PRIVITY AND CONTENTS OF CONTRACT

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PRIVITY OF CONTRACT

To whom does the obligation in the contract extend?

General rule: no one but the parties to a contract can be entitled to it , or bound by the contract.

Contract cannot confer rights on third party

DUNLOP PNEUMATIC TYRE v SELFRIDGE & CO. LTD  [1915] AC 847

Dunlop a tyre manufacturer, sold its tyres to dealers who undertook to allows a 10% discount from the plaintiff’s list price when reselling the tyres to retailers.The dealer agreed that when he sold tyres to any retailer he would obtain from then a written undertaking that they would observe the plaintiff’s prices. Dew & Co, a dealer entered into a contract with Dunlop. It sold tyres to selfridge & co, who undertook to abide by Dunlop’s requirement. However, they later sold tyres below Dunlop’s recommended price.

Held – the action failed. Only the parties to a contract could sue on the contract. Dunlop had not provided any consideration for selfdrige’s promise and was not a party to the contract between Dew and Selfdrige.

Contract cannot impose liability on third party

PRICE V. EASTON

Easton made a contract with X that in return for X doing work for him, Easton would pay Price £19. X did the work but Easton did not pay, so Price sued. It was held that Price's claim must fail, as he had not provided consideration.

CONTENTS OF CONTRACT

TERMS

a.    Express

Specifically agreed by the parties either orally, in writing or both – it is straightforward by just looking the contract document

b.    Implied

Is read into the contract by the court

Terms may be implied by:

1. Custom and usage pertaining to a particular transactions

PRESTON CORPORATION  SDN BHD v EDWARD LEONG & ORS [1982] 2 MLJ 30

The issue here was whether on the basis of a trade usage, the respondents who were a firm of printers could legitimately claim ownership of the film positives used for the purposes of printing books.

At the Federal Court Salleh abas F.J. relying on Halsbury’s Law of England definition of trade usage said, ‘The characteristics of usage are notoriety, certainty and reasonableness”. The claim by respondents was rejected because none of the three characteristics was satisfied.

2. Statutory provisions

Statutes that implied terms into contract

• Sales of Goods Act, 1957
• Hire Purchase Act 1967
• National Land Code 1965

3. The courts : based on the intention of the parties

YONG UNG KAI v ENTING [1965] 2 MLJ 98

The defendant entered into a written agreement with the plaintiff for the sale of timber on land in which a tribe had communal customary rights. In order to cut the timber a licence from the forests department was required. The written agreement did not refer to the necessity of obtaining a licence. The defendant did his best to get a licence but this was refused. The plaintiff claimed for breach of Contract.

Held – there was an implied term that the sale of the timber was to be subject to the obtaining of the necessary licence. As the contract became impossible to perform because of frustration the plaintiff entitled to the return of moneys advanced to the defendant.

CONDITIONS AND WARRANTIES

Terms may be classified as either conditions or warranties. Whether a particular term in a contract is a condition or a warranty depends on the intention of the parties. The mere labeling of a term as a condition or a warranty is not conclusive.

S.12(2) Sale Of Goods Act 1957 (SOGA)

condition - ‘a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated’.

S.12(3) SOGA

warranty - ‘ a stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim for damages but not a right to reject the goods or repudiate the contract.’

POUSSARD v SPIERS AND POND

BETTINI v GYE

ASSOCIATED METAL SMELTERS LTD v THIAM CHEOW TOH [1971] 1 MLJ 271

EXEMPTION CLAUSE

Defined as ‘ a term of a contract that attempts either to modify the principal obligation(s) arising out of the contract or to limit / exclude the liability of a party which would otherwise arise as a result of a breach by that party…’.

Common in standard contract - the operation of which depends on the construction of the contract.

In case of disputes- court will interpret - contra proferentum.

If the clause is ambiguous - will be interpreted to the disadvantage of the party who will benefit from clause.

In case of negligence - need clear and unambiguous words to exclude liability.

In case of serious / fundamental breach - exemption clause will not cover the parties who made the clause.

There are also some statutes which modify the effect of the exemption clause to provide more protection to consumers.

Also - exemption clause cannot give benefit to third party nor make another party liable

In Port Sweetenham’s case a by-law was held to be invalid as it did not only limit but wholly excluded the liability of the Port Authority for the loss of any goods caused by their own misconduct or negligence.

PORT SWEETENHAM v T. W. WU & CO SDN BHD [1978] 2 MLJ 137

Ninety-three cases of pharmaceutical goods had been unloaded at Port Klang and kept in the custody of the Port Authority (appellants). Subsequently only twenty-nine cases were collected by the respondents and some of the contents of the missing cases were recovered in shops in Kuala Lumpur. The respondents brought an action against the appellants for breach of contract and / or conversion of the remaining sixty-four cases. The learned trial judge gave judgments to the respondents as the appellants should prove that the goods had not been  lost because of their negligence or misconduct where the appellant failed to do so. Their appeal to the Federal court was dismissed and appealed to the Privy Council.

Held – By-law 91(1) of The Port Swettenham authority By-laws 1965 is invalid as it is ultra vires s. 29(1) (g) of the Port Authorities Act 1963, in so far as it purported to limit the Port Authority’s liability in respect of a loss occurring with the actual fault or privity of the authority: and also because it did not only limit but wholly excluded the liability of the Port authority for the loss of any goods caused by their own misconduct or negligence.

 See you in part 6