[lxxxiv] (1861) 1 B & S 393, [1861-73] All ER Rep 369, 124 RR 610, [lxxxv] TREATMENT OF “DOCTRINE OF PRIVITY” BY INDIAN JUDICIARY: Priyesh Sharma, Vaish Law Associates, [ciii]Dunlop v Selfridge [1915] AC 847, 653. [xxiv]Swain v. Law Society [1983] 1 AC 598; Tito v. Waddell (No 2) [1977] Ch 106. [xxviii] By Law of Property Act 1925, s 78. In this case, a son made a contract with his father to forbear him to cut down an oak woodland. Some believe it to be very likely that the introduction of the rule into English Law was accompanied by that in the French law as well, which took place in the early 19th century. The defendant, the promisor agreed to the agreement and also executed an iqraranama in favour of the plaintiff which shows that the term of the gift deed that the consideration will move from the third person was at the desire of the promisor. One of the most notable features of Section 2(d) is that the act which is to constitute a consideration may be done by “the promisee or any other person”. Acknowledgment may be express or implied. This Third Party rule had been criticized widely over the number of years by various academics, law reform bodies and the most important to our studies, the judiciary. H.) Estoppel or Acknowledgement: Where by the terms of a contract a party is required to make a payment to a third person and he acknowledges it to that third person, a binding obligation is thereby incurred towards him. Under the current operation of the law, a stranger could be awarded damages if the infringement is proved. He says that there is no privity of contract between them and the board, and that it is a fundamental principle that no one can sue upon a contract to which he is not a party. But the objection made by the defendant party, which was relied upon the case of Levettv. He was no party to the sale. Click to see full answer. Subsequently B made part-payments to c informing him that they were out of the sale price left with him and that the balance would be remitted immediately. The doctrine of privity emerged alongside the doctrine of consideration, the rules of which state that consideration must move from the promise, that is to say that if nothing is given for the promise of something to be given in return, that promise is not legally binding unless promised as a deed. CJ endorsed the statement of Rankin CJ in Krishna Lal Sahu v. Promila Bala Dasi[xc], and after referring to the observations of Lord Haldane in Dunlop v. Selfridge[xci]said: “The Judicial Committee applied that rule in Khwaja Muammad Khan v. Hussaini Begum[xcii]. The Privy Council in its decision in Jamna Das v. Ram Autar[lxxxii]extended this rule to India. Since the decision of the New York Court of Appeals in Lawrence v Fox,[lxix] it has become generally accepted that a third party is able to enforce a contractual obligation made for his benefit. The court in, Later, in 1861, the position in England changed in, Position of Privity of Consideration in India, This principle of the doctrine of privity of consideration is not applicable in India. In 1981, judgment was given in the Alva vs. Cloningerin the North Carolina Court of Appeals. Collateral contracts have been used as a means of rendering exclusion clauses enforceable by a third party; and are extensively used in the construction industry as a way of extending to subsequent owners or tenants the benefits of a builder’s or architect’s or engineer’s contractual obligations. The court in Dutton v. Poole[1] did not consider this principle. In considering reform of the third party rule, assignment constitutes a particularly significant exception. The third party rule was abrogated by statute in Queensland in 1974. The essence of the law of contract lies in the promise which both parties have made towards each other for fulfilling their part of the contract. 2. It was held that the plaintiff could not recover the money, even though the agreement had expressly provided that the plaintiff should have the right to sue on it. The main principle highlighted by this concept of Privity of Contract is regarding the rights of third parties in a contract. PRIVITY OF CONTRACT. [xlix] See e.g.Greenwood Shopping Plaza Ltd v. Beattie (1980) 111 DLR (3d) 257, [l] See e.g.Coulls v. Bagot’s Executor and Trustee Co [1967] ALR 385; Wilson v Darling Island Stevedoing&Lighterage Co Ltd (1956) 95 CLR 43. The Supreme Court of India has approved the … The court held that the third party beneficiary was entitled to rely on the waiver of subrogation clause whereby the insurer expressly waived any right of subrogation against the third party beneficiary. The majority had little doubt that the circumstances were eminently appropriate: “When all the circumstances of this case are taken into account, including the nature of the relationship between employees and their employer, the identity of interest with respect to contractual obligations, the fact that the appellant knew that employees would be involved in performing the contractual obligations, and the absence of a clear indication in the contract to the contrary the term ’warehouseman’ in clause 11 (b) of the contract must be interpreted as meaning ‘warehousemen’. The court of appeals ruled that Cloninger was liable for the loss suffered by the Alvas because he was hired under the understandi… INTRODUCTION : Consideration is a benefit that must be bargained for between the parties and is an essential reason for a party entering into the contract. In Gandy v Gandy[xvii], Bowen LJ said that, in spite of earlier cases to the contrary, Tweddle v Atkinson[xviii]had laid down “the true common law doctrine”. An old lady gave to the defendant, her daughter, and certainly landed property by way of gift deed. The concept of privity is part of the bedrock called common law which was made up of the collective judicial decisions derived from court decisions. Next is the privity and its relationship to the doctrine of consideration Doctrine of consideration says that we observed the rule that consideration must move from a promise. The court of Queen’s Bench denied the principle and ruled that a beneficiary who is stranger to the consideration cannot take advantage of it. What can be done when the city police tow the vehicle in a non parking zone? The doctrine of privity of contract is that a contract cannot confer rights or impose those obligations arising under it, on any person except the parties to it. The consideration for the, Here, the consideration for the defendants promise to pay the annuity was the gift deed made by the old lady and the consideration was being furnished by the plaintiff. [xi](1797) 1 Bos& P 101, n (c); 126 ER 801, n (c). The doctrine of privity of consideration states that the consideration must only move from the promisee and the stranger to the contract, although a beneficiary can enforce the terms of the agreement. Assignment may therefore deprive promisors of their chosen contracting party, although safeguards are imposed to protect promisors. After establishing the position in England, the student tries to discuss the position of the concept of Privity, in detail, in the Country of India, mostly with the help of landmark case laws, changing the course of the rule despite of the very high influence of the English Laws and cultures on the Indian laws. Privity can be either Privity of Consideration or Privity of Contract. The doctrine of Privity of contract states that any third party, which is not even distinctly related to the two involved parties, does not have a right to initiate a suit against the said parties to the contract even though he/she is the beneficiary. [xxvi]Richards v Delbridge(1874) LR 18 Eq 11; Cleaver v. Mutual Reserve Fund Life Association [1892] 1 QB 147, 152; Re Foster [1938] 3 All ER 357; Green v. Russell [1959] 1 QB 28. Although the English doctrine of privity of consideration is not applicable in India, the doctrine of Privity of Contract generally is. [xxix] Under this, the principal, i.e. If any other person furnishes the consideration, the promisee becomes the stranger and, therefore, cannot enforce the promise. There in English Law the consideration must move from the Promisee alone. The following paragraphs merely highlight some of the main difficulties revealed by the case law. The father refrained from selling the wood, but the son did not pay. The Privy Council in Khwaja Muhammad Khan v. Hussaini Begum[lxxxvi]observed: “In India and among communities circumstanced as the Mohemmedans, among whom marriages are contracted for minors by parents and guardians it might occasion serious injustice if the common law doctrine was applied to agreements or arrangements entered into in connection with such contracts,”. Having no legal background, the inspiration to study law came from society and with the support of my parents, I became the path breaker of my family. The proposal must involve a relaxation of the consideration requirement. There are some exceptions. A stranger to a consideration cannot move the court to enforce the contract. Hamm. An Indian case relevant under this head is that of Rana Uma Nath Baksh Singh v. Jang Bahadur[xxvii]. Also, when the English Law explicitly, and without any ambiguity, reaffirmed the principle in Dunlop v Selfridge[xlviii], this set led to be followed in a number of common law legal systems- for example, in both Canada[xlix] and Australia[l], a strict privity doctrine took root. 176. However, the problem of defining what is meant by a third party beneficiary has never adequately been solved. The court did not consider the plaintiff’s privity to the contract nor interested in the consideration. [xxv]Re Sinclair’s Life Policy [1938] Ch 799; Re Burgess’ Business Policy (1915) 113 LT 443; Re Schebsman[1944] Ch 83. This has been upheld in various case laws[xlvi]. Privity of consideration states that only a person who has provided consideration can enforce the contract and take action against it. For example, the classic case of negligence, Donoghue v Stevenson[xxxi], established that where A supplies goods to B under a contract with B, A may owe a duty to C in respect of personal injury or damage to property caused by defects in those goods. The rule of consideration and the doctrine of privity are different legal concepts but produce a similar end result. Privity and consideration. [xli] ILR (1924) 48 Bom 673: AIR 1925 Bom 97. Perhaps the most significant point is that some of their Lordships seemed to accept a principle of vicarious immunity, according to which a servant or agent who performs a contract is entitled to any immunity from liability which his employer or principal would have had. Under Common Law, the answer to these questions was no. The Law Reform Commission of Hong Kong Report. [lxv] The Report gave a brief account of the existing common law of New Zealand, which was virtually identical to that of England and Wales. Jaspat Rai[xlii]: The defendant’s wife left him because of his cruelty. Also, the intention to benefit the third party must be irrevocable. [xliii]Portavon Cinema Co v. Price & Century Insurance Co [1939] 4 All ER 601; Mark Rowlands Ltd v. Berni Inns Ltd [1986] QB211; Vural Ltd v Security Archives Ltd (1989) 60 P & CR 258, 271-272; [xliv] Marine Insurance Act 1906, s 14(2). [lix]Western Australia Property Law Act 1969, s 11(3). For the 200 years before 1861 it was settled law that, if a promise in a simple contract was made expressly for the benefit of a third person in such circumstances that it was intended to be enforceable by him, then the common law would enforce the promise at his instance, although he was not a party to the contract.”. [3]Dunlop Pneumatic Tyre v. Selfridge and Co. Ltd.[1915] AC 847.eval(ez_write_tag([[250,250],'lawtimesjournal_in-box-4','ezslot_10',114,'0','0'])); [4]Venkata Chinnaya v. Venkataramaya Garu ILR (1881) 4 Mad 137. Thus, the consideration may move from promisee, or some other person, if the promisor has no objection, from any other person. At law school, I have developed a keen interest in researching. [lxxvi]Short for cestui a que use le trust estcréé, meaning ‘the person for whose benefit anything is given in trust to another’. In the above case, ‘C’ cannot sue the parties as he has not provided any consideration for the contract. Section 133 of the first Restatement of Contracts published in 1932 distinguished donee beneficiaries, creditor beneficiaries and incidental beneficiaries: only donee and creditor beneficiaries could enforce contracts made for their benefit. The term “parties” may seem simple enough but there are situations where it may become doubtful as to exactly who the parties are and resultantly, who, in the eyes of the law should be liable or should be compensated in event of inevitable breaches that may occur from time to time. Now to make the contract valid, the consideration must be lawful. Now third parties can claim compensation provided he is an intended beneficiary under the contract, and infringement is proved. Section 11 of the Western Australian Property Law Act 1969, in line with the proposal of the English Law Revision Committee, amended the third party rule by providing that: …where a contract expressly in its terms purports to confer a benefit directly ona person who is not named as a party to the contract, the contract is…enforceable by that person in his own name…, All defences which would have been available to the promisor had the third party been a party to the contract are available in an action by the third party,[lvi] and in any action on the contract by the third party, all parties to the contract must be joined. [lviii] The legislation also permits variation or cancellation of the contract by the contracting parties at any time until the third party adopts it either expressly or by conduct.[lix]. The defendant executed in plaintiffs favour and, The defence put forward by the defendant was that the promisee, i.e. Chacko v State of Travancore[lxxxix], held that a person not a party to a contract cannot subject to certain well recognized exceptions, enforce the terms of the contract. The most important questions to be considered were whether a third party could acquire rights, or incur obligations, to a contract to which he or she is not a party?These questions were highly prevalent in England from 17th to 20th century. If an immediate assignment is valid, there can hardly be fundamental objections to allowing the third party to sue without an assignment. The same was true in Scotland[lii]. When two parties enter into the agreement in order to return something to each other is consideration. Tweddle v. Atkinson[xv]: This is considered to be one of the most significant decisions which to the doctrine of privity. Since the defendant did not take the point that the plaintiff was not a party to the insurance contract, the Hong Kong Court of Appeal proceeded on the footing that the plaintiff’s claim, if otherwise good, was enforceable in the usual way. Whether affiliates, relatives and agents of the parties can be treated as “beneficiary” if their role is restricted to few terms like mentioned hereinabove? Godfrey VP (with whom Ribeiro JA agreed) nonetheless stated incidentally: “[the court is] aware of the judicial abrogation of the rule effected in Australia by the decision of the High Court (split 4 to 3) in [the Trident case], a case the facts of which bear many similarities to our own. The assignment is effected through a contract between the promisee under the main contract (that is, the assignor) and the third party (that is, the assignee). A would not pay, and C would sue A. Consideration forms the basis of a contract and considered as the foundation of every contract. Section 2(d) of the Indian Contract Act defines Consideration “When, on the will of the promisor, the promisee or any other person has done or abstained from doing, promised to do or abstains from doing anything, such act or abstinence or promise is said to be known as consideration of a promise”. The employees fulfilled these two conditions, and thus could benefit from the limitation clause, despite the privity doctrine. Consideration is a rule that there must be a "benefit or detriment" involved in any contract, and that this must initially come from the promisee. [xxix]Bowstead and Reynolds on Agency (16th ed, 1996) para 1-001. The relation which subsists between two contracting parties. Hence it is clear that Indian judiciary has recognized “beneficiary” to the contract as an exception to the general rule of Doctrine of Privity. The doctrine of privity means that as a general rule, a contract does not grant rights or enforce duties arising under it on any person except the parties to it. [xxv] And a mere intention to confer a benefit is not enough, there must be an intention to create a trust. The enforceability or liability as regards this contract lies firmly in the hands of A and B to the exclusion of others, this is the foundation of the doctrine of privity of contract. The aforementioned are more or less the well- accepted and settled exceptions to the Doctrine of Privity. It must be therefore taken as well-settled that except in the case of a beneficiary under a trust or in the case of a family arrangement, no right may be enforced by a person who is not a party to the contract…It is a settled law that a person not a party to a contract cannot enforce the terms of the contract.”. Privity of Contract: Definition, Exception & Cases ... For this purpose, we will focus on consideration or an exchange of bargained-for promises between two or more parties. The benefit and burden of covenants in a lease granted prior to 1996 would pass on an assignment of the lease or reversion so as to benefit or bind the assignee of the lease or the reversion, provided that the covenant “touched and concerned” the land. In spite of these cases favouring actions by third party beneficiaries, it is not accurate to say that the third party rule was entirely a 19th century innovation. Thus, the relationship between the father and the son had made the sister a party to the agreement, even if she was not included at the time the contract was agreed. Life Insurance: By section 11 of the Married Women’s Property Act 1882, a life insurance policy taken out by someone on his or her own life, and expressed to be for the benefit of his or her spouse or children, creates a trust in favour of the objects named in the policy. The Supreme Court has, by its decision in M.C. The Committee considered arguments that the practical difficulties caused by the rule, and the devices adopted for avoiding its operation in particular circumstances, were insufficient to justify a fundamental change in the law, but refuted the contention that the intentions of the contracting parties could usually be achieved by the courts. But I strongly believe that by remaining focussed on our goals and not letting ourselves be discouraged, we can indeed achieve anything we Levit[ix](1632). It can be seen that practices such as imposing obligations on other party’s affiliates, relatives and agents with respect to terms like restrictive covenants, non-compete and confidentiality obligations are quite common for the parties under a contract these days. This is the postulate of the doctrine of privity of consideration. 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