Doctrine of Privity - Essay Example

Doctrine of Privity The privity doctrine is inconvenient commercially and has outcomes that may be seen to be unjust. When the contracts are enacted it gives effect to the parties’ intention minus recourse to sources that are artificial. According to the privity of contract doctrines, it is only the individuals who are involved as parties in any particular contract that have the authority and ability to take action so as to enforce it (Koffman, 2007). According to the doctrines, the third party sceduled to benefit from a given contract cannot claim damages if the promised befits are not forthcoming. It is commercially inconvenient since the contracting parties may not have any pressure when it comes to delivering goods and services to third party consumers. The basic legislation may not enforce a contractual agreement between A and B whose aim was to give a benefit to C. According to the general rules, only the two parties in a contract are responsible to each other. It does not matter that the party who was to benefit from this contract is a third party. This is clearly shown in a decided case Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co (Palmer, 2006). Dunlop is a tire manufacturing company who entered into a contract with a second party, Dew for the sale of tires at a discounted process. There was a stated condition that the tires should not be sold below a certain listed price. This condition was to apply to any other party that would buy the tires for on sale to consumers. Selfridge bought tires from dew, and agreed to abide with these regulations. However, Selfridge went ahead to sell the tires lower than the agreed price. Dunlop took Selfridge to court and sued for damages. It was held by the Court of Appeal that since there was no direct contract between Selfridge and Dew, there was no way Selfridge was liable to Dew. This was based on several factors. One, Selfridge acted in his capacity and not as an agent for the two contracting parties. Two, there was no consideration given to Selfridge to sell as per the stated price, therefore, Selfridges’ gesture was gratuitous. The consideration doctrine states that only a party that has provided a consideration can have the authority to enforce the promises made. Finally, the doctrine of privity states that only parties to any given contract can sue in the event of its breach. A contract between A and B cannot impose obligations on C, or restrict their legal rights According to the doctrine of privity laws, a third party is powerless when it comes to enforcing a contract; the third party has several advantages. The third party is free from any restrictions that can be imposed by the main contracting parties; they cannot impose certain obligations on them. A case clearly highlighting this was the Haseldine v Daw case (Davies, 2005). In this case the claimant had some injuries from a lift accident. The lift in question had been inspected by a team of technicians and they had approved it use. After the accident, the claimant decided to sue the building owner. It was held by the courts that given the nature of technical expertise involved, the occupier could hire an external contractor to do the work. He also expected such a contractor to be competent in their actions. As such, the occupier is not liable for a lift accident on the claimant. This is one of the cases that highlight the freedom of a third party in regards to contracting. Devices used to avoid the privity rules There are certain situations that arise that are exceptions and therefore do not follow the doctrine of privity. A given example is in the case of trusts (Meena, 2008). Under a trust, the beneficiary can initiate legal proceedings to enforce the obligations of the promisor. According to the law of trusts, the beneficiary has rights against the trustees of the trust. The trust consists of some property that is held by the trustee for a beneficiary. The position of acting as a trustee in regards to the property must be clearly pointed out by the trustee in all their transactions. Therefore if A and B enter into a contract, while B is acting as a trustee to C, B can sue A for non-performance and the damages will reflect a gain to C. These will be further included in the property held in trust. Estoppel can also be used to avoid the privity rules. Using promissory estoppel principles, a third party to a contract can seek relief from a promisor. For this to be possible, the third party only has to establish promissory estoppel elements. Collateral agreements Collateral agreements tend to be an exception in regards to the privity of contract doctrines (Whincup, 2006). Collateral agreements are contracts made as a secondary contract between the parties or one of the original parties and a third party. This secondary contract is separate from the initial primary contract and they operate independently. This may entered into due to a number of reasons, such as to avoid a conflict of interest by all the contracting parties or to avoid breaching the extent of the initial contracts by both parties. Although, the contract is separate from the primary contract, if there is a breach it can override the initial contract made by the parties. A clear example is where A enters into a contract with B, where B is to construct a structure for A. B can enter into a contract with C for the supply of materials to be used for the construction. However, A can sue C supply of substandard equipment. A case that clearly states this is the Shanklin Pier Ltd v Detel Products Ltd in 1951 (Feinman, 2007). According to the facts of the case, a contractor was hired to paint a certain property. Both of them referred to Detel Products Ltd in regard to the paints to be used. Detel Products limited assured them of the quality of the paints and the durability of the same. However, this was not the case and the paints started to peel after only 3 months. Shanklin Pier Ltd, therefore, sought compensation from Detel Products in this regard. It was held that the affirmation by the Detel Products Ltd can be taken to act as a warranty and therefore they were liable to Shanklin Pier Limited. Agency Agency alludes to a context in which one of the parties of the contract employs another party to contract on their behalf (Poole, 2012). In a scenario where one of the parties contracts as an agent, then either the principal or the agent have the rights to sue for enforcement of the contract. If A and B are in a contractual agreement and B uses C as an agent, then either B or C can sue to enforce the contract with A. this is regardless of the fact that A might not know that C is acting as an agent for B. exclusion clauses play a key role in agency agreements. A case that clearly shows this was the New Zealand Shipping v Satterthwaite (Gillies, 2004). In this case, New Zealand shipping company was to transport drilling equipment. The carrier had limited liability as per the bill of lading. The clause also covered independent contractors, agents and servants of the company. The stevedore that was in charged with unloading the equipment was also owned by the parent company of the carrier. During the process, and out of negligence, the equipment was damaged. The Stevedores pointed at the immunity clause in the contract between Satterthwaite and the carrier and claimed protection from it. It was held that the stevedores were protected under the clause. This is because when the company was discharging its duties, it was also protected by the bill of lading. It enjoyed the same benefits that the carrier company enjoyed courtesy of its position as an agent of the company. Conclusion Terms in contract are used with the intention of legally binding the parties in an agreement. Whether a business is getting into a relationship with a vendor, an independent contractor or a customer, terms in contract emerge as a fact of business. They are purposed to serve as agreements that are legally valid in a bid to protect the interests of each party. By using contract terms, all parties are obligated to agree with an offer proposed by one party and accepted by another. The privity of contract doctrines empowers only those individuals who are involved as parties in any particular contract to enforce any terms addressed in the contract. It is a requirement by state law for certain contracts to be expressed in contractual terms. The privities of contract doctrines facilitate a legally binding contract in the sense that they enable an agreement and consideration of a contract’s clauses between only the involved parties. Based on clearly spelt out terms as evidence, either party is able to file a case in a court of law in the event that they believe that there was a breach in the contract they entered. References Gillies, P. (2004). Business law. Sydney: Federation Press Feinman, J. M. (2007). Professional liability to third parties. Chicago, IL: American Bar AssociationTop of Form Palmer, V. V. (2006). The paths to privity: The history of the third party beneficiary contracts at English law. Clark, N.J: Lawbook Exchange. Bottom of Form Davies, I. (2005). Issues in international commercial law. Burlington, VT: Ashgate. Poole, J. (2012). Casebook on contract law. Oxford: Oxford University Press Gillies, P. (2008). Concise contract law. Sydney: Federation Press Meena, R. L. (2008). Textbook on law of contract. Delhi: Universal Law Pub. Co. Whincup, M. H. (2006). Contract law and practice: The English system with Scottish, Commonwealth, and Continental comparisons. Alphen aan den Rijn: Kluwer Law International. Ryan, D. (2010). Developments in the doctrine of privity. Koffman, L., & Macdonald, E. (2007). The law of contract. Oxford: Oxford University Press. Read More