Formation: Parties & Capacity Flashcards
what is privity of contract?
Privity of contract is a legal principle that states that only the parties to a contract can enforce its terms, or be held liable for its obligations. This means that a third party cannot enforce a contract to which they are not a party (even if they are expected to benefit), unless in exceptional circumstances
give an example of privity of contract in action
Tweddle v Atkinson:
o A man was engaged to be married.
o His father and father in law made a contract between them that they would each give money to the man.
o Even though the contract expressly provided the man was to be given the money, the court held he could not enforce this.
what is one of the main exceptions to privity of contract?
Contracts (Rights of Third Parties) Act 1999
how can a third party acquire rights under Contracts (Rights of Third Parties) Act 1999?
Under this Act, a third party can acquire rights if:
o The contract expressly states that they may acquire a benefit; or
o The term purports to confer a benefit on them (unless upon true construction of the contract it was not intended that the term be enforceable by a third party)
what is necessary for a third party to enforce a right under Contracts (Rights of Third Parties) Act 1999? Give an example.
For a third party to enforce a term of a contract in their own right, they must be expressly identified i.e.:
o By name;
o By class (i.e. employees); or
o Fit a particular description
At Christmas time, shops will ask if you would like a gift receipt. This confers direct contractual rights onto the recipient who can then take them back to the shop and seek a remedy.
explain the role and power of an agent
An agent acts on behalf of someone, they have the power to change legal relations of the principal.
who is the principal?
The principal is the person whom the agency is acting on behalf of
give examples of agents
o Travel agents
o Insurance brokers
o Ticket agents
o Shop assistants
o Auctioneers
o Company directors
who is not an agent?
simply because someone’s title includes the word ‘agent’ does not mean they are one in the eyes of agency law. i.e.:
o Estate agents are not agents in the legal sense. They do not normally contract to sell property on behalf of the client, they advertise and facilitate a deal.
when can an agent bind the principal?
An agent can only bind someone if they have authority to do so.
The principal will not be bound if the agency had no actual or apparent authority
what is important to remember about agency law?
Contracts (Rights of Third Parties) Act 1999 does not apply to agency law.
This is because the contract for the sale of goods is between the principal and consumer, not the agent.
There is a contract of employment between the principal and agency.
There is no contract between the agent and third party.
what are the types of actual authority?
o Express actual authority
o Implied actual authority
what is express actual authority? Give an example.
When the principal tells the agent that they have the authority to take a certain action i.e. the agent is specifically told they can sell a product
what is implied actual authority?
When the authority is based on the agent’s reasonable understanding of the principal’s instructions i.e. things that would usually be expected by a seller of goods such as advertising and receiving payment for them
How can it usually be determined whether there was actual authority?
this will usually be specified in the contract, but you can also look at the circumstances and things said and done
Can an agent’s authority be revoked?
Yes
What is apparent authority also called?
ostensible authority
when will the agent have apparent authority to bind the principal?
o At some stage the principal must have represented (by words or conduct) that the agent had authority;
o The third party must rely on this representation, believing the agent has authority; and
o The third party must alter their position e.g. by entering into the contract
if the agent acts with apparent authority, what are the consequences?
The contract for sale is between the principle and third party, and so the principal is liable to perform the contract otherwise they will be in breach of contract. The agent is not liable to perform this contract.
However, the agent may be liable to the principal for breach of the agency agreement.
when considering whether an agent had apparent authority, what things might indicate the principal had authority?
- if the customer approached the principal directly to buy something and the principal refers them to the agent, but doesn’t specify any limitation on their authority
- if the agent held a senior position in the principal’s establishment
Give an example of implied actual authority
The manager of a pub (i.e. the agent) is the exclusive face of the business; his name is on the bar and the licence of the pub.
The owner (i.e. the principal) explicitly instructed the manager not to make any purchases outside of bottled ales and mineral waters, but the manager entered into an agreement for the purchase of cigars.
The agent (nor the principal) did not pay for these, and so the third party sued.
The court held that the principal had held the agent out to the world as having general authority by virtue of the fact he was a manager, and that they were therefore liable for the claim because of the implied authority thereby granted.
In other words, buying cigars is within the usual authority of pub managers and so the manager had implied actual authority to buy them
what is the general position in relation to minor’s entering into a contract?
minors are not bound by the contract they have entered, however the other party is bound and can be sued (where as the minor cannot be sued)
what is the exception to the general position in relation to minors entering into the contract?
if the contract is for necessaries, then the minor will be bound and the minor must pay a reasonable price
what are the types of contracts for necessaries?
There are two types of contracts for necessaries:
1. contracts for necessary goods and services
2. contracts of service for the minor’s benefit
what is the definition of ‘necessarie’? What does this mean in practice?
s3 sale of goods act = goods suitable to the condition in life of the minor and to his actual requirements at the time of the sale and delivery.
Therefore, necessaries includes essentials such as food, clothing but also consideration of the minor’s circumstances and things that are necessary at the time for them specifically.
what does ‘contracts of service for the minor’s benefit’ mean in effect?
The contract of service must be more favourable to the minor than the company
Explain the facts of the case relating to contracts for necessary goods and services
A tailor sued a minor whom he has supplied with 11 waistcoats. The court ruled that they were not necessary because the minor already had enough clothing and so the minor could not be sued for breach of contract.
what is an example of a contract that would not be a necessarie?
When Wayne Rooney, aged 15 years, was playing for Everton FC, he entered into a two-year contract with Proform to act as his agent. Before the end of the two years he terminated the contract. The court held he was entitled to do so as the contract with Proform (unlike the contract with Everton FC) was not a contract for necessaries.
what is an example of a contract of service for the minor’s benefit?
contracts of employment under which a minor gains training and experience (eg an apprenticeship) so long as the contract (as a whole) is more favourable to the minor
what types of contract are not contracts for necessaries? Give an example.
trading contracts i.e. a contract between a minor and a supplied would not be binding as this is not for necessaries
what is the general position in relation to mental incapacity and their ability to bind to a contract?
If a contract is made by someone who is drunk or suffering with a mental impairment, the contract will be binding UNLESS:
o At the time the contract was made the person was incapable of understanding; and
o The other party know that to be the case
if it transpires the person did not have the mental capacity to enter into the contract, what are the consequences?
the contract will be voidable (the contract is binding until the incapacitated person terminates it)
can corporations enter into contracts?
Yes, because they have SLP.
what are the main types of corporation?
o Registered companies
o Statutory corporations
o Limited liability partnerships
what happens if a club/group of people enter into a contract using an associations’ name? Why can they not contract in the associations name?
If the association does not have separate legal personality, they cannot contract in its name.
If part of the association contract in its name, the whole association is not bound, only the person who made the contract and anyone who authorised it can be sued.
when will a registered company / LLP be bound?
A company/LLP will be bound by any contract it enters, even if the directors/partners have acted beyond the powers of the company’s constitution.
The only exception to this is if the other party has not acted in good faith.
what is a statutory corporation and an example of one?
corporations created by statute i.e. local authorities
when is a statutory corporation bound?
Each statute will set out the purposes for which the corporation can enter into a contract. A statutory corporation will not be bound by a contract outside of its contracting ability set out in statute.
if a minor is suing a contracting party, do they need to wait until they are 18 to sue them?
No, they be sued immediately.
