Contracts Required to be in Writing - Unenforceable Contracts

While it is not uncommon for contracts to be written, contracts will very often be made orally by the parties to a contract. Whether or not a contract is made in writing or orally is irrelevant in most cases, and such a contract shall be enforced once it can be proved that such a contract exists. However, there are some exceptions, a class of contracts which shall not be enforceable unless they are in writing.

This requirement of contracts being in writing started with the Statute of Frauds Act in 1677. This statute was enacted to stop litigants who pursued false or groundless claims, often supported with false evidence and witnesses. Where the evidence was purely oral, the judge would have to decide who the judge believed was in the right based on countenance. This often resulted in arbitrary and unfair judgments as the judges could not read the minds of men to know who was in the right. With the statute’s requirement for some specific contracts to be in writing, and signed by the party to be charged, the judges could better decide.

The six forms of contracts that were required to be in writing under Section 4 of the Statute of Frauds Act are as follows.

• A promise by an administrator or executor of a deceased person’s estate to be personally liable for the estate’s liabilities.
• A promise to answer for the debt, default or miscarriage of another person.
• An agreement made upon consideration for marriage.
• An agreement for the sale of land or the transfer of any interest in land.
• An agreement that is not to be performed within one year of its being made.
• Sale of goods for the price of ten pounds or more.

All six contracts were not enforceable unless in writing. This instrument created to prevent fraud began to be used by dishonest people to escape their liabilities under contracts. For this reason, it was amended in 1954 in England. While this amendment could not apply automatically in Nigeria, not being a statute of general application enacted before 1900, it was made applicable through local legislation in Lagos, Ogun, Oyo, Osun, Ondo, Ekiti, Edo and Delta states. In these states, only a contract to answer for the debt, default or miscarriage of another and a contract for the sale of land or of an interest in land were required to be in writing.

Contracts of guarantee

Based on the provisions of Section 4 of the Statute of Fraud Act and similar provisions in the laws of the western region, an agreement cannot be brought against a guarantor or a person who answers for the debt or miscarriage of another person unless the agreement is in writing and signed by the party to be charged.

A contract of guarantee will most often arise in a situation where one person serves as guarantor for another while taking a loan. However, contracts of guarantees are not limited to such contractual obligations, as the court has held in Kirkham v Marter that tortious liability is also covered by the act when a father orally promised to pay the plaintiff after his son rode and killed the plaintiff’s horse.

Any contract of guarantee which fails to meet up with the requirement of section 4 is not void, but only unenforceable.

The nature of contracts of guarantee

For a contract to fall under the statute, it must be a contract of guarantee in the strict sense and so must have three parties. The three parties are the creditor, the principal debtor and the guarantor. The guarantor is only a secondary debtor, and so the guarantor is only liable if the principal debtor fails to pay the debt himself. However, if a person promises to pay the debt of another on the condition that the liability of the original debtor is extinguished, then it shall be a contract of indemnity which is not required to be in writing, and not a contract of guarantee. When there is a total substitution of the original debtor by the person who undertakes the liability, it is a contract of indemnity. It is irrelevant what the parties call themselves, and the court will look to the substance of the agreement to decide if it is one of guarantee or indemnity.

In First Bank v Pan Bisbilder, Salami JCA described a contract of guarantee as “an assurance to the creditor that if the principal debtor fails to pay, the guarantor would repay the debt.” It was also stated that where the contract is altered by the creditor and the debtor without the knowledge of the guarantor, the guarantor would be discharged from liability except the alteration is neither substantial nor prejudicial to the guarantor.

In Mouthstephen v Lakeman, the chairman of a public board of health asked a contractor to connect certain drains to a sewer. The contractor said he would do the job if the chairman or the board would be responsible for payment, to which the chairman replied that he should go on with the job. The board subsequently refused to ratify the chairman’s action and so the contractor brought an action to make the chairman personally liable. The chairman claimed as defence that it was a contract of guarantee required to be in writing, however the court refused the defence in stating that it was an indemnity. In Bentworth Finance (Nig.) Ltd v Ibrahim, the defendant tried to escape liability under an indemnity agreement by claiming that it required three parties to be an indemnity agreement. The court refused this view, stating that an indemnity agreement only required two parties. Yeoman Credit v Latter was also similarly decided.

Exceptions to the requirement of writing

While the general rule states that it is necessary for a contract of guarantee to be in writing before it may be enforced, there are two exceptions. One is where the contract of guarantee is only a part of a larger transaction, while the other is when the guarantor enters the agreement to protect property interest.

1. Part of a larger transaction: The Statute of Frauds Act only applies to a guarantee which stands alone and is independent. It does not apply when the guarantee is only part of a larger transaction. In Sutton v Grey, the defendants entered into an oral agreement with a stockbroker to introduce business to him on the terms that they were to receive half of the commission earned and to pay half of the losses in the event of a client introduced by them failing to pay. The court held that the guarantee did not fall within the Act.
2. b. Protection of property: Where a defendant enjoys legal rights over a property, which is subject to an outstanding liability due to the third party, a guarantee given by the defendant to the third party in order to relieve the property from this liability or encumbrance is not covered by the statute. In Fitzgerald v Dressler, A sold linseed to B who resold it at a higher price to C. A, as the seller, was entitled to lien over the goods, and so was entitled to hold onto the goods until he received payment from B. C promised to pay A for the goods if B failed to do so because he was anxious to receive the goods. When an action was brought by A against C, the court held that it did not need to be in writing.

Oral variation of written agreements

If a contract is required by law to be in writing, such a contract may be rescinded by oral agreement. However, it can only be varied by an agreement in writing. In U.A.C. v Argo, the plaintiff company employed the defendant as storekeeper on a written and signed condition that he was not to sell any goods on credit, and any loss arising from a breach of the agreement would be borne by the defendant. After some time, the plaintiffs granted the defendant the permission to sell on credit orally. The court held that while a written agreement could only be modified through another written agreement, an oral agreement could rescind a written agreement, and so the defendant was not liable.

Contracts for the sale or other disposition of any land

If an action is to be brought regarding a contract of sale of land or any disposition of interest in such a land such as a lease, such a contract must compulsorily be in writing for it to be enforceable.

The statute as it affects illiterates and customary law

The two issues are to what extent illiterates are affected by the statute, and whether the statute also affects disposition of land which is under customary law.

Section 5(3)(a) of the Law Reform (Contracts) Act 1961 (Lagos) contains a provision which exempts sale or other disposition of land made under customary law from the requirement of writing. There is no other provision in any of other states. The question which comes to light is whether agreements regarding land under customary law are also required to be in writing in those states, since they have no law expressly addressing it. The statute traces its source to being received English law, and applies to English law, and so any provision to make it applicable to customary law would have to be express. Since there is no such express provision, the position of the law is that contracts regarding land made under customary law are enforceable whether or not they are in writing.

Concerning whether the statute applies to illiterate persons, the position of the law is that it applies to illiterate persons. For a contract for the transfer of an interest in land to be enforceable, such a contract must be in writing even when it is made by an illiterate person. Reference should be made to the illiterate protection law, which itself requires writing and certain formalities for the protection of illiterate persons.

It has been stated by some that the statute of fraud should be interpreted in the favour of illiterate persons, to be enforced when the illiterate person is the plaintiff and not to be enforced when the illiterate person is the defendant. In the case of Bintu Alake v Awawu, an illiterate woman gave part of her property to one of her children as a gift, and so the other two children challenged it as being unenforceable since the contract was not in writing. The judgement was so brief and cryptic that it is difficult to draw out a proper ratio, however the facts showed that the contract was one under customary law and so was not required to be in writing. In Okoleju v Okupe, the plaintiff borrowed money from the defendant and used her property as security. Consequently, the defendant claimed that the plaintiff had agreed to sell her property to him. The court held that the agreement was not enforceable, if one in deed existed, because such an agreement was required to be in writing to be enforceable.

This belief that the requirement should be interpreted in favour of the illiterate person has no authority to support it, and so an illiterate person would also have to have their contract written to be enforceable if it involves the transfer of an interest in land.

Contents and form of a memorandum

It has already been restated numerously that a contract under the statute is required to be written, and this may also be done through a ‘note’ or a ‘memorandum’. The question is what qualifies as a memorandum under the act? The courts adopt a liberal attitude in interpreting this, and so any document that contains the essential elements of the contract such as names of the parties, description of the subject matter, consideration, inter alia will be held to have satisfied the statute.

Although it is desirable, it is not necessary that the essential elements are stated with absolute precision. While the names of the parties and the capacity in which they are acting as either vendor or purchaser are important, the court held in Abdul Kareem Basma v. Weekes that the statute would be satisfied if the agent enters the contract in his own name as long as the other party is aware he is acting as an agent.

The memorandum or note should also contain a description of the subject matter of the contract. This description does not have to be absolutely precise as stated in Rosenje v. Bakare. The memorandum must also contain the consideration, and the court held that even a receipt showing such would be valid in Rosenje v Bakare.

There is no strict form to be complied with, as even a letter written to a third party has been held to satisfy the statute in Apara v U.A.C., with the court holding a receipt satisfactory in Rosenje v Bakare. The minutes of a meeting of the board of directors of a company and a letter written by the defendant’s solicitor to the plaintiff’s solicitor have been held to also satisfy the statute.

Signature

For any memorandum to be accepted, it must be necessary that the defendant must have signed the memorandum. While it is desirable that there should be a proper signature, the court will sometimes accept adaptions in place of a signature as long as such an adaption clearly intends to authenticate the document under the undertaken. In line with this, the signature may be at the end, beginning, or middle of the document. A person’s initials could be accepted as a signature, such as in Hill v Hill, and in Sandor v Jackson where the vendor’s name was printed at the top of an invoice sent to the buyer, it was held to be a signature. An agent may also sign for his principal as stated in Herd v Pilley.

Agreement contained in several documents

It could sometimes happen that the material terms of the agreement are contained in different documents, with each document being incomplete on its own. The courts have held that such documents may be joined to satisfy the statute’s requirement, so long as one makes reference to the other. In Pearce v Gardener, an envelope was accepted to form part of a memorandum with the letter that came in it.

Where the signed document does not contain the terms of the agreement, but refers to an unsigned document which states the terms, oral evidence may be admitted for the purpose of showing the unsigned document as the document referred to in the signed document. This was done in Stokes v Whicher and Long v Millar.

However, documents which do not refer to each other cannot be joined. This was the case in Timmins v Moreland Street Property Ltd. where a cheque and receipt could not be read together because neither referred to the other.

The effect of non-compliance with the statute

It is important to note that a contract which is not in writing when it is required to be is not void or voidable, but only unenforceable. There is a valid contract which cannot be enforced due to a procedural defect. Money and property transferred under such a contract cannot be gotten back. In Thomas v Brown, the parties made an oral contract for the sale of land. When the purchaser later decided to not go with the contract anymore and brought an action to recover his money, the action was dismissed. However, the purchaser will be entitled to recover any deposit for failure of consideration if it is the vendor who repudiates the contract.

Also, since the contract is unenforceable and not void, the party who seeks to escape liability must raise an objection to the effect that the contract is unenforceable or the court may still enforce such a contract. In Laja v Isiba, the court held that an agreement for the sale of land which had been made orally had been breached when the defendant did not plead the contract’s unenforceability. Also, the court held in Obijiaku v Offiah that while an unenforceable contract cannot be enforced, it may be used as a defence.

Doctrine of Part-Performance: The Intervention of Equity

The doctrine of part-performance is one created by equity to prevent the statute of fraud from being ironically used as an instrument of fraud. In such an instance, the court will accept the performance of one party as evidence that there is indeed a valid contract between the two parties. Where one party has performed his contractual obligations under an oral contract in the expectation that the other party would perform their obligation in turn, the court will not allow the other party to escape contractual liability by relying on the non-compliance with the statute.

In Udolisa v Nwanosike, the defendant’s agent approached the plaintiff with the proposition that the plaintiff should demolish the mud building on the plaintiff’s land and build a modern house on it for the defendant to lease on payment of 200 pounds. When the defendant tried to rely on non-compliance with the statute to escape performance, the court relied on Madison v Alderson and it was stated that the contract was binding. In Mba-Ede v Okafor, the plaintiff sold his building to the defendant through an oral agreement, with the defendant taking possession upon payment of part of the sum. The plaintiff brought an action when the defendant refused to pay the outstanding sum. The court held that the contract could be enforced even though it was never reduced to writing.

Conditions for the operation of part-performance

For the doctrine of part-performance to operate, the following conditions must be applied.

1. There must be a prior oral agreement: The act constituting the part-performance must be for the implementation of a prior oral agreement. If the plaintiff carries out the action unilaterally, without the existence of an oral contract, the court will not enforce such as part-performance. Even where the defendant subsequently makes a promise in return for the performance, it will not be applicable as past consideration is not valid consideration. In Kuri v Kuri, John Kuri and Rotus Kuri were joint owners of a house in Calabar. At a later date, they invited a third party Moses Kuri to share the use of the house with them. When John tried to eject Moses after a disagreement, Moses showed that he looked after John’s business for six months while John was away, he looked after John’s family, and he incurred an expenditure of 249 pounds on various repairs on the house. Moses tried to rely on this as part performance of the contract for him to stay in the house, but the court refused to enforce such.
2. Reference to contract: The action which shows part performance must be for the sake of a contract or an alleged contract, and not for some other reason.
3. Fraud: The doctrine would only be enforced where not enforcing the doctrine would render it a fraud to help the defendant take advantage of the plaintiff. This was why it was enforced in Udolisa v Nwanosike.
4. d. Enforceability: The acts of performance must be one that can attract the remedy of part-performance. Mere payment of purchase price is not enough to constitute part-performance, as the plaintiff must have altered his/her position in reliance upon the contract, just as in Udolisa v Nwanosike. Where it is only money which has been paid in respect of a contract, the court will not order specific performance but will instead let the defendant retrieve the money. In Steadman v Steadman, payment of the purchase price by a husband to his wife was held to be part-performance because the husband had altered his position in reliance on the contract, and it was doubtful that he could recover the money.