The doctrine of Privity in English law provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it.
This seems to make adequate sense, in 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.
Prior to 1833 there existed decisions in English 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, 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. 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 as such 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 Pnuematic Tyre Co. Ltd v Selfridge & Co. Ltd through the judgement of Lord Haldane.
Common Law Excetions
There are exceptions to the general rule, allowing rights to third parties and some impositions of obligations. These are:
- Collateral Contracts (between the third party and one of the contracting parties)
- Trusts (the beneficiary of a trust may sue the trustee to carry out the contract)
- Land Law (restrictive covenants on land are imposed upon subsequent purchasers if the covenant benefits neighbouring land)
- Agency and the assignment of contractual rights are permitted.
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).
The Contracts (Rights of Third Parties) Act 1999 now provides some reform for this area of law which has been criticised by judges 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 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.
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