PRIVITY OF CONTRACT.pptx

THE DOCTRINE OF PRIVITY  Recommended Reading C Dowouna Hammond, Law of contract in Ghana, Chapter 7 KOAH v. ROYAL EXCHANGE ASSURANCE GLR 398 EJURA FARMS (GHANA) LTD. AND ANOTHER v. HARLLEY 1 GLR 158  STRUCTURE OF THE PRESENTATION The Basic Rule Justification for...

THE DOCTRINE OF PRIVITY  Recommended Reading C Dowouna Hammond, Law of contract in Ghana, Chapter 7 KOAH v. ROYAL EXCHANGE ASSURANCE GLR 398 EJURA FARMS (GHANA) LTD. AND ANOTHER v. HARLLEY 1 GLR 158  STRUCTURE OF THE PRESENTATION The Basic Rule Justification for the Rule Exceptions to the Rule  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 110 ER 518; Tweddle v. Atkinson (2) Only a party to a contract can be sued on a contract – Dunlop Pneumatic Tyre Co. Ltd v. Selfridge &  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  Development of the rule It is generally agreed that the modern third party rule was conclusively established in 186 1 in Tweddle v Atkinson. The modern day position of third party rule since the middle of the nineteenth century is that a person cannot be entitled to enforce or be bound by the terms of a contract to which he is not  Basic Rule In Price v. Easton 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.  Basic Rule In Tweddle v. Atkinson here even though the claimant was named in a written agreement he was unable to claim and enforce a 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  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  Basic Rule Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd 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 to Selfridge on these terms.  Basic Rule However, Selfridge broke the agreement and sold the tyres at discounted 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,  Basic Rule In Dunlop Pneumatic Tyre Co., Ltd. v. Selfridge & Co., Ltd. A.C. 847 at p. 853, H.L. Viscount Haldane L.C. said: “My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam. A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it, consideration must have been given by him to the promissor or to some other person at the promissor’s request. The two principles are not recognized in the same fashion by the jurisprudence of certain Continental countries or of Scotland, but here they are well established. A third proposition is that a principal not named in the contract may sue upon it if the promisee really contracted  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? □  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  (1) Statutory Exceptions Motor Traffic ( Third Party) Insurance 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  (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  (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 Willia favour was and Williams therefore held the bound to sum money ms of the to debt owed return this to Gregory by Parker Gregory.only as a trustee.  (3) Restrictive Covenants This is a 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  (3) Restrictive Covenants In Tulk v. Moxhay 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  (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  Assignment The assignment is effected through a contract between the promisee under the main contract (that is, the assignor) and the third party (that is, the assignee).  In addition, an assignee takes “subject to that is, subject to any defences which the promisor has and any defects in the assignor’s title. The effect of assignment is that the promisor is faced with an action brought on the contract by a person whom he did not regard as a party and whom he may not have intended to benefit.  (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 be able to enforce the covenants also against anybody to whom the holder of the  (6) Agency A principal can sue and be sued on contracts made on his behalf. Agency is the relationship which exists between two persons, one of whom (the principal) expressly or impliedly consents that the other should act on his behalf, and the other of whom (the agent) similarly consents so to act or so acts. One consequence of this  the principal acquires rights (and liabilities) under contracts made by the agent on his behalf with third parties. Although one can normally say, without undue fiction, that the principal is the real party to the contract concluded by his agent, agency can also be viewed as an exception to the privity doctrine in that the principal, albeit a third party  (7) Negotiable Instruments Negotiable instruments namely a cheque is transferable and the person to whom it has been transferred can sue on it.  CONTRACT ACT 1960 (ACT 25) SECTION 5 – THIRD PARTY RIGHTS 5. Provision in contract for benefit of third party (1) A provision in a contract made after the commencement of this Act which purports to confer a benefit on a person who is not a party to the contract, whether as a designated person or as a member of a class of persons, may, subject to this section That person were a party to the contract. (2) Subsection (1) does not apply to (a) a provision in a contract designed for the purpose of resale price maintenance, that is to say, a provision whereby a party agrees to pay money or otherwise render some valuable consideration to a person who is not a party to the contract in matter of the contract, at prices lower than those determined by or under the contract; or (b) a provision in a contract purporting to exclude or restrict a liability of a person who is not a party to the contract.  KOAH v. ROYAL EXCHANGE ASSURANCE The plaintiff brought the action herein against GLR 398 the defendants to satisfy a judgment awarded against the defendants’ insured for damages for personal injuries sustained by the plaintiff as a result of the negligent driving of the insured’s driver. The defendants denied liability on the ground that the third party insurance in force at the material time restricted driving to the insured, i. e. the owner only. Held: (1) as at the material time the vehicle was driven by a person other than the insured, it could not be disputed that the vehicle was driven by a person not Per Archer : Here in Ghana, the Contracts Act, 1960 (Act 25), has changed the law with a fanfare of trumpets and has made it clear that third parties not parties to a contract can sue but if and only if and when the contract purports to confer a benefit on that third person. EJURA FARMS (GHANA) LTD. AND ANOTHER v. HARLLEY 1 GLR 158 Please note that Section 5(1) does not apply merely because a contract in fact confers a benefit on a third party. For the third party to be able to mount an action on the strength of section 5(1), it is not sufficient for the third party to show that he/she stood to gain a certain benefit under the contract but must establish that he/she was actually in the contemplation of the contracting parties to receive or gain that SECTION 6 - Rights of third party Where under section 5 a person who is not a party to a contract is entitled to enforce or rely on a provision in the contract, (a) a variation or rescission of the contract shall not prejudice that person’s right to enforce or rely on the provision if that party has acted to the prejudice of that party in reliance on the variation or rescission, unless that party consents to the variation or rescission; and (b) subject to paragraph (a), a party against whom the provision is sought to be enforced or relied on is entitled to rely on or to plead by way of defence, set-off, counterclaim or otherwise a matter relating to the contract which that party could have so relied on or pleaded if the provision were sought to be enforced or relied on by the SECTION 7 - ASSIGNMENT OF LEGAL RIGHTS (1) Subject to the relevant rule of law, and subject to a contrary intention appearing from a transaction giving rise to legal rights, a person may, after the commencement of this Act, assign a legal right to another person as specified in this Act (2) An assignment, whether given for consideration or not, of a vested legal right, transfers the right and interest in the assignment to the assignee and extinguishes the right and interest in the assignment of the assignor if (a) it is absolute and not by way of charge only, and (b) it is in writing and is signed by the assignor or the agent of the assignor, and (c) written notice of the assignment is given to the debtor or any other person against whom the right is enforceable. (3) A purported assignment of a conditional right operates as a promise to assign the right if and when the condition occurs (4) An assignment, whether given for consideration or not, is valid although it does not comply with all or any of the requirements of subsection (2); but (a) a right so assigned shall not be enforced or relied on against the debtor or any other party against whom the right is enforceable, unless the assignor is a party to the proceedings in which it is sought to unless the Court is satisfied that it would be impossible or impracticable so to join the assignor; and (b) the assignment shall not prejudice the debtor or any other person against whom the right is enforceable unless the debtor or the other person has written notice of the assignment SECTION 10 – CONSIDERATION NEED NOT MOVE FROM PROMISE ‘No promise shall be invalid as a contract by reason only that the consideration therefore is supplied by someone other than the promise.’ The effect of Section 10 therefore is that a third party who has not himself supplied consideration for a promisor’s promise is entitled to sue on the promise provided someone else has supplied consideration for the promise. THANK YOU