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

A tyre maker required its dealer to make retailers promise not to sell below list prices. A retailer, Selfridge, gave the promise to the dealer and then undersold. The House of Lords held that the tyre maker, a stranger to that promise, could not sue on it.

Quick Revision

Read the full judgment: BAILII

Parties

Dunlop Pneumatic Tyre Company, Limited — appellants (plaintiffs in the action); manufacturers of motor tyres, covers and tubes.

Selfridge and Company, Limited — respondents (defendants in the action); wholesale and retail merchants who gave the price undertaking and sold below list price.

Messrs. A. J. Dew & Co. (Dew & Co.) — not parties to the action; motor accessory factors who bought from the appellants and sold to the respondents.

Captain Jameson — not a party; the customer who bought the tyre from the respondents in the transaction described by Lord Sumner.

Procedural History

1. The appellants sued the respondents for an injunction (a court order to stop an act). It would bar selling their goods on terms other than those in an agreement dated 2 January 1912. They also claimed the liquidated damages (an agreed sum for breach) fixed by that agreement. They also sought an account of goods sold in breach.
2. The learned trial judge held that the respondents had sold goods of the appellants' manufacture, supplied through Dew & Co., at less than the stipulated prices. The judgment does not name the trial judge.
3. The Court of Appeal held against the appellants. Kennedy L.J. and Swinfen Eady L.J. gave judgments, which the Lords refer to. The judgment does not report their decision in full.
4. The appeal came before the House of Lords. The House took time for consideration and gave judgment on 26 April 1915.
5. The House dismissed the appeal and affirmed the order of the Court of Appeal, with costs.

Facts

1. The appellants were large and well-known manufacturers of motor tyres, covers and tubes. They sold them to users through factors and through manufacturers of motor cars. Dew & Co. was one such factor.
2. Each factor signed what the appellants called a price maintenance agreement. Dew & Co.'s agreement was dated 12 October 1911 and was contained in a letter.
3. Under it, Dew & Co. would get a 10 per cent discount off list prices for tyres, covers and tubes, for prompt monthly payment. They would get a 25 per cent discount on certain other goods.
4. Dew & Co. agreed to buy goods with a net value of 2000l. before the end of September 1912. If they did, and kept the conditions, the appellants would allow a 9 per cent rebate on the net cash paid.
5. Dew & Co. would not sell or offer for sale any of these goods to any other person at less than list price.
6. Dew & Co. could allow persons legitimately engaged in the motor trade (other than co-operative societies) a discount of not more than 10 per cent off list prices, plus the authorized rebates.
7. On any such sale to a trader, Dew & Co. undertook, as the appellants' agents in this behalf, to obtain a written undertaking. The trader would observe the list prices, terms and conditions on resales, and would forward these undertakings to the appellants on demand.
8. Dew & Co. would pay 5l. for every tyre, cover or tube sold or offered for sale in breach of the conditions.
9. On 21 December 1911, Captain Jameson asked the respondents for their lowest price for a Dunlop motor tyre, grooved and non-skid, 815 by 105. They said the price would be 5l. 18s. 2d., the appellants' list price less 7½ per cent.
10. On 1 January 1912, Captain Jameson sent the order and the money. The respondents accepted the order that day and promised delivery the next day.
11. On 2 January 1912, the respondents ordered the tyre from Dew & Co. by telephone. Dew & Co. ordered it from the appellants by telephone. The appellants delivered it to Dew & Co., who sent it to the respondents.
12. The respondents did not mention Captain Jameson to Dew & Co. Dew & Co. did not mention the respondents to the appellants.
13. On the next day the respondents delivered the tyre to Captain Jameson. The Strauss transaction was similar to the Jameson transaction.
14. The respondents had not yet signed a price maintenance agreement. Dew & Co. had pressed them to sign, because the appellants required Dew & Co. to obtain such agreements from their customers.
15. Within two or three days of 3 January, the respondents signed an agreement dated 2 January 1912. It was a letter addressed to Dew & Co., signed for the respondents by A. Horsfield. They delivered it about a week later.
16. In that letter, the respondents agreed with Dew & Co. not to sell the appellants' goods to private customers below the appellants' current list prices. This was in consideration of discounts on those goods. They also agreed to pay the appellants a penalty for every article sold in breach. The discount was less than the discount Dew & Co. received from the appellants.
17. The respondents later sold the appellants' goods below the stipulated prices. The appellants, who were not named as parties to the letter, sued.
18. Lord Atkinson records that the main facts were undisputed. He also says it may fairly be assumed that the respondents knew the nature of the agreement between Dew & Co. and the appellants.

Issues Raised

1. Can the appellants, who were not in terms parties to the contract in the letter of 2 January 1912, sue the respondents on it?
2. Is there any agreement between these parties at all?
3. If so, is there any consideration moving from the appellants to support it and make it bind the respondents to them?
4. Can the appellants show that Dew & Co. contracted as their agents, so that the appellants are undisclosed principals (persons for whom an agent contracted in the agent's own name) who can sue?

Arguments Contended

For the appellants (Dunlop; Mr. Younger is named as counsel):

• They permitted and enabled Dew & Co. to sell to the respondents on the terms of the letter of 2 January 1912. The respondents knew this and wanted it (Lord Haldane).
• The 10 per cent discount showed that the appellants gave a specific and special consent to this particular contract. That consent was consideration moving from the appellants to the respondents (Lord Atkinson).
• Dew & Co. contracted as agents for the appellants as undisclosed principals, so the appellants could sue (Lord Atkinson, Lord Parmoor; Lord Dunedin accepted it as proved).
• The sale was lawful only by the appellants' leave and licence. That licence was given on each sale in consideration of the undertaking (Lord Parker).
• Under the contract of 12 October 1911, the appellants kept some control over Dew & Co.'s sales to third parties. This was consideration moving from the appellants to the respondents (Lord Parmoor, on Mr. Younger's argument).
• The appellants could sell or not sell their own products as they chose. They enabled the respondents to get the tyres only by agreeing to supply Dew & Co., and only on the restrictive terms (Lord Sumner).

For the respondents (Selfridge):

• The reported judgment does not set out the respondents' counsel's arguments.

Court's Reasoning

Opinion of Viscount Haldane L.C.

1. Held: In his opinion the appeal ought to fail.
2. Noted: Assume the trial judge's finding of sales below the stipulated prices is correct. The question is whether the appellants can then sue the respondents. They are not in terms parties to the contract in the letter of 2 January 1912.
3. Noted: The first fundamental principle of English law is that "only a person who is a party to a contract can sue on it".
4. Noted: "Our law knows nothing of a jus quaesitum tertio arising by way of contract." Such a right (a jus quaesitum tertio, a right given to a third person) may arise by way of property, for example under a trust. It cannot be conferred on a stranger as a right to enforce the contract in personam (against the promisor personally).
5. Noted: The second principle concerns a contract not under seal. The person with whom it was made can enforce it only if he gave consideration. He must have given it to the promisor, or to another person at the promisor's request.
6. Noted: Continental countries and Scotland do not recognize these two principles in the same way, but they are well established in England.
7. Noted: The third proposition is that a principal not named in the contract may sue if the promisee really contracted as his agent. Even then he must have given consideration, personally or through the promisee acting as his agent.
8. Held: The consideration was part of the discount to which Dew & Co. were entitled as against the appellants. Dew & Co. gave it on their own account, and it was not in substance or form an allowance made by the appellants.
9. Held: Even if the appellants permitted and enabled Dew & Co. to sell on those terms, with the respondents' knowledge and desire, the answer is conclusive. Dew & Co. sold goods they had a title to obtain from the appellants independently of the contract.
10. Held: The discount under the contract of 2 January came wholly out of Dew & Co.'s pocket, and neither directly nor indirectly out of the appellants'. Enabling Dew & Co. to sell was not part of the terms of the contract sued on.
11. Noted: The contract did provide that the appellants should acquire certain rights. But these appear on its face as jura quaesita tertio, which the appellants could not enforce.
12. Held: Even if the appellants are treated as principals of Dew & Co. in stipulating for those rights, the only consideration disclosed by the contract was given by Dew & Co. as principals on their own account, not as agents.
13. Noted: Because of the conclusion on consideration, it is unnecessary to decide whether the appellants can claim that Dew & Co. made a bargain as their agents.
14. Noted: If it were necessary, there would be a difficulty about Dew & Co.'s position. Two contracts, one as principal and one as agent, may be validly comprised in the same piece of paper. But they must be two contracts, and not one as here.
15. Held (obiter, on the alternative point): "He cannot be regarded as contracting for himself and for another uno flatu." (Uno flatu means in one breath, at once.) A man cannot treat one and the same contract as made by him in two capacities.
16. Noted: The form of the contract leaves the appellants in a dilemma. If they say Dew & Co. contracted on their behalf, they gave no consideration.
17. Noted: If they say they gave consideration in the form of permission to the respondents to buy, they must set up further stipulations. These are neither in the contract sued on nor germane to it, and are inconsistent with its structure.
18. Held: The contract was reduced to writing, and the whole of the terms must be sought in that writing. Consistently with settled principles of English law, the terms cannot be read as giving the appellants any enforceable rights against the respondents.
19. Held: The judgment of the Court of Appeal was right. He moves that the appeal be dismissed with costs.

Opinion of Lord Dunedin (read by Lord Atkinson)

1. Noted: The case is apt to nip any budding affection for the doctrine of consideration. Its effect here is to let a person snap his fingers at a deliberate bargain. The bargain is not unfair, and the person seeking to enforce it has a legitimate interest in doing so.
2. Held: Despite these considerations, he never doubted that the judgment of the Court of Appeal was right.
3. Noted: He adopts Sir Frederick Pollock's words on consideration (Pollock on Contracts, 8th ed., p. 175). An act or forbearance of one party, or the promise of it, is the price of the other's promise. A promise given for value is enforceable.
4. Noted: On its face, the agreement sued on is between Dew and Selfridge.
5. Held: He would have no difficulty in holding it proved that Dew made the agreement as agent for Dunlop. Dunlop would then be the undisclosed principal and could sue on it.
6. Held: Even so, to enforce it Dunlop must show consideration, as defined above, moving from Dunlop to Selfridge.
7. Noted: The agreement is not an agreement for sale. It is only collateral to an agreement for sale, which is entirely between Dew and Selfridge.
8. Noted: The tyres were Dew's property, not Dunlop's. Under his agreement with Dunlop, Dew held them as proprietor and not as agent.
9. Held: Dunlop did nothing in a question with Selfridge. Dew, as owner, could give a good title to anyone he liked. Dunlop's possible remedy would be an action in damages against Dew for breach of contract. That action could never create a vitium reale (a defect attached to the property) in the tyres.
10. Held: Dunlop gave up nothing. It had no action against Dew that it gave up, because Dew had fulfilled his contract by obtaining from Selfridge a contract in the terms prescribed.
11. Held: This ends the case. He does not doubt that a contract can be framed to bind persons in Selfridge's position. It was not done here. Dunlop's advisers must have known the law of consideration, so it is their affair that they did not draw the contract that way.
12. Held: The appeal should be dismissed.

Opinion of Lord Atkinson

1. Noted: The action was brought to restrain the respondents from selling the appellants' goods on terms other than those in an agreement of 2 January 1912. It also sought liquidated damages and an account. The agreement was alleged to have been made through Dew & Co. as the appellants' agents.
2. Noted: The main facts are undisputed. Dew & Co. were one of the appellants' agents or factors, and each signed a price maintenance agreement. Dew & Co.'s agreement was dated 12 October 1911, and its discount, purchase, rebate, resale, undertaking and penalty terms are set out in the Facts above.
3. Noted: The agreement was one for the sale and purchase of the appellants' goods, with contractual restrictions on the purchaser's right of resale.
4. Noted: Dew & Co. could sell to any sub-vendee on any terms. They exposed themselves only to an action for breach at the appellants' suit if they did not observe the agreement. They did not need special consent to a particular resale made in conformity with it.
5. Noted: That consent was given in anticipation the moment the agreement was made. Dew & Co. had absolute authority to resell on the specified terms, and the appellants could not prohibit or restrain them.
6. Noted: In the letter of 2 January 1912, drawn up by Dew & Co. and signed for the respondents by A. Horsfield, Dew & Co. included in substance all the stipulations they were bound to include. They did nothing their contract did not authorize.
7. Held: The argument that the 10 per cent discount showed a specific and special consent by the appellants, which was consideration moving to the respondents, cannot be sustained at all.
8. Noted: The appellants also urged that they could show Dew & Co. contracted as agents for undisclosed principals, namely the appellants.
9. Held: Even if so, and if the appellants were treated as parties to the letter, it does not solve the difficulty. "The contract is as to them a nudum pactum, since no consideration moves from them to the respondents".
10. Noted: His inclination is that the case falls within the principle of Humble v. Hunter (1848) 12 QB 310. On that view, consistently with the letter's terms, the appellants cannot claim to be principals for whom Dew & Co. contracted as agents.
11. Noted: Kennedy L.J. pointed out the stipulations in the contract that are irreconcilable with the idea that Dew & Co. did not contract as principals.
12. Held: However that may be, no consideration moved from the appellants to support any contract with the respondents. He prefers to base his judgment on that ground.
13. Held: The judgment appealed from was right, and the appeal should be dismissed with costs here and below.

Opinion of Lord Parker of Waddington (read by Lord Sumner)

1. Noted: Assume the undertaking was given to Dew & Co. as agents for the appellants, and was meant to benefit them. The appeal still fails unless the undertaking rested on consideration moving from the appellants. In his opinion there was none.
2. Held: The appellants did not give or give up anything on the strength of the undertaking.
3. Noted: They sold tyres to Dew & Co. on terms that Dew & Co. would not resell below list prices. Dew & Co. could allow a discount to motor traders if they obtained, as the appellants' agents, a written undertaking like the one sued on.
4. Noted: In reselling to the respondents and obtaining that undertaking, Dew & Co. committed no breach of contract.
5. Held: The sale was good consideration for the undertaking moving from Dew & Co. But the appellants, "being in the position of volunteers not parties to the contract of sale, cannot sue on it".
6. Noted: The appellants argued that Dew & Co.'s acts would have been unlawful without the appellants' leave and licence. They said this licence, though general in form, was given on each sale in consideration of the undertaking.
7. Held: He cannot accept this. First, it is wrong to speak of an exception from a restrictive contract as importing any leave or licence.
8. Held: Without a contract to the contrary, Dew & Co. could resell the goods on any terms they thought fit. By reselling as they did, they broke no restrictive contract.
9. Held: Even if the sale were lawful only by the appellants' licence, the licence was given once for all in their contract with Dew & Co. It was not given as part of the terms of any particular sale.
10. Held: The appeal fails on this ground and should be dismissed with costs.

Opinion of Lord Sumner

1. Noted: There are two instances of sale and delivery complained of. He analyses the Jameson transaction, and the Strauss transaction is similar. The steps are set out in the Facts above.
2. Noted: On 12 October 1911, Dew & Co. contracted with the appellants on their price maintenance agreement. Dew & Co. became bound to buy goods worth 2000l. before the end of September 1912. The appellants became bound to sell and deliver up to that value whenever reasonably required.
3. Noted: The respondents had signed no price maintenance agreement when the tyre was ordered and delivered. They signed within two or three days of 3 January, dated it 2 January, and delivered it to Dew & Co. a week or so later. The appellants sued for breach of this agreement.
4. Noted: The parties raised two questions. Is there any agreement between them at all? If so, is there consideration moving from the appellants to support it?
5. Noted: Apart from these questions, much could be said for another view. A bargain and sale complete before the agreement was signed or dated could be no breach of it. Delivery afterwards could hardly justify an injunction.
6. Noted: He assumes without discussion that the agreement speaks from its date, 2 January.
7. Noted: He assumes that evidence was admissible to add an unexpressed consideration moving from the appellants to the expressed consideration moving from Dew & Co.
8. Noted: He assumes, though it is a large assumption, that the terms do not so designate Dew & Co. as the only contracting parties as to shut out proof that the appellants were their undisclosed principals.
9. Noted: The point is not pressed that Dew & Co. sold and delivered first and obtained the written undertaking afterwards. On that footing, Dew & Co. exactly performed their agreement with the appellants.
10. Noted: Selfridge & Co. was the trader within that agreement, and Dew & Co. obtained its written undertaking. The undertaking was in the appellants' own form. Dew & Co. did not contract, even by implication, that it would be binding.
11. Held: Nothing stopped the respondents from saying afterwards that the undertaking was a nudum pactum (a bare promise with no consideration). At first they thought and said they were bound. That did not change their position or the appellants', or supply consideration where none existed.
12. Noted: The respondents made no request for the tyre to the appellants. They did not know Dew & Co. had none in stock, and did not make Dew & Co. their agents to ask for it. Dew & Co. asked for it under their agreement to buy up to 2000l. of goods.
13. Noted: Dew & Co. did not tell the appellants that no written undertaking had yet been signed. The appellants, knowing nothing, waived nothing.
14. Held: The appellants, as alleged promisees, neither did, suffered nor held back anything, and promised nothing, in exchange for the undertaking.
15. Held: The argument that the appellants enabled the respondents to get the tyres by agreeing to supply Dew & Co. on restrictive terms fails once it is examined. The respondents were strangers to that transaction, which happened before they gave or received any order.
16. Held: The appellants delivered the tyres in performance of an obligation unknown to the respondents. Nothing moved from the appellants to the respondents. It would have been the same if Dew & Co. had not existed. "The appellants have sued on a nudum pactum."
17. Noted: The appellants' distributing organization has been before the House before. He therefore expresses no opinion on the other questions raised, since this one decides the case.
18. Noted: Much may be said both ways on the appellants' right to sue as undisclosed principals on this contract.
19. Noted: He does not wish to be taken as entirely assenting to the broad proposition, apparently suggested in some judgments of the Lords Justices. That proposition is that a contract in which one party contracts both for himself and for an undisclosed principal is a legal impossibility. He thinks it too wide.
20. Noted: A narrower statement of Swinfen Eady L.J. is not open to objection. Where a party contracts in his own name, an undisclosed principal cannot sue if the terms show the signatory is the real and only principal.
21. Held: The appeal should be dismissed.

Opinion of Lord Parmoor

1. Noted: The main question is whether the appellants can sue to enforce conditions in a contract between the respondents and Dew & Co. The appellants aim to maintain general conditions and prices, and it may be assumed this matters to their business.
2. Held: The appellants are not in form parties to the contract. They claim to be undisclosed principals. If they cannot prove this, they fail at the outset, because the stipulations are not of a kind that a non-party may sue on.
3. Noted: Parol evidence (evidence from outside the written contract) is admissible to prove that the plaintiff is the real principal.
4. Noted: It is also well established that a person cannot claim to be a principal if that would be inconsistent with the contract's own terms.
5. Held: He agrees with Kennedy L.J. in the Court of Appeal that admitting the appellants as undisclosed principals would be inconsistent with the terms of the contract. This is enough to dispose of the case.
6. Held: A further difficulty is that the appellants cannot show consideration sufficient to support a contract between themselves and the respondents.
7. Noted: On 12 October 1911, Dew & Co. agreed to buy the appellants' goods in consideration of discounts and rebates. One condition was that they would act as the appellants' agents in this behalf. They would obtain from a trader a written undertaking to observe list prices, terms and conditions on resales.
8. Noted: Dew & Co. made a contract with the respondents to that effect. It is undisputed that the respondents did not observe the conditions. The appellants claimed an injunction and damages at 5l. for each tyre, cover or tube sold in breach.
9. Noted: Mr. Younger argued that under the contract of 12 October 1911 the appellants kept some control over Dew & Co.'s sales to third parties. He said this was consideration moving from the appellants to the respondents.
10. Held: No such control was reserved. Without further authority or licence, Dew & Co. had a full right, as factors or dealers, to sell to the respondents.
11. Noted: The appellants may have power to stop supplies to a person whose supplies they ask Dew & Co. to suspend. But this is wholly different from a claim to sue the purchasers of goods sold by Dew & Co. in the course of business.
12. Held: Dew & Co. had full power to sell as factors or dealers. So the appellants were not in a position to give, and did not give, any consideration to support a contract with the respondents. The action fails.
13. Noted: He does not discuss what remedy Dew & Co. might have against the respondents, or whether the appellants could have reached their object another way.
14. Held: The appellants cannot succeed in this action, and the appeal fails.

Statutes and provisions

• The judgment cites no statute, section or article. It rests on common law rules of privity, consideration and agency.
• Contract terms in issue: the letter of 12 October 1911 (Dew & Co. and the appellants) and the letter of 2 January 1912 (respondents to Dew & Co.). Their terms are set out under Facts.

Authorities

• Humble v. Hunter, (1848) 12 QB 310: Lord Atkinson inclined to think the case fell within its principle. On that view the appellants could not claim to be principals for whom Dew & Co. contracted as agents.
• Kennedy L.J.'s judgment in the Court of Appeal: Lord Atkinson and Lord Parmoor relied on it. Its points were that some stipulations were irreconcilable with Dew & Co. contracting as agents, and that admitting the appellants as undisclosed principals conflicted with the contract's terms.
• Swinfen Eady L.J.'s judgment in the Court of Appeal: Lord Sumner accepted its statement of when an undisclosed principal cannot sue. He doubted a wider proposition apparently found in some Lords Justices' judgments.
• Pollock on Contracts, 8th ed., p. 175: Lord Dunedin adopted its definition of consideration. It is a textbook, not a case.
• Also cited in footnotes: none. The judgment text has no footnotes.

Judgement

1. The order of the Court of Appeal is affirmed.
2. The appeal is dismissed with costs.
3. Lord Atkinson's opinion adds that the costs are those here and below.

Legal Principle / Ratio

A person who is not a party to a contract cannot sue on it. A promise can be enforced only by a person from whom consideration moved. An undisclosed principal can sue only if the contract's terms allow it and consideration moved from him.

Key holding (Lord Haldane): only a party to a contract can sue on it, and the party suing must have given consideration.

Critical Analysis

Analysis based on the judgment text.

• All six Lords decide on the absence of consideration. Lord Haldane adds the privity principles and the two-capacities point. Lord Parmoor adds that the appellants' claim to be principals conflicts with the contract's terms.
• Lord Dunedin says the doctrine of consideration lets a person disregard a fair bargain that the other side has a legitimate interest to enforce. He still holds that the appeal must fail.
• Lord Dunedin says contracts could be framed to bind persons like Selfridge. The judgment does not explain how.
• Lord Sumner leaves open whether a contract can be made by one party for himself and for an undisclosed principal.
• Lord Haldane's view on making a contract in two capacities is expressed on a point he says need not be decided.

Significance

• The case is the House of Lords authority for the rule that a stranger to a contract cannot sue on it.
• It links privity with consideration: the promisee must supply consideration for the promise sued on.
• It shows how a manufacturer's price maintenance scheme through a dealer can fail if the manufacturer gives no consideration.
• It shows the limits on an undisclosed principal's right to sue.

Exam-Important Points

• Rule: only a party to a contract can sue on it. Trap: Dunlop's interest in the price undertaking gave it no right to sue.
• Rule: consideration must move from the party suing. Trap: Dew & Co.'s discount was their own consideration, not the appellants'.
• Rule: an undisclosed principal cannot sue if that is inconsistent with the contract's terms.
• Rule: the undertaking was a nudum pactum as against the appellants.
• Trap: Lord Haldane's remark on one contract in two capacities was obiter, and Lord Sumner thought it too wide.
• Result: appeal dismissed with costs; Court of Appeal order affirmed.

Prepared from the full text of the judgment. The judgment text has no numbered paragraphs, so no paragraph numbers are cited; the report is [1915] AC 847.