Privity and Law of Contract

Topics: Contract, Contract law, Common law Pages: 16 (5771 words) Published: June 11, 2011

The Doctrine of Privity3
The meaning, history and evolution of the doctrine3
Relationship between privity and consideration4
Privity under different laws5
Privity and Agency by Estoppels or Holding out6
Privity when Sub-agents or Substitute agents are appointed6 PRIVITY AND THE LAW OF PARTNERSHIP7
Privity and the act of civil and criminal liability of partners8 Privity and the liability for holding out8
Contracts Concerning Land10
Analysis of the case to establish formation of contract12
Was Mike obligated to sell furniture to Nilam13
Nilma’s Rights and remedies against Mike13
1.Rescission of Contract:14
2.Suit for Damages14
Specific performance16
Compensation for loss of profit16
The Doctrine of Privity
A contract is an agreement between two or more parties that creates an obligation to do or not to do something. The parties to the contract are under an obligation to perform the terms and conditions which are laid down in the contract. Thus a contract can give rights or impose obligations arising under the contract on the parties to the contract. Third parties cannot be under such an obligation to perform or demand performance under a contract. This is referred to as Privity of contract.

The meaning, history and evolution of the doctrine
The doctrine of privity means that as a general rule, a contract cannot bestow rights or impose obligations arising under the contract to any person except the parties to it. An individual or corporate entity that is not a party to the contract are called third parties. A third party does not have enforceable rights or obligation under the contract. Even if a person is mentioned in the contract and the contract was intentionally to benefit this third party, he cannot rely on or put into effect the terms and obligation of the contract or sue the other parties. Similarly the parties to the contract cannot sue a third party even if the contract was made to benefit the third party.

The above facts are established in the16th and 17th century case of case of Buirne v. Mason (1669) 1 Ventr 6; 86 ER5: and Crow v. Rogers (1724) 1 St 592; 93 ER 719; where the third party beneficiary rights were rejected on ground that they were no parties to the contracts because no consideration were given by them. These cases involved the facts. B owes money to C. A would agree with B to pay C on account that B do some work for A. But A would not pay and C would sue A. It was held that C had given no consideration for the promise of A. Thus C lost the case.

However there are cases which were contrary to the cases above. For the 200 years before 1861 it was settled law that if a promise in a simple contract was expressly made for the benefit of a third person in such circumstances it was intended to be enforceable by him, although he was not a party to the contract. This fact can be supported in the case of Dutton v. Poole (1678) 2 Lev 210; 83 ER 523. Here a son promised to his father to pay £1000 to his sister on ground that his father does not sell the wood. The father refrained from selling the wood but the son did not pay to his sister. It was held that the sister could sue, on ground that consideration and promise of the father may well extend to her on account of blood relation. This decision was further supported by the decision of Lord Mansfield in Martyn v. Hind (1776) 2 Cowp 437, 443; 98 ER 1174, 1177.

It is generally agreed that the modern day third party rule is conclusively established in 1861 in Tweedle v. Atkinson (1861) 1B & S 393; 121 ER 762. The fact involved an agreement by a father of a bride to pay the groom a sum of money. When the bride’s father failed to pay the groom was unsuccessful in suing the bride’s father. The authority of this case was soon...
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