#14770 - Privity Of Contract - GDL Contract Law

GR: Doctrine of Privity A contract is enforceable by those who are party to the contract. A person cannot sue or be sued for breach of contract unless he was privy to it. A third party cannot take benefit from a contract he was not party to. (Tweddle v Atkinson) A third party cannot be burdened by a contract which he was not a party to. (Dunlop v Selfridge)		A third party cannot take benefit from a contract which he was not a party to Tweddle v Atkinson Father of groom and Father of bride had made an agreement to pay the groom, Tweddle Jr, a sum of money after he married the bride. Both parties had provided consideration there was an enforceable contract between them. Tweddle Jr was unable to enforce the contract because: he didn’t provide consideration and; he was not party to the contract thus the Doctrine of Privity does not allow him to benefit from it.	A third party cannot be burdened by a contract which he was not a party to Dunlop v Selfridge Dunlop sold tyres to Dew and contract included an undertaking that: Dew cannot sell tyres for Dunlop’s price or less Anyone Dew sells tyres to must also agree not to sell tyres on for Dunlop’s price or less Dew sold tyres to Selfridge. Selfridge signed the agreement but went on to sell them at a lower price than Dunlop. Dew was unable to sue because they had not suffered a loss so Dunlop brought proceedings against Selfridge for breach of contract. HELD: No consideration had moved from Dunlop to Selfridge and; Dunlop was a third party as the agreement was between Dew and Selfridge– the Doctrine of Privity does not allow a burden to be imposed on a third party. The court therefore decided that without consideration or privity, no contract existed between Dunlop and Selfridge. Lord Dunedin stated that Dunlop argued that they had entered into a contract with Selfridge through the agency of Dew (Lord Dunedin agreed). Even if this was the case, there was still an absence of consideration.
EXCEPTIONS 1. Guarantor’s right to subrogation 2. Trusts 3. Tort 4. Agency 5. Collateral contracts 6. Assignment 7. Judicial exceptions
Exception 1: Guarantor’s right to subrogation	A wants to take a loan out from B, but hasn’t got the capital to do so. C agrees to be the guarantor and will guarantee the loan. B then agrees to give A the loan. When B requests repayment of the loan and A can’t pay, B can sue the C who then has to pay loan. But then C, the guarantor, subrogates the rights of B – he takes on the original rights of B, the debtor, and can sue A for the money owed.
Exception 2: Trusts	The beneficiary of a trust (third party) is able to enforce the terms of the trust so that the trustee does not deal with the property in a way that is contrary to the intentions of the settlor.
Exception 3: Tort	Duty of care = exception to privity. Donoghue v Stevenson: C found a dead snail in her drink at a restaurant but had no contractual right as her friend had bought her the drink. Even though she was not privy to the contract, C was able to sue as the court held that the manufacturers had a duty of care.
Exception 4: Agency An agency relationship exists where one party, the agent, has been given permission to contract on behalf of another party, the principal. The principal is bound by the terms of the contract entered into by the agent on his behalf.	Scruttons v Midlands Silicones MS contracted with carrier to deliver barrels of chemicals, each worth $1,500. Limitation clause in contract meant that carriers were only liable for $500. Carrier hired stevedores, Scruttons, to unload ship. Scruttons dropped a barrel worth $1,500. MS were unable to sue in contract as there was no privity of contract between themselves and Scruttons, so they brought a tortious claim instead. During court proceedings, Scruttons found out about the limitation clause. Argued that through the agency of the carrier, they had contracted with the shipper. Claimed that the limitation clause was intended to benefit them as well. HELD: There was no consideration and the limitation clause did not mention the stevedores at all. Shippers had no idea they were entering into a contract with the stevedores as they were not mentioned anywhere in the contract. Therefore it could not be argued that MS knew they were entering into a contract through the agency of the carrier Scruttons found liable in Tort. During this case, Lord Reid laid out the requirements of a valid agency contract. He stated that it must be clear from the contract that: There is an intention to protect the principal That the contracting party was also acting as agent for the principal when entering into the contract The principal has given the contracting party authority to act as his agent Consideration moves from the principal to the other contracting party All of the requirements must be satisfied. A third party is able to take action in court through agency The Eurymedon A shipper contracted with a carrier to ship goods. Carrier contracted with stevedores to unload goods. Stevedores are the owners of the carrier. So there was a: Contract between shipper and carrier Contract between carrier (who is a subsidiary of the stevedores) and the stevedores for them to unload. In the contract between shipper and carrier, there was an exemption clause which stated that the carrier, ‘its servants, agents and employees’ are exempted. Stevedores dropped goods and shipper brought a tortious claim against them. Stevedores argued that they could take the benefit of the exemption clause because the carrier had acted as an agent. HELD: The court agreed that the carrier had acted as agent, so stevedores had the right to benefit from the exemption clause. The shipper knew about the stevedores as the contract mentioned ‘others’ and the stevedores had given the carrier consent to act as an agent. They also agreed that both parties had given good consideration: shipper’s consideration = exemption clause stevedores consideration = existing obligation to third party (Scotson v Pegg) Application of Lord Reid’s test to the Eurymedon case: Was the principal intended to be protected by a clause in the contract? Yes, the clause clearly states that the benefit is intended for more than just the carrier. Was the agent acting as agent to the principal when entering into the contract? Yes, the clause mentions others, so the shippers knew that there were others involved. Did the agent have authority from the principal to act as his agent? Yes, stevedores had given consent for carriers to act as agents. Did the principal provide consideration to the other contracting party? Consideration from shipper stevedores = exemption clause Consideration from stevedores shipper = unloading the goods – carrying out an existing obligation for a third party is good consideration as it allows the third party to sue you directly (SCOTSON V PEGG)
Exception 5: Collateral contracts	Shanklin Pier v Detel C wanted to refurbish – entered into a contract with builders. D tells Pier that their paint will last 7-8years. C then go and tell builders that they must contract with D for paint. After 3months, the paint starts to wear off. C takes legal action against D. Problems: Contractor made contract with D, but they can’t sue because they haven’t suffered a loss. Privity issues with C because they’re not the ones who entered into a contract with D. HELD: The court held that there was a collateral contract between C and D. This wasn’t agency, but was a new contract in itself consideration was needed. Court said that: Consideration from C D = getting contractors to buy Detel’s paint Consideration from D C = the guarantee
Exception 6: Assignment	A enters into a contract with B. Contract expressly states that A can assign his rights from the contract to C (third party). C effectively takes over A’s rights (A is out of the picture) and C has a direct contractual right against B.
Exception 7: Judicial exceptions	Jackson v Horizon Holidays C bought luxury holiday from D. Just before they were due to leave, D said hotel hasn’t been booked yet and provided alternative – C agreed. But the hotel conditions were so inhospitable and unsatisfactory that the family suffer vexation, discomfort, inconvenience and distress. C sued as this was not the luxury holiday that they had contracted for. HELD – first instance: C was awarded 1,100 worth of damages. Damages were not divided in any way but the court did state that the damages were for C and not for the rest of family since they were third parties. D (HH) then appealed – did not agree with the total sum of damages to be paid, too high. HELD – appeal: Lord Denning MR said that the sum would be too high if it was only for the loss suffered by C. But it was a reasonable sum for the distress suffered by C and his family. He argued that this had been a pure enjoyment contract – a situation where you contract on behalf of others for their enjoyment and only one person goes into a contract which is to benefit third parties. Denning referred to the case of Beswick v Beswick in concluding that it was acceptable for C to claim for the distress suffered by the other family members. The sum of 1,100 is therefore reasonable to compensate for the loss suffered by C and his family (third parties). *There was then a retreat from JACKSON* in the case of:** Woodar v Wimpey D agreed to buy land from C for 850,000 as well as 150,000 in commission to an agent. D then pulled out of deal at...

#14770 - Privity Of Contract - GDL Contract Law

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