3 Multiple partiesWe have assumed up to this point that there are only two parties to the contract …… each of whom can enforce it against the otherWe now consider various ways in which the net can be cast wider
4 AgencyOne person (the “agent”) may negotiate a contract on behalf of another (the “principal”)If the contract is agreed, then a valid contract is formedThe principal is party to the contract, but the agent is not
5 PrivityIn general, a contract affects only the parties who actually agreed itHowever, in certain cases a contract may create rights to benefit others …… or even (very, very rarely) to bind others
7 Agency - definitionWhen someone (the agent) makes a contract on behalf of someone else (the principal) …… then the contract is made with the principal, not the agentThe agent can neither sue nor be sued on the contract
8 Limits on agencyHowever, an agent is usually only able to act as such in a limited respect or on limited mattersOutside that limited area, the agent cannot bind the principalBut how is the scope of the agency determined?
9 The scope of the agencyAgency usually arises through express appointment by the principalThis may be written or oralThe limits of the agency will be as specified by the principal on appointment or later
10 The scope of the agency Agency may also arise:- by subsequent ratificationby necessityby estoppelBut these cases are relatively rare
11 Termination of agency Agency comes to an end on:- cancellation by the principalagreement of principal and agentsupervening illegalitydeath of either principal or agent
12 Rights created by agent Suppose an agent makes a contract with a third partyWhat rights are created? We must consider:-Principal v. AgentThird party v. PrincipalAgent v. Third party
13 Principal v. Agent?The mutual rights of principal and agent depend on an agreement between themAgency does not necessarily involve a contract between principal and agentAgency does not necessarily imply that the agent is to be paid
14 Principal v. Agent? Possible legal relations are:- The agency is gratuitousThe principal employs the agentThe agent is self-employed but paid by the principal (see EC (Commercial Agents) Regulations SI 1997/31)
15 Third party v. Principal The principal is bound by any contract falling within the scope of the agent's authorityThe principal is not bound by contracts outside the agent’s authority, unless:-Principal later ratifies, orPrincipal is estopped
16 Agent v. Third partyWhere the agent makes the contract strictly within the terms of their authority, the contract does not bind the agentThe agent drops out of the picture, and the resulting contract does not involve them
17 Agent v. Third partyHowever, the agent is bound if s/he gives a personal promiseAgents may simultaneously act for themselves and for otherseg a trade union, negotiating both for themselves and as agent for their members (Pattison v. IIRS (HC, 31/5/79))
18 Agent v. Third partyAn agent who acts beyond their authority may be personally liableSomeone who claims to act as agent is taken to guarantee that they are fully authorised …… and if they are not, they are liable to compensate the 3rd party (Collen v. Wright (1857) 120 ER 241)
19 Undisclosed agencySuppose two people negotiate a contract and agree terms ...... then one reveals that s/he was in fact only negotiating as agent for anotherWhat rights are created by this agreement?
20 1. Personal contractsSome contracts have a strong personal element, and so it is impossible to substitute the principal for the agentWhether this is so depends on the terms of the contract itselfIf it is, the agent is bound, and the principal has no rights
21 2. Non-personal contacts Otherwise, the third party is free to hold either the agent or the principal to the contract …… but must make an election as to which …… and is bound by that election
22 Rights of the principal If no election has been made, the principal may insist that the contract is with them …… and so sue the third party, the agent dropping out of the pictureHowever, this can only be done where the agent stayed strictly within the scope of their authority
24 The general ruleIn general, only those who are party to a contract can sue on itEqually, those who are not party to contracts are not bound by their terms, and can go against them with impunityThere are relatively few exceptions
25 Example 1 Murphy v. Bower (1868) IR 2 CL 506 Railway contractors took on work for a railway operatorAs each stage of the work was complete, a certificate of completion was to be issued by Bower, the engineerBut Bower wrongly refused to issue certificates
26 Example 1 Murphy v. Bower (1868) IR 2 CL 506 The contractors sue BowerEven though Bower’s refusal was wrong, he was not party to any contract with the contractorsThe contractors should have sued the railway operators instead
27 Example 2 MacKey v. Jones (1958) 93 ILTR 177 P was a 14-year-old boyP’s uncle promised P’s mother that if P came to look after his farm, he would leave it to P in his willP did as requested, but the uncle left it to someone elseCould P enforce the promise?
28 Example 2 MacKey v. Jones (1958) 93 ILTR 177 Judge Deale was not convinced that the uncle intended a legally binding arrangementEven if he did, it was not an arrangement to which P was a partyP was not making a contract, but following his mother’s orders
29 Scheme of these lectures Definition of “parties to the contract”Passage of benefit despite the privity rulePassage of burden despite the privity rule
30 ‘Parties to the contract’ Most contracts have only two parties to themSo the contract can only be enforced by the parties to itEqually, it can only be enforced by one who has given considerationSome say that this is just the same rule in different language
31 Joint contractorsHowever, in one situation at least, ‘consideration’ is not the criterion:Where two people jointly make a promise to a third, then all three are parties and all three can sue …… whether or not the two joint parties both provided consideration
32 Example 1 McEvoy v. Belfast Banking  AC 24 Suppose A and B jointly open an account with the C BankA pays money in, but B does notNonetheless, B is party to the contract with the bank …… and can sue the C Bank if it does not comply with the terms of the account
33 Example 2 Lockett v. Charles  4 All ER 170 H and W stop at a hotel for lunchAt the end of the meal, H paysW suffers an attack of food poisoningCan W sue the hotel in contract …… or can the hotel say that the contract was between them and H?
34 Example 2 Lockett v. Charles  4 All ER 170 Hilbery J holds that W is party to a contract with the hotel …… either because she contracted individually for her meal, or because H and W were contracting jointlyIt was irrelevant who actually provided the payment
35 Multi-party situations Who are the parties to a contract can be a difficult questionWe must bear in mind what was expressly agreed …… and the possibility that a party was acting as agent for othersUltimately, it is a question of what the parties intended
36 Example 1 Hearn v. Collins HC 3/2/98 A boxer entered into a bout agreement with a boxing promotion companyOne term of the agreement was that if the boxer won the bout, he would extend his own manager’s contract for another yearCould the manager enforce this?
37 Example 1 Hearn v. Collins HC 3/2/98 O’Sullivan J held that the manager could enforce itThe boxing promoters were acting as agents for the managerIf this were not so, the term was effectively unenforceable …… especially since a company could not act as manager
38 Example 2 Henley Forklift v. Lansing Bagnall SC 13/12/79 English manufacturers distributed their products in NI by granting a sole agency to a NI firmAn Irish firm was established to distribute the products in Ireland, obtaining them from the NI firmWas there a contract between the Irish and English firms?
39 Example 2 Henley Forklift v. Lansing Bagnall SC 13/12/79 It is possible to have a 3-party agreement, which any of the three could enforce against the otherBut here, judging from the documents, the English firm dealt only with the NI firmSo the English firm could not sue the Irish firm
40 Example 3 Shanklin Pier v. Detel Products  2 KB 854 The owners of a pier hire contractors to re-paint itDP recommend DMU paint for the jobOwners instruct contractors to use DMU paintIt proves to be completely unsuitable
41 Example 3 Shanklin Pier v. Detel Products  2 KB 854 Can the owners sue DP?The paint was bought by the contractors, and the owners were not party to that contractHowever, DP’s assurance that the paint was suitable was held to create a collateral contract between DP and the owners
42 Exceptions - benefit Enforcement by the promisee Promises expressly for the benefit of othersMiscellaneous commercial exceptions
43 1. Enforcement by the promisee Exceptions - benefit1. Enforcement by the promisee
44 DefinitionSuppose A contracts with B that s/he will confer a benefit on CThen B can enforce the contract, claiming a remedy of:-Specific performanceA stay of proceedingsDamages reflecting C’s loss
45 1. Specific performanceWhere A contracts with B to confer a benefit on C …… then B may obtain an order forcing A to comply with the contractIf A refuses to comply, in principle A could be prosecuted for contempt
46 1. Specific performance This is an exceptional remedy Whether it is granted lies in the discretion of the courtThe threshold requirement is that the ordinary contract remedy – damages – would not be adequate to do justice
47 Example Beswick v. Beswick  AC 58 A man transferred his business to his nephewIn return, he was to get £6 10s a week while he was alive …… and his widow was to get £5 a week thereafterOn the man’s death, the nephew refused to pay the widow
48 Example Beswick v. Beswick  AC 58 The widow was appointed as administratrix of her husband’s estateShe sued the nephew personally and as administratrixShe succeeded, but only on the second ground
49 2. Stay of proceedings Where A promises B that A will not sue C … … then A sues C in breach of that promise …… then B may apply to the court to stay A’s action against C
50 3. Action for damagesIn general, damages in contract are meant to make good the loss of the person suingTherefore it is not usually possible to sue for another’s loss (see eg Woodar v. Wimpey  1 AER 571)
51 3. Action for damages In 3 situations, exceptions have been made: Actual performance by promiseeLoss of enjoymentThe ‘legal black hole’ doctrine
52 a. Actual performance by promisee Suppose A and B agree that A should confer a benefit on CA does not do soB thereupon confers the benefit on C, and sues A for the cost doing soThis action should succeed, unless B’s behaviour seems unreasonable
53 b. Loss of enjoymentWhere A contracts with B for leisure services (eg package holiday) …… then damages for failure to perform may include damages for disappointment …… including the disappointment of non-parties (Jackson v. Horizon Holidays  1 WLR 1468)
54 c. The ‘legal black hole’ Suppose A agrees to do work to B’s property ...... but B then sells the property to CB is allowed to sue for the loss if A does not perform as agreed ...... even where it is C who loses
55 Example Darlington BC v. Wiltshier Northern  3 AER 895 A agreed to complete a building project for BB agreed with C to transfer their rights to CC acquired the building site tooWhen A defaulted, it was held that B had a right to sue …… which was then transferred to C
56 c. The ‘legal black hole’ However, this doctrine is rarely invokedIt does not seem to apply except where work is to be done on propertyIt certainly cannot be invoked merely because there is a ‘legal black hole’
57 2. Promises made to benefit others Exceptions - benefit2. Promises made to benefit others
58 DefinitionSuppose a contract is made which, if performed, would benefit a third party …… and it was the intention of the contractors that the third party should get a right of actionDoes the third party have the right to sue?
59 Different approachesSome common law jurisdictions allow a right of action there (eg London Drugs v. Kuehne (1992) 97 DLR (4th) 261 (Canada))Others have achieved the same result by legislation (eg Contracts (Rights of Third Parties) Act 1999 (UK))
60 The Irish approachIreland does not yet permit a right to third parties generally …… but there are various special cases that can be seen as examples of a wider principleThese cases are a mixture of common law and statute
61 Contracts to benefit others Rights held on trustSpecial provisions on family insuranceSpecial provisions on protecting families generally
62 Rights held on trustIf A promises B that s/he will confer a benefit on C …… and B can be regarded as acting as a trustee for C …… then B can sue A to recover damages on C’s behalfIndeed, C can compel B to sue
63 Example Drimmie v. Davies  1 IR 176 A father and son established a dental practice togetherIn the partnership deed, the son promised to pay certain sums to his brothers and sisters after the father’s deathHowever, he refused to do soCould his father’s executor sue?
64 Example Drimmie v. Davies  1 IR 176 The executor had suffered no lossHowever, it was held that the father had extracted the promise as trustee for his other children …… and so he (and his executor) could sue in that capacityThe measure of damages was the children’s loss, not the father’s
65 Decline of the doctrine Cases such as Drimmie are still good law todayHowever, judges today tend to be somewhat suspicious of the idea of a trust here …… and demand strong evidence before they will accept that one was intended
66 Reasons for the decline? A trust of a contract is a rather subtle notion, and anyone who means to create one should perhaps say so expresslyIf such a trust is created, the contract cannot be varied or cancelled without the beneficiary's consent
67 Example McManus v. Cable Management HC 8/7/94 Employers took out an insurance policy to cover them if their employees sued for work injuriesSuch a policy plainly benefited employees in factBut Morris J refused to infer a trustThe purpose of the policy was to protect the employer
68 Family Insurance Married Women's Status Act 1957 7.—(1) This section applies to a policy of life assurance or endowment expressed to be for the benefit of, or by its express terms purporting to confer a benefit upon, the wife, husband or child of the insured.(2) The policy shall create a trust in favour of the objects therein named.
69 Family Insurance Married Women's Status Act 1957 (3) The moneys payable under the policy shall not, so long as any part of the trust remains unperformed, form part of the estate of the insured or be subject to his or her debts.(8) In this section "child" includes stepchild, illegitimate child, adopted person (within the meaning of the Adoption Act, 1952) and a person to whom the insured is in loco parentis.
70 Families generally Married Women's Status Act 1957 8.— (1) Where a contract (other than a contract to which section 7 applies) is expressed to be for the benefit of, or by its express terms purports to confer a benefit upon, a third person being the wife, husband or child of one of the contracting parties, it shall be enforceable by the third person in his or her own name as if he or she were a party to it.
71 ‘purports to confer a benefit upon’ Does a lease ‘purport to confer a benefit upon’ the tenant’s family?The Supreme Court held that it did not …… even if the rent depended on the number of children (Burke v. Dublin Corporation  1 IR 341)
72 Families generally Married Women's Status Act 1957 8.— (2) The right conferred on a third person by this section shall be subject to any defence that would have been valid between the parties to the contract.(3) Unless the contract otherwise provides, it may be rescinded by agreement of the contracting parties at any time before the third person has adopted it either expressly or by conduct.
74 Exemption clauses covering goods Suppose A hands over goods to B for international transportA agrees that s/he will purchase insurance, and will rely on that if the goods are damagedC, an intermediary, negligently damages the goodsCan A sue C?
75 Example The Eurymedon  AC 154 Goods were to be sent from Liverpool to WellingtonThe owners agreed with the shipping company that damages for injury would be limitedOn unloading, the stevedores damaged the goodsCould the owners sue the stevedores?
76 Example The Eurymedon  AC 154 It made commercial sense to let the stevedores rely on the limitationThe price for carrying the goods assumed that they could relyBut it was hard to find a legal justification for allowing them to rely on a contract they were not parties to
77 Example The Eurymedon  AC 154 The Privy Council held that:-The owners knew that liability was to be limitedThey had authorised the shipping company to make incidental contracts as appropriateSo the shipping company could limit the stevedores’ liability
78 An artificial doctrine? However, this seems to be a very artificial solutionIt assumes that the stevedores and owner made an agreement to limit any damages …… which is almost certainly not how they saw the situation themselves
79 A less artificial doctrine? A more realistic approach is to say that if the owner of goods hands them over to another for safe keeping …… then they are bound by whatever terms they agreed …… whoever may be the precise parties to any future litigation
80 Example The Pioneer Container  2 All ER 250 A shipping company agreed to carry goods on an ocean voyageThe contract permitted the shipping company to sub-contract part of the voyage, which they didThe sub-contracting carrier could rely on any limitation protecting the first shipping company
81 Exceptions – passage of burden Privity of contractExceptions – passage of burden
82 Privity of contract - burden While there are many ways in which the benefit of a contract may pass to someone not originally party …… it is almost impossible to pass on the burden of a contractOnly the person who originally undertook it is liable
83 The single exceptionWhere A promises B that s/he will use some of her property in a particular way …… then it is possible to attach the obligation to the propertyThe obligation is therefore enforceable even if the property comes into someone else’s hands
84 Example 1 De Mattos v. Gibson (1859) 45 ER 108 If two neighbours agree to mutual restrictions (eg neither to block the other’s view) …… then perhaps these restrictions will survive sale of the properties …… and be enforceable against successors in title
85 Example 2 Lord Strathcona SS v. Dominion Coal  AC 108 If the owners of a steamship hire it to a company …… but then sell the steamship …… the new owners will be bound to honour the contract of hire (even though they never agreed to it)
86 A good doctrine today? However, the leading cases are quite old They have been doubted (and it is not clear whether Lord Strathcona is still good law)If there is a doctrine of this sort today, it is limited
87 Limits on the doctrineSuch a doctrine will only apply to negative restrictions (ie terms not to use property in certain ways)It cannot be used to support resale price maintenance schemes (Taddy v. Sterious  1 Ch 354)
88 Tort as a way around privity An unexplored route?
89 Negligence lawUnder the general law of negligence, a plaintiff can sue for harm caused by a defendant, provided that:-The defendant owed plaintiff a duty of careThe defendant broke it by careless behaviour
90 Breach of contract as negligence? Sometimes, the careless behaviour is a breach of a contractSo in effect, the plaintiff can complain of a breach of contract which harms him/her …… even though the contract was not with the plaintiff
91 An exception to privity So effectively there is an exception to privity …… so long as the requirements of the tort of negligence are satisfiedThis exception has so far been very little explored in Irish law
92 Example 1 Smith v. Bush  1 AC 831 P sought to buy a house, and applied for a mortgage on itD, a valuer, was appointed by the mortgage company to value itD carelessly gave the house a good reportP bought the house, relying in part on the report
93 Example 1 Smith v. Bush  1 AC 831 The HL held that P could sue:D knew that P would see the report, and would probably rely on itIt was obviously foreseeable that P would therefore suffer loss if the report was not done wellTherefore D owed a duty to P
94 Example 1 Smith v. Bush  1 AC 831 However, this does not always give P the same rights as if P had paid D:Not everyone in P’s position will be thought reasonable for relying on that reportD only had to prepare a valuation report, not a full survey
95 Example 2 Wall v. Hegarty  IRLM 124 Solicitors agree to draw up a will for a clientHowever, they delay unreasonably, and the man dies before the will is readyCan the relatives who would have benefited from the will sue the solicitors?
96 Example 2 Wall v. Hegarty  IRLM 124 This case is almost within Married Women's Status Act 1957 s 8 …… but the Irish courts have tended to interpret that provision narrowlyThe court found a remedy under the tort of negligence