BACKGROUND

A third-party contract is concluded where one person, the debtor or promisor, agrees with another, the promisee, to perform an obligation to a third party. Third party contracts are now enforced in most jurisdictions. Under the influence of the Civil Law, they are recognised in the two mixed legal systems of South Africa and Scotland as well as in Article 6:110 PECL.

In the past the doctrine of privity of contract combined with the doctrine of consideration stood in the way of recognition of such contracts in England. Both mixed legal systems have been contrasted with English law in this respect. If the law in England had continued on this path, it would have been difficult to find the type of common ground that is necessary for a proper comparative analysis. However, English law underwent radical change in 1999 and it now recognises a highly sophisticated third-party contract in terms of a new statute which is the product of a comprehensive comparative investigation of Continental as well as Commonwealth sources. Suddenly the mixed legal systems are playing catch-up. In this contribution the rules on third-party contracts in Scotland, South Africa, PECL and England will be compared from the perspective of a lawyer whose home system is a mixed one.

WHY SHOULD THE LAW ALLOW THIRD-PARTY CONTRACTS TO BE ENFORCED?

According to the principle of privity of contract, a contract may create rights and obligations only for the parties who conclude it. Hence, a person who is not a party to a contract cannot derive rights, duties or contractual remedies from it. A third-party contract negates this principle. The promisor undertakes to the promisee to perform an obligation to the third party and the third party then receives rights by virtue of the contract between promisor and promisee.