#2245 - What Is The Privity Doctrine - Contract Law

The Privity Doctrine

What is the Privity doctrine?

• No third party can enforce a contract for which they do not give consideration

  • Tweddle v Atkinson (1861):

    • Fathers of bride and groom on occasion of offspring’s marriage, contracted with each other to pay a sum of money to the groom. Contract expressly stated that groom had power to sue either party for the sums specified.

      • Father of bride failed to pay 200

      • Blackman J: No third party as stranger to the consideration

        • can act upon a contract,

          • even if made for his benefit.

• Whether the contract is made for the third party’s benefit

  • Dunlop Pneumatic Tyre Co Ltd v Selfridge [1915] Dunlop insisted that if dealer sold their tyres below list price, Dealer would have to pay 5 in liquidated damages. Dealer made contract with S under same terms, as required to do so by contract with Dunlop, S sold tyres below list price. Dunlop sued S.

    • Viscount Haldane LC:

      • Certain principles of English Law are fundamental:

        • Only a person who is a party to a contract can sue on it

        • And Consideration must support the contract

          • Dunlop fails on both these points.

    • Lord Dunedin:

      • Doctrine of consideration is stupid (as is Privity)

        • Because it means agreements such as these, fairly made, can be terminated without loss to one party but potentially large loss for third party.

  • Beswick v Beswick [1968]:Old B transferred coal business to D (nephew) on the understanding that he would pay 5 a week to widow of Uncle after Uncle dies. C sued in personal capacity of widow and also as the Administrix as Party B

    • Lord Reid: sale contract that B agrees with A to pay X 1000

      • General view at the moment = X could not sue for 1000

      • Law Revision Committee said that should be enforceable where benefit conferred to third party

        • But this is not yet law, and unless Parliament continues to procrastinate, should not be altered by HoL.

• Or where third party tries to make use of an exclusion clause in original contract

  • Scruttons v Midland Silicones Ltd C owns drum of chemicals, enter into contract for carriage with X from USA to England. Term in the contract limited liability for loss or damage to the drum to $500. Goods were unloaded at England by D (stevedores) when D negligently damaged drum of chemicals. D attempted to limit liability to $500.

    • Lord Reid: though I may regret it, I find it impossible through established rule

      • That stranger to contract cannot take advantage of the provisions of the contract

        • even when it is clear from the contract that some provision was intended to benefit him.

      • Denning LJ (dissenting) in Smith and Snipes v River Douglas Catchment Board [1949]

        • A man who makes a deliberate promise which is intended to be binding

          • Must either keep his promise or be forced to do so by the Courts.

            • And keep it not only to those who give consideration but also a suit to one who was not a party to the contract

Justifications for Doctrine

• Prevents enforceable burdens being placed on third parties without consent

  • If A contracts with V that C will do something

    • C will generally not be bound to do that thing

      • Burrows: burden should not be imposed by contract unless party has agreed to that burden.

        • Otherwise undermines autonomy of people to agree to what they want to contract into, and not contract into what they don’t.

  • Problem

    • Also prevents third parties from enforcing benefits that have been arranged for them

      • Burrows: no conception of destroying liberty here

        • b/c A and V have already voluntarily taken on the burden

          • so why shouldn’t C be able to enforce it?

• Have loads of exceptions, so no need to reform cos not causing injustice

  • Burrows: history shows that we would just have to keep making loads and loads of exceptions

    • We haven’t arrived at the “just” point

    • Makes law even more complex unnecessarily –

      • New Zealand Shipping Co v Satterthwaite [1975]:

      • Burrows: uses horribly convoluted and artificial reasoning to get to the desired result

        • So why not reform Privity here.

• Stevens: Privity has always been the rule.

  • No simple reform can deal with all contracts

    • By abolishing Privity, you end up with uncertainty

  • Counter Burrows: counsel of despair

    • Although is the main counter argument to all projects

      • Has this been proved right?

• Nature of contractual rights

  • Smith: Contractual obligations are not just something in the air

    • They are made between people and extend only to those particular people

      • Therefore illogical that another person can obtain benefit of contract

      • Moi: If contracts are made between people, why can a third party not enforce a contract made about/for them? Aren’t they a party to the contract by way of fact the benefit is “assigned” to them?

    • A promise is formed by communicating an intention to undertake an obligation to another person

      • The reason the third party shouldn’t be allowed to enforce that contract is that that third party did not receive the promise.

      • Moi: what if contract communicates benefit to 3P?

        • Equally, we don’t mind using implied terms to fill in the gaps in contractual obligations

          • Why not use them for 3P rights where clear this is the intention?

• Direct Promises are different from Third Party promises

  • Smith: “but you promised me” is different from “but I heard you promise C”

    • Because of this difference we...