Requirements for a binding contract for sale of land considered in Maloney v O’Connor 2015 IEHC 678
In this unusual case the High Court considered the enforceability of a contract for the sale of land to a construction company now in receivership, with much of the argument surrounding whether there was in fact a sufficient note or memorandum in writing for the purposes of the Statute of Frauds (Ireland) 1695.
On 9 April 2003, a contract for sale was entered into for the sale of certain lands in Cork (the Property) by Mr O'Connor and Mr Dunne (the Vendors) to John Fleming as trustee of Fleming Construction (the Purchaser). An unusual feature of this contract was that no detail as to the consideration due was stated in it. The "closing" of the transaction, ie when the legal documentation necessary to effect the transaction was put into effect, took place on 25 April 2003. Since these arrangements had taken place, Mr Maloney (the Receiver) had been appointed over the assets of the Purchaser.
In his judgment, Barrett J. states that the contract entered into on 9 April 2003 did not contain all of the essential or material terms of the agreement between the parties – he considers that what happened on 9 April 2003 was the execution of a contract to sell certain lands for such full and final consideration as would be agreed by the date of the "closing". Cash consideration in a total amount of €4.3m was paid in two tranches, the first on signing of the contract and the second on the day of closing. However, the Court was also furnished with a note to file prepared by the Purchaser's solicitor dated 25 April 2003, the date of the purported closing, which sets out information concerning a matter discussed at the closing meeting with regard to additional consideration due to the Vendors. The note states that the Vendors' solicitor stated at that meeting that it had previously been agreed that the Vendors were to receive as additional consideration half of the perceived stamp duty saving which would accrue to the Purchaser by virtue of how the transaction had been structured (the Split Benefit). The Purchaser's solicitor had no instruction in this regard and, as the matter was not capable of clarification at the closing meeting, it was agreed that the cash consideration that had been paid to date was to be held on trust by the Vendors' solicitor until the issue of the remainder of the consideration was settled. The note further sets out that it was agreed over the phone later that day that the value of half the stamp duty saving, in the amount of €194,000, was due to the Vendors and that in lieu of making a cash payment in that regard the Purchaser would build certain garages for the Vendors to that value.
These garages were never ultimately built due to planning issues and the Split Benefit was never paid to the Vendors. In Court, the Receiver did not seriously dispute the agreement between the parties as to the Split Benefit, but rather he argued that the arrangement reached in this regard fell to be treated as a collateral contract or, if it was an element of the contract for sale, that there was no note or memorandum in writing of same sufficient to satisfy the Statute of Frauds.
The application being heard by the Court was brought by the Receiver. By virtue of the transaction documentation, the Vendors held the Property on trust for the Purchaser and the Receiver sought the following reliefs:
An order removing the Vendors as trustees of the trust of the Property;
An order appointing the Receiver, or such other person as the Court saw fit, as trustee in substitution for the Vendors;
An order vesting the Property in the Receiver, or such other person as the Court saw fit, for the purpose of giving effect to the contract for sale;
In the alternative to (ii) and (iii), an order pursuant to section 26 of the Registration of Title Act, 1964, vesting the Property in the Purchaser; and
An order pursuant to section 21 of the Registration of Title Act, 1964 to the Registrar of Titles directing the Registrar to give effect to such orders as sought by the Receiver.
Conclusion of the Court
In refusing the Receiver's application, the court concluded, inter alia, that:
- The contract for sale dated 9 April 2003, when coupled with the note to file written by the Purchaser's solicitor and referred to above, between them comprised a note or memorandum in writing sufficient for the Vendors to rely upon for the purposes of section 2 of the Statute of Frauds (Ireland) 1695 (since replaced by section 51(1) of the Land and Conveyancing Law Reform Act, 2006) – the two documents together clearly record or acknowledge a concluded agreement.
- Consistent with the contract for sale of 9 April 2003 which (i) was agreed for good consideration and (ii) is an adequate "note or memorandum" in writing of what was agreed between the parties, there had been an agreement between the parties that:
(a) the consideration for the sale of the Property was to be the cash consideration plus the Split Benefit;
(b) absent the combined consideration there would have been no sale; and
(c) what subsists between the parties is a single contract with the consideration split into two elements, rather than a main contract with a collateral contract with regard to the Split Benefit.
- Even if the Split Benefit arrangement was construed as a collateral contract, the Receiver was estopped from acting inconsistently with it and the main contract.
- The equitable maxim of "he who seeks equity must do equity" could be relied upon by the Vendors to defeat the Receiver's application. The Court held that the order sought was effectively one of specific performance and that a claimant will not be granted specific performance of a contract unless he can establish that he is willing and able to carry out his own contractual obligations. Barrett J. held that the Purchaser / Receiver had not so satisfied the Purchaser's contractual obligations as a central obligation under the contract, namely the discharge of an element of the consideration, remained outstanding.
This is a somewhat unusual case in that, despite the clear lack of clarity around one of the fundamental terms of the contract – ie the consideration – both parties accepted that there was a binding contract and the only dispute was as to its detail. In giving his judgment Barrett J. commented that, as a matter of general contract law, "such an agreement could perhaps be perceived as vulnerable to attack as a mere 'agreement to negotiate', and so too uncertain to have any binding force." However, as this issue was not raised by either party there was no dispute for the Court to resolve in this regard.
For further information please contact Aoife Smyth or your usual contact in A&L Goodbody.
Date Published: 24 November 2015