1. UNIVERSITY OF LUSAKA FACULTY OF LAW
UNIT 14: THIRD PARTY RIGHTS & THE DOCTRINE OF PRIVITY
George Mpundu Kanja

2. STRUCTURE OF THE PRESENTATION
The Basic Rule
Justification for the Rule
Exceptions to the Rule

3. Basic Rule
The basic rule of the doctrine of privity of contract is that any person who is not a party to the contract can neither sue on the contract nor can they be sued under it.
In summary:
(1) only a party to a contract can sue on a contract - Price v. Easton [1833] 110 ER 518; Tweddle v. Atkinson [1861]
(2) Only a party to a contract can be sued on a contract – Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd [1915] AC 847

4. Basic Rule
Summary of the basic operation of the doctrine of privity of contract
A makes a promise to B which involves doing something or giving something to C
B makes a promise to A which involves doing something or giving something to C
C cannot take advantage of the promise as he is not a party to the agreement between A and B

5. Basic Rule
In Price v. Easton [1833] 110 ER 518, the court stated that no one would be entitled to or bound by the terms of a contract to which he is not an original party.
Easton had agreed with another party that if that party did specified work for him he would pay £19 to Price, a third party to the contract. While the work was completed by the other party, Easton nevertheless failed to pay Price who then sued to try to enforce the contract.
Price’s claim was unsuccessful. He Had given no consideration for the arrangement and was not therefore a party to the contract either and gained no enforceable rights under it.

6. Basic Rule
In Tweddle v. Atkinson [1861] here even though the claimant was named in a written agreement he was unable to claim an enforceable third party right as he had provided no consideration for the original contract.
In other words the claimant could not seek to enforce a contract to which he was not an actual party even though he was named in the contract as a potential beneficiary of the agreement.

7. Basic Rule
The plaintiff’s father and Mr Guy had agreed together that they would each pay a sum of money to the plaintiff. Mr Guy died before the money was paid, and the plaintiff sued his executors.
The action was dismissed because the plaintiff was not a party to the contract, which was made between the two fathers.

8. Basic Rule
Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd [1915] AC 847: In a contract dated October 12, 1911 Dew & Co, who were wholesalers, agreed to buy tyres from Dunlop, who were tyre manufacturers. They did so on an express undertaking in the contract that they would not sell the tyres below certain prices fixed by the manufacturers. Dew & Co also undertook to obtain the same price-fixing agreements from clients to whom they sold on. Dew & Co then sold tyres on to Selfridge on these terms. However, Selfridge broke the agreement and sold the tyres at discount prices.
Dunlop sued Selfridge, the third party, and sought an injunction. It failed for lack of privity.
It was held that Dunlop could not sue Selfridge for breach of contract as they were not parties to the contract, nor had they given consideration to Selfridge.

9. Justification for the Rule
Since contract law concerns bargains it is said that it would be unfair to allow a person to gain under a bargain when he has actually provided nothing in return for the benefit gained from the arrangement.
It would be unfair to impose an obligation on a party who has played no part in the agreement, e.g. If A and B agree on a certain price if C performs some service for A then why should C be bound when he has not been a party to the agreement in the first place?
It is unfair to allow somebody the right to sue on a contract when he cannot be sued.

10. Exceptions to the Basic Rule
The exceptions to the basic rule of the doctrine of the privity of the contract are:
(1) Statutory Exceptions
(2) Trust Law
(3) Restrictive Covenants
(4) Assignment
(5) Leases
(6) Agency
(7) Negotiable Instruments

11. (1) Statutory Exceptions
Road Traffic Act – obliges a motorist to take out third party liability insurance. Another motorist who is involved in an accident with this motorist can then rely upon the statutory provision for recovery of compensation for damage or any loss.
The insurance is enforceable despite the fact that the other motorist lacks any privity in the insurance contract.

12. (2) Trust Law
Where a trust has been created, the beneficiary under the trust can sue the trustees even if he was not a party to the original agreement.
In Gregory & Parker v. Williams (1817) 3 Mer 582: Parker owed money to both Gregory and Williams. Since he could see no way of organizing settlement of his debts himself, he assigned all of his property to Williams on the understanding that Williams would then pay off the debt to Gregory. Williams failed to pay over the money to Gregory. Gregory, of course, was not a party to the agreement between Parker and Williams and as a result was unable to sue on it in contract law.

13. (2) Trust Law
However, the court was nevertheless prepared to accept Gregory’s argument that a trust of the money had been created in Gregory’s favour, which was then enforceable against Williams.
There was never any intention that Williams should keep all of the money, a beneficial interest was created in Gregory’s favour and Williams held the sum of the debt owed to Gregory by Parker only as a trustee.
Williams was therefore bound to return this money to Gregory.

14. (3) Restrictive Covenants
This is device or tool used by equity by which a party selling land retains certain rights over the use of land, such as preventing the use of the land for business or preventing building on the land.
The covenant is said to run with the land, so if properly created will bind subsequent purchasers of the land even though there is no privity between them and the original seller.

15. (3) Restrictive Covenants
In Tulk v. Moxhay [1848] 41 ER 1143: Tulk owned certain land in London that he sold with an express undertaking that it would never be used to build property on. The land was then resold on a number of occasions, each time subject to the same undertaking, until Moxhay eventaully bought it. Moxhay bought it knowing of the limitation but nevertheless intended to build on it.
Tulk sought an injunction to prevent this building from taking place and was successful. The court accepted that it would be against conscience for Moxhay to buy, knowing of the restriction, and it was prepared to grant the injunction and enforce the original agreement even though Moxhay had never been a party to it.

16. (4) Assignment
Assignment is specific system devised for the transfer of property right such as real property (e.g. land) or ‘choses in action’ (e.g. shares).
The rights can be assigned and the party to whom the rights have been assigned can sue despite lack of privity to the contract.
There are two methods of enforcing these rights are through statutory provisions and equity.

17. (5) Leases
Where an owner of land creates a lease in favour of another person the terms of the lease are in effect contractual obligations, and these terms (known as covenants) of the lease and are enforceable by both parties because there is privity between them.
However, the landowner will able to enforce the covenants also against anybody to whom the holder of the lease then assigns their lease.

18. (6) Agency
A principal can sue and be sued on contracts made on his behalf.

19. (7) Negotiable Instruments
Negotiable instruments namely a cheque is transferable and the person to whom it has been transferred can sue on it.

20. THANK YOU