Privity Of Contract Flashcards
What is the Privity of Contract rule?
Only the parties to the contract are bound - no one other than the parties can bring action in court.
CASE: Tweedle v Atkinson
The rule that a contract can’t place a burden on a third party.
CASE: Dunlop Pneumatic Type v Selfridges
CASE: Tweedle v Atkinson
- Man and woman were engaged to be married.
- The fathers promised each other that they would pay money to the son when they married
- Father of groom paid but the father of the bride died.
- Action against estate failed as was not party to original agreement.
CASE: Dunlop Pneumatic Type v Selfridges
Contract 1 - Dunlop v Wholesaler
Contract 2 - Wholesaler v Selfridges
Dunlop can’t sue Selfridges for breach of contract as Dunlop not party to Selfridge contract.
What are the exceptions to Privity of Contract?
1) s11 Married Woman’s Property Act 1882
2) Case Law
3) Contracts (Rights of Third Parties) Act 1999
What are the exceptions to Privity of Contract - s11 Married Woman’s Property Act 1882?
A trust will be created and therefore surviving spouse or child can sue on the policy - even though they are not a party to contract.
What are the exceptions to Privity of Contract - Case Law?
CASE: Jackson v Horizons Holiday Ltd
Held to allow the contracting party to sue for the third party’s loss.
Mr Jackson was the only family member who entered contract but allowed to recover damages for third party (family members)
What are the exceptions to Privity of Contract - Contracts (Rights of Third Parties) Act 1999?
s1 C(RTP)A - a third party can enforce a term of the contract if either the contract expressly says they may (1(a)) or the term in question purports to confer a benefit on him (1(b)).
N.B. Not enough for a contract to simply ‘name’ third party.
The act has preserved the previous rules (s11 MWP A 1882 and Case Law) in s7 (1).
When is s1(1)(b) not enforceable?
- S1(2) - If the parties did not intend the third party to enforce
- S1(3) - If the third party is not “expressly identified in the contract by name, as a member of the class or as answering a particular description and does not need to be in existence when the contract is entered into”
CASE: Held the wording in the contract not sufficient - wording must be clear.
CASE: Held identifying third party will involve construction of “a contract as a whole”
s1(4) - contracting parties can include express term in contract to exclude third parties right to sue.
What is “Assignment”?
A person (assignor) transfers rights, property, or other benefit (rights) to another (assignee).
Rights can be assigned under a contract to third party unless prohibited under contract.
What type of contract usually restrict assignment?
Commercial contracts.
Either:
1) strict prohibition
2) assignment permitted either with the other party’s consent or selected group of people.
What does “Novate” mean?
Transfers the benefits and the burden under a contract.
The original contract is extinguished and replaced with a new one - the third party rights and obligations replicate the original.
It is only possible with the consent of the original contracting parties - as we all the new parties.
Consideration must be provided for new contract - unless the novation is documented in deed signed by all three parties.
What are the three possibilities for “novation”?
1) all or part of the burden transfers
2) all or part of the benefit transfers
3) the whole of the burden and benefit transfers
