Parties Flashcards
chapter 4
What is privity of contract?
The rule that only actual parties to a contract are bound by it and can have rights and obligations under it. Third parties cannot usually sue or be sued on a contract.
What is the main exception to the rule of privity of contract?
The Contracts (Rights of Third Parties) Act 1999 (C(RTP)A 1999). This act allows a third party to acquire rights if the contract expressly provides that they may acquire a benefit, or if the term purports to confer a benefit on them, unless it was not intended to be enforceable by the third party.
Under the C(RTP)A 1999, how must a third party be identified in a contract to enforce a term?
They must be expressly identified by name, as a member of a class, or as answering a particular description.
In the context of agency, what is a principal?
The person who gives an agent the ability or power to change their legal relations. An agent acts on behalf of the principal.
What is a third party in the context of agency?
Someone who is a third party to the relationship of agency between the principal and the agent. This third party is party to the contract with the principal.
What is actual authority in agency?
Authority given to an agent by the principal, either expressly (through words) or impliedly (through actions or circumstances).
What is apparent authority (also called ostensible authority) in agency?
Authority that an agent does not actually have but appears to a third party to have, because of the principal’s representation. This representation must have been relied upon by the third party. The appearance of authority must be created by the principal.
What are the three conditions for apparent authority to arise?
○ The principal must have represented that the agent had authority
○ The third party must rely on this representation, believing that the agent has authority
○ The third party must alter their position (e.g., by entering into a contract)
Does an authorized agent have rights or liabilities under the contract they make on behalf of the principal?
No, an authorized agent has no rights or obligations under the resulting contract; the contract is between the principal and the third party. The agent simply drops out.
If an agent exceeds their actual authority, but has apparent authority, who is bound by the contract?
The principal is bound to the contract with the third party. The agent is liable to the principal for breach of the agency agreement.
If a sales manager agrees to sell more cars than they have actual authority for, but a customer believes they have authority, is the car dealership bound by the agreement?
Yes, because the sales manager is likely to have apparent authority. The representation of authority came from the client by placing the manager in charge of the showroom.
If a pub manager is instructed not to buy cigars, but does so anyway, is the pub owner liable to the seller?
Yes, because buying cigars is within the usual authority of pub managers, so the manager had implied actual authority. The facts of the scenario are based on Watteau v Fenwick.
