Privity of Contract

Privity of Contract

1. The doctrine of privity of contract: Is that no one who is not a party to a contract can have rights or obligations under it.. is one of the fundamental doctrines of English Common Law.

2. The Effect of Precedent

   • The Origins of the doctrine can be found in the decisions in Tweddle Vs Atkinson, Price Vs Easton.
     • The broad outlines were confirmed by the HOL in Dunlop vs Selfridge and in Beswick vs Beswick.
   • The rule was clearly recognised as harsh and unjust on a beneficiary who could not enforce the benefit at the outset.
   • As there was no general right of third party to enforce a contract Lawyers tried to avoid the rule by using other areas of Law notably; the last of Trusts, Land Law and Law of Propety.
     • The availabilty of expectations depended on whether or not the judges were willing to be creative with common law expectations.
       • FAILED

3. Lord Denning: tried to "skin the rabbit" of Privity by manipulating not the rule itself but the remedies. So that in certain circumstances the promisee could wish to sue on third parties behalf.

4. Origins of Privity

   • Only persons who supply consideration are parties to a contract.
     • Consideration- "is the principle essential ingredient of enforceability".
   • Tweddle Vs Atkinson
   • Dunlop vs Selfridge
   • Price Vs Easton

5. Attempts to avoid the doctrine

   • Privity is often inconvenient in practice and many attempts have been made to avoid it- All attempts have failed.
   • Law Of trusts; The Trust device were a trust can be implied in order to give rights to a presumed beneficiary of the contract.
     • Les Affreteurs vs Walford
     • Trust Device; An implied trust which is used to avoid the hardness of privity.
     • A contracting party can specify that the benefit is held by him/her in trust for a third party in which case that third party will have enforceable rights to the benefit. At oone time the courts seemed willing to imply such a trust where there seemed to be an intention to create one, even though there was no specific reference to a trust in the contract.
   • Land Law- Tulk vs Moxhay; where a person places a restriction on the use of land which binds subsequent purchases.
   • Taddy vs Sterious; An attempt to broaden this doctrine to cover things such as ships/goods.
   • Beswick Vs Beswick
   • To the established expectations there has been attempts to avoid the doctrine. The reason for this is that most Judges felt that in the intrests of equity only a contract concerning a benefit on a third party should be capable of being enforce by the third party in question.

6. Exceptions Created

   • Collateral Contracts
     • Shanklin vs Deital products; where a new contract was imposed by the court between a person making a representation and the person who acted upon that representation
     • Jackson vs Horizon Holidays; Denning didn't change the basic rule of privity, but did add some expectations.
       • These expectations were strongly disapproved by the HOL but crucially not overruled in Woodar Investments vs Wimpey/ Linden Gardens vs Lenesta Sludge.

7. Origins of Contracts- Right of Third Parties

   • Mainly taken from Steyn LJ- "The case for recognising a contract for the benefit of a third party is simple and straightfoward. The autonomy of the will of the parties should be respected".
   • "The genesis of the privity rule is suspect.. the rule originated in the misunderstanding of Tweddle vs Atkinson"
   • 1937 Law Revision Committee- Proposed the recognition of a third right party.
   • 1991 Law Commission- Recommended that there should be some form of third party rule whwere "parties expressly purport to confer a benefit on a third party".
   • Scarman- "It might be necessary to review all the cases which stand guard over this unjust rule"
   • Dillion- "The rule is a blot on our law and most unjust",
   • Steyn- "Other members of the RU recognise such contracts".
   • 1991 Law Commission recommended that there should be stautory reform.
     • Lead to the Contracts (Right of third Parties Act) 1999
       • S1- A person who is not a party to a contract may in his own right enforce a contract term if.
         • A) The contract expressly provides that that he may.
         • B) The term purports to confer a benefit on him.
       • Expectations
         • These provisions will not apply if it appears that the parties didn't intend the term to be enforceable by the third party
         • The third party can be identified either by name or by class
         • The third party doesn;t have to exist at the time the contract was drawn up as long as he is identified- future offspring.
       • A defence available to one of the main parties is also available to the third party
       • The main parties may not vary or rescind the contract rights without the consent of the third party.
       • Impact of the Act
         • The act is published along with the expectations so is more widely "known"
         • The General rights from the act are clear and easier to understand and apply
         • Going to court to enforce a common law expectation came with its own risks as to outcomes
         • There is still room for uncertainty if the third party is not clerly identified or the contract does not speak clearly as to the extact rights to be bestowed.
         • The act does not do away with the doctrine of privity and only deals with certain situations which arise- It doesn't deal with goods that are purchased as a presentt.

8. Privity Rule: Is immovable, rigid and harsh but is a fundamental doctrine of contract law.