privity Flashcards
rule in privity
if u give consideration as part of k formation, u have the right to enforce it, and u will be liable under it
Provender v. Wood facts
- Wood agreed with Provender’s father to pay £20 to Provender after Provender and Wood’s daughter were married
- Wood did not pay, and Provender brought action
Provender v. Wood ratio
The party to whom the benefit of a promise accrues may bring his action.
Tweddle v. Atkinson facts
- Tweddle’s son was marrying Guy’s daughter, and Tweddle was to pay 100 pounds and Guy was to pay 200 pounds to Tweddle’s son.
- Guy died before payment and when the estate would not pay, Tweddle’s son sued Atkinson, the executor of Guy’s estate, for 200 pounds.
- There was a statement outlining “if someone doesn’t pay you, you have the ability to sue.”
Tweddle v. Atkinson ratio
- Third party beneficiary (TPB) cannot sue on a contract
- Natural love and affection are not sufficient consideration in the eyes of the law
Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd finding
The only way that a principal not named in a contract can be sued is if he acted as an agent on behalf of one of the parties privy to the contract
Ways in Which a Third Party May Acquire the Benefit?
- legislature
- trusts or agency
- torts (donoghue v stevenson)
Beswick v. Beswick CA facts
Peter Beswick was a merchant. He agreed to sell his business to his nephew if he paid him a certain sum of money for as long as he lived, and then to pay his wife £5 per week for the rest of her life after he died. He died, and the nephew only paid his aunt once before stating that no contract existed between them. She was also the administratrix of her husband’s will.
Beswick v. Beswick CA denning reasoning
Denning says privity rule is just a rule of procedure
- If you are getting benefit, u have the right to sue
Beswick v. Beswick CA other judge reasonings
Also agree in favor of the widow, but not based on Denning reasons, but because she is acting as executor of state (as executor can bring actions of the person if they were alive)
Beswick v. Beswick HL reasoning
Overturns Denning in the court of appeal – Ms. Beswick has no right to sue her nephew in her personal capacity as she was not a party to the contract (upholds the Privity rule)
- However, in her capacity as executrix of the will, she is able to sue him for specific performance of his promise that was made in the contract.
Beswick v. Beswick HL ratio
Third party can get around the Privity Rule if they are an executor of the estate of a party to the contract and are able and willing to bring an action for specific performance of a promise.
what is the reasoning behind the third party bar?
conclusion that there is no legal relationship between the promisor and the third-party beneficiary
why can agency or trust go around the third party bar?
o Conclusion cannot be reached where the third party can prove the existence of a relationship (trust or agency)
what does creation of a trust do for privity
Once a trust is created, the beneficiary is entitled to enforce the trust obligation directly
what does agency do for privity
If the “promisee” is actually contracting as agent on behalf of the third party, the doctrine of privity has no application
McCannell v. Mabee McLaren Motors Ltd facts
- Studebaker makes cars and sign contracts with different retailers
- The contracts possess a clause such that the retailers can only sell within their territory
- Both parties in this case are retailers of the cars made by Studebaker
- Defendant sold car to someone whose place of business was in the plaintiff’s area.
McCannell v. Mabee McLaren Motors Ltd reasoning
- Studebaker is acting as an agent in this clause to create a contract between the dealers and creating privity of contract between them.
- Test for agency established.
Test for Agency (McCannell v MaBee McLaren Motors)
(1) Agent brings parties together
(2) The parties recognize that agency relationship has been created
NZ Shipping Co v AM Satterthwaite facts
Stevedore tried to rely on clause in a K that they were not a party to
- That they count as agent as carrier
Test for Agency (NZ Shipping Co v AM Satterthwaite)
(1) Clear in the contract that the third party is intended to be protected by provisions
(2) Promisor is clearly acting as an agent for the third-party beneficiary
(3) Promisor has authority to do this from the third-party beneficiary
(4) Consideration moves from the third party to the promisee through the promisor
Contracts under sealed
- When contracts signed under seal, they are enforceable regardless if consideration is present
- If this device is used and the person is named, no problem for privity
London Drugs Ltd v. Kuehne & Nagel facts
- London Drugs delivered a transformer to Kuehne for storage
- Warehouseman’s liability was limited to $40, unless specifically stated otherwise and payment for additional insurance was paid
- With full knowledge of this clause, the appellant chose not to purchase insurance from K&N and instead arranged for its own all-risk coverage
- 2 employees of Kuehne were negligently attempting to move the machine, and dropped it, resulting in $33 955 worth of damage
London Drugs Ltd v. Kuehne & Nagel reasoning
Was clearly intended to extend to employees who did the actual work
- Looks at intentions of parties, applying Privity would frustrate the clear
intentions based on the language, is against commercial reality, common sense and justice, would create uncertainty in the law, and fails to respect reasonable expectations of the parties
Test to determine if employee can obtain benefits of the LLC between an employer and customer (London drugs)
- Limitation of liability clause must explicitly or impliedly extend to employees (needs clear language to exclude)
- Employees seeking to benefit from the clause must have been acting in the course of employment AND must have been performing the “very services” under the contract between employer/customer when the loss occurred
what does Iacobucci point out in London drugs case
all of this turns on intention, that’s why we go back to language of agreement to see if intention to extend protection to employees or subcontracts
Subrogation
Right of an insurance company to step into the shoes of the insured and recover compensation from a third party that caused the accident
Fraser River Pile & Dredge Ltd. v. Can-Dive facts
- Fraser River owned a ship that sank while it was under charter by Can-Dive.
- Can-Dive was negligent in sinking the ship.
- Fraser River recovered from insurance company, who then sued Can-Dive.
- There was a clause in the contract between Fraser River and their insurance company stating that the insurance company could not bring actions against any characters of Fraser River; however, Fraser River made an additional agreement to waive the right to the waiver of subrogation.
Fraser River Pile & Dredge Ltd. v. Can-Dive reasoning
- Iacobucci tells us that LD was not just supposed to be about employees and employers
- Actually, a broader principled exception
Test that they present and apply in Fraser River
do the parties to the contract intend to extend the benefit in question to a third party and the activities performed by the third party?
- Don’t need to worry about consideration, looking @ intention of the parties
Fraser River test
- If the parties to the contract intended to benefit the third party.
- If the third party was performing the very activities contemplated by the contractual provision.
what does Iacobucci say about test in LD
Iacobucci tells us that LD was not just supposed to be about employees and employers
• Actually, a broader principled exception
King v. Shunia Financial Services facts
The Minister for Indian Affairs appointed Shunia Financial Services to manage Gull Bay First Nations’ funds. The FN group is concerned with how the funds are being managed and ask for the records for an independent auditor they hired; both the minister and Shunia refuse to provide the records to the independent auditor. GB seeks a declaration from the court that they are entitled to the records because if they are not party to the agreement, then they are at the very least a third-party beneficiary
King v. Shunia Financial Services reasoning
strict doctrine of privity doesn’t apply to all cases. Where third parties are the beneficiary of agreement, can enforce the terms included for its benefit
Brown v. Canada ratio
In light of the fiduciary obligation, the court allows the doctrine of Privity to be avoided by finding a common law duty of care has been breached.
argument against privity that responsibility should only be present where one has consented to it, foundation of contract law is consent. If a third party has not actually consented to an agreement, then they haven’t agreed to it and leave it. Contracts should only touch you if you have consented to it doing so
Response from Collins: third party has a choice, they can exercise ability to consent to choose to rely on agreement, or they can choose not to. No one is making them do it. Argument about consent and autonomy is not the reality of it. The third party isn’t having something imposed on them against their will. Can act on the benefit if they want to
argument against privity that it’s a monstrous thing that someone could sue on an agreement but they themselves could not be sued
Collins side steps this, response is that consideration is only a rule about which agreements we should enforce, that’s all it tells us.
critique of privity: if we do this, we will see a flood, floodgate will open = so much litigation. Third parties will be huge and unlimited pool of people and unlimited consequences in terms of financial liability
all the exceptions we have seen carved out, are about situations of reasonable foreseeably
- Its reasonable foreseeability that is going to create our limitation
