Privity of Contract 1. Outline 2. Basic Principle of Privity 3. Rationale for Privity 4. Exceptions to Privity a. Acting on behalf of the 3rd party b. Devices to extend contract to 3rd party i. Agency ii. Assignment iii. Collateral Contracts iv. Trust of a promise V. Statutory exceptions 5. Contract (Rights of Third Parties) Act 1999 6. Imposing Burdens on Third Parties .... Basic Principle of Privity - Can a contract create rights or duties for a third party? - No? The doctrine of privity provides that only a party to a contract can have rights or obligations under it. - Leading cases: o Tweddle v Atkinson (1861) 1 B & S 393. o Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 Tweddle v Atkinson (1861) - Fathers of a couple agreed to each pay a sum to the groom (claimant). - Father in law died without making payment and groom sued his estate for the amount. - Court rejected the claim on grounds that it will be a monstrous proposition of law to say that a person can sue a party to a contract for his own advantage but not for the purpose of being sued. - This was a decision of the High Court. Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) - Dunlop sold tyres to whole seller Dew and inserted a clause that requires Dew to obtain an undertaking in writing from any 3rd party retailer to respect the minimum price or pay £5 if they breach that undertaking. - Dew sold to Selfridge and included the minimum price undertaking but Selfridge sold in breach of that undertaking. - Dunlop sought an injunction against Selfridge and damages. - Action failed because there was no consideration moving from Dunlop to Selfridge. Rationale for Privity - Leading dicta: Per Viscount Haldane LC - 'My Lords, in the law of England, certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam ... 'in Dunlop at 853
- Two rationales behind the rule: o The classical contract theory and the notion of a 'two-party' bargain. o The doctrine of consideration. - But does this not limit the functionality of contract? - Or run counter to commercial practices? Exceptions to Privity - Acting on behalf of the 3rd party - Devices to extend contract to 3rd party o Agency o Assignment o Collateral Contracts o Trust of a Contractual Obligation o Statutory exceptions - Contracts (Rights of Third Parties) Act 1999 Exceptions to privity In a contract between A and B, where B provides consideration for A's promise to C. If