This article explains the nature of agreements, which include a term that the agreement will be made subject to the later preparation of a formal document by the parties’ lawyers. This kind of agreement is commonly called a “subject to” agreement.
Masters v Cameron (1954) 91 CLR 353
The facts of Masters v Cameron were stated by Dixon CJ, McTiernan and Kitto JJ in the High Court of Australia, as follows.
The respondent agreed in a written memorandum to sell, and the appellant on behalf of himself and his wife agreed to purchase, the respondent’s farm subject to the preparation of a formal contract of sale acceptable to the solicitors of the respondent on the terms and conditions set out in the agreement.
The written memorandum containing the terms of the sale was worded as follows.
- I, Violet Christina Cameron, widow of Bowelling, agree to sell my farming property at Bowelling, being Wellington Location 4095 comprising approximately 5,000 acres, for the sum of Seventeen Thousand Five Hundred Pounds (£17,500) cash and to complete the fence on the North West portion of the Bowelling/Noggerup Road running through Bokhara, to this extent only. 1. Complete 30 chains of fencing including wire. 2. Erect further 100 chains of bored posts ready for wiring. I agree to sell the land and all fixed improvements on a freehold basis free from all encumbrances, and to pay all costs, including legal fees necessary to procure for the purchaser a freehold unencumbered title thereto. This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions, and to the giving of possession on or about the Fifteenth Day of March 1952.
The Court’s Holding
The High Court of Australia held that where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases.
- It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.
- Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.
- Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
The Court held that in each of the first two cases there was a binding contract. Cases of the third class were fundamentally different. They were cases in which the terms of agreement were not intended to have, and therefore did not have, any binding effect of their own. The parties might have decided this either because they had dealt only with major matters and contemplated that other smaller matters might be regulated by provisions to be introduced into the formal document by the lawyers, or simply because they wished to reserve to themselves a right to withdraw at any time until the formal document was signed.
The formal contract was to be "on the above terms and conditions", but it was to be acceptable to the vendor's solicitors, and the meaning was sufficiently evident that the contract should contain, not only the stated terms and conditions expressed in a form satisfactory to the solicitors, but also whatever else the solicitors might fairly consider appropriate to the case.
Accordingly, no binding contract for the sale and purchase of the property mentioned in the written memorandum was made between the respondent and the appellants.
Effect of the Decision
The High Court of Australia decided that the written memorandum was not a contract. It was more like an offer. The term in the memorandum that the lawyers had to draft the formal agreement, and the failure of the parties to transfer possession of the farm meant that there was no effective acceptance of an offer.
Sources:
Masters v Cameron (1954) 91 CLR 353.
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