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Contract binding? But I didn’t sign it!! Masters v Cameron

I’ve noticed there is a common misconception in the business community that the term ‘contract’ refers only to a formal, signed document that sets out the detailed terms of an agreement.

Let’s cut straight to the chase.

In principle, a contract only needs five elements to be binding.

1. Offer

2. Acceptance

3. Capacity

4. Consideration and

5. Certainty

What does all that mean?

Essentially it means if you’re old enough, not demented or incapacitated and you intend to do a deal for any value and do, you entered a contract.

Sound simple? It may be, but I bet you it’s not! When is the law ever simple?

The law is rarely simple because the transactions and complexities of life are rarely simple!

Doing something as simple as purchasing food from the supermarket, or entering a paid car park, usually will result in the parties entering a binding contract even though there is no forms or signatures.

In fact, there are only a few very specific deals that are required to be in writing.

On the other hand, even when a deal is in writing, it may not be binding.

I know. told you so.

In the High Court case of Masters v Cameron (1954) 91 CLR 353 (Masters v Cameron) the court considered whether a document stating the terms for a sale of land was a binding contract or merely an agreement of terms negotiated, upon which a contract would later be executed.

The contract in question stated: “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.”

Terrible work. What’s it with the ‘shall’ instead of ‘must’ anyway? Ahh the illusory conundrum of mandatory and facultative language… a discussion for another day.

What are the three (3) types of written agreement?

According to the decision in Masters v Cameron signed ‘contracts’ can be one of three (3) types:

1. where the parties have agreed upon all the terms of the contract 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

2. where the parties have agreed upon all the terms of their arrangement, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document; or

3. where the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

There may be a fourth category too!

What about my contract??

You need to call me today!

Time is of the essence!

The longer you wait the less likely it may be that your bargain is enforceable or you may lose out on your rights because you may be held to accept the conduct that you’re complaining of.

Which category any agreement falls into depends on the intention of the parties as disclosed in the language of the agreement.

Which of the three types of written agreement are binding?

In the first two instances above, there will be a binding contract, regardless of whether or not a formal document is ever signed.

In the first case above the parties are immediately bound to perform the agreed terms, whether or not a formal document comes into existence.

In the second case the parties are bound so that they must bring a formal contract into existence and execute it. This will be the case because the agreement already has all the particulars essential for finality and certainty, and the people drawing up the formal agreement do not have any power to vary the terms already settled.

Cases of the third type are fundamentally different. The terms of the proposed agreement are not intended to have, and therefore do not have, any binding effect. This is because there is a possibility of inserting new terms, or modifying terms already discussed.