Privity of Contract Flashcards
General Rule?
The Doctrine of Privity A common law rule that prevents a contract from being enforceable in
favour of, or against, someone who is not a party to the contract.
Development of the Doctrine
Tweddle v Atkinson [1861]
P engaged to A’s daughter. In recognition of marriage, A entered into agreement with P’s father to pay them money after marriage. However, P was not a party to this agreement.
A died after marriage and the executor’s of A’s estate refuse to pay the money. P sued for it.
Held P was not a party to the original contract so he could not sue.
Development of the Doctrine
McCoubray v Thompson [1868]
Landowner wished to transfer property in equal shares to P and D, however, D wanted the whole property. P agreed to this provided he was given the monetary value of his share of the land.
To simplify, landowner entered into agreement w D to transfer the prop as long as he paid P.
After transfer, landowner died and D didn’t pay P. P sued D.
Rejected: P not party to the agreement and failed to show any consideration.
Development of the Doctrine
Dunlop v Selfridge [1915]
P company sold tyres to wholesaler. Contract for sale contained a term stating the tyres wouldn’t be resold to third parties at undervalue. P tried to enforce this term against D (seller).
Rejected: lack of consideration and D not a party to the contract.
Development of the Doctrine - Ireland
Murphy v Bower [1868]
Ps made agreement w railway co to carry out construction work on the railway.
Railway co then employed D to supervise the work. The construction contract provided D would issue certificates as the work was completed and upon presentation the Ps would be paid.
D refused to certify the work. P sued but was unsuccessful: no contract bw P and D.
Exceptions to Doctrine - Trusts of Contractual Rights
Old - Drimmie v Davies [1899] IR
The equitable trust is a way that persons who aren’t party can still benefit from the contract. A person transfers property/money to another person (Trustee) to hold on trust for a third party (beneficiary).
Dad agreed to set up dental practice with son. As part of agreement, son agreed to maintain his mum and dad and pay them certain annuities if his dad died before him.
Executor of estate (and beneficiaries) sought to enforce the promise. Court held the contract
effectively created a trust in favour of the deceased dad’s wife and other beneficiaries.
Exceptions to Doctrine - Trusts of Contractual Rights
Cadbury Ireland v Kerry Co-Op [1982
But now (in Ireland), there must be intention to create a trust in favour of a third party: An intention must be evident. Diplock L described this as a fiction used by courts to avoid the perceived harshness of the privity doctrine
Exceptions to Doctrine - Agency
Scruttons Ltd v Midland Silicones [1962]
Court asked to decide whether a firm of stevedores could rely on a limitation clause in a contract between the client and the carrier. HOL set down 4-stage test to be satisfied:
The contract must make clear the stevedores are intended to be protected
The contract clearly provides the carrier is an agent to obtain benefit of contract for principal
The carrier has the authority to act for the principal
Consideration was present on the part of the principal
Held the test wasn’t satisfied as there was no explicit intention to benefit the stevedores
Exceptions to Doctrine - Agency
General rule?
An agent is a person who acts on behalf of another person (the principal). In contract negotiations, the agent’s actions bind the principal: P is entitled to benefit from the contract and may sue on foot of it.
Exceptions to Doctrine - Agency
New Zealand Shipping v The Eurymedon [1975]
Drill machine being transported from UK to NZ. Consignors (in UK) made agreement w carrier w exclusion clause limiting the liability of the carriers, their employees, agents & indep. contractors
Carriers employed the def stevedores to unload it, which got damaged due to their negligence
Relying on the Scruttons test, the court held the stevedores were entitled to rely on the exclusion clause despite the fact it was contained in a contract they weren’t a party to.
Strengthened by fact the clause was well worded: Ss gave consideration under a separate contract and due performance was intended by the contracting parties to entitle Ss to avail of the clause
i.e. a 2nd contract was entered into by the carrier acting as trustee for the stevedores, for which the consideration was the work done, & the terms of the excl. clause were imported into this contract
Exceptions to Doctrine - Agency
Hearn and Matchroom Boxing v Collins [1998]
MB entered into a contract with C. H (not a party) sought to rely on its terms.
H successfully argued MB acted as his agent when they entered into the contract.
MB clearly acted with the authority and for the benefit of H, and consideration was found present.
Exceptions to Doctrine - Restrictions on the Use of the Land and Chattels
Tulk v Moxhay [1848]
Property covenants may be enforced against, and enforced by, persons not party to the original transaction
Covenants run with the land.
Exceptions to Doctrine - Restrictions on the Use of the Land and Chattels
De Mattos v Gibson [1895]:
Reasserted a general equitable principle: a person with notice of a right or interest who acquires property (moveable or not), will be prevented from ignoring the rights of that third party if that party has given valuable consideration for that interest.
Exceptions to Doctrine - Collateral Contracts
Shanklin Pier Ltd v Detel Products Ltd [1951]
In some cases, courts prefer to recognise two separate contracts:
P hired contractors to repaint their pier. P recommended the contracts buy the paint from the Ds.
So, the contractors contract with the Ds for the supply of paint. Ds assured the contractors that the paint would last 7 years. However, it began to fade after a few months. P decided to sue the Ds.
Ds promised the paint would last 7 years and on that promise (consideration) P compelled the
contractors to buy from D.
Exceptions to Doctrine - Statutory Rights relaxing the Rule: Tort
What married women’s acts apply?
S.2 Married Women’s Property Act 1882 and s.7 Married Women’s Status Act 1957 The privity rule doesn’t apply to contracts of life insurance and endowment policies.
S.8 Married Women’s Status Act 1957 Where a contract is made for the benefit of a spouse or child and they’re specifically name in the contract, they may rely on the terms despite not being party.
