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LESSON OUTCOME • Student to understand the importance of contract • Able to identify the elements of contract • Capable to define the elements of contract

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INTRODUCTION • Contracts Act 1950 is silent on this requirement, case-laws clearly dictates the necessity of this requirement. • Where no intention to be bound can be attributed to the parties there is no contract • Divided into two: 1) Commercial and business agreements 2) Social and domestic agreements construction law


A) Commercial and business agreements • If a party wishes to assert that legal relations were not intended when the agreement was entered, the responsibility is on him – Esso Petroleum Co. v Commissioners of Customs and Excise (1976) – Adler v Dickson (1955) – Appelson v Littlewood (1939) Facts: A sent in a football pools coupon containing a condition that it ‘shall not be attended by or give rise to any legal relationship, rights, duties, consequences’. The plaintiff attempted to claim monies which had allegedly been won in a football pool. Held: the condition was valid and the agreement was not binding

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Esso Petroleum Co. v Commissioners of Customs and Excise (1976) Facts: Esso ran a promotion whereby any person purchasing four gallons of petrol would get a free coin from their World Cup Coins Collection. The question for the court was whether these coins were 'produced in quantity for general resale' if so they would be subject to tax and Esso would be liable to pay ÂŁ200,000. Esso argued that the coins were simply a free gift and the promotion was not intended to have legal effect and also that there was no resale. Held: 3:2 There was an intention to create legal relations. The coins were offered in a commercial context which raised a presumption that they did intend to be bound. However, the coins were not exchanged for a money consideration and therefore the coins were not for resale.

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Adler v Dickson (1955) AL ER 397 Facts: Adler went for a cruise in a ship the Himalaya owned by P&O with Dickson as the master of the ship. Adler was walking up the gangway when the ship moved causing her to fall sixteen feet of the air resulting serious injury. The ticket issued contained the term “passengers... are carried at passengers' entire risk.... This ticket is issued by the company and accepted by the passenger subject to the following conditions and regulations.... The company will not be responsible for and shall be exempt from all liability in respect of any... injury whatsoever of or to the person of any passenger...� Adler accepted that P & O's conditions exempted them from liability so she sued Dickson for his negligence in allowing the ship to move whilst she was on the gangway. Held: The plaintiff can pursue her claim against the master and the boatswain without being defeated by the exemption clause. I think the appeal should be dismissed.

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B) Social and domestic agreements • It is implied that no legal relations is contemplated. • Whether the presumption is rebutted will be resolved by examining the circumstances of each case and the language used by the parties Balfour v Balfour (1919)

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Balfour v Balfour [1919] 2 KB 571 Facts: A husband worked overseas and agreed to send maintenance payments to his wife. At the time of the agreement the couple were happily married. The relationship later soured and the husband stopped making the payments. The wife sought to enforce the agreement. Held: The agreement was a purely social and domestic agreement and therefore it was presumed that the parties did not intend to be legally bound.

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1) Agreements between husband and wife – Gould v. Gould (1969) – Merritt v Merritt (1970)

2) Between other family members – Jones v Padavatton (1969)

3) Outside the context of purely family agreements – Simpkins v Pays (1955) – Peck v Lateu (1973) construction law


Gould v. Gould [1969] 3 All ER 728 Facts: In May 1966 Mr Gould left his wife. He agreed to pay her ÂŁ15 a week, but he qualified it by saying: '... so long as the business is OK', or 'so long as I can manage it‘. The issue before the court was whether that qualification meant that there was no enforceable agreement at all; did Mr and Mrs Gould intend to create a legal relationship? Held: All that occurred here was that the parties entered into a purely domestic arrangement not intended to have legally-binding force and that the learned county court judge was in error in arriving at the contrary conclusion. construction law


Merritt v Merritt [1970] 1 WLR 1211 Facts: A husband left his wife and went to live with another woman. There was ÂŁ180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife ÂŁ40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. When the mortgage was fully paid she brought an action for a declaration that the house belonged to her. Held: The agreement was binding. The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the parties were separated. Where spouses have separated it is generally considered that they do intend to be bound by their agreements. The written agreement signed was further evidence of an intention to be bound.

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Jones v Padavatton [1969] 2 All ER 616 Facts: Mrs Jones suggested to her daughter, Mrs Padavatton, that she should go to England and read for the English Bar. Mrs Padavatton was at first reluctant to do this since she had a good job in Washington DC. Mrs Jones offered her daughter $200 (ÂŁ42) per month maintenance. Mrs Padavatton accepted her mother's offer and started the Bar course in November 1962. Then in 1964 Mrs Jones offered to buy a house in London so that Mrs Padavatton and her son could live there and let off the rest of the house to tenants so that the tenants rents would provide maintenance for Mrs Padavatton in lieu of the ÂŁ42 per month. In 1967 Mrs Jones claimed possession of the house from Mrs Padavatton; Mrs Padavatton claimed that Mrs Jones was bound by the two agreements. The issue before the court was whether Mrs Jones and Mrs Padavatton had intended either, or both, of the agreements to be legally binding. Held: The agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption.

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Simpkins v Pays [1955] 1 WLR 975 Facts: A Grandmother, granddaughter and a lodger entered into a weekly competition run by the Sunday Empire News. The coupon was sent in the Grandmothers name each week and all three made forecasts and they took it in turns to pay. They had agreed that if any of them won they would share the winnings between them. The grandmother received ÂŁ250 in prize money and refused to share it with the other two. The lodger brought the action to claim one third of the prize money. Held: There was a binding contract despite the family connection as the lodger was also party to the contract. This rebutted the presumption of no intention to create legal relations.

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Peck v Lateu (1973) Facts: Peck and Lateu were friends whom loves to play bingo. Hence, they made a pact to share their winnings with each other. Both obliged with the agreement until Lateu won and refused to share her winning. Held: The agreement was legally binding as the facts and evidence indicated that they intended it so.

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Snelling v John G Snelling Ltd [1972] 1 All ER 79 Facts: In March 1966 three brothers, who were directors of John G Snelling Ltd (the company), had borrowed, on behalf of the company, ÂŁ40,000 from Credit for Industry Ltd. Security for the loan was a mortgage on the properties of the company. On 22 March 1968 the brothers entered into an agreement between themselves whereby they agreed that in the event of any director voluntarily resigning he would immediately forfeit all moneys due to him from the company by way of loan account 'or similar'. This agreement was to remain in force until Credit for Industry Ltd's loan had been repaid. On 28 June 1968 Brian Snelling resigned as a director of the company and demanded repayment of the ÂŁ15,268 owed to him by the company. The issue before the court was whether the company, John G Snelling Ltd, could enforce the agreement against Brian Snelling since the company was not a party to the agreement of 22 March. Held: Parties intended legal relations construction law



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INTRODUCTION • Something which is given, done or forborne by one party in return for some action or inaction on the part of other party. It must have some legal value (Engineering Contract Dictionary) • S.2 (d) of Contracts Act 1950: “ When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”

• An agreement without consideration is VOID construction law


• Each party must give something in return for what is gained from the other party ie. things or services • It is what distinguishes a bargain or contract from gift = Reason for the promise Williams v Roffey Bros (1990)

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Williams v Roffey Bros [1990] 2 WLR 1153 Facts: The defendants were building contractors who entered an agreement with Shepherds Bush Housing Association to refurbish a block of 27 flats. This contract was subject to a liquidated damages clause if they did not complete the contract on time. The defendants engaged the claimant to do the carpentry work for an agreed price of ÂŁ20,000. 6 months after commencing the work, the claimant realised he had priced the job too low and would be unable to complete at the originally agreed price. He approached the defendant who had recognised that the price was particularly low and was concerned about completing the contract on time. The defendant agreed to pay the claimant an additional ÂŁ575 per flat. The claimant continued work on the flats for a further 6 weeks but only received an additional ÂŁ500. He then ran out of money and refused to continue unless payment was made. The defendant engaged another carpenter to complete the contract and refused to pay the claimant the further sums promised arguing that the claimant had not provided any consideration as he was already under an existing contractual duty to complete the work Held: Consideration was provided by the claimant conferring a benefit on the defendant by helping them to avoid the penalty clause. Therefore the defendant was liable to make the extra payments promised. construction law


Rules Of Consideration 1) Consideration need not be adequate (S.26 exp 2) – Must have some value, but court not concerned to its adequacy – An agreement to which the consent of the promisor is freely given is not merely because the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given[Sec 26(2)]. – Parties of a contract are capable of appreciating their own interests, so he may do whatever he please with his property. construction law


Rules Of Consideration 2) Part payment may discharge the whole obligation S.64: Every promisee may dispense or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept of it any satisfaction which he thinks fit. Payment of a smaller sum is a satisfaction of an obligation to pay a larger sum Example: a)

A owes B RM5000. A pays to B, and B accepts, in satisfaction of the whole debt, RM2000 at the time and place at which the RM5000 was payable. The whole debt is discharged. The Pinnels Case b) A owes to B RM5000. C pays RM1000, and B accepts them, in satisfaction of his claim on A. this payment is a discharge of the whole claim construction law 23 Welby v Drake (1825)

The Pinnels Case 1602 5 Rep, 117 Facts: The claimant was owed ÂŁ8 10 shillings. The defendant paid ÂŁ5 2 shillings and 2p. The claimant sued for the amount outstanding. Held: The claimant was entitled to the full amount even if they agreed to accept less. Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made either: a). before the due date or b). with a chattel or c). to a different destination

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Kerpa Singh v. Bariam Singh (1966) Facts: Bariam borrowed money from Kerpa. Bariam’s son wrote a letter to Kerpa, offering a cheque of $4,000.00 in full satisfaction of the debt, he also wrote that if Kerpa refuse to accept his proposal, the cheque must be returned back to him. Kerpa Singh’s legal advisors, cashed the cheque and retained the money, proceeded to secure the balance of the debt by issuing a bankruptcy notice on Bariam. Held: The acceptance of the cheque from Bariam’s son in full satisfaction precluded them from claiming the balance.

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Rules Of Consideration 3) Consideration must not be illegal or inlawful s.25 4) May be future, present or past consideration – It was performed before the promise was made. Kepong Prospecting Ltd & ors v Schmidt [1968] Lampleigh v Braithwait (1615)

5) May move from a person who is not a promisee Venkata Chinnaya v. Verikatara’ma’ya [1881] ILR 4-26 Facts: A sister agreed to pay an annuity of Rs653 to her brothers who provided no consideration for the promise. Their mother had given the sister some land stipulating that she must pay the annuity to her brothers. When the sister failed to pay, her brothers sued her on the promise. Held: A promise from a mother to pay in behalf of a brother to his sister is a valid consideration. construction law


Kepong Prospecting Ltd & ors v Schmidt [1968] Facts: S a consultant engineer has assisted another in obtaining a prospecting permit for mining iron ore, he helped in the subsequent formation of Kepong Prospecting Ltd and was appointed as its MD. After the company was formed they entered into an agreement whereby the company undertook to pay 1% of the value of all ore sold from the mining land. Held: This being ‘in consideration of the services rendered by the consulting engineer for and on behalf of the company prior to its formation, after incorporation and for future services‌‌. Were the services rendered after the incorporation but before the agreement sufficient consideration? This was clearly past consideration. The Privy Council ruled that it did constitute a valid consideration so that Schmidt was entitled to his claim on the amount.

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TYPES OF CONSIDERATION • Consideration can be classified as: 1. Executory It is when one promise is made in return for another or a promise in return of promise. Murugesu v Nadarajah [1980] 2 MLJ 82

2. Executed It is when a promise is made in return for the performance of an act.

3. Past Where a promise is made subsequent to and in return for an act that has already been performed, the promise is made on account of a past consideration. construction law


Exception • Agreement unless—




a) it is in writing and registered; b) or is a promise to compensate for something done; c) or is a promise to pay a debt barred by limitation law

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Exception 1) Natural love and affection – Section 26(a) of the Contract Act 1950 – An agreement made without consideration is void unless…. – Therefore, it would be binding if the requirements of S.26(a) are present, viz: a) It is expressed in writing b) It is registered c) The parties stand in a near relation to each other Tan Soh Sim, Chan Law Keong & Ors v Tan Saw Keow & Ors [1951] construction law


Tan Soh Sim, Chan Law Keong & Ors v Tan Saw Keow & Ors [1951] In this case, a woman on her deathbed expressed her intention to leave all her properties to her four adopted children. The court held that the claims of the adopted children were not effective as it was contrary to Section 26(a) - that it was not in writing, and there was no natural love and affection between parties standing in near relation to each other, since the four children were adopted and did not have natural relations (blood ties) to that woman.

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Exception 2) A promise to compensate for something done under S.26(b) • A promise to compensate wholly or partially towards a person who has voluntarily done something for the promisor or something which the promisor was legally compellable to do.

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Exception 3) A promise to pay a debt barred by limitation law under S.26(c) – it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

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INTRODUCTION • The terms of an agreement cannot be vague but must be certain • An agreement which is uncertain or is not capable of being made certain is void (S.30) • Example: Salleh agrees to rent a room from Hill Inn without him knowing the type of rooms that was being offered. The agreement is considered void on the basis on uncertainty Karuppan Chetty v Suah Thian [1916] Gunthing v Lynn [1831] construction law


ILLUSTRATION a) A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. b) A agrees to sell to B one hundred tons of oil of a specified description, known as an article of commerce. There is no uncertainty here to make the agreement void. c) A, who is a dealer in coconut oil only, agrees to sell to B “one hundred tons of oil”. The nature of A’s trade affords an indication of the meaning of the words, and A has entered into a contract for the sale of one hundred tons of coconut oil. construction law


Karuppan Chetty v Suah Thian [1916] Facts: The parties agreed to a lease at a rent of $35 a month ‘for as long as he likes’. Held: The court held that the agreement was void.

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INTRODUCTION • In law persons may be: 1) Natural • Human beings • General rule that all persons have full contractual capacity

2) Artificial • Corporations • The capacity depends on the manner which it was created

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• Section 11 of the Contract Act 1950 1) Must be age of majority-not a minor 2) Sound mind 3) Not barred by law

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A) Must be age of majority-not a minor • Minor – Under Age of Majority Act 1971, the age of majority shall be 18 years old.

• A contract entered by a minor is not voidable, but void ‘ab initio’ Mohori Bibee v. Dharmodas Ghose (1903); Tan Hee Juan v. Teh Boon Keat [1934] • The transfer of land by an infant were void.

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Mohori Bibee v. Dharmodas Ghose (1903) Facts: The plaintiff, while he was a minor, mortgaged his property in favour of the defendant, Brahmo Dutt, who was a moneylender to secure a loan of Rs. 20,000. The actual amount of loan given was less than Rs. 20,000. At the time of the transaction the attorney, who acted on behalf of the money lender, had the knowledge that the plaintiff is a minor. The plaintiff brought an action against the defendant stating that he was a minor when the mortgage was executed by him, therefore, mortgage was void. By the time of Appeal to the Privy Council the defendant, Brahmo Dutt died and the Appeal was prosecuted by his executors. The Defendant, contended that the plaintiff had fraudulently misrepresented his age and therefore no relief should be given to him, and that, if mortgage is cancelled as requested by the plaintiff, the plaintiff should be asked to repay the sum of Rs. 10,500 advanced to him. Held: The agreement made by a minor is void.‎ construction law


EXCEPTIONS 1) Contracts for necessaries (s. 69 of the Contract Act 1950)

• Necessities are things which are essential for the existence and reasonable comfort of an infant. Scarborough v Sturzaker (1905) 1 TAS LR 117 Nash v Inman (1908)

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Scarborough v Sturzaker (1905) 1 TAS LR 117 Facts: Stur (minor) liable to pay for new bike which he purchased from plaintiff. Evidence showed Stur had to cycle to place of work and he used old bike as part payment for new one. Held: Court found for Stur but balanced benefit (bike) with detriment of regular payments (in proportion) to P.

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Nash v Inman (1908) Facts: Nash, a tailor on Savile Row, entered into a contract to supply Inman (a Cambridge undergraduate student) with, amongst other things, 11 fancy waistcoats. Inman was a minor who was already adequately supplied with clothes by his father. When Nash claimed the cost of these clothes Inman sought to rely on lack of capacity and succeeded at first instance. Held: The foundation of such a claim is not contractual, but rather an obligation to make ‘fair payment in respect of needs satisfied

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EXCEPTIONS 2) Contracts for scholarship • A scholarship entered is valid if it is granted by the Federal or State Government, a statutory authority or an educational institution such as University • Exception 3—Nor shall this section render illegal any contract in writing between the Government and any person with respect to an award of a scholarship by the Government wherein it is provided that the discretion exercised by the Government under that contract shall be final and conclusive and shall not be questioned by any court. [s.29] • In this exception, the expression “scholarship” includes any bursary to be awarded or tuition or examination fees to be defrayed by the Government and the expression “Government” includes the Government of a State [s.29] 46 construction law

EXCEPTIONS 3) Contracts for insurance • An infant over the age of 10 may enter into a contract of insurance 4) Contract of service/apprenticeship • Based on the two legislations; the Employment Act 1955 and the Children and Young Persons (Employment) Act 1966

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B) Sound mind • Unsound Mind or Drunken Persons (Section 12) 1) A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests 2) A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. 3) A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of.

– unsound mind

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Illustration (a) A patient in a mental hospital, who is at intervals of sound mind, may contract during those intervals. (b) A sane man, who is delirious from fever, or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts. construction law


C) Not barred by law • The person is not disqualified from contracting by any law to which he is subject to.

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INTRODUCTION • As a general rule, contractual rights and liabilities affect only the parties to the contract and a person who is not party can neither sue nor be sued on the contract (Ainah, 2005)

• A contract cannot usually give rights or impose obligations on anyone who is not a party to the contract (Bone, 2001) • It is a fundamental principle of common law that apart from special circumstances – A person who is not a party to a contract has no right to sue on the contract – Thus if A enters into a contract with B, only A & B can enforce or sue on the contract. – C who is not a party to the contract cannot do so

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• Two common law principles: 1) He is a party 2) He gave consideration to the defendant in return for his promise

• The position of third parties is that obligations under a contract cannot be transferred unless all the parties consent (tripartite) Tweddle v Atkinson [1861] 121 ER 762 construction law


Give money to their children




Completed his obligation

MR ATKINSON (EXECUTOR Got married and wanted to claim the benefits

TWEDDLE (GROOM) construction law


Dunlop Pneumatic Tyre Co. Ltd. V Selfridge & Co. Ltd. [1914] AC 847) Facts: In the contract Dew & Co. wholesalers, agreed to buy tyres from Dunlop. They did so on the express undertaking that they would not sale below certain fixed prices. They also undertook to obtain the same price-fixing agreements from their clients. Dew sold tyres on to Selfridge on these terms but Selfridge broke the agreement and sold tyres at discount prices. Dunlop sought an injunction. Held: Dunlop application for injunction was failed for lack of privity. In the House of Lords Lord Haldane said:“Only a person who is a party to a contract can sue on it. Our law know nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam.�

VS construction law


Not to sell below fixed price



Not to sell below fixed price

SELFRIDGE (D) construction law


• Jus Quaesitum Tertio – A contract cannot confer rights on a third party and only a party to a contract can sue on it. – But rights may be conferred on third parties by way of trust, if so intended.

• Only binds the parties to a contract. A person not a party to a contract cannot: 1)

Recover benefits under the contract even though the contract expressly confer that benefits – Tweddale v Atkinson [1861]. 2) Have obligation imposed on him by the contact, even if he aware of it – McGruther v Pitcher [1904] – Adler v Dickson [1954] construction law


McGruther v Pitcher [1904] Facts: McGruther was the owner of a patented "revolving heel pad'. McGruther pasted inside the lid of each box, in which the pads were sold, a printed slip stating that it was a condition of the sale that they were not to be resold at less than the recommended price, and that "acceptance of the goods by any purchaser will be deemed to be an acknowledgement that they are sold to him on these conditions and that he agrees with the vendors to be bound by the same'. Pitcher purchased some of the pads from a wholesale agent of McGruther. He then sold them at less than the recommended price. McGruther brought an action against Pitcher to restrain him from selling the pads below the recommended price. Held: McGruther could not restrain Pitcher from selling the pads below the recommended price because although there was a contract between Pitcher and the wholesale agent of McGruther, McGruther himself was not a party to the contract. construction law


Price v Easton [1833] 110 ER 518 Facts: Easton had agreed with a third party that if that third party did specified work for him he would pay £19 to Price. While the work was completed by the third party, Easton failed to pay Price who then sued. Held: Price’s claim was unsuccessful. He had given no consideration for the arrangement and was not therefore a party to the contract.

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EASTON (D) construction law


• A third party may also be able to pursue a concurrent action in tort – Donoghue v Stevenson (1932)

• An action may also be based on a collateral contract which may be implied (Ainah,2012) . • A contract between two parties may be accompanied by a collateral contract between one of them or a third person within the subject matter. – Shanklin Pier v Detel Products (1951) construction law


Donoghue v Stevenson (1932) Facts: Mrs Donoghue went to a cafe with a friend. The

friend brought her a bottle of ginger beer and an ice cream. The ginger beer came in an opaque bottle so that the contents could not be seen. Mrs Donoghue poured half the contents of the bottle over her ice cream and also drank some from the bottle. After eating part of the ice cream, she then poured the remaining contents of the bottle over the ice cream and a decomposed snail emerged from the bottle. Mrs Donoghue suffered personal injury as a result. She commenced a claim against the manufacturer of the ginger beer. Held: Her claim was successful

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Shanklin Pier v Detel Products (1951) Facts: Shanklin Pier Ltd hired a contractor to paint the pier. They discussed with Detel Products ltd the suitability of a certain type of paint and were assured that the paint in question would last for seven years. With this advice in mind Shanklin Pier Ltd went ahead and instructed the contractors to use the recommended paint. The paint was unsatisfactory and started to peel in the first few months after painting. Shanklin Pier claimed for compensation from Detel Products. There was the added complication that there was no direct contract between the two companies only between the contractor and Shanklin Pier and the contractors and Detel Products. Held: The plaintiffs were entitled to recover against the defendants damages for breach of the express warranties alleged. construction law


• In construction privity plays a vital role especially in formation of contract




Traditional contract

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Contractor Architect

Sub Contractor

Design and build

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1. 2.

Submit tutorial 2 Prepare mindmap for chapter 3 & 4 construction law


Chapter 4; Elements of Contract (Part II)  

An explanation on the elements of contract namely; Intention, Consideration, Legal Capacity, Certainty and Privity