The Valid Termination of a Sale Contract

The Valid Termination of a Sale Contract

The time of exercising the right to terminate a sale contract due to a breach of any of its terms determines the way the innocent party should act in order to terminate the agreement validly and effectively.

The tolerance shown by one of the contracting parties when the other does not fulfil his obligations deriving from the sale contract, giving him time to do so, prevents the innocent party from terminating the sale contract immediately without giving reasonable notice to the debtor party. The intention of the parties to make the time for the execution of a contractual term of the essence of the agreement is a factor to be examined, as well as the parties’ behaviour when the innocent party tolerates a breach and gives more time to the other to execute his obligations under the sale contract.

The party showing tolerance and looseness should not terminate the agreement without giving a prior written notice to the debtor party requesting him to comply with and fulfil his contractual obligations as provided in the agreement and that otherwise termination of the agreement will follow. A valid termination of a sale contract releasing the parties from their respective obligations is only possible when a reasonable notice is given by the innocent party to the other.

Both the vendor and the purchaser are responsible under a sale contract to perform their obligations, although frequently one looks into the obligations of the purchaser to repay the purchase price.

In a recent judgment, the Supreme Court examined the issue with regard to a house sold under a sale contract, whereby a clause stated the following: “If the purchaser shall be in default as regards the payment of any amount as hereinabove provided then any balance then outstanding shall become immediately due and payable and the vendor shall have the option either to call upon the purchaser by notice in writing to pay the whole outstanding balance and any accrued interest with a time limit to be specified in the said notice or to cancel this agreement forthwith without prejudice to any other of the rights.” Moreover, the sale contract provided for the last payment to be made upon delivery of the house to the purchaser which was to take place on 30.8.2002. The delivery took place but the payment was not effected by the purchaser. The vendor did not terminate the sale contract at the time and gave the purchaser time to pay.

One and a half year later, on 16.3.2004, the vendor sent a letter of termination to the purchaser referring to the amount due and of his right to terminate the agreement as provided therein. The issue was referred to the District Court through an action filed by the vendor, claiming that the agreement was lawfully terminated due to the purchaser not paying the purchase price, an order for the sale of the house and delivery of its free and vacant possession, an order that the purchaser had no right to enter the house and the vendor also raised a claim for the recovery of a certain amount due for land taxes and common expenses paid by him on behalf of the purchaser. The District Court did not accept the vendor’s claims, except the one for the recovery of the amount paid for land taxes and common expenses.

In view of the outcome, the vendor appealed and the Supreme Court upheld the decision stating among others that the issue depends on whether the parties intended to make the time of the essence of the agreement. In order to identify the parties’ intention, one must look into the terms of the agreement, the nature of the transaction, their intention and generally the circumstances of each case. The time is essential when there is an expressed provision in the agreement or when due to the circumstances or the nature of the transaction, it is understood that the intention of the parties was to make the time essential to perform their obligations precisely. In the said case, the tolerance shown by the vendor was such that gave him no right to terminate the sale contract without giving the purchaser prior reasonable notice.

The reason for the notice was not to alter the terms of the agreement but to terminate the tolerance of the vendor and warn the purchaser in order to fulfil his obligations as provided in the terms of the agreement. Consequently, the termination was declared invalid and the vendor’s claims were dismissed, except the recovery of the taxes and common expenses due.