Chapter 2 - Consideration, Privity, Agency and Capacity

Question 1

What is the additional requirement for a legally binding contract in English law, besides agreement and contractual intention?

Answer 1

English law requires consideration in addition to agreement and contractual intention. Consideration is the idea that a party must have agreed to provide something in return for another party’s promise.

Question 2

Define consideration.

Answer 2

Consideration is the ‘something in return’ that one party provides in exchange for another party’s promise, making the promise legally enforceable. It can be a promise (executory consideration) or an act (executed consideration).

Question 3

What is the difference between a bilateral contract and a unilateral contract in terms of consideration?

Answer 3

Bilateral contracts involve an exchange of promises (executory consideration). A unilateral contract involves a promise in return for an act (executed consideration).

Question 4

What is a widely accepted definition of consideration?

Answer 4

In Currie v Misa (1875), consideration was defined as a benefit to one party or a detriment to the other. The ‘something in return’ provided as consideration can be a right, interest, profit, or benefit for the recipient, or a forbearance, detriment, loss, or responsibility given or undertaken by the provider.

Question 5

Give an example of consideration involving both benefit and detriment.

Answer 5

When Adam sells his car to Daryl for £9,000, Adam suffers a detriment by losing his car, but benefits from receiving the money. Daryl benefits from getting the car but suffers a detriment by paying the money.

Question 6

Give an example of consideration where there is detriment to one party but not a direct benefit to the other.

Answer 6

Adam agrees to transfer his car to Daryl if Daryl pays £9,000 to a charity. Daryl suffers a detriment by paying the money, but Adam doesn’t receive a personal benefit. The benefit goes to the charity.

Question 7

Can a promise be considered consideration?

Answer 7

Yes, a promise to do something can be consideration. For instance, in a contract to buy a car, the seller’s promise to deliver and the buyer’s promise to pay upon delivery are both forms of consideration, creating a binding contract.

Question 8

What does the phrase ‘consideration need not be adequate, but must be sufficient’ mean?

Answer 8

‘Consideration need not be adequate’ means the value of the consideration doesn’t have to match the value of the promise. ‘Consideration must be sufficient’ means it must have some legal value. For example, paying £1 for an Aston Martin would be sufficient, but not adequate, consideration.

Question 9

Explain the difference between a binding contract and a conditional gift with an example.

Answer 9

A binding contract involves an exchange of something of value. A conditional gift involves a promise that depends on a condition, but the condition itself is not the ‘price’ for the promise. If someone promises to give you their Aston Martin if you fetch it from the garage, this is a conditional gift, not a contract, as fetching the car is not the ‘price’ of the promise, but a condition to receive the gift.

Question 10

Does consideration require economic value?

Answer 10

Traditionally, consideration was thought to require economic value, even if it was nominal. However, the requirement for ‘economic value’ is not as strict today.

Question 11

What was the key takeaway from Chappell & Co Ltd v Nestlé Co Ltd (1960) regarding consideration?

Answer 11

The case illustrated that a contracting party can stipulate any consideration they choose. Even something seemingly insignificant, like chocolate bar wrappers, can be sufficient consideration if the party receiving it deems it valuable for their purposes.

Question 12

Can giving up a personal liberty be considered sufficient consideration? Explain with an example.

Answer 12

This is a complex area. In White v Bluett (1853), a son’s promise to stop complaining was not considered sufficient consideration for his father’s promise not to enforce a debt. The court felt that enforcing such a promise would open the floodgates to litigation and potentially trivialize the concept of consideration. It’s also important to note that the intention to create legal relations is crucial.

Question 13

Contrast the outcome in White v Bluett with Hamer v Sidway (1891).

Answer 13

While White v Bluett deemed giving up complaining as insufficient consideration, Hamer v Sidway held that a nephew giving up drinking, smoking, swearing, and gambling until age 21 was valid consideration for his uncle’s promise of $5,000. The nephew had a legal right to engage in those activities, and giving up that right constituted a detriment that was sufficient consideration, even if it benefited him.

Question 14

What was the central issue in Chappell v Nestlé?

Answer 14

The issue involved copyright law and whether chocolate bar wrappers sent in by customers were part of the consideration for a record offered by Nestlé. The majority of the House of Lords decided that the wrappers were part of the consideration, as they induced customers to buy chocolate and benefited Nestlé.

Question 15

Explain the differing viewpoints regarding the wrappers in Chappell v Nestlé.

Answer 15

The majority (including Lord Reid) saw the wrappers as an integral part of the consideration, as they incentivized chocolate purchases. However, dissenting judges (Viscount Simonds and Lord Keith of Avonholme) viewed the wrappers as a mere condition to buy the record at a discount, not part of the consideration itself.

Question 16

Compare and contrast White v Bluett and Hamer v Sidway.

Answer 16

Both cases involved giving up legal rights as potential consideration. White v Bluett failed as the court felt the son’s promise to stop complaining was not substantial enough. In contrast, Hamer v Sidway succeeded because the nephew giving up multiple activities was seen as a more significant detriment, even if it was personally beneficial. The nature of the conduct forgone might have influenced the court’s perception of whether the forbearance was sufficient consideration.

Question 17

What is past consideration?

Answer 17

Past consideration is a promise made after an act has already been performed. It’s generally not considered valid consideration because the act was not done in exchange for the promise. For instance, if Helen looks after Carl’s cat while he’s away, and Carl later promises to pay her, Helen cannot enforce the promise because her act of cat-sitting was done gratuitously before the promise of payment.

Question 18

Explain the ruling in Roscorla v Thomas (1842) regarding past consideration.

Answer 18

This case confirmed the principle that past consideration is no consideration. Roscorla bought a horse, and the seller later assured him it was ‘sound and free from vice.’ This assurance was unenforceable as it was made after the sale; the buyer provided no consideration for it.

Question 19

Are there any exceptions to the rule that past consideration is no consideration?

Answer 19

Yes, there’s an exception when these three conditions are met: The act was done at the promisor’s request. The parties understood from the outset that the act would be rewarded. The payment/benefit would have been legally enforceable if promised in advance.

Question 20

Provide an example of a case illustrating an exception to the rule of past consideration.

Answer 20

In Lampleigh v Brathwait (1615), the defendant requested the claimant to seek a royal pardon for him. The claimant made efforts to do so, and the defendant later promised payment. The promise was enforceable because the act was done at the defendant’s request, with an implied understanding of reward, and the payment would have been valid if promised upfront.

Question 21

What was the significance of Re Casey’s Patents, Stewart v Casey in relation to the exception to past consideration?

Answer 21

The case highlighted that the parties must have understood from the beginning that the act was to be rewarded. Casey managed patents at the defendant’s request, and their later promise to share profits was enforceable as it was implicitly understood that Casey’s work would be compensated.

Question 22

Summarize the concept of past consideration and its exceptions.

Answer 22

A past act is usually not sufficient consideration for a later promise. However, if the act was done at the promisor’s request, with a mutual understanding of reward, and the promise would have been legally enforceable if made in advance, it can be considered valid consideration.

Question 23

Can performance of an existing legal duty be sufficient consideration?

Answer 23

Whether performing an existing legal duty is sufficient consideration depends on the type of duty: Duty imposed by law/public duty. Contractual obligation owed to a third party. Contractual obligation owed to the other contracting party.

Question 24

Can the performance of an existing duty imposed by law be considered sufficient consideration?

Answer 24

As a general rule, performing an existing legal duty is not sufficient consideration. This is illustrated in Collins v Godefroy (1831), where a witness subpoenaed to court could not enforce a promise of payment for his testimony, as attending court was his legal duty.

Question 25

Did Ward v Byham (1956) provide a different perspective on using legal duty as consideration?

Answer 25

In this case, a father promised to pay the mother of his illegitimate child an allowance if the child was ‘well looked after and happy.’ Although the mother had a legal duty to support the child, Denning LJ argued (obiter) that her promise was good consideration as it benefitted the father. However, the other judges found consideration based on the mother exceeding her legal duty by promising the child’s happiness.

Question 26

What does Williams v Williams (1957) tell us about legal duty as consideration?

Answer 26

In this case, Denning LJ stated (obiter) that a promise to perform an existing duty can be sufficient consideration, as long as there’s nothing against public policy in the transaction.

Question 27

What is the general rule regarding using an existing legal duty as consideration, and what is the exception?

Answer 27

The general rule is that performing a legal duty is not sufficient consideration. However, exceeding the public duty, as in Glasbrook Bros Ltd v Glamorgan County Council (1925), where police provided protection beyond their usual duty during a strike, can be considered valid consideration.

Question 28

Summarize the case of Glasbrook Bros Ltd v Glamorgan County Council.

Answer 28

Mine owners requested police protection beyond their usual duty during a strike. The House of Lords decided that exceeding their public duty was valid consideration for the agreed payment for the additional protection.

Question 29

Can performing an existing contractual duty owed to a third party be considered sufficient consideration for a separate contract?

Answer 29

Yes, performing a contractual duty owed to a third party can be valid consideration for a separate contract with another party. If A is contracted to deliver goods to B, and C promises A additional payment for on-time delivery, A’s delivery is valid consideration for the contract with C, even though A was already obligated to deliver to B.

Question 30

What principle does the case of Scotson v Pegg (1861) illustrate?

Answer 30

The case confirmed that performing a contractual duty owed to a third party can be good consideration for a separate contract. A promise to deliver coal, already contractually obligated to a third party, was considered valid consideration for a separate contract with the defendant.

Question 31

Can performing an existing contractual duty owed to the same contracting party be sufficient consideration for a promise of more money?

Answer 31

Generally, performing an existing contractual duty owed to the same party is not sufficient consideration for a promise of additional payment. This principle was established in Stilk v Myrick (1809), where a captain’s promise to split the wages of deserters among remaining crew was unenforceable as the crew provided no additional consideration beyond their existing contractual duties.

Question 32

Explain the ruling and implications of Stilk v Myrick.

Answer 32

The court ruled that the sailors in Stilk v Myrick did not provide additional consideration beyond their existing contractual duties for the captain’s promise of extra pay, making the promise unenforceable. This case established the general rule that simply performing an existing contractual duty is not sufficient consideration for a promise of more money from the same party.

Question 33

Is there an exception to the rule established in Stilk v Myrick?

Answer 33

Yes, exceeding the existing contractual duty can be valid consideration. In Hartley v Ponsonby (1857), almost half the crew deserted, making the voyage exceptionally hazardous for the remaining crew. Their agreement to continue was deemed valid consideration for the captain’s promise of extra pay, as they exceeded their original contractual obligations by working in dangerous conditions.

Question 34

How can we reconcile the seemingly conflicting rulings in Stilk v Myrick and Hartley v Ponsonby?

Answer 34

The key difference lies in the extent of the crew’s additional effort and risk. In Stilk v Myrick, the crew’s effort was deemed within their existing duties. In Hartley v Ponsonby, the extreme circumstances and risks meant the remaining crew exceeded their contractual obligations. The difference in outcomes can be understood as a matter of fact and degree.

Question 35

How might the decision in Stilk v Myrick be understood in terms of public policy?

Answer 35

The decision in Stilk v Myrick can be interpreted as protecting against potential extortion by sailors demanding extra pay for performing their existing duties, particularly in times of danger.

Question 36

What is the significance of the concept of economic duress in relation to promises of additional payment for existing contractual duties?

Answer 36

The recognition of economic duress, where one party uses unfair pressure to obtain a promise, means that promises induced by duress can be avoided. This development lessens the public policy concerns that likely influenced Stilk v Myrick.

Question 37

How did the case of Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) modify the rule in Stilk v Myrick?

Answer 37

Williams v Roffey Bros established that performing an existing contractual duty can be sufficient consideration for a promise of additional payment if it provides a practical benefit to the promisor, and there is no duress or fraud involved. This case recognized that even without a technical legal benefit, practical benefits can be valid consideration.

Question 38

Explain the facts and ruling in Williams v Roffey Bros.

Answer 38

The defendants, main contractors, subcontracted carpentry work to the claimants. When the claimants faced financial difficulties, the defendants promised extra payment for on-time completion to avoid penalties under their main contract. The Court of Appeal ruled that the defendants’ practical benefit of avoiding penalties and the cost of finding new carpenters was valid consideration for their promise, even though the claimants were merely performing their existing contractual duty.

Question 39

What were the six propositions outlined by Glidewell LJ in Williams v Roffey Bros?

Answer 39

The six propositions outlined conditions for an existing contractual duty to be considered valid consideration for a promise of additional payment: a pre-existing contract, the promisor’s doubt about the other party’s ability to complete the contract, a promise of extra payment for on-time performance, a practical benefit obtained by the promisor, absence of duress or fraud, and the benefit being capable of being consideration.

Question 40

How does Williams v Roffey Bros impact the principle of Stilk v Myrick?

Answer 40

While Williams v Roffey Bros refines and limits the rule in Stilk v Myrick, it arguably doesn’t fully reconcile with it. Stilk v Myrick might also have involved practical benefits for the captain, but those weren’t deemed sufficient consideration. The absence of duress in Williams v Roffey Bros appears to be a key distinguishing factor, suggesting a shift towards a more nuanced consideration of practical benefits in the absence of unfair pressure.

Question 41

Summarize the key differences between Stilk v Myrick and Williams v Roffey Bros.

Answer 41

While both cases involved promises of additional payment for existing contractual duties, Stilk v Myrick focused on strict legal benefit and public policy concerns about extortion, while Williams v Roffey Bros emphasized practical benefits and the absence of duress as key factors in determining valid consideration.

Question 42

What is the practical takeaway from Williams v Roffey Bros?

Answer 42

The case provides more flexibility in modifying contracts to address unexpected difficulties. It recognizes that practical benefits, even without a strict legal benefit, can be valid consideration if there’s no duress or fraud. This reflects a more commercially realistic approach to contract variations.

Question 43

Summarize the rules regarding performance of existing duties as consideration.

Answer 43

Performing an existing public duty is not consideration, but exceeding it is. Performing an existing contractual duty to a third party is valid consideration. Performing an existing duty to the same contracting party is not usually consideration unless they exceed the duty or the other party receives a practical benefit, as per Williams v Roffey Bros, and there is no duress.

Question 44

What is the rule regarding part payment of undisputed debts?

Answer 44

The general rule, stemming from Pinnel’s Case (1602) and affirmed in Foakes v Beer (1884), is that part payment of a debt is not sufficient consideration for a promise by the creditor to forgo the balance. The debtor is already obligated to pay the full amount, so paying less doesn’t provide additional consideration.

Question 45

What is the significance of Foakes v Beer?

Answer 45

The House of Lords in Foakes v Beer upheld the rule in Pinnel’s Case, confirming that part payment of a debt is not valid consideration for a promise to forgo the balance, even though Pinnel’s Case was an obiter dictum.

Question 46

Are there any exceptions to the rule in Foakes v Beer?

Answer 46

Yes, there are common law exceptions: The debtor offers something different in exchange for the creditor’s agreement to accept less, such as goods instead of cash. The debtor makes the part payment early. A third party makes the part payment.

Question 47

Explain the reasoning behind the common law exceptions to the part payment rule.

Answer 47

These exceptions recognize that providing something different or altering the timing of payment can provide a practical benefit to the creditor, constituting valid consideration. For instance, receiving goods might be more beneficial than cash, and early payment benefits the creditor’s cash flow.

Question 48

Can the equitable doctrine of promissory estoppel provide a defense against a claim based on Foakes v Beer?

Answer 48

Yes, promissory estoppel can be a defense even if there’s no consideration. It prevents a creditor from going back on a promise to accept part payment if it would be unfair to the debtor.

Question 49

Explain the doctrine of promissory estoppel.

Answer 49

Promissory estoppel applies when a party makes a clear promise to waive a legal right, and the other party relies on that promise. If it would be unfair for the promisor to go back on their promise, they may be estopped from enforcing their strict legal rights, even if no consideration was given for the promise.

Question 50

What is the key case establishing the doctrine of promissory estoppel?

Answer 50

The doctrine is based on the judgment of Denning J in Central London Property Trust v High Trees House (1947), often called the ‘High Trees case’. The landlord agreed to reduce rent during wartime, and the court held (obiter) that he couldn’t later claim the full rent for that period, as it would be unfair to go back on his promise, even though the tenant provided no consideration for the reduction.

Question 51

Summarize the ‘High Trees’ case.

Answer 51

In Central London Property Trust v High Trees House, a landlord reduced rent during wartime. After the war, he sought to recover the full rent for the later period when the flats were fully let. The court held he could claim full rent going forward, but not for the wartime period, as it would be inequitable to retract his promise, even without consideration from the tenant. This established the doctrine of promissory estoppel.

Question 52

What are the four conditions necessary for promissory estoppel to apply?

Answer 52

A clear promise to waive a strict legal right. The promisee must act on the promise. Promissory estoppel can only be used as a defense, not as a cause of action. It must be inequitable for the promisor to go back on their promise.

Question 53

What does it mean to ‘act on the promise’ in the context of promissory estoppel?

Answer 53

It means the promisee has altered their position in some way due to the promise. In High Trees, the tenant paid the reduced rent, demonstrating reliance. WJ Alan & Co v El Nasr (1972) clarified that detrimental reliance is not necessary; acting differently than they otherwise would have is sufficient.

Question 54

What is the key case illustrating that promissory estoppel can only be used as a defense?

Answer 54

In Combe v Combe (1951), a husband’s promise to pay his wife maintenance was unenforceable because the wife tried to use promissory estoppel to bring a cause of action. The Court of Appeal clarified that it can only be used as a defense against someone trying to enforce a right they promised to waive.

Question 55

How does D&C Builders v Rees (1966) illustrate the requirement for it to be inequitable for the promisor to go back on their promise?

Answer 55

In D&C Builders v Rees, the defendants owed the claimants money and took advantage of their financial difficulties to offer a lower sum in full settlement. The court ruled that the claimants could claim the balance, as the defendants’ conduct was inequitable.

Question 56

What is the effect of promissory estoppel on a promisor’s rights?

Answer 56

Promissory estoppel generally suspends, not extinguishes, legal rights. It may extinguish rights if returning the promisee to their original position is impossible or inequitable.

Question 57

What is the effect of promissory estoppel on continuing obligations, such as rent payments?

Answer 57

In cases with continuing obligations, the promisor can usually resume full rights by giving reasonable notice. They cannot claim full payment for the period before the notice, as their rights were suspended during that time. The High Trees case exemplified this.

Question 58

Does the promisor always need to give notice to resume their full rights in cases involving continuing obligations?

Answer 58

Not always. In Tool Metal Manufacturing Co v Tungsten Electric Co Ltd (1955), Lord Tucker clarified that if the promise was explicitly linked to a specific event or situation, notice might not be required. The promisor can resume full rights once that event or situation ends. If it’s unclear when the suspension ends, reasonable notice is necessary.

Question 59

Can the promisor’s rights be extinguished completely in cases involving continuing obligations?

Answer 59

Yes, if the promisee cannot return to their original position, as noted in Emanual Ajayi v RT Briscoe (Nigeria) Ltd (1964), the promisor’s rights may be extinguished completely.

Question 60

What is the effect of promissory estoppel on one-off debts?

Answer 60

The effect is uncertain, as most cases involve continuing obligations. It’s unclear if promissory estoppel would merely suspend the creditor’s right to the full debt, allowing them to resume it later, or completely extinguish their right to the balance.

Question 61

What was Lord Denning’s view on applying promissory estoppel to one-off debts in D&C Builders v Rees?

Answer 61

While the case didn’t directly apply promissory estoppel due to the defendants’ inequitable conduct, Lord Denning suggested it could apply to a one-off debt if the debtor had acted equitably and the creditor’s promise to accept less was relied upon.

Question 62

How can we reconcile the principle in Foakes v Beer with the potential application of promissory estoppel to one-off debts?

Answer 62

A possible reconciliation is that promissory estoppel might suspend the creditor’s right to the balance, enabling them to resume it later with notice. However, in situations where the debtor cannot return to their original position or it would be inequitable for the creditor to retract their promise, the creditor’s right might be extinguished entirely.

Question 63

Why is the doctrine of promissory estoppel considered vague and controversial?

Answer 63

The doctrine lacks clear boundaries and creates uncertainty, especially regarding its application to one-off debts. This uncertainty makes it a topic for critical evaluation and essay questions that test understanding of its nuances and limitations.

Question 64

Summarize the key points to consider when assessing the applicability of promissory estoppel.

Answer 64

Has there been a clear promise to waive a legal right? Is the other party seeking to enforce the right that was promised to be waived? Did the promisee act in reliance on the promise, even if not detrimentally? Would it be inequitable for the promisor to go back on their promise?

Question 65

If the conditions for promissory estoppel are met, what determines whether it suspends or extinguishes the legal right?

Answer 65

In ongoing payments, the right is usually suspended and can be resumed with notice. The right to past payments is typically extinguished. For one-off debts, the position is uncertain, and fairness on the specific facts will likely determine the outcome.

Question 66

Why do solicitors often advise clients to plead promissory estoppel only as a last resort?

Answer 66

The scope of promissory estoppel is vague, and its application, particularly to one-off debts, is uncertain. This uncertainty makes it a less reliable legal argument compared to other, clearer legal principles.

Question 67

Can the principles in Foakes v Beer and Williams v Roffey Bros be reconciled?

Answer 67

It is difficult to fully reconcile them. Foakes v Beer strictly prohibits part payment as consideration for a debt waiver. Williams v Roffey Bros allows performance of an existing duty to be consideration for more money if it confers a practical benefit. Applying Williams v Roffey Bros to part payment would essentially nullify Foakes v Beer.

Question 68

What did the Court of Appeal say in Re Selectmove (1995) about extending Williams v Roffey Bros to part payment of debt?

Answer 68

The court acknowledged the argument’s merit but felt bound by precedent. They stated that extending Williams v Roffey Bros to part payment would essentially overrule Foakes v Beer, which only the House of Lords or Parliament could do.

Question 69

Did the Supreme Court address the relationship between Foakes v Beer and Williams v Roffey Bros in Rock Advertising Ltd v MWB Business Exchange Centres Ltd (2018)?

Answer 69

The Supreme Court did not definitively address the issue but suggested that a re-examination of Foakes v Beer would be necessary to resolve it. They felt such a decision should be made by an enlarged panel and in a case where it would be more than obiter.

Question 70

Explain the doctrine of privity of contract.

Answer 70

Privity of contract means that only parties to a contract have rights and obligations under it. Third parties cannot sue or be sued on a contract, even if it was intended to.

Question 71

What did the Supreme Court suggest regarding Foakes v Beer?

Answer 71

The Supreme Court did not definitively address the issue but suggested that a re-examination of Foakes v Beer would be necessary to resolve it. They felt such a decision should be made by an enlarged panel and in a case where it would be more than obiter.

Question 72

Explain the doctrine of privity of contract.

Answer 72

Privity of contract means that only parties to a contract have rights and obligations under it. Third parties cannot sue or be sued on a contract, even if it was intended to benefit them.

This is illustrated by Tweddle v Atkinson (1861), where the claimant couldn’t enforce a contract between his father and future father-in-law to give him money, despite being the intended beneficiary.

Question 73

What is the main exception to the doctrine of privity?

Answer 73

The main exception is the Contracts (Rights of Third Parties) Act 1999.

Question 74

What are the key provisions of the Contracts (Rights of Third Parties) Act 1999?

Answer 74

This Act allows a third party to enforce a contract term if:
* The contract expressly states they may.
* The term intends to benefit them, unless the parties clearly didn’t intend it to be enforceable by the third party.
The third party must be expressly identified in the contract, either by name, as a member of a class, or by a specific description.

Question 75

Give an example of how the Contracts (Rights of Third Parties) Act 1999 is applied in everyday situations.

Answer 75

Gift receipts are an example. If you buy a gift for someone and get a gift receipt, you are giving that person direct contractual rights. If there’s a problem with the gift, they can return it to the shop and seek a remedy directly.

Question 76

Define agency.

Answer 76

Agency is a relationship where one person (the agent) acts on behalf of another (the principal) and has the power to legally bind the principal in dealings with third parties.

Question 77

Provide some examples of agents.

Answer 77

Agents include travel agents, insurance brokers, ticket agents, shop assistants, and auctioneers.

It’s important to note that the term ‘agent’ is sometimes used loosely in commercial contexts, and not all those labeled ‘agents’ have the legal authority to bind their principals.

Question 78

How is agency created?

Answer 78

Agency is generally created through:
* Express appointment: The principal explicitly grants the agent authority to act on their behalf.
* Implied authority: The agent’s authority is implied by the nature of their role or the tasks they are expected to perform.

Question 79

Distinguish between actual authority and apparent authority in agency.

Answer 79

Actual authority is given directly by the principal to the agent, either expressly or impliedly. Apparent authority arises when the principal’s actions lead a third party to reasonably believe the agent has authority, even if they don’t.

Question 80

What are the conditions necessary for apparent authority to arise?

Answer 80

The conditions are:
* The principal must represent, through words or conduct, that the agent has authority.
* The third party must rely on this representation and believe the agent is authorized.
* The third party must alter their position based on this reliance, such as by entering into a contract.

Question 81

Provide an example illustrating the concept of apparent authority.

Answer 81

Paul appoints Abba Ltd as his agent to sell rocking horses for at least £500 each. Paul refers a customer, Nigel, to Abba Ltd. Abba Ltd sells Nigel a rocking horse for £400.

Paul is bound by the contract because he created the impression that Abba Ltd had authority to sell, and Nigel relied on that representation.

Question 82

What are the effects of agency when an agent acts within their authority?

Answer 82

If an authorized agent contracts with a third party, the contract is between the principal and the third party. The agent has no personal rights or obligations under the contract.

Question 83

What are the implications of an unauthorized agent entering a contract?

Answer 83

If an agent acts without authority, the principal is not bound by the contract. The third party cannot sue the principal or the agent on the contract.