Parties and capacity Flashcards
Quick Q:
A client went into a furniture shop and agreed to buy a new sofa for £1,000. The client intended it to be a house-warming for their daughter but did not mention this to the shop assistant. The shop delivered the sofa to the daughter but, after three months, the springs have broken in it meaning that the sofa is now very uncomfortable. The sofa cannot be repaired and, given this, the daughter wishes to return the sofa to the shop and claim a refund of the price.
Is the daughter entitled to return the sofa to the shop and claim a refund of the price?
B-No, because the contract for the sale of the sofa was made between the parent and the shop and the daughter cannot rely on it.
CORRECT ANSWER: B. Privity of contract means that only those party to a contract may, generally, sue on it or be sued on it: Tweddle v Atkinson.
A client is a sole trader making special occasion cakes to order. The client advertises the business on-line. Last week a potential customer (the Customer) rang the client and wanted to discuss options for a 60th birthday cake. The client was busy and asked the Customer to ring the client’s civil partner to discuss the details. The client’s partner agreed with the Customer exactly what was required and quoted a price of £80. The Customer accepted the offer. When the client found out what had been agreed the client was furious. The client’s partner is only authorised to liaise with potential customers and not to finalise deals. The client reckons a commercially realistic price for the particular cake would be £120.
Is the client bound by the contract with the Customer?
A-Yes, because the client would be estopped from denying their partner had authority.
B-Yes, because the Customer relied on the partner’s representation that the partner had authority.
C-No, because the client’s partner was not authorised to bind the client to a contract.
D-No, because the Customer should have checked the partner had authority.
E-No, because there is no mutuality of obligations: the client could not enforce the contract against the Customer.
Option A is correct. The partner had apparent authority. The client had given the false impression that the partner had authority and the Customer had relied on that representation.
Option B is wrong. The partner had apparent authority. For apparent authority the false representation as to authority must come from the principal, not the agent.
Option C is wrong as the partner had apparent authority.
Option D is wrong as there is no obligation to check.
Option E is wrong. With apparent authority the principal is estopped from denying authority if sued by the third-party but it does not give to a cause of action against the third-party.
A building company enters into a contract with the owner of a hotel to convert a stable on the hotel grounds into a squash court. The contract contains the following term:
“Neither the building company nor any of its employees will be liable to the hotel for any losses arising out of any faulty or negligent workmanship”
The building company employs an electrician. The electrician failed to install the lighting in the squash court with reasonable care and skill resulting in delays to the completion of the building work. This has caused the hotel to incur loss of profit. The hotel owner brings a claim directly against the electrician.
Which of the following best describes whether the electrician can rely on the term described above?
A-The electrician cannot rely on the term because he has no contract with the hotel owner.
B-The electrician cannot rely on the term because he is not a party to the contract between the hotel owner and the building company.
C-The electrician cannot rely on the term because it does not expressly refer to him by name.
D-The electrician can rely on the term because, by virtue of being an employee of the building company, he is a party to the contract.
E-The electrician can rely on the term because he falls within the class of people upon whom the term confers a benefit.
Option E is correct. While the electrician is not himself a party to the contract between the building company and the hotel owner, the Contracts (Rights of Third Parties) Act 1999 provides that a third party (the electrician) can enforce a contract term (the exclusion clause) if that term expressly provides that he may or confers a benefit on him. The third party can be identified as a member of a class (in this case, the employees of the building company).
Option A is not the best answer. While it is correct to say that the electrician does not have a contract with the hotel owner, this does not mean that the electrician cannot rely on the exclusion clause in the contract between the building company and the hotel owner.
Option B is not the best answer. Again, it is correct to say that the electrician is not a party to the contract between the building company and the hotel owner, but he can nevertheless rely on the exclusion clause within that contract given the operation of the 1999 Act.
Option C is wrong. If a third party can be identified by name, as a member of a class or by answering to a particular description, then that third party can rely on a term in a contract to which he is not a party.
Option D is wrong. A company has separate legal personality from its employees. Only the building company (together with the hotel owner) is a party to the relevant contract.
A client owns a business which makes bespoke wooden furniture including rocking chairs. The Sales Manager has authority to sell rocking chairs for at least £2,500, but cannot agree to sell them for less without first getting approval from the client. Last week, the Sales Manager agreed to sell a rocking chair to a valued customer for £2,400 with delivery agreed to be made next week. The client has just been informed of the transaction.
Which of the following statements best describes whether the client will be in breach of contract if it does not perform the contract?
A-Yes, because the client represented to the customer that the Sales Manager had authority to enter the contract.
B-No, because the contract has not yet been completed and can be revoked.
C-Yes, because the Sales Manager had actual authority to enter the contract.
D-No, because the Sales Manager did not have authority to enter the contract.
E-Yes, because the Sales Manager represented to the customer that he had authority to enter the contract.
The correct option is A. The Sales Manager (SM) is likely to have apparent authority to act as the client’s agent. There is a representation that the client (as principal) has made to the customer that the SM had authority to agree to sell furniture at any agreed price. It is likely this is created by the SM being in charge at the showroom and the customer having made previous purchases there. The customer has relied on this representation believing the SM had authority to enter the contract and the customer has altered his position by entering in to the contract to buy the cars.
It must be the principal who makes the representation, not the agent, so E is wrong.
D is wrong as apparent authority is likely to exist here and C is wrong as the actual authority to sell this number of cars has not been given to the SM on the facts.
B is wrong as the contract is already formed so the client will be in breach if the client does not perform it.
A client owns a gin bar and employs someone to manage it. The manager is the exclusive face of the business; his name is on the bar and the licence of the premises. The client explicitly instructed the manager not to make any purchases outside of bottled gins and tonic waters, but the manager contracted to buy a consignment of packet of nuts and in the event did not pay for them. The seller of the nuts discovered the client is the actual owner of the business and is suing the client for the price.
Which of the following statements best describes whether the client will be liable to the seller?
A-Yes, because the manager had apparent/ostensible authority to buy the nuts.
B-No, because the agent had deliberately acted outside his express authority.
C-Yes, because the manager represented he had authority and the seller relied on that representation and entered into the contract.
D-No, because the manager had neither actual (express or implied) nor apparent authority to buy the nuts.
E-Yes, because the manager had implied actual authority as buying packaged nuts is within the range of acts usually carried out by a bar manager.
The correct statement is E. Buying nuts is within the usual authority of bar managers and so the manager had implied actual authority to buy them. The facts of the scenario are based on Watteau v Fenwick [1893] 1 QB 346.
A is wrong because there was no holding out by the client as principal. The seller was unaware of the principal at the time of the sale.
C is wrong because there was no representation of authority by the agent and for apparent authority the representation must come from the principal.
D is wrong because the agent had implied actual authority.
B is wrong because it is irrelevant whether or not the agent deliberately acted outside his authority.
A woman has booked a cruise for herself, her son and his partner. She has booked with a company on their five-star rated ship which promises luxurious accommodation, fine dining and bespoke tours of famous cities for individual guests which have to be booked and paid for in addition to the cost of the cruise. The holiday was a disaster; the cabins were cramped, the son got food poisoning and the tours the partner went on were for large groups of up to 30 people which was very disappointing.
Which of the following best describes what the woman may recover from the company?
A-She can claim damages for one-third of the cost of the holiday.
B-She can claim damages for the full cost of the holiday for all three of them excluding the cost of the tours.
C-She can claim damages for the full cost of the holiday for all three of them including the cost of the tours.
D-She can claim damages for herself and her son, but not her son’s partner.
E-She can only claim damages for the illness suffered by her son.
Option C is correct. The doctrine of privity states that only parties to a contract may sue or be sued upon it. If this rule were applied the woman would be the only party to the contract with the company. The decision of Jarvis v Swan Tours (1972) allowed for recovery of damages for distress and disappointment in the context of contracts that provide pleasure (such as holidays). The principle was widened in Jackson v Horizon Holidays (1975) where the claimant was able to recover damages for distress for himself and other members of his family. Where a contract with the object of leisure and enjoyment is made by one party on behalf of a group, the party to the contract can claim on the group’s behalf.
All the other options are wrong. As the woman booked the holiday, she can claim all losses arising out of that booking.
Quick Q:
In November a boy aged 17 years, who looks at least 20 years old, bought a warm padded winter jacket from a local retail shop. The boy already owned two lightweight jackets which he had worn in the spring and summer.
Will the boy be bound by the contract with the shop?
B-Yes, because the boy needed the jacket for the cold weather.
Option B is correct. The jacket would be a necessary and minors are bound by contracts for necessaries.
Quick Q:
A client, the owner of a small off-licence business, recently sold two bottles of whisky to an elderly customer (the Customer) for a total price of £60. Yesterday the Customer’s daughter went to the client’s off-licence and demanded the client take back the whisky and refund the price. Unbeknown to the client the Customer has dementia and apparently does not remember buying the whisky. The daughter says she only realised when and where the client had bought it when she saw the receipt.
Which of the following best explains the legal position?
D- The contract would be binding as the client was unaware the Customer has dementia.
Option D is correct.
When a contract is made with a person who lacks mental capacity and the other party is aware of it the contract will be voidable, not void. Here the client was unaware the Customer had dementia. This explains why options A. B and C are wrong.
Option E is wrong as there is no obligation to check.
Quick Q:
A client went for lunch at the nearest pub to their office and intended to have just one half-pint of beer with their food before returning to work. Whilst in the pub, the client saw a friend they had not seen for some years and a long conversation ensued, during which the client drank six pints of beer. After two hours, the client walked back to their office but stopped at a shop selling computers and bought an expensive new computer. The client says they have no recollection at all of this transaction but the shop has telephoned them to arrange delivery. The shop assistant confirms the client was slurring their speech and their walk was staggered but the assistant had been keen to sell the computer.
Is there a valid contract with the client for the sale of the computer?
A-No, because the client was drunk at the time the contract was made and the shop assistant knew that.
CORRECT ANSWER: A. If a contracting party has consumed so much alcohol on the facts that their mind was impaired by it, and if the other party knew of this, there is no contract. This also explains why Option D is wrong.
A client owns a car dealership and sells high value, nearly new cars to business customers looking to purchase company cars. The Sales Manager can agree to sell a maximum of three cars in any transaction. Any larger transaction must first be approved by the Finance Officer. Last week, the Sales Manager agreed to sell five sports cars to a valued customer with delivery agreed to be made next week. The client has now been informed of the transaction by the Finance Officer, who found out about it yesterday and had not approved it.
Which of the following statements best describes whether the client will be in breach of contract if they do not perform the contract?
A-No, because the Sales Manager did not have authority to enter the contract.
B-No, because the contract has not yet been completed and can be revoked.
C-Yes, because the Sales Manager had actual authority to enter the contract.
D-Yes, because the client represented to the customer that the Sales Manager had authority to enter the contract.
E-Yes, because the Sales Manager represented to the customer that he had authority to enter the contract.
The correct option is D. The Sales Manager (SM) is likely to have apparent authority to act as the client’s agent. There is a representation that the client (as principal) has made to the customer that the SM had authority to agree the sale of the five cars. It is likely this is created by the SM being in charge at the showroom and the customer having made previous purchases there. The customer has relied on this representation believing the SM had authority to enter the contract and the customer has altered his position by entering in to the contract to buy the cars.
It must be the principal who makes the representation, not the agent, so E is wrong.
A is wrong as apparent authority is likely to exist here and C is wrong as the actual authority to sell this number of cars has not been given to the SM on the facts.
B is wrong as the contract is already formed so the client will be in breach if the client does not perform it.
Quick Q:
A client, a wholesaler of plumbing appliances, recently offered to supply and deliver a consignment of taps to a company for £8,000 +VAT. The client said it would keep the offer open for a week. The next day the company’s Procurement Manager replied saying that if the client had not heard from the company by 5 p.m. the next day the client was to assume they had a deal. The client did not hear from the company but when the client delivered the taps the company refused to accept them on the basis the Procurement Manager was newly appointed and had no actual express authority to agree deals without approval from one of the company’s directors.
Would the company be liable for breach of contract?
A-Yes, because the Procurement Manager had apparent authority and had bound the company to the deal by silence.
Option A is correct. The company(principal) would no doubt be deemed to have represented the Procurement Manager as having authority and the client relied on that false representation by entering the contract: in other words, the Procurement Manager had apparent/ostensible (stated or appearing to be true, but not necessarily so) authority. Also obiter in Re Selectmove (C of A) suggests that a party can bind itself to a contract by silence.
Quick Q:
A commercial client makes bespoke wooden sculptures for outdoor spaces. The client’s business is expanding. The client is considering appointing a sales agent so that the client can focus on creating the sculptures rather than have to be concerned with marketing and negotiating deals as well. The client appreciates there are some risks in appointing an agent and wants advice on the circumstances in which the client might become bound to a deal made by an agent on its behalf.
Which one of the following options most accurately explains the legal position?
E-If an agent has authority to enter a contract the agent will have no rights and liabilities under it: the contract will be between the client and the buyer.
The correct option is E.
E-If an agent has authority to enter a contract the agent will have no rights and liabilities under it: the contract will be between the client and the buyer.
Quick Q:
A boy aged 14 enters into a contract with a woman aged 25.
Which of the following statements best describes whether the contract is enforceable?
E-As the boy is under the age of 18, as a general rule he will not bound by contracts he enters into. The woman is bound and can be sued.
Option E is correct. The basic common law principle is that minors (people under the age of 18) are not bound by contracts they have entered into – the other party is bound and can be sued.
Quick Q:
Would you sue individual people in a company or the company itself?
As a limited company, the Company is a corporation registered under the Companies Act 2006.
As a registered corporation, the Company is treated by law as a separate legal entity in its own right, i.e. it is an independent legal person, separate from its directors and shareholders, with its own rights and obligations. The Company itself, not the board of directors nor the Productions Director, is therefore the party to the contract made with the seller. The board and the Productions Director are merely agents acting on the Company’s behalf.
A father and a mother divorced each other many years ago. Their relationship continues to be strained and acrimonious. The father and mother enter into a written agreement in which they each agree to pay £7,500 a year to their only daughter. The money is to fund her university education. The mother and the father agree to pay the money each year for the next three years. There are no other relevant terms in the contract.
Which of the follow best describes whether the daughter has acquired rights under the agreement?
A-The daughter has not acquired any rights under the agreement because it is not a legally binding contract.
B-The daughter has not acquired any rights under the agreement because she is not a party to the agreement.
C-The daughter has not acquired any rights under the agreement because she has not provided any consideration for the promises to pay the money to her.
D-The daughter has acquired rights under the agreement because her parents intended the agreement to benefit her.
E-The daughter has acquired rights under the agreement because the agreement expressly provides that she will acquire a benefit.
Option E is the best answer. Under the Contracts (Rights of Third Parties) Act 1999 (CRTPA) a third party can acquire rights under a contract if the contract expressly provides that they may acquire a benefit. The third party must be expressly identified by name or as a member of a class or by answering a particular description. As the agreement provides that the money is to be paid directly to the daughter then she will be identified in the contract and thereby acquire rights under it. There are no other relevant terms in the contract, so the CRTPA has not been expressly excluded. Option D is, therefore, not the best answer because it would not be enough for the parents to simply intend to benefit the daughter; she must be identified in the contract.
Option A is wrong. Although there is a presumption that in a domestic situation there is no intention for an agreement to be legally binding, there is likely to be sufficient evidence to rebut the presumption. Relevant facts include that the parties are no longer married, their relationship is strained, and they have entered into a written agreement which involves a considerable sum of money.
Options B and C are wrong because, although the daughter is not a party to the contract and has provided no consideration for the promises, under the CRTPA it is possible for a third party to acquire rights under a contract.
