Privity Of Contract Flashcards
What is the general rule of privity of contract?
That only people who are parties to contracts can sue or be sued under that contract and those parties must have provided consideration
What is an exception to privity of contract?
Agency - when a principal (company) authorises an agent to contract on their behalf with a third party (the customer)
What is the rule within agency?
As long as the agent acts within the authority granted by the principal, the principal is bound by any contract the agent enters into. So a contract is created between the principal and the person the agent deals with (the third party)
There is no contractual relationship with the agent
What is the rule within agency?
That as long as the agent acts within the authority granted by the principal, the principal is bound by any contract the agent enters into.
A contract is therefore formed between the principal and the third party that the agent deals with
There is NO contractual relationship with the agent
What types of authority can the agent get from the principal?
Actual authority:
Express - written down
Or Implied (acts usually done in that business or trade)
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Or apparent authority if they don’t have actual authority because the principal has fired them, died or the agent had exceeded their authority But the customer has reasonable grounds to believe the agent has authority and enters the contract on that basis. The contract will be valid between the principal and the customer (NOT THE AGENT)
What is a collateral contract?
It’s formed between one party of a contract and a third party outside of that contract where the third party gives a promise that the party relies on and enters into the contact with the other party, for which the third party has got a benefit
You can sue the third party but not the main party of the contract
What is assignment of contractual rights?
When one party assigns their contractual rights to another. This means the assignee can then sue under the contract, even though they are not originally a party under it.
Therefore if
A is party to a contact with B
B assigns their rights under the contract to C
C may sue A on the original promise given to B
What does the Contracts (Rights of Third Parties) Act 1999 do?
This act allows a third party to enforce the terms of a contract to which they are not a party
Can the Contracts (Rights of Third Parties) Act 1999 be expressly excluded in a contract?
Yes, which would mean it doesn’t operate
What are the two circumstances where the Contracts (Rights of Third Parties) Act 1999 can arise?
1) the contract expressly provides that a third party may enforce the terms of the contract OR
2) the contract:
a. Purports to ‘confer a benefit’ on the third party : meaning one of the purposes of the contract must be to benefit the third party AND
b. The parties intended the term to be enforceable by the third party. This is presumed if the contract confers a benefit on a third party, but the presumption is rebuttable (by being expressly excluded for example)
What is the requirement after situation 1 or 2 for applying the Contracts (Rights of Third Parties) Act 1999?
The third party must be able to be expressly identified in the contract, meaning it must be absolutely clear who they are whether by name, class or description
Can the Contracts (Rights of Third Parties) Act 1999 apply to exemption clauses and what does this mean?
Yes it can apply to exemption clauses, meaning a third party can rely on an exemption clause if they are expressly names or part of a class identified in the contract. This means a third party trader could avoid liability if he is covered in the contract
What are the four steps to approaching an MCQ involving the Contracts (Rights of Third Parties) Act 1999?
1) is the third party expressly identifiable in the context? Does the contract name him, identify a class he is in or if they answer to a particular description
2) does the contract expressly provide that they may enforce the terms? If not
3) does the contract purport to confer a benefit on them? If so
4) can the presumption that the parties intended the term to be enforceable by that third party? If not, then the Act applies and the third party can claim a benefit under the contract
