Wednesday, 5 September 2012

CONTRACT LAW - PART III (PARTIES TO A CONTRACT & PRIVITY OF CONTRACT)

Agreements enforceable by law are contracts.
The Contract Law is mostly Commonsense
Points for discussion as based on The Indian Contract Act 1872

PARTIES TO A CONTRACT
Only the contracting parties have rights and obligations towards one another. 
All others are strangers and can claim no rights and have no obligations.

Exceptions:

  • Where a trust or charge has been created in favour of a person.

Gandy v Gandy (1884) 
(Case of promise to pay to trustees to pay for expenses for the maintenance of wife from             whom he had separated. Wife could enforce the contract)

  • Cases of marriage settlement, partition or other family arrangement where provision is made for the benefit of a person.
Shuppu Ammal v Subramaniyam (1910 )
(Case of brothers, on partition of joint properties, agreeing to invest in equal shares a certain sum of money for the maintenance of their mother. Mother could enforce the contract)


  • Where the promisor by his conduct, acknowledges or otherwise constitutes himself as an agent of a third party, a binding obligation is thereby incurred by him towards the third party .


  • An assignee of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities between the original parties (E. g. holder in due course of a negotiable instrument)
  • Covenants running with the land

Tulk v Moxhay (1848)
(Case of sale of large immovable property in 1808 with a covenant to keep  ‘garden square’ uncovered with buildings – after property exchanged hands several times, buyer M in 1848 refused to abide by the covenant as he claimed he was not in privity of contract and so was not bound by it. Held he was bound by the covenants running with the land)

PRIVITY OF CONTRACT

Preist & Wife v Last (1903) 
(P asked L for a hot water bottle – Having being shown one by L he asked L if it would stand boiling water – L replied no, but it would stand hot water – P then bought for his wife – Fifth night of use bottle bursts & injures Mrs. P – turned out that the bottle burst because pure rubber formed a very small proportion of the material – P claims price & damages for wife’s pain & suffering from L – Issues – Privity of contract: Mrs. P has no right?)

Donoghue v Stevenson(1932)
Snail in the bottle case – There was no contractual relationship between Ms. May Donoghue and the drinks manufacturer or even the café owner, as Donoghue had not ordered or paid for the drink herself. Although there was a contractual relationship between the café owner and Donoghue's friend, the friend had not been harmed by the ginger beer. As ginger beer was not a dangerous product, and the manufacturer had not fraudulently misrepresented it, the case also fell outside the scope of the established cases on product liability. On the face of it, the law therefore did not provide a remedy for Donoghue

On an appeal , the House of Lords laid down the following main points:

  • Negligence is a distinct Tort
  • A contract is not necessary.
  • Manufacturer’s liability ‘a manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with the knowledge that the absence of reasonable care in the preparation or putting up of the products will result in an injury to the consumers life or property, owes a duty to the consumer to take that reasonable care’
  • The Neighbour Principle ‘persons who are so closely and directly affected by my act that I ought to have them in contemplation as being so affects when I am directing my mind to the acts or omissions which are called question’


Klaus Mittelbachert v East India Hotels Ltd (1997) 
(Co pilot of Lufthansa – injured by defective pool at Hotel Oberio Intercontinental – hotel room booked by Lufthansa, not Klaus – There was no privity of contract between Klaus & the hotel. It was held by the Delhi High Court, that though the contract was between Lufthansa & the hotel, the beneficiaries are the crew who would stay, and hence the contract was for their benefit.) 

M C Chacko v State Bank of Travancore (1970) 
(M C Chacko’s father guarantees his overdraft – father gifts his property under a gift deed to family members– which states that M C Chacko should meet the liability under the guarantee from the share of property gifted to him - Bank tries to enforce a provision of this gift deed.)

It was held by the SC that ‘except in the case of a beneficiary under a trust created by a contract or in the case of a family arrangement, no right may be enforced by a person who is not a party to the contract


CAPACITY TO CONTRACT

The following persons are incompetent to contract:

Minors

Persons of unsound mind

  • Idiot
  • Lunacy or insanity
  • Drunkenness or intoxication

Disqualified persons

  • Alien enemies
  • Foreign sovereigns & ambassadors
  • Convict

Undischarged Insolvent

MINORS

  • A contract with a minor is void abinitio.

  • Payment can be made out of the property of a minor for the necessaries of life supplied to him. (Necessaries are those without which an individual cannot reasonably exist.)

  • A minor cannot ratify any contract made during his minority.

  • A minor may be admitted to the benefits of a partnership.

  • The minor’s contracts do not impose any liability on his parents even if the contract is for necessaries.

  • A minor cannot be declared insolvent because he is incapable of contracting debts.

  • If a minor takes the plea of minority in fulfilling contractual obligations, the court would accept it and hold the contract unenforceable. However, it would restore the benefits to the other party




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