The sale of immovable property not owned by the vendor does not render the contract void ab initio

Civil Appeal No. 190/2016 — Takis Palaontas v. Esfera Holdings Ltd and Others

Supreme Court of Cyprus (Appellate Jurisdiction) — Judgment dated 21 January 2026 (Malachtos, Ioannides, Efraim, JJ.)

Background

By written agreement dated 15.12.2010, the Appellant purchased from Esfera Holdings Ltd a "share" of 2,676 sq.m. in a specific plot of land at Dromolaxia, in the Larnaca district, for the sum of €250,000, which he duly paid. Esfera undertook to transfer the share within six months. The agreement further provided that, should Esfera fail to do so, Wadnic Trading Ltd, which had also signed the agreement together with a parallel written undertaking, would be obliged to transfer to the Appellant an equal area from a plot of its own in the same locality, within three months of being notified of Esfera's default. The director of both companies signed a personal guarantee for the faithful observance of the terms of the contract of sale "by the Vendor".

Neither company effected any transfer. The Appellant brought an action claiming the value of the 2,676 sq.m. of Wadnic's property, adducing valuation evidence that it amounted to €972,562. The trial Court, on a different basis, awarded him only the sum of €250,000 as money paid without consideration, holding, among other things, that the agreement with Esfera was illegal and void ab initio because the property sold was not registered in the vendor's name at the time the agreement was concluded.

The Supreme Court's Decision

The Supreme Court, in a unanimous judgment, allowed the appeal against the liquidator of Wadnic, recognising the existence of a valid contingent contract between the Appellant and Wadnic, which was breached on 16.4.2012, and remitted the action to the District Court of Larnaca for retrial confined to the amount of damages.

The Legal Points of the Judgment

1. The sale of immovable property not owned by the vendor does not render the contract void ab initio. The Supreme Court held that the trial Court erred in treating the agreement as illegal and void because, at the time of its conclusion, the property was not registered in the vendor's name. It is incumbent upon each contracting party to perform its contractual obligations, here, upon Esfera to become the owner of the property it had sold and to transfer it to the Appellant in time. The false representation that Esfera was the lawful purchaser-beneficiary of the specific plot merely rendered the agreement voidable at the purchaser's option, not void ab initio. The Court likewise rejected the trial Court's position that the only means of selling property held under a contract of sale is the assignment of the purchaser's rights arising from that contract.
2. Judicial findings outside the pleadings and the evidence are impermissible. The trial Court had concluded that the "true" nature of the transaction was a direct sale by Wadnic to the Appellant, a version which no party had pleaded or testified to. Referring to Tsangari v. Gavrielidou and Others (2003) 1(A) C.L.R. 472, the Supreme Court recalled that it is procedurally impermissible to make findings on the basis of facts for which there is no corresponding allegation in the statement of claim. Pingos Estates Ltd v. Kaloyirou and Others (2015) 1(B) C.L.R. 1953, on which the trial Court had relied, was distinguished: there, the true nature of the transaction was itself a matter in dispute, and extrinsic evidence was admissible to resolve doubt or ambiguity in a document.
3. Contingent contracts — sections 31, 32 and 34 of the Contract Law, Cap. 149. The central legal issue was the classification of the relationship between the Appellant and Wadnic. Citing Stylianou and Others v. School Committee of Greek Schools of Strovolos (1998) 1(D) C.L.R. 1924, the Court noted that a contingent contract is a contract to do or not to do something if some event, collateral to the contract, does or does not happen, and that the future event may consist in the conduct of a third party. On the question of consideration, it was held that the consideration furnished by the Appellant was his entry into the contract with Esfera and his payment of the €250,000. Wadnic's obligation was contingent upon the uncertain event of Esfera's failure to transfer within six months. All the constituent elements of a valid contingent contract were therefore present.
4. Activation of the obligation and breach. Upon the expiry of the six-month period without a transfer by Esfera, and upon due notice being given to Wadnic, the contingency was fulfilled and Wadnic's obligation became enforceable. Its failure to transfer constituted a breach of its contractual obligation.
5. Measure of damages — the value of the property at the time of the breach. The fact that the purchaser could not obtain specific performance of Wadnic's undertaking was not determinative. Since a valid contractual obligation to transfer existed, the loss flowing from the failure to transfer could be quantified on the basis of the value of that property at the time of the breach of the agreement (Kalisperas v. Dryadi and Others (1998) 1(B) C.L.R. 867).
6. Uncontradicted expert evidence is not automatically accepted. The trial Court had not evaluated the valuer's evidence at all, having rejected the relevant basis of claim. The Supreme Court clarified that the absence of opposing valuation evidence does not mean that the evidence of the Appellant's valuer, who was cross-examined and had contrary positions put to him, had to be accepted without more. The claimant bears the burden of proving the extent of his loss with credible evidence. In the absence of any credibility finding by the trial Court, a retrial on the quantum of damages was rendered unavoidable.
7. Construction of personal guarantees — strict adherence to the wording. The director's guarantee covered non-performance of the terms "by the Vendor", whereas the contract of sale defined Esfera as "the Vendors" and referred to Wadnic as "the Company". The trial Court's finding that the guarantor had guaranteed only Esfera, and not Wadnic, was not challenged on appeal and remained intact. The appeal against the guarantor was accordingly dismissed, a reminder of the importance of precisely identifying the obligations covered in guarantee instruments.

The Outcome

The appeal against Respondent 2 (the Official Receiver as liquidator of Wadnic Trading Ltd) succeeded. The first-instance judgment against him was set aside, the existence and breach of the agreement dated 15.12.2010 were recognised, and the action was remitted to the District Court of Larnaca for retrial confined to the amount of damages, with costs of €4,000 plus VAT awarded in favour of the Appellant. The appeal against Respondent 3 (the guarantor) was dismissed.

The Appellant was represented by our firm. This article is for informational purposes only and does not constitute legal advice. For specialised guidance on similar matters, please contact our firm.