Privity of Contract & Rights of Third Parties Flashcards
What is the doctrine of privity of contract?
Common law principle that no person can sue or be sued under a contract unless they are party to it. Closely related to the rule that there must also be consideration.
Common law methods of circumventing doctrine of privity
Agency (principal should be named and it should be clear that agent is acting on their behalf, agent should be authorised and provide consideration). Once contract concluded, agent no longer relevant.
Assignment (B passes their benefit under the contract to C, C’s rights can never exceed those of B). Can prohibit assignment in main contract.
Collateral Contract = where promisor and third party communicate + consideration for bargain.
Action in tort = e.g Donoghue v Stevenson
Special treated contracts = e.g loss of pleasure holiday in Woodar v Wimpey.
What does the Contracts (Rights of Third Parties) Act 1999 provide?
Allows a third party, in limited circumstances, to enforce a term of a contract to which they are not a party.
NO NEED for third party to provide consideration.
DOES NOT allow a contract term to be enforced AGAINST a third party.
Does not include employment law contracts or contracts between companies and shareholders, which remain governed by common law above.
No req for third party to be in existence at time of contract, e.g unborn child, member of particular class or description.
Third party must not be placed in better position than if party had been subject to contract themselves.
When does the C (ROTP)A 1999 apply?
s.1(1)(a) - where the contract specifically provides that a third party can enforce a term under the contract.
s.1(1)(b) & 1(2) - where it is not specifically stated in the contract BUT the agreement purports to confer a benefit on a third party + there is not evidence to suggest the contracting parties “did not intend the term to be enforceable by the third party”. Creates rebuttable presumption of enforceability. D would then have to show no intention to allow 3rd party to enforce, e.g by express exclusion clause.
What rights does the 3rd party have?
Where a third party has a right under s1 to enforce a term, parties to the contract may not rescind the contract by agreement or vary it to extinguish this right without the third party’s consent if:
(a) third party communicated assent to term to promisor; or
(b) promisor aware 3rd party has relied on term; or
(c) promisor could have been reasonably expected to foresee that third party would rely on term.
Assent may be by words / conduct but if by post, not effective until received by promisor.
Defeating Third Party Rights
Contracting parties could allow variation or rescission by express term in contract.
Court can dispense with third party’s consent where their whereabouts cannot be reasonably ascertained, where they are mentally incapable of giving consent or where reliance on a term cannot be reasonably ascertained.
Promisor’s defences against third party are the same as those against promisee.
