Keenan and Riches’BUSINESS LAW

Guided tour

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Chapter 8Types of business contract

269

Figure 8.1Copyright © Consumer Credit Trade Association (original size A4)A typical hire agreement form

Realia

Documents are reproduced throughout

to give you a sense of how the law looks

and feels in practice, offering you real

examples encountered in the business

world

the contract that the parties did not intend the term tobe 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 aterm of a contract, the contracting parties may not, by

agreement, rescind or vary the contract in such a way asto extinguish or alter the third party’s entitlement, with-

out the third party’s consent if:

■the third party has communicated to the promisorhis/her acceptance of the term; or

■the promisor is aware that the third party has reliedon the term;

■the promisor can reasonably be expected to haveforeseen that the third party would rely on the term

and the third party has in fact relied on the term.

but if the acceptance is sent by post, the ‘postal rules’ willAcceptance may be in the form of words or conduct,

not apply and the acceptance will only be effective whenreceived by the promisor.

tract can only be made with the third party’s consentThe principle that variation or rescission of the con-

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 consentbecause the third party’s whereabouts are unknown

or he is incapable of giving consent because of mentalincapacity 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 availableto the promisor (s 3)

This section applies where the third party is seeking toenforce a contractual term against the promisor. It sets

out the defences, set-offs and counterclaims available tothe promisor in any proceedings by the third party. The

following principles apply:

(^1) defences and set-offs which would have been available toThe third party’s claim will be subject to all the
the promisor in an action by the promisee arising from
or in connection with the contract and relevant to theterm the third party is seeking to enforce (s 3(2)).
Part 3Business transactions
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Example 1
The contract is void because of mistake or illegality, orhas 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 wouldnot have been able to enforce the contract.
Example 2A and B enter into a contract for the sale of goods,
whereby the purchase price is to be paid to C. B deliversgoods which are not of satisfactory quality in breach of
the statutory implied term contained in s 14 of the Sale ofGoods Act 1979. In an action for the price of the goods
brought by C, A will be entitled to reduce or extinguishthe price because of B’s breach of contract.
(^2) in the contract to the effect that the promisor may haveThe contracting parties may include an express term
available to him any matter by way of defence or set-offin proceedings brought by the third party or the pro-
misee (s 3(3)).
Example 1A 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 claimby C and need only pay £600.
ExampleA 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 claimbrought 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) defence or set-off, or any counterclaim not arising fromThe promisor will also have available to him any
the contract, but which is specific to the third party (s 3(4)).
Examples
Located throughout, practical examples
illustrate the outcomes to possible
scenarios, demonstrating how the law
operates in the real world
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