Rights of Third Parties

A doctrine of contract law is that a contract cannot impose obligations on any other person except those who have entered into the contract. The premise is that only the parties in the contract should be able to claim damages or enforce their rights arising from breach of contract. This has been proven to be problematic as there can be implications arising from contracts that affect third parties. This became the concept of privity.

Brief Historical Background

Before 1861 there were provisions made that allowed a contract to be enforced even by persons that were not part of the contract. Typically these persons were the family members of a promisee of a contract. Other provisions also existed that disallowed the rights of third parties. Therefore the concept of privity was born along with the concept of consideration. The concept of consideration can be stated quite simply: a promise is not legally binding if nothing is given for the promise of something being given in return, unless it is promised as a deed. There have been a few precedent setting cases, one specifically in 1833 (Price v. Easton) and others more recent than that case, that has shaped the rights of third parties in contract law.

Precedent Setting Cases

One of the most precedent setting cases involving the rights of third parties in contract law is that of Tweddle v. Atkinson.

In this important case, the plaintiff’s father in law promised to make a payment to the plaintiff’s father but passed away prior to making the payment. The plaintiff tried to sue the executor of the estate of his father in law for the payment. The judgement ruled against the plaintiff because he was a third party and therefore, he had no legal entitlement of the promise.

Another precedent setting case was in 1842 with Winterbottom v. Wright. In this case, a postal service worker tried to sue the manufacturer of the wagon he was driving when he was injured due to a faulty wheel. The courts decided that there was actually no privity of contract between the consumer and the manufacturer. In a subsequent case, the courts decided that there is no privity required when a manufacturer knows that the product is most likely dangerous if it is defective and that consumers will be injured if the defect occurs.

Defenses

There are not any defenses per se, however there are exceptions to the law with regards to the rights of third parties. These exceptions are separated into categories: common law exceptions and statutory exceptions.  Common law exceptions outline the allowances made to third parties and some obligations imposed. Some of these exceptions include: trusts (the trustee can be sued by the beneficiary of the trust to carry out obligations) and third-party insurance (a third-party insurance company may claim under an insurance policy even though it did not pay the premiums).

Statutory exceptions are those that fall under the Third Party Act. This act claims that a person named in a contract as a person authorized to enforce a contract or a person receiving some kind of benefit from the contract may in fact enforce the contract unless it appeared that the parties of the contract intended that he/she may not.