#10 - Privity Contracts And Third Parties - Contract Law

Contract Reading Session 4 Chen-Wishart chapter 16 * 2 basic rules: a contract cannot confer enforceable rights on 3rd parties nor confer obligations on 3rd parties. * CW says the one about rights is unfair, since it restricts parties' freedom to contract and removed 3rd party's legitimate expectation that he would have rights. * The rules are partly based on the doctrine of consideration: consideration can only be given in return for the promise sought i.e. given upon request, which obviously a 3rd party cant do. However this can cause confusion: Treitel gives the example where A promises his daughter, B, that he will pay PS1000 to any man that marries her, C. C provides consideration, while B is the promisee. Not clear which, if any, can sue. * Justifications of privity rules: (1) Exclusivity- contracts must be voluntary and therefore not include 3rd parties; (2) Priority of Buyersconsideration is not just an evidentiary thing but a way of ensuring that there is an exchange rather than a gift/exploitation and therefore those who give consideration (the pomisee) should get the enforceable rights/duties; (3) Floodgates- if anyone who benefited could sue then there would be unlimited claims * Criticisms of the Contracts Act 1999: the scope of 1.1(b) is broad and uncertain- the law says that White v Jones falls outside it but it's not clear that in reality it would. "Purport" is a vague terms and it would be better to use the surer footing of whether the parties intended the 3rd party to gain enforceable benefits from the contract. The problem with the term "purport" is that where a benefit appears to be conferred, but nothing is stated about the parties' intentions, there is a strong presumption that the parties intended there to be an enforceable right, which reverses the burden of proof. * She says that the law should uphold the parties' intentions not by conferring rights on third parties but by giving greater rights to the promisee- LC says no because promisee might be dead or unwilling to sue. CW rejects both as valid reasons, the second because it undermines the main parties' intentions. Counter-argument is that this will produce uncertainty since TP wont know whether they can rely on the right and make plans based on it or not. * The presumption in s.2 that the main contracting parties (MCP) forego their usual rights in terms of modifying the contract wont necessarily correspond to their intentions. * It also undermines the doctrine of consideration and makes gifts enforceable e.g. If A contracts B to to landscape C's gardens as a present and then A calls it off due to hardship, and B agrees, C can still enforce the promise. * There are (and before the new act were) various ways for a 3rd party to benefit from a contract: (1) where one of the three parties is an agent, the principal is not considered a 3rd party but can sue in his own right; (2) The collateral contract approach of Shanklin; (3) Sometimes sub contractees have been able to use the exemption clauses conferred on their masters, though judicial opinion has changed several times on the matter; (4) ability of 3rd party to bring a tortious claim in certain circumstances will enable them to sue principal, but the rules on this are complex; (5) if the court construes the promisee as holding his right to sue promisor as "on trust" for TP then the court may assign him the right; (6) One party can assign his rights over to TP except where TP has no genuine interest in taking them or contract forbids it or where it is personal i.e. assignment only allowed where it makes no difference to the promisee who he performs for; (7) negotiable instruments can be used e.g. a cheque which involves the drawer, the bank and the payee; (7) statutory exceptions. 1. Passing Benefit to a Third Party i) Privity doctrine Tweddle v Atkinson (1861) 1 B&S 393: P was engaged and D (wife's father) and X (P's father) contracted to pay P some money each upon marriage. P sued D for non-payment, but the court held that even though the contract explicitly stated that he should have the power to sue either of the parties to the contract, as a TP he could not enforce this right. Blackburn J: in general no action can be maintained upon a promise unless consideration moves from the party to whom it was made. In this case P gave no consideration so the promise was unenforceable. Dunlop Pneumatic Tyre Co Ltd v Selfridge [1915] AC 847: Dunlop sold goods to Dew on the condition that Dew wouldn't sue below the list price and would ensure that anyone to whom they sold the goods would not sell below the list price. S bought from Dew and sold below the list price, but the court refused Dunlop an injunction against S since (1) Dunlop was not a party to the agreement between S and Dew, and so couldn't impose or enforce terms on their agreement, and (2) Dunlop had not given consideration in return for S's promise as to selling price. Viscount Haldane: There are certain fundamental principles of contract law: "only a person who is a party to a contract can sue on it" and consideration is another. Lord Atkinson: in the absence of consideration, this is a nudum pactum Smith & Snipes Hall Farm Ltd v River Douglas Catchment Bd [1949] 2 KB 500 (Lord Denning only): P owned land and paid D to build a barrier by the river so that his land wouldn't get flooded. When it did flood, X, a tenant of P's, sued D for the loss of his crops caused by the flood. CA allowed his action, the majority on the grounds that property is an exception to the privity rule since the covenant of D "runs with the land". Lord Denning criticised the privity rule itself: