Essential requirements of contract

• Privity of Contract


  A doctrine (principle) which allows the parties to a contract to sue each other but does not allow a third party to sue
• Privity of Contract


  • The basic rule is that third parties cannot sue or be sued under a contract, even if they have an interest in its performance
  • Only the parties to the contract should be able to sue or enforce their rights
• Tweddle v Atkinson (1861)


  • A father and a father-in-law contracted to give the plaintiff a sum of money. Because the contract was made between the father and father-in-law, the plaintiff could not enforce the contract, even though he was to benefit from the money
• Even though a person was named in a contract, he was unable to claim a third party right
• Exceptions to Privity of Contract

  • Married Women's Property Act 1882
  • Road Traffic Act 1988
  • Law of Property Act 1925
  • Contracts (Rights of Third Parties) Act 1999
• Contracts (Rights of Third Parties) Act 1999


  This Act allows 3rd parties to enforce rights under a contract if it was made after 11th May 2020
• Situations where 3rd party can enforce terms under Contracts (Rights of Third Parties) Act 1999


  • S1(1)(a): if the 3rd party is specifically mentioned in the contract as someone authorised to enforce the term
  • S1(1)(b): if the contract implies to confer ward a benefit upon them unless the parties to the contract did not intend the term to be enforceable by the 3rd party
• Nisshin Shipping v Cleaves (2003)


  • Cleaves was a company of brokers which negotiated for shipowners to loan their ships to others. Cleaves was not a party to any of the contracts but the people that the ships were loaned to agreed to pay Cleaves commission. Held that under the 1999 Act, the clauses purported to confer a benefit to Cleaves and therefore there was a presumption that there was intention for the term to be enforceable
• Collateral Contract


  A side contract which depends on the main contract to function
• Shanklin Pier v Detel Products Ltd (1951)


  • A had employed B to paint their pier. They told the contractors to buy paint made by C, who had said that the paint would last for 7 years. It only lasted 3 months. The court stated that A could sue C on a collateral contract. They had provided consideration for C's promise by entering into an agreement with B, which involved the purchase of C's paint
• Agent


  Someone who contracts on behalf of someone else
• Scruttons Ltd v Midland Silicones (1962)


  • A contract limited the liability of a shipping company to $500 per package. D was a storedore, a company that unloaded and loaded ships at a dock. It had contracted with the shipping company to unload P's goods on the basis that they were covered by the exclusion clause. P's were not aware of the contract between the shipping company and D. Because of D's negligence, the goods were damaged, and when sued, D pleaded the limitation clause. HofL's held that the D could not rely on the clause as there was no privity of contract between P and D
• Trust


  An equitable obligation to hold property on behalf of another
• Les Affreteurs Reunis v Leopold Walford (1919)

  • A broker (C) negotiated a charter party by which the shipowner (A) promised the charterer (B) to pay the broker a commission. It was held that B was trustee of the promise for C, who could therefore enforce it against A
• BBC v Harper Collins (2010) - The Stig was permitted to publish an autobiography even though his identity was supposed to be kept a secret
• Advantages of Privity of Contract


  • Free will: parties should be free to make contracts with whoever they wish and should only incur rights and obligations when they have agreed to be part of a contract
• Offeree


  The person an offer is being made to
• Disadvantages of Privity of Contract

  • Unjust: to allow a party to be able to sue, if they cannot be sued
  • Restrictive: restricts the rights of the parties to modify or terminate the contract
  • Indefinite liability: the exceptions expose contractors to indefinite liability by unlimited third parties
  • Extended litigation: the privity rule could lead to a chain of contract claims
  • Intention of the parties: Does not reflect the intentions of the parties, who may wish a 3rd party to have rights and obligations
  • Lots of exceptions: Sheer number of exceptions makes it very legally complex
  • Loopholes: Could allow some parties to escape their contractual obligations
• Offeror


  The person making the offer
• Elements required for a contract to be formed

  • Offer
  • Acceptance
  • Intention to create legal relations
• Request for tender


  Where public authorities or private businesses offer for others to make quotations to complete works or provide services
• Offer


  It is possible to withdraw an offer at any time before the offer is accepted
• Where there are ongoing negotiations of a contract, if the offeror acts on the communication/altered terms


  Their conduct has impliedly accepted the communication/altering of terms. Battle of the forms – a contract is made when the last form is received or accepted without any objections.
• Offeror


  The person making the offer
• Courts will only enforce a contract where there is an intention to be legally bound
• Intention to be legally bound


  Assessed objectively - how it looks to the reasonable outsider
• Situations where an agreement may be made

  • Social and domestic agreements: no intention to be legally bound
  • Commercial agreements: intention to be legally bound
• Agreements with family, friends, co-workers - the courts will assume that legal relations do not exist unless there is evidence to the contrary - there is a rebuttable presumption that domestic agreements are not intended to create legal relations
• Rebuttable presumption


  A presumption that can be reversed if the courts find sufficient evidence to do this
• Courts will presume an intention to create legal relations unless evidence to the contrary. Offers to give away free gifts when promoting a business also falls under this presumption.
• Contract


  A binding agreement between two parties that puts obligations on both parties to 'carry out their side of the bargain'
• Exception: Intention can be negated by express wording, such as "subject to contract"


  Meaning that it is not legally binding until both parties agree (forming a contract). However, if the parties proceed with carrying out the contract this will be considered a demonstration of an intention to create legal relations
• Where an intention to be legally bound cannot be established (proved) the presumption in relation to social agreements will not be rebutted. A lack of certainty and clarity likely to indicate that there is no intention to be legally bound.
• If parties do not carry out their side of the bargain, it may be a breach of contract
• The presumption that social agreements are not legally binding can be rebutted by evidence that the parties intended to be bound.
• Enforcement of promises


  The court must decide whether the promise or agreement are enforceable by checking whether certain elements have been proven and if so, it must be established that the contract has been formed according to certain rules
• Consideration


  An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. Consideration is something that has value in the eyes of the law. It is an essential element of forming a valid contract.
• Part-payment of a debt is not consideration
• Invitation to treat


  Not an offer, it is an invitation for a party to make an offer. It is an indication of willingness to deal but not an intention to be bound
• Exceptions to the general rule that part-payment of debt is not consideration


  • Where something different is added or happens that is sufficient for consideration
  • The doctrine of promissory estoppel