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Privity of Contract - Case Study Example

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Privity of contract is a legal concept applicable principally to contracts involving the sale of goods or services. Privity of contract occurs only between the parties to a contract. A third party which, benefits under a contract does not have the right to proceed legally against the parties to the contract for entitlement in excess of its benefits as provided in the contract…
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Privity of Contract
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Privity of Contract

This facet of the rule became a hindrance, where the contract was made to the benefit of the third party. Collateral warranties support the viability of this rule.
Prior to 1833 there existed decisions in English Law, which permitted enforcement of the provisions of a contract by persons not party to the contract. The doctrine of privity emerged together with the doctrine of consideration, which states that consideration must move from the promisee. That is 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.
In 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 failed1.
This was completely linked to the doctrine of consideration and was established by the case of Tweddle v Atkinson, where 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 husband's claim against his father - in - law's estate was dismissed on the grounds that no consideration had moved from the husband2.
The doctrine was further developed...
Sometimes, the doctrine does not apply, either because of supervening principles of law or because of specific statutory provisions which allow a third party to enforce a right conferred on him by the contracting parties.
In Beswick v Beswick, a nephew bought his uncle's coal business. A term in this transaction was that the nephew would support his uncle's wife on the uncle's death. However, the nephew did not honour this and the widowed aunt was permitted to sue as executor of her husband's estate and obtain compensation4.
In Vandepitte v Preferred Accident Insurance co, it was held that a party to a contract can become a trustee for a third party of a right under the contract and thus confer such rights to a third party. After this the trustee can initiate steps to enforce performance as in the case of other equitable rights5.
In McCannell v Mabee McLaren Motors Ltd, the extent of enforceability of a contract between Studebaker, a car manufacturer, and a dealer by another dealer was decided by the court which held that "the agent of the several dealers to bring about privity of contract between them.
The consideration is not moving from the company to the dealer, but from one dealer to another" and that the test of agency was created by the efforts of the manufacturer in bringing the parties together6.
Further, in New Zealand Shipping Co. Ltd v A.M. Satterthwaite & Co. Ltd, Ajax was a manufacturer and vendor of drills sent the same by ship to New Zealand from England. The drill was damaged in transit by the NZ Shipping Co.
The bill of lading contained clauses, which stipulated that the shipper and sub contractors could not ... Read More
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