privity of contract Flashcards
basic principle
third parties may not enforce the terms of a contract to which they are not a partyt
the general rule
only parties to a contract can acquire rights and liabilities under that contract
-> if you are not a party to a contract, then you cannot sue upon it or be sued under it
Dunlop v Selfridge 1915
- dunlop sold Tyers to Dew & Co; who were wholesalers
- dew and co undertook (expressly in the contract) that the manufacturers could fix the lowest price at which they could also sell the tyre and promised not to sell the tyres below that price e
- also agreed to obtain the same pricing terms from customers to whom they resold tyres
- sold tyres to Selfridge om these terms
- Selfridge broke the pricing agreement and sold the tires at discounted prices
- dunlop sued Selfridge and sought an injunction to prevent them from selling their tyres at a discount
Dunlop v Selfridge 1915: Legal Principle
- dunlop failed
- although there was a contract between them and Dew&Co , Selfridge were not a party to that contract and Dunlop, therefore could not impose their terms upon them
common law rule criticism ->
- leading to harsh and unfair outcomes, especially in cases where the contract purports to confer a benefit on a third party who remains unable to sue if that benefit is not forthcoming due to a breach by one of the parties to a contract
exceptions to the basic rule
- by statute
- collateral contracts
- agency
- convenants in land law
- trusts
exceptions provided by statute
- s.14 road traffic act 1988
- s.11 married womans property act 1882
- s.29 bills of exchange act 1882
- s.136 law of property act 1925
- s.56 law of property act 1925
- competition act 1998
using statute as a creative loophole to avoid the privity doctrine has failed ->
Beswick v Berwick
-> used law of property act 1925 in relation to personal property > land interest/land
s.14 road traffic act 1988
requires drivers to have 3rd party insurance, which can be relied on by 3rd parties who suffer loss/damage even though they are not a party to that contract
s.11 married womans property act 1882
allows a wife to claim on her husbands life insurance policy
s.29 bills of exchange act 1882
a third party may sue on a cheque or bill of exchange
- s.136 law of property act 1925
allows rights arising under a contract to be signed by a 3rd party
- s.56 law of property act 1925
allows a person to acquire an interest in land/other property or the benefit of a covenant relating to land or other property even if that person is not expressely named in another document
competition act 1998
prohibits price fixing arrangements
collateral contract
a collateral contract may be used to avoid the rule relating to privity
-> a contract between 2 parties may be accompanied by a collateral contract between one of those parties and a third party relating to the same subject matter
Shanklin Pier v Detel Products Ltd 195: FACTS
claimants entered into a contract with painting contractors to paint their pier, having been assured by the defendants that their paint would last for at least 7 years without deterioration
- the defendants then sold the paint to the contractors
-» however, the paint peeled within 3 months
- the pier owners could not sue the painters since they had carried out the work professionally and thus had completed their side of the contract
- the pier owners sued the paint manufacturers
Shanklin Pier v Detel Products Ltd 1951: Legal Principle
pier owners were successful
- although were not a party to the contract between the paint manufacturers and the painting contracts [hence, no privity of contract]
- it was held that a collateral contract had risen from their promise as to the suitability of the paint
-> the use of collateral contract is not an exception to the doctrine of privity, since a new contract arises
-» however, it is an effective means of evading the doctrine of privity
what are collateral contracts for>
- seen as a way to identify a contract between the party making a promise and the other party
agency
the contract of agency is a common law exception to the doctrine of privity, the parties in an agency arrangement are -»
parties in an agency agreement
- principal
- agent
- third party
principal
- the party on whose behalf the contract is made and who receives the benefit arising under the contract
agent
- the agent is a party to the contract with the third party, the agent has a direct contractual relationship with the 3rd party, but is making the contract on behalf of the principal, and not on his own behalf
third party
- the third party enters into the contract with the agent
-> however, the rules of agency provide that there is no contractual relationship with the agent, instead the principal is bound by the contractual relationship with the 3rd party; which has been entered into by the agent on his behalf
convenants in land law
a covenant is an agreement between two or more parties made in the form of a deed
-> therefore similar to a contract, with the exception that contracts made by deed do not have to be supported by consideration
restrictive covenants
(promises to refrain from doing something) will bind successive purchasers of the land even though there is no privity between them and the original seller
Tulk v Moxhay
- to show how restrictive covenants can bind successive purchasers of land in equity w/o privity between them and the original seller
- court considered would be unconscionable for Moxhay to buy with knowledge of the restriction and yet to build on the land
-> an injunction was therefore granted to enforce the original agreement between Tulk and the first purchaser of the land, even though Moxhay had not been a party to that agreement
-> principle v narrowly used and generally only applies to land
two conditions to which Tulk v Moxhay principle
- the third party must have had notice of the restrictive covenant at the time of purchase and
- the original seller must have retained land that was capable of benefiting from the restriction
Tulk v Moxhay: failed principle
- failed in relation to price fixing arrangement
trusts
the doctrine of privity may also be avoided in the situation where one of the parties to contract that confers a benefit of a third party holds their contractual rights in trust for that third party
the right to claim damages
- General Rule: Normally, if you’re not directly part of a contract (a third party), you can’t enforce it. That’s called the doctrine of privity.
- Exceptions: There are some exceptions to this rule, but if none apply, the third party has no way to enforce the contract unless one of the people who is part of the contract takes action.
- The Problem: If the contract is meant to benefit the third party, the person suing (one of the actual parties to the contract) might not have suffered any personal loss because they weren’t the one meant to benefit.
- Damages: In such cases, the court can award damages (compensation), but since the person suing didn’t suffer any real loss, they’d only get a small, symbolic amount called “nominal damages.”
common law rule:
allows a remedy to be awarded to a party event w/o privity of contract where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who caused it
Alfred McAlpine Constructions Ltd v Panatown Ltd
House of Lords held that the duty of care deed with the 3rd party prevented panatown from suing, since this deed gave the 3rd party a specific remedy
-> lords split 3-2 on the issue, which shows that the decision was very finely balanced
the common law position was amended by..
statute in the form of the Contracts (Right of Third parties act 1999)
