Audit: Doctrine of Privity and Case Study

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Doctrine of Privity
Doctrine of privity of a contract dictates that only parties to a contract will have rights or obligations arising under a contract to hinder the imposition of burdens on and the granting of contractually enforceable rights to third parties. The doctrine constitutes a barrier to freedom of contract that can frustrate the intention of the parties by not allowing them to confer mutually advantageous benefits on third parties, or lead to negative outcomes such as unjust enrichment and the prevention of third parties from justifiably vindicating their rights under the main contract. Therefore, exceptions and alternatives remedies have emerged to overcome situations where the doctrine would lead to an unfair or undesirable result. The effects are the agency, the Contract (Rights of Third Parties Act) 1999, claims in tort, the notion of consent to a burden in contractual networks and assignment. Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd (1915)

The claimant sold tyres to Dew & Co, on condition that Dew would not resell or allow retailers to sell the tyres for lesser than the list price. Dew sold the tyres to the defendants, who retailed them below list price. The claimant sought an injunction and damages. The action failed because although there was a contract between the defendants and Dew, the claimant was not entitled to enforce the contract against Selfridge because it was not a party to the contract.

Intention to create legal relations
The requirement of intention to create legal relations in contract law is aimed at sifting cases which are not appropriate for court action. To determine which agreements are legally binding and have an intention to create legal relations, the law draws a distinction between social, domestic agreements and agreements made in a commercial context. Social, Domestic and Family Arrangement

The court generally would not intervene where an agreement is made between members of a family, but would leave the parties to sort out their own arrangement. Example case is Balfour v Balfour (1919). The husband agreed to send maintenance payments to his wife, but stopped when their relationship turned sour. The wife sued her husband for the maintenance he had not paid. The agreement was a purely social and domestic agreement and it was presumed that the parties did not intend to be legally bound. Commercial or Business Agreement

When free gifts are offered in a commercial setting to promote a business, it is presumed the parties intended to enter into a legal relationship. Such as the case of Esso Petroleum v Custom & Excise (1976) where they argued whether the coins were ‘produced in quantity for general resale’ if so they would be subjected to tax. The House of Lords decided that coins were offered in a commercial context which raised a presumption that Esso did intent to be bound. However, the coins were not exchanged for a money consideration and there the coins were not for resale.

Introduction
This question requires application of rules of the law of contract with particular regards to the rule of offer and acceptance. An offer is a proposal made on certain terms by the offeror with a promise to be bound by that proposal if the offeree accepts the term as per the case of Gurthing v Lynn (1831). An offer can only be accepted if it has been communicated either by written, spoken or by conduct. An offer may be accepted by the offeree or alternatively the offer may be terminated in a several ways, such as revocation, counter offer and many more. Where else an acceptance is the unconditional agreement to all terms of the offer. The issue of this case is whether the display of the antique coin made by Ann was an invitation to treat or an offer to Billy, Collin and Daisy. An “Invitation to treat” may appear to be a contractual offer by one party but is actually inviting others to make an offer of their own. Once a legitimate contractual...
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