No price is due for goodwill the seller did not own

The Court of Appeal (Superior Jurisdiction) on 2 February 2026 rejected both the claim and the counterclaim in Western Co. Limited (C 19994) vs C.M., a dispute over the sale of a shop’s goodwill and stock. Chief Justice Mark Chetcuti, Mr Justice Giannino Caruana Demajo and Mr Justice Anthony Ellul held that the buyers could not plead fraud when they had not taken ordinary care. They also held that the company could not claim a price for goodwill and stock it did not own.

The facts

By a private writing of 2 October 2017 the company handed the running of a grocery shop to C.M. and his wife. The buyers were to pay €70,000 for goodwill and stock, at €1,264 a month including 6% interest. The lease of the premises was to pass to them once everything was paid.

The company sued for the price in 2018. The buyers counterclaimed that they had been misled about the profits of the shop and that the agreement was obtained by fraud.

The buyers later raised a further plea: the goodwill, stock and bank accounts of the shop belonged to the wife of the company’s director, not to the company. On 26 January 2023 the First Hall of the Civil Court upheld that plea and freed the buyers from the claim. It also found fraud and awarded them €5,715 in damages.

What the court held

The buyers first argued that the company’s appeal was null. The company had appealed while an application under article 235 of the Code of Organization and Civil Procedure, on the costs the First Hall had left undecided, was still pending. The court refused to annul the appeal, because the right of appeal should not depend on that kind of uncertainty, and split the costs of the point.

On juridical interest, the court held that a company suing on an agreement to which it is a party has an interest to sue. Whether it had passed the goodwill to someone else went to the merits of the claim, not to its standing.

On the counterclaim, the court applied article 981 of the Civil Code. Fraud annuls an agreement only if without it the other party would not have contracted, and under article 981(2) it is never presumed. The court held that fraud cannot be pleaded “meta l-fatti setgħu ġew faċilment stabbiliti minnu bi ftit diliġenza ordinarja” (when the facts could easily have been established by that party with a little ordinary diligence).

C.M. testified that he signed without seeing profit and loss accounts, although he said they had been promised. The buyers did not consult their own accountant, who later testified that he would have advised against the deal. They did not ask for a copy of the lease that was to pass to them.

The court found that a gap between the payment terms of the agreement and the conditions of the lease did not amount to fraud against the buyers. It concluded that the agreement was not obtained by fraud. The counterclaim and the claim for damages therefore failed.

The company fared no better. It relied on article 992, under which contracts made according to law have the force of law between the parties.

But when the agreement was signed, the goodwill, the stock and the shop accounts belonged to the director’s wife. Applying the maxim nemo dat quod non habet (no one gives what he does not have), the court held that the company transferred nothing. It therefore has no right to claim a price.

The court set aside the First Hall judgment. It rejected the plea of lack of interest, the company’s claims and the buyers’ counterclaim. Each side bears the costs of its own claim and its own appeal.

Why it matters

A buyer of a going business who signs without accounts, without the lease and without professional advice will find a fraud plea hard to sustain. A seller, for its part, must own what it sells. Signing as owner does not create a right to the price.

Where it sits

Article 981 treats deceit as a vice of consent. The deceit must be grave, decisive for the contract and the work of the other party, and it must be proved. Maltese courts add that deceit cannot be pleaded where the truth was easy to find.

The court took these points from the First Hall (16 June 2003) and the First Hall (28 July 2004). The first of those relied in turn on the First Hall (16 December 1970), which held that deceit succeeds when it leaves the victim no time or thought to resist.

On the appeal-period point, the court followed Adams Investments Co Ltd vs Fra Fen Construction Ltd, Court of Appeal, 30 September 2016. It distinguished Perla Hotels Ltd vs Blye Engineering Co Ltd, Court of Appeal, 31 January 2019, where the application on the omitted decision raised no real claim. On the price, it decided on article 992 and the maxim alone.

Source

Court of Appeal (Superior Jurisdiction), 1014/2018/1, 2 February 2026: 1014/2018/1