Studied by 0 people
General definition
Only those who are parties to a contract are bound by it and can benefit from it.
Definition in law
Privity it not an essential requirement of contractual formation, it is not an element aligned with offer and acceptance, that has to be proved in order to establish that a contract is present. Privity of contract however, is a principle that dictates the limits of a contract, it dictates who a contract can confer rights, obligations and benefits upon. The modern statement of the rule can be found in Dunlop Pneumatic Tyre Co v Selfridge
Dunlop Pneumatic Tyre Co v Selfridge
The modern statement of the rule can be found in this case
Beswick v Bestwick
This strict application of privity was applied
General exceptions
The rules do not apply in these exceptions:
Agency
Collateral contracts
Restrictive convents
Common law exceptions
Agency
An agency arises when one person, the agent, is authorised to make a contract on behalf of another person, the principal. The effect is that the principal will be bound by the terms of the contract even though he or she didn’t make the contract themselves. The principal and the agent are treated as being the same person so the principal is a party to the contract. This occurs, for example, when an employee makes a contract on behalf of a company. Mullens v Miller
Mullens v Miller
The principal and the agent are treated as being the same person so the principal is a party to the contract. This occurs, for example, when an employee makes a contract on behalf of a company.
Collateral contracts
The court may be able to avoid the strict rule of privity by finding a second contract alongside the main agreement.
Shanklin Pier Ltd v Detel Products Ltd (1951)
Shanklin Pier Ltd v Detel Products Ltd (1951)
The court may be able to avoid the strict rule of privity by finding a second contract alongside the main agreement.
Restrictive contracts
An agreement to a restricted use of land (restrictive covenant) applies to future owners of land regardless of whether they were one of the original parties to the agreement. The agreement ‘runs with the land’ e.g. a restricted covenant was made in the case of Tulk v Moxhay (1848)
Tulk v Moxhay (1848)
The agreement ‘runs with the land’ e.g. a restricted covenant was made in this case
Common law exeptions
Although general rule is that a party to a contract cannot recover damages for a third party’s losses the courts made some exceptions to this, partly as a result of the criticism that this element receives. Dunlop v Lambert An exception to holiday contracts and other social activities is evident in the case of Jackson v Horizon Holidays. This principle has been extended to also allow developers to recover losses on behalf of eventual users of property. Linden Gardens Ltd v Lenesta Sludge Disposals Ltd
Dunlop v Lambert
a party to a contract cannot recover damages for a third party’s losses the courts made some exceptions to this, partly as a result of the criticism that this element receives.
Jackson v Horizon Holidays.
An exception to holiday contracts and other social activities is evident in this case
Linden Gardens Ltd v Lenesta Sludge Disposals Ltd
This principle has been extended to also allow developers to recover losses on behalf of eventual users of property.
Contract (Rights of a third party) Act 1999
The strict rule has been modified by the Contracts (Rights of Third Parties) Act 1999 and it is likely that the decision in Beswick would have been decided differently today.
Section 1 (1) Contract (Rights of a third party) Act 1999
Subject to the provisions of this Act, a person who is not a party to a contract (a ‘third party’) may in his own right enforce a term of the contract if:
A. the contract expressly provides that he may,or
B. subject to the subsection (2) the term purports to confer a benefit on him.
Section 1(2)(1)(B) Contract (Rights of a third party) Act 1999
Subsection (1)(b) does not apply if on proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
Section 1(3) Contract (Rights of a third party) Act 1999
The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not to be in existence when the contract is entered into.
Section 1(4) Contract (Rights of a third party) Act 1999
This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.
Section 1(5) Contract (Rights of a third party) Act 1999
For the purpose of exercising his right to enforce a term of the contract, there shall be a available to the third party any remedy that would have been available to him in an action for breech of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly)
Section 1(6) Contract (Rights of a third party) Act 1999
Where a term of a contract excludes or limits liability in relation to any matter references in this Act to the third party enforcing the term shall be constructed as refrences to his availing himself of the exclusion or limitation.
Section 1(7) Contract (Rights of a third party) Act 1999
In this act, in relation to a term of a contract which is enforcable by a third party -
“the promisor” means the party to the contract against whom the term is enforceable by the third party and
“the promisee” means the party to the contract by whom the term is enforceable against the promisor.
Someone who is a third party may enforce
Under the act, someone who is not a party to the contract (a third party) may enforce the contract against either or both of the named parties if:
The third party is expressly identified by name, or as a member of class or as answering a particular description and
The contract expressly provided the third party may enforce the contract, or
The contract term purports (intends) to confer the benefit of the terms onto the third party
Nissan shipping co v Cleaves & co Ltd
Nissan shipping co v Cleaves & co Ltd
Under the act, someone who is not a party to the contract (a third party) may enforce the contract against either or both of the named parties if:
The third party is expressly identified by name, or as a member of class or as answering a particular description and
The contract expressly provided the third party may enforce the contract, or
The contract term purports (intends) to confer the benefit of the terms onto the third party
Clauses included within the contract to expressly exclude third party claims
It is however possible, within the act, that clauses be included within the contract to expressly exclude third party claims, The act states:
“… on the proper construction of the contract it appears that the parties did not intend the contract to be enforced by a third party then the act will not apply”
