When is part
performance available to enforce a verbal or incomplete
agreement to sell real estate?
On June 24, 1677, the Statute of Frauds came into
force. It was enacted to prevent ‘Frauds and Perjuryes’
perpetrated by verbal promises. As a result, a proper
written contract, signed by the seller, is required for an
agreement for the sale of land to be enforceable by a buyer.
But this requirement can result in fraud: when a buyer
takes possession or spends money to pay the price or to
improve a property in reliance upon a seller’s verbal
promise to sell the property. So, even as the Statute of
Frauds was being enacted, the Court of Chancery was
assisting such buyers by applying the equitable doctrine of
part performance to enforce such promises.
In1883, the Earl of Selborne LC reconciled the tension
between the Statute of Frauds and the equitable
doctrine of part performance, in the decision of Maddison
v Alderson (1883) 8 App Cas 467
On 12 September 2018, the High Court of Australia upheld
Lord Selborne’s reconciliation, in the decision of
Pipikos v Trayans [2018] HCA 39 . This is an outline of
that decision.
The doctrine of part performance as upheld by the High
Court
Lord Selborne stated that the acts of part performance
had to be:
unequivocally, and in their own nature, referable to
some such agreement as that alleged
He gave this example of where the acts of part
performance would be sufficient:
a parol contract to sell land, completely performed
on both sides, as to everything except conveyance; the
whole purchase money paid; the purchaser put into
possession; expenditure by him (say in costly buildings)
upon the property; leases granted by him to tenants.
(paragraph 62)
In their joint judgment, Kiefel CJ, Bell, Gageler and
Keane JJ commented:
In the example offered by Lord Selborne it is readily
apparent, having regard to the acts performed on the
strength of the contract, that a court of equity would
regard specific performance of the contract – which, ex
hypothesi, would involve only an order for the transfer
of the legal title – as the only remedy sufficient to do
justice. (paragraph 64)
In considering Lord Selborne’s formulation: that the acts
must be unequivocally referrable to some agreement to
convey real property, the High Court:
- rejected a ‘more relaxed approach’ than
unequivocally, which is whether:
a contracting party has knowingly been induced or
allowed by the counterparty to alter his or her position
on the faith of the contract (paragraph 5), which as the
Court noted, was more in the realm of equitable estoppel
(from paragraph 58)
- is recognising an equity to have the transaction
completed, in that it:
is not concerned with proof of the particular contract
in question, but with dealings between the parties which
in their nature establish that the parties are in the
midst of an uncompleted contract for the sale or other
disposition of land. (paragraph 50)
In their joint judgment, Nettle and Gordon JJ reviewed
acts of part performance and noted that:
by the 19th century, although the giving and taking
of possession continued to be recognised as an act
unequivocally referable to the kind of contract alleged
and, therefore, a sufficient act of part performance, it
had come to be accepted that the payment of money alone
is not a sufficient act of part performance because it
is an equivocal act not in itself indicative of a
contract concerning land. (paragraph 89)
Summary: A court cannot enforce a verbal agreement
for the sale of land because it is contrary to the Statute
of Frauds. However, if a court finds acts of part
performance irrevocably referrable to such an agreement, it
will grant specific performance.
The decision in Pipikos v
Trayans
The facts were:
- In 2002, Velika Trayans purchased vacant land at
Clark Road, Virginia, South Australia in her sole name.
With her husband George, she built a house and made
other improvements on the property. They lived there
from 2004.
- In 2004, Velika and George jointly purchased two
properties with George’s brother Leon and his wife. To
purchase the second property at Penfield Road, Leon and
his wife paid the whole of the deposit and the balance
price, over and above a bank loan. The second property
was purchased in all four names.
- In August 2009, Velika signed a handwritten note in
which she confirmed that in 2004, she had agreed to sell
a half-share in the Clark Road property (the land
component only) to Leon for $45,000, which Leon said was
‘paid’ by Leon contributing the whole of the deposit and
other money to purchase the Penfield Road property. This
note did not meet the formality requirements of s 26(1)
of the Law of Property Act 1936 (SA) in that it
was not a complete record of the agreement because it
did not refer to any written documents nor to the
essential terms of the transaction.
- Leon registered a Caveat over the Clark Road
property. The proceedings arose from steps taken to
remove the Caveat.
Applying the doctrine of part performance to the facts,
the High Court found, and concluded unanimously, that:
There was no giving or taking of possession of that
land (at Clark Road).
There were no other acts indicative of a change in the
respective positions of the parties in relation to the
land.
The Full Court was therefore correct to conclude that
the acts on which the appellant relied were not
sufficient to engage the doctrine of part performance.
(paragraph 79)
Further notes
In South Australia, New South Wales and Tasmania, the
legislation which contains the current iteration of the
Statute of Frauds has a rider that it does not “affect
the law relating to part performance”. The Pipikos decision
concerned land in South Australia.
There is no such provision in the other states. This does
not appear to matter. The High Court did not rely upon the
rider to reach its decision.
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