Formation- Formalities + Privity

2 types of contracts which have formalities

sale of land

contracts of guarantees

Sale of land requirements (way to get around themtoo)

• Written and signed by the promisor for the sale of land per Act 2007. (Examples of contracts that are: sale, mortgage, transfer, gift, petition etc] any form of transferring land)

• Exceptions: Short-term leases, Contracts for the sale of land ordered by a court or conducted through the Registrar

• Mosaicing; : A non-conforming agreement concerning an interest in land, may be joined with or incorporated into another related transaction, which properly or clearly refers to that non-conforming transaction, and thus, enabling that latter  (non-conforming transaction) to satisfy the requirement of writing

Legal implications of non-conformity of formality for sale of land

Courts will not enforce the contract (no damages either.)

Exception to requirement that land contracts be in writing;

• Doctrine of part performance (Fleming v Beevers)

1. Demonstrate a sufficient oral agreement; 

2. Show that steps were taken towards the performance of the contract

3. It will be unconscionable for the vendor or their agent to rely on the provision of legislation to avoid the contract

Contracts of Guarantees

Signed and in writing  Contracts of guarantee: create an obligation in a 3rd party to indemnify a creditor for the debt owed or to be owed by a debtor There must be 1 contract that identifies the precise obligations or undertaking of the guarantor Guarantor must know what they’ve assumed responsibility for (Brougham v Regan) Legal implication - contract is not enforceable (s 27 PLA) Exception to contract of guarantees being in writing  Promissory estoppel: Does not easily apply to create an exception to the rule. Only apply if the guarantor (in the face of non-conformity with the writing requirements) had specifically assured the debtor that they would not renege on their undertaking to guarantee the debtor's debt. (Brougham v Regan)

Fleming v Beevers [1994] 1 NZLR 385

Fleming and Beevers were in a de facto marriage - bought a house together and agreed to leave their share to the other in their will Mr Beevers died before he changed his will Mr Beevers' sons and Ms Fleming both claimed the house

Agreement to change wills was part of a wider composite agreement Combination of existence of contract (minus formalities) plus part performance creates circumstances for equitable remedy

Body Corporate v McNish - privity

Facts/issue

Ratio

Body corporate of a development claimed that, although it was not party to the lease, it was entitled to rely on a clause of the Lease enforcing payment of levies Lessor (registered proprietor) was liable to body corporate for all levies Burden of the levies was passed onto lessees (McNish), within a clause of their Lease Lease was not intended to create an obligation on the lessees that was enforceable by the body corporate

The clause in the lease for the lessees to pay levies to the lessor was for the benefit of the lessor, not the body corporate No one was entitled to, or bound by, the terms of a contract to which they were not a party and the body corporate was not an intended beneficiary (as opposed to an incidental beneficiary)

Laidlaw v Parsonage - privity

Parsonage let vendor know that they would be transferring property to trust Laidlaw in contract made a warranty that it was fit for use and conformed to standards After property was bought it was leaking = condition not as good as it was said. Trust sued for cost of fixing the property. Laidlaw claimed they sold to parsonage not with the trust

Court disagreed, parsonage introduced nominees which is the trust. Property was introduced and transferred Laidlaw was bound by the trustees.

main principles of privity

• Where a contract confers a benefit on a third party that party cannot sue to enforce that benefit

• A 3rd party cannot be liable in respect of obligations [or burden] that may be purportedly imposed in them in a contract between others.

• 3rd party cannot enjoy the benefit of a contract, nor can they should not suffer a burden imposed by a contract between other parties.

Exceptions to privity;

Assignment

Novation

Agency

CCLA

Assignment

• Transferring of a party’s right under contract to 3rd party

• 3rd party can enforce that right directly - can only benefit (right to receive something) this party not burden (enforce an obligation) them. 

• Can be assigned without other party’s consent 

Novation

• Replacing original party entirely with a 3rd party, covering both rights and obligations

• Requires both parties consent

• 3rd party can both enforce and be bound by contract (benefit + burden)

• Effectively creates a new contract

Agency

Acts on behalf of the principal. Thus the principal is the real contracting party and can sue or be sued directly.

CCLA as an exception in privity

• s 10 (purpose): To permit a third party to enforce a promise made in a contract for their benefit.

• s 11: “Benefit” includes advantage, immunity, limitation of liability, improvement of rights.

• s 12: Contract must specify the third party by name, description, or reference to a class.

• s 13: s 12 does not apply if there is no intention to create an obligation enforceable by third party/beneficiary.

• s 17: If the above apply then the third party can enforce the contract.

Identifying a beneficiary: in privity (2)

• Designation (by definition or description)

  • Generally, beneficiary (ies) or class of persons intended as contract beneficiaries must be identified or identifiable

• Nomination: a nominee is any person I mention. (Laidlaw v Parsonage)

Requirement of proof of an intention to benefit the non-party

• Non-party must prove that the purpose of the contract or deed is to benefit them. Burden of proof then shifts to the promisor to disprove any such intention to benefit the 3rd party

• Non-party must show that they  were the intended beneficiaries of the contract as opposed to being an incidental beneficiary Contract must specify who the beneficiary is -> then only them can sue. Can be done by:

  • By particular specification of a person

  • Or by nomination.

What is a benefit in privity?

• Advantage: any positive gain promised to the third party

• Immunity: Protection from being sued or held liable

• Limitation/Qualification of Legal liability or responsibility: This is critical. It covers clauses that cap the amount a person can be sued for or limit the obligations they owe to others

• Extension/Improvement of rights: Making a 3rd party's existing legal rights 'better' or more extensive than they currently are.