1. Existence/Formation of a Contract

Question 1

Formation of a bilateral contract

Answer 1

Offer or invitation to treat?

If offer, is there a counter-offer or req for further info?
* Counter-offer: Extinguishes original offer
* RFI: Original offer remains open

Is the acceptance in response to the offer?
* Can’t be accepted in ignorance of the offer
* Can only be accepted by the person to whom it was made

Is the acceptance made using a valid mode?
* Offeror has specified mode of acceptance using mandatory words (must) and has excluded all other modes
* Yes: Only an acceptance in the prescribed mode will bind the offeror
* No: An acceptance that is “no less advantageous” will bind the offeror

Is the acceptance communicated?
* A posted acceptance is effective upon posting
UNLESS
- if not contemplated post would be used
- if manifestly inconvenient/absurd
- to letters revoking offers
- if incorrectly addressed
- if disapplied by offeror
* By instantaneous means - when received by offeror. If not received:
- Offeree at fault: no contract
- Offeror at fault: contract
- Nobody at fault: no contract
* Instantaneous communication outside office hours
- Acceptance deemed received first thing the next working day

At the point of acceptance is the offer still open?
* Rejection - incl. counter-offer
* Lapse
* Revocation (must be communicated - postal rule does not apply)

Question 2

Offer

Answer 2

• There must an unequivocal offer which is accepted in its entirety by the other party.
• Clear and certain (Gibson v Manchester City Council)
• Offeror must show an intention to be legally bound

Whether such an agreement exists will be judged objectively on the basis of what the parties say and do, rather than subjectively on the basis of what was in their mind.

Question 3

Offer v Invitations to Treat

Answer 3

Where a party is not, in fact, agreeing to be bound but instead is seeking an offer from another party themselves.

Question 4

Offer v Invitations to Treat: Goods displayed in a shop

Answer 4

• Invitation to treat when displayed
  Offer made by customer when taken to till
• Would be an invitation to treat even if marked as special offer or such like
• Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 All ER 482
  Fisher v Bell [1960] 3 All ER 731

Question 5

Offer v Invitations to Treat: Tenders

Answer 5

• Invite to submit tenders/proposals is an invitation to treat
• Company not bound to accept any of tenders presented BUT If tender submitted in proper form are bound to consider proposals
• Spencer v Harding (1870) LR 5 CP 561
  Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195

Question 6

Offer v Invitations to Treat: Auctions

Answer 6

• An auctioneer’s request for bids is an invitation to treat
• Bids are offers
• Offer accepted when hammer down or auctioneer otherwise indicates bid accepted; If auction without reserve then obligation to sell to the highest bidder
• s57 of the Sale of Goods Act 1979
  Barry v Davies (trading as Heathcote Ball & Co) and Others [2000] 1 WLR 1962

Question 7

Auctions ‘without reserve’

Answer 7

Many auction sales have a ‘reserve’ price: if no bid above this price is received, the seller keeps the goods. However, in an auction without reserve the seller promises to sell to the highest bidder whatever that bid turns out to be.

If the sale of the item in question is expressed to be ‘without reserve’ the auctioneer may be sued for breach of contract if they refuse to sell to the highest bona fide bidder.

Where the sale is expressed to be without reserve, there are in fact two contracts.
1. The first bilateral contract proceeds on the usual analysis of an auction sale whereby the bidder makes an offer which is capable of acceptance or rejection by the auctioneer. This contract determines who is entitled to the goods.
2. The second contract is a unilateral contract based on the promise that the auction will be without reserve. If a reserve is not applied and the goods are withdrawn from sale there is a breach of this unilateral contract and the highest bona fide bidder is entitled to be compensated by the payment of damages. The highest bidder is not, however, entitled to the goods since this is dictated by the bilateral contract for sale.

Question 8

Offer v Invitations to Treat: Circulation of price list

Answer 8

• Invitation to treat
• Grainger & Son v Gough [1896] AC 385

Question 9

Offer v Invitations to Treat: Advertisements

Answer 9

• Invitation to treat
• Wording of advertisement might make it a unilateral offer
• Partridge v Crittenden [1968] 1 WLR 1204

Question 10

Unilateral Offers

Answer 10

The promise that is made will only become binding if another party performs some specified act

E.g. reward cases where a sum of money is offered for information leading to the capture of a criminal

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256: court held that a contract had been formed and the claimant was entitled to the reward

Question 11

Termination of Offers: Revocation/withdrawal of an offer

Answer 11

• An offer can be withdrawn at any time before it is accepted (see Payne v Cave [1798] 100 ER 502) even if the time limit for accepting the offer has not expired (see Routledge v Grant [1828] 130 ER 920)
• Revocation must be communicated to the party to whom the offer had been made (see Byrne v Van Tienhoven [1880] 5 CPD 344) - need not be communicated by the party who made the offer

Question 12

Termination of Offers: Revocation/withdrawal of unilateral offers

Answer 12

• Two issues that are raised by the specific nature of unilateral offers: how an offer might be withdrawn and when it can be withdrawn.

HOW an offer can be withdrawn:
- Carlill: the court made it clear that an offer can be made to the world as a whole so how can it be withdrawn when it would be impossible to communicate the revocation to everyone who has seen the offer?
- Shuey v United States, 92 US 73 (1875): the offer should be withdrawn in the same way that it was made and most commentators seem to accept the logic of this position

WHEN the offer might be withdrawn:
- Can an offer therefore be revoked once the act has started but before it is complete?
- There is some uncertainty about this point but the generally accepted answer seems to be ‘no’, so that once a party has started performing the act in question the offer can no longer be revoked (see Errington v Errington and Woods [1952] 1 KB 290).

Question 13

Termination of Offers: Passage of time

Answer 13

• It is open to a party to impose a time limit for acceptance of an offer. If they do so and the offer is not accepted within the allotted time limit, it will lapse.
• Where no time limit has been prescribed, the offer should be accepted within a reasonable time.
• Dependent on surrounding circumstances
• The time for accepting an offer is likely to be less in fast-moving commercial environments (see Ramsgate Victoria Hotels v Montefiore [1866] LR 1 Exch 109).

Question 14

Termination of Offers: Death

Answer 14

Offerer dies:
- The other party will not be able to accept it if they have notice of the death.
- If they are not aware of the death, they can still accept the offer provided it is not for a service that would have been personally performed by the deceased (see Bradbury v Morgan (1862) 158 ER 877)

Offeree dies:
- Offer cannot be accepted by their executors in order to allow them to form a contract (Reynolds v Atherton (1922) 127 LT 189).

Question 15

Termination of Offers: Non-fulfilment of a condition

Answer 15

If an offer is made subject to a condition and that condition is not fulfilled by the other party, then they will not be able to accept the offer.

Financings Ltd v Stimson [1962] 3 All ER 386)

Question 16

Termination of Offers: Counter-offers and requests for information

Answer 16

Offeree can in effect terminate the offer themselves if they make a counter-offer - consider wording

Question 17

Acceptance

Answer 17

• Acceptance of an offer must be unequivocal and complete
• A party should therefore indicate that it accepts the offer on precisely the terms that were put forward
• It can, however, be difficult to be completely exact about what the terms of the offer are and parties might act on what they believe a contract to be without fully clarifying its terms.

Question 18

Acceptance: The ‘battle of the forms’

Answer 18

• Companies will often seek to enter into a contract on their own standard terms and conditions
• Difficulties can, however, arise when two companies seek to contract on their own standard terms and do not take the time to negotiate about any inconsistencies between them
• ‘Battle of the forms’: litigation about whose terms take precedence

Question 19

Acceptance: Communication of acceptance

Answer 19

• Acceptance must be communicated in order for a contract to be formed (Powell v Lee (1908) 6 LGR 840)
• Must be some objective evidence that the offer has been accepted either verbally, in writing or by the actions of the party accepting the offer.

Question 20

Acceptance: Acceptance by conduct

Answer 20

• Acceptance of a unilateral offer is generally evidenced not by communication but by performing the act specified in the offer (see Carlill v Carbolic Smoke Ball Co)
• Conduct can also constitute acceptance in a bilateral contract
• Brogden v Metropolitan Railway Co (1877) 2 App Cas 666

Question 21

Acceptance: The postal rule

Answer 21

• Acceptance is made as soon as it is posted and not when it is received (Adams v Lindsell [1818] 106 ER 250)
• Acceptance will be effective even if the letter has not been received (Household Fire and Carriage Accident Insurance Co v Grant [1874–80] All ER Rep 919)

Exceptions:
- The letter must have been properly posted (see Re London and Northern Bank, ex p Jones [1900] 1 Ch 220 where the acceptance was given to a postal worker who was not authorised to accept letters)
- It must also be reasonable to use post to accept the offer
- The rule will not operate where the terms of the offer say that the acceptance has to be received (Holwell Securities Ltd v Hughes [1974] 1 All ER 161)

Question 22

Acceptance: Instantaneous communications

Answer 22

• Entores v Miles Far East Corp [1955] 2 QB 327 and Brinkibon v Stahag Stahl [1983] 2 AC 34: both cases, the acceptance had been sent by telex: the court felt that the contracts were concluded when and where the acceptance was received
• The question of the timing of the receipt of a notice: Where acceptance sent by telex is sent outside normal office hours, it is only considered to be effective on the next working day (Mondial Shipping BV v Astarte Shipping Ltd [1995] CLC 1011

Question 23

Type of contract

Answer 23

Bilateral contract: The most common type of contract. Each party assumes an obligation to the other party by making a promise to do something, such as to sell an item to the other party in exchange for a payment.

Unilateral contract: One party makes an offer or proposal in terms which call for an act to be performed by one or more other parties. For instance, the offer may call for specific lost property to be returned in exchange for a reward. A unilateral contract does not involve mutual promises – only the party making the offer assumes an obligation. Only actual performance of the required act will constitute acceptance.

Question 24

Can the court uphold the contract/obligation?

Answer 24

Court will normally uphold a contract that the parties have entered into freely

Clauses which are too uncertain to give rise to an obligation and those where there is an obligation where the precise terms are unclear but which can be given meaning by the court (jet2.com v Blackpool Airport)

Court can infer the terms of a contractual relationship by looking at the history of the relationship that the parties have had to establish a ‘previous course of dealing’ (Hillas v Arcos)

Possible for court to take into account the normal practice or custom in that particular trade when deciding what a clause might mean (Hillas v Arcos)

The court can also remove words which are uncertain but do not affect the core obligations within the contract (Nicolene v Simmonds)

Question 25

Consideration:

Consideration must not be past

Answer 25

Consideration does not make a contract enforceable where it is provided before the
contract is made.

EXCEPTION:
Pao On v Lau Yiu Long: An act done before the giving of a promise to make a payment or to confer some other benefit can sometimes be consideration for the promise. The act must have been done at the promisors’ request: the parties must have understood that the act was to be remunerated either by a payment or the conferment of some other benefit: and payment, or the conferment of a benefit, must have been legally enforceable had it been promised in advance.

Question 26

Consideration:

An existing public duty

Answer 26

When a party simply carries out an act which they are already under a public duty to perform, this does not amount to consideration

If, however, the party concerned is going beyond their public duty this would be giving consideration for the contract.

Question 27

Consideration:

An existing contractual duty

Answer 27

Where a party is under an existing contractual duty to perform a task this cannot form consideration

This principle can, however, cause some seeming injustice and the courts have found ways to avoid it by finding extra obligations which constitute consideration

Question 28

Consideration

Answer 28

The need for consideration is the idea that, in order to be able to hold the other party to a promise, you must have agreed to provide ‘something in return’ for that promise: it is this ‘something in return’ that lawyers call ‘consideration’.

The ‘something in return’ may be a promise (called executory consideration) or an act (executed consideration).

Bilateral contracts by their nature involve an exchange of promises; whereas a unilateral contract comprises a promise in return for an act

So in order to sue for breach of a promise, a party must be able to show they gave consideration for that promise.

Question 29

Consideration:

Requirements

Answer 29

Consideration need not be adequate:
* It simply has to have some value

Consideration must be sufficient:
* What is provided in return must be the sort of thing the law regards as being appropriate subject matter for a bargain
* Such things as money, goods and services are provided in exchange for the other party’s commitment

Question 30

Past consideration

Answer 30

Past consideration:
* The need for an exchange and something given in return explains why performance of a gratuitous act or promise is not deemed to be consideration for a later promise of payment
* ‘past consideration is not good consideration’ -

HOWEVER; EXCEPTIONS:
a) the past act/promise was done at the promisor’s request;

b) there was a mutual understanding between the parties that the act/promise would be compensated for in some way; and

c) had the promise been made in advance it would have been legally enforceable. This last condition often hinges on whether, or not, there would have been the necessary intention to create legal relations

Question 31

Promissory Estoppel

Answer 31

Under this doctrine, a creditor may be prevented (‘estopped’) from going back on a promise to accept part payment (even if the promise is not supported by consideration) if in all the circumstances it would be unfair for the creditor to do so.

Promissory estoppel is simply the idea that:
* if you have made a promise not to enforce your legal rights; and
* someone has relied on that promise, even though they have not provided anything in return; then
* if you try to enforce your legal rights you will be ‘estopped’ (prevented from going back on your promise) if it would be inequitable (unfair) in all the circumstances to do so.

Question 32

Promissory Estoppel:

Limitations

Answer 32

(a) It can only be used as a defence when a party brings an action at common law to enforce his legal rights.

(b) There must have been a promise to waive strict legal rights.

(c) The promisee (usually a debtor) must have acted on the promise but not necessarily to his detriment. For example the debtor in High Trees simply paid half rent.

(d) With ongoing payments such as rent, the doctrine operates to suspend the strict legal right, which means the creditor can resume his right to full payment going forward by giving reasonable notice. What the creditor cannot do is claim any back payments for the concessionary period. Hence why in High Trees the landlord could claim full rent for the future (it was deemed reasonable notice had been given) but could not claim arrears during the war period.

(e) To use any equitable doctrine a party must have ‘clean hands’. So in a case where the debtor sought to take advantage of the creditor’s financial difficulties he was unable to use promissory estoppel as a defence to the creditor’s common law action for the balance owed.

Question 33

Rules governing consideration

Answer 33

Question 34

Executed and Executory consideration

Answer 34

Executory consideration: Where contracting parties make promises to each other to perform something in the future after the contract has been formed.

EXAMPLE
The classic example is a contract for the sale of goods where the seller promises to deliver the goods at some time in the future, and the buyer promises to pay for them either on delivery or by some other credit arrangement. At the time of the agreement, neither side has done anything towards the performance of the promises made but the agreement still has contractual force, and a party who fails to carry out their promise can be sued. A bilateral contract usually involves executory consideration.

Executed consideration: Where, at the time of the formation of the contract, the consideration has already been performed.

EXAMPLE
The classic example is a unilateral contract where the promise of a reward is made and the ‘price paid’ in exchange for that promise is performance of the act stipulated in the offer: Carlill v Carbolic Smoke Ball Co Ltd (1893) 1 QB 256. The required act is both the acceptance of the offer (and thus the time when the contract is formed) and the executed consideration.

Question 35

Consideration must be sufficient

Answer 35

Consideration must have some value ‘in the eyes of the law’. It matters not how small that value is, so long as it is worth something. If a thing of value can be identified, then there will be sufficiency of consideration and the court will not enquire as to its adequacy.

Question 36

Consideration need not be adequate

Answer 36

According to the doctrine of freedom of contract, the courts will not interfere with a bargain freely reached by the parties. It is not the court’s duty to assess the relative value of each party’s contribution to the bargain. There is no reason, for example, why a party should not be bound by a promise to sell a new Rolls Royce car for one penny. If the agreement is freely reached, the inadequacy of the price is immaterial.

Question 37

Intention to create legal relations

Answer 37

Judged objectively: words and actions of parties

Context to be considered: commercial or domestic situation

Question 38

Intention to create legal relations: Agreements made in a commercial context

Answer 38

The courts will presume that where a contract was made in a commercial context it was intended to be legally binding (Esso Petroleum Co v Customs and Excise Commissioners [1976] 1 WLR 1)

CAN be rebutted: by the words the parties use in their agreement or otherwise
- Rose and Frank Co v J R Crompton & Bros Ltd: Parties can indicate that their agreement will have no legal consequence by inserting a so-called ‘honour clause’
- ‘subject to contract’ used in correspondence: indicates that what they say at that point should have no legal consequences

Question 39

Intention to create legal relations: Agreements made in a domestic or social context

Answer 39

Will be presumed that the parties do not intend to enter into a legally binding agreement (Balfour v Balfour [1919] 2 KB 571)

CAN be rebutted:
- Merritt v Merritt - The court felt that there was an intention to create legal relations here, particularly as the marriage had at that point broken down

Question 40

Intention to create legal relations: Capacity

Answer 40

Ability at law to freely enter into a contract

Age:
- Anyone under the age of 18 is considered to be a minor (s1 Family Law Reform Act 1969) and as a general rule are considered to lack the capacity to enter into a binding contract - Contract void
EXCEPTIONS:
- Necessaries: in a contract for the sale and delivery of such items the minor ‘must pay a reasonable price for them’. A minor can therefore enter into a binding contract for such items - must have the means to do so
- Contract of employment: providing it is of benefit to them

Mental capacity: Not binding if lacks capacity
- Hart v O’Connor: The court refused to set aside the transaction as the defendant was unaware of the seller’s mental state and had not acted in a fraudulent manner.
- Where a contract has been entered into by someone who was insane but apparently of sound mind, it should be ‘judged by the same standards as a contract by a person of sound mind’ and is therefore not voidable in the normal way

Question 41

Intention to create legal relations: Companies

Answer 41

A company has to act within the objects contained in its Memorandum of Association, in effect its constitution

s39 Companies Act 2006: The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution.

This provides protection for the person who deals with a company in good faith as any contracts they have made with the company will remain binding.

Question 42

Intention to create legal relations: Duress and undue influence

Answer 42

Individuals who are vulnerable but still have the necessary capacity to enter into a contract.

Protections available against unfair and onerous agreements

Question 43

ICLR

Answer 43

Commercial or business agreement: Presumed ICLR

Social/domestic agreement: Presumed no ICLR

Has the presumption been rebutted?

Question 44

Certainty

Answer 44

• The contract must be certain and not vague or unclear if it is to be binding.
• Scammell v Ouston: part of the payment for a vehicle was to be made ‘on hire purchase terms’ - too vague = no contract formed
• Baird Textile Holdings Ltd v Marks and Spencer plc: ‘Marks and Spencer would acquire garments from BTH in quantities and at prices which in all the circumstances were reasonable’ - too uncertain

Question 45

Completeness

Answer 45

Whether, or not, parties have reached complete agreement in relation to the material terms of the deal is generally judged objectively, but the facts have to be judged in context, eg:

(a) whether the parties are in the same trade;

(b) trade usage;

(c) whether the arrangement has been acted on for any length of time; and

(d) whether there is an objective mechanism for resolving any uncertainty such as an arbitration clause.

Question 46

Minors

Answer 46

Generally, a person is not bound by a contract entered into under the age of 18 even if the other party contracting does not know of this fact or the minor has lied about their age.

EXCEPTIONS

Necessaries:
* A minor is bound by a contract to supply necessaries to them if the contract is for their benefit.
* A minor must pay a ‘reasonable price’ for these rather than the actual cost of the ‘necessaries’ supplied.
* Necessaries = goods suitable to the condition in life of the minor or other person concerned and to their actual requirements at the time of the sale and delivery

Contracts of employment, apprenticeship or education:
* A minor is also bound by a contract of employment, apprenticeship or education (or analogous contract), but only if it is for their benefit

The effect of entering into a contract with a minor:
* Unless one of the exceptions applies, the contract cannot be enforced against the minor, although the minor can enforce it against the other party. By way of exception, there are a small number of contracts of exceptional types which are enforceable against the minor unless the minor specifically repudiates them.
* If a minor ratifies a contract once they reach the age of 18, then the contract will be binding on them.

Question 47

Mental incapacity and intoxication

Answer 47

A person lacks capacity under s 2 of The Mental Capacity Act 2005 if ‘he is unable to make a decision for himself in relation to the matter’ at the time the contract is made, whether the impairment is permanent or temporary

Whether or not someone has capacity is a question to be asked in relation to a particular decision.

Under s3(1) the impairment is described in terms of being unable to
1. Understand the relevant information
2. Retain the relevant information
3. Use the relevant information
–> Communicate a decision

According to s 3(4) the relevant information relates to the reasonably foreseeable consequences of:
(a) Deciding one way or another; or
(b) Failing to make a decision.

Question 48

The effect of entering into a contract with a person
lacking capacity

Answer 48

• Under s 7, a person without capacity still remains liable to pay a reasonable price for ‘necessaries’ - goods or services ‘suitable to a person’s condition of life and to his actual requirements at the time when the goods or services are supplied’
• In any other case of incapacity, the position is that the contract is binding unless the person claiming incapacity can establish, first, that they did not understand what they were doing and, secondly, that the other party knew that to be the case
• Similar rules apply to contracts entered into by drunken persons. The individual who becomes so intoxicated that they do not understand what they are doing will have to pay a reasonable price for necessaries but will not be bound by any other contract they make - This position should logically extend to those incapacitated by other intoxicating substances.

Question 49

Capacity

Answer 49

Question 50

Capacity - mental capacity

Answer 50

Question 51

Privity of contract

Answer 51

A contract can only create rights and obligations that bind those who are parties to the contract. (see Tweddle v Atkinson [1861] 25 JP 517)

A third party to a contract cannot enforce a benefit that might be given to them under it.

Question 52

Privity of contract: Exceptions:

Contracts (Rights of Third Parties) Act 1999

Answer 52

S 1:

a person who is not a party to a contract (a ‘third party’) may in his own right enforce a term of the contract if—
(a) a contract expressly provides that he may, or
(b) subject to subsection (2) the term purports to confer a benefit on him.

S3: Rights are dependent on the wording of the contract
- The benefit to be enforced can be conferred on a group, for example ‘the directors of a company’ rather than a specific named third party
- A third party will not be able to rely on the Act ‘if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party’ (see s1(2))

LIMITATIONS:
- The parties will need the consent of the third party if one of the three following situations exists:
(a) if the third party has indicated their agreement to the relevant term to the person who is providing the benefit;
(b) the person who is providing the benefit is aware that the third party has relied on the relevant term; or
(c) the person who is providing the benefit can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.

Question 53

Privity of contract: Common law exceptions

Agency

Answer 53

• One party (the agent) makes a contract on behalf of another party (the principal)
• A person will become an agent either by:
• express authority (comes directly from the principal),
• implied authority (when an act is performed which is incidental to the main contract but allows it to be performed) or
• apparent authority

Question 54

Privity of contract: Common law exceptions

Collateral contracts

Answer 54

• The courts might find that there is a subsidiary or collateral contract which is related to the main contract which creates rights or obligations for the third party
• Himalaya clauses: shipping companies seek to protect third party companies who unload goods for them by inserting clauses in the initial contract which exclude or limit liability when the goods become damaged (see New Zealand Shipping Co v A M Satterthwaite [1975] AC 154)

Question 55

Privity of contract: Common law exceptions

Claiming damages on behalf of another party

Answer 55

BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc: ‘the claimant must show that, at the time that the underlying contract was made, there was a common intention and/or a known object to benefit the third party or a class of persons to which the third party belonged’.

NB: Would not apply where there is specific provision for the third parties to enforce a right themselves under the 1999 Act (see Panatown v Alfred McAlpine [2001] 1 AC 518).

Question 56

Privity of contract: Common law exceptions

A trust

Answer 56

An equitable exception under which the benefit of the contract is held on trust for a third party.

Although in the past the courts have implied that such a trust can exist (see Les Affreteurs Reunis v Walford [1918] 2 KB 498), it seems now that this must be expressly provided for in the contract. As such, this situation would normally be dealt with under the 1999 Act.

Question 57

Privity of contract: Common law exceptions

Assignment

Answer 57

It is possible for a party to pass on the benefit of a contract by means of an assignment.

This mechanism is used most often in long leases where the current owner of a property can sell the right to the outstanding years in the lease to a third party.

NB: Not possible to escape an obligation by assigning the burden of a contract.

Question 58

How to approach a CRTPA MCQ

Answer 58

1. Is the third-party expressly identified in the contract? Check the contract names him, identifies a class he is in or is the answer to a particular description.
2. Does the contract expressly provide that they may enforce its terms? If not,
3. Does the contract purport to confer a benefit on them? If so,
4. Can the presumption of the parties intended the time to be enforceable by that third-party be reported? If not CRTPA applies

NB: CRTPA may apply to exemption clauses - a third party can rely on an exemption clause if they are expressly named or part of a class identified in the contract.
- This means another third-party trader could avoid liability if he is covered in the relevant contract

Question 59

Agency: Actual authority

Answer 59

The actual authority of an agent is worked out by looking at what the parties have said and done, and any relevant surrounding circumstances.

Express: an agent may have the express authority to sell certain products

Implied: implied actual authority to do things usually carried out by sellers of goods eg advertise them and receive payment for them.

But sometimes, agents purport to act for their principals in circumstances where they do not have actual authority. E.g.
* because agents do not always do exactly as they are told;
* because they are unsure of the extent of their authority;
* because, although they did have authority, it has been revoked in some way, eg because the principal has become ill or died.

Nonetheless, there are some circumstances where the law regards the acts of the agent as binding on the principal, despite the lack of actual authority. The third party, believing they have entered into a contract with the principal, may claim there is a binding agreement, and the principal may argue to the contrary, because the purported agent had no right to contract on his behalf.

Question 60

Agency: Apparent authority

Answer 60

Here the agent does not have actual authority from the principal. But the agent could still
be able to form a binding contract, because he has a different form of authority – one which has been made apparent to the third party by the principal

The appearance of authority must be created by the principal and this representation must have been intended to be and in fact was acted upon by the other party.

the following three conditions must be satisfied:

1. at some stage the principal must have represented (by words or conduct) that the agent had authority;
2. the third party must rely on this representation, believing that the agent has authority; and
3. the third party must alter their position eg by entering into a contract.

Question 61

Parties: Summary

Answer 61

• As a general rule only parties to the contract have rights and liabilities under it. This is the rule of privity.
  A third party may acquire the benefit of a contract if it was clearly intended that they should be able to enforce it and was identified by name or as a member of a particular class (C(RTP)A 1999).
• An authorised agent may bind the principal to a contract.
• An agent may have actual (express or implied) authority or authority may arise by estoppel. This is where the principal gave the distinct but false impression the agent had authority and the third party relied on that representation.