Contract - Formal And Evidentiary Requirements

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Formal and evidentiary requirements - introduction

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While it is generally accepted that legally enforceable contracts may be agreed orally, in writing or through performance, there are certain types of contract that must be evidenced in writing in order to be legally enforceable. The rationale behind mandating that certain contracts be evidenced in writing lies in the past, where the enforcement of oral contracts led to a corresponding increase in the number of perjury actions, which in tum caused concern for the legislature. This concern arose from two main reasons:

(1) These actions were causing a backlog in the courts because cases were being tried and then retried on perjury.

(2) Doubts arose concerning the risk of fraud in the courts, whereby the better liar would prevail over the truth-teller.

Primarily in order to prevent fraud, the UK adopted the Act for the Prevention of Fraud and Perjuries 1677, which required written evidence in respect of certain contracts if they were to be legally enforceable. Similar legislation was subsequently enacted in Ireland by virtue of the Statute of Frauds (Ireland) Act 1695.

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Statute of Frauds (Ireland) Act 1695, Section 2

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s 2 specifically applies to four main types of contract:

(1) Contracts to pay the debt of another.
(2) Contracts where the consideration is to be married.
(3) Contracts for the sale of land or an interest therein.
(4) Contracts that will not be performed wt'thin one year.

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Naughton v Limestone Land Co. [1952] Ir Jur Rep 19

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The Plaintiff agreed to study for three months and afterwards work for the defendant company. Because the agreement was oral and in total was due to last for four years and three months, it was held to be unenforcable.

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Scully v Carboy [1950] IR 140

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Gavan Duffy J. held that an agreement to let the meadowing of a field was a sale of a good rather than the sale of an interest in land.

As a result in this particular case, the plaintiff's acts of part-payment (see above list of requirements or part-payment) and the defendant's acceptance of them dispensed with the need for a memorandum

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Tradax (Ireland) Ltd v Irish Grain Board Ltd [ 1984] IR

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A part of a letter that in effect
sought to reject the relevant agreement was used successfully as part of the memorandum.

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Contents of the Memorandum

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It is often stated that the memorandum must contain the 3Ps: parties, property and price (consideration), as well as any other information the parties consider to be essential terms of the agreement.

Indeed, if the memorandum lacks any of the essential requirements, it will be
deemed insufficient to satisfy the Statute of Frauds: Godley v Power [1961] 95 ILTR 135

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Guardian Builders Ltd v Patrick Kelly and Park Avenue Limited [Unreported, High Court, 31 March 1981] *****

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In this particular case the defendant, Patrick Kelly, wanted to sell a site he owned. He appointed an agent to organise the sale for him. An oral agreement was made with the plaintiff, Guardian Builders, and the area of land to be sold was marked on the site map.

Both parties agreed that the plaintiffs would obtain possession within three months. The agent told the plaintiffs that he would ask the defendant- Mr Kelly's solicitor- to prepare a written contract. The agent then wrote a letter, which was typed by his secretary and dated 26 April. The proceedings arose as a result of a dispute over whether or not such an agreement was in fact made. The plaintiffs relied on the letter typed by the secretary on headed notepaper as a memorandum sufficient to satisfy the Statute of Frauds.2

In relation to the identification of the parties in the letter, the defendants claimed that they
were not identifiable as required under s 2 of the Statute.

However, Costello J. found that they were, despite the fact that the defendant was referred to by his first name only and also
despite the fact of an error made in relation to the name of the defendant company. This, the judge held, did not invalidate their identity. He asserted that the test was whether the parties were readily identifiable and in this case he found that they were.

The defendant claimed that the memorandum was not sufficient to satisfy the Statute because it did not adequately identify the property.

Nonetheless, Costello J. was of the opinion that the property was readily identifiable, on the facts.

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Black v Greally (Unreported, High Court, 10 November 1977).

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The plaintiff entered into an agreement wtth the defendants agent to buy property from the defendant for £46,000. The agent arranged for the defendant to pay £6,000 in advance and the memorandum noted a price of £40,000. When the plaintiff queried why the memorandum did not reflect the agreement, the agent promised that matters would be organised. The plaintiff then signed the memorandum. However, the defendant refused to complete the sale and the plaintiff sued for the equitable remedy of specific performance.

Costello J. reaffirmed the need for a memorandum that is being relied on to satisfy the Statute of Frauds in stating the consideration paid. He noted that in this case the parties agreed that the full purchase price would not be disclosed and that the balance after the deposit was paid would be treated as the purchase price, i.e. £40,000.

Costello J. found that, as a result, the memorandum was not a record of the oral agreement between the parties, but one that was in accordance with one aspect of the oral agreement.

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Casey v Irish Intercontinental Bank (1979) IR 364

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The phrase "subject to contract" was not used until the 2nd February by which stage an oral agreement had already come into place.

Therefore, whether an oral
agreement has come into existence and under what terms, is of vital importance.

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Supermacs Ireland Ltd and McDonagh v Katesan ( Naas) Ltd & Sweeney [2000] 4
IR 273.

****

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The courts addressed the distinction between certainty of terms and the adequacy of the memorandum in the case of The plaintiffs claimed that an enforceable agreement to purchase six fast-food restaurants existed between them and the defendants.

However, the defendants asserted that that this claim should be struck out on the basis that there was no concluded agreement on
the question of a deposit.

They relied on the case of Boyle v Lee & Goyns [1992] 1 IR 555, where the Supreme Court clearly stated that the failure to agree a deposit in a land purchase agreement meant that the agreement was void for uncertainty.

Nonetheless, the Supreme
Court in Supermacs distinguished the instant case from Boyle v Lee and Goyns on the basis that in the latter case the parties had not agreed the material term of a deposit between themselves, leaving this to be agreed between their solicitors. Moreover, he acknowledged that the Supreme Court did not hold that the agreement on a deposit was absolutely essential for a contract to come into existence.

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Signature

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The contract must be signed by the party against which the contract is alleged to exist or by his/her lawfully authorised agent. It has been asserted that the agent's authority should also be evidenced in writing.

"Signature" has been interpreted loosely and it has been held that a rubber stamp, typed words or an illiterate's mark may suffice. Headed paper was held to be sufficient in Casey v Irish Intercontinental Bank [ 1979] IR 364, but initials added as a reference and for information purposes only were not so held in Kelly v Ross and Ross (Unreported,
High Court, 29 April 1980).

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It is not necessary for the memorandum to have been specifically drafted as a
memorandum before the Statute may be satisfied.

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It has been held that letters written by estate agents, solicitors and others setting out the terms of the agreement may constitute a memo: Murphy v Harrington [1927]; Doherty v Gallagher [Unreported, High Court, 9 June 1975].

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Kelly v Ross and Ross (Unreported, High Court, 29 April 1980)

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The court refused to join a total of nine documents as the documents that were signed did not refer to the remaining documents and there was insufficient material on the signed items to constitute a valid memorandum of its own.

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McQuaid v Lynam [1965] IR 564

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A sales receipt together with a loan application were regarded as sufficient to constitute a memorandum to satisfy the Statute.

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Joinder of Documents

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Two or more documents may make up a memorandum, but the signed document must make sufficient reference to all other documents. The documents must refer to each other expressly or impliedly.

As Friel notes, in order to come within the scope of a valid memorandum, the document that carries the signature must have been signed after all the documents with which joinder is sought were created. Otherwise it would be an attempt to claim signature to that which had not been in existence at the time it had been created

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Subject to Contract

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Where a document containing all the necessary requirements contains the words "subject to contract", then it may not constitute a valid memorandum. The inclusion of this phrase essentially means that the agreement under negotiation is subject to a further contract being drawn up, which will be concluded and signed by the parties.

The locus classicus case in area is the Irish case of Thompson v The King [1920] 2 IR 365, where an offer that contained the words "subject to contract" was accepted by the plaintiff. The court concluded that the inclusion of the phrase "subject to contract" precluded the possibility of a contract being complete as it envisaged that a further contract was going to be drawn up.

This has indeed been the approach adopted by the English Courts, where it has been held that a document cannot be used as a note or memorandum where the document itself denies the existence of any contract. In the English case of Tiverton Estates v Weanvell [1974] 2 WLR 176, it was held that a "subject to contract" letter could not be used to establish the terms of an oral contract,
even where the existence of a concluded oral contract could be demonstrated conclustvely.

This approach continued to be adopted in Ireland until the case of Kelly v Park Hall School [1979] IR 340. In this case the parties orally agreed a contract for the sale of land. The defendants' solicitor wrote a letter which, while confirming the terms of the agreement, asserted that the terms had been agreed "subject to contract". The defendants refused to go through with the sale and the plaintiffs sued. The Supreme Court held that the words "subject to contract" were ambiguous and as a result were meaningless under the circumstances.

This approach was reaffirmed in the case of Irish Intercontinental Bank v Casey [1979] IR 364.

Despite this clear deviation from precedent, the orthodox approach was restored in the case of Mulhall v Haren [1981] IR 364, where it was suggested that the inclusion of the phrase "subject to contract" meant that the final agreement would be completed at a later date. Keane J. critically examined the Park Hall Schools case as well as Casey, and concluded that both decisions were essentially confined to their own facts and related only to "exceptional cases". He reaffirmed the general rule in this area, which is that a note or memorandum should be sufficient to satisfy the Statute of Frauds only where it acknowledges the existence of a contract.

The relatively recent Supreme Court decision in Boyle v Lee [1992] 1 IR 555 has reaffirmed the orthodox position, which was understood to exist before Kelly v Park Hall School [1979] IR 340. The majority in that case held that Kelly v Park Hall School should no longer be followed. The majority decision of Finlay C.J. approved the approach taken by Keane J in Mulhall v Haren [1981] IR 364, and went on to state that:

In modern times, probably the most important legal transaction a great number of people make in their lifetime is the purchase or sale of their house ... certainty in the question of what is or is not a sufficient note or memorandum is a desirable aim. In my view, the very definite statement that a note or memorandum of a contract made orally is not sufficient to satisfy the Statute of Frauds unless it directly or by very necessary implication recognises, not only the terms to be enforced, but also the existence of a concluded contract between the parties, and the corresponding principle that no such note or memorandum which contains any term or expression such as 'subject to contract' can be sufficient, even if it can be established by oral evidence that such a term or expression did not form part of the originally concluded agreement, achieves that certainty.

Indeed, the approach adopted in Boyle v Lee & Goyns [1992] 1 IR 555 has since been reaffirmed. by McCracken J in Jodfern v Fitzgerald (Unreported, High Court, 28 July 1999). However, it is important to highlight that in Jodifern, the court noted that the effect of the words "subject to contract" depended on where they were located in the document. For example, if the phrase appeared at the top of the document, this would clearly mean that the entire agreement was subject to a further contract being drawn up. However, if the words appeared in the body of the document, then " ... it is a matter of construction of the writing as. a whole whether it is intended to deny the existence of a concluded agreement", it may
still constitute a valid memorandum sufficient to satisfy the Statute.

Nonetheless, McDermott asserts that the current position is that where the term "subject to contract" is used throughout the course of negotiations, there is no concluded contract. Furthermore, when the phrase appears in a document, even if it is added by a solicitor after the oral negotiations have taken place, then that document cannot constitute a memorandum sufficient to satisfy the Statute. However, where it appears to the courts that an oral agreement has been concluded, the courts can use the equitable doctrine of part performance to hold that an enforceable contract has been concluded, even in the absence of a
memorandum.

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Thompson v The King [1920] 2 IR 365

***

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An offer that contained the words "subject to contract" was accepted by the plaintiff. The court concluded that the inclusion of the phrase "subject to contract" precluded the possibility of a contract being complete as it envisaged that a further contract was going to be drawn up.

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Kelly v Park Hall School [1979] IR 340. ****

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In this case the parties orally agreed a contract for the sale of land. The defendants' solicitor wrote a letter which, while confirming the terms of the agreement, asserted that the terms had been agreed "subject to contract". The defendants refused to go through with the sale and the plaintiffs sued. The Supreme Court held that the words "subject to contract" were ambiguous and as a result were meaningless under the circumstances.

This approach was reaffirmed in the case of Irish Intercontinental Bank v Casey [1979] IR 364.

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Mulhall v Haren [1981] IR 364

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It was suggested that the inclusion of the phrase "subject to contract" meant that the final agreement would be completed at a later date. Keane J. critically examined the Park Hall Schools case as well as Casey, and concluded that both decisions were essentially confined to their own facts and related only to "exceptional cases". He reaffirmed the general rule in this area, which is that a note or memorandum should be sufficient to satisfy the Statute of Frauds only where it acknowledges the existence of a contract.

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Boyle v Lee and Goynes [1992] 1 IR 555

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Boyle v Lee [1992] 1 IR 555 has reaffirmed the orthodox position, which was understood to exist before Kelly v Park Hall School [1979] IR 340. The majority in that case held that Kelly v Park Hall School should no longer be followed. The majority decision of Finlay C.J. approved the approach taken by Keane J in Mulhall v Haren [1981] IR 364, and went on to state that:

In modern times, probably the most important legal transaction a great number of people make in their lifetime is the purchase or sale of their house ... certainty in the question of what is or is not a sufficient note or memorandum is a desirable aim. In my view, the very definite statement that a note or memorandum of a contract made orally is not sufficient to satisfy the Statute of Frauds unless it directly or by very necessary implication recognises, not only the terms to be enforced, but also the existence of a concluded contract between the parties, and the corresponding principle that no such note or memorandum which contains any term or expression such as 'subject to contract' can be sufficient, even if it can be established by oral evidence that such a term or expression did not form part of the originally concluded agreement, achieves that certainty.

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Jodfern v Fitzgerald (Unreported, High Court, 28 July 1999)

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Indeed, the approach adopted in Boyle v Lee & Goyns [1992] 1 IR 555 has since been reaffirmed. by McCracken J in Jodfern v Fitzgerald (Unreported, High Court, 28 July 1999). However, it is important to highlight that in Jodifern, the court noted that the effect of the words "subject to contract" depended on where they were located in the document. For example, if the phrase appeared at the top of the document, this would clearly mean that the entire agreement was subject to a further contract being drawn up. However, if the words appeared in the body of the document, then

" ... it is a matter of construction of the writing as. a whole whether it is intended to deny the existence of a concluded agreement", it may still constitute a valid memorandum sufficient to satisfy the Statute.

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The Equitable Doctrine of Part Performance

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There is one major exception to the Statute of Frauds and the essential requirement that all contracts for the sale of land be evidenced in writing. Once again, equity steps in where the common law fails to provide an adequate remedy through the equitable doctrine of part performance.

Indeed, where it is proved that an oral agreement for the sale of land has been made wholly or in part, the requirement that it be evidenced in writing may be sidestepped.

Equity has recognised that acts of part performance of an agreement serve as evidence that a contract has been agreed and, thus, that the contract should be enforced. Furthermore, in allowing this exception equity is further preventing the Statute of Frauds itself being used as
an instrument of fraud.

Rationale behind the Doctrine

While the doctrine of part-performance is to some extent based on the unconscionable behaviour on the part of one of the parties, in practical terms it remedies the formal defect that arises as a result of a defective memorandum, where it is clear that the parties have made an oral agreement as to the sale of land.

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Mackie v Wilde and Longin [Unreported, Supreme Court, 17 December 1997]

******

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Barron J. has been described as

". . . of importance in
presenting a contemporary foundation for resolving part performance disputes".

In order to claim part performance:

".. . what is essential is that

(1) there was a concluded oral contract;
(2) that the plaintiff acted in such a way that showed an intention to perform that contract;
(3) that the defendant induced such acts or stood by while they were being performed; and
(4) it would be unconscionable and a breach of good faith to allow the defendant to rely on
the terms of the Statute of Frauds to prevent performance of the contract

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Kingswood Estate v Anderson [1963] 2 QB 169

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The plaintiff persuaded the defendant to move out of where she was residing and into new accommodation. Furthermore, the plaintiff promised that the defendant and her son could stay in the new accommodation for as long as they both lived. Despite the fact that the contract was not
evidenced in writing, the court held that it was in fact enforceable due to part performance on the part of the defendant and her son in moving from one place of residence to another.

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Silver Wraith v Siuicre Eireann [Unreported, High Court, 8 June 1989]

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It was held by Keane J. (as he then was) that the onus of proof is on the party seeking to rely on the acts of part performance to show that the contract is enforceable, even though the case falls outside the Statute. The standard of proof is "as a matter of probability".