Doctrine of Privity & Agency

Question 1

Basis of Doctrine of Privity

Answer 1

The basis of the doctrine is that only parties to the contract can acquire rights and be subject to liabilities under it.

Question 2

Contracts (Rights of Third Parties) Act 1999

Answer 2

Section 1 of the Act allows a third party to enforce a contract term if either:
▪ the contract expressly provides that he may, or
▪ the term purports to confer a benefit on him (unless it appears that the parties did not intend the term to be enforceable by the third party).

In either case, the third party must be identified by name, as a member of a class (eg ‘employees’) or answering to a particular description.
The contract was expressly entered into for her benefit.

Question 3

Agency

Answer 3

Agency is the relationship which arises where one person (the agent) acts on behalf of another (the principal), and has power to affect the principal’s legal position with regard to a third party.

Question 4

Agency - express authority

Answer 4

ie the principal will expressly appoint someone to act as his agent to do specific thing(s). When agency arises in this way the agent is said to have actual authority to do the specific thing(s), but no more or less.

Question 5

Ostensible or apparent authority

Answer 5

This arises where the principal has given the distinct but false impression that the agent has authority to enter into a particular contract.
Such authority is said to arise by estoppel, ie the principal will be estopped from denying that the agent has authority.

Question 6

3 conditions for an agency by estoppel to arise

Answer 6

At some stage the principal must have represented (by words or conduct) that the agent had authority;

▪ the third party must rely on this representation believing that the agent had authority; and

▪ the third party must alter his position, eg by entering into contract.

Question 7

If agent purported to contract on another’s behalf but did not have authority..

Answer 7

▪ the principal cannot sue the third party or be sued by the third party (because the agent did not have authority to bind the principal);

▪ the third party may sue the agent in deceit, where the agent knew he had no authority, or for breach of implied warranty of authority (eg, where the agent’s authority had been terminated without his knowledge).
But note that the agent cannot sue or be sued for breach of contract as he had purported to contract on another’s behalf (as opposed to his own behalf). The third party never thought he had a contract with the agent.

Question 8

Ratification

Answer 8

Ratification arises where the agency was disclosed at the time of the contract, but the agent did not have express or ostensible authority; in which case provided certain conditions are satisfied the principal may give his retrospective authority to it.

Ratification must be of the whole contract.
The principal must have been competent at the time of the contract and the contract was not void.
The principal must ratify within a reasonable time and be aware of all material facts.

Ratification validates the unauthorized acts of the agent, and back-dates the authority - it’s as if the agent had been properly authorized all along. But there are some restrictions on the operation of the doctrine