Privity of Contract

Question 1

General Rule:

Only parties to a contract can sue or be sued upon their contract

Two distinct feature to this rule:

1. Contract cannot impose obligations on third parties
2. Contract cannot confer rights to third parties

(Case authority)

Answer 1

• *Bourne v Mason**
• Promise to pay doctors daughter

Question 2

Winterbottom v Wright

Tweddle v Atkinson

Question 3

Privity in commercial contract

Case authority

Answer 3

Dunlop Pneumatic Tyre v Selfridge & Co

• Minimum price agreement unenforcable on third party

Answer 4

Negligence is a tort

If there is no contract between the parties they can not sue upon

Neighbour principle - Positive duty towards neighbours

Question 5

Doctrine of privity can be overcome by smart contract drafting

Answer 5

Trident General Insurance v McNiece Bros
- Third parties in contemplation of the principal

Question 6

Nephew refuses to pay aunt on basis of contract with uncle

Answer 6

Beswick v Beswick

Ratio: The deceased had assigned his coal merchant business to the respondent against a promise to pay andpound;5.00 a week to his widow whilst she lived. The respondent appealed an order requiring him to make the payments, saying that as a consolidating Act, the 1925 Act should not be read to change the common law.
Held: The House ordered specific performance of the contract on behalf of the estate though it was to make payments of money to a third party, recognising that the innocent party to the breach of contract had a legitimate interest in having the contract performed even though he himself would suffer no financial loss from its breach.
Lord Guest: ‘as this is a consolidating Act, if the words are capable of more than one construction, then the Court will give effect to that construction which does not change the law. ‘

Question 7

Whole family entitled to compensation for poor hotel

Answer 7

Jackson v Horizon Holidays Ltd

Issues:

Whether damages are recoverable by person making contract to recompense his whole family.

Held:

The appeal by Horizon was dismissed. The Jacksons had made a contract with Horizons for a family holiday and was entitled to recover damages not only for a breach of contract by Horizons, but for the discomfort and distress the breach of contract had caused him. Given that he had booked the holiday for him and his family, Mr Jackson was entitled to also recover damages for the distress and discomfort the breach of contract caused to his wife and children. Horizon had known the holiday was the for family so any breach of contract would foreseeability affect the entire family and not just Mr Jackson who was party to the contract. Therefore, the figure of £1,100 that was awarded in damages on account of Mr Jackson’s claim by the original trial judge, was not considered excessive as it accounted for the distress and discomfort of the whole family.

Question 8

Doctrine of Agency

Answer 8

• Scruttons v Midland Silicones
  
  • Dockworkers damage goods
    
    • Agency may find application if (Lord Reid Rule):
      
      • 1) The contract makes reference to third parties
      • 2) The contract makes reference to agency
      • 3) The third party gave authority to agent
      • 4) Consideration is not a problem

Question 9

Adler v Dickson (“The Himalaya”)

• Passenger thrown off gangway

Answer 9

Contractual provision conferring a benefit (usually exclusion of liability on a third party)

Question 10

Exceptions to the rule of privity

Collateral Contract

Case authority

Answer 10

Shanklin Pier Ltd. Detel Products Ltd.
- Shoddy paint

Question 11

Exceptions to the Rule of Privity

• Trusts

Answer 11

Les Affreteurs Reunis v Leopold Walford (1919)

• Shipowners contracted with charterer and were supposed to pay commission to brokers
• *Re Shebsman**
• Wife & daughter named as beneficiaries, rahter than estate of the deceased

Question 12

Exception to the rule of privity

• Covenants and injunctions

Answer 12

• *Smith and Snipes Hall Farm Ltd. v River Douglas Catchment Board**
• River banks not secured
• *Tulk v Moxhay**
• Garden not maintained

Question 13

Summary Privity

Answer 13

Rule of privity comprises both obligations and rights:

• > Tweddle v Atkinson (1861)
• > Dunlop Pneumatic Tyre v Selfridge & Co

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Exception to the rule of privity

• > Collateral contracts: Shaklin v Pier
• > Agency Adler v Dickson: (“The Himalaya”)
• > Legislation
• > Trust: Les Affreteuers Reunis v Leopold Walford
• > Restrictive covenants / injunctions Tulk v Moxhay