CONTRACTS LAW II- KLAW 122

CAT TWO TAKE AWAY

GROUP MEMBERS
BLESSING ANIDA- LAW/M/0421/05/23
JOAN CHEPKORIR BETT- LAW/M/0652/05/23
OWEN NDIRANGU- LAW/M/0450/05/23
NELLY PTISO-LAW/M/0364/05/23
PERIS KAPEN- LAW/M/0457/05/23
MAURINE CHELANGAT- LAW/M/0458/05/23
CYNTHIA JEROP- LAW/M/0529/05/23
 1. DOCTRINE OF PRIVITY
The essence of doctrine of privity is that only those who are parties to a contract can have rights
or liabilities under it. The effect of it is that if the two parties to a contract agree that one of them
will provide a benefit to a third party, the third party is unable to sue to enforce that agreement.
Equally, should the parties agree that an obligation should be imposed on a third party, they will
be unable to force the third party to undertake that obligation even if he or she has previously
agreed to do so.
The principle can be seen applied in the case of MacDonald Dickens & Macklin v Costello. In
this case work had been done by builders for a company that failed to pay. The builder sought to
recover compensation in the form of restitutionary claim for unjust enrichment against the
owners of the company. The court rejected this on the basis that the only contract was with the
company, and the owners were not parties to this. The restitutionary claim could not be used to
circumvent the contractual agreement.
a. Intended third party beneficiary
An intended third-party beneficiary is someone who is not a party to the contract but is intended
by the contracting parties to benefit from it. An example of this would be where two parties enter
into a contract for the sale of goods to a third party who is identified in the contract as the
intended beneficiary. The doctrine of intended third party is an exception to the rule on doctrine
of privity since it allows a third party to enforce a contract if the contract was made for their
benefit. The third party must be specifically identified in the contract and the benefit conferred
on them must be more than incidental. This is only applied where the contracting parties intend
to confer a benefit on the third party that the right of action should arise.
In the case of Tweddle v Atkinson (1861); the plaintiff’s father, and his prospective father-in-law,
mutually agreed to pay sums of money to William Tweddle, the plaintiff on marriage. The
plaintiff duly married, but the father-in-law died before his portion of money had been paid. It
was held that the plaintiff could not recover the money, even though the agreement had expressly
provided that the plaintiff should have the right to sue on it. Wightman J said; “It is now
established that no stranger to the consideration can take advantage of a contract, although made
for his benefit.”, whereas, Crompton J said that “consideration must move from the promise.”
Also, in the case of Beswick v Beswick (1968) where a man agreed to transfer his business to his
nephew in exchange for the nephew’s promise to pay an annuity to the man’s widow after his
death. The man died and the nephew refused to pay the annuity within section 1(1) (b) of the
Rights of Third Parties Act. The widow sued the nephew for breach of contract. The court held
that the widow was intended third party beneficiary of the contract and was entitled to enforce it.
b. Assignments of rights under a concluded contract
Refers to the transfer of only the rights of a contract from one party to another. This means that
the assignor is still responsible for the completion of the contract, but they give the benefits of
the contract to the assignee.
There are usually three parties involved; the two parties in the original contract and the new party
to which the contract is being transferred.
As seen in the case of Linden Gardens Ltd v Lenesta Sludge Disposal Ltd (1993); the case
concerned a building contract between a property company, D, and a construction company, C. D
assigned its interest to T before the work was complete. The assignment was made without C’s
consent, and therefore was not effective to create a contractual relationship between T and C.
Defects in the construction work were later discovered after the assignment of the contract. D
sued C but it was argued that D had suffered no loss, because at the time of C’s breach of
contract, the property had already been assigned to T. It was held that D could recover substantial
damages on behalf of T.
2. Advice both parties
Duress
Duress is the actual violence that puts a weaker party into a position of entering into a
contractual relationship unwillingly. In this case, Roseanne used physical duress to force Ryan
into agreeing, when she holds Ryan down and slaps him until he agrees to assign his rights to the
antique rug to her. Physical duress occurs when one party uses physical force or threats of
physical force to coerce another party to enter into a contract. The weaker party has to prove the
following elements;
1. The threat was directly made to him (body) as established in the case of Altee v
Backhouse.
2. The intention of the other party was to cause fear.
3. The threat was illegal.
In this case the threat was directly made to Ryan when he was out down and slapped and this
caused fear in him, making Ryan to agree to giving his rights of inheriting the antique rug to
Roseanne.
This scenario relates with the case of Barton v Armstrong where Armstrong was the chairman
and held the largest sharing holding in a Landmark Corporation Ltd company. Barton was the
managing director and there was other two directors, Bovil and Cottrel. There had been a long
history of ill will between the parties and a struggle of who should have a controlling power with
Armstrong being the most aggressive. The three disagreed and wanted Armstrong to resign,
when he refused, they managed to take control of subsidiary companies and removed all credit
facilities from the Landmark Corporation. Armstrong discovered the credit had been removed
and he threatened to kill Barton unless Barton entered into an agreement to pay a sum of money
to Armstrong and to purchase Armstrong’s shares in the company. It was held that the threat of
violence must be the reason why the other party entered into the contract.
Advice to both parties: To Ryan since he was forced to enter into the contract due to physical
duress, he may have grounds to have the contract set aside. He should seek legal action against
Roseanne for use of duress. Ryan could argue that the contract is unenforceable due to the duress
and that he is entitled to keep the antique rug. On the other hand, if Roseanne believes that Ryan
entered into the contract willingly and without coercion, she should be prepared to defend the
contract in court if necessary.
Undue influence
Undue influence involves a party dominating the other people will thereby inhibiting their
exercise. It involves manipulation therefore the victim appears to give consent but freely given
since he is overpowered by the influencer after exploitation of their weakness and trust. In this
scenario, Ryan is threatening to sue Roseanne for false allegations of food poisoning and
unsanitary conditions unless she agrees to sell the restaurant to him, this could be actual undue
influence. Actual undue influence occurs when one party exerts influence over another party to
enter into a contract, and the other party’s free will is overborne. It can be proven through the
following elements;
1. The claimant must show that the defendant exerted influence over them, and that the
influence was undue and it overpowered the claimant’s free will.
2. The claimant must show that they suffered a disadvantage as a result of the undue
influence and it was not at their best interests.
In this case, Ryan uses his position of having law suits to force Roseanne to sell her restaurant,
this clearly shows that Roseanne was overpowered and Ryan exerted undue influence on her.
Also, Roseanne suffered a disadvantage in that she could lose her restaurant if she did not agree
to Ryan.
An example of a case law that establishes actual undue influence is BBCI V Aboody where Mr.
Aboody, a wealthy businessman, wanted to transfer some of his assets to his children from a
previous marriage, but he did not want to pay high taxes that would be incurred if he did so
directly. Instead, he decided to transfer the assets to his wife, who would then transfer them to
the children. Mrs. Aboody agreed to this agreement, but not only since she trusted her husband
and believed it was in their best interests. Later Mrs. Aboody discovered that she had incurred a
large tax liability as a result of transfers. She sued her husband claiming he had exerted undue
influence over her to enter into the transactions. The court held that Mr. Aboody had indeed
exerted undue influence over his wife and that the relationship was one of trust and Mr. Aboody
abused that relationship. The court also found that Mrs. Aboody had suffered a disadvantage as a
result of undue influence.
Advice to both parties; Roseanne can sue Ryan for use of undue influence, if only she can prove
that Ryan exerted undue influence over her to sell the restaurant and that it was not at her best
interests, then she may be able to have her contract set aside. As for Ryan he has to defend the
contract in court and he should also consider negotiating a new agreement with Roseanne that is
mutually beneficial and does not involve any undue influence.