Law Essay

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- What does the judgment in Masters and Cameron say about the possible classes of case where parties have reached a negotiated agreement on contract terms and agree that the matter of their negotiated agreement on contract terms and the matter of their negotiation be dealt with by a formal contract, and why?

In the proceed of the judgment, the High Court considered the situation may be one of three possibilities:

- The parties intend to act immediately by the contract, but intend to restate in a more precise form as the final contract. Therefore, there existed a binding contract and the parties both have the responsibility to fulfil the contract whether a formal agreement is signed or not.

- The parties accept all the clause but the formal document as a necessary condition must be signed. This situation similar as the first one but the parties must agree to execute the formal contract before fulfilling the contract.

- There is no intention to create legal relationship unless a formal contract is fulfilled.

There is legally binding agreement in the first and second possible situation. In these two situations, the first one is more common than second.

In the decision of the entire legal department advocated and insisted that the decision of Lord Blackburn in Rossiter v Miller[4]. Blackburn said, in this case, both parties clearly stipulate that a formal contract should be enacted in order to embodied the terms of a contract, and the agreement signed by both parties does not mean that there is still no negotiation. Besides, he said: “as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed.” (1878) 3 App Cas p1151.

The case Niesmann v Collingridge[5] explain the second situation. In this case, plaintiff acquires a firm offer about selling property from the defendant, and signed a file and payment sixpence as a deposit in order to exercise the option. Next, defendant was verbally informed by the plaintiff that he wished to exercise the option. Defendant refused the plaintiff due to that the plaintiff did not exercise potion within time. Moreover, all the basis terms of the agreement had been agreed between the parties, and only special clause stipulated that the payment should be completed when signing the contract. A contract of conditions is an obligation of payment rather than signing a contract and the necessary implication was made that both parties shall sign the contract on the bases of the terms of an agreement. By the situation two, the parties must agree to execute the formal contract before fulfilling the contract. Therefore, even though the verbal acceptance of a written offer which contained all the basic terms and conditions constituted the contract for the sale of property, but formal contract enforcement is not a condition precedent. Consequently, appeal dismissed.

The third situation is radically different. In this situation, the parties not intended to have a legal formal contract, and therefore do not have any binding effect. Besides, the parties may add other significant terms or they wish to retain the right to withdraw the agreement at any time unless the signature of the document had been done. So as Parker J. said in Von Hatzfeldt-Wildenburg v Alexander[6], in the present case, there is no binding contract, not only because the condition is not be completed but also the law does not accept an agreement to execute a contract.

- In general, how certain must a commercial contract be in order for it to be valid?

State law governs most types of commercial contracts, and the obligation of statutory interpretation belongs to the Court, in Australian.

Six key elements must be satisfied in order to form a legal contract:

- There must be an offer by one party and acceptance by another party. That means, if the offeror makes a request for a contract, the offeree accepts the request unconditionally so that the contract may be constituted. In addition, Australian commercial law required both parties meeting of minds within a specific time, and acceptor must understand the offer before acceptance. In the case Pharmaceutical Society of Great Britain v Boots Cash Chemists[7], the customer picks up the drug and gives it to the cashier is an offer, whether pharmacist decided to sell the medicine to the customer is an acceptance.

- Intention to crate legal relation. In some agreement, even though have offer and acceptance, but both parties or one party do not intend to crease legal relations, such this agreement does not contract. Normally, the court believes that domestic or social agreements do not intend to crease legal relations, commercial agreements have intended to create legal relations. In the case Ermogenous v Greek Orthodox Community of SA Inc[8], the judge from an objective point of view that the parties have the intention to enter into legal relations, although no contract signed.

- Consideration is a key element to intended in a legal contract. There are four rules can be used to identify whether the exchange is non-gratuitous. Firstly, consideration must be paid by promise. Secondly, consideration must not have been paid in the past. Next, consideration must have appropriation value but need not be equal. Finally, consideration must be clear.

- The parties must have contractual capacity. Minors, people with mental illness, intoxicated persons, corporations and bankrupts are included in the group who lack contractual capacity.

- The consciousness of both parties are mutually agreed, consistent, voluntary. In the case Scott v Coulson[9], transfer insurance is based on both parties thought insured still alive. The course judge both parties made the same mistake, therefore, the contract is invalid.

- The object of the agreement must be legal.

For the present case, the agency is the plaintiff, and Master and Cameron are defendant. Besides, Cameron provides a rural property and Master will pay money as a consideration when successful signed the contract. Then, the parties have the capacity to create legal relations, and the object of an agreement is legal. However, “subject to contract” of an agreement are generally not binding unless expressly stated so. Whether the intention of both parties has been expressed is a key point to determine the contract is formed. There was no indication that the parties intended to proceed with the purchase if the terms

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