Topic 8 - Privity of contract and rights of third parties

Question 2

What is the fundamental principle of privity of contract?

Answer 2

A contract creates rights and obligations only between the parties to it

Question 3

What must be present for a contract to be enforceable?

Answer 3

Consideration must move from the promisee

Question 4

What is a common criticism of the doctrine of privity?

Answer 4

A third party should not be able to obtain a benefit from a contract to which they are not a party

Question 5

What Act allows a third party to enforce a term of a contract?

Answer 5

Contract (Rights of Third Parties) Act 1999

Question 6

What is an agency relationship?

Answer 6

One party is authorized by another to contract on their behalf

Question 7

What are the basic requirements to establish an agency relationship?

Answer 7

• The principal must be named
• The agent must be authorized
• Consideration must move from the principal

Question 8

What is a collateral contract?

Answer 8

A separate contract between the promisor and a third party

Question 9

What happens when B assigns their contractual rights to C?

Answer 9

C may sue A on B’s promise

Question 10

What is a ‘non-assignment’ clause?

Answer 10

A clause that prohibits assignment of rights without consent

Question 11

What is one of the key exceptions introduced by the Contracts (Rights of Third Parties) Act 1999?

Answer 11

A third party can enforce a term of a contract even without providing consideration

Question 12

Under what condition can a third party enforce a term according to s 1(1)(a) of the Act?

Answer 12

The contract must specifically provide that the third party can enforce a term

Question 13

What must be established under s 1(1)(b) for a third party to enforce a term?

Answer 13

• The agreement conferred a benefit on the third party
• The contracting parties intended the term to be enforceable by the third party

Question 14

True or False: The Contracts (Rights of Third Parties) Act 1999 allows contracts to be enforced against a third party.

Answer 14

False

Question 15

What is the effect of the Contracts (Rights of Third Parties) Act 1999 on existing common law?

Answer 15

It preserves existing common law and statutory exceptions

Question 16

What must be established for a third party to enforce a term under s 1(1)(b)?

Answer 16

• The agreement conferred a benefit on the third party
• The parties did not intend the term to be unenforceable by the third party

These are prerequisites for third-party enforcement rights under the specified section.

Question 17

How must a third party be identified to enforce a term under s 1(1)(a) or s 1(1)(b)?

Answer 17

The third party must be expressly identified in the contract or described by a particular class or description.

This allows for identification of future beneficiaries, such as unborn children.

Question 18

Under what circumstances does s 1(1)(b) not apply?

Answer 18

When the parties did not intend the term to be enforceable by the third party.

This intention can be derived from the proper construction of the contract.

Question 19

What presumption does s 1(1)(b) create regarding third-party rights?

Answer 19

A rebuttable presumption that the third party can enforce the term.

This presumption is difficult to rebut if the contract purports to confer a benefit.

Question 20

What can parties do to avoid conferring rights on third parties?

Answer 20

Include an explicit exclusion of third party rights clause in the contract.

This clause states that the agreement does not intend to give rights to any non-parties.

Question 21

What remedies are available to a third party enforcing a right under s 1?

Answer 21

The same remedies as if they were a party to the contract, subject to limitations.

This ensures that third-party rights are not diminished by the contracting parties.

Question 22

What does s 2(1) state regarding the variation or rescission of a contract involving a third party?

Answer 22

Parties cannot vary or rescind the contract to extinguish or alter the third party’s rights without consent under certain conditions.

Conditions include the third party’s assent or reasonable reliance on the term.

Question 23

What defences can a promisor use against a third party under s 3?

Answer 23

Defences available against the promisee and any specific claims against the third party.

This maintains consistency in the enforcement of contractual obligations.

Question 24

How does s 1 affect the right of the promisee to enforce the contract?

Answer 24

It protects the promisor from double liability for actions taken by both the promisee and the third party.

Awards to third parties may be reduced if the promisee has already recovered for the same loss.

Question 25

What types of contracts does the Contracts (Rights of Third Parties) Act 1999 apply to?

Answer 25

It potentially applies to the vast majority of contract types with limited exceptions. ## Footnote Practitioners need to identify relevant contracts and third parties when applying the Act.

Question 26

What is a fundamental exception introduced by the Contracts (Rights of Third Parties) Act 1999?

Answer 26

It allows a third party to enforce a term of a contract to which it is not a party under certain conditions. ## Footnote This exception modifies the traditional doctrine of privity.

Question 27

What conditions grant a third party the right to enforce a contract term?

Answer 27

* The contract explicitly states it should * The contract purports to confer a benefit, unless the parties intended otherwise ## Footnote These conditions outline the circumstances under which third-party rights are recognized.

Question 28

Can a third party's rights be greater than if they were a party to the contract?

Answer 28

No, a third party's rights cannot exceed those of a party to the contract. ## Footnote This ensures fairness and consistency in enforcing contractual obligations.