This website uses cookies to ensure you get the best experience on our website. Learn more

GDL Law Notes GDL Contract Law Notes

Privity Notes

Updated Privity Notes

GDL Contract Law Notes

GDL Contract Law

Approximately 560 pages

A collection of the best GDL notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through applications from top students and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor". In short these are what we believe to be the strongest set of GDL notes available in the UK this year. This collection of GDL notes is fully updated for recent exams, also making them the most up-to-date GDL study materials ...

The following is a more accessible plain text extract of the PDF sample above, taken from our GDL Contract Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Contract Law: Privity of Contract

Doctrine of Privity of contract

  • Contract at common law only creates rights & obligations between the parties to it. Does not give rights, or impose obligations, on a 3rd party.

  • (1) burden cannot be imposed on a 3rd party

  • (2) 3rd party to a contract cannot take a benefit from it.

  • You cannot claim for somebody else’s loss.

Privity and Consideration-closely linked

  • The rules on consideration and privity are distinct legal principles, but they are analogous, and the effect of both rules is: no person can sue on a contract unless (a) he is a party and (b) he has provided consideration.

  • Tweddle v Atkinson (1861):

    • Tweddle Sr and Atkinson agree; Tweddle JR is unable to sue, not only because he didn’t provide consideration. But because, even though the contract was for his benefit—the doctrine of privity said no, Tweddle JR had provided no consideration, was not privy to the contract.

    • No consideration, no contract, no privity.

    • Clam failed on grounds of consideration; but could also have failed on privity grounds: contract was between father and father of bridge, not the groom.

  • Consideration and privity often go hand in hand: no consideration, often no privity.

  • Dunlop v Selfridge (1915)—made clear the two principles are distinct, Viscount Haldane LC:

    • Dunlop sells tyres to Dew.

    • Part of agreement between them includes an undertaking by Dew not to sell on Dunlop’s tyres, for Dunlop’s price or less than that price. i.e. Dew will only sell on Dunlop’s tyres more expensively than Dunlop.

    • Dew sells to Selfridge.

    • As part of Dew’s contract with Dunlop, Dew had to seek the same undertaking with anybody they sell to (i.e. they must not agree to sell below Dunlop’s list price).

    • In this case, Dew sold to Selfridge, who then sold under Dunlop’s list price.

    • Dunlop wants to sue Selfridge.

    • Problem 1: no consideration from Dunlop to Selfridge.

    • Problem 2: Dunlop is a 3rd party, Dunlop cannot sue Selfridge.

    • Dunlop tried to argue they had entered into a contract with Selfridge, through the agency of Dew.

    • HELD, HL: privity—. The agreement was between Selfridge and Dew only—Dunlop not a party to that contract; and, furthermore, no consideration had moved from Dunlop to Selfridge.

    • [Lord Dunedin, making clear that privity and consideration are distinction: thought that the agreement was made by Dew as agent for Dunlop; Dunlop, as undisclosed principal, could theoretically sue; but, there would have to be consideration from Dunlop to Selfridge].

    • And why couldn’t Dew sue Selfridge instead? Because Dew hadn’t suffered any loss.

    • Judge: ‘nip any budding effect of consideration’. The problem is consideration.

  • So--Dunlop v Selfridge, made clear that consideration and privity are distinct, they were treated separately. Viscont Haldane found there was neither privity nor consideration; Lord Dunedin found that Dunlop was privy (through agency), but to sue would have to show that consideration moved from Dunlop to Selfridge.

  • Part of doctrine: it must be your loss which you sue for in court, cannot sue for another’s loss.

The Law Commission jumps in—Law Revision Committee 1937—eventually enacted in Contract (Rights of Third Parties) Act 1999came into force 11 Nov 1999, see below.

  • 1937 report: where a contract by its express terms purports to confer a benefit on a third party it shall be enforceable by the third party in his own name subject to any defences

  • So they’re saying we’re fed up with privity.

  • Another Report in 1996

  • Note Law Commission recommendations—they expect a legislative reaction usually. The courts can’t go against precedent.

  • 1999 Act—doesn’t effect rule that a 3rd party should not be subjected to a burden by a contract; but allows a 3rd party, who has not provided consideration, to enforce a term of the contain in certain circumstances (s1).

  • The Act does not change the position on imposition of obligations to a 3rd party—i.e. a 3rd party cannot be sued on a contract to which he is not a party; what it changes, is ability of a 3rd party to obtain a benefit.

  • The Act does not affect the existing common law rules—rather, the Act provides a statutory exception to the common law Doctrine of Privity

  • And the Act does not effect any right/remedy for a 3rd party that exists or is available apart from this Act (s7).

Exceptions-Ways of Circumventing the Privity Requirement

  • Guarantor’s right of subrogation:

    • Crucial to insurance law.

    • Eg you want to take a loan out from a bank, but you have no capital. Someone agrees to be your guarantor: you say to bank, my guarantor will guarantee the loan. They give you the money. Then the bank goes under, and is trying to get money back, so calls in the loan from you. You have no money. So the bank sues the guarantor. The guarantor pays up. But then the guarantor steps into shoes of the bank—the bank’s rights are subrogated to the guarantor, and, as the bank, the guarantor can now sue you for the money.

    • So when guarantor agrees to underpin a loan; if guarantor is called upon to pay the money to the principal creditor, he is subrogated to the rights of the principal creditor against the debtor. i.e. the guarantor ‘stands in the principal creditor’s shoes’. They then take on the original rights against the debtor.

  • Trusts, -not a real exception

    • Possibility that a right under a contract is a chose in action (a right to enforce an obligation), which can be the subject of a trust.

    • Possibility that the promisee, under a contract, might declare himself trustee of the benefit of the promise in question on behalf of a 3rd party and by that means avoid doctrine of privity.

    • Where a trust of a contractual right is found to have been created, the principal effect = to permit the 3rd party to enforce the benefit.

    • This is only an apparent exception to doctrine of privity—because the rights of the 3rd party are those of the beneficiary, and thus equitable.

    • “it is not legitimate to import into the contract the idea of a trust when the parties have...

Buy the full version of these notes or essay plans and more in our GDL Contract Law Notes.

More GDL Contract Law Samples