Privity of contract

Question 1

What is the general rule of privity of contract?

Answer 1

only parties to a contract can be sued under contract?

Question 2

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.

Answer 2

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.

Question 3

What are 4 exceptions to the rule of privity of contract?

Answer 3

1. Agency
2. Collateral contract
3. assignment
4. Contracts (Rights of Third Parties) Act 1999

Question 4

How does agency work as an exception to the rule of privity of contract?

Answer 4

• 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)

Question 5

How does a collateral contract work as an exception to the rule of privity of contract?

Answer 5

• 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))

Question 6

How does a assignment work as an exception to the rule of privity of contract?

Answer 6

one party assigns contractual rights to another.

Assignee can then sue under the contract even if they were not originally party to it.

Question 7

How does Contract (Rights of Third Parties) Act 1999 work as an exception to the rule of privity of contract?

When does it arise?

Answer 7

• 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:

1. express contractual provision for this
2. 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)