Contract law deals with the contractual relationships between the parties. Mere agreement to buy a property does not create a binding contract. There should exist all the important essentials of a contract between the parties to make it legally binding and enforceable. The case of Masters v Cameron is a case in which binding nature and enforceability of a contract is explained.
- What is the law of contract? Explain essentials of a valid contract.
- Explain binding effect of a contract with respect to the case of Masters v Cameron?
- Explain whether the parties in the case of Masters v Cameron were bound by the agreement made between them?
Background
The contract law of Australia is taken from English contract law. This law deals with the contractual relationships that are formed by the parties to the contract. This law also provides remedies in the case where there is a breach of contractual relationships. In order to create a valid legally binding contract, the Australian contract law provides the essentials of a valid contract. First is an offer made by one of the party. The second essential is the acceptance of the offer by the other party. The third is the consideration, which is the most important essential required to complete the terms of the contract as without it contract is invalid. One another essential requirement of the contract is that there is a mutual intention from all parties to create a legal relationship with each other. If all the essentials are fulfilled by the parties then the contract is valid, binding and is also enforceable by law.
Binding contracts are the one which is enforceable by the law. It is an agreement between two or more persons. It is not required that a binding contract needs to be in writing, it may be orally made. The presence of all the essentials is a must to make a contract binding upon the parties. Only binding contracts have enforceability under law.
Facts of the Case
Masters v Cameron is a leading Australian case. This case is about an agreement on the sale of farming property.
On December 6th 1951, both the parties to the above mentioned case signed a written memorandum which was related to the sale of property. The property in agreement was Cameron's farm which he was selling to Masters. The sale memorandum clearly stated that this agreement is made only for the preparation of a formal contract of sale of farming property. It also stated that this agreement is to be accepted by the solicitors on the terms and conditions already mentioned in the said agreement.
The day on which the said agreement was made, Masters make deposit of $1750 to the real estate agent of Cameron. Later, masters changed his mind and asked for the refund. He refused to complete further transaction and claimed the amount already deposited with the real estate agent of Cameron back. To this, Cameron claimed that the agreement in which both the parties entered created a binding and enforceable contract between the two even though there was no written contract ever made.
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Legal Issues
- Whether memorandum constitute binding and an enforceable contract?
- Whether a written agreement constitute binding contract?
- Whether the purchaser of the farming property was bound by the contract?
Judgement
It was held by the high court of Australia that, the agreement or memorandum so made do not constitute as a legally binding contract. Therefore Cameron was not bound by the contract as there was no contract and there existed only an agreement between the parties.
The court stated that when a party comes to an agreement of a contractual nature and also the parties to it agree to draw up the formal contract between them then, the case can be decided by taking into consideration the three different categories that arises in this type of situation. The three categories are:
- Where parties to the contract intend to be bound by it immediately.
- Where parties to the contract intend to be bound by it immediately but, wishes that a particular clause or term concerning the contract to be conditional or more formal depending upon the situation.
- Where the parties to the contract intend on postponing the establishment of contractual relationships till the formal contract is being executed.
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The above case is a leading case of contract law which explains the enforceability of preliminary agreements. The parties have made negotiations and mentioned them in a writing agreement which is yet to take form of a contract. There exist three categories which were established in the above case to determine the enforceability of the above kinds of agreement
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