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Citation: 50 L. Q. Rev. 532 1934

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AVAILABILITY

BY WAY OF DEFENCE OF CONTRACTS

NOT COMPLYING

WITH

THIE STATUTE

OF FRAUDS.

N

the

recent

case

of

Perpetual Executors

and

Truistees

146

the High Court of Australia

a contract which did not comply with section 128 of the Instru- ments Act, 1928 (Victoria) (re-enacting section 4 of the Statute

Association of Australia, Ltd. v. Russell, 45 C. L. R.

had occasion

to consider

whether

of Frauds), might, although not capable of supporting an action,

yet he available by way of defence.

In

that case the appellants

were the owners of certain lands which their predecessor in title had by parol demised to the respondent, a lease having been engrossed but not executed by the lessor. One of the terms of the lease provided that the respondent should have an option to purchase the lands at a fixed sum. The respondent, who at the date of the lease was already in possession of the land under an earlier lease in such circumstances that his continuance in possession did not (as was agreed by counsel) constitute part performance, in due course notified the appellants that he exer- cised the option. After the expiration of the term of the lease the respondent refused to yield up the demised premises, where- upon the appellants sued for a declaration that they were entitled to possession. The respondent, relying for a defence upon the agreement constituted by the exercise of the option to purchase, contested the action, and also counterclaimed for specific performance. The Supreme Court of Victoria [(1930) V. L. R. 350] dismissed both the action and the counterclaim, the action on the ground that the contract constituted a defence, the counterclaim on the ground that although the contract might

afford a defence, its non-compliance with the Statute of Frauds prevented it from supporting a suit or counterclaim. The appellants appealed to the High Court from the dismissal of

the action and the High Court reversed the Supreme Court's decision. Gavan Duffy C.J., Starke and MeTiernan JJ., in the course of a joint judgment, said ' neither at law nor in equity can a claim unenforceable by action because of the Statute be

enforced by counterclaim or defence.

proof of legal title in the plaintiff, must show that he is " there

The defendant here, upon

Oct., 1934]

The Statute of Frauds.

under some right enforceable at law or in equity, or else he makes no answer to the plaintiff's case: it is no answer to say:

" but there is an agreement, which gives me no right enforceable at law or in equity, to be in possession of the land." ' Evatt J. delivered a separate judgment, in the course of which he remarked: 'If the judgment under review stands the legal situ- ation created is an extraordinary one. There are two contestants for the ownership in fee of the land in question and two only,

the plaintiff and the defendant.

No

ius

tertii is

involved.

Neither is able to enforce his rights against the other. The

defendant is able to retain possession of the land without paying

The

profits may be enjoyed indefinitely by the defendant. The defendant has been denied specific performance. But the same agreement which he is unable to enforce protects him as defen- dant in possession. 'The defendant has the advantage of a decree for specific performance without the disadvantage of having to carry out any part of the bargain on his part. The parties remain between two worlds-one dead, the other power- less to be born.' Is this decision to be accepted as an authority for the proposi- tion that a contract which is unenforceable by action or counter- claim for non-compliance with the Statute of Frauds can in no case operate as a defence in respect of acts done under it or recognized by it? It is not infrequently stated as the law that,

to borrow the language of Sir William Grant (Clarke v. Grant,

the

situation of a defendant,' and the reason for this view is to be

found in

the defendants,' said North J., in Miles v. N. Z. Alford Estate Co., Ltd. (1886) 32 Ch. D. 266, 279, 'I do not see anything to prevent their setting up their agreement or to entitle the plaintiff to resist it by setting up the Statute of Frauds in reply. It

seems to me the case is not one to which this section applies.

It is not an action brought whereby to charge the plaintiff with

the agreement

enlarging that section of the Statute of Frauds if I said the plaintiff was entitled to set up the Statute of Frauds in answer

to the case made by the defendants.'

compensation

for

it.

The

plaintiff

cannot

eject

him.

14 Yes.

519,

524),

'The

Statute of Frauds

has not altered

'As

the words 'no

action shall be brought.'

regards

in

favour

of

the

defendants

.

.

.

I

should

be

723 the

purchaser of land paid to the vendor a deposit on account of the purchase-money; but subsequently she decided not to go on with the purchase and brought an action to recover the deposit. On

her behalf it was contended that the contract did not comply

Thus

in

Thomas v.

Brown

(1876)

1

Q.

B.

D.

714,

The Law

Quarterly Review.

(No.

CC.

with the Statute and hence could not be relied upon by the

defendant to justify his retention of the money. But Mellor and Quain JJ. held that the plaintiff could not support her case merely by showing non-compliance with the Statute. 'Now where, upon a verbal contract for the sale of land,' said Quain J., 'the purchaser pays the deposit and the vendor is always ready and willing to complete, I know of no authority to support the purchaser in bringing an action to recover back the money.'

With this case may be compared the case of Jones v.

Jones

(1840) 6 M. & W.

84; 151

E.

R. 331.

There the defendant gave

the plaintiff a promissory note to secure the payment of the purchase price of a house and land which the plaintiff had verbally agreed to sell to the defendant. The defendant having refused to pay the note, the plaintiff commenced an action, and the defendant contended that there was no consideration for the

note, inasmuch as the contract of sale was unenforceable. If the defendant's contention had been sound, then it would have followed that had the defendant paid cash, he could have pro-

Court

of Exchequer, however,

is clear,' said Lord Abinger C.B., 'that this is a case where

the parties have paid their money down-or, what is equivalent, given a promissory note payable on demand-for a future con-

veyance.

unless they show that the plaintiffs have refused to execute that conveyance?" Thomas v. Brown and Jones v. Joines would seem to be

sufficient authority for the proposition that where a contract has been wholly or partly executed by one party, that party cannot subsequently claim, purely on the ground that the contract does not comply with the Statute, to undo what he has already done. If money has been paid, or the property in goods or land has passed, or a security has been given, these matters can be supported by the defendant by reference to the unenforce- able contract. ' The contract is not a nullity,' said Lord Selborne, L.C., in Maddison v. Alderson (1883) 8 App. Cas. at 475.; 'there is nothing in the Statute to estop any Court which may have to exercise jurisdiction in the matter from inquiring

All the acts

done must be referred to the actual contract, which is the measure

and test of their legal and equitable character and consequences.'

into and taking notice of the truth of the facts.

ceeded as a plaintiff to recover the amount paid.

'It

overruled

the

defendant's

The

contention.

Can anybody say that they are not bound to pay it;

In

cases such

as

Thomas v.

Brown. and

Jones v. Jones the

promise by the one party which is contained in the unenforceable

Oct., 1934]

The Statute of Frauds.

contract operates as consideration for the performance by the other party: that performance is not to be regarded as gratuitous or given in respect of a consideration which is illusory. But a contract not only involves the notion of an act, promise, or

forbearance constituting consideration;

the mutual consent by the parties to its terms.

it is equally founded in

And wherever

this consent would afford one of the parties to the contract a defence that party may for that purpose prove the contract not- withstanding its non-compliance with the Statute of Frauds. Thus if, in pursuance of such a contract and before its repudia-

tion, a party takes possession of or enters upon lands belonging

to the other

entry

or taking of possession maintain an action for trespass quare clausum fregit: Crosby v. Wadsworth (1805) 6 East 602; 10?

E. R. 1419; per Lord Abinger C.B. in Carrington v. Roots

party,

that other

cannot in respect of that

(1837) 2 M. & W. at 255; 150 E. R. at 751. It is clear, how- ever, that so soon as the consent is withdrawn, as, for example,

of

justified otherwise

by the landowner repudiating the contract,

will have

to

be

the continuance

the defendant in possession

than by reference to the consent in which the contract 'had its origin. In other words, it must be justified by something which binds the plaintiff for the future and not merely in respect of the past. Excluding any question of conveyance, grant, or

change

the

contract as a contract, and not merely as a consent or licence;

and the contract, it has been assumed, does not comply with the Statute of Frauds. Will the fact that it is the defendant who relies upon the contract render this non-compliance irrelevant? Generally, of course, the act of taking possession of land will constitute part performance, and a Court of Equity will on this ground enforce the contract. But it will sometimes happen that

possibly be bound

of

title,

the only

for the

manner in which the plaintiff can

future

is

by the

operation

of

although the defendant is in possession of the land his entry will not constitute an act of part performance, as, for example, where he has entered under some contract other than that by which he now seeks to justify 'his continuance in possession.

It was

this question that the High Court of Australia was called upon

to answer in Perpetital Executors and Trustees Association of

What is the defendant's position in a case such as this?

Australia, Ltd. v. Russell. The answer given was that in such a case, although the contract is advanced by the defendant as a defence and not by way of counterclaim, nevertheless the

the

Statute of Frauds will be applicable and available to plaintiff if he sees fit to rely upon it.

The

Law

Quarterly Review.

[No.

CC

In

Russell's Case the defendant sought to justify his continu-

ance in possession by pleading a contract for sale and purchase.

But against the

a defence to an action of ejectment only if it confers on the

defendant an estate in the land or otherwise is of such a nature as to bind the land: i.e. it will afford a defence only to the

extent that it creates a right in rein.

At Common Law the only

manner in which the right of the legal owner to the exclusive

possession of his land can be restricted

is by a legally operative

conveyance or grant. A mere contract will not have any such efficacy: Wood v. Leadbitter (1845) 13 M. & W. 838; 153 E. R.

351. Clearly, therefore, the contract in Russell's Case was

incapable of creating any legal estate or other legal right in rem,

but operated in personam merely. But a contract operating at

Common

operate

in rem.

whether it is specifically enforceable. If specific performance is available, then, on the principle that equity looks on that as done which ought to be done, the defendant will be regarded as owner, either of the fee simple or of such less estate or interest as he has contracted for, and entitled, therefore, to continue in his possession to the extent justified by his equitable ownership:

cf. per Farwell J. in Manchester Brewery v. Coombs [1901] 2 Ch. at pp. 617-8. It was the application of this principle that brought about the downfall of the defendant in Russell's Case.

Had be come as a plaintiff seeking specific performance he could clearly have been defeated by the Statute. His suit would perhaps not, have been an action within the meaning of the

Statute (see Re Hoyle [1893]

1 Ch. 97), but equity follows the

law, and an action at law on the contract could have been defeated by a plea of the Statute. Therefore, in the absence of any special ground for equitable relief, such as part perform-

ance, a suit in equity would likewise be defeasible. It may be said, therefore, that the defendant in Riissell's Case, when he sought to defend the action by pleading his contract, really combined in himself the character of a plaintiff; and that that was why he could be met with the reply that the contract did not conply with the Statute.

legal owner of land a contract is available as

Law

purely

in

personam may yet in

equity

Whether or not it thus operates in equity depends on

It would seem, indeed, that Evatt J.

partly based his judgment

upon the assumption that were the defendant to be permitted

to plead the unenforceable contract to defeat the action of eject-

ment, he could subsequently plead the Statute when the plaintiff, having failed in the action of ejectment, sued in a second action for specific performance. 'The defendant,' he said (p. 155),

Oct., 19U4]

The Statute of Frauds.

' has the advantage of a decree for specific performance without the disadvantage of having to carry out any part of the bargain

on his part.

dead,

The parties remain between two worlds-one

the other powerless to be born.' This objection, if valid, would be as applicable to cases like Thomas v. Brown as to cases such

as Russell's Case. But the escape from the dilemma propounded

by the learned Judge seems plain. A party may not both affirm and disaffirm a contract. If the vendor sued for ejectment and

mesne profits and the defendant pleaded that his continuance

in possession was justified by the contract, the defendant would

thereafter be estopped from defending a subsequent action for specific performance by pleading the Statute: The Laws of England, ed. Halsbury, XII, 333; Humphries v. Humphries

[1910] 2 K. hot and cold,'

B.

531.

'A

man cannot

at the

same

time

blow

said Honyman J., in Smith v. Baker (1873) L. R.

8 C. P. 350, 357. 'He cannot say at one time that the

action is valid, and thereby obtain some advantage, to which

he could only be entitled on the footing that it is valid, and at

another

further advantage.' And in such a case as that at present being discussed, there wduld seem to be no reason why the plaintiff should not sue alternatively for specific performance, and eject-

ment with mesne profits or repayment of moneys paid in respect of the purchase-price, thereby putting the defendant to his election and disposing of all questions in the one proceeding. The decision in Russell's Case was in accordance with the decision of the English Court of Appeal in Sidebotham v. Holland [1895] 1 Q. B. 378 (which does not seem to have been cited to the High Court). There the defendant was in posses-

sion of a house under a written agreement for a yearly tenancy. The plaintiff having given what was held by the Court to be

a sufficient notice determining the tenancy and sued for the

recovery of possession,

made subsequently to the commencement of the tenancy, to the

effect that the tenancy should not be determined until the expira- tion of some three years. The plaintiff in reply pleaded the

trans-

time

say

it

is void for the purpose of securing some

the defendant set up an oral agreement

Statute of Frauds.

It

was

objected

by the

defendant,

citing

Miles v. N. Z. Alford Estate Co., 32

Ch. D.

266, 278, that this

reply was not open to the plaintiff, but both Bruce J. and the Court of Appeal (Lord Halsbury and Lindley and A. L. Smith L.JJ.) overruled this objection, and held that the plaintiff had properly pleaded the Statute in reply to the defendant's defence. It is to be noticed that the remarks of North J. (Miles v.

538 The Law

Quarterly Review.

[No. CC.

N. Z. Alford Estate Co.,

point, although cited both to the English Court of Appeal and

the High Court of Australia, were not adopted by either Court, and, indeed, when the facts before North J. are examined, it does not appear that they really raised the question that the Court of Appeal and the High Court had to consider. In Miles-

v.

entitled to a first charge on the shares of its members in

respect of their engagements with the company.

equitably mortgaged his shares to the plaintiff, who duly gave notice to the company, and then X entered into an undertaking with the company which, it was contended, amounted to a guarantee. This undertaking did not comply with the Statute

of Frauds. The company having refused to register a transfer of the shares until the amount of the guarantee (which it claimed to be entitled to protect under its charge) was paid, the plaintiff commenced an action claiming a declaration that he was entitled to a first charge and consequential relief. The company by way of defence set up its guarantee and the provision in the articles

purporting to give

pleaded the Statute of Frauds, but North J. held he was not entitled to do so, inasmuch as the defendant was not bringing an action upon the contract but merely relying on the contract to justify its own position. But the company in that case

claimed its charge not in pursuance of the guarantee but in pursuance of the contract in the articles; and to that contract

the Statute could have no application. The contract articles was in the nature of a security, and it is clear

is no objection to a security that the principal debt is unenforce-

able by reason of the Statute of Frauds: cf. Jones v. Jones (supra). It would appear, therefore, that the remarks of North J. were made per incuriam and that Miles v. N. Z. Alford Estate Co. must be read subject to the judgments in Sidebotham v. Holland and Perpetual Trustees and E.recittors, Ltd. v. Russell. The extent to which a contract not complying with the Statute of Frauds can yet operate as a defence may, therefore, it is

Ltd.,

32

Ch.

D.

266,

279),

on

this

N.

Z.

Alford

Estate Co.

a

company

by

its

articles

was

X, a member,

it

a

first charge.

The plaintiff,

in reply,

in

the

that it

submitted,

be

stated as follows:

(1) It

will constitute, to the same extent as if it complied with the Statute, a defence to a claim by the other con- tracting party to recover money paid or other property

the title to which has passed in pursuance

(2) It will constitute a defence to an action of tort by the

of it.

Oct., 1934]

The Statute of Frauds.

539

(3)

other contracting party in respect of acts done in pursu- ance of it prior to that other party's forbidding those acts by repudiating it or otherwise.

other cases it will be no defence if the plaintiff replies by pleading the Statute of Frauds.

In

JAmES

WILLIAMS.