Lecture Notes

Powerful Essays
LAW EXTENSION COMMITTEE

WINTER COURSE 2005

CONTRACTS

LECTURE NOTES

WEEK FIVE

PRIVITY OF CONTRACT

1. The Privity of Contract Doctrine

The privity of contract doctrine dictates that only persons who are parties to a contract are entitled to take action to enforce it. A person who stands to gain a benefit from the contract (a third party beneficiary) is not entitled to take any enforcement action if he or she is denied the promised benefit.

Example:

A promises B, for consideration moving from B, to pay C $ 100.

Here A and B are parties to the contract – privy to the contract – and can sue each other if there is a breach by the other. C is not a party to the contract and cannot sue A is A fails to pay C the sum of $ 100.

A classic authority for the doctrine is Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC 847, where at 853, Viscount Haldane said:

My Lords, in the law of England certain principles are fundamental. One is that only a person who was party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio [third party right of action] arising by way of contract.

See also Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460, at 478, per Barwick CJ.

2. Privity and its Relationship to the Doctrine of Consideration

When looking at the doctrine of consideration we observed the rule that consideration must move from a promisee, or, in other words, that only a person who has provided consideration can enforce a promise. In the above example one could have argued that C could not sue on the basis that C had not provided any consideration for A’s promise to pay C the sum of $ 100.

This raises the question of whether there is a distinction between the privity and consideration rules. This question has generated considerable discussion in academic circles and there is a division of opinion between those who say the rules are in fact one rule differently expressed and those who

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