Privity, third parties, consideration, specific performance
Beswick v Beswick[1967] UKHL 2, [1968] AC 58 was a landmarkEnglish contract law case on privity of contract and specific performance. The Lords, overruling the decision of Lord Denning in the Court of Appeal, ruled that a person who was not party to a contract had no independent standing to sue to enforce it, even if the contract was clearly intended for their benefit.
Today the judicial precedent has been codified by statute in the United Kingdom, and Lord Denning's decision has largely been given effect by the Contracts (Rights of Third Parties) Act 1999. However the case remains good law in many other Commonwealth common law jurisdictions.
Facts
Lord Denning in the Court of Appeal started describing the facts of the case in the following way.
Old Peter Beswick was a coal merchant in Eccles, Lancashire. He had no business premises. All he had was a lorry, scales, and weights. He used to take the lorry to the yard of the National Coal Board, where he bagged coal and took it round to his customers in the neighbourhood. His nephew, John Joseph Beswick, helped him in his business. In March 1962, old Peter Beswick and his wife were both over 70. He had his leg amputated and was not in good health. The nephew was anxious to get hold of the business before the old man died. So they went to a solicitor, Mr. Ashcroft, who drew up an agreement for them.
The agreement was that Peter 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 latter term was for the benefit of someone not party to the contract, the nephew did not believe it was enforceable and so did not perform it, making only one payment of the agreed weekly amount of 5 pounds.
The nephew argued that as Mrs Beswick was not a party to the contract, she was not able to enforce it due to the doctrine of privity of contract.
Decision
Court of Appeal
Lord Denning held that Mrs Beswick was entitled to claim in her capacity as a third party intended to benefit from the contract. He said,[1]
Where a contract is made for the benefit of a third person who has a legitimate interest to enforce it, it can be enforced by the third person in the name of the contracting party or jointly with him or, if he refuses to join, by adding him as a defendant. In that sense and it is a very real sense, the third person has a right arising by way of contract.
Danckwerts LJ and Salmon LJ concurred in the result, though not with Lord Denning's reasoning.
The House of Lords disagreed with Lord Denning in the Court of Appeal, that the law allowed third parties to sue to enforce benefits under a contract. However, they held that Mrs Beswick in her capacity as Mr Beswick's administratrix (i.e. as the person representing someone's estate who dies without a will) could enforce the nephew's promise to pay Mrs Beswick an annuity. Furthermore, Mrs Beswick was entitled to specific performance of the contract.
For clarity I think it best to begin by considering a simple case where, in consideration of a sale by A to B, B agrees to pay the price of £1,000 to a third party X. Then the first question appears to me to be whether the parties intended that X should receive the money simply as A's nominee so that he would hold the money for behoof of A and be accountable to him for it, or whether the parties intended that X should receive the money for his own behoof and be entitled to keep it. That appears to me to be a question of construction of the agreement read in light of all the circumstances which were known to the parties. There have been several decisions involving this question. I am not sure that any conflicts with the view which I have expressed: but if any does, for example, In re Engelbach's Estate,[2] I would not agree with it. I think that In re Schebsman[3] was rightly decided and that the reasoning of Uthwatt J.[4] and the Court of Appeal supports what I have just said. In the present case I think it clear that the parties to the agreement intended that the respondent should receive the weekly sums of £5 in her own behoof and should not be accountable to her deceased husband's estate for them. Indeed the contrary was not argued.
Reverting to my simple example the next question appears to me to be: Where the intention was that X should keep the £1,000 as his own, what is the nature of B's obligation and who is entitled to enforce it? It was not argued that the law of England regards B's obligation as a nullity, and I have not observed in any of the authorities any suggestion that it would be a nullity. There may have been a time when the existence of a right depended on whether there was any means of enforcing it, but today the law would be sadly deficient if one found that, although there is a right, the law provides no means for enforcing it. So this obligation of B must be enforceable either by X or by A. I shall leave aside for the moment the question whether section 56 (1) of the Law of Property Act 1925, has any application to such a case, and consider the position at common law.
Lord Denning's view, expressed in this case not for the first time, is that X could enforce this obligation. But the view more commonly held in recent times has been that such a contract confers no right on X and that X could not sue for the £1,000. Leading counsel for the respondent based his case on other grounds, and as I agree that the respondent succeeds on other grounds, this would not be an appropriate case in which to solve this question. It is true that a strong Law Revision Committee recommended so long ago as 1937 (Cmd. 5449):
"That where a contract by its express terms purports to confer a benefit directly on a third party it shall be enforceable by the third party in his own name ..." (p. 31).
And, if one had to contemplate a further long period of Parliamentary procrastination, this House might find it necessary to deal with this matter. But if legislation is probable at any early date I would not deal with it in a case where that is not essential. So for the purposes of this case I shall proceed on the footing that the commonly accepted view is right.
What then is A's position? I assume that A has not made himself a trustee for X, because it was not argued in this appeal that any trust had been created. So, if X has no right, A can at any time grant a discharge to B or make some new contract with B. If there were a trust the position would be different. X would have an equitable right and A would be entitled and, indeed, bound to recover the money and account for it to X. and A would have no right to grant a discharge to B. If there is no trust and A wishes to enforce the obligation, how does he set about it? He cannot sue B for the £1,000 because under the contract the money is not payable to him, and, if the contract were performed according to its terms, he would never have any right to get the money. So he must seek to make B pay X.
The argument for the appellant is that A's only remedy is to sue B for damages for B's breach of contract in failing to pay the £1,000 to X. Then the appellant says that A can only recover nominal damages of 40s. because the fact that X has not received the money will generally cause no loss to A: he admits that there may be cases where A would suffer damage if X did not receive the money but says that the present is not such a case.
Applying what I have said to the circumstances of the present case, the respondent in her personal capacity has no right to sue, but she has a right as administratrix of her husband's estate to require the appellant to perform his obligation under the agreement. He has refused to do so and he maintains that the respondent's only right is to sue him for damages for breach of his contract. If that were so, I shall assume that he is right in maintaining that the administratrix could then only recover nominal damages because his breach of contract has caused no loss to the estate of her deceased husband.
If that were the only remedy available the result would be grossly unjust. It would mean that the appellant keeps the business which he bought and for which he has only paid a small part of the price which he agreed to pay. He would avoid paying the rest of the price, the annuity to the respondent, by paying a mere 40s. damages.
The respondent's first answer is that the common law has been radically altered by section 56 (1) of the Law of Property Act 1925, and that that section entitles her to sue in her personal capacity and recover the benefit provided for her in the agreement although she was not a party to it. Extensive alterations of the law were made at that time but it is necessary to examine with some care the way in which this was done. That Act was a consolidation Act and it is the invariable practice of Parliament to require from those who have prepared a consolidation Bill an assurance that it will make no substantial change in the law and to have that checked by a committee. On this assurance the Bill is then passed into law, no amendment being permissible. So, in order to pave the way for the consolidation Act of 1925, earlier Acts were passed in 1922 and 1924 in which were enacted all the substantial amendments which now appear in the Act of 1925 and these amendments were then incorporated in the Bill which became the Act of 1925. Those earlier Acts contain nothing corresponding to section 56 and it is therefore quite certain that those responsible for the preparation of this legislation must have believed and intended that section 56 would make no substantial change in the earlier law, and equally certain that Parliament passed section 56 in reliance on an assurance that it did make no substantial change.
In construing any Act of Parliament we are seeking the intention of Parliament and it is quite true that we must deduce that intention from the words of the Act. If the words of the Act are only capable of one meaning we must give them that meaning no matter how they got there. But if they are capable of having more than one meaning we are, in my view, well entitled to see how they got there. For purely practical reasons we do not permit debates in either House to be cited: it would add greatly to the time and expense involved in preparing cases involving the construction of a statute if counsel were expected to read all the debates in Hansard, and it would often be impracticable for counsel to get access to at least the older reports of debates in Select Committees of the House of Commons, moreover, in a very large proportion of cases such a search, even if practicable, would throw no light on the question before the court. But I can see no objection to investigating in the present case the antecedents of section 56.
Section 56 was obviously intended to replace section 5 of the Real Property Act, 1845 (8 and 9 Vict. c. 106) . That section provided:
"That, under an indenture, executed after October 1, 1845, an immediate estate or interest, in any tenements or hereditaments, and the benefit of a condition or covenant, respecting any tenements or hereditaments, may be taken, although the taker thereof be not named a party to the same indenture. ..."
Section 56 (1) now provides:
"A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry covenant or agreement over or respecting land or other property, although he may not be named as a party to the conveyance or other instrument: ..."
If the matter stopped there it would not be difficult to hold that section 56 does not substantially extend or alter the provisions of section 5 of the Act of 1845. But more difficulty is introduced by the definition section of the Act of 1925 (section 205 ) which provides:
"(1) In this Act unless the context otherwise requires, the following expressions have the meanings hereby assigned to them respectively, that is to say:- ... (xx) 'Property' includes any thing in action, and any interest in real or personal property."
Before further considering the meaning of section 56 (1) I must set out briefly the views which have been expressed about it in earlier cases. White v. Bijou Mansions Ltd.[5] dealt with a covenant relating to land. The interpretation of section 56 was not the main issue. Simonds J. rejected an argument that section 56 enabled anyone to take advantage of a covenant if he could show that if the covenant were enforced it would redound to his advantage. He said:[6]
"Just as under section 5 of the Act of 1845 only that person could call it in aid who, although not a party, yet was a grantee or covenantee, so under section 56 of this Act only that person can call it in aid who, although not named as a party to the conveyance or other instrument, is yet a person to whom that conveyance or other instrument purports to grant something or with which some agreement or covenant is purported to be made."
He was not concerned to consider whether or in what way the section could be applied to personal property. In the Court of Appeal[7]Sir Wilfrid Greene M.R. said, in rejecting the same argument as Simonds J. had rejected:
"Before he can enforce it he must be a person who falls within the scope and benefit of the covenant according to the true construction of the document in question."
Again he was not considering an ordinary contract and I do not think that he can be held to have meant that every person who falls within the "scope and benefit" of any contract is entitled to sue, though not a party to the contract.
In In re Miller's Agreement[8] two partners covenanted with a retiring partner that on his death they would pay certain annuities to his daughters. The Revenue's claim for estate duty was rejected. The decision was clearly right. The daughters, not being parties to the agreement, had no right to sue for their annuities. Whether they received them or not depended on whether the other partners were willing to pay or, if they did not pay, whether the deceased partner's executor was willing to enforce the contract. After citing the earlier cases Wynn-Parry J. said,[9]
"I think it emerges from these cases that the section has not the effect of creating rights, but only of assisting the protection of rights shown to exist."
I am bound to say I do not quite understand that. I had thought from what Lord Simonds said in White's case[10] that section 5 of the Act of 1845 did enable certain persons to take benefits which they could not have taken without it. If so, it must have given them rights which they did not have without it. And, if that is so, section 56 must now have the same effect. In Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board[11] Denning L.J., after stating his view that a third person can sue on a contract to which he is not a party, referred to section 56 as a clear statutory recognition of this principle, with the consequence that Miller's case[12] was wrongly decided. I cannot agree with that. and in Drive Yourself Hire Co. (London) Ltd. v. Strutt[13] Denning L.J. again expressed similar views about section 56.
I can now return to consider the meaning and scope of section 56. It refers to any "agreement over or respecting land or other property." If "land or other property" means the same thing as "tenements or hereditaments" in the Act of 1845 then this section simply continues the law as it was before the Act of 1925 was passed, for I do not think that the other differences in phraseology can be regarded as making any substantial change. So any obscurities in section 56 are obscurities which originated in 1845. But if its scope is wider, then two points must be considered. The section refers to agreements "over or respecting land or other property." The land is something which existed before and independently of the agreement and the same must apply to the other property. So an agreement between A and B that A will use certain personal property for the benefit of X would be within the scope of the section, but an agreement that if A performs certain services for B, B will pay a sum to X would not be within the scope of the section. Such a capricious distinction would alone throw doubt on this interpretation.
Perhaps more important is the fact that the section does not say that a person may take the benefit of an agreement although he was not a party to it: it says that he may do so although he was not named as a party in the instrument which embodied the agreement. It is true that section 56 says " although he may not be named "; but section 5 of the Act of 1845 says although he "be not named a party." Such a change of phraseology in a consolidation Act cannot involve a change of meaning. I do not profess to have a full understanding of the old English law regarding deeds. But it appears from what Lord Simonds said in White's case[10] and from what Vaisey J. said in Chelsea and Walham Green Building Society v. Armstrong[14] that being in fact a party to an agreement might not be enough; the person claiming a benefit had to be named a party in the indenture. I have read the explanation of the old law given by my noble and learned friend, Lord Upjohn. I would not venture to criticise it, but I do not think it necessary for me to consider it if it leads to the conclusion that section 56 taken by itself would not assist the present respondent.
But it may be that additional difficulties would arise from the application to section 56 of the definition of property in the definition section. If so, it becomes necessary to consider whether that definition can be applied to section 56. By express provision in the definition section a definition contained in it is not to be applied to the word defined if in the particular case the context otherwise requires. If application of that definition would result in giving to section 56 a meaning going beyond that of the old section, then, in my opinion, the context does require that the definition of "property" shall not be applied to that word in section 56. The context in which this section occurs is a consolidation Act. If the definition is not applied the section is a proper one to appear in such an Act because it can properly be regarded as not substantially altering the pre-existing law. But if the definition is applied the result is to make section 56 go far beyond the pre-existing law. Holding that the section has such an effect would involve holding that the invariable practice of Parliament has been departed from per incuriam so that something has got into this consolidation Act which neither the draftsman nor Parliament can have intended to be there. I am reinforced in this view by two facts. The language of section 56 is not at all what one would have expected if the intention had been to bring in all that the application of the definition would bring in. And, secondly, section 56 is one of 25 sections which appear in the Act under the cross-heading "Conveyances and other Instruments." The other twenty-four sections come appropriately under that heading and so does section 56 if it has a limited meaning: but, if its scope is extended by the definition of property, it would be quite inappropriately placed in this part of the Act. For these reasons I am of opinion that section 56 has no application to the present case.
The respondent's second argument is that she is entitled in her capacity of administratrix of her deceased husband's estate to enforce the provision of the agreement for the benefit of herself in her personal capacity, and that a proper way of enforcing that provision is to order specific performance. That would produce a just result, and, unless there is some technical objection, I am of opinion that specific performance ought to be ordered. For the reasons given by your Lordships I would reject the arguments submitted for the appellant that specific performance is not a possible remedy in this case. I am therefore of opinion that the Court of Appeal reached a correct decision and that this appeal should be dismissed.
A man who makes a deliberate promise which is intended to be binding, that is to say, under seal, or for good consideration, must keep his promise; and the court will hold him to it, not only at the suit of the party who gave the consideration but also at the suit of one who was not a party to the contract, provided that it was made for his benefit and that he has a sufficient interest to entitle him to enforce it, subject always, of course, to any defences that may be open on the merits.
In Australia, Coulls v. Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460 shows the approach has been similar. Here the contract was between a husband (Mr Coulls) and a company (Bagot's). Mrs Coulls was not a party to it. Even if she was, she would not be able to enforce it, as she gave no consideration. Bagots was entitled to the benefit of this contract as executor of Mr Coull's Estate.
Many people, including judges had called for statutory reform and in England this came in the form of the Contracts (Rights of Third Parties) Act 1999, which gives a general right to enforce the benefit of a contract when one was either expressly identified as being able to enforce it, or one was intended to benefit.
The doctrine of privity of contract 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. It is related to, but distinct from, the doctrine of consideration, according to which a promise is legally enforceable only if valid consideration has been provided for it, and a plaintiff is legally entitled to enforce such a promise only if he is a promisee from whom the consideration has moved.
Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, but otherwise is not generally available if damages are an appropriate alternative. Specific performance is almost never available for contracts of personal service, although performance may also be ensured through the threat of proceedings for contempt of court.
Consideration is an English common law concept within the law of contract, and is a necessity for simple contracts. The concept of consideration has been adopted by other common law jurisdictions, including the US.
Foakes v Beer[1884] UKHL 1 is an English contract law case, which applied the controversial pre-existing duty rule in the context of part payments of debts. It is a leading case from the House of Lords on the legal concept of consideration. It established the rule that prevents parties from discharging an obligation by part performance, affirming Pinnel's Case (1602) 5 Co Rep 117a. In that case it was said that "payment of a lesser sum on the day [i.e., on or after the due date of a money debt] cannot be any satisfaction of the whole."
An assignment is a legal term used in the context of the law of contract and of property. In both instances, assignment is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. An assignment may not transfer a duty, burden or detriment without the express agreement of the assignee. The right or benefit being assigned may be a gift or it may be paid for with a contractual consideration such as money.
Estoppel in English law is a doctrine that may be used in certain situations to prevent a person from relying upon certain rights, or upon a set of facts which is different from an earlier set of facts.
A third-party beneficiary, in the law of contracts, is a person who may have the right to sue on a contract, despite not having originally been an active party to the contract. This right, known as a ius quaesitum tertio, arises when the third party is the intended beneficiary of the contract, as opposed to a mere incidental beneficiary. It vests when the third party relies on or assents to the relationship, and gives the third party the right to sue either the promisor or the promisee of the contract, depending on the circumstances under which the relationship was created.
A covenant, in its most general sense and historical sense, is a solemn promise to engage in or refrain from a specified action. Under historical English common law, a covenant was distinguished from an ordinary contract by the presence of a seal. Because the presence of a seal indicated an unusual solemnity in the promises made in a covenant, the common law would enforce a covenant even in the absence of consideration. In United States contract law, an implied covenant of good faith is presumed.
A Himalaya clause is a contractual provision expressed to be for the benefit of a third party who is not a party to the contract. Although theoretically applicable to any form of contract, most of the jurisprudence relating to Himalaya clauses relate to maritime matters, and exclusion clauses in bills of lading for the benefit of employees, crew, and agents, stevedores in particular.
Tweddle v Atkinson[1861] EWHC J57 (QB), (1861) 1 B&S 393 is an English contract law case concerning the principle of privity of contract and consideration. Its panel of appeal judges reinforced that the doctrine of privity meant that only those who are party to an agreement may sue or be sued on it and established the principle that "consideration must flow from the promisee".
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth, from membership in the European Union, continuing membership in Unidroit, and to a lesser extent the United States. Any agreement that is enforceable in court is a contract. A contract is a voluntary obligation, contrasting to the duty to not violate others rights in tort or unjust enrichment. English law places a high value on ensuring people have truly consented to the deals that bind them in court, so long as they comply with statutory and human rights.
Intention to create legal relations, otherwise an "intention to be legally bound", is a doctrine used in contract law, particularly English contract law and related common law jurisdictions.
Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board [1949] 2 KB 500 is an English land law and English contract law appeal decision. The case, decided by Denning LJ, confirmed positive covenants can supplant privity of contract in contracts to improve land and secondly a covenant should be implied where the contract shows an intention that the obligation would attach to the land. The case thirdly held in that context, a somewhat uncertain description of lands which was capable of being rendered certain by extrinsic evidence was sufficient to enforce the covenant.
Privity is a doctrine in English contract law that covers the relationship between parties to a contract and other parties or agents. At its most basic level, the rule is that a contract can neither give rights to, nor impose obligations on, anyone who is not a party to the original agreement, i.e. a "third party". Historically, third parties could enforce the terms of a contract, as evidenced in Provender v Wood, but the law changed in a series of cases in the 19th and early 20th centuries, the most well known of which are Tweddle v Atkinson in 1861 and Dunlop Pneumatic Tyre v Selfridge and Co Ltd in 1915.
The Contracts Act 1999 is an Act of the Parliament of the United Kingdom that significantly reformed the common law doctrine of privity and "thereby [removed] one of the most universally disliked and criticised blots on the legal landscape". The second rule of the doctrine of privity, that a third party could not enforce a contract for which he had not provided consideration, had been widely criticised by lawyers, academics and members of the judiciary. Proposals for reform via an act of Parliament were first made in 1937 by the Law Revision Committee in their Sixth Interim Report. No further action was taken by the government until the 1990s, when the Law Commission proposed a new draft bill in 1991, and presented their final report in 1996. The bill was introduced to the House of Lords in December 1998, and moved to the House of Commons on 14 June 1999. It received royal assent on 11 November 1999, coming into force immediately as the Contracts Act 1999.
Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 is an English contract law case, concerning the doctrine of Privity. The case would now be partly resolved by the Contracts Act 1999 section 1(1)(b), allowing a third party to claim independently. Some of the reasoning of Lord Denning MR was disapproved in Woodar Investment Development Ltd v Wimpey Construction UK Ltd, which held that the decision is limited to a confined category of cases involving consumers.
Tulk v Moxhay is a landmark English land law case that decided that in certain cases a restrictive covenant can "run with the land" in equity. It is the reason Leicester Square exists today.
Cooper v Phibbs [1867] UKHL 1 is an English contract law case, concerning the doctrine of mistake.
This page is based on this Wikipedia article Text is available under the CC BY-SA 4.0 license; additional terms may apply. Images, videos and audio are available under their respective licenses.
