Privity of Contract

Privity of Contract - Privity of Contract (Mugger Notes) 1....

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Privity of Contract (Mugger Notes) 1. Introduction - General Rule : A contract cannot confer rights or impose obligations arising under it on any person except the parties to it. - Privity relates to who can enforce a contract. - Consideration concerns the types of promises that can be enforced. - Therefore, to be entitled to enforce a promise, a person must generally show that : (i) The promise was made to him. (ii) Consideration for it moved from him. NB : Academics have criticised privity as another facet of consideration. - 3 situations can arise involving the imposition of liability and benefit on 3 rd parties : (i) Promise by A to B in favour of C (ii) Promise by A to B not to sue C (iii) Promise by A to B that imposes a burden on C 2. Promise by A to B in Favour of C A. C Suing A - Generally, C cannot sue on the promise because : (i) He is not a party to the contract (and/or). (ii) No consideration was provided by him. ( Significance : A stranger to the contract cannot enforce the promise, even if he provides consideration.) Facts : Defendant promised plaintiff’s father that he will pay a sum of money to the plaintiff for marrying the defendant’s daughter . Held : The promise could not be enforced because although the plaintiff provided consideration, he was not a party to the contract. Inference : Consideration provided by a 3 rd party is not valid, because he is not a party to the contract. Unless he is a Joint Promisee.) This decision was later approved by the House of Lords in the following case : Dunlop Pneumatic Tyre Co v Selfridge (1915) AC 847 (House of Lords) ( Significance : Support that contract cannot be enforced without privity of contract.) Facts : Plaintiffs sold goods to X Co. on the condition that X Co. was not to resell them below a certain price . Plaintiffs extracted an undertaking from X Co. that when it sold the goods to its customers, it should inform the customer not to sell below the stated price otherwise X Co. could sue for damages. X Co. sold goods to Defendants who resold goods below price floor . Plaintiffs attempted to sue Defendants based on the Defendants promise to X Co. Defendants claimed that Plaintiffs were not privity to the contract. Plaintiffs replied that X Co. was an agent of the Plaintiffs. Held : The plaintiffs were still not a party to the contract and had not furnished consideration for Defendant’s promise. 1
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The doctrine is entrenched in Malaysia as evidenced by the following case : Kepong Prospecting Ltd v Schmidt (1968) 1 MLJ 170 (Privy Council from Malaysia) Facts : Defendant 3 rd party claimed a sum of money as his entitlement from a contract between the appellants and another party. NB
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This note was uploaded on 02/07/2012 for the course LGST 101 taught by Professor Hsu during the Spring '11 term at Singapore Management.

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Privity of Contract - Privity of Contract (Mugger Notes) 1....

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