Objective Notes: W300 – Agreements, rights & responsibilities
UNIT 5 - MANUAL ONE
INTENTION, FORMALITIES & PRIVITY
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Recognise/ evaluate relevant establishment of intention factors
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Contract law operates on basis of presumptions (rebuttable on contrary
evidence) depending on whether arrangements domestic/ social or
commercial;
Presumption in domestic arrangements = parties did not intend legal
consequences (Balfour v Balfour) but can be rebutted on evidence (Merritt v
Merritt) & factors are nature of agreement/ consideration (selling goods),
state of the relationship (spousal separation - Merritt) & formal written
agreements (Merritt);
Commercial agreement presumption = parties intend to be bound but
rebuttable although harder to prove (Edwards v Skyways) - may be found
where ‘honour clause’ clearly expresses no intention to be bound leaving no
doubt that parties intended no legal consequences (Rose & Frank Co v
Crompton Bros).
Situations where intention is likely to be found
A: Domestic/ Social –
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Where spouses, siblings etc agree to buy goods at a price, presumed intention
was to create legal consequences;
Where mutuality exists as in Simpkins v Pays – clearly understood in event
of win, prize would be equally distributed so meant to be enforceable –
intention that arrangement legally binding irrespective of who ‘won’;
Where ex-spouses deal with each over at arms’ length wishing arrangements
to be clearly defined,‘ love & affection’ criteria clearly absent & parties not
content to rely on mere unenforceable understandings, = formal agreement
intended to be binding (Merritt v Merritt).
B: Commercial –
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Even where consideration may have little intrinsic value, agreements usually for
commercial advantage to attract custom, transactions are in business relationship
settings so have contract intentions (Esso Petroleum Ltd v HM Customs &
Excise);
Despite ‘honour clauses’ being effective re general arrangements, orders placed
& accepted under same are separate contracts so intention presumption applies
(Rose & Frank).
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When contracts must be in particular form
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Generally, no formality of contract requirement - specific written terms not
mandatory & oral agreements enforceable;
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Objective Notes: W300 – Agreements, rights & responsibilities
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Exceptions = Collective agreements, promises without consid must be in a
deed & by s.2 Law of Property (Misc Provisions) Act 1989, contracts for
sale/ disposition of land must be in writing.
Meaning/ significance of privity
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Only contracting parties acquire rights/ liab (Tweddle v Atkinson);
Operates unfairly where contract is for 3rd party’s benefit - he cannot take
action to enforce and, additionally lack of consid on his part), unjust situation
has led to statutory reforms;
3rd party cannot have liab imposed on him either which is reasonable – unjust
if such liab imposed without consent of individual concerned & this aspect
not altered by the reforms;
Prior to 1999 stat intervention/ reform, judicial distaste of doctrine led to
artificial avoidance decisions – use of other rights (Beswick v Beswick) &
collateral contracts (Shanklin Pier Ltd v Detel Products Ltd) finding contract
exists to avoid privity application despite parties unlikely to have contractual
intention.
Contracts (Rights of 3rd Parties) Act 1999 – key provisions
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Benefits enforceable by 3rd parties but no liab can fall on them & by s.1 – 3rd
party may enforce where contract expressly says or it purports to confer
benefit on him unless, re the latter, on proper construction of contract parties
did not intend 3rd party ability to enforce;
3rd party must be expressly identified by name, class or description & does
not have to be in existence when contract is made (s.1(3)) so may be unborn
child or company not yet formed;
Contract exclusion/ limitation clauses in contract expressly IDing 3rd party
apply;
Contracting parties may not vary/ cancel 3rd party’s rights without his
consent where he has communicated assent to promisor or promisor aware
3rd party relied on term or can reasonably be expected to have foreseen 3rd
party would rely AND has relied.
But parties can under s.2(3) expressly provide either variation/ cancellation
without 3rd party’s consent or agree different circumstances from stat in
which consent is required.
Parties can rely on defences/ set-offs against 3rd party that would exist where
other contracting party sued (S.3(2)) or as if 3rd party were party to contract
(s.3(4)) & these defences can be extended/ limited by express provisions;
Promisor protected against double liab by s.5 – court will reduce damages to
extent thought necessary to take account of any moneys recovered by
promisee re 3rd party’s loss or promisee’s expenses in making good 3rd
party’s loss caused by promisor’s default.
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