Privity of Contract and Rights of Third Parties Flashcards
What is the doctrine of privity of contract?
A third party cannot be liable for a contract made by others.
Which one does not allow a third party to acquire rights in respect of a contract:
a) Agency
b) Assignment
c) Collateral Contracts
d) Implied Terms
d) Implied Terms
What is a collateral contract?
A separate contract in addition to a main contract, that is identified between the promisor and the third party. It has the effect of making the third party a direct party to an agreement.
A promisee can recover damages for the loss of third parties in respect of a contract of convenience. True or false?
True
Can The Contracts (Rights of Third Parties) Act 1999 override the doctrine of privity?
Yes
What are the two requirements for The Contracts (Rights of Third Parties) Act 1999 to apply?
1) the contract must expressly state that the third party may enforce a term in the contract; or
2) a term in the contract must purport to confer a benefit on the third parties, and no other provisions in the contract show that the parties to the contract did not intend for the term to be enforceable by the third party.
Graham is the tenant of a shop and his lease is with his landlord, PropertyCo. Graham no longer wishes to run the shop so assigns his lease to Margaret and he provides a guarantee to PropertyCo that the new tenant will pay the rent under the lease. Margaret enters into a separate agreement with PropertyCo that limits
Margaret’s liability under the lease to £5,000, and also limits the liability of ‘any previous tenant on a guarantee in respect of the lease to £5,000. Margaret fails to pay £10,000 rent under the lease.
Is PropertyCo entitled to claim the £10,000 from Graham under the guarantee?
No. PropertyCo’s claim is limited to €5,000. Graham is entitled to rely on the clause in the agreement between Margaret and PropertyCo that limits his liability to €5,000 under the guarantee. This is because Graham clearly falls within the description of ‘any previous tenant’ and so the CRTPA 1999 is effective to override the doctrine of privity of contract.
What is an assignment?
A person who has rights under an agreement may transfer (assign) his rights to a third party.
What is the law of agency?
Allows an agreement to be made by one party on behalf of another.
A manufacturer agrees to sell chairs to a dealer at a discounted price on the condition that the dealer will not sell the chairs at less than the fixed price, and that the dealer will require any person to whom it sells the chairs not to sell them at less than the fixed price. The dealer sells the chairs to a discounter in a contract that
requires the discounter not to sell at below a fixed price. But the discounter sells the chairs at below the fixed price.
Which of the following best describes the manufacturer’s rights against the discounter?
A. The manufacturer can force the discounter not to sell at a lower price than the fixed price. This is because the manufacturer has a direct contract with the discounter that was made by the dealer, acting as the manufacturer’s agent.
B. The manufacturer can force the discounter not to sell at a lower price than the fixed price. This is because the manufacturer has a direct collateral contract with the discounter.
C. The manufacturer can force the discounter not to sell at lower than the fixed price because English statute law gives third parties rights to enforce contract terms in their favour, unless such rights are excluded.
D. The manufacturer cannot force the discounter not to sell at a lower price than the fixed price. This is because although English statute law can give rights to third parties, provided it is not excluded, the required criteria for third party rights to apply have not been satisfied.
E. The manufacturer cannot force the discounter not to sell at lower than the fixed price. This is because English statute law requires a third party who seeks to rely on statutory third party rights to provide consideration, and the manufacturer has not provided any consideration.
D. The manufacturer cannot force the discounter not to sell at a lower price than the fixed price. This is because although English statute law can give rights to third parties, provided it is not excluded, the required criteria for third party rights to apply have not been satisfied.
A man hired a woman to refurbish his bathroom. The woman’s performance was defective and, as a result, the woman was liable to the man. However, the woman sold her business to a company on terms whereby the company agreed to ‘complete outstanding orders taking into account any deposits paid by customers as at 31
March 2021 and to pay in the normal course of time any liabilities properly incurred by the woman as at 31 March 2021’.
Which of the following best describes the man’s rights against the company?
A. The man can claim against the company under statute because his claim falls within the definition of ‘liabilities’ in the contract between the woman and the company.
B. The man can claim against the company under statute because there are no provisions in the agreement to show that the contract was not to be enforceable by a third party.
C. The man cannot claim against the company under statute because he is not expressly identified in the contract between the woman and the company.
D. The man cannot claim against the company under statute because he has not provided consideration to the company as consideration for being able to claim.
E. The man cannot claim against the company under statute because the contract between the woman and the company must expressly incorporate any statute that gives third parties rights in respect of contracts to which they are not parties.
C. The man cannot claim against the company under statute because he is not expressly identified in the contract between the woman and the company.
A developer owns an office building and hires a decorating company to paint the building. The developer has seen an advertisement from a paint manufacturer that promises that its paint is so good that it will last for ten years. So the developer instructs the decorating company to buy the paint manufacturer’s paint and to use it on
the office building. The decorating company buys the paint from the paint manufacturer in a contract that excludes the third party rights under English statute law. One week after the decorating company has painted the office building there is a rainstorm and the paint completely washes off the office building.
Which of the following best describes the property company’s rights against the paint company?
A. There is no basis on which the developer can claim against the paint manufacturer because there is no contract between the developer and the paint manufacturer.
B. Although there is an exception to the doctrine of privity of contract that would allow the decorating company to claim for the developer’s loss on the grounds that this is a contract of convenience, this exception only applies where the decorating company has suffered a loss and there is nothing in the scenario to show that the decorating company has suffered a loss.
C. The developer can claim against the paint manufacturer on the basis of a collateral contract between the developer and the paint manufacturer.
D. The developer can claim against the paint manufacturer on the grounds that the decorating company acted as the developer’s agent so that there is a direct contract between the developer and the paint manufacturer.
E. The decorating company can claim against the paint manufacturer as trustee for the developer and the decorating company will be bound to hold any damages recovered from the paint manufacturer on trust for the developer.
C. The developer can claim against the paint manufacturer on the basis of a collateral contract between the developer and the paint manufacturer.
A mother books a meal in a restaurant for herself, her husband, and her six children to celebrate the mother’s birthday. All eight of them went for the meal at the restaurant. The food at the restaurant was of such poor quality that none of the group could eat it. In addition, the service was poor, and all who attended were sick with
food poisoning after the meal. The bill was £200.
Which of the following best describes the mother’s right to claim for damages against the restaurant?
A. The mother can only claim for her loss because a claimant cannot recover more than the amount required to compensate his loss.
B. The mother can claim as trustee for the children and her husband.
C. The mother can only claim for her loss because the rule of privity of contract provides that a party to contract cannot sue and recover for the loss of a third party, and the husband and children are third parties in this scenario.
D. The mother can claim damages for herself, her husband and her children under an exception to the rule of privity of contract because this is a contract of convenience.
E. The mother can only claim for herself because she provided consideration, but her husband and the children did not.
D. The mother can claim damages for herself, her husband and her children under an exception to the rule of privity of contract because this is a contract of convenience.
A developer is in the process of developing some land. The land is contaminated so she makes a contract with a cleaning company to decontaminate the land. The contract excludes the statutory third party rights. The developer tells the cleaning company that she plans to sell the land to another party as soon as the
decontamination process is complete. The cleaning company performs the decontamination work. Next, the developer sells the land to a builder who subsequently finds that the land is contaminated because the cleaning company breached its agreement with the developer to effectively decontaminate the land.
Which of the following best describes the builder’s rights against the cleaning company?
A. The builder can claim for its loss if the developer is prepared to bring a claim against the cleaning company for the builder’s loss.
B. The builder can only claim for its loss through the developer if the developer has also suffered a loss, and there is no evidence in the scenario that the developer has suffered a loss.
C. Since the doctrine of privity of contract provides that a person who is not a party to a contract cannot acquire any rights under such a contract, the builder is unable to bring any claim directly or indirectly against the cleaning company.
D. The builder can claim directly against the cleaning company as a third party on the basis of statute.
E. The builder is entitled to ask the property developer to sue on its behalf in its capacity as trustee.
A. The builder can claim for its loss if the developer is prepared to bring a claim against the cleaning company for the builder’s loss.
