A very in depth explanation and analysis of privity of contract law covering the definition, exceptions and Rights of Third parties Act. To better your understanding I have explained the cases referenced in the notes.
Privity if contract is the idea that only a party to a contract can either:
- Enforce a contract
- Or have that contract enforced against them
If they don’t comply with the requirements.
Defi ning Privity:
Only somebody who is a party to a contract can sue on the contract or be sued under the
contract – if not = they can neither enforce the contract or have the contract enforced
against them.
Tweddle v Atkinson (1861) – Young couple were about to get married and their respective
fathers made a contract with each other that they would both pay a sum of money over to
the new couple (an unusually feature of this contract is it said that the groom could enforce
the contract if either of the 2 fathers were to default their obligation) – Brides father died
before he had a chance to make his payment to the new couple – his executors refused to
make the payment – Groom went to court in accordance with the terms of the contract to
enforce the payment – court refused to allow the groom to enforce payment as he was a 3 rd
party (not the original part, provided no consideration in return for the promise) = not able
to enforce it.
Dunlop Rubber v Selfridge (1915) – somebody who was a 3rd party to a contract was unable
to enforce that contract. – 3 parties – C (Dunlop) who was a manufacturer of tyres and sold
them in bulk to a company (X) – X would then resell to trade buyers who in turn would sell
them to individual customers – C was keen that their tires should be sold to customers at a
certain minimum price or above = wanted to impose retail price maintenance – in order to
maintain the minimum price and the list price of those tires, C inserted into its contracts for
X with a clause saying that if X were to resell tires at less than the list price to trade buyers, X
would ask the trade buyers in their contracts with X to promise in turn not to sell the tires to
individual customers at less than the list price – X did this including a contract with Selfridge
– Selfridge then began to sell the tires at less than the list price to induvial customers which
was a clear breach of contract between X and Selfridge under which Selfridge promised not
to do that- X didn’t go to court because they had no interest in maintaining the minimum
price of someone else’s tires – Dunlop was and so went to court to try and enforce the
promise of not to sell the tires below a certain price – courts refused as he was a 3 rd party to
Selfridge.
Justification of the Doctrine:
Explanations for the existence of privity of contract might include:
- Making a contract is a process between the 2 parties and results in each accepting a
framework of obligations.
- Consequently, someone who is not a party should not have an agreement he did not
accept enforced against them
, - Equally, they should not be able to take the benefits of the contract if they have
contributed nothing to it.
Privity of Contract:
The 2nd limb of the doctrine of privity causes few problems, but the 1 st limb has difficulties:
- Can lead to unjust results if someone meant to benefit from a contract cannot enforce it
- Many other legal systems allow a 3rd party to enforce a benefit they were intended to
have.
- Tweddle v Atkinson (1861) – contracting parties clearly intended a 3 rd party (the groom)
to not only have a benefit but to be able to enforce that benefit and it was the doctrine
or privity that thwarted and prevented the clear intention of the parties and equally in
Dunlop.
Example – A buys a toaster from B pays by check and A then gives the toaster to C – if it does
not work, C cannot sue B because he was not a party of the contract and would be pointless
for A to sue for breach of contract because A has not suffered any loss.
The English approach:
Other legal systems address this problem by giving a 3 rd party to sue in specific
circumstances.
English law offers protection to 3rd parties by creating a number of exceptions to the
doctrine of privity where they can sue even though they weren’t one of the original
contracting parties.
Excepti ons to Privity:
Claiming damages on behalf of the 3rd party:
The normal rule is that one of the contracting parties is unable to recover damages on behalf
of a third party - One way to mitigate the doctrine of Privity would be to allow the
contracting party to recover damages on behalf of the third party.
The courts have made it clear that there is no general right to this effect – there are 2
possible exceptions:
1) Group contracts in social context – Jackson v Horizon Holidays (1975) – Mr Jackson (the
C) booked himself a holiday for himself and his wife and 2 children – holiday was nothing
like what was promised in the barouche and Horizon Holidays admitted there had been
a breach of contract – C was able to recover as part of normal contract damages the
difference in value between what he had and the holiday that they actually received –
case was also bound to the unusual damages of disappointment damages – C and his
wife and children were also disappointed with this holiday – COA allowed C to recover
disappointment damages at a level that reflected not just his own disappointment but
also the disappointment of the other members of that party.
- Other examples include a meal at a restaurant, a taxi, a holiday or tickets to a sporting or
music event. In these cases, the purchaser may be able to recover damages on behalf of
the others (including “disappointment” damages).
- one person books on behalf of the family so that all of them can go on holiday – obvious
only one person is going to be making the booking for a contract rather than all of them
trying to get one at the same time for the same thing
- problem = if there are defects of the services or the goods that are purchased – if you’re
not careful, the other members of the group will be left without a remedy – may be the
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