Contract Law

Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd.

[1915] AC 847

Facts

Dunlop manufactured tyres and wanted retailers to maintain specified resale prices.
Dunlop sold tyres to a dealer, Dew & Co.
Dew agreed with Dunlop:
not to sell below Dunlop’s listed prices; and
to obtain similar undertakings from retailers buying the tyres.
Dew later sold tyres to Selfridge.
Selfridge agreed with Dew not to resell below the fixed price.
The agreement also stated that Selfridge would pay £5 per tyre to Dunlop if it breached the resale-price restriction.
Selfridge subsequently sold tyres below the agreed price.
Dunlop sued Selfridge for damages and an injunction.
However:
Dunlop was not a party to the contract between Dew and Selfridge;
Dunlop had supplied no consideration directly to Selfridge;
Dew had not clearly contracted as Dunlop’s agent.

Whether Dunlop could enforce the price-maintenance promise made by Selfridge to Dew.
Whether Dunlop could rely on agency to overcome the doctrine of privity.

Only a party to a contract can sue upon it.
Consideration must move from the promisee under traditional English law.
A principal may enforce a contract made by an agent on its behalf only where:
the agent contracted as agent;
the principal was identifiable or contemplated;
the principal supplied consideration or otherwise satisfies the rules of agency.
A contract cannot generally give an enforceable right to a stranger merely by naming that stranger as beneficiary.

Dunlop argued that the promise had been included specifically for its benefit.
The House of Lords accepted that the commercial purpose was to protect Dunlop’s resale-price system.
But commercial purpose alone did not create contractual rights.
The contract containing Selfridge’s promise was between Dew and Selfridge.
Dunlop was not a party to that agreement.
Dunlop also gave no consideration to Selfridge.
The tyres and payment moved between Dew and Selfridge, not between Dunlop and Selfridge.
Dunlop attempted to argue that Dew acted as its agent.
The court rejected this because the documents did not adequately establish an agency relationship.
Dew appeared to contract as principal in its own commercial transaction.
It did not clearly contract on behalf of Dunlop.
Even if Dunlop was intended to benefit, the essential requirements of agency and consideration were missing.
The clause requiring payment to Dunlop could not independently create privity.
The case illustrates that the identity of the intended beneficiary is different from the identity of the contracting party.
A person may be economically interested in performance but still have no legal right to enforce the bargain.

The House of Lords held that Dunlop could not sue Selfridge.
Dunlop was neither a party to the contract nor able to prove that Dew contracted as its agent.
No consideration had moved from Dunlop to Selfridge.
Use this case for: a third party cannot enforce a contract merely because the contract was made for its benefit.