The court ruled in favor of Selfridge, emphasizing that Selfridge was neither a principal nor an agent and therefore was not bound by the contract between Dunlop and Dew. It sets up an underlying concept that a contract may only be upheld and its benefits claimed by the parties to it. However, legal systems have identified a number of exceptions to this norm to protect the interests of those parties who could be affected by a contract. Privity of contract upholds the principle of freedom of contract, which allows individuals and entities to enter into agreements and establish their rights and obligations. It respects the autonomy and choices of the parties involved by ensuring that only those who have voluntarily entered into a contract are bound by its terms. Queensland, the Northern Territory and Western Australia have all enacted statutory provisions to enable third party beneficiaries to enforce contracts, and limited the ability of contracting parties to vary the contract after the third party has relied on it.
Rule of Consideration
Amanda remains responsible to make lease payments to her landlord, as she retains privity through her original lease agreement. In relation to exclusive jurisdiction clause too, as evidenced in the Pioneer Container case [1994] 2 AC 324, the doctrine of privity was excepted. The carrier then sub-bailed the goods to the ship owner under certain bills of lading, which contained an exclusive jurisdiction clause providing for Taiwan to be the forum to determine any disputes. The Privy Council held that the exclusive jurisdiction clause in the bills of lading were binding and enforceable against the shipper too.
Damages
The doctrine of privity of contract remains a fundamental principle in contract law, but its strict application has been tempered by exceptions that accommodate the evolving needs of modern society. These exceptions provide legal avenues for third parties to enforce contracts when justice and fairness demand it, aligning contract law with the dynamic realities of business and society. 1833 saw the case of Price v. Easton, where a contract was made for work to be done in exchange for payment to a third party. When the third party attempted to sue for the payment, he was held to be not privy to the contract, and so his claim failed.
One of the most significant exceptions to privity of contract is the recognition of beneficiaries under a contract. When a contract explicitly intends to benefit a third party who is not a signatory to the contract, that third party may enforce the contract’s provisions. This exception aligns with the intentions of the contracting parties and ensures that beneficiaries are not left without legal recourse. Also known as privity of title, privity of estate refers to the legal relationship between parties who hold an interest in the same piece of real property or real estate. If the tenant finds someone else to take over his lease so that he can move out, and assigns his lease to that new tenant, the new tenant (“assignee”) becomes responsible for the tenant’s obligations under the lease.
Statutory Exceptions
Under this principle, only the parties who have directly entered into a contract have the legal standing to enforce its provisions or seek remedies for its breach. This statutory gap is reiterated by Rhune, who advices for equivocal exclusion of the 1999 Act, so as to avoid enforcement by third persons, where the contracting parties intend to do so- J de Rhune, ‘Contracts (Rights of Third Parties) Act 1999’ (2000) The Legal Executive 22. Unless so stated, all of the 1999 Act along with the common law exceptions may be triggered towards spur of third person litigation, diluting the voluntary or personal facet of contract law. Similar stance in the domain of tort was witnessed in Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520, where a claim against defective construction was allowed by the pursuer against the sub-contractors (contractually possible only via the main contractor). This was however criticised much, including the more recent case of Linklaters Business Services v Sir Robert McAlpine Ltd [2010] EWHC 1145, which advocated for sequential action owed to immediate contracting party under contract law instead. Nonetheless, action in tort continues to be a prime area of third person actions where contractual remedy may otherwise be barred due to the doctrine of privity, more so when that renders a situation of lacunae and injustice- White v Jones [1995] 2 AC 207.
Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co (
- While the work was completed, Easton failed to pay Price, who then sought to enforce the contract.
- The court held that only a person who is a party to the contract can sue on it or be sued, and thus, no right accrued to the manufacturer to sue the dealer (a third party).
- That dividing line exists, although it may not always be easy to determine where it is to be drawn”.
- If Abigail were to file a civil lawsuit against Max, asking the judge to order him to repair or replace the air conditioning unit as he had agreed, her case would likely be dismissed.
- This principle generally prevents third parties from bringing legal action to enforce or challenge the terms of a contract, even if they may be affected by the contract or have a related interest.
With the multiplicity of parties on one hand, and the various stages of performance on the other, contemporary commercial contracts have become a complex web. Needless to state, the consequences and enforcement of such contractual relations are difficult to decipher. From the above discussion, we have seen that although only parties to contract can sue each other and no stranger is allowed to enter between the parties to sue. But with the development of time, the law has also developed and now even a stranger is the expression privity of contract means permitted to sue to safeguard his interest under exceptional circumstances. In Beswick v Beswick, the agreement was that Peter Beswick assign his business to his nephew in consideration of the nephew employing him for the rest of his life and then paying a weekly annuity to Mrs. Beswick. Since the latter term was for the benefit of someone not party to the contract, the nephew did not believe it was enforceable and so did not perform it, making only one payment of the agreed weekly amount.
The privity of the contract ensures that these rights and obligations are enforceable only by those who are party to the contract. This principle generally prevents third parties from bringing legal action to enforce or challenge the terms of a contract, even if they may be affected by the contract or have a related interest. Six months into the one-year lease, Shawn threw a large party, and the guests caused $10,000 in damages to the unit. Unfortunately, Shawn vacated the apartment and avoided Blake’s attempts to recover for damages and unpaid rent. Since Blake is the original tenant named on the lease, Blake is culpable for any damages to the unit and is responsible for rents due and performing all duties as specified in the original lease.
The essence of the law of contract lies in the promise which both parties have made towards each other for fulfilling their part of the contract. If an agent makes a contract on behalf of a disclosed principal, the principal may be able to enforce the contract against the other party. This exception recognises that the agent represents the principal, allowing the principal to enforce the contract as if they were a party to it. Consider the example in which Shawn signs a contract to sublease a Manhattan one-bedroom condo from a friend, Blake, who leases the unit from its owner Jude. Before entering into a contract with Shawn, Blake obtained written permission from Jude, the landlord.
Abigail can, however, sue her landlord, John, to force him to perform his obligations under their lease contract. On another note, the implementation of the doctrine has been much turbulent, owing to the uncertainty and ambiguous contours of the common law exceptions. Although much has been sought to be streamlined through the 1999 Act, the legislation remains underused- H Beale, ‘A Review of the Contracts (Rights of Third Parties) Act 1999’ in A Burrows & E Peel (eds), Contract Formation and Parties (Oxford University Press 2010). The doctrine of privity began to evolve in the case of Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co, a landmark ruling that marked a departure from its rigid application. Dunlop, a tire manufacturer, entered into agreements with its dealers, including Dew & Co., to maintain a resale price for its products. According to Section 2(h) of the Indian contract act 1872, a contract is an agreement between two parties enforceable by law backed by some consideration.
Cardozo’s innovation was to decide that the basis for the claim was that it was a tort not a breach of contract. In this way he finessed the problems caused by the doctrine of privity in a modern industrial society. Although his opinion was only law in New York State, the solution he advanced was widely accepted elsewhere and formed the basis of the doctrine of product liability. In contract law, the rule of privity ensures that only someone directly involved in a contract or agreement can sue any other party in relation to that contract. The court ruled that no such trust was created as “It is not legitimate to import into the contract the idea of a trust when the parties have given no indication that such was their intention.
This was fully linked to the doctrine of consideration, and established as such, with the more famous case of Tweddle v. Atkinson. In this case the plaintiff was unable to sue the executor of his father-in-law, who had promised to the plaintiff’s father to make payment to the plaintiff, because he had not provided any consideration to the contract. However, as the legal landscape has evolved, exceptions to this doctrine have emerged, allowing third parties to enforce contracts under specific circumstances. This post explores the doctrine of privity of contract, its historical development, and the exceptions that have been established to strike a balance between legal rigidity and fairness in contractual relationships. The rule of privity is basically based on the ‘interest theory’ which implies that the only person having an interest in the contract is entitled as per law to protect his rights. These landmark judgments in Indian law reflect the recognition of exceptions to the principle of privity of contract.
The court, citing the decisions in Robertson v Wait (1853) 8 Exch 299, and Lloyd’s v Harper (1880) 16 Ch D 290, ruled that where a contract is made with A for the benefit of B, A can bring an action for benefit of B, and recover all dues as if the contract was made with B himself. The contracting party may, singly or jointly with the third party, have the contract performed by way of a court order for specific performance. Accordingly, the claim of the wife as the administrator (as a contracting party) succeeded to obtain an order for specific performance by way of payment of all dues and arrears.
Although damages are the usual remedy for the breach of a contract for the benefit of a third party, if damages are inadequate, specific performance may be granted (Beswick v. Beswick [1968] AC 59). If a third party gets a benefit under a contract, it does not have the right to go against the parties to the contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer sells a product to a distributor and the distributor sells the product to a retailer. Suzanne has no privity with Nick, and must deal directly with Amanda, both in making her payments, and for any other requests that have to do with the property. In the event Suzanne leaves the apartment damaged, Amanda is responsible to Nick for the damages. If Amanda wants Suzanne to be held responsible, she must sue her directly, and Nick is not required to wait for that process.