B. Development and Rationale of the Rule

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 296-301

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Although there is some evidence in seventeenth- and eighteenth-century authorities of a judicial willingness to admit claims by third-party beneficiaries,³a rule to the contrary was clearly adopted in 1861 in Tweddle v. Atkinson⁴and, more importantly, reaffirmed by the House of Lords in 1915 in Dunlop,⁵in 1962 in Scruttons Ltd. v. Midland Silicones Ltd.,⁶and by numerous Canadian decisions.⁷In Tweddle, the father of a bride exchanged promises with the father of the groom that they each would pay monies to the groom before a certain date. After the wedding, they recorded these promises in writing that was assented to and ratified by the married couple. The agreement further stipulated that the husband was to have full power to sue either of the parties with respect to the enforcement of these promises. In the claim eventually

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brought against his father-in-law, however, the husband was unsuccessful on the ground that he was a "stranger to the consideration" and was not a "party" to the contract.⁸The facts of the Dunlop case involved what would now be called a resale price maintenance scheme.⁹It was designed to operate in the following fashion. The plaintiff tire manufacturer, Dunlop, wished to ensure that retailers who sold its tires would not do so at prices below the manufacturer’s list price. As is often the case, however, the manufacturer did not deal directly with retailers, but rather distributed its tires by selling them to its wholesale merchant who, in turn, sold the tires to retailers. In its contract with its wholesaler, Dew & Co., Dunlop provided an incentive for Dew to obtain, in its contracts with retailers, an undertaking that the retailers would observe the manufacturer’s list price when dealing with their own customers. Breach of the undertaking would render the retailer liable to pay five pounds per sale directly to Dunlop. If Dew extracted such an undertaking from a retailer, Dew was entitled to sell the tires to that retailer at 10 percent below the list price. Dew had, in fact, obtained such an undertaking in its contract with the defendant Selfridge & Co., but the latter failed to live up to the agreement and sold two tires to its customers at less than the list price. Dunlop then brought an action to enforce Selfridge’s undertaking and recover ten pounds. The claim was defeated by the third-party beneficiary rule. The undertaking had been given by Selfridge in its contract with Dew. Dunlop was a mere third-party beneficiary of that promise.

In explaining the decision, Viscount Haldane repeated what are often thought to be two separate justifications for the privity doctrine alluded to in the Tweddle case and he described them as "fundamental" principles of English law. First, "only a person who is a party to a contract can sue on it."¹⁰Second, if a person is to be able to enforce a contract, "consideration must have been given by him to the promisor."¹¹

Dunlop had entered into a contract of purchase and sale with Dew and did not itself either enter into a contract with Selfridge or provide consideration to it for Selfridge’s undertaking to observe the list price.

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Although Lord Dunedin confessed, "this case is to my mind apt to nip any budding affection which one might have had for the doctrine of consideration,"¹²he was nonetheless confidently of the view that the privity doctrine was a well-established feature of English law.

The justifications offered for the privity doctrine in these cases are quite unconvincing.¹³The first explanation is that the third-party beneficiary is not a "party" to the agreement. It is not entirely clear what is meant by this notion and how this concept can be distinguished, if at all, from the requirement that only a party who has given consideration to the promisor can enforce a promise. In Tweddle,¹⁴for example, the son-in-law was not only named in the agreement expressly as the person to whom the payments were to be made, he also explicitly assented to and ratified the arrangement. Nonetheless, he is said not to be a "party" to the agreement. It is not entirely clear, then, what content can be given to the concept of being a party other than the requirement that in order to be a party in the requisite sense, one must have given consideration to a promisor. If there is any independent content to the notion of "party" in this context, it would appear to be a mere circularity of reasoning. One is not a party because a third-party beneficiary is not a party.

The suggestion that the privity doctrine simply flows from or is somehow deducible from the doctrine of consideration is also seriously flawed. As we have seen,¹⁵the doctrine of consideration is designed for the purpose of determining whether a...