Parties + Privity of Contract

Question 1

What is the general rule of privity of contract?

Answer 1

• Only parties to a contract can sue on the contract

i) To sue on a promise, you must have given consideration for it

• Only parties to a contract have rights and liabilities under it

Question 2

Can third parties have rights under the contract if expressly stated?

Answer 2

Yes, the third party doesn’t have to be individually named so long as they are identified as part of a class (employees/agents)

Example - A third party (the electrician) can enforce a contract term (the exclusion clause) if that term expressly provides that he may or confers a benefit on him. The third party can be identified as a member of a class (in this case, the employees of the building company).

Question 3

Give an example of when an agent can bind a principal to a contract

Answer 3

A shop owner (principal), who employs a till operator (agent) - they are employed by the principal (contract of employment between them)

When a customer (third party) buys goods, they buy them through the agent, but their contract for sale of goods is with the principal

Ultimate contract is between third party and principal (agent is not a party to the contract)

Question 4

Broadly, when can an agent bind a principal to a contract?

Answer 4

Only where they have authority to do so. This can arise through:

• Express authority
• Implied authority
• Apparent/ostensible authority

Question 5

Explain express and implied authority

Answer 5

• Express authority to sell goods and implied authority to do things incidental in relation to them (advertising them)
• Doing something within the usual authority of that role would be construed as implied actual authority - This is the case, **even if expressly prohibited **by the principal

Question 6

Agency can arise through estoppel where apparent authority is proven. What are the conditions to prove apparent authority?

Answer 6

1) There must have been a representation by the principal that the agent is authorised

• The title of the employee might have some bearing (eg sales manager)
• Prior dealings with the principal’s business might also assist with this

2) There must be reliance by the third party on this representation

3) Third party must alter their position in reliance on that representation (entering into a contract)

Question 7

What is the effect of apparent authority being made out/agency arising through estoppel?

Answer 7

If the conditions are met + principal is sued for breach of contract, principal will be estopped from denying the agent had authority