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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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