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CONTRACT PORTFOLIO PART 1

Tutorial 1 – Privity
1) Examine the Privity rule and its relationship with the rules on consideration.

Privity is where someone not a party to a contract can be liable under neither it nor benefit from it. There has to be a promise from the party also some consideration. It is stated in the book 19th Century according to Richards that privity’s modern authority has been through the case of Dunlop v Lambert. In Dunlop v Selfridge[1] where there was a contract between Dunlop to the wholesaler and then to Selfridge, Dunlop stated not to sell tyres below the list price and the wholesaler created the second contract that if tyres were sold under the list price then it would be seen as a breach and there would be a fine of £5 for each tyre.[2] So this contract involved a third party which is the wholesaler in between. It was held in this case by Lord Haldane “in the law of England certain principles are fundamental. One is that only a person who is part to a contract can sue on it… a second principle is that if a person with whom a contract not under seal has been made is able to enforce it consideration must have been given by him…”[3] So this shows that it was for Dunlop to agree on this charge of £5 per tyre as they are under the seal of the contract. By using the rule stated from Dunlop v Lambert it states that the main contract holder in this case is Dunlop has less control that he would have if he had gone direct to the retailer to sell the product. So it seems there would have been more control if there were only two parties involved. Also under the rule Selfridge cannot get compensation if he suffers no loss. This rule has made it easier in Privity as it gives a remedy when parties had thought there was a breach and would cause damage to a identifiable third party and has there is no other remedy.[4] This allows the law on three party contracts being clear and consistent. In the case of Darlington Borough Council v Wilshire Northern Ltd.[5] the initial building contractors who won the tender for the construction work hired an external contractor to carry out the construction work, there were defect on the building.[6] In regards to this case Dillon LJ said “that it was common ground between the parties that the council as assignees of Morgan Grenfell could not recover any damages from Wiltshier beyond those which Morgan Grenfell could have recovered from Wiltshier if there had been no assignment. The general principle for the assessment of damages for breach of contract was compensatory.”[7] The benefits of Privity are that it is possible for a third party who benefits from a contract to persuade the Promisee to sue on it. But, the drawback is that there will be a problem in recovering more than nominal damages. Privity ensures that a party who is not involved in the contract cannot take advantage of any terms within it as they party involved has not provided consideration to it. But, the drawback is that there is a distinct difference between Privity and consideration. Also valid consideration can form if the Promisee has considered it instead of the third party. So a third party then can acquire the rights under the contract as consideration is present.[8] Another benefit of Privity is that contractual rights are not given to the third party unless they have consented to either the offer or acceptance of the contract. But, this can be bypassed as the autonomy of the third party cannot be undermined where benefits are involved instead of putting a burden over him. Also when a third party is allowed to enforce the contract this shows what their intentions are and personal autonomy is then granted. By not allowing a third party to be involved in the contract it allows there to be some sort of equality because it would not be fair if a third party could sue another party when that third party cannot be sued. But, this allows the Promisee only to be held liable for one cause of action. The...
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