Parties & Capacity

Question 1

What is privity of contract?

Answer 1

Only the actual parties to a contract are bound to it

Question 2

In what circumstances can a third party acquire rights in a contract?

Answer 2

1. Contract expressly provided they may acquire a benefit
2. Term purports to confer a benefit on them

For third parties to enforce a term of a contract, they must be expressly identified by name / member of a class

Question 3

What constitutes an agent?

Answer 3

A person who has the ability or power to change the legal relations of the person for whom they’re an agent

Question 4

When can an agent bind someone to an agreement?

Answer 4

When they have actual authority to do so

Question 5

What are the two types of actual authority?

Answer 5

Express authority
Implied authority

Question 6

Can an agent ever bind someone to a contract if they did not have actual authority?

Answer 6

Yes, if they had apparent authority

Question 7

What are the 3 conditions which must be satisfied in order for an agent to have apparent authority?

Answer 7

1. Principal (i.e. person agent represents) must have at some time represented that the agent had authority
2. Third party must rely on this representation believing that the agent has authority
3. Third party must alter their position e.g. by entering into a contract

Question 8

What is the basic common law principle regarding a minor’s capacity to enter into a contract?

Answer 8

They are not bound, however other part is bound and can be sued

Question 9

What are the exceptions to the principle regarding a minor’s capacity?

Answer 9

1. Contracts for “necessaries” bind minors

E.g. supply of goods and services, contracts of service for a minor’s benefit

2. Contracts of service that are on the whole beneficial

E.g. employment contracts granting training and experience

Question 10

What is a trading contract deemed to be?

Answer 10

NOT a contract for necessity - therefore would not bind a minor

Question 11

If someone is drunk or mentally impaired when entering in a contract, is it valid?

Answer 11

Yes, unless at the time the contract was made the person was incapable of understanding the nature of the transaction and the other party knew that to be the case

Question 12

If someone is lacking capacity but it is not clear (e.g. dementia), and the other party is not aware, is the contract binding?

Answer 12

No - only voidable is the other party is aware that the party is lacking capacity