The doctrine of privity in contract law In law, a contract is an agreement between two or more parties which, if it contains the elements of a valid legal agreement, is enforceable by law or by binding arbitration. That is to say, a contract is an exchange of promises with specific legal remedies for breach. These can include Compensatory remedy, whereby the defaulting party is required provides that a contract In law, a contract is an agreement between two or more parties which, if it contains the elements of a valid legal agreement, is enforceable by law or by binding arbitration. That is to say, a contract is an exchange of promises with specific legal remedies for breach. These can include Compensatory remedy, whereby the defaulting party is required cannot confer rights or impose obligations arising under it on any person or agent except the parties to it.

The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties.

Contents

Third-party rights

Privity of contract occurs only between the parties to the contract, most commonly contract of sale A contract of sale is a legal contract an exchange of goods, services or property to be exchanged from seller to buyer (or purchaser) for an agreed upon value in money (or money equivalent) paid or the promise to pay same. It is a specific type of legal contract of goods or services. Horizontal privity arises when the benefits from a contract are to be given to a third party. Vertical privity involves a contract between two parties, with an independent contract between one of the parties and another individual or company.

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. The retailer then sells the product to a consumer. There is no privity of contract between the manufacturer and the consumer.

This, however, does not mean that the parties do not have another form of action e.g. Donoghue v. Stevenson Donoghue v Stevenson AC 562 was a decision of the House of Lords that established the modern form of the tort of negligence in English and Welsh law, and delict in Scots law, by setting out general principles whereby one person would owe another person a duty of care. The case originated in Paisley, Renfrewshire under Scots law, but the House of – here a friend of Ms. Donoghue bought her a bottle of ginger beer, which was defective. Specifically, the ginger beer contained the partially decomposed remains of a snail. Since the contract was between her friend and the shop owner, Mrs. Donoghue could not sue under the contract, but it was established that the manufacturer has a duty of care In tort law, a duty of care is a legal obligation imposed on an individual requiring that they adhere to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence. The plaintiff (pursuer in Scotland) must be able to show a owed to their consumers and she was awarded damages in tort.

Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty.

History

Prior to 1833 there existed decisions in English Law allowing provisions of a contract to be enforced by persons not party to it, usually relatives of a promisee. The doctrine of privity emerged alongside the doctrine of consideration Consideration is the legal concept of value in connection with contracts. It is anything of value in the common sense, promised to another when making a contract. It can take the form of money, physical objects, services, promised actions, abstinence from a future action and much more. Under the notion of "pre-existing duties," if either, the rules of which state that consideration must move from the promisee. That is to say that if nothing is given for the promise of something to be given in return, that promise is not legally binding unless promised as a deed A deed is a signed and usually sealed legal instrument in writing used to grant a right. Deeds have historically been part of the broader category of instruments under seal, requiring only the affixing of a common seal to render them valid. Today, however, deeds are instruments in solemn form which require the author's signature and a number of. 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. 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.

The doctrine was developed further in Dunlop Pneumatic Tyre v. Selfridge and Co. Ltd. through the judgment of Lord Haldane.

Privity of Contract played a key role in the development of negligence as well. In the first case of Winterbottom v. Wright Winterbottom v Wright 10 M&W 109 was an important case in English common law responsible for constraining the law's stance on negligence in the nineteenth century (1842), in which Winterbottom, a postal service wagon driver, was injured due to a faulty wheel, attempted to sue the manufacturer Wright for his injuries. The courts however decided that there was no privity of contract between manufacturer and consumer.

This issue appeared repeatedly until MacPherson v. Buick Motor Co. MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 is the famous New York Court of Appeals opinion by Judge Benjamin N. Cardozo which removed privity from duty in negligence actions (1916), a case analogous to Winterbottom v Wright involving a car's defective wheel. Judge Cardozo Benjamin Nathan Cardozo was a well-known American lawyer and associate Supreme Court Justice. Cardozo is remembered for his significant influence on the development of American common law in the 20th century, in addition to his modesty, philosophy, and vivid prose style. Although Cardozo only served on the Supreme Court from 1932 until his death, writing for the New York Court of Appeals The New York Court of Appeals is the highest court in the U.S. state of New York. The Court of Appeals consists of seven judges: the Chief Judge and six associate judges which are appointed by the Governor to 14-year terms. The Chief Judge of the Court of Appeals is also the head of the State's court system's administration, and is thus also known, decided that no privity is required when the manufacturer knows the product is probably dangerous if defective, third parties (e.g. consumers) will be harmed because of said defect, and there was no further testing after initial sale. Foreseeable injuries occurred from foreseeable uses. 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.

Exceptions

Common law exceptions

There are exceptions to the general rule, allowing rights to third parties and some impositions of obligations. These are:

Attempts have been made to evade the doctrine by implying trusts (with varying success), constructing the Law of Property Act 1925 s. 56(1) to read the words "other property" as including contractual rights, and applying the concept of restrictive covenants to property other than real property (without success).

Statutory exceptions

The Contracts (Rights of Third Parties) Act 1999 now provides some reform for this area of law which has been criticised by judges such as Lord Denning and academics as unfair in places. The act states:

1. - (1) Subject to the provisions of this Act, a person who is not a party to a contract (a "third party") may in his own right enforce a term of the contract if- (a) the contract expressly provides that he may, or (b) subject to subsection (2), the term purports to confer a benefit on him. (2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

This entails that a person who is named in the contract as a person authorised to enforce the contract or a person receiving a benefit from the contract may enforce the contract unless it appears that the parties intended that he may not.

The Act enables the aim of the parties to be fully adhered too. Taking the situation in Beswick v Beswick whereby the only reason why Mr Beswick and his nephew contracted was for the benefit of Mrs Beswick. Under the Act Mrs Beswick would be able to enforce the performance of the contract in her own right. Therefore, the Act realises the intentions of the parties.

The law has been welcomed by many as a relief from the strictness of the doctrine, however it may still prove ineffective in professionally drafted documents, as the provisions of this statute may be expressly excluded by the draftsmen.

Third-party beneficiaries

In Australia For at least 40,000 years before European settlement in the late 18th century, Australia was inhabited by indigenous Australians, who belonged to one or more of the roughly 250 language groups. After sporadic visits by fishermen from the immediate north and discovery by Dutch explorers in 1606, Australia's eastern half was claimed by the British, it has been held that third-party beneficiaries may uphold a promise made for its benefit in a contract of insurance to which it is not a party (Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd (1988) 165 CLR 107). It is important to note that the decision in Trident had no clear ratio It is a legal phrase which refers to the legal, moral, political, and social principles used by a court to compose the rationale of a particular judgment. Unlike obiter dicta, the ratio decidendi is, as a general rule, binding on courts of lower and later jurisdiction—through the doctrine of stare decisis. Certain courts are able to overrule, and did not create a general exemption to the doctrine of privity in Australia.

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. In addition, section 48 of the Insurance Contracts Act 1984 (Cth) allows third-party beneficiaries to enforce contracts of insurance.

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 In the law of Remedy, an order of specific performance is an order of the court which requires a party to perform a specific act, usually what is stated in a contract. It is commonly used in the form of injunctive relief concerning confidential information or real property. While specific performance can be in the form of any type of forced action, may be granted (Beswick v. Beswick [1968] AC 59).

The issue of third-party beneficiaries has appeared in cases where a stevedore Stevedore, dockworker, docker, dock labourer and longshoreman can have various waterfront-related meanings concerning loading and unloading ships, according to place and country has claimed it is covered under the exclusion clauses in a bill of lading A bill of lading is a document issued by a carrier to a shipper, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. A through bill of lading involves the use of at least two different modes of transport from road, rail, air, and sea. The. In order for this to succeed, four factors must be made out:

The last issue was explored in New Zealand Shipping Co Ltd v. A M Satterthwaite & Co Ltd [1975] AC 154, where it was held that the stevedores had provided consideration for the benefit of the exclusion clause by the discharge of goods from the ship.

New Zealand New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses , and numerous smaller islands, most notably Stewart Island/Rakiura and the Chatham Islands. The indigenous Māori language name for New Zealand is Aotearoa, commonly translated as The Land of the Long White Cloud. The Realm of New Zealand also has enacted the Contracts Privity Act 1982, which enables third parties to sue if they sufficiently identified as beneficiaries by the contract, and in the contract it is expressed or implied they should be able to enforce this benefit.

See also

References

Categories: Common law | Contract law A contract is a legally-enforceable promise or set of promises made by one party to another. A contract is a legally binding agreement concerning a bargain which is essentially commercial in its nature and involves the sale or hire of commodities such as goods services or land. Invalid tag extension name: categorytree | English law Categories: Common law legal systems | England | Law by country | Law in the United Kingdom | Legal doctrines and principles

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