Part B The law of obligations 4: Formation of contract II 67
Where the contract is one which provides something for the enjoyment of both the contracting party and
third parties – such as a family holiday – the contracting party may be entitled to recover damages for
their loss of the benefit.
5.1 Exceptions
There are a number of exceptions to the rule of privity of contract.
Exceptions
The third party can
sue in another
capacity
Beswick v Beswick 1968
The facts: X transferred his business to the defendant, his nephew, in consideration
for a pension of £6.10s per week and, after his death, a weekly annuity to X's
widow. Only one such annuity payment was made. The widow brought an action
against the nephew, asking for an order of specific performance. She sued both as
administratrix of her husband's estate and in her personal capacity as recipient.
Decision: As her husband's representative, the widow was successful in enforcing
the contract for a third party's (her own) benefit. In her personal capacity she had
no right of action.Collateral contracts Shanklin Pier Ltd v Detel Products Ltd 1951
The facts: Shanklin Pier contracted with painters to have the pier repainted using
products from Detel. Detel had already communicated their paint's suitability to the
claimants. The paint was not suitable and Shanklin took action against Detel
Products even though their contract was with the painters.
Decision: It was held that a collateral contract existed between Shanklin and Detel.
Detel had confirmed the paint's suitability in return for Shanklin requiring the
painters to use it.Valid assignment Benefit from a contract can be re-assigned from the original beneficiary to a third
party if it is in writing, it transfers the same or no more benefits to the new
beneficiary and has the consent of the other party.
Foreseeable loss
to the third party
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd 1994
The facts: Linden Gardens contracted with the defendants for work to be done on
their property. The defendants knew there was the likelihood that the property
would be transferred to a third party soon after. After the transfer it became
apparent that the workmanship amounted to breach of contract. As the third party
had no action against the defendants due to the rules on privity, Linden Gardens
took action in their place.
Decision: As the transfer was in the contemplation of both parties the original
beneficiary could claim full damages on behalf of the third party.Implied trusts Equity may hold that an implied trust has been created
Gregory and Parker v Willimans 1817
The facts: P owed money to G and W. He agreed with W to transfer his property to
W if W would pay his (P's) debt to G. The property was transferred, but W refused
to pay G. G could not sue on the contract between P and W.
Decision: P could be regarded as a trustee for G, and G would therefore bring an
action jointly with P.Statutory
exceptions
Road Traffic Act 1972: A person injured in a road accident may claim against the
motorist's insurers.
Married Woman's Property Act 1882: Permits husband and wife to insure his or
her own life for the benefit of the other under a trust which the beneficiary can
enforce.
Contracts (Rights of Third Parties) Act 1999: see below.