Privity of contract

Privity of contract is the doctrine that only the parties to a contract can enforce or be bound by it. The doctrine has two limbs: a third party cannot acquire rights under a contract to which they are not a party (the enforcement limb); and a third party cannot have obligations imposed on them by a contract to which they are not a party (the burdens limb).

The enforcement limb has been the principal source of doctrinal trouble. Tweddle v Atkinson (1861) 1 B & S 393 established it; Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915] AC 847 applied it to commercial third-party-beneficiary cases; the Law Revision Committee (1937) recommended reform; the Contracts (Rights of Third Parties) Act 1999 finally enacted it. The Act has substantially modified but not abolished the doctrine. Common-law exceptions — agency, trust, assignment, equitable assignment, and the Dunlop v Lambert / St Martin''s Property Corp Ltd v Sir Robert McAlpine exception — continue to operate alongside the Act.

This week studies the doctrine in three layers. (i) The orthodox doctrine (Tweddle; Dunlop; Beswick v Beswick). (ii) The 1999 Act and its operation. (iii) The surviving common-law exceptions and the related doctrinal questions on negative covenants and the De Mattos v Gibson doctrine.

The topic connects to W3 (consideration — the privity rule overlaps with the requirement that consideration move from the promisee), W11 (discharge — assignment), W13 (damages — the question whether damages reflect third-party loss), and to the law of property (assignment of contractual rights as choses in action).

The doctrine of privity emerged in the mid-nineteenth century. Tweddle v Atkinson (1861) 1 B & S 393 held that a son could not enforce his father''s and his future father-in-law''s contract to give him money on his marriage, because he was not a party to it and consideration had not moved from him. The case is the foundational modern authority.

The House of Lords in Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915] AC 847 confirmed the doctrine in commercial context. Dunlop sold tyres to a wholesaler on terms that the wholesaler''s customers (here, Selfridge) would not sell below a certain price; Selfridge breached the price-maintenance term; Dunlop sued. The House of Lords dismissed the claim on the privity ground: there was no contract between Dunlop and Selfridge.

The Law Revision Committee Sixth Interim Report (1937) recommended that the privity rule be reformed to allow third-party enforcement of contracts that purported to confer benefits on them. The recommendation was not implemented for sixty-two years. Throughout that period, common-law exceptions and creative judicial reasoning (Beswick v Beswick [1968] AC 58 — specific performance by personal representative; Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 — damages for third-party loss in family holiday case) softened the doctrine''s harshest applications.

The Contracts (Rights of Third Parties) Act 1999 finally implemented the 1937 recommendations, with significant modifications. The Act preserves the privity doctrine for cases not falling within its scope but creates a substantial exception for contracts that expressly identify a third-party beneficiary. The post-1999 case-law has worked out the operation of the Act and its relationship to the surviving common-law exceptions.

(1) The basic privity rule. Only parties to a contract can enforce it (the enforcement limb). Only parties to a contract can be bound by it (the burdens limb). The rule is justified by the doctrine of consideration (consideration must move from the promisee — third parties have given no consideration) and by the principle of contractual relativity (parties cannot be expected to anticipate or accept obligations to or from strangers). The rule is now substantially qualified by the Contracts (Rights of Third Parties) Act 1999 but retains residual force.

Five graded practice questions in the panel below — two foundation on Tweddle/Dunlop and the 1999 Act, two standard on Beswick and the s 1(2) presumption, and one challenge on the asymmetry between enforcement and burdens.

See the Further Reading panel for Treitel, Andrews, Beatson and Burrows, the Law Commission Report 242, and the post-1999 case-law commentary.