4. Privity of Contract

Question 1

DEF: Privity of Contract

Answer 1

Only parties to a contract can sue for breach of that contract or be liable for breach.
- third parties cannot sue or be sued

Question 2

What if a contract is made for the ‘benefit’ of a third party, can that party sue under the contract?

Answer 2

Generally, No. The third party has no rights under the contract.

Question 3

When can a third party acquire rights under a contract?

Answer 3

Contracts (Rights of Third Parties) Act 1999
A party can acquire rights if:
1. contract EXPRESSLY provides that they may acquire a benefit OR
2. the specific contract term purports to confer a benefit on them
- this won’t apply if it was not intended that the term be enforceable by a third party
- party must be named or be named as a member of a class (eg employees)

Question 4

When can an agent successfully bind a third party to a deal?

Answer 4

If they have authority to do so

Question 5

When does an agent have ‘apparent authority’

Answer 5

If the principal has created the appearance of authority and this representation was intended to be acted upon
1. Principal represents by words or conduct that the agent has authority
2. Third party must rely on this representation (believing that the agent has authority) and
3. the third party must alter their position (eg. entering into a contract)

Question 6

Can the Contracts (Rights of Third Parties) Act 1999 be excluded from a contract? Explain

Answer 6

Yes, it can be expressly excluded. Meaning that third parties cannot acquire rights under the contract in the normal way.