza ta’ l-ghoti tal-flus jew ta’ l-oggett, ikunu meta jkunu moghtija ikolliex jew le rapport dirett ta’ konkubinat jew ahjar, jekk il-konkubinat kienx il-kawza ta’ l-obbligazzjoni jew kienx merament l-okkazjoni.”
If the concubinage is the cause of the obligation then such obligation is without effect. If it is merely the occasion then, saving other circumstances, the obligation is licit. In Fenech v. Jubber, decided on the 31st January, 1983, the defendant had a piece of land which the plaintiff built with the view of cohabiting with the defendant. It happened, however, that Fenech and Jubber separated – much to the annoyance of Fenech who tried to get compensation in vain. The First Hall of the Civil Court refused his claim as the “causa” was immoral.
An interesting issue is that of a lease of premises for the purpose of prostitution. Since lease is a nominate contract it follows that its object and its cause are accepted by law. Whilst our Courts have distinguished between consideration and motive, they have also maintained that the contract of lease in such circumstances is unlawful. In Salvatore Zammit v. P.L. Caruana Scicluna noe. it was the view of the Court that
- “Non si può dubitare che la locazione di un fondo per uso di postribolo e per un fitto assai esegerato, come nel caso, contenga anche per parte del locatore una causa illecita e contraria ai buoni costumi, perché attesi i patti speciali del contratto, è manifesto che egli abbia inteso fare una speculazione sui guadagni della prostituzione.”
A person may rent a house for residence and later decide to use it for prostitution: there cannot be unlawful “causa” in this case, but since the lessor must use the house for the purpose stated in the contract, namely habitation, the use of the premises for unlawful purposes breaches such rule and renders dissolution of the lease possible.
A question which arises is what would happen if only one party has executed his share of the obligation having an unlawful “causa”. Is there an action available for the aggrieved party with a view to recovering the thing he has given in execution of the contract? Our Civil Code in section 991 has conveniently pronounced itself on the matter. Sub-section 1 provides that when the “causa” for which a thing has been promised is unlawful only in regard to the obligee, then anything given in performance of the contract may be recovered. On the other hand, sub-section 2 provides that when both parties were aware of the unlawful consideration of the contract, then neither parties may recover anything (minors are excepted, and so are gamblers who are allowed two months in which to file a judicial act to recover the sum paid by way of gambling).
Finally, one might add that it is within the powers of the Court to raise ex officio the question of an unlawful “causa”. This is quite understandable since it is an issue affecting public policy. Moreover, it would be preposterous to pretend that, if the parties decide that they should not raise the plea themselves, the Courts be required to uphold a contract which goes blatantly against the general interest of society.
© 1993, Aron Mifsud-Bonnici, LL.D.
For private educational use only. Any other use is strictly prohibited under Maltese law and international treaties. The article does not purport to give any legal advice.