This was an action made by the plaintiffs for the payment of debts due by the defendants. The plaintiffs claimed that a private agreement had been made in which the defendants constituted themselves as certain and liquid debtors of the sum of Lm120,000 due to be paid in installments of not less than Lm12,000 per annum without interest. The plaintiffs claimed that the defendants fell behind in the payments and this gave them the right to make a claim for the entire sum due.

The defendants denied such claims and said they should not be deprived of the benefit of the time they had contractually agreed upon for the payment.

The parties were siblings (one brother against his two brothers) who owned a chain of shops. In 1998, the brothers decided to go their separate ways. This led to a division of the assets.

The defendants, in a private writing dated 4 August 1999, declared themselves the debtors of the plaintiffs – Lm60,000 due by one defendant and Lm60,000 due by another. Another agreement was drawn up regarding the merchandise and stock.

The plaintiff admitted that he had received the sum of Lm40,000 split in two payments of Lm20,000 each. However, the plaintiff claimed that these payments were not part of the sum due in accordance with the agreement but were his share of profits made from the establishments until the date of division.

He contended that the sum featured in the agreement did not include such profits due simply because when the agreement was drawn up, the accounts had not been closed.

It resulted that between October 1990 and December 1998, the plaintiff was entitled to Lm110,000 from profits reaped from such establishments. At the end of August 2001, the plaintiffs sent a judicial letter to the defendants for the payment of Lm120,000 with interest. In October 2001, this case was filed.

The defendants never denied that they were debtors according to the private agreement. The principal question was whether the defendants had failed to pay the amount in fulfilment of the agreement, in which case they would lose the benefit of paying gradually at the rates agreed upon.

The agreement did not give a time limit as to when the money had to be paid, but merely stipulated that every year, at least Lm12,000 had to be paid. This would lead to the logical conclusion that the maximum time span over which the entire sum would be paid would be 10 years.

It seemed that if payments fell behind by at least three months, the benefit of the agreed mode of payment over time would be forfeited.

Although the scenario whereby one of the debtors would fall back in payments was not contemplated, it seems that the debtor who paid in time would not bear the same consequences as the defaulting debtor.

The plaintiffs reiterated that the Lm40,000 paid within two months after the agreement was not paid in fulfilment of the debt defined in the agreement. The defendants, on the other hand, pleaded that such sum was paid in satisfaction of the debt stipulated in the agreement of September 1999.

When the defendants paid the amount to the plaintiff, nothing was said as to which obligation the payment was fulfilling. By 2001, the plaintiff had not mentioned any default of defendants in fulfilment of the agreement, leading the latter to believe that he had accepted the sum on account of the debts due by virtue of the agreement.

The plaintiff further argued that a large part of the payments were made from the accounts of an establishment from which he was entitled to his share.

The Court quoted an interesting Article from the Civil Code:

1073. Time shall always be deemed to be stipulated in favour of the debtor, unless it appears from the stipulation or from the circumstances that it was also agreed upon in favour of the creditor.

In the Court’s opinion, at the time when the Lm40,000 was paid, there were two debts due to the plaintiff. Regarding the debt in relation to his share of the establishments, although the amount had not yet been concluded, it was agreed that he was in fact due a certain sum. Hence, there were two debts due in October 1999 at the time of payment: one debt was certain and liquid but not due, while the other was neither liquid nor due.

The Court further quoted Article 1168:

1168. (1) It shall be competent to any debtor owing several debts to declare, in making a payment, that such payment is to be applied to the discharge of a particular debt.

(2) Nevertheless, the debtor may not, without the consent of the creditor, appropriate the payment to a debt which has not fallen due in preference to a debt which has fallen due, in any case in which the time for the discharge of the former debt is presumed to have been agreed upon also in favour of the creditor.

According to the Caruana-Galizia Notes on Civil Law – Obligations, “the right to declare which debt is discharged belongs in the first place to the debtor because he is the one who is most interested in the payment, and he may consider himself to be more burdened by the one debt than by another...”

The Court quoted Articles 1171(b) and (f) which state that

(b) in case of several undisputed debts, the payment shall be applied to the debt already fallen due at the time of payment in preference to the debts not yet fallen due, unless amongst the latter debts there is a debt for which the debtor is liable to personal arrest, in which case the payment shall be appropriated to such debt, provided the time for payment was not agreed upon also in favour of the creditor;

And

(f) in any case not expressly provided for in the preceding rules, the appropriation shall be made to the debt which, at the time of payment, the debtor had the greatest interest in discharging;

The Court took all pleas into consideration and concluded as follows:

Since one of the defendants had stated that the payment made also included part of the plaintiffs’ share in the profits, the Court applied Article 1171(h): if all things are equal, the payment is applied in discharge of each debt proportionately.

The plaintiffs were paid Lm21,200 in satisfaction of the debt under the agreement and Lm18,800 as the plaintiffs’ share in the profits.

The Court ruled in favour of the plaintiffs and stated that the defendants had lost the benefit of time and ordered the payment of Lm98,800 between the defendants.