Contract - Unit 3 - Parties and Capacity Flashcards
What is privity of contract?
Means that, to sue on a promise, you must have given consideration for it (as a party to the contract)
Only parties to the contract can sue on the contract and additionally have rights and liabilities under it.
What happens if a contract was entered into on behalf of a third party?
The third party would not be allowed to sue on the contract as they weren’t a party to it (even though it was only entered for their benefit).
So the courts came up with Contracts (Rights of Third Parties) Act 1999 - so now they can acquire rights under the contract IF they are identified if a member of a class/agents.
What is an agent?
Principals (e.g. shopkeepers) hire agents (e.g. shop workers) to do work on their behalf.
The third party (customer) deals directly with the agent but the ultimate contract is between the third party (customer) and the principal (shopkeeper).
The agent just drops out of the picture.
What is an authorised agent?
Someone who is authorised to bind the Principal to a contract.
How can agency arise?
Main two ways are by express appointment or by estoppel.
All agents will have actual authority (express or implied) or apparent authority.
What is apparent authority?
Representation by the principal that the agent is authorised.
The third party relies on this representation and alters its position.
The principal will be estopped from denying the agent had authority.
What is the rule when it comes to the capacity of minors to enter into contracts?
Typically minors are not bound - general rule. (The other party is but not the minor).
A minor will be bound by a contract for necessaries - these are goods suitable to the minor’s social status and actual requirements (Doesn’t actually mean necessaries!)
A minor will also be bound by contracts of service that are in the main beneficial to them e.g. an apprenticeship.
Are people with mental incapacity bound?
Yes - contracts made with a person suffering from some form of mental incapacity are valid UNLESS:
- At the time of contracting, the person was incapable of understanding AND
- The other party knew that to be the case.
Then, the contract will be voidable.
What do you need to be to enter into a legally binding contract?
To enter into a contract, there has to be a legal person.
A company is a separate legal entity. (Directors act as agents for companies).
Unincorporated associations (such as clubs) are not competent contracting parties.
What are corporations?
This can include:
Registered companies - have to check the memorandum of association to see what type of contracts the company can enter into.
An ‘ultra vires’ contract is void/invalid.
HOWEVER,
Following Companies Act 2006, an ultra vires contract will bind the other party if the other party acted in good faith.
Always best to check to avoid relying on CA 2006.
