A2 Law

Privity of Contract

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Privity

Definition

  • "only a person who is a party to a contract can either enforce it or be made liable upon it." Dunlop V Selfridge
  • the starting point for any essay on this topic would be the case of Tweedle V Atkinson: fathers of young couple who intended to marry agreed in writing each to settle a sum of money on the couple. the young woman's father died before giving over the money and the young man then sued the executors to the estate when they refused to hand over the money. even though he was named in the agreement, he failed because he had given no consideration for the agreement himself.
  • so the basic rule to privity is that if not a party to the contract, can't sue
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Exceptions

Statutory Exceptions

  • Law of Property Act
  • Road Traffic Act: obliges a motorist to take out third party liability insurance. another motorist who is involved in an accident with this motorist can then rely upon it
  • The Married Women's Property Act: a husband can take out insurance in his own name but for the benefit of his wife and children. they can enforce the terms of the insurance although they are not parties to the contract.
  • there have been many attempts to make use of the statute out of context in order to avoid the effects of the rule. in such cases, however, the courts have not been prepared to allow an Act to be used for an entirely incorrect purpose and such attempts have failed.
  • Beswick V Beswick: here a widow was trying to enforce an agreement between her husband and her nephew for the latter to provide her with a weekly annuity on the death of the former. the agreement was a condition in the sale of her husband's business to the nephew. the widow clearly lacked privity to the agreement and had provided no consideration for it. her attempt to use a provision in s56 of the law of property act that referred to 'other property' failed. the reasoning was that the act referred only to real property and could not be applied purely to personal property.
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Exceptions Cont.

Agency

  • is the common law exception to the doctrine and is where one person acts as the representative of another (often for commercial convenience)

Collateral Contracts

  • these are not strictly exceptions, but have been used to circumvent the privity rule
  • Shanklin Pier V Detel Products: owners of a pier were assured by Detel's representatives that their paint was suitable to paint the pier and would last a minimum 7 years. relying on this assurance, the pier owners instructed their painting contractors to paint the pier with detels paint. the paint was in fact unsuitable and peeled. the court held that detel was liable on the promise despite an apparent lack of privity in the painting contract.
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Exceptions Cont.

Covenants which run with the land

  • this is a principle in land which provides another exception to the doctrine of privity. this means that the promises imposed on land 'run with the land'
  • Smith & Snipes Hall Farm V River Douglas: a number of properties backed on to the river douglas and there was a covenant on each property to maintain their part of the river bank. this duty was enforcable against subsequent owners who had not realised they had this duty
  • Tulk V Moxhay: tulk owned land in london that he sold with an express undertaking that it would never be used to build property on. the land was then re-sold on numerous occasions, each time subject to the same undertaking. moxhay bought it knowing of the limitation but nevertheless intended to build on it. tulk successfully sought an injunction. the court accepted that it would be against conscience for moxhay to buy knowing of the restriction.
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Exceptions Cont.

Trusts

  • here A & B create a trust for the benefit of C
  • Les Affreteurs V Walford: walford was a broker who negotiated an agreement between a charter party and the owner of the vessel, but was obviously not a party to the agreement. the agreement contained a stipulation that walford should receive a 3% commission from the shipowners. they failed to pay, the court was prepared to accept that a trust was created only because he was named.
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Attempts to Evade the Doctrine of Privity

As a result of the unfairness of the doctrine such as in Tweedle V Atkinson a number of attempts have been made over the years to evade its operation

  • attempts to make restrictive covenants run with goods. Taddy V Sterious: tobacco manufacturers sold tobacco to whole salers with an express clause in the contract requiring that retailers should not sell below fixed prices. when this agreement was breached the manufacturer tried to argue that tulk v moxhay applied. the court rejected this arguement out of hand
  • attempts to imply trust. Beswick V Beswick: here a widow was trying to enforce an agreement between her husband and her nephew for the latter to provide her with a weekly annuity on the death of the former. the agreement was a condition in the sale of her husbands business to the nephew. the widow clearly lacked privity to the agreement and had provided no consideration for it. her attempt to use a provision in s56 of the law of property act that referred to 'other property' failed. the reasoning was that the act referred only to real property and could not be applied to purely personal property. failed under trust fund because it wasn't trust, just good will. she finally won under administrative of estate of house.
  • section 56 of the law of property act: here the phrase 'a person may take immediate or other interest in land or other property, or benefit of any condition, right of entry, covenant or agreement over respecting land or other property, although he may not be a party to the conveyance or other instrument' was used as a weapon with which to attack the doctrine of privity but was not successful: Beswick V Beswick
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Partial Success

Jackson V Horizon Holidays

  • mr jackson had booked a 'family holiday' which fell far short of the contract description. he sued the holiday company not only on his own behalf but for his family too. the company, while accepting liability, disputed that it should pay damages in respect of the family. the HofL held that the loss of enjoyment suffered by the family was in effect a loss to the contracting party himself. he had paid for the holiday but hadn't received it. damages were awarded on this basis. this would appear to be straining the law a long way, albeit in order to acheive a just result.

Investment V Wimpy

  • the above decision was disapproved by the HofL in this case. the HofL, while not expressly overruling the jackson case, held that there was no general principle allowing a party to a contract to sue on behalf of third parties injured by a breach of the contract. lord wilberforces view was that jackson fell into a specialist group of contracts involving families where it was intended that the benefit of the contract be shared between the members of family
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Reform

Finally this area of the law has been reformed by the Contracts (Rights of Third Parties) Act

  • s1(1) a person who is not a party to the contract may in his own right enforce a contract term if; (a) the contract expressly provides that he may or; (b) subject the subsection (2), the term purports to confer a benefit on him
  • s1(2) subsection 1(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforcable by the third party
  • s1(3) the act will apply if a third party is identified in the contract either by name or even as a member of a class. the third party does not have to exist at the time the contract was formed as long as he is identifiable as part of the class

the effect of this act will have a number of omportant consequences

  • a wide range of third party rights will be enforcable under the act
  • a number of the exceptions to the basic rule of privity will become unnecessary
  • where a third party comes within the scope of an exclusion clause it will be much easier to enforce in their favour
  • the act can still be ineffective as its provision can be expressly excluded in a contract

still need law of privity is contract expressly excludes; to protect a 3rd party who had no knowledge of a duty being imposed on him; also to prevent a benefit being claimed where none is intended

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