Privity of Contract

• Privity = Part of the contract
• Privity of contract

  General rule - If you are not a party to the contract, you can neither sue nor be sued under its terms (Dunlop v Selfridge)
• Exception to the privity ruling - The contracts (Rights of Third parties) Act 1999

  Statute allows third party to enforce contractual rights if:

  • Third party is named as party of the contract
  • Contract has express terms allowing third parties to enforce the contract
  • Contract intends to confer a benefit on a third party
• (Tweddle v Atkinson) updates (Jackson v Horizon)

  Jackson v Horizon - Consideration must have from the promisee
• Exception to the privity rule - The Contract (Rights of Third parties Act)

  Evaluating:

  • Freedom of contract - Allows parties to exclude third parties
  • Good faith - Protects the rights of people not privity but who stand is benefit
• Exceptions to the basic rule (other than statute)

  • Agency
  • Collateral contracts (Shanklin)
  • Restrictive covenants (Tulk v Moxhay)
• Agency

  • Someone who is authorised to contract on behalf of a party
  • Person granting agency is bound by contracts made by the agent despite not being directly involved
  • Employees often do this on behalf of employers
• Collateral contracts

  (Shanklin) - Collateral contracts can be formed based on promises. One contract exists because of another contract
• Collateral contracts (Shanklin)

  • May induce a person to enter into a main contract
  • Depends upon main contract for its existence
  • Courts can avoid rules of privity in these suitations
• Restrictive covenant (Tulk v Moxhay)

  Tulk v Moxhay - Land covenant and be enforceable against new owners and without privity
• Restrictive Covenant (Tulk v Moxhay)

  • Prevents landowners from something on the land - EG not using the premises as a site for business operations
  • All present and future purchasers of property bound by the covenant
• Evaluation of privity

  • Ignoring intention
  • Unfair enrichment
  • Contracts (Rights of Third parties 1999 and further reform)
  • Conclusion
• Ignoring intention:

  • Privity of contract implies only parties involved in the contract have the right to sue or be sued on it
  • Ignoring intention of the contracting parties when they include terms that benefit a third party
  • EG (Beswick v Beswick) shows how rule of privity can deny third party their intended benefits
  • Link to the question = Issues about principle of freedom to contract and good faith
• Unfair enrichment

  • Exclusion of third parties in their benefit of a contract
  • Role as an inducement can lead to unfair enrichment of one of the contracting parties
  • EG (Beswick v Beswick) denial of benefits to the third party led to potential unfair enrichment of other party
  • Link to the question = Rule of privity outcomes contradicts principles of equity and good faith
• Contracts (Rights of third parties) Act 1999 and further reform

  • Act allows some third party rights. Limited especially in commercial agreements. Terms are excluded
  • EG (Beswick v Beswick) and (Tweddle v Atkinson) show Act's impact and limitations
  • Link to the question = Interaction with consumer rights act 2015 and unfair contract terms Act 1977. Further clarification and reform law of privity