Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847

A manufacturer cannot enforce a resale price agreement against a retailer when it is not a party to the contract and has provided no consideration. The case reaffirms the principle that only those directly involved in a contract can sue under it.

Facts

Dunlop Pneumatic Tyre Co Ltd, a tyre manufacturer, sought to maintain a standard resale price for its products. To achieve this, Dunlop entered into agreements with its dealers, including Dew & Co., stipulating that they would not sell below the recommended retail price. These dealers were also required to obtain similar undertakings from their retailers, such as Selfridge & Co Ltd. The agreement specified that any retailer breaching this condition would pay £5 per tyre in liquidated damages to Dunlop.

Selfridge & Co Ltd, having purchased tyres from Dew & Co., sold them below the agreed-upon price. Dunlop, not being a direct party to the contract between Dew & Co. and Selfridge, sought to enforce the agreement by claiming damages and seeking an injunction against Selfridge for the breach.

Procedural History

At first instance, the court ruled in favour of Dunlop, granting the injunction and awarding damages. However, upon appeal, the decision was reversed. The appellate court held that Dunlop could not enforce the agreement as it was not a party to the contract between Dew & Co. and Selfridge.

Issues

1. Could Dunlop enforce the resale price maintenance agreement against Selfridge, despite not being a direct party to the contract?
2. Did Dew & Co. act as an agent for Dunlop in the agreement with Selfridge, thereby allowing Dunlop to enforce the contract?
3. Was there valid consideration between Dunlop and Selfridge to support the enforcement of the agreement?

Judgment

The House of Lords unanimously held that Dunlop could not enforce the agreement against Selfridge. The court emphasised the principle of privity of contract, stating that only parties to a contract can sue or be sued on it. Since Dunlop was not a party to the contract between Dew & Co. and Selfridge, it had no right to enforce its terms.

Reasoning

Viscount Haldane LC, delivering the leading judgment, stated:

“In the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it.”

He further elaborated that for Dunlop to enforce the contract, it would need to establish that Dew & Co. acted as its agent in the agreement with Selfridge. However, there was no evidence to support such an agency relationship. Additionally, there was no consideration moving from Dunlop to Selfridge, which is essential for the formation of a binding contract.

The court also addressed the concept of consideration, noting that:

“The doctrine of consideration is a fundamental element in the formation of a contract in English law.”

Without consideration between Dunlop and Selfridge, there could be no enforceable contract between them.

Ratio Decidendi

A third party cannot enforce a contract to which it is not a party, even if the contract is intended to benefit them. For enforcement, there must be privity of contract and valid consideration between the parties.

Obiter Dicta

The court discussed the importance of agency in contract enforcement. If Dew & Co. had acted as Dunlop’s agent in forming the contract with Selfridge, Dunlop might have had the right to enforce it. However, the absence of such an agency relationship was pivotal in the court’s decision.

The case also set guidelines to distinguish between penalties, which are unenforceable, and liquidated damages, which are enforceable as genuine pre-estimates of loss.

Full text: https://www.bailii.org/uk/cases/UKHL/1915/1.html

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