In Masters v. Cameron, the parties agreed on the sale of farm real estate. The agreement took the form of a memorandum which states that „this agreement is conditional on the preparation of a formal sales contract acceptable to my lawyers on the above terms.“ A down payment of $1750 was also made in connection with this agreement. Before signing a formal sales contract, the buyer decided not to buy the property. This refusal raised two important issues that remained to be decided. First, if the written agreement constituted a binding contract; ultimately decide whether or not the buyer is bound by the agreement. The court was also required to determine which party was entitled to the bail paid. With respect to the nature of the amount paid and the party who was entitled to the money, the court held that the money should be returned to its original hands; the party that had first paid the money and tried to buy the property. Since the agreement is related to the object, it became apparent that the amount of money paid was not a real deposit, since the money was paid only pending an officially executed contract. It is only at the conclusion of a formal contract that the money would be considered a true down payment and would be transferred to the seller`s property.
As a result, the correspondence was not a non-binding pre-contract negotiation, but a binding agreement (which depends only on compliance with both conditions). In some cases, contracting parties negotiating the terms of the contract may set out in writing the agreed negotiating terms, provided they are formalized in a legally binding contract. The key terms that can be used to distinguish these agreements are „treaty-compliant“ or „subject to the preparation of a formal contract.“ Under this agreement, a party chooses, for whatever reason, to object to the conclusion of a contract before the performance of a formal contract; whether the original agreement binds the parties. In deciding whether a legally binding contract exists, the parties must demonstrate that there is a legal connection to the document. The Masters v Cameron case has referred to itself as an influential authority in the area of contract law, establishing key principles for determining security and whether or not there is an intention to be legally bound with respect to interim agreements. One of the points to remember with respect to this act is that it applies only to sales contracts, leases or other legal property.