Agreement termination and parties’ rights

A legally terminated agreement ceases to be valid

An innocent party to a property sale agreement, whether a vendor or purchaser, can terminate it without this having any legal effects. If the innocent party is the purchaser of an immovable property and a copy of the sale contract has been deposited at the land registry for specific performance purposes, they have the right to insist on its validity and fulfilment. On the other hand, if the innocent party is the vendor and has chosen to legally terminate the sale agreement, they are entitled to claim compensation for losses and damages and deduct them from the purchase price received and return any balance to the purchaser. Simultaneously, they are entitled to claim deletion of the sale agreement from land registry records as legally terminated and if the purchaser does not comply, the vendor has the right to file a lawsuit and ask for an order of the court for the deletion, as well as damages for their losses, plus interest and legal costs.

The vendor in a property sale agreement filed a lawsuit against the purchaser requesting a court order that the agreement was lawfully terminated by him, an order for the deletion of the agreement from the records of the land registry, an order for the sale of the property privately or in any other manner and claiming damages for breach of contract. During the hearing of the action the vendor did not submit any evidence for proving his claim for compensation for losses and damages.

The court decided the vendor lawfully terminated the agreement and ordered its deletion from the land registry. Due to the fact that no evidence was submitted by the vendor to prove damages, the court issued a judgement in the counterclaim of the purchaser ordering the vendor to return the amount that the purchaser paid to him, since the agreement was terminated and the vendor retained the property, recognising his right to sell the property privately or in any other way.

The vendor filed an appeal and the Supreme Court, in a judgement issued in C.A.337/2014 dated April 12, found the decision of the court of first instance to be correct. It held that the law of contract establishes a basic principle that the innocent party to a contract is entitled to compensation based on the damage proven to have been suffered at the time of termination, or at another time under special circumstances that must similarly be proven.

As the trial court put it, the vendor seeks to sell the property, which of course is his property. In other words, he is asking for a guarantee of the price while there was a termination. As a matter of general principle, the innocent party, who, after contract termination, claims damages, is not entitled to retain benefits provided to him only on the basis of the validity of the contract. They cannot seek the balance of the price with the right to sell the property without proof of damage and while the property is theirs. The vendor did not present evidence of his damages at any time. He is not entitled to leave the issue open and ask to withdraw unproven remedies to come back. This would be contrary to the principle of finality, but it would also be unfair to the guilty party, who after suffering through the process for almost four years, must see the end of the dispute. Based on article 73 of the Contract Law, Cap.149, a plaintiff must prove damages.

In this regard, the Supreme Court, in full agreement with the trial court, emphasised that the innocent party to a contract has, as a rule, the right to subsequent damages or, alternatively, to legally terminate the contract and demand the relevant damages, but not implementation of the contract, which, in the ordinary course of things, ceases to be valid and produce legal effects. The Supreme Court dismissed the appeal with costs.

George Coucounis is a lawyer practicing in Larnaca and the founder of GEORGE COUCOUNIS LLC, Advocates & Legal Consultants, www.coucounis.law, [email protected]