Contract Law - Enforcement of Informal Agreements - Sale of Land
Facts: On 6 December 1951, the parties signed a written memorandum for the sale of Cameron’s farm to Masters. The memorandum expressed “this agreement is made subject to the preparation of a formal contract, which shall be acceptable to Cameron’s solicitors on the terms and conditions”.
On the same day of the signing of the memorandum, Masters paid a deposit in the sum of 1,750 pounds to Cameron’s real estate agent. Masters subsequently ran into financial difficulties and sought to withdraw from the purchase, and claimed he was entitled to a refund. Cameron then claimed the memorandum created a binding and enforceable contract between the parties, despite the absence of a formal written contract.
Issue: Did the written memorandum create a binding and enforceable contract?
Holding: In a unanimous decision, the High Court of Australia held in favour of Masters, holding that the memorandum did not create a binding and enforceable contract for the sale of Cameron’s farm. The High Court’s reasons are such as:
1. The parties may have finalized all the terms of their bargain and intend to be bound immediately, but propose to restate the terms in a form which is more precise, but not different in effect. Therefore, the parties are bound, whether or not a formal document is ever signed.
2. The parties may have completely agreed upon all the terms of their bargain and do not intend to vary those terms, but have made performance of one or more terms conditional upon the execution of a formal document. In this type of agreement, the parties are bound to bring the formal document into existence. This is also seen in the case of Godecke v Kirwan (1973).
3. The parties may not intend to make a binding agreement at all unless and until they execute a formal contract. In this case, the parties are not bound unless a formal document is executed.
All in all, these types of agreements are not intended to be legally enforceable, nor binding.
By Kubra Yazici