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Agency and Privity

Agency and Privity . Law of Contract LW1154 BCL 2005-2006. Reading. Text Clark chapter 17 Reference McDermott chapter 18. Multiple parties . We have assumed up to this point that there are only two parties to the contract … … each of whom can enforce it against the other

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Agency and Privity

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  1. Agency and Privity Law of Contract LW1154 BCL 2005-2006

  2. Reading • Text Clark chapter 17 • Reference McDermott chapter 18

  3. Multiple parties • We have assumed up to this point that there are only two parties to the contract … • … each of whom can enforce it against the other • We now consider various ways in which the net can be cast wider

  4. Agency • One person (the “agent”) may negotiate a contract on behalf of another (the “principal”) • If the contract is agreed, then a valid contract is formed • The principal is party to the contract, but the agent is not

  5. Privity • In general, a contract affects only the parties who actually agreed it • However, in certain cases a contract may create rights to benefit others … • … or even (very, very rarely) to bind others

  6. Agency A brief introduction

  7. Agency - definition • When someone (the agent) makes a contract on behalf of someone else (the principal) … • … then the contract is made with the principal, not the agent • The agent can neither sue nor be sued on the contract

  8. Limits on agency • However, an agent is usually only able to act as such in a limited respect or on limited matters • Outside that limited area, the agent cannot bind the principal • But how is the scope of the agency determined?

  9. The scope of the agency • Agency usually arises through express appointment by the principal • This may be written or oral • The limits of the agency will be as specified by the principal on appointment or later

  10. The scope of the agency • Agency may also arise:- • by subsequent ratification • by necessity • by estoppel • But these cases are relatively rare

  11. Termination of agency • Agency comes to an end on:- • cancellation by the principal • agreement of principal and agent • supervening illegality • death of either principal or agent

  12. Rights created by agent • Suppose an agent makes a contract with a third party • What rights are created? We must consider:- • Principal v. Agent • Third party v. Principal • Agent v. Third party

  13. Principal v. Agent? • The mutual rights of principal and agent depend on an agreement between them • Agency does not necessarily involve a contract between principal and agent • Agency does not necessarily imply that the agent is to be paid

  14. Principal v. Agent? • Possible legal relations are:- • The agency is gratuitous • The principal employs the agent • The agent is self-employed but paid by the principal(see EC (Commercial Agents) Regulations SI 1997/31)

  15. Third party v. Principal • The principal is bound by any contract falling within the scope of the agent's authority • The principal is not bound by contracts outside the agent’s authority, unless:- • Principal later ratifies, or • Principal is estopped

  16. Agent v. Third party • Where the agent makes the contract strictly within the terms of their authority, the contract does not bind the agent • The agent drops out of the picture, and the resulting contract does not involve them

  17. Agent v. Third party • However, the agent is bound if s/he gives a personal promise • Agents may simultaneously act for themselves and for others • eg a trade union, negotiating both for themselves and as agent for their members (Pattison v. IIRS (HC, 31/5/79))

  18. Agent v. Third party • An agent who acts beyond their authority may be personally liable • Someone who claims to act as agent is taken to guarantee that they are fully authorised … • … and if they are not, they are liable to compensate the 3rd party (Collen v. Wright (1857) 120 ER 241)

  19. Undisclosed agency • Suppose two people negotiate a contract and agree terms ... • ... then one reveals that s/he was in fact only negotiating as agent for another • What rights are created by this agreement?

  20. 1. Personal contracts • Some contracts have a strong personal element, and so it is impossible to substitute the principal for the agent • Whether this is so depends on the terms of the contract itself • If it is, the agent is bound, and the principal has no rights

  21. 2. Non-personal contacts • Otherwise, the third party is free to hold either the agent or the principal to the contract … • … but must make an election as to which … • … and is bound by that election

  22. Rights of the principal • If no election has been made, the principal may insist that the contract is with them … • … and so sue the third party, the agent dropping out of the picture • However, this can only be done where the agent stayed strictly within the scope of their authority

  23. Privity of contract Law of Contract BCL LW1154

  24. The general rule • In general, only those who are party to a contract can sue on it • Equally, those who are not party to contracts are not bound by their terms, and can go against them with impunity • There are relatively few exceptions

  25. Example 1Murphy v. Bower (1868) IR 2 CL 506 • Railway contractors took on work for a railway operator • As each stage of the work was complete, a certificate of completion was to be issued by Bower, the engineer • But Bower wrongly refused to issue certificates

  26. Example 1Murphy v. Bower (1868) IR 2 CL 506 • The contractors sue Bower • Even though Bower’s refusal was wrong, he was not party to any contract with the contractors • The contractors should have sued the railway operators instead

  27. Example 2MacKey v. Jones (1958) 93 ILTR 177 • P was a 14-year-old boy • P’s uncle promised P’s mother that if P came to look after his farm, he would leave it to P in his will • P did as requested, but the uncle left it to someone else • Could P enforce the promise?

  28. Example 2MacKey v. Jones (1958) 93 ILTR 177 • Judge Deale was not convinced that the uncle intended a legally binding arrangement • Even if he did, it was not an arrangement to which P was a party • P was not making a contract, but following his mother’s orders

  29. Scheme of these lectures • Definition of “parties to the contract” • Passage of benefit despite the privity rule • Passage of burden despite the privity rule

  30. ‘Parties to the contract’ • Most contracts have only two parties to them • So the contract can only be enforced by the parties to it • Equally, it can only be enforced by one who has given consideration • Some say that this is just the same rule in different language

  31. Joint contractors However, in one situation at least, ‘consideration’ is not the criterion: • Where two people jointly make a promise to a third, then all three are parties and all three can sue … • … whether or not the two joint parties both provided consideration

  32. Example 1McEvoy v. Belfast Banking [1935] AC 24 • Suppose A and B jointly open an account with the C Bank • A pays money in, but B does not • Nonetheless, B is party to the contract with the bank … • … and can sue the C Bank if it does not comply with the terms of the account

  33. Example 2Lockett v. Charles [1938] 4 All ER 170 • H and W stop at a hotel for lunch • At the end of the meal, H pays • W suffers an attack of food poisoning • Can W sue the hotel in contract … • … or can the hotel say that the contract was between them and H?

  34. Example 2Lockett v. Charles [1938] 4 All ER 170 • Hilbery J holds that W is party to a contract with the hotel … • … either because she contracted individually for her meal, or because H and W were contracting jointly • It was irrelevant who actually provided the payment

  35. Multi-party situations • Who are the parties to a contract can be a difficult question • We must bear in mind what was expressly agreed … • … and the possibility that a party was acting as agent for others • Ultimately, it is a question of what the parties intended

  36. Example 1Hearn v. Collins HC 3/2/98 • A boxer entered into a bout agreement with a boxing promotion company • One term of the agreement was that if the boxer won the bout, he would extend his own manager’s contract for another year • Could the manager enforce this?

  37. Example 1Hearn v. Collins HC 3/2/98 • O’Sullivan J held that the manager could enforce it • The boxing promoters were acting as agents for the manager • If this were not so, the term was effectively unenforceable … • … especially since a company could not act as manager

  38. Example 2Henley Forklift v. Lansing Bagnall SC 13/12/79 • English manufacturers distributed their products in NI by granting a sole agency to a NI firm • An Irish firm was established to distribute the products in Ireland, obtaining them from the NI firm • Was there a contract between the Irish and English firms?

  39. Example 2Henley Forklift v. Lansing Bagnall SC 13/12/79 • It is possible to have a 3-party agreement, which any of the three could enforce against the other • But here, judging from the documents, the English firm dealt only with the NI firm • So the English firm could not sue the Irish firm

  40. Example 3Shanklin Pier v. DetelProducts [1951] 2 KB 854 • The owners of a pier hire contractors to re-paint it • DP recommend DMU paint for the job • Owners instruct contractors to use DMU paint • It proves to be completely unsuitable

  41. Example 3Shanklin Pier v. DetelProducts [1951] 2 KB 854 Can the owners sue DP? • The paint was bought by the contractors, and the owners were not party to that contract • However, DP’s assurance that the paint was suitable was held to create a collateral contract between DP and the owners

  42. Exceptions - benefit • Enforcement by the promisee • Promises expressly for the benefit of others • Miscellaneous commercial exceptions

  43. Exceptions - benefit 1. Enforcement by the promisee

  44. Definition • Suppose A contracts with B that s/he will confer a benefit on C • Then B can enforce the contract, claiming a remedy of:- • Specific performance • A stay of proceedings • Damages reflecting C’s loss

  45. 1. Specific performance • Where A contracts with B to confer a benefit on C … • … then B may obtain an order forcing A to comply with the contract • If A refuses to comply, in principle A could be prosecuted for contempt

  46. 1. Specific performance • This is an exceptional remedy • Whether it is granted lies in the discretion of the court • The threshold requirement is that the ordinary contract remedy – damages – would not be adequate to do justice

  47. ExampleBeswick v. Beswick [1968] AC 58 • A man transferred his business to his nephew • In return, he was to get £6 10s a week while he was alive … • … and his widow was to get £5 a week thereafter • On the man’s death, the nephew refused to pay the widow

  48. ExampleBeswick v. Beswick [1968] AC 58 • The widow was appointed as administratrix of her husband’s estate • She sued the nephew personally and as administratrix • She succeeded, but only on the second ground

  49. 2. Stay of proceedings • Where A promises B that A will not sue C … • … then A sues C in breach of that promise … • … then B may apply to the court to stay A’s action against C

  50. 3. Action for damages • In general, damages in contract are meant to make good the loss of the person suing • Therefore it is not usually possible to sue for another’s loss (see egWoodar v. Wimpey [1980] 1 AER 571)

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