MASTERS VS CAMERON,1954 

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INTRODUCTION

The case of “Masters v Cameron, 1954 is a legal saga on contract law and paved the way for solving an important issue related to the voidability of a contract related to purchase of land on the ground “subject to contract”. Issue came into light when Masters (appellant) signed a memorandum with Cameron (Respondent) for the purchase of a farm land with a clause of “subject to preparation of a formal contract”. Masters paid a deposit on the signing of memorandum and subsequently had financial difficulties as a result sought to withdraw from purchase and demanded refund but respondent denied refund citing that the memorandum is binding and enforceable contract between parties even in the absence of formal contract. Case went to the supreme court of West Australia where the contract was declared void and then case was taken to High court of Australia.

FACTS OF THE CASE

1. Masters made a written memorandum to buy Cameron’s farm land for sale to Masters in West Australia on 06 December 1951 and Cameron agreed to sell the same. 
2. The signed memorandum had an expressed written condition “this agreement is made subject to the preparation of a formal contract”.
3. On the very day of signing of the memorandum Masters paid a deposit of 1750 Pounds to the agent of Cameron’s real estate. Subsequently, Masters had a financial crunch and because of which he sought to withdraw from the purchase and claimed the refund of the deposit amount. 
4. Respondent refused to refund the deposited amount citing that the memorandum created a binding and enforceable contract between parties, despite there was no written formal contract.   

ISSUES RAISED

1. Whether the written signed memorandum created a binding and enforceable contract.
2. Whether the clause of “subject to preparation of formal contract” can be a ground to avoid contract.

CONTENTIONS OF APPELLANT

1. Appellant accepted the existence of a signed memorandum with respondent to purchase the respondent’s farm land with the clause of “subject to preparation of formal contract”.
2. Appellant submitted that a deposit of 1750 pounds was made on the day of signing of  memorandum was only to show that appellant was interested to purchase the land of respondent but all other terms and conditions shall be laid in formal document in which conclusive bargaining will be done and only upon the execution of the document the contract will be final. 
3. Appellant submitted that there was financial difficulty in the life of appellant due to which he could not proceed to purchase the farm land and  since a formal document did not come into existence and appellant was entitled to the refund of the deposit.

CONTENTIONS OF RESPONDENT 

1. Respondent accepted that they were interested to sell the land to appellant subject to terms and conditions of the agreement which expressly mentioned a condition “subject to contract”
2. Respondent contended that appellant intended to make a contract and therefore signed the memorandum. Once the memorandum was signed by both the parties an enforceable contract comes into being and hence Buyer is not entitled for the refund of the deposit rather liable for specific performance of the contract.
3. Respondent citing that memorandum to be an enforceable contract was not liable to refund the deposit amount to the purchaser.    

JUDGEMENT

The High Court while deciding the case observed and mentioned three scenarios, Firstly where both the “parties intend to be immediately bound but the obligation for performance does not arise until document is executed” secondly parties have concluded bargain and intended to be bounded immediately regardless of the fact whether the document comes into existence or not and thirdly, Parties may have intended but not concluded bargain unless the formal document is executed. 

The High court was of the opinion that the first two scenarios result in immediately binding contract while third where there is “subject to contract” is not binding unless a formal document is signed. Thus, High Court of Australia unanimously held that the Memorandum did not create a binding and enforceable contract for the sale of Cameron’s farm.

ANALYSIS

1. “Subject to Contract” clause. – The case provides the insight that cases of  “subject to contract” shall be dealt carefully and is the case where parties are in agreement to enter into contract post the conclusive bargaining of the terms which will come into effect after the execution of the document and thus, Court unanimously held that this clause will render into a void contract if the formal document does not come into existence
2. Liability of Seller – case reaffirmed that for the sake of performance of the contract, seller can not enforce the performance of the contract until the formal document is executed if the clause of subject to contract in mentioned in agreement 
3. Duty of the Courts: Pronouncement of the case clearly states that courts shall be very meticulous in deciding the such transaction and shall try to deduce the intention of the parties by referring to the scenarios interpreted in this case.
4. Court’s Final Verdict – The case ultimately set aside that decision of the Supreme court of West Australia and held that the purchaser was entitled for the refund of the deposit amount in the absence of a formal contract.

CONCLUSION

The case of Masters V Cameron,1954 has been considered as a landmark case related to conduct of pre-contract stage, it has provided detailed scenarios and interpretation to deduce clause in cases of specific performance of the contracts where the condition has been “subject to contract”. It established that the condition “subject to formal contract” shows that the parties are not at final bargain stage and yet the concluding bargaining conditions are to be finalised. This case unanimously held that if a condition of preparation of a formal contract is put in agreement, then the execution of a formal document is necessary to enforce the contract. 

REFERENCES

1. https.survivelaw.com
2. www.australiancontractlaw.com

This Article is written by Dhirendra Singh student of PES Modern Law College, Pune; Intern at Legal Vidhiya.

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