Privity of Contract Flashcards
What is the basic common law rule of Privity of Contract?
The basic common law rule is that only those who are party to a contract may enforce its benefits, and be bound by its obligations.
What scenarios have the courts allowed that departs from Privity of Contract and why?
The courts have accepted the utilisation of the following to avoid problems arising from privity:
Collateral contracts
Agency
Trusts
To ensure justice between the parties.
Privity – Law of Tort
In a case where A buys goods from B, which he then gives to C, and where the goods were carelessly manufactured by B, then C might be able to obtain compensation from B for the damage or injury they suffer.
Donoghue v Stevenson (1932)
Damages awarded when the decaying remains of a snail were found in a bottle of ginger ale.
Donoghue v Stevenson (1932)
Privity – Law of Tort
Damages awarded when the decaying remains of a snail were found in a bottle of ginger ale.
Dunlop Pneumatic Tyre v Selfridge & Co (1915)
Common law rules re: privity - has to be consideration
Dunlop sold tyres to Dew & Co subject to the conditions that:
The firm would not sell them below a certain price; and
If the tyres were sold to a trade customer, that trade customer would not sell them below the same price restriction.
Dew & Co sold the tyres to Selfridge.
Selfridge sold the tyres below the price cap.
Dunlop sued Selfridge, but they lost the claim as there was no consideration given by Selfridge for the promise not to sell below the price cap. There was no privity of contract between Dunlop and Selfridge.
Beswick v Beswick (1967)
Common law rules re: privity - has to be consideration
P Beswick sold his coal business to his nephew.
It was agreed that the nephew would pay P Beswick a certain sum per week for the rest of P Beswick’s life, and if he died, then the nephew would pay an annuity to P Beswick’s wife.
P Beswick died, and the nephew paid the annuity for one week only but then stopped.
Widow sued for breach of contract and specific performance.
The claim was brought by the wife as the administrator of P Beswick’s estate.
The HOL held that she could claim as the administrator of the estate, but not in her personal capacity as she was not a party to the contract and had provided no consideration.
Which Act was established to deal with third party rights under a contract?
The Contracts (Rights of Third Parties) Act 1999
The act does not apply to contracts entered into before 11 May 2000.
The statute was generally enacted to give effect to recommendations of the Law Commission following intense criticism of the rules of privity of contract.
What is the main objective of C(RTP) Act 1999 as set out in section one?
A person who is not a party to a contract may in his own right enforce a term if:
i) The contract expressly provides for it.
ii) Subject to (2), the term purports to confer a benefit on him.
2. Subsection 1(b) does not apply if on a proper construction of he contract it appears that the parties did not intend the term to be enforceable by the third party.
How do you identify a party under the C(RTP) Act 1999?
Section 1(3) requires that the intended third party must be expressly identified in the contract by:
Name
Member of a class
Answering to a particular description
The party does not need to be in existence at the time the contract is entered into e.g. an unborn child.
Can you vary third party rights?
Variation of the Third Parties Rights
Parties to the contract, unless they have made specific arrangements on the contract, will lose the right to vary or cancel the third parties rights if one of the following scenarios applies:
The third party has communicated their assent to the term of the promisor.
The promisor is aware the third party has relied upon the term; or
The promisor can reasonably be expected to have foreseen that the third party would rely upon the term, and in fact the third party has relied on the term.
Assent can be by words or conduct.
The postal rule is excluded and assent must be received.
Can you claim damages on behalf of others that are not parties to a contract?
Where third party rights may not exist in contract, can a person claim damages on behalf of another?
Jackson v Horizon Holidays Ltd (1975)
Husband booked a family holiday which turned out to be a disaster.
Husband claimed damages on behalf of himself and his family.
COA held that the husband could recover damages on behalf of the family.
Woodar Investment Development v Wimpey 1980
HOL reconsidered Jackson and stated that Jackson could have contracted with Horizon on behalf of the family as their agent, therefore making the entire family parties to the contract.
Can a contract impose obligations on a third party?
Third Party Obligations
Usually, a contract between A and B cannot impose obligations on C. There are exceptions concerning land:
Tulk v Moxhay (1848)
T owned land. He sold a garden in Leicester Square and the purchaser covenanted to keep the garden in its present condition.
The garden was sold to the D but without the covenant, although D knew about the covenant.
D intended to build on the garden. C sought an injunction to stop him building.
Court granted the injunction as equity allowed the original covenant to be applied to all future purchasers.
Adler v Dickson (1955)
Privity and exemption clauses
Privity and exemption clauses
Adler was injured boarding a ship.
Her contract was with the shipping company, and it contained an exclusion clause for damage.
Adler sued the master and Botswain of the ship for not securing the plank, in negligence.
Court held that the Master and Botswain were not protected by the exemption clause as they were not parties to the contract.
