Attempting to apply land law to chattels (goods other than land)
It can be seen from Dunlop v Selfridge that difficulties arise when a supplier tries to control the price at which goods are subsequently resold. A similar situation arose in the following case concerning the price of tobacco, and the manufacturer tried to apply the rule in Tulk v Moxhay to goods other than land (known as chattels).
Smith & Snipes Hall Farm v River Douglas Catchment Board (1949) A number of properties backed on to a river, and agreed to maintain the river banks. This duty was passed on with the land and was enforceable against subsequent owners who had not realised that they had this duty.
Tulk v Moxhay (1848)
The garden area in the centre of Leicester Square, London, was sold by Tulk to Elms, the contract containing a covenant not to build on the garden, but to keep it for all time for the enjoyment of the residents in the square. Elms sold the land and Moxhay eventually became the owner, and although he knew of the covenant, he had the intention to build on the land.
Tulk succeeded in obtaining an injunction to prevent this, despite not having contracted with Moxhay. This particular case was based on the fact that Moxhay did know of the restriction, but later cases followed, basing their argument on the outcome of this case, even when there was no knowledge of a restrictive covenant. This is obviously contrary to the rule of privity, but a necessary exception to bring about a just solution.
Should one person be able to prevent another from doing whatever they wish with land which they have bought? Why do you think that the courts allow this?
If allowed, this would mean that almost any restriction on the use of an item could be enforced against a subsequent owner who is not a party to the original contract. The idea arose in the following Privy Council case.
It was probably important in the Strathcona case that the new owners were well aware of the charter to Dominion. Even so, the case has been criticised, especially by Lord Wright MR in the case of Clore v Theatrical Properties Ltd (1936), where the Court of Appeal said that the decision in Strathcona should be confined to the circumstances of that charterparty. In the later case of Port Line Ltd v Ben Line Steamers Ltd (1958) Diplock J stated bluntly that the decision in Strathcona was wrong. No further development took place in this area for a number of years, leading Davies to suggest that ‘the Strathcona case has now descended into the limbo of lost causes’. However, the idea did raise its head again briefly in the case of Swiss Bank Corporation v Lloyds Bank Ltd (1979) concerning the sale of shares, but that appears to be an isolated case.
Implying a trust
Another attempt to evade the strict application of privity is to show that one of the parties to a contract holds contractual rights on trust for a third party.
Taddy v Sterious (1904)
The plaintiff tobacco manufacturers sold a quantity of tobacco to wholesalers, with a term included to prevent them from reselling it below a stipulated price. The wholesalers resold the tobacco to the defendant retailers with the same restriction. The defendant nevertheless sold the tobacco at a lower price, and the plaintiff sued, claiming that the term concerning price ‘ran with’ the tobacco, in the same way as a covenant ‘ran with’ the land in Tulk v Moxhay. The court would not allow this, holding that the original seller had no claim against the eventual retailer.
Lord Strathcona Steamship Co v Dominion Coal Co (1926)
Dominion had chartered a ship to use for a number of years on the St Lawrence river. The ship was later sold to the Lord Strathcona Steamship Co, who knew of the charter to Dominion, but refused to honour it. Applying the rule in Tulk v Moxhay, Dominion argued that rights ‘ran with’ the ship, and succeeded in obtaining an injunction against the new owner, despite not having a contract with the company, to prevent them from acting inconsistently with the contract between Dominion and the original owners.
This could arise, for example, where A contracts with B to do something for the benefit of C. If B were to be considered as holding the benefit on trust for C, then C could be in a position to claim in trust law against A in his position as beneficiary of a trust. Implying a trust in this way can be traced back some time, but the leading case on the point is Les Affreteurs Reunis SA v Walford.
The courts have been wary of using one area of law to avoid another, so through cases the scope of the doctrine has been narrowed. Evidence of a trust does not come from a particular form of wording, but it is necessary to find an intention. Had this been widely developed, the doctrine of privity would have eventually been of little significance. However, the courts are reluctant to imply a trust where none was really envisaged. Whether they do so in future depends on the readiness of the court to construe a trust out of a contract. The general trend seems to be against implying a trust, as the following two cases illustrate.
Les Affreteurs Reunis SA v Walford (1919)
Walford was a broker who arranged the chartering of ships between the owners and the hirers. Within the charter was a clause stating that the owners would pay him 3 per cent commission for his work. When this was not paid he claimed that the money was held on trust by the owners, and sued them successfully to obtain payment.
Re Schebsman (1943)
Schebsman was due to receive money after working for a company, so entered into an agreement where he would be paid, or if he died, his wife and daughter were to receive the money. He did die, and no money was paid to his family. They sued, but were not successful, the courts not wanting to create a trust where none had ever been intended by the parties.
Beswick v Beswick (1968)
Mr Beswick sold his business to his nephew and in return was to receive a sum of money each week, or, on his death, £5 per week to his widow. After he died she only received one payment, so sued in the following alternative ways:
• on the basis of a trust
• under the Law of Property Act 1925 (see below)
• in her personal capacity as administratrix of her husband’s estate.
The court rejected the first two arguments, but allowed her to succeed as she was administering the estate. It could be argued that it was
So this method of creating a trust is not likely to operate generally as a method of evading the rules of privity. It should be noted that even if successful, it is only really an apparent exception to the common law rules, as the rights of a beneficiary are equitable.
The Law of Property Act 1925 s.56
This Act contains in s.56(1) a provision that a person who is not named as a party to the ‘conveyance or other agreement’ can still benefit under the agreement. This appears to contradict the rule of privity, and some have attempted to use the section to acquire rights where they would otherwise be stopped by privity.
If the sections were to be interpreted freely according to the plain meaning of the words, then ‘other property’ could include contractual rights. This would clearly provide a way to evade the doctrine of privity of contract, taking the law back to the position before Tweddle v Atkinson (1861).
In fact, such a liberal interpretation has not found favour in the courts, as can be seen in the case of Beswick v Beswick (above), as the Act was intended to be interpreted in the context of land law, and to use it in this way would be to abuse it.
The law of tort
Although an injured party may not be able to obtain a satisfactory remedy in contract law, it should always be remembered that a remedy may exist in another area of law. This particularly arises with the close relationship of the law of contract with the law of tort.