consideration - privity of a contract:

Question 1

Define privity:

Answer 1

A contract cannot as a general rule confer rights or impose obligations arising from under it on any persons except the parties to it

Part 1:
A person may not sue unless they are privy to the contract

Part 2:
A person may not be sued unless they are privy to the contract

Question 2

Dunlop Pneumatic Tyre Co. Ltd v Selfridge (1915)

Answer 2

Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price (RRP). As part of the agreement, Dunlop also required their dealers to gain the same agreement with their retailers, who in this instance was Selfridge. The agreement held that if tires were sold below the RRP, they would be required to pay £5 per tire in damages to Dunlop. This was agreed between the dealer and Selfridges, which effectively made Dunlop a third-party to that agreement. Sometime after this, Selfridge sold the tires below the agreed price and Dunlop sued for damages and an injunction to prevent them from continuing this activity. At the initial trial, the decision was given to Dunlop. This was appealed by Selfridge and the decision was reversed. Dunlop appealed.

Issue
Selfridge argued that Dunlop could not enforce the contract as Dunlop was not part of the agreement between the dealer and Selfridges. On this basis, the question for the court was whether Dunlop had the right to access damages without a contractual relationship.

Decision/Outcome
The court held in a unanimous decision that Dunlop could not claim for damages in the circumstances. The court found that firstly, only a party to a contract can claim upon it. Secondly, Dunlop had not given any consideration to Selfridge and therefore there could be no binding contract between the parties. Lastly, Dunlop was not listed as an agent within the contract and could therefore not be included as a valid third-party who had rights to claim on the contract.

Question 3

relationship between privity and consideration

Answer 3

privy is based on the rule that consideration must move from the promisee

Question 4

Jackson v Horizon Holidays Ltd (1975) - injustice

Answer 4

if it is seen to be an injustice, the courts have found ways to avoid the rule.
Mr Jackson booked a 28 day holiday in Ceylon for himself and his family through Horizon Holidays. The hotel turned out to be unsatisfactory for various reasons relating to cleanliness and provision of services. The trial judge made an award for the disappointment suffered by Mr Jackson, but stated he could not take into account the disappointment suffered by his wife and children since they were not party to the contract. Mr Jackson appealed.

Held:

Mr Jackson was able to recover for the disappointment suffered by his wife and children. This amounts to an exception to the rule of privity of contract based on the decision in Beswick v Beswick (1968)

Question 5

1. Exceptions - Agency

Answer 5

An agent is authorised to make a contract on behalf of another person, the principal. The principal is then bound by the terms of the contract even though they did not physically make the contract themselves.
The agent and principal are treated as the same thing therefore the principal is party to the contract.
Employee - agent
Company - principal

Question 6

2. Exceptions - Collateral Contracts

Answer 6

this is when a contract is found alongside the main agreement, as seen in Shanklin Pier

Question 7

Shanklin Pier Ltd v Detel Products (1951)

Answer 7

The Plaintiffs were owners of a pier in Shanklin on the Isle of Wight. They entered into a contract with contractors to have the pier repaired and painted. Under the contract the plaintiff had the express right to alter the contract. The Defendant company director approached the Plaintiffs with a new painting product for the pier. After much persuasion, the Plaintiffs amended their contract with the Contractors to allow for the paint in the renovation. After several months, the paint flaked off and did not last. The Plaintiffs brought a claim for damages.

Issues
Whether the Plaintiff was entitled to bring a claim against the Defendant company, who was not party to the contract to undertake renovations.

Decision / Outcome:
The Defendant was found to be liable given he had provided an express warranty over the paint to the Plaintiffs, who in consideration of the warranty caused the contractor to buy the paint from the Defendant also and suffer the same damage, by reason of a breach of warranty. It was held that if the contract for the direct sale and purchase had been made between the Plaintiff and the Defendant (with no involvement of a contractor), then the same warranty for the paint would be intended to exist and be implied. The Judge saw no reason as to why the same warranty should not be enforceable and extend between the Plaintiff and the Defendant. The Plaintiff was entitled to recover damages.

Question 8

3. Exceptions - statutory exception - Contracts (Rights of third parties0 Act 1999

Answer 8

Under S1 of this act, a third party may enforce the contract against either or both the actual parties if:
1) the third party is expressly identified by a name or as a member of a class, or as answering particular description and,
2) the contract expressly provides that the third party may enforce the contract, OR
3) the contract term is an attempt to confer the benefit of the term on the third party (is it made to benefit them?)

Step 2: is the section 1 established?
1. C must establish that A and B intended him to be able to enforce the contract
a) the contract expressly provides that C can enforce the terms of the contract (s1(1)(a))
b) the term purports to confer a benefit on C (s1(1)(b))

Question 9

Step 2: is the section 1 established?

Answer 9

Step 2: is the section 1 established?
1. C must establish that A and B intended him to be able to enforce the contract
a) the contract expressly provides that C can enforce the terms of the contract (s1(1)(a))
b) the term purports to confer a benefit on C (s1(1)(b))