When will a court enforce an unwritten contract in relation to land?

Date: Sep 14, 2014
Document Type: Article

As discussed in the earlier article ‘Does a contract need to be in writing' some contracts, such as those dealing with land, must be in writing to be enforceable. Despite this seemingly strict requirement there are some narrow circumstances in which a court will enforce oral contracts relating to land in order to avoid injustices. This exception is known as the doctrine of ‘part performance’.

What is part performance?

The doctrine of part performance allows a court to enforce oral contracts, regardless of the non-compliance with formalities, where a party has partly carried out the contract in reliance on the promises made.  

However, before you can even consider whether your oral contract can sidestep the writing requirements, you must ensure that your oral contract is complete. In other words, it must have all the required elements of a contract. For the requirements of a contract please see ‘What is a contract’.

How is part performance satisfied?

To satisfy the doctrine, the acts relied upon as part performance of the contract must be clearly referable to the agreement. This means that the acts could only have been done for the purposes of fulfilling the alleged agreement and that there is no other reason to perform those acts.

For example, if A and B had an oral contract to sell land and A took possession of land and paid the agreed price to B, this may be sufficient part performance to demonstrate an oral contract of sale. However, if A already had a lease with B, A taking possession could also be referable to the lease, and thus it could not be said that possession was unequivocally referable to the contract of sale. It is difficult to predict which acts will be sufficient part performance as each case will depend on its own facts.

It should also be mentioned that in Australia, the mere payment of part of the purchase price will generally not be regarded as amounting to a sufficient act of part performance. 

The acts relied upon must also be done in compliance with, and in reliance on, the alleged agreement. Such acts must have been allowed by the other party. Generally, this includes acts which are closely related to the use or possession of the land, such as taking possession or carrying out improvements and cultivating the land.

What happens if part performance is made out?

If you are able to enforce an oral contract due to the doctrine of part performance, you cannot sue for damages, even if there has been a breach of the (oral) contract. The only remedy available to you is ‘specific performance’. Through this remedy, the court will compel the other party to perform the contract as agreed.  

This is a tricky doctrine and should only be regarded as a last resort. Due to the difficulty of figuring out what are sufficient acts of part performance. Having an oral contract can lead to a great deal of uncertainty and risk and therefore we highly recommend written contracts when dealing with any substantial interest, especially in land. If you require assistance with a contract, please do not hesitate to contact us.

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