The Doctrine of Privity of Contract

The doctrine of Privity of contract provides that only parties to a contract can benefit from a particular contract or suffer its burden.[1] There are two limbs to this definition.[2] The first is that a third party cannot be subjected to burden resulting from a contract of which he is not a party. The second limb is that a third party cannot sue to obtain the promised performance even where the contract was entered for his benefit.

Prior to 1861, the second limb was fully in force but this was put to a stop in 1861 in the case of Tweddle v Atkinson (1861) 1 B & S 392. A person entitled to a benefit from a contract capable of suing for the performance should bear the burdens arising from such contract. It should not be limited only to his advantages. If he can sue then he can BE sued. The Common Law recognizes certain exceptions to this doctrine such as agency and trust.

The doctrine of Privity of Contract calls for some reform or relaxation.[3] What happens in a situation where employees of a party to a contract defaults, will they be held responsible when they are not parties to the contract or will the employer  who is a party to the contract be held responsible? This is illustrated in the case of London Drugs Ltd v Kuehne & Nagel International Ltd  (1992) 97 DLR 261.[4]

In conclusion, I think that a party (whether third party or not) who will gain from a contract should be held responsible for any default resulting from the contract. The doctrine of Privity should not stand in the way of commercial reality and justice.

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 [1] The Contracts (Rights of Third Parties) Act 1999; J Poole, Casebook on Contract Law (9^th Edn OUP,
       New York 2008)

[2] E Mckendrick, Contract Law (7^th Edn Palgrave Macmillan, New York 2007)

[3] n 1 at 514

[4] n 1 at 513 It was held that the employees could rely on the limitation clause, since they were acting in the course of their employment and performing the very services contracted for by the plaintiffs. They were implicit third party beneficiaries of the clause.