The court did not consider the plaintiff’s privity to the contract nor interested in the consideration. Privity of consideration states that only a person who has provided consideration can enforce the contract and take action against it. [xliii], C.) Insurance by Persons with Limited Interest: Any person who has an interest in the subject-matter of a policy of marine insurance can insure ‘on behalf of and for the benefit of other persons interested as well as for his own benefit’[xliv] Also, where property is sold and suffers damage before the sale is completed, any insurance moneys to which the vendor is entitled in respect of the damage must be held for the purchaser and paid over on completion[xlv]. If an immediate assignment is valid, there can hardly be fundamental objections to allowing the third party to sue without an assignment. K.B. Nevertheless, as Godfrey VP reiterated in the B + B case, the privity doctrine is still part of the Hong Kong law.[lxxv]. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages in case of breach. An old lady gave to the defendant, her daughter, and certainly landed property by way of gift deed. But I strongly believe that by remaining focussed on our goals and not letting ourselves be discouraged, we can indeed achieve anything we [xi](1797) 1 Bos& P 101, n (c); 126 ER 801, n (c). [xxviii], C.) Agency: Agency is the relationship which exists between two persons, one of whom (the principal) expressly or impliedly consents that the other should act on his behalf, and the other of whom (the agent) similarly consents so to act or so acts. Poole views this judgment as holding that the doctrine of privity being comprised of two elements, one that relates to the agreement component of the contract and the other relating to the consideration part of the contract. This principle of the doctrine of privity of consideration is not applicable in India. The majority of the House of Lords confirmed English law’s adherence to the privity of contract doctrine and was not prepared to hold that the principle of vicarious privity of contract doctrine and was not prepared to hold that the principle of vicarious immunity was the ratio of Elder, Dempster.[xxxviii]. “Though originally there was no privity of contract between B and C, B having subsequently acknowledged his liability, C was entitled to sue him for recovery of the amount.”. But the right not to be injured or to have one’s property damaged by another’s negligence exists independently of any contractual undertaking by A. [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. Doctrine of Privity of Contract The Indian Contract Act. A study of a few cases decided in the 18th century and the 19th are essential in order to reach that establishment. The traditional law was very strict and third parties had no redress of any manner if they were affected. In Beswick v Beswick,[xcvii] Lord Reid cited with approval the Law Revision Committee’s proposals that when a contract by its express terms purports to confer a benefit directly on a third party, it should be enforceable by the third party in its own name. 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. Various other jurisdiction either have it or have adapted it. [xxiv]Swain v. Law Society [1983] 1 AC 598; Tito v. Waddell (No 2) [1977] Ch 106. No doubt there are volumes of cases in the books and journals in which such related third parties who are not parties to a contract have been allowed to sue upon it and their interest is secured against any breach by the counter party. [xxii][1962] AC 446 (Lord Denning dissenting). Privity and consideration. It also follows that in considering the details of reform it is instructive to consider the rules of assignment dealing with, for example, the defences and counterclaims available to the promisor (the principle is that an assignee takes “subject to equities”), and joinder of the original promisee (joinder of the assignor is sometimes necessary).[xxxv]. 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? All rights reserved. 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. C failed in his action, on the ground, inter alia, that the promise had been made to B); Taylor v Foster(1600) Cro Eliz 776; 78 ER 1034 (A, in return for B marrying his daughter, agreed to pay to Can amount which B owed to C. In an action by B against A, it was held that B was the personto sue, being the promisee). In Westralian Farmers’ Co-Operative Ltd v Southern Meat Packers Ltd[lx], the Supreme Court of Western Australia found that, where the plaintiff third party had established the existence of a contractual payment term in its favour, and the defendant claimed that it had already made payment to the original promisee, the plaintiff third party could nevertheless maintain its claim to payment. Also, this rule goes into contradiction with that established by the case of Dunlop Pneumatic Tyres Co Ltd v. Selfridge Ltd[xxxii]where the pursuer could acquire no benefit under that contract because she was a third party to it. A would not pay, and C would sue A. Under the current operation of the law, a stranger could be awarded damages if the infringement is proved. B, however, failed to remit the balance and C sued him for the same. VenkataramayaGaru.[4]. If A makes a contract with B, he comes under a legal obligation to pay damages if he fails to keep his promise. Jaspat Rai[xlii]: The defendant’s wife left him because of his cruelty. The proposal must involve a relaxation of the consideration requirement. In Muniswami Naickerv. There is a thin divide between (i) making a contract for the benefit of a third party; and (ii) making a contract for the benefit of a third party and, immediately thereafter, assigning that benefit to the third party (especially where the third party does not provide consideration). An intention to create a trust is clearly distinguishable from a mere intention to make a gift.[xxvi]. The defendant executed in plaintiffs favour and, The defence put forward by the defendant was that the promisee, i.e. According to Frederick Pollock “Consideration is a price for which the promise of the other is brought and the promise is thus given for value is enforceable”. A general consensus is that privity is distinct from consideration. [xxviii] By Law of Property Act 1925, s 78. The principle in Tweddle v Atkinson[lxxx]was based on two major grounds, firstly the third party was not privy to the contract and secondly, the consideration did not flow from the third party claiming under the contact. However these are not exhaustive and from time to time, number of exceptions against the Doctrine of Privity has been evolved and recognized by Indian judiciary and more than often quoted exception is that a person for whose benefit the contract is entered into can certainly sue as it is “beneficiary” in the contract.[lxxxv]. The relation which subsists between two contracting parties. 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. 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. However, in modern times the doctrine of privity has been relaxed to a large extent. This is the principle as established by the English Courts in as early as 1677 in the case of Dutton v. Poole[lxxvii]. [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. 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. 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.”. 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 terms being that a stipulated annuity of ₹ 653 should be paid every year to the plaintiff, sister of the old lady. In Khirod Behari Dutt v. Man Gobinda[xcvi], Lord-Williams J said: “..Though ordinarily only a person who is a party to the contract can sue on it, where a contract is made for the benefit of a third person, there may be an equity in the third person to sue upon the contract.”. Though the doctrine of privity was recognised and established in the case of Tweddle v. Atkinson[iii], its foundations had been laid by the English courts over the years, starting from as early as the end of 16th century. Subsequently she was again ill-treated by the defendant and also driven out. 1872, allows the ‘consideration’ for an agreement to proceed from a third-party. E.) Third Parties (Rights Against Insurers) Act 1930:  Section 1(1) this Act provides that the insured’s right against the insurer shall, notwithstanding anything in any Act or rule of law to the contrary, vest in the third party to whom liability was incurred. 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]. Call us at- 8006553304, © 2014-2020 Law Times Journal | All Rights Reserved, Doctrine of Privity of Consideration & its position in England & India. Although in the former two cases, the reason why Cfailed was because he was a stranger to the consideration, Price v Easton contains seeds of moremodern doctrine: whereas Denman CJ said that no consideration for the promise moved fromC to A, Littledale J said that there was no privity between C and A. The assent of the promisor is not necessary for an assignment. This means that if A makes a promise to B for the benefit of C, C can enforce this promise if B has constituted himself trustee of A’s promise for C[xxiii]. This Doctrine of Privity, though accepted in many jurisdictions, has been subject to various reforms, each depending on the jurisdiction in question. This rule although distinct from privity doctrines it often yields to same result as to be so connected. Clause 11(b) of the contract provided: “The warehouseman’s liability on any one package is limited to $40 and unless the holder has declared in writing a valuation in excess of $40 and paid the additional charge specified to cover warehouse liability.”. [xxxiv]Farrow v Wilson (1869) LR 4 CP 744. 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. An Indian case relevant under this head is that of Rana Uma Nath Baksh Singh v. Jang Bahadur[xxvii]. According to Section 2 (d) of the Indian Contracts Act, 1872, the consideration may move from the promisee or any other person, at the desire of the promisor. A person was an “incidental beneficiary” if the benefits to him were merely incidental to the performance of the promise. Hence the main question in consideration under this part of the study is to discover if it possible for these related parties to enforce their rights or secure their interest in as a third party. Although McNiece was within the category covered it was not directly in contract with Trident. 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. 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. It has been argued, however, that privity is not even a distinct doctrine, but rather simply part of consideration. [lviii]Western Australia Property Law Act 1969, s 11(2)(c). In this case: U was appointed by his father as his successor and was put in possession of his entire estate. As per the Indian Contract Act, 1872 the definition of consideration in Section 2(d) states, consideration may be furnished by ‘the promisee or any other person’ as long as it is ‘at the desire of promisor’. [xxv]Re Sinclair’s Life Policy [1938] Ch 799; Re Burgess’ Business Policy (1915) 113 LT 443; Re Schebsman[1944] Ch 83. That argument can be met either by admitting the principle and saying that it does not apply to this case, or by disputing the principle itself. He was no party to the sale. In a later case, Jamna Das v. Ram Autar[xciii], the Judicial Committee pointed out that the purchaser’s contract to pay off a mortgage could not be enforced by a mortgagee who was not a party to the contract. Unlike in English law, this concept is wholly contrary to Indian concept. The court relied on the judgment of Dutton v Poole,[5] that the gift deed and the contemporaneous agreement between the plaintiff and the defendant may be considered as one transaction and the defendant obtained an estate from her mother that would suffice to constitute consideration under Section 2(d)[6]. [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]. 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. [lxxxiii]DebnarayanDutt vs ChunilalGhose, reported in (1914) ILR 41 Cal 137; approved and followed in N DevarajeUrs v M Ramakrishniah AIR 1952 Mys 109. 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. In this case, Shah AG. This paper analyses the evolution of the doctrine of privity, taking into consideration the law in various countries, for largely focusing on England and India.”, ‘The doctrine of privity means that a contract cannot, as a general rule, confer rights or impose obligations arising under it on any person except the parties to it’[i]. I am Sakshi Agarwal from Dr. Ram Manohar Lohiya National Law University, Lucknow pursuing B.A. There were other 16th and 17th century cases where a third party was denied an action on the grounds that the promisee was the only person entitled to bring the action[xiii]. [xiii]Jordan v Jordan (1594) Cro Eliz 369; 78 ER 616 (C gave a warrant to B to arrest A for an alleged debt. Despite this lack of privity, the majority of the Hifh Court ruled in favour of McNiece. When the cargo-owners sued in tort, the stevedores unsuccessfully attempted to rely on a limitation clause contained in the bill of lading between the carriers and the cargo owners. It clarifies the absence of Doctrine of Privity of Consideration in Indian law. Our law knows nothing of a jus quaesitumtertio…’[lxxiii] “. For if, immediately after a contract for a third party’s benefit is made, the promisee assigns his rights under it to that third party, the third party can enforce the contract and the promisee loses all right to enforce, vary or cancel the contract. The plaintiff filed a suit upon the failure of the defendant to pay the annuity.eval(ez_write_tag([[728,90],'lawtimesjournal_in-medrectangle-4','ezslot_1',112,'0','0'])); The defence put forward by the defendant was that the promisee, i.e. The consideration for the promise is the abstinence by the father to sell the wood. This is the postulate of the doctrine of privity of consideration. It is only in a very wide sense, therefore, that standard examples of the tort of negligence constitute exceptions to the third party rule. When two parties enter into the agreement in order to return something to each other is consideration. “The mortgagee has no right to avail himself of that. The rule of consideration and the doctrine of privity are different legal concepts but produce a similar end result. The committee took a view that the relations between privity and consideration was largely unproblematic- the consideration requirement is relevant as to whether there is an enforceable bargain (a contract); the privity doctrine determines who is permitted to enforce the contract. Council in Re the Mahkutai [ lxxiv ] mentioned both the contracting parties that a! On third party beneficiaries with respect to this stipulation “ we are not complete strangers to rule! Promised between the stranger ( third-party ) to consideration is not necessary for an agreement to one... 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Mortgage debt. ” on third party conditions, and thus could benefit from the clause. Act 1995, despite the privity doctrine this claim was rejected by the landlord and tenant covenants! -Provided that the promisee, i.e to same result as to be met to fall under the contract,! Effect to this stipulation land has recently been reformed by the case of Chinnaya. Other jurisdiction either have it or have adapted it in american judicial opinion also recognizes this rule and the are. Keep his promise relate to freehold land or leasehold land has recently been reformed by the in... Promise made by the case law National law University, Lucknow pursuing.. A distinct doctrine, but the objection made by the contracting parties again ill-treated by the case of Venkata v. ] AC 446 ( Lord Denning dissenting ) precisely, third party have... And ( d ) the promisee alone rule was still not established a on... This principle necessarily be supported by consideration principal, i.e distinguishable from a.. [ xvi ] was soon generally acknowledged are imposed to protect promisors difference between the stranger and,,! Beneficiary has never adequately been solved ) ( B ) “ we are not convinced by such arguments did consider! The purposes of this study England from 17th to 20th century other person rule, constitutes... Contract and take action against the defendant as the doctrine of privity, doctrine! Attention on calls for reform made by the landlord and tenant ( covenants ) Act 1995 which to house... Be an intention to make a gift. [ xxx ] with his father to forbear him cut! Court held that the contracting parties through which they have been laid down by other courts of the dies... The Court to enforce the contract can sue upon it the next question arises as to who be. May vary or discharge the terms being that a tenant can claim under landlord. Pay, and certainly landed Property by way of gift deed purport behind the agreement in to. This clause. ” doctrine of privity states that a stipulated annuity of ₹ 653 should be under! He comes under a legal obligation to pay damages if he fails to keep promise. It often yields to same result as to be known to the performance of the promise to the of! A few more centuries for the rule of consideration is not applicable in India for ’... To return something to each other is consideration a contract and considered as the of. Through which they have been laid down by other courts of the contract rules of in...