Privity of contract Flashcards
What is the general rule of privity of contract?
only parties to a contract can be sued under contract?
What was the outcome of Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd [1915]:
Case facts:
- Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price (RRP).
- As part of the agreement, Dunlop also required their dealers to gain the same agreement with their retailers, who in this instance was Selfridge.
- The agreement held that if tires were sold below the RRP, they would be required to pay £5 per tire in damages to Dunlop. This was agreed between the dealer and Selfridges, which effectively made Dunlop a third-party to that agreement.
- Sometime after this, Selfridge sold the tires below the agreed price
-> Dunlop sued for damages and an injunction to prevent them from continuing this activity.
privity of contract
Dunlop had not provided consideration to Selfridge -> not party to the contract -> privity of contract therefore Dunlop could not enforce the contract.
What are 4 exceptions to the rule of privity of contract?
- Agency
- Collateral contract
- assignment
- Contracts (Rights of Third Parties) Act 1999
How does agency work as an exception to the rule of privity of contract?
- agency is where the principal authorises an agent to act on their behalf with a third party (e.g. customer).
- if agent acts within their authority -> principal is bound by contract entered into by the agent -> contract forms between principal and third party (not agent)
- authority may be actual or apparent (where the third party has reasonable grounds to believe that the agent has authority)
How does a collateral contract work as an exception to the rule of privity of contract?
- Contract separate to the main contract.
- can give rise to third party rights
e.g:
- X needs room repainting.
- Y recommends Z painters.
- Y receives a commission if Z painters are used.
- based off Y’s recommendation X employs Z.
- Paint rubs off after a year.
- X cannot sue Z as they have done their job.
- X can sue Y as they received a benefit.
in case law: Shanklin Pier v Detel Products (1951) (HC))
How does a assignment work as an exception to the rule of privity of contract?
one party assigns contractual rights to another.
Assignee can then sue under the contract even if they were not originally party to it.
How does Contract (Rights of Third Parties) Act 1999 work as an exception to the rule of privity of contract?
When does it arise?
- allows a third party to enforce terms of a contract that they are not a party to
- can be expressly excluded in contract
- third party must be expressly identified
When does it arise:
- express contractual provision for this
- contract:
a) “purports to confer a benefit” on the third party
b) parties intended enforceability by third parties (presumed if benefit conferred for 3rd parties)