Privity of contract

Privity of Contract

Privity of contract is a legal doctrine that stipulates that only the parties to a contract are entitled to enforce its terms or be bound by its obligations. This principle establishes that a third party, who is not a party to the contract, generally has no rights to claim benefits or be liable under the contract. The concept ensures that contractual rights and obligations are exclusive to those who have agreed to them.

Traditional Rule of Privity

Traditionally, the doctrine of privity of contract implied that a contract could not confer rights or impose obligations on any person except the parties involved. Key aspects include:

• ★ Exclusivity of Parties: Only those who are parties to the contract have the legal standing to enforce the contract’s terms or to be sued for a breach of those terms.
• ★ Third Party Limitations: Third parties, even if they benefit from the contract, cannot enforce the contract or be held liable under it unless specific exceptions apply.

Exceptions to Privity of Contract

While the traditional rule of privity has been a foundational principle, there are several exceptions and statutory modifications that allow third parties to have enforceable rights or obligations under certain circumstances:

• ★ Contracts (Rights of Third Parties) Act 1999: This UK legislation allows third parties to enforce contractual terms if the contract expressly provides for this or if the term purports to confer a benefit on them. However, the parties to the contract can exclude the application of this Act if they wish.
• ★ Agency: In some situations, a principal can be bound by contracts made by an agent on their behalf, even if the principal was not a direct party to the contract.
• ★ Collateral Contracts: A collateral contract can be formed alongside the main contract, allowing a third party to enforce rights related to the collateral contract.
• ★ Trusts: In cases where a contract creates a trust, beneficiaries who are not parties to the contract may enforce their rights under the trust.
• ★ Assignments: Rights under a contract can be assigned to third parties, allowing them to enforce the contract. However, obligations cannot typically be assigned without the consent of the other party to the contract.

Case Law Examples

Several key cases illustrate the application of the privity doctrine and its exceptions:

• ★ Tweddle v Atkinson (1861): In this case, a third party could not enforce a promise made for their benefit because they were not a party to the contract. This case reinforced the traditional rule of privity.
• ★ Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915): The House of Lords held that Dunlop could not enforce a price maintenance agreement against Selfridge because Dunlop was not a party to the contract between Selfridge and another company.
• ★ Beswick v Beswick (1968): The House of Lords allowed a widow to enforce a contract made for her benefit under the guise of being a personal representative of the deceased, highlighting limitations in the strict application of privity.

Examples

Conclusion

The doctrine of privity of contract maintains that only those who are parties to a contract can enforce or be bound by it. However, modern legal developments and statutory provisions, such as the Contracts (Rights of Third Parties) Act 1999, have introduced flexibility, allowing third parties to have enforceable rights in certain situations. Understanding these exceptions is crucial for drafting and enforcing contracts, ensuring that the parties' intentions are effectively carried out.