u3. Privity of Contact

Question 1

What is privity of Contract?

Answer 1

There is a general rule that a person who is not a part to a contract cannot acquire any rights under that contract or be subject to its burdens.

However, there are Statutory and Common Law Exceptions that apply.

Question 2

What is the affect of the Contracts (Rights of Third Parties Act)

Answer 2

The Contract (Rights of Third Parties) Act allows for people not party to a contract to:

1. Enforce Remedies for breach of contract; and
2. rely on a clause limiting or excluding his liability

IF ONE OF 2 GROUNDS IS MET…

Question 3

What are the 2 grounds that can allow for a third party to rely on a contract?

Answer 3

1 of 2 grounds must be met:

1. The Contract must expressly state that the third party may enforce the terms of the contract (by name or by class of person such as previous tenants)Or
2. A term in the contract must purport to confer a benefit on the third party, and no other contract provisions show the parties did not intended for the term to be enforceable by a third party.

Question 4

Can the Contract (Rights of Third Parties) Act be excluded?

Answer 4

The act can be excluded by a clear term to this affect in the contract.

Question 5

What are the 4 common law principles that are an exception to the Privity of Contract Rules?

Ie allows third parties to rely on a contract?

Answer 5

1. Assingment
2. Agency
3. Colleteral Contracts
4. Trusts created by contracts

Question 6

What is assingment?

What are the 3 requirments of assingment?

What must be given?

Answer 6

Parties to a contract may transfer (Assign) his rights to a third party. To do this, 3 conditions must be met:

1. Assignment is permitted under the terms of the relevant agreement
2. The assignment is absolute (final)
3. The Assignment is in writing

Notice must also be given to the person who the third party acquires rights against.

Question 7

What is the agency Rule?

Answer 7

The Agency Rule allows for third parties to a contract to rely on limitation clauses if 4 conditions are met:

1. It must be clear in the main contract that the third party is intended to be protected by the limitation clause
2. It must be clear in the main contract that the party to the main contract is not just acting on his own account, but also as an agent of a third party.
3. The party must have authority from the third party to act as his agent
4. The third party must provide consideration to the party to the main contract who promises to limit the third party’s liability

(Example of this in notes)

Question 8

What is a Collateral Contract?

Answer 8

A Collateral Contract is a separate contract, and is created when one party contracts with another based on accepting another’s offer.

A collateral contract will give a party, not subject to the contract in dispute, to enforce the Contract.

For example:

Apartment Co hires Painter Co to paint its buildings. It instructs Painter Co to buy the Paint from Long Lasting Paint Co, because it advertises that its paint lasts for 10 years.

	○  The paint did not last for 10 years. 

Whilst the contract for the purchase of paint is between Painter Co and Long Lasting Paint Co, not Apartment Co, Apartment Co can enforce the contract as there was a collateral contract between Apartment Co and Long Lasting Painting Co. Apartments Co acceptance and consideration for Long Lastings Paint Co’s promise was instructing Painting Co to buy the paint.

Question 9

How can a Trust be created via contract?

What is the affect?

Answer 9

A contract can give rights to third parties if a party declares himself to be a trustee for the third party beneficiary

Both the contracting party, and the third party, can enforce the contract.

The contract must contain a declaration of trust, which fulfils the second obligation that the other party must be aware of the trust relationship.

Question 10

What are Contracts of Convience?

Can third parties claim damages?

Answer 10

Contracts of Convience are where 1 person enters into the contract for himself, and on behalf of other people.

Such as Family Holiday Contracts, Group Taxis, Ordering of Group Meals.

While the other people have no rights to enforce the contract themselves as a third party, the contractor can claim for damages on his behalf, and the behalf of others the contract was made by.

Question 11

What is the St Martins Property Exception?

Answer 11

This exception allows for the old owners of property who contracted work to be done on the property to enforce that contract for the benefit of the new owner, even though they have suffered no loss themselves. The 2 Conditions are:

1. Both parties contemplated the building would be transferred to another
2. it was the intention of both parties that the original party is entering the contract for the benefit of others who may acquire interests.

Example:

Owner A employees builders to construct the building.

Owner A then sells the building to Owner B.

Then, owing to negligence of the builders, Owner B suffers a loss.

Owner B is not party to the contract, so cannot enforce it, however Owner A can enforce the Contract on behalf of Owner B.

However, this can only succussed if:

1. In was in completation of Owner A and the Building Co that the buildings ownership would be transferred
2. It was the intention of the parties that the Owner A was entering to the contract for the benefit of those who may acquire an intrest.