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Doctrine of Privity and Rules of Consideration

Info: 4705 words (19 pages) Essay
Published: 9th Nov 2020

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Jurisdiction / Tag(s): UK Law

The general rule under the doctrine of privity is that someone not a party to a contract cannot be liable under it nor benefit from it.

The relationship the privity rule has with the rules of consideration is that under the doctrine of consideration, consideration must move from a promisee which is similar to the privity rule in the sense that only the parties in the contract who have offered consideration can benefit from the right.

2) The Privity rule can be avoided in a number of ways

Contracts Rights of Third Parties Act 1999: The contract act allows third parties to sue in two circumstances firstly when it is stated in the contract that they are allowed to do so and secondly when a benefit has been professed in the contract which could be claimed by third parties

Agent: The term agent is viewed by law as a person who makes a contract on behalf of someone else known as the principal. (pg 199 Catherine Elliot and Frances Quinn Contract Law third Edition ) . There are three circumstances in which a party will be treated as an agent. Where there is express authority, implied authority and where there is apparent authority .Express Authority means that the person has been deliberately asked to make the contract in question. Implied Authority arises when the agent has been told to do something and by doing it a contract has been made. An Apparent authority occurs when the principal previous behaviour allows the other party to the contract to believe the agent has authority to contract on behalf of the principal.

Collateral Contract: when a person makes a contract with two others, the court will in some cases find a collateral contract between the two others to avoid the privity rule. An example of this is in the Shanklin Pier Ltd v Detel Products Ltd.

Trust : A Contracting party can clearly state that the benefit of the contract is held by him or her in trust for a third party which means the third party will have rights to the benefits.

Covenants: Under s.56(1) of the law of property Act 1925 privity of contract does not apply to restrictive covenants’ ( which agreements not to something) relating to land providing they are registered in the land registrar.

3) The 1999 Act ensures that in certain circumstances the principal of contract rule are not applicable and sometimes has very limited application. The Act made a significant change to the ways third parties could enforce contracts. Under the 1999 Act Mrs Beswick would be able to sue her nephew in her own right rather than as the executor of her husband’s estate. In the Woodar v Wimpey case Woodar would have been able to sue for damages including the £150,000 payable to Transworld.

4) Nisshin Shipping Co Ltd v Cleaves & Co Ltd

The case, apparently the first of its kind under the 1999 Rights of Third Parties Act, raised questions for the shipping industry as to how a third party such as the chartering broker, could enforce a promise of a benefit for him in the charter parties, where they contained an arbitration clause. The ship owner applied under s.67 of the 1996 Arbitration Act, challenged the arbitrators’ jurisdiction to determine the broker’s claim for commission due of time charters. The Judge held that: “the purpose of the clause was to confer a benefit to the extent of 1 per cent commission on Cleaves alone.” the 1999 Act allowed the broker to enforce his claim against the owner as promisor, by means of arbitration.

Leamthong International lines Co Ltd V Artis

In the case of Laemthong International Lines Co. Ltd v ARTIS & Ors, the Court of Appeal considered the wording of the P&I Club standard letter of indemnity and in its judgment handed down in May 2005 held that the ship-owners could enforce an LOI under the Rights of Third Parties Act 1999. The Court held that it was not stated in the LOI that the parties did not intend its terms to be enforceable by owners.

Tutorial 2

a)Tariq Statement about the car is a term of the contract because in law a statement is likely to be seen as a term if the injured party has made it known to the other party that had it not been for that statement they would not have entered into the contract. In this case if Tariq had not told Imran that that the car had only one previous owner Imran would not have bought the car. This situation could also be seen in the Bannerman v White case where white was considering buying hops from Bannerman , and asked whether they had been treated with sulphur and he clearly stated that if they had he would not have asked for the price. Bannerman said they had not been treated and believing this to be truth a contract was made. It was later discovered that sulphur had been used on some of the hop. White claimed that Bannerman statement had been a term of contract he has the right to refuse payment because Bannerman has breached the contract. The court held that White is right in refusing payment this is because the court believed Bannerman had indeed breached the contract and the statement about sulphur was a term of contract

b) My answer would differ if the sale was completed on 29 November . This is because in law the longer the time between the statement being made and the contract being concluded the less likely the court would regard the statement as a term. In this case there would have been a month time difference which could be regarded as a long period of time for a statement to be regarded as a term. This could be seen in the Roultledge v Mckay case. In this case the parties had been discussing the sale of a motorbike. The defendant drawing information from the registration book stated that the motorbike under discussion was a 1942 model. When a written contract was drawn up a week later it did not mention the motorbike age . Later on it appeared that the motorbike was a 1039 model. It was claimed by the buyer that the date of the manufacturer was a term of contract. His claims failed because the time between the contracts was made and the time the statement was made was too long to suggest that the statement was a term.

If Imran was a car dealer my answer would also differ. This is because when someone with an expert knowledge on an issue makes a statement the court is more likely to deem the statement as a term. This Principle is illustrated by the two cases involving the sales of car. In Dick Bentley Production Ltd v Harold Smith Ltd. The Plaintiff had stated that they wanted a well vetted Bentley car. The defendant a car dealer stated that he had changed the gearbox and engine of the car he wanted to sell car the car had only travelled 20miles since the change. After the car was bought the plaintiff found out that the car had done almost 100miles. It was held that the dealer’s statement was a term of the contract because they had expert knowledge. In the contrasting case of Oscar Chess v Williams, the Court of appeal held that the seller did not have an expert knowledge and the buyer was an experienced car who is likely to know better therefore the defendant statement was not a contractual term.

c) My position would differ if there was a written contract and the numbers of previous owners has not be included in the contract . My position would differ in the sense that I would support the notion that there was not a contractual term. This is because in law when parties put their contract in writing only statement written in the contract would be regarded as term. Any statement made before the written contract as is not included in the written contract is regarded as representation .The principle could be seen in the Rouledge case (above) was made in writing and the date of the motorbike manufacturer was not included as a result was seen by court as insignificant.

2) There are three types of contractual terms: condition, warranties, and innominate terms.

A condition is an important term in the sense that a breach of contract would have a very important consequence. The innocent party is entitled to cancel the contract and can also sue for damages. An example of a condition could be found in the Bunge Corpn v Tradax Export SA. In this case it was held by the House of Lords that the seller shipping the goods before the end of the month was a condition and as a result of this the buyer could terminate if goods are not loaded by 1st of July. Therefore the buyer obligation to give notice was a condition and it’s not lawful to deprive seller their full notice .

The word Warranty usually describes a contractual term which can be broken without any important consequence. For example under the sales of goods Act 1979 section 61 described warranty as a term ‘collateral to the main purpose of 9a contract of sale)’.(pg 99 Catherine Elliot and Frances Quinn Contract Law third Edition) If warranty is breached a party could sue for damages only.

The third of contractual term is innominate term. These are terms can not be classified as either or warranties from the contract . The effect of the breach depends on the nature of the consequence of the breach. The impact the Hong Kong Fir case is in the Court of Appeal statement that some term could not be clearly classified as a breach or warranty. This could also be inferred in Lord Diplock statement which state that the effect of a breach should be derived from the importance of the breach as different terms could be broken in various ways with various seriousness. (pg 100 Catherine Elliot and Frances Quinn Contract Law third Edition). As a result of the decision in the Hong Kong Fir case the court now can terminate a case as innominate even if the parties consider it as a condition. Also in the Schuler AG v Wickman Machine Tool Sales Ltd the house of Lord held that the use of the condition was inappropriate since the term could be breached in very minor ways. In regards to the innominate term, The Hong Kong Fir case decision is totally different to the conventional way adopted by the court which is to look at the intention and status of the parties at the time the contract was made and the significant of the term at that particular point dictates the consequence. The Hong Kong Fir case approach allows the court to dictate the consequence of a breach after the term has been breached`.

2) There are different circumstances in which terms are implied into contracts. These circumstances are divided into 4 groups. which are terms implied in fact , terms implied in law, terms implied by custom and terms implied by trade usage.

Terms implied in fact are terms which are not written in the contract however would have been assumed that both parties would have intended to include in the contract. These terms may have been left out by mistake or because both parties thought it was so obvious that they did not need to mention it to each other. In order to decide the parties intention the court came with two tests which are the officious bystander test and the business efficacy test.

The officious Bystander test was laid down by Mackinnon LJ in Shirlow V Sourthern Foundries. In regards to the officious bystanders anything which is suggested by the officious bystanders will be acknowledged by both parties that it was intended in the sense that it goes without saying. In the case above it was held there was an implied term in his contract that his contract would not be terminated during his time in office.

However for the Business Efficacy Test the term is implied because it is regarded as necessary to make the contract workable. In the Moorcock case 1889 the court of appeal implied a term into the contract that the boat would be morred safely at the jetty. Such term was necessary to give the contract business efficacy.

Terms implied in law are terms which are dictated in the law and are applied independently of the parties intention due to the nature of the contract. This could be seen in the Liverpool City Council V Irwin. In this case it was held by the House of Lords that a Landlord who let out property with a lot of homes in one building must be under some implied law to provide access to the individual resident. It was stated that the implied term in this case should take the necessary step to keep the common part of the block in a good state of repair and it was stated that the council has taken the necessary step on their part to do so and could not be expected constantly repair damage done by vandalism or by tenant themselves. As a result of these the claim failed.

Terms implied by Customs are terms that can implied into a contract if there is evidence that they exist in the local custom.

Terms implied by trade usage are routinely part of a contract made by parties involved in a particular trade or business such terms may be implied by the courts. In British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd. The owner of a crane hired it out to a contractor who was also engaged in the same business. It was held that the hirer was bound by the owner’s usual terms though these were not actually communicated at the time of the contract they were however based on a model supplied by a trade association (pg 195 Treitel The Law Of Contract Ninth Edition)

Tutorial 3

1) An exclusion clause is a clause which excludes liability. There are three ways in which written exemption clauses may be incorporated into a contract: by signature, by reasonable notice, and by course of dealing. In the case of Habib it has been incorporated by reasonable notice. The principle in regards to the incorporation by reasonable notice is that a reasonable notice must be given and the party that gave the notice must be able to prove that the notice was drawn to the other party attention sand reasonable notice was taken to do so .In this case Mr Habib could be deemed to have reasonable notice this is because he is aware of the clause and reasonable steps were taken to bring the notice to his attention because it was written on the slip handed to him by the attendant. As a result of these the company should not be held liable for his jacket. An evidence of this principle could be seen in the case of Parker v South Eastern Railway. In this case the Court of Appeal ruled that a party could be assumed to have reasonable notice if they knew of the clause, or if reasonable steps were taken to bring the clause to their notice.

In knowing whether reasonable steps have been taken the court looks at when the notice was given, what form it took, and how serious the effect of the exemption clause is.

2)The most important limitation on exemption clauses are statutory and could be found in the Unfair Contract Terms Act 1977.The title of this clause could be seen as misleading since it does not prevent unfair contract term. Instead it helps limit liability for breach of contract. UCTA only applies to limiting business liability in Contract and Tort. Section 6 states that business is not defined though section 14 extends business to include profession and activities of any government department.

UCTA also makes a further distinction between purely commercial transactions and those where one party deals as the consumer. In addition to these the rules laid are different from commercial and consumer contract where they are not making the contract in the course of a business. The Court of Appeal has stated that the fact that a party itself is a business does not stop it from ‘dealing as a consumer’ for the purpose of UCTA. This could be seen in the R &B Customs Brokers Co Ltd v United Dominions Trust Ltd. In this case the court held that the Bells were dealing as a consumer. This is because the Bells Company was not in the business of buying cars since it only bought one or two cars so the court classified them as acting as a consumer.

The Act also excludes certain type of contract such as insurance, sales of land and shares, carriages of goods by sea and international supply contracts.

The unfair terms in consumer contract regulations 1999 renders ineffective certain unfair terms in contract between consumers and sellers or suppliers. Unlike 1997 regulation the 1999 can apply to contract relating to succession, family law and organisation of companies.

There is a large overlap between the UCTA and the 1999 regulation. The regulations are restricted to contract between ‘consumers’ and ‘sellers or suppliers’ and consumers can only be human not company. Secondly there is no requirement in the regulation that you can write down the terms. In addition to this the underlying issue is that of unfairness. Furthermore the regulations through the Director-General of fair trading provide easier powers of enforcement.

Tutorial 4

Mis representation is when one party enters or is induced into a contract due to an untrue statement made by the other party .There are different types of mis- representation which are fraudulent mis representation, negligence misrepresentation at common law, misrepresentation under statute and innocent mis representation. In order for an actionable mis representation to occur there are certain criteria that needs to be passed.

Firstly a false statement of law has to have been made as oppose to opinion or estimate of future event.

An evidence of this is in the Bisset v Wilkinson [1927] AC 177 Privy Council. In this case the claimant purchased a piece of farm land to use as a sheep farm. He asked the seller how many sheep the land would hold. The seller had not used it as a sheep farm but estimated that it would carry 2,000 sheep. In reliance of this statement the claimant purchased the land. The estimate turned out to be wrong and the claimant brought an action for misrepresentation.

The Privy Council held that the statement was only a statement of opinion and not a statement of fact and therefore not an actionable misrepresentation. The claimant’s action was therefore unsuccessful.http://www.e-lawresources.co.uk.

A statement of opinion may only lead to a mis representation if the representator was in a place to know the fact. This could be seen in the Smith v Land and House Property Corp (1884) 28 Ch D 7.The claimant purchased a hotel. The seller described one of the tenants as being ‘most desirable’. In fact, as the seller knew, the tenant was in arrears and on the verge of bankruptcy. This was held to be a statement of fact rather than opinion as the seller was in a position to know the facts. http://www.e-lawresources.co.uk.

In addition to these a statement as to a person’s future intention is not a mis representation except the person has no intention of carrying out the stated intent. This could be seen in Edgington v Fitzmaurice (1885) 29 Ch D 459.In this case the claimant purchased some shares in the defendant company. The company prospectus stated the shares were being offered in order to raise money to expand the company. In fact the company was experiencing financial difficulty and the money raised from the sale of the shares was going to be used to pay the company debts. It was held that despite the fact that the statement related to a statement of future intent, it was an actionable misrepresentation as the defendant had no intention of using the money to expand the company. http://www.e-lawresources.co.uk.

Another factor which must be established before mis representation could take place is inducement/reliance. Once a false statement has been made, it is important for the party to be able to demonstrate that they entered the contract due to the false statement made. This could be seen in the case of Horsfall v Thomas [1862] 1 H&C 90. In this case the claimant purchased a gun which had a concealed defect. His action for misrepresentation failed as he hadn’t inspected the gun before purchasing it. Therefore the misrepresentation did not induce him to enter the contract as he was unaware of it. http://www.e-lawresources.co.uk.

The type of mis representation present in this case is negligent mis representation. Under s.2(1) 1967 mis representation Act a negligent misrepresentation is a statement made without reasonable grounds for belief in its truth. The burden of proof being on the representor to demonstrate they had reasonable grounds for believing the statement to be true. http://www.e-lawresources.co.uk.

In this case Mr Conway had not discharged the burden of proof by demonstrating they had reasonable grounds for believing it to be true as firstly he could have examined the horse to check that it was in good condition and also in regards to the second hand 4 wheel drive car he could have consulted the manufacturer but he chose not to. If he had consulted the manufacturer he would have been given adequate information about the car.

An evidence of this case could be seen in the case of Howard Marine v Ogden [1978] QB 574 .

In this case the claimant, Ogden, hired two dredging barges from the defendant, Howard Marine (HM), for £1,800 per week to carry out certain excavation works for Northumbrian Water Authority. In order to make an accurate estimate for tender of the work to be completed, Ogden asked HM the capacity of the barge. HM checked Lloyds Register and stated 850 cubic metres. In fact the entry in Lloyds register was wrong. The capacity was in fact much lower. Consequently the work carried out by Ogden took much longer and cost a great deal more to perform. The claimant brought an action for negligent misrepresentation. HM argued that they had reasonable grounds for believing the statement to be true as they had checked Lloyds register. It was held that the defendant had not discharged the burden of proof by demonstrating they had reasonable grounds for believing it to be true as they had the registration document which contained the correct capacity and there was no reason why they would have chosen Lloyds register over the registration document. . http://www.e-lawresources.co.uk.

Tutorial 5

The purpose of misrepresentation is to make a contract voidable. There are two types of remedies available to misrepresentation. The remedies that are available for misrepresentation depends on the type of the misrepresentation it is. Rescission is available for all type of misrepresentation. This is putting the parties back in the position they were before the contracts were made. This could be seen in the case of Car and Universal Finance Co Ltd v Caldwell . In this case it was held by the Court of Appeal that by contacting the police and the Automobile Association, the defendant had made his intention to rescind the contract sufficiently clear as soon as he did this, the ownership of the car reverted to him. This meant that at the time the car was ‘sold’ to the plaintiffs, the dealers had no legal right to sell it, and so it did not belong to the plaintiffs.(Pg 344 G.H Treitel The Law Of Contract ninth Edition )

The remedies available to fraudulent misrepresentation is Damages. Where there has been a fraudulent misrepresentation, the innocent party is allowed to withdraw the contract and claim damages. The damages that are granted are not established on contractual standard but on the damages available in the tort of deceit. As a result of these there is no requirement that the damages are foreseeable. An evidence of this is in the Doyle v Olby [1969] 2 QB 158

The claimant, Doyle, purchased a business from the defendant, Olby, as a result of a several fraudulent misrepresentations relating to the profitability and operations of the business. The trial judge assessed damages on contractual principles as to what position the claimant would have been in had the statements been true and awarded a sum of £1,500. However, the claimant had suffered loss to the extent of £5,500 as a result of entering the contract. The claimant appealed on the assessment of damages. It was held that Contractual damages are not applicable to misrepresentation since a representation is not a term of a contract. Where there has been a fraudulent misrepresentation damages should be assessed in the tort of deceit.(pg 366. G.H Treitel The Law Of Contract ninth Edition )

S.2(1) misrepresentation act of 1967 states that the remedies are available for both fraudulent misrepresentation and negligent misrepresentation. Royscott v Rogerson reinforces the principle in fraudulent misrepresentation relating to tortuous damages also applies to negligent misrepresentation

3) The legal issue being dealt with in this case is rescission. Rescission is an equitable remedy which puts parties back in the contract and in the position they were before the contract was made. Under this principle the party who decides to claim can claim back the contract by informing the other party or by taking reasonable steps to let his/her intention known about withdrawing from the signed contract . In this case Farah could claim cello back because she has taken the reasonable steps by contacting the real Justin however under this principle identification cannot count as reasonable step in addition to these she was aware of the misrepresentation and decided to carry on with the contract and as a result of these she cannot rescind the contract. An illustration of this principle could be seen in the Car and Universal Finance Co Ltd v Caldwell in this case it was held that by contacting the police and Automobile Association had taking reasonable step and has made is intention known to rescind the contract .

4) There Are three type of mistake common, mutual and unilateral mistake.

In common mistake both party makes the same mistake. An illustration of common mistake could be seen in the case of Couturier v Hastie. This case was applied in the Section 6 Sales of Goods Act 1893 (PG 152 Catherine Elliot and Frances Quinn Contract Law third Edition). In this statute it was proposed that when a good is up for sale without the knowledge of the seller at the time of the contract, then the contract is void.

Mutual mistake occurs when both party have different view of the situation. This principle could be illustrated in the case of Wood V Scarth. In this case the defendant was going to rent out his pub to the plaintiff he charged the plaintiff £63 a year however he told his clerk to tell the plaintiff that he would be charging an additional £500. The clerk did not do so. The court held that the contract is still valid. This is because the defendant made a clear offer which the plaintiff accepted and the mistake does not void that. In a mutual contract the court objectively checks if the contract could be saved.

Unilateral mistake: This is the mistake fundamental to the nature of the promise. It usually involves one party. These can be divided into two categories: mistakes as the term of contract and mistakes as to identity.

Under the principle of the mistakes as to the term of contract, when one party is mistaken as to the term of contract and the other is aware of it that contract is void. This could be seen in the Hartog v Collin and Shields. In this case it court held that a contract cannot occur because both parties are aware of the mistake.

Under the principle of mistake as identity are caused by fraud as one party tries to be the person they are not. The result of this is that the contract is void rather than voidable in misrepresentation. If the contract is void it means it cannot be passed however if it is voidable it means it can be passed.

The comparison between mistake and misrepresentation is that they both are examples of vitiating factor.

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