Contract 4 - Privity of Contract

Question 1

What is the doctrine of privity of contract?

Answer 1

Only parties to a contract can sue and be sued under it

Question 2

How does the Contracts (Rights of Third Parties) Act 1999 relate to privity of contract?

Answer 2

A third party has a right to enforce a term if:

1. Contract expressly provides they can
2. Contract gives them a benefit and the parties intended the term to be enforceable
3. Third party must be expressly named / can be member of benefitting class

Question 3

What are the exclusions from CRTPA 1999

Answer 3

Does not apply to employment contracts or Articles of Association or if it specifically states CRTPA doesn’t apply

Question 4

How does variation and rescission of a contract relate to privity?

Answer 4

Parties cannot agree to change contract to the detriment of a third party without consent if:

1. Third party communicated agreement to the term benefitting
2. Relied on term of contract and promisor aware of reliance
3. Promisor foreseen third party would rely on it

Question 5

What are the common law exceptions to privity?

Answer 5

1. Agency
2. Assignment
3. Subrogation
4. Collateral contracts
5. Trusts

Question 6

What is the common law exception of Agency?

Answer 6

‘Principal’ authorises ‘agent’ to negotiate and enter into contract on their behalf

If third party is unaware of existence of principal - agent and principal can sue or be sued

Question 7

What is the common law exception of Assignment?

Answer 7

1. A contractual right or interest transferred to third person outside terms of contract
2. Can only transfer benefit, not burden
3. Notice must be given

Question 8

What is a novation agreement?

Answer 8

If party assigns obligations and benefit to third party = novation agreement between new parties releasing previous party

Question 9

What is the common law exception of Subrogation?

Answer 9

Insurance and debt claims

Insurer or guarantor stands in shoes of policyholder and has same rights against person responsible for loss

Question 10

How do collateral contracts work in privity?

Answer 10

If there is a collateral contract between promisor and third party running alongside main contract - third party can be sued in main contract

Question 11

How do trusts work in relation to privity?

Answer 11

‘A’ makes a promise to ‘B’ for benefit of ‘C’. The court finds that ‘B’ holds ‘A’ promise on trust for ‘C’. ‘C’ can enforce promise directly against ‘A’

Has to have an irrevocable intention to benefit third party