the contract that the parties did not intend the term to
be enforceable by a third party’.
Variation and rescission of the contract (s 2)
The effect of this section is to restrict attempts by the
contracting parties to alter (vary) the contract or cancel
(rescind) it without the agreement of the third party.
Where a third party has a right under s 1 to enforce a
term of a contract, the contracting parties may not, by
agreement, rescind or vary the contract in such a way as
to extinguish or alter the third party’s entitlement, with-
out the third party’s consent if:
■the third party has communicated to the promisor
his/her acceptance of the term; or
■the promisor is aware that the third party has relied
on the term;
■the promisor can reasonably be expected to have
foreseen that the third party would rely on the term
and the third party has in fact relied on the term.
Acceptance may be in the form of words or conduct,
but if the acceptance is sent by post, the ‘postal rules’ will
not apply and the acceptance will only be effective when
received by the promisor.
The principle that variation or rescission of the con-
tract can only be made with the third party’s consent
will not apply in the following circumstances:
■Where there is an express term in the contract allow-
ing the contracting parties to vary or rescind without
the third party’s consent.
■Where, on the application of the contracting parties,
a court dispenses with the requirement of consent
because the third party’s whereabouts are unknown
or he is incapable of giving consent because of mental
incapacity or it cannot be ascertained whether he has
relied on the contractual term. This power is exercis-
able by either the High Court or county court.
Defences, set-off or counterclaims available
to the promisor (s 3)
This section applies where the third party is seeking to
enforce a contractual term against the promisor. It sets
out the defences, set-offs and counterclaims available to
the promisor in any proceedings by the third party. The
following principles apply:
1 The third party’s claim will be subject to all the
defences and set-offs which would have been available to
the promisor in an action by the promisee arising from
or in connection with the contract and relevant to the
term the third party is seeking to enforce (s 3(2)).Part 3Business transactions
224
Example 1
The contract is void because of mistake or illegality, or
has been discharged because of frustration, or is unen-
forceable because of a failure to observe necessary form-
alities. In these circumstances the third party will not be
able to enforce the term because the promisee would
not have been able to enforce the contract.Example 2
A and B enter into a contract for the sale of goods,
whereby the purchase price is to be paid to C. B delivers
goods which are not of satisfactory quality in breach of
the statutory implied term contained in s 14 of the Sale of
Goods Act 1979. In an action for the price of the goods
brought by C, A will be entitled to reduce or extinguish
the price because of B’s breach of contract.2 The contracting parties may include an express term
in the contract to the effect that the promisor may have
available to him any matter by way of defence or set-off
in proceedings brought by the third party or the pro-
misee (s 3(3)).Example 1
A enters into a contract with B whereby A will pay C
£1,000. C already owes A £400. A has a set-off to a claim
by C and need only pay £600.Example
A agrees to buy B’s car for £3,000, with the purchase
price to be paid to C. B owes A money under a com-
pletely unrelated contract. A and B agree to an express
term in the contract for the sale of the car that allows
A to raise in any claim brought by C any matter which
would have given A a defence or set-off in a claim
brought by B. So if C brought a claim for the purchase
price, A would be able to set off the money owed by B.3 The promisor will also have available to him any
defence or set-off, or any counterclaim not arising from
the contract, but which is specific to the third party
(s 3(4)).