B sued C for the recovery of the mortgage money, but he could not succeed because he was no party to the agreement between A and B. Lord MacNaughtan, in his very short judgment, said that the undertaking to pay back the mortgagee was given by the defendant to the vendor. In Swain v Law Society[c], Lord Diplock referred to the general non-recognition of third party rights as “an anachronistic shortcoming that has for many years been regarded as a reproach to English private law”. 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]. If any other person furnishes the consideration, the promisee becomes the stranger and, therefore, cannot enforce the promise. This means that a tenant can claim under its landlord’s insurance, and a landlord under its tenant’s insurance. Are there any criteria to be met to fall under the category of “beneficiary”? The application of Doctrine of Privity has been appreciated by the Indian courts with the well –recognized exceptions like beneficiaries of a trust, family arrangement and marriage settlements, tort, collateral contracts, creation of charge or covenants running with land. [xxiii]Tomlinson v. Gill (1756) Amb 330; Lloyd’s v. Harper (1880) 16 Ch D 290; Paul v. Constance [977] 1 WLR 527. 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. 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. Iacobucci J emphasised that in appropriate circumstances the courts should not abdicate their judicial duty to decide on incremental changes to the common law which were necessary to address emerging needs and values in society.21 In the London Drugs Ltd case, employees of a warehouseman sought to rely on the limitation of liability clause in the contract between their employer and the client (the bailor) when the employees were sued by the bailor. Here it should be noted the difference between the stranger (third-party) to consideration and a stranger to a contract. The leading authority, in this case, is the case of Venkata Chinnaya v. [lxi] After acceptance, the promisor’s duty to perform in favour of and at the suit of the beneficiary becomes enforceable, and the promise may only be varied with the consent of the promisor, promisee and beneficiary. [lxii]Queensland Property Law Act 1974, s 55(3)(a) and (d). Lord Goff of Chievely of the Privy Council stated in an obiter dictum: “the time may well come when, in an appropriate case, it will fall to be considered whether the courts should take what may legitimately be perceived to be the final, and perhaps inevitable, step in this development, and recognize in these cases a fully-fledged exception to the doctrine of privity of contract, thus escaping from all the technicalities with which courts are now faced in English law. The debates are not just due to the lack of clarity in the statutes or dissenting judicial pronouncements but much of these owe to the academic and judicial debates linked with the ground roots of this doctrine. Consideration must flow from the promisee. • The doctrine of consideration requires a person with whom a contract not under seal is made is only able to enforce it if there is consideration … [civ], [iii] 123 ER 762: I B&S 23: 30 LJ QB 218: 4 LT 468: 124 RR 610, [iv]Corny and Curtis v. Collidon; 1674 (1) Freem. Exceptions to the Doctrine of Privity of Contract 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. 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. In Dutton v. Poole[x]a son promised his father that, in return for his father not selling a wood, he would pay 1000 pounds to his sister. Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 - For example sub-contractors cannot sue a party to a contract as they lack the necessary consideration. The relationship between father and daughter was found to extend the consideration that the father gave in the promise to the children. This theory basically meant that only he who had an interest in the promise could bring up an action before the court, or in the words of the Court, “He that hath interest in the promise shall have the action”[iv]. This is referred to as the Doctrine of Privity. 1833 saw the case of Price v. Interest of such third parties secured by the contracting parties through which they have been benefited or burdened by the contract. (Hons.). 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. Our law knows nothing of a jus quaesitumtertio…’[lxxiii] “. There were also cases where the reason given why the third party could not sue was because he was a stranger to the consideration, that is, he had given nothing in return for the promise[xiv]. Hence, at issue was whether the scope of the indemnity extended to the plaintiff. 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. Privity of contract came about when third parties went to court to enforce the terms of contracts, even though they weren’t actually parties to the contract. 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. From the nature of the covenant entered into by him, a lessee has both privity of contract and of estate; and though by an assignment of his lease he may destroy his privity of estate, still the privity of contract remains, and he is liable on his covenant notwithstanding the ass In Carnegie v. Waugh[xii], the tutors and curators of an infant, C, executed an agreement for a lease with A, for an annual rent to be paid to C. It was held that C could sue on the instrument, even though he was not a party to it. 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. [xxx]Toucheross& Co v Colin Bakr [1992] 2 Lloyd’s Rep 207; Sin Yin Kwan v Eastern Insurance [1994] 1 All ER 213. This exception covers cases where the promisor by his conduct, acknowledgment, or otherwise, constitutes himself an agent of the third party. Copyright © 2020 Lawctopus. [47] As well as Haldane's judgment in Dunlop, the courts have stated a similar principle in other cases such as Scruttons Ltd v Midland Silicones Ltd [1962] AC 446 and Beswick v Beswick – that privity is separate from consideration. This instruction was given in reliance on a representation made by the defendants to the plaintiffs that the paint would last seven years. 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]. “Doctrine of Privity” is one of the most controversial doctrines under law of contracts, including that in the country of India. Then, what do you mean by privity of contract? A person was an “incidental beneficiary” if the benefits to him were merely incidental to the performance of the promise. As such, they are considered to be closely related to one another. He was no party to the sale. Despite several attempts by Denning LJ to allow rights of suit by third party beneficiaries,[xxi] the House of Lords reaffirmed the general rule in Midland Silicones Ltd v Scruttons Ltd[xxii] Viscount Simonds said: “[H]eterodoxy, or, as some might say, heresy, is not the more attractive because it is dignified by the name of reform. A Critical Analysis Of The Usage Of May Not In…, The Corona Conundrum: How to Deal with China Legally, Implementation of Work From Home Policy in India in…, New Technologies in Arbitration: Ensuring…, A Critical Overview Of Offences Against Women Under The Indian Penal Code, The contracting parties intend to confer such a right upon the third party (the so-called ‘first-limb’ of the test of enforceability), The contracting parties intend to confer a, The proposed right to enforce puts a third party beneficiary in a better position that the gratuitous promisee, Neither the third party beneficiary nor the gratuitous promisee provides consideration; therefore. This claim was rejected by the Court of Common Pleas. Though many cases were decided in the 17th century, the privity rule was still not established. [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. Although the English doctrine of privity of consideration is not applicable in India, the doctrine of Privity of Contract generally is. [lxiii]Queensland Property Law Act 1974, s 55(3)(b). There are many decided cases which declare that a contract cannot be enforced by a person who is not a party to the contract and that the rule in Tweddle v. Atkinson[lxxxi]is very much applicable in India as well. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages in case of breach. 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 those cases are based on the view that such related third parties are claiming through a party to the contract, that it is in the position of a “cestuique trust”[lxxvi] or of a principal suing through an agent, that under the old procedure he/it could have filed a suit in equity, even if he/it could not have sued at common law. It was held that the sister could sue, on the ground that the consideration and promise to the father may well have extended to her on account of the tie of blood between them. Wightman J said: “It is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit.”, whereas, Crompton J said that “consideration must move from the promisee”. If an immediate assignment is valid, there can hardly be fundamental objections to allowing the third party to sue without an assignment. LAWFUL CONSIDERATION The most important factor of valid contract is the consideration. In the above case, ‘C’ cannot sue the parties as he has not provided any consideration for the contract. And although it were objected that the father was at the charge for the curing the son of his wounds, yet, because it was a thing he was a thing he not compelled unto, it is no cause why he should maintain this action.”. 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]. B owed money to C. A would agree with B to pay C in return for B doing something for A, such as working or conveying a house. Two recent judgments of the Supreme Court of Canada have modified the law relating to privity: London Drugs Ltd v Kuehne & Nagel International Ltd[lxx]and Fraser River Pile & Dredge Ltd v Can-Dive Services Ltd[lxxi]. G.) Collateral Contract: A contract between two parties may be accompanied by a collateral contract between one of them and a third party. In Muniswami Naickerv. 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. Thus insurance brokers are both agents of the insured and of the insurer.[xxx]. In Drive Yourself Hire Co (London) Ltd v Strutt[xx], Denning LJ said: “It is often said to be a fundamental principle of our law that only a person who is a party to a contract can sue on it. Scope of intervention in India, Major Reshuffle in Andhra, Telangana HC; CJs shifted. A would not pay, and C would sue A. An old lady gave to the defendant, her daughter, and certainly landed property by way of gift deed. Hamm. However the stranger should be included under the scope of “intended beneficiary” who has reciprocal obligations under the contract. B.) 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 main principle highlighted by this concept of Privity of Contract is regarding the rights of third parties in a contract. As in the Trident case, the central issue in London Drugs was whether the particular circumstances were appropriate ones in which to relax the privity doctrine. I am Sakshi Agarwal from Dr. Ram Manohar Lohiya National Law University, Lucknow pursuing B.A. The employees fulfilled these two conditions, and thus could benefit from the limitation clause, despite the privity doctrine. The main principle highlighted by this concept of Privity of Contract is regarding the rights of third parties in a contract. The defendant, the promisor agreed to the agreement and also executed an, Doctrine of Privity of Contract & its Exceptions, ADM Jabalpur vs Shivkant Shukla (1976) 2 SCC 521 – Case Summary, Impact Of Covid-19 on residential housing & commercial properties in the light of the work from home culture, SC expressed disapproval at practice of articulating Final Orders unaccompanied by Reasoned Judgements, Couple’s plea for abortion of 35-Week Pregnancy dismissed by High Court of Kerala, When can a person intervene in a suit? 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. When consideration is given by a third party then the promisee is called stranger to consideration. [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. A collateral contract may in effect allow a third party to enforce the main contract (between A and B). In the words of Jenkins, CJ: “That Indian Contract Act is unlike the English Contract Act and the limits with which the doctrine of privity of contract operates in English law cannot with same vigour be applicable to Indian Contract Act”[lxxxiii]. [lxxxiii]DebnarayanDutt vs ChunilalGhose, reported in (1914) ILR 41 Cal 137; approved and followed in N DevarajeUrs v M Ramakrishniah AIR 1952 Mys 109. 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. Every agreement to be enforceable at law must necessarily be supported by consideration. [lviii]Western Australia Property Law Act 1969, s 11(2)(c). In Shanklin Pier v. Detel[xxxix] the plaintiff had employed contractors to paint their pier, and instructed them to use a paint made by the defendants. Although the principle of vicarious immunity was subsequently generally accepted by the lower courts, it did not survive the decision of the House of Lords (Lord Denning dissenting) in Midland Silicones Ltd v Scruttons Ltd.[xxxvii]the defendant stevedores, engaged by the carrier, negligently damaged a drum containing chemicals. The existence of the principal does not have to be known to the party with whom the agent is contracting. 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. F.) Vicarious Immunity: The principle vicarious immunity is illustrated by the case of Elder, Dempster Ltd v Paterson Zochonis& Co Ltd.[xxxvi]. The student in this study hence tries to establish how the above mentioned position was achieved and the conditions and the scenario that paved the path for the current position of the third parties, especially after the Rights of Third Parties Act of 1999. 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. I’m always excited about it and never miss a chance to explore new places and be adventurous. the plaintiff had furnished no consideration. In the Trident case, the question was whether McNiece, a contractor employed by Blue Circle, could rely on an insurance policy written by Trident for Blue Circle. The law on covenants relating to leasehold land has recently been reformed by the Landlord and Tenant (Covenants) Act 1995. The Supreme Court has, by its decision in M.C. What can be done when the city police tow the vehicle in a non parking zone? This is the principle as established by the English Courts in as early as 1677 in the case of Dutton v. Poole[lxxvii]. In The Pioneer Container[ci] Lord Goff called into question the future of the rule, and in White v Jones[cii] his Lordship said, “[O]ur law of contract is widely seen as deficient in the sense that it is perceived to be hampered by the presence of an unnecessary doctrine of consideration and (through a strict doctrine of privity of contract) stunted through a failure to recognise a jus quaesitumtertio”. on Part. Although McNiece was within the category covered it was not directly in contract with Trident. …If the principle of jus quaesitumtertio is to be introduced into our law, it must be done by Parliament after a due consideration of its merits and demerits”. Unlike in English law, this concept is wholly contrary to Indian concept. Punjab & Haryana HC directed Haryana DGP to book Investigating Officers who fail to secure the CCTV footages in Criminal Cases, Maneka Gandhi vs Union Of India – Case Summary. The authority of Tweddle v Atkinson[xvi]was soon generally acknowledged. 1.What is the doctrine of privity of contract As per the dictionary meaning privity of contract means: Legal doctrine that a contract confers rights and imposes liabilities only on its contracting parties. Such decisions are recognized as exceptions to a general principle that only parties to the contract can sue upon it. However, a stranger (third-party) to consideration is different from a stranger to a contract. The Indian Contract Act. Even though under Indian Contract Act, the definition of consideration is wider than in English law and the consideration can very well be given by a non-contracting party, yet the common law principle of Doctrine of Privity is generally accepted in India.