Date: Mon, 20 Nov 2006 18:37:34

From: Hector MacQueen

Subject: Third party contracts and small verbal differences

Interesting to compare this with two Scotch cases from the century before last (we've had third party rights for a little longer than the English) -

Rose Murison & Thomson v Wingate Birrell (1889) 16 R 1132. Held that creditors in obligations undertaken by an underwriter had a title to sue the guarantors of the underwriter's trade association, the guarantees in question providing only that "we [the guarantors] guarantee the liabilities arising on the account of JB [the underwriter] underwritten by us in his name."

Was this precedent cited to the English court, I wonder?

Contrast however

Henderson v Stubbs (1894) 22 R 51. One company purchased the business of another with the contract providing that the purchaser should pay the debts of the vendor.

Outcome contrasts with the Rose case above: held that this conferred no rights upon the vendor's creditors, since the arrangement was intended only for the benefit of the two contracting companies.

Hector

--
Hector L MacQueen
Professor of Private Law
Director, AHRC Research Centre Intellectual Property and Technology Law Edinburgh Law School University of Edinburgh Edinburgh EH8 9YL UK
Tel: (0)131-650-2060; Fax: (0)131-662-6317

Quoting Andrew Tettenborn:

What's the difference between discharging X's debts and paying off X's creditors? Quite a lot, at least according to the decision of the English CA in Avraamides v Colwill [2006] EWCA Civ 1533 on the interpretation of the Contracts (Rights of Third Parties) Act 1999.

A gets B Ltd to revamp his bathrooms. B Ltd botch the job and owe A a tidy sum in damages. B sells its bathroom-revamping business to C, C promising

(1) "to settle the current liabilities of the company ..."

and

(2) "to complete outstanding customer orders taking into account any deposits paid by customers as at 31 March 2003, and to pay in the normal course of time any liabilities properly incurred by the company as at 31 March 2003."

B being but, A sues C as third-party beneficiary. Held, the suit fails, since under s.1(3) of the Contracts (Rights of Third Parties) Act 1999), the third party

"... must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into."

Here, says the court, there's no express naming of the third party, and the word "express" means you can't infer who it might be from the wording or intent of the contract as a whole.

Had C agreed to "pay the current creditors of the company" A would presumably have won. As it is C must be thanking his lucky stars his lawyers chose to say "settle the current liabilities of the company," even though no doubt the lawyers thought it made no odds which way they put it.

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