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HomeLaw BlogsThe Doctrine of Privity in Contract Law: Evolution and Reform

The Doctrine of Privity in Contract Law: Evolution and Reform

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I do believe many of you have heard of the maxim of law known as Res inter alios acta aliis rocere roque rocere prodesse potest, this was among the first maxims I learnt in law school despite of its length and ambiguous context.


According to the BLACKS LAW DICTIONARY, quoting the maxim connotes the fact that it is the connection or relationship between two party and non-party who is related to the party (such as a transaction, proceeding, or piece of property).


The doctrine of Res inter alios acta aliis rocere roque rocere prodesse potest is a common law principle which provides that a contract cannot confer rights or impose obligations upon anyone who is not a party to that contract. The doctrine has been literally referred to as privity of contract, and it follows, therefore as a legal principle that has been a subject of debate and reform in contract law. It essentially states that only parties who are directly involved in a contract have rights and obligation under the contract, and third parties cannot enforce or be bound by the contract’s terms.

The doctrine of privity has deep historical roots and has a fundamental aspect of contract law for centuries. Its origins can be traced back to English common law, where the sanctity of the contract between the parties was considered paramount.


The doctrine has however received some criticisms over the years. These include;
(a) Inflexibility: one of the primary criticisms of the privity doctrine is its inflexibility. It often results in unfair outcomes when a third party is clearly affected by a contract but has no legal recourse to enforce its terms or seek redress for harm caused by the contract.
(b). Commercial Reality: In today’s complex business world, contracts often involve multiple parties, such as subcontractors, insurers, or beneficiaries. The strict application of privity can hinder the efficient operation of modern commerce.
(c) Lack of Equity: The doctrine can lead to situation where justice is not served. For instance, if a person pays for a life insurance policy for the benefit of their spouse or child, the doctrine may prevent the beneficiary from directly claiming the policy proceeds.

Exceptions and Reforms
Over time, courts and legislatures have recognized the privity doctrine’s limitations and introduced various exceptions and reforms.


Trusts: Are common exceptions to the privity rule, allowing beneficiaries to enforce contracts made for their benefit.
Assignment: Parties can often assign their rights and obligations under a contract to third parties, effectively allowing those to enforce the contract.
Statutory Interventions: Some jurisdictions have passed legislation that explicitly allows certain third parties to enforce contacts in specific situations, such as consumer protection laws.


Modern Interpretation: There has been a shift towards a more pragmatic and equitable interpretation of the doctrine in many jurisdictions. Courts may look beyond the strict privity requirement if it is necessary to achieve a just outcome.
It is related to, but distinct from, the doctrine of consideration, according to which a promise is legally entitled to enforce such a promise only if they are a promisee from whom the consideration has moved.


A principle consequence of the doctrine of Res inter alios acta aliis rocere roque rocere prodesse potest is that, at common law, a third party generally has no right to enforce a contract to which they are not a party even where that contract was entered into by the contracting parties specifically for their benefit and with a common intention among all of them that they should be able to enforce it.


In England and Wales and Northern Ireland, the doctrine has been substantially weakened by the Contract (Right of third parties) Act 1999, which created a statutory exception to privity, Providing, in certain circumstances, third parties the right to enforce terms of contracts to which they are not privity.


In third parties’ rights, privity of contract occurs only between the parties to the contract, most commonly Contract of sales of goods or services. Horizontal privity a rise when the benefits from a contract are to be given to a third privity party
Vertical privity involves a contract between one of the parties and another individual or corporation.


If a third party gets a benefit under a contract, it does to the contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer sells a product to a distributor and the distributor sells the product to a retailer. The retailer then sells the product to a consumer. There is no privity of contract between the manufacturer and the consumer. This, however, does not mean that the parties do not have another form of action for instance;


In the famous case of Donoghue v Stevenson, Donoghue bought her friend, Stevenson,, a bottle of ginger beer containing the partially decomposed snail remains. Since the contract was between her friend and the shop owner, Mrs Donoghue could not sue under the contract, but it was established that the manufacturer was in breach of duty of care owned to her. According her, she was awarded damages in the tort of negligence for having suffered gastroenteritis and nervous shock.


Prior 1861, there existed decision in English law allowing provision of a contract to be enforced by persons not party to it, usually relatives of a promisee, and decisions disallowed third party rights.3 4 The doctrine of privity emerged alongside the doctrine of consideration, the rules of which state that is to say that if nothing is not legally binding unless promise as a deed.


In the case of Price v Eastern of 1833, where a contract was made for work to be done in exchange for payment to a third party. When the third party attempted to sue for payment, he was held to be not privity to the contract, as so his claim failed. This was fully linked to the doctrine of consideration, and established as such, with the most famous case of Tweddle v Atkinson. In this case the plaintiff was unable to sue the executor of his father-in –law, who had promised to the plaintiff, because he had not provided any consideration to the contract.


The doctrine Res inter alios acta aliis rocere roque rocere prodesse potest was developed further in Dunlop Preumatic Tyre v Selfridge And Co. Limited, through the judgment of Lord Haldane. The doctrine played a key role in the development of negligence as well. In the first case of winter bottom v Wright (1842), in which Winter Bottom, a postal service wagon driver, was injured due to a faulty wheel, attempted to sue the manufacturer decided that there was no privity of contract between manufacturer and the consumer. This issue appeared repeatedly until Macpherson v Buick motor Co (1916), a case analogous to Winter bottom v Wright involving a car defective wheel, Judge Cordozo, writing for the New York court of Appeal, decided that no privity is required when the manufacturer knows the product is probably dangerous if defective, third parties (e.g. Consumer) will be harmed because of said defect and there was no further testing after initial sale.
Looking at our laws in Uganda, under the Contract Act, section 20, to claim benefit of a contract, one must have provided consideration which literally moves from the promisee to the promisor.


In England and Wales, the contracts (Rights of Third Parties) Act 1999 provided some reform for this area of law which has been criticized by judges such as Lord Denning and academics as unfair in places. The Act states;
Subject to the provisions of this act, as person who is not a party to a contract (a third party) may in his own right enforce a term of the contract if, subject to subsection (2), the term purports to confer a benefit on him.
Subsection (1) (b) does not apply if a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party. This means that a person who is named in the contract as a person authorized to enforce the contract or a person receiving a benefit from the contract may enforce the contract unless it appears that the parties intended that they may not.

The doctrine enables the aim of the parties to be fully adhered to. In Beswick v Beswick, the agreement was that Peter Beswick assign his business to his nephew in consideration of the nephew employing him for the rest of his life and then paying a weekly annuity to Mrs. Beswick.
Since the letter term was for the benefit of someone not party to the contract, the nephew did not perform it, making only one payment of the agreed weekly amount.

Yet the only reason why Mr. Beswick contracted with his nephew was for benefit of Mrs. Beswick would be able to enforce the performance of the contract in her own right. Therefore, the Act realizes the intentions of the parties.


The law has been welcomed by many as a relief from the strictness of the doctrine, however it may still prove ineffective in professionally drafted documents, as the provisions of this statute may be expressly excluded by the draft’s men.


In Hong Kong, the Contracts (rights of Third parties) Ordinance provided for a similar legal effect as the Contracts (Rights of Third Parties) Act 1999.
In Australia, it has been held that third party beneficiaries may uphold a promise made for its benefits in a contract of i9nsurance to which it is not a party (Trident General Insurance Co Limited v Mciviece Bros Pty Limited (1988) 165 CLR 107).5 It is not a important to note that the decision in Trident had no clear ratio, and did not create a general exemption to privity in Australia.
Queensland, the Northern Territory and Western Australia have all enacted statutory provisions to enable third-party beneficiaries to enforce contracts, and limited the ability of contracting parties to vary the contract after the third party has relied on it. In addition,
Section 48 of the Insurance Contracts Act 1984 (Cth) allows third-party beneficiaries to enforce contracts of insurance.
Although damages are the usual remedy for the breach of a contract for the benefit of the third party, if damaged is inadequate, specifies performance may be granted (Beswick v Beswick [1968] AC 59.
The issue of third-party beneficiaries has appeared in cases where a Stevedore has claimed it is covered under the exclusion clauses in a Bill of lading. In order for this to succeed, these factors must be made out:


The bill of lading must clearly intend to benefit the third party.
It is clear that when the carrier contracts with the consignor, it also contracts as an agent of stevedore. That is, either the carrier must have had authority by the Stevedore to act on its behalf, or the Stevedore must later ratify, (endorse) the actions of Carrier.
Any difficulties with consideration moving from the Stevedores must be made out.
This issue was explored in New Zealand Shipping Co Limited v Am Satterth Waite and Co Limited [1975] AC 154, where it was held that the Stevedores had provided consideration for benefit of the exclusion clause by the discharge of goods from the ship.


New Zealand has enacted the contracts of Privity Act 1982, which enables third parties to sue if they are sufficiently identified as beneficiaries by the contract, and in the contract, it is expressed or implied they should be able to enforce this benefit. An example case of not being “Sufficiently identified” is that of Field v Fitton (1988).


In conclusion therefore, the doctrine of Res inter alios acta aliis rocere roque rocere prodesse potest has evolved and continues to be a subject of debate and reform in contract law. While it is still a fundamental principle literally referred to as privity, its strict application has been tempered by various exceptions and legal developments to better reflect the complexities of promoting fairness and equity in contract enforcement. It follows that an agreement only binds parties top it, it cannot confer rights or obligations to third parties; however, exceptions to the general rule are also important.

FOOT NOTES
Section 10 of Contract Act of 2010
Section 48 of the Insurance Contracts Act 1984
Law of Properly Act 1925, section 56
Section 91 of the Evidence Act.
Subsection (1) (b)

BIBLIOGRAPHY
LAWS
The Constitution of Uganda 1995
Contract Act 2010
Evidence Act
Contract of Privity Act 1982
Contract (Right of third parties) Act 1999
Law of Property Act 1925
Contract of Sales of goods or services Act
BOOKS
Law of Contract by C. ISAAC. LUBOGO
Blacks law Dictionary

LAW CASES
Field vs. Fitton (1988).
Beswick vs. Beswick [1968] AC 59.
Tweddle vs. Atkinson
Winter bottom vs. Wright (1842),
Macpherson vs. Buick motor Co (1916)
New Zealand Shipping Co Limited vs. Am Satterth Waite and Co limited [1975] AC 154
Trident General Insurance Co Limited vs. Mciviece Bros Pty Limited (1988) 165 CLR 107
Dunlop Preumatic Tyre vs. Selfridge and Co. Limited
William Kasozi Vs DFCU Bank. H.C.C.S no 2326 of 2000

Mwanje Gideon is the President of the Esat African Law Students’ Society, President Uganda Law Students’ Society and the President of the Nkumba University SLAW Research Club

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Mwanje Gideon
Mwanje Gideon
Mwanje Gideon, also known as Batapa is a student of Law at Nkumba University driven by a fervent ambition to contribute significantly to the legal jurisprudence in Uganda. Mwanje channels his wealth of knowledge through diverse presentations, articles and books. He has transversed several leadership symposiums, and conferences, the most recent one being the 28th East African Law Society Conference in the Capital-Bujumbura. Beyond the confines of law classes and authorship, He currently serves as the President of the Uganda Law Students Association, Nkumba University Law Society and Nkumba University the School of Law Research Club
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