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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
Association of Australia, Ltd. v. Russell, 45 C. L. R. 146
the High Court of Australia had occasion to consider whether
a contract which did not comply with section 128 of the Instruments Act, 1928 (Victoria) (re-enacting section 4 of the Statute
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 exercised the option. After the expiration of the term of the lease
the respondent refused to yield up the demised premises, whereupon 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. The defendant here, upon
proof of legal title in the plaintiff, must show that he is " there

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 situation 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
compensation for it. The plaintiff cannot eject him.
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 defendant 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 powerless to be born.'
Is this decision to be accepted as an authority for the proposition that a contract which is unenforceable by action or counterclaim 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,
14 Yes. 519, 524), 'The Statute of Frauds has not altered the
situation of a defendant,' and the reason for this view is to be
found in the words 'no action shall be brought.' 'As regards
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 in favour of the defendants . . . I should be
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.'
Thus in Thomas v. Brown (1876) 1 Q. B. D. 714, 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

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 proceeded as a plaintiff to recover the amount paid. The Court
of Exchequer, however, overruled the defendant's contention.
'It 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 conveyance. Can anybody say that they are not bound to pay it;
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 unenforceable 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
into and taking notice of the truth of the facts. 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.'
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; it is equally founded in
the mutual consent by the parties to its terms. And wherever
this consent would afford one of the parties to the contract a
defence that party may for that purpose prove the contract notwithstanding its non-compliance with the Statute of Frauds.
Thus if, in pursuance of such a contract and before its repudiation, a party takes possession of or enters upon lands belonging
to the other party, that other cannot in respect of that 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
(1837) 2 M. & W. at 255; 150 E. R. at 751. It is clear, however, that so soon as the consent is withdrawn, as, for example,
by the landowner repudiating the contract, the continuance of
the defendant in possession will have to be justified otherwise
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 of title, the only manner in which the plaintiff can
possibly be bound for the future is by the operation of 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
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.
What is the defendant's position in a case such as this? It was
this question that the High Court of Australia was called upon
to answer in Perpetital Executors and Trustees Association of
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
Statute of Frauds will be applicable and available to the
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 continuance in possession by pleading a contract for sale and purchase.
But against the legal owner of land a contract is available as
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 Law purely in personam may yet in equity operate
in rem. Whether or not it thus operates in equity depends on
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 performance, 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.
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 ejectment, 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. The parties remain between two worlds-one dead,
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. B. 531. 'A man cannot at the same time blow
hot and cold,' said Honyman J., in Smith v. Baker (1873) L. R.
8 C. P. 350, 357. 'He cannot say at one time that the transaction is valid, and thereby obtain some advantage, to which
he could only be entitled on the footing that it is valid, and at
another time say it is void for the purpose of securing some
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 ejectment 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 possession 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, the defendant set up an oral agreement
made subsequently to the commencement of the tenancy, to the
effect that the tenancy should not be determined until the expiration of some three years. The plaintiff in reply pleaded the
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., Ltd., 32 Ch. D. 266, 279), on this


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 Milesv. N. Z. Alford Estate Co. a company by its articles was
entitled to a first charge on the shares of its members in
respect of their engagements with the company. X, a member,
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 it a first charge.
The plaintiff, in reply,
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 in the
articles was in the nature of a security, and it is clear that it
is no objection to a security that the principal debt is unenforceable 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
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 contracting party to recover money paid or other property
the title to which has passed in pursuance of it.
(2) It will constitute a defence to an action of tort by the

Oct., 1934]

The Statute of Frauds.

539

other contracting party in respect of acts done in pursuance of it prior to that other party's forbidding those
acts by repudiating it or otherwise.
(3) In other cases it will be no defence if the plaintiff replies
by pleading the Statute of Frauds.
JAmES WILLIAMS.