What is Privity in Contract Law

In contract law, privity means the relationships that exist between those engaged in contracts. Privity also looks at consideration in contracts.

What are the Rules?

There are rules which stipulate who can take action to sue another party within a contract. In the case of Dunlop v Selfridge (1915), this is where there was a contract between two parties, Dunlop and Selfridge, however, a third party could not sue Selfridge over an agreement over the price because the third party was not in contract with Selfridge. The court decided that there was no contract between the third party, and it could not have the right to sue. The privity rule shows only those who have engaged in a contract have the right to sue.

However, in the case of Tweddle v Atkinson (1861), the contract was created for the benefit of a third party, but that person was not able to benefit from the payment that was intended for him under the contract.

The rules of privity can cause disadvantages, for instance in the case of Jackson v Horizons Holidays (1975), this is where the plaintiff, Mr Jackson, booked a holiday for himself, his wife and his two children. Mr Jackson was informed that his original holiday was not ready and was offered an alternative, which he accepted. However, the holiday tuned out unsatisfactory and Mr Jackson and his family were disappointed. The plaintiff sued the company for breach of contract; the company initially denied the claims made by the plaintiff, but later admitted liability. The court awarded Mr Jackson damages; but the court did not divide the damages between the family members, and only awarded them Mr Jackson. The court decided that it was for Mr Jackson to consider his family in the damages awarded, and that the court could not award them separately. Mr Jackson appealed, the court decided that he sued for breach of contract for himself and his family, and therefore his damages recovered were for him and his family. The court also decided that the figure awarded was right when considering himself and his family. However, it was decided that the damages could be extended to his family.

Exceptions to the Rule of Privity

There are certain exceptions to the rule of privity.

• In the case of Eurymedon (1975), this is where an agent was involved in the contract.
• Statute laws that are made can also act as exceptions to the rule, and can override the common law in place.
• Collateral contracts are when there is a situation where it allows a party to find a way to avoid the rule, an example of this is in the case of Shanklin Pier v Detel (1951).
• Another exception is covenants which run with the land, which are restrictive and positive. For restrictive, this is in the case of Tulk v Moxhay (1848). For positive, in the case of Smith and Snipes Hall Farm v River Douglas Catchment Board (1949), the court decided that the covenant could run with the land.
• In certain circumstances, restrictions on price are also allowed, which is another exception to the rule.

Rule of Privity

There have been cases which show how the rules of privity work.

• In the case of Port Line v Ben Line Steamers (1958), the court decided that the contract was enforceable.
• In the case of Re Schebsman (1943), this is where the court decided that the contract would be unenforceable.
• In the case of Beswick v Beswick (1968), this is where a third party to a contract tried to enforce payment under a contract which was between her late husband and her nephew. Section 56 of the Law of Property Act 1925, was used to obtain property by a third party. However, the court decided that Mrs Beswick would not be allowed to enforce payment using the Act.

Changes in the Law

There have been changes in the law to allow those to claim what was supposed to be for someone’s benefit. The Contracts (Rights of Third Parties) Act 1999 has made changes that allow rights to third parties. Section 1 of the Act begins, ‘a person who is not a party to a contract (a third party) may in his own right enforce a term of a contract if...’.