Gifts that leave a debtor with nothing yield to creditors

The Court of Appeal (Superior Jurisdiction) on 19 January 2026 decided Western Co. Limited (C19994) vs E.S., an actio pauliana (the action by which a creditor attacks acts a debtor made in fraud of the creditor’s rights). Chief Justice Mark Chetcuti, Mr Justice Giannino Caruana Demajo and Mr Justice Anthony Ellul held that two donations by a debtor who later died cannot be set up against the creditor company. They also held that a late prescription plea, raised without the oath required by article 2160 of the Civil Code, has no effect.

The facts

The company claimed €216,000 from the estate of a man, the balance of the price of vehicles. It had sued his unknown heirs, represented by court-appointed curators, for that debt in a separate case.

In 2014 and 2015 the debtor gave his only two properties by donation to relatives, including E.S. After his death all of them renounced his inheritance, leaving the estate with nothing from which to pay.

On 23 January 2025 the First Hall of the Civil Court upheld the claim. It declared the donations null only in relation to the company, refused the demand to rescind them and ordered the judgment to be registered in the Public Registry. The relatives appealed on four grounds and the curators on three.

What the court held

The first ground was prescription under article 2156(e) and (f), raised for the first time in a note of submissions after the case had been put off for judgment. The court agreed that a plea allowed at any stage must still be raised formally, with a request to suspend judgment so the other side can answer it.

The court then noted that article 2160 makes the five-year prescription of article 2156 ineffective unless the party pleading it swears that it is not a debtor or does not remember whether the debt was paid. No such oath was taken, so the plea had no effect. In any case, article 2156 governs the action for payment of the debt, not the actio pauliana.

On the second ground, the relatives argued that the company had asked for rescission while the law allows only annulment. The court answered, “Dan l-argument ma huwiex ħlief logħob bil-kliem” (This argument is nothing but a play on words). It pointed to articles 1222 and 1226 of the Civil Code, where the law itself does not keep rescission and nullity sharply apart.

The court held that the effect of the action is that the attacked act “jitqies li ma jiswiex fl-interess biss tal-attur” (is treated as invalid only in the interest of the plaintiff). Between the debtor and the donee the act stays binding. Doctrine calls this non-opposability, and the claim as framed fitted it.

The third ground, that the debt had not yet been established, fell away. By the time of this judgment the debt had been finally established in the separate case, in a judgment delivered the same day.

On consilium fraudis (the fraudulent intent the action requires), the court held that for a donation it is enough that the donor knew he was reducing his estate so that he could not pay his debts. A medical certificate issued for the donations found him able to dispose of his property. He was equally able to know that the donations would empty his estate, and that met the required proof.

The court rejected as self-contradictory the relatives’ attempt to cast doubt on the capacity of the donor, since the donations were made to them. Their arguments on the proof of the debt and the signatures belonged to the other case.

The curators’ grounds on a stay and on joining the two cases were also overtaken by the final judgment on the debt. On their fees, the court found that the first court’s order on costs already settled who pays. The relatives bear the costs of their appeal, and the estate bears those of the curators’ appeal, advanced for now by the company.

Why it matters

A defendant who wants to plead a short prescription late must raise it formally, ask for judgment to be suspended and take the oath under article 2160. A creditor attacking a gratuitous transfer need only prove the knowledge of the debtor. The choice between “rescind” and “annul” in the claim will not defeat an action that is plainly a pauliana.

Where it sits

Article 1144 of the Civil Code lets any creditor attack acts a debtor made in fraud of the creditor’s rights. For an onerous act the creditor must prove fraud on both sides. For a gratuitous act, under article 1144(3), fraud by the debtor alone is enough.

In this action fraud means knowledge that the act will harm the creditor, not an intention to harm. The First Hall drew that rule from the Court of Appeal (Commercial) (29 March 1957), the Court of Appeal (3 November 2006) and the First Hall (7 January 1936), and the Court of Appeal accepted it.

On prescription and on the form of the claim, the Court of Appeal decided on articles 1222, 1226, 2112, 2156 and 2160 of the Civil Code. It named no other authority beyond the related judgment on the debt.

Source

Court of Appeal (Superior Jurisdiction), 568/2018/1, 19 January 2026: 568/2018/1