Dunlop Pneumatic Tyre Company, Limited v Selfridge and Company, Limited (1915)

Lord Haldane's speech is the classic statement of two fundamental English rules, and it is worth learning in his words: "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." The second is that "consideration must have been given by him to the promisor or to some other person at the promisor's request."

Indian law accepts one half and rejects the other. The first principle — privity, only a party can sue — is followed in India. The second — that consideration must move from the promisee — is not: s. 2(d) of the Indian Contract Act allows consideration to move from "the promisee or any other person". So Dunlop v Selfridge is the natural starting point for any answer on privity and on who may furnish consideration.

• Dunlop manufactured motor tyres. By a price-maintenance agreement of 12 October 1911, Messrs. A. J. Dew & Co., factors, agreed to buy Dunlop goods in return for discounts. Dew undertook not to sell below Dunlop's list prices, but were at liberty to allow a discount to persons in the motor trade, provided that, "as your agents in this behalf", they obtained from such a trader a written undertaking to observe Dunlop's list prices on resale.
• Selfridge, merchants, bought Dunlop tyres from Dew. By a letter dated 2 January 1912, addressed to Dew, Selfridge agreed in return for a discount not to sell Dunlop goods to private customers below list prices, and to pay Dunlop 5l. for every article sold in breach.
• Selfridge then sold Dunlop tyres below list price — Lord Sumner described the sale of a tyre to a Captain Jameson at the list price less 7½ per cent.
• Dunlop sued Selfridge for an injunction and liquidated damages. The Court of Appeal held against Dunlop, and Dunlop appealed to the House of Lords.

1. Could Dunlop, who was not in terms a party to the 2 January 1912 contract between Dew and Selfridge, sue Selfridge on it?
2. Even if Dunlop were treated as Dew's undisclosed principal, had Dunlop given any consideration to Selfridge for Selfridge's promise?

The appeal was dismissed with costs; the order of the Court of Appeal was affirmed. The decisive ground, common to the speeches, was that no consideration moved from Dunlop.

Viscount Haldane LC — the three principles

• Privity. "only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract." Such a right may be conferred by way of property, as under a trust, "but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam."
• Consideration. "A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor's request."
• Undisclosed principal. "A third proposition is that a principal not named in the contract may sue upon it if the promisee really contracted as his agent." But he too "must have given consideration either personally or through the promisee, acting as his agent in giving it."
• Applied. The discount given to Selfridge "was to come wholly out of Messrs. Dew's pocket, and neither directly nor indirectly out of that of the appellants."
• The dilemma. "if they say that Messrs. Dew contracted on their behalf, they gave no consideration, and if they say they gave consideration in the shape of a permission to the respondents to buy, they must set up further stipulations, which are neither to be found in the contract sued upon nor are germane to it".
• He found it unnecessary to decide the agency question, but doubted that "a man can treat one and the same contract as made by him in two capacities."

Lord Dunedin

• He regretted the result but had no doubt of it: the case "is to my mind apt to nip any budding affection which one might have had for the doctrine of consideration." Its effect was "to make it possible for a person to snap his fingers at a bargain deliberately made".
• He adopted Pollock's definition: "An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable."
• He would have held Dunlop was Dew's undisclosed principal — but even so Dunlop must show consideration moving from Dunlop to Selfridge. "What then did Dunlop do, or forbear to do, in a question with Selfridge? The answer must be, nothing."

Lord Atkinson

Even treating Dunlop as a party, "The contract is as to them a nudum pactum, since no consideration moves from them to the respondents, or to any other person or body at the respondents' request."

Lord Parker of Waddington

"The appellants did not give or give up anything on the strength of the undertaking." Dew were free to resell, and any licence Dunlop gave "was given once for all in their contract to Messrs. A. J. Dew & Co., and was not given as part of the terms upon which any particular sale was allowed."

Lord Sumner

"The appellants, as alleged promisees, neither did nor suffered nor forbore anything, nor promised to do any of these things or anything at all, in exchange for the undertaking purporting to be given by the respondents." And: "The appellants have sued on a nudum pactum."

Lord Parmoor

He rested first on agency: following Kennedy LJ, it would be inconsistent with the terms of the contract to treat Dunlop as undisclosed principals, and "it is sufficient to dispose of the case." He added that Dunlop in any event could not show consideration.

In English law only a party to a contract can sue on it; a stranger acquires no right to enforce it. And a promisee can enforce a simple contract only if he himself (or his agent) gave consideration for the promise. Dunlop gave Selfridge nothing in exchange for its promise — the discount came from Dew — so, whether Dunlop is treated as a stranger or as Dew's undisclosed principal, it could not sue.

• Direct question: Explain the doctrine of privity of contract. How far does Indian law differ from English law on privity and on consideration? Quote Lord Haldane's first two principles; then explain that Indian law follows privity but, under s. 2(d), allows consideration to move from the promisee "or any other person".
• Problem question: a manufacturer sues a retailer on a resale-price promise the retailer gave to a wholesaler. In England, Dunlop v Selfridge bars the claim on both privity and consideration. In India, the consideration objection falls away, but consider whether the manufacturer is a party at all.
• Quotation to learn: "only a person who is a party to a contract can sue on it."
• Remember the court: House of Lords, England, 1915 — persuasive in India, not binding.