Consultation Paper Privity of Contract

Contracts are personal transactions

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Contracts are personal transactions

2.4 Another argument is that the ambit of a contract should extend only to those who agree on its terms and scope (ie, the contracting parties), rather than any third party beneficiary. Contracts are seen as personal transactions affecting only the parties to them. This is based on the notion that contracts need an element of consent which is provided by making an offer or an acceptance. Since a third party has, by definition, made neither an offer nor an acceptance, and so has not consented, he should not obtain any contractual rights.4

2.5 The Law Commission, however, argued that the purpose of requiring consent was to protect personal autonomy, and a third party's autonomy would not be undermined when the issue concerned the giving of benefits to (but not imposing burdens on) him.5 In addition, where both parties have agreed to benefit a third party, allowing the third party to enforce the agreement gives effect to their intention and, if anything, promotes the autonomy of the parties to the contract rather than the reverse. Sir Guenter Treitel observes that the privity doctrine can scarcely be justified by saying that a contract is a personal relationship affecting only the parties to it; for this amounts to a restatement of the doctrine rather than a reason for it.6 The majority of the Sub-committee understands that contracts are personal in nature. Nonetheless, if the parties intend to benefit a third party, their wishes as stipulated in the contract should be respected. The law should give effect to the parties' intention.

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