9 Privity of contract
The rule of privity
Thinking back to the definition of a contract (see Chapter 2), a contract is
essentially an agreement between two parties. The general rule on claiming
against a party was stated by Viscount Haldane in Dunlop Pneumatic Tyre
v Selfridge (1915).
Only a person who is a party to a contract can sue on it.The reason behind this is easy to see if we consider a situation where a
contract is made between two parties, A and B. If the terms of the contract
imposed duties on a third party, C, and he failed to perform them, it would
be very unfair for A or B to be allowed to sue him as a result. Steyn LJ said,
‘Principle certainly requires that a burden should not be imposed on a third
party without his consent’. This is easy to accept, as none of us would wish
to have some burden placed upon us without agreeing to it. Therefore, by
the same principle (but perhaps a little harder to accept) if the contract
imposed not duties, but benefits, on C, then he could not sue A or B if they
are in breach. This can be seen in the following diagram.
They
agreed
to pay me!