Contract Law- Statute of Frauds PDF

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Contract Law- Statute of Frauds The existence of a valid contract does not necessarily mean that such a contract can be enforced. Validity and enforceability are distinct concepts, despite the logical difficulties which this creates. The distinction arises in this jurisdiction primarily from the provisions of the Statute of Frauds (Ireland) 1695 which provides that: “no action shall be brought ... whereby to charge the defendant [on certain classes of contracts] unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorised.” (s 2) Discourages fraud by denying the promise the right to establish the contract by oral evidence only ‘Evidentiary’ and ‘cautionary’ functions ‘a paternalistic device designed to protect people from the consequences of hasty of ill-considered contracts’ –Smith Section 2 Contract to Which the Statute Applies ‘’an arbitrary set of contract types’’ – Mairead Enright “special promise[s] to answer for the debt default or miscarriage of another person”, to “agreement[s] made upon consideration of marriage”, to “any agreement that is not to be performed within one year from the making thereof” Schedule 2 of the Land and Conveyancing Law Reform Act 2009 repealed the final category of contracts relating to the sale of an interest in land however this has been replaced by section 51 of the Land and Conveyancing Law Reform Act 2009. This section (part 1) requires that written evidence of a contract relating to land be produced in court if enforcement of the contract is sought. Special promise[s] to answer for the debt default or miscarriage of another person It will be seen that this head covers contracts of guarantee, by which a guarantor guarantees the debts of another. In addition, it will cover contracts to answer for the “miscarriage” of another, which would include tortious wrongdoing. Kirkham v Marter The defendant orally promised to compensate the plaintiff who had suffered loss by the negligence of the defendant’s son. Held: the contract was unenforceable, being a contract to answer for the miscarriage of another which was not evidenced in writing. Agreements made upon consideration of marriage This category is of little practical importance, although in the recent unreported case of Butterly v Ennis it was noted that if certain agreements were made, which was not found to be the case, they would be unenforceable under this heading. Contracts which are not to be performed within one year from the making thereof This category can be a trap for the unwary. It has its roots in a fear of memories becoming weaker over time, but it will also cover situations where there is no danger of this. In particular, it will cover contracts the performance of which commences immediately, if the performance will not be complete within one year. Contracts which are not to be performed within one year from the making thereof In Naughton v Limestone Land Co, An oral contract of employment which was to last for four years was held to be unenforceable where there was no written evidence of its terms. However, contracts will not fall within this head where either: (a) the parties intend at the time of entering into it that it should be performed within one year; or (b) the contract is to be performed in full by one party within one year.

Contracts which are not to be performed within one year from the making thereof Hynes v Hynes: Verbal contract between two brothers to sell a business enforced despite the lack of sufficient written evidence – parties intended at the time of the contract that it would be implemented immediately. Statute applies to contracts which are not intended to be completed within one year – eg. Farrington v Donohoe Interests in Land The category of “any contract or sale of lands, tenements or hereditaments or any interest in or concerning them” is the most significant in practical terms. Effectively, almost every dealing with land must be evidenced in writing. Two exceptions to this requirement should be noted. First, this heading does not capture mere licences which, it is well established, do not create any “interest in or concerning” land. Second, it should be noted that there is a special regime for contracts creating the relationship of landlord and tenant, which do not need to be evidenced in writing if they are from year to year or for any shorter period: Landlord and Tenant (Ireland) Amendment Act 1860 (Deasy’s Act). What is an interest in land? It should be noted that this term is wider than it might at first appear, and is not limited to the straightforward situation where an outright interest in land is being sold. In particular, the situation where crops are sold has caused some difficulties. Is the sale of crops yet to be grown to be regarded as the sale of an interest in land, so as to impose a requirement that the contract of sale should be in writing? fructus naturales - (literally) natural fruits of the land, that is to say, things which might have required initial planting but thereafter did not require upkeep to be produced. This category included items such as grass, fruit from trees, and trees themselves, for which no further cultivation was required. These were termed as natural, by reason of the fact that “the labour employed in their planting bears so small a proportion to their natural growth” (Marshall v Green). fructus industriales - (literally) those fruits for which industry or work was required before they could be enjoyed, and included most crops such as wheat or potatoes which required annual cultivation. This distinction determined whether, at common law, the crops would be regarded as part of the land. Fructus industriales, by reason of their “artificial” nature, were considered never to form part of the land, and so would never fall within the Statute of Frauds. Fructus naturales (sometimes known as emblements), on the other hand, could (but did not always) form part of the land so as to require a contract for their sale to be evidenced in writing. Rodwell v Phillips “taking the cases altogether … no general rule is laid down in any one of them that is not contradicted by some other”. However, difficulties under the Statute of Frauds are now to some extent ameliorated by the provisions of the Sale of Goods Act 1893. This act expressly includes in the definition of “goods” any thing attached to or forming part of the land, where that thing is agreed to be severed under the contract of sale – section 62. Tangential or indirect connections with land will not require that transactions be evidenced in writing, however. Guardian Builders v Sleecon Ltd. The contract at issue was in substance one for the sale of land. However, because of tax considerations, the transaction was structured as the sale of shares in a company whose only asset was the plot of land in question. It was indicated, obiter, by Blayney J., that such a contract was not within the Statute of Frauds, since, by virtue of the separate legal identity of the company, no interest in the premises passed to the purchaser of the company. Contracts for the Sale of Goods In addition, it should be noted that s 13 of the Statute of Frauds coupled with s 4 of the Sale of Goods Act 1893 requires that contracts for the sale of goods whose value exceeds £10 should be evidenced in writing. Otherwise, such contracts are not enforceable unless the buyer: 1. accepts and receives part of the goods sold,

2. gives something in earnest to bind the bargain, or 3. makes part payment – an offer will not suffice (Kirwan v Price) Statutory Requirements Note or memorandum in writing The Statute of Frauds does not, as is often thought, require that certain contracts should be in writing - evidenced in writing which is signed by the other party before they are enforceable. If the contract itself is in writing, then this will obviously suffice. However, s 2 also refers to a note or memorandum of the contract, which may include letters, cheques, receipts, and so on, regardless of whether these items were intended to serve as a note or memorandum. It should be noted that under the Electronic Commerce Act 2000, that a note or memorandum in writing includes electronic communications such as e-mail. Contents of the Memorandum: The memorandum must include all the essential terms of the contract, which, in the case of a sale of land, will usually be the three Ps: 1. the parties to the contract, 2. the property to be sold, and 3. the price to be paid. If the memorandum lacks any of these items, then it will not be sufficient to satisfy the Statute. Godley v Power Plaintiff had orally agreed to sell a pub, certain goods and stock to the defendant which was confirmed by the defendant in a letter. The letter contained the price and the agreement that the plaintiff would pay half the auctioneers fees and asked that the purchaser would include an inventory in the agreement for sale (furniture and remaining stock). The defendant subsequently tried to withdraw from the agreement and the plaintiff sued for specific performance or damages. In the High Court, the plaintiff was unsuccessful. Kingsmill Moore J. (SC): “It was next contended that the memorandum was defective, in that it did not set out correctly the terms of the contract, and did not contain all the terms of the contract. A memorandum must contain all essential terms. The parties, the property, and the consideration must always be ascertainable from it, but it need not contain any terms which the general law would imply. If there are additional terms considered by the parties to be essential, then these must also be included in the memorandum if the Statute is to be satisfied. Non-essential terms need not be included, as in Kelly v Park Hall School, where the lack of a term specifying when a contract was to be signed was held to be unnecessary. To similar effect is Stimson v Owens, where the memorandum omitted any mention of whether a deposit was to be paid on the sale of property. Statutory Requirements Signed by the Party to be Charged or his Agent it is now well established that this will be satisfied by the use of any mark by way of a signature (such as a rubber stamp, etc.) and by the use of headed notepaper (on the basis that the heading is adopted as a signature: Casey v Irish Intercontinental Bank, where a solicitor’s letterhead served as a signature) – authentic mark – BUT in Kelly v Ross– solicitors’ initials did not – merely initialed for reference purposes Under the Electronic Commerce Act 2000, an electronic signature will be sufficient for the purposes of the Statute. Joinder of Documents  A memorandum may be put together from two or more documents. If each is signed, then no problem arises.  What happens where only one is signed? In this case, the courts have taken the view that the signed document must “authenticate” the unsigned documents by in some way referring to their existence.  Kelly v Ross- A number of documents including solicitors’ attendance dockets and correspondence could not make up a memorandum where the signed items did not refer to the other items.

Subject to Contract Suppose that a letter confirms certain contractual terms, and goes on to say that the matter is “subject to contract”?? The first possibility is that no contract exists. The parties have agreed on the terms of a contract they wish to enter into, but realise that they will not be bound until such time as they actually enter into the contract. In this case, the Statute of Frauds is in some ways irrelevant: the supposed contract is unenforceable not for want of written evidence, but because it does not yet exist. The second possibility is this: the parties have orally entered into a contract, but the writer of the letter, anxious not to make that contract enforceable, has added the words “subject to contract” to prevent the letter from being used as a memorandum within the meaning of the Statute. Will this precaution have this effect? English law A document cannot be used as a note or memorandum where the document itself denies the existence of any contract, Tiverton Estates v Wearwell. So, in that case, 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 conclusively demonstrated. Irish position – was understood to be the same as the English position until: Kelly v Park Hall School Two documents were considered to be a sufficient memorandum to enforce an oral contract for the sale of land. The first document was a letter from the auctioneers acting on behalf of the defendant vendors to the vendors’ property advisor. It stated that terms were agreed “subject to contract” for the sale of particular lands and the letter went on to list the key terms. The second document was a letter from the defendants’ solicitors to the plaintiffs’ solicitors which included a draft contract. In the High Court, it was held that the letter containing the draft contract was a sufficient memorandum. On appeal to the Supreme Court, it was held that the first letter constituted a sufficient memorandum, even though it contained the phrase, “subject to contract”. Casey v Irish Intercontinental Bank. J. Kenny – contract could be enforced despite the phrase ‘subject to contract’. Phrase not introduced until Feb. 2nd when negotiations were advanced and an oral contract for sale had already been completed. This holding threw the legal profession into disarray, and ever more elaborate formulas were used in correspondence to prevent the terms of a contract from being inadvertently evidenced: “Subject to contract – existence of contract denied” or “Subject to contract – agent has no authority to bind principal” being popular forms. The authority of these decisions was queried in a number of High Court judgments, each of which essentially confined the two decisions to their own special facts. The most significant of these was Mulhall v Haren: The plaintiff agreed orally with a representative of the defendant to sell a property. Subsequently, the plaintiff’s solicitor wrote to the defendant’s representative requesting a contract “as the sale is subject to contract”. The defendant refused to go ahead with the purchase and the plaintiff sought specific performance. Keane J., in the High Court, critically examined Kelly, and reached the conclusion that both decisions related only to ”exceptional cases”, and that as a rule, a note or memorandum should only be sufficient where it acknowledged the existence of a contract. The Supreme Court decision in Boyle v Lee has restated the orthodox position which was understood to exist before Kelly v Park Hall School, and 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. It is clear, therefore, that Kelly v Park Hall School is no longer good law. Boyle v Lee was further approved in Jodifern v Fitzgerald. One small measure of doubt on the rule relating to “subject to contract” does however flow from this decision. It was suggested in this case that using the phrase “subject to contract” at the top of the document meant that the traditional rule would apply, the effect of the use of the phrase in the body of the document was less clear. RTS v Muller

RTS supplies automated machinery to the food handling trade and Muller is well known as a dairy product supplier in Europe. RTS agreed to install and commission automated pot mixing lines and a de-palletising cell at Muller’s yoghurt plant in Market Drayton. The parties agreed a letter of intent in March 2005 with the intention that this would expire and be replaced by a detailed final contract in May 2005. Work started. By July 2005, the parties had agreed on most but not all of the major issues. The draft was described as ‘subject to contract’ and also included a counterpart clause that required each party to execute a counterpart copy and to exchange these copies before the agreement would become effective. In fact, the draft was never signed in any form. A dispute developed over the work that had been done and Muller refused to pay RTS. The Supreme Court held that whether or not there was a binding contract in place could be established by considering the communication, by words and by conduct, between the parties and assessing whether it led to the objective conclusion that the parties intended to create legal relations and whether they had agreed on all terms essential to form a contract. Indeed, it would be entirely possible to conclude that a contract existed even where the parties had not yet agreed on all the terms that they considered to be commercially significant – for example if the parties’ words and conduct showed that the outstanding terms although significant were not a pre-condition to a legally binding agreement.

Immingham Storage v Clear Plc Immingham provided fuel storage facilities. Clear was a fuel commodities trader. Clear approached Immingham regarding storing 4000 cubic metres of fuel. There was a site visit and emails were exchanged. One of these emails attached a quotation headed with the words “Subject to board approval and tankage availability” and referred to a formal contract following in due course. The quotation was accepted and Immingham posted a formal contract for signature. As it happened, Clear wasn’t able to source any fuel and did not sign or return the contract papers. Immingham claimed payment. Clear argued that no contract had been formed. The Court’s view was that there was a contract. Immingham’s quotation was provided subject to two conditions which needed to be satisfied before the contract proceeded. These were satisfied as board approval and tank availability were quickly confirmed. However, the reference to a formal contract did not amount to a condition that had to be satisfied before a contract was formed. The documents were not headed ‘subject to contract’. In fact, the terms and conditions that were provided by Immingham allowed for a contract to come into being once fuel was delivered whether or not the contract had been signed. The email exchanges between the parties clearly indicated that the parties had intended a contract to exist based on the terms of the quotation. Taking all these factors together, the Court concluded that a contract existed based on the quotation and the email. Solutions to non compliance Where a contract should be evidenced in writing, and is not, then the contract is unenforceable: “no action shall be brought by which to charge ....” 1. Rectification 2. Estoppel 3. Waiver 4. Statute cannot be used as an engine of fraud 5. Part Performance Rectification – document is revised if there has been a mistake in recording an oral agreement in writing so that it fails to properly represent the intentions of the parties – ‘if rectification is granted, the document is deemed to be in rectified form from the start’ – J. Tipping in Whiting v Dover Plumbing and Heating Estoppel: Black v Grealy If rectification is not possible, and the def. has noticed the mistake and has expressly agreed to accept it, mistake and all, as a true record of the oral agreement, he may be estopped from later saying it is inadequate. Waiver:

Anom Engineering Ltd v Thompson Draft contract makes no reference to the right to connect at agreed points on the def’s. land to obtain a supply of power and water Def. refused to complete / Plaintiff sues for specific performance In principle, power and water = essential matters so no contract However – these terms were specifically for the plaintiff’s benefit – he was thus entitled to waive them and insist on specific performance of the rest of the contract. Statute cannot be used as an engine of fraud: Courts may enforce a contract despite the lack of a sufficient memorandum for the purposes of the statute if the def. himself is relying on the statute’s technicalities to protect his own sharp practice - O’ Mullane v Riordan Part Performance There is one significant exception to the scope of the Statute of Frauds, and that is the equitable principle...