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RESEARCH PROJ ECT of CONTRACT-1

ON THE TOPI C
PRIVITY OF CONTRACT

PRESENTED BY ---KUMAR MANGALAM
B.A.LLB, FIRST YEAR
2
ND
SEMESTER
ROLL NO.-936
SUBJECT TEACHER--- VIJAY KUMAR VIMAL
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TABLE OF CONTENTS


1. INTRODUCTION
a. Aim of the researcher
b. Research methodology
c. hypothesis

2. CHAPTERISATION
1. INTRODUCTION
2. COMPARISION WITH BRITISH LAW
3. DEFENCES RELATED TO PRIVITY OF CONTRACT
4. Cases related to privity of contract
5. CONCLUSION

3. bibliography






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1. Introduction

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. The parties who have done the contract are only titled to take action if any
breach of contract is done. A person who stands to any type of gain or
beneficiary is not entitled to take any enforcement action if that person denied
the promised benefit.
According to Indian contract act, 1872 it is dealt under CONSIDERATION
topic.
CONSIDERATION is defined as When, at the desire of the promisor, the
promisee or any other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a consideration for the
promise.
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There are several types of exceptions to privity of contracts:-
A) COLLATERAL CONTRACTS
B) AGENCY
C) TRUSTS
D) ) MARRIAGE SETTLEMMENTS, PARTITION OR OTHER
FAMILY AGREEMENTS
E) THIRD PARTY BENEFICIARY
F) STATUTES
G) REMEDIES OF THE CONTRACTING PARTY
H) IMPOSSIBILITY OF PERFORMANCE






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SECTION 2(D) OF INDIAN CONTRACT ACT, 1872
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1. a. aim of the researcher
The aim of the researcher is to find details about the privity of contract,
defenses related to it, comparison between British law and Indian law in
accordance with privity of contract, and case laws related to it.

1. B. research methodology
The researcher has used the doctrinal method for his research project. This
doctrinal method includes books, library books, journals, case law books and
online researches.

1. C. hypothesis
The hypothesis of the researcher is that any person who is party of contract or
not a party of contract can file suit against the party who breached the promises
of the contract.


2. Comparison with english law
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I N I NDI A
In India, there is no provision providing for the doctrine of privity of contract in
Indian Contract Act, 1872. However by judicial decisions it has been well
established that even in India the general rule is that a person who is not a party
to the contract cannot enforce the contract.
CASES RELATED THAT SHOWS APPLI CATI ON OF THE ABOVE
RULE
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BOOK OF CONTRACT-1 BY KAILASH RAI
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JAMADAS vs. RAM AVTAR
In this case, a person mortgaged his property to another person. Thereafter he
sold his property to a third person who agreed to with the seller to mortgaged
debt to mortgagee. The mortgagee brought an action against the third person
who purchased the property for the recovery of the mortgage money. The court
held that the contract was created between the seller and the purchaser and
mortgagee was not a party of the contract thereto and therefore he was not
entitled to enforce the contract.



M.C. CHAKO vs. STATE BANK OF TRAVANCORE
The Supreme Court has made it clear that a person who is not a party to a
contract cannot enforce it. However this general rule is subjected to a few
exceptions. If a trust is created by contract in favour of a third party in relation
to property, the third person can enforce the contract, even if he is not a party to
a contract. Besides , where the contract is apart of the family arrangement, the
person for whose benefit it has been made can enforce it, even if he is not a
party of the contract.

I N ENGLI SH LAW
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In England, the old rule is that if a person, who was to take a benefit under the
contract, was nearly related by blood to the promise a right of action would vest
in him.

CASES RELATED TO THAT SHOWS THE ABOVE RULE APPLI CATI ON
1. TWEDDLE vs. ATKINSON
In this case an agreement was entered between the respective fathers of a
husband and his wife. Under the agreement their fathers were to pay a sum of

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BOOK OF CONTRACT-1 BY KAILASH RAI
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BOOK OF CONTRACT-1 BY KAILASH RAI

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money to the husband and the husband could sue for such money. After the
death of the fathers, the husband sued the executors of his wifes father for the
money promised to hm. The court held that he was not entitled to enforce the
contract as he was not a party of the contract. The court has made it clear that a
person who is stranger to contract or stranger to consideration cannot enforce
the contract, even if he is intended to be beneficiary of the contract.


2. BESWICK VS. BESWICK
Peter Beswick was a coal merchant. He agreed to sell his business to his
nephew, the respondent, if he paid him a certain sum of money for as long as he
lived, and then to pay his wife (the appellant) 5 per week for the rest of her life
after he died. He died, and the nephew only paid his aunt once before stating
that no contract existed between them. She was also the administratrix of her
husband's will. Mrs. Beswick was unsuccessful at trial and successful at appeal,
which John Joseph Beswick appealed?

DECISION
The House of Lords decide that the aunt has no right to sue her nephew in her
own capacity as she was not a party to the contract. This overturns Denning's
findings in the lower court allowing third parties to sue for benefits that were
guaranteed to them under a contract. However, in her capacity as the
administratrix she is able to sue him for the specific performance of his promise
that was made in the contract. The appeal was dismissed by the court.


3. Exceptions related
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A. COLLATERAL CONTRACTS
A contract between two parties may be accompanied by a collateral contract
between one of them and a third person relating to the same subject-matter. For
example:

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http://www.lawteacher.net/PDF/Privity%20Lecture%20&%20Cases.pdf
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Shanklin Pier v Detel Products [1951] 2 KB 854. The plaintiffs had
employed contractors to paint a pier. They told them to buy paint made
by the defendants. The defendants had told them that the paint would last
for seven years. It only lasted for three months. The court decided that the
plaintiffs could sue the defendants on a collateral contract. They had
provided consideration for the defendants' promise by entering into an
agreement with the contractors, which entailed the purchase of the
defendants' paint.
There must, however, be an intention to create a collateral contract before that
contract can be formed


B. AGENCY
The concept of agency is an exception to the doctrine of privity in that an agent
may contract on behalf of his principal with a third party and form a binding
contract between the principal and third party.
For example, a third party may be able to take the benefit of an exclusion clause
by proving that the party imposing the clause was acting as the agent of the
third party, thereby bringing the third party into a direct contractual relationship
with the plaintiff:
In Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, a bill of lading
limited the liability of a shipping company to $500 per package. The
defendant stevedores had contracted with the shipping company to unload
the plaintiff's goods on the basis that they were to be covered by the
exclusion clause in the bill of lading. The plaintiffs were ignorant of the
contract between the shipping company and the stevedores. Owing to the
stevedores negligence, the cargo was damaged and, when sued, they
pleaded the limitation clause in the bill of lading. The House of Lords
held that the stevedores could not rely on the clause as there was no
privity of contract between the plaintiffs and defendants.
Lord Reid suggested that the stevedores could be brought into a contractual
relationship with the owner of the goods through the agency of the carrier
provided certain conditions were met: (1) that the bill of lading makes it clear
that the stevedore is intended to be protected by the exclusion clauses therein.
(2) that the bill of lading makes it clear that the carrier is contracting as agent
for the stevedore. (3) the carrier must have authority from the stevedore to act as
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agent, or perhaps, later ratification by the stevedore would suffice. (4)
consideration must move from the stevedore.
All of the above conditions were satisfied in New Zealand Shipping v
Satterthwaite (The Eurymedon) [1975] AC 154.

C. TRUSTS
Equity developed a general exception to the doctrine of privity by use of the
concept of trust. A trust is an equitable obligation to hold property on behalf of
another.
The device was approved by the House of Lords in Les Affreteurs Reunis v
Leopold Walford [1919] AC 801, where a broker (C) negotiated a charter party
by which the ship-owner (A) promised the charterer (B) to pay the broker a
commission. It was held that B was trustee of this promise for C, who could
thus enforce it against A.
However, the trust device has fallen into disuse because of the strict
requirements of constituting a trust and most particularly that there should be a
specific intention on the part of the person declaring the trust that it should be a
trust.
D. MARRIAGE SETTLEMENT, PARTITION OR OTHER FAMILY
MATTERS
If contract has been entered into for the purpose of marriage settlement or other
family arrangement, the person for whose benefit such agreement has been
made may enforce it, even though he is not a party to the contract. Thus, if n the
partition of the joint family, the male members entered into the contract so as to
provide that each of them will contribute equally towards the mmarriage-
expenses of the female members or maintenance of the old members for whose
benefit the contract has been entered into, even though the member or members
are the party to the contract.
E. THIRD-PARTY BENEFICIARIES
In Australia, it has been held that third-party beneficiaries may uphold a
promise made for its benefit in a contract of insurance to which it is not a party
(Trident General Insurance Co Ltd v. MacNeice Bros Pty Ltd (1988) 165 CLR
107). It is important to note that the decision in Trident had no clear ratio, and
did not create a general exemption to the doctrine of privity in Australia.
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Queensland, the Northern Territory and Western Australia have all enacted
statutory provisions to enable third party beneficiaries to enforce contracts, and
limited the ability of contracting parties to vary the contract after the third party
has relied on it. In addition, section 48 of the Insurance Contracts Act 1984
allows third-party beneficiaries to enforce contracts of insurance.
Although damages are the usual remedy for the breach of a contract for the
benefit of a third party, if damages are inadequate, specific performance may be
granted (Beswick v. Beswick [1968] AC 59).
The issue of third-party beneficiaries has appeared in cases where
a stevedore has claimed it is covered under the exclusion clauses in a bill of
lading. In order for this to succeed, three factors must be made out:
The bill of lading must clearly intend to benefit the third party.
It is clear that when the carrier contracts with the consignor, it also contracts
as an agent of the stevedore. That is, either the carrier must have had
authority by the stevedore to act on its behalf, or the stevedore must later
ratify (endorse) the actions of the carrier.
Any difficulties with consideration moving from the stevedores must be
made out.
The last issue was explored in New Zealand Shipping Co Ltd v. A M
Satterthwaite & Co Ltd [1975] AC 154, where it was held that the stevedores
had provided consideration for the benefit of the exclusion clause by the
discharge of goods from the ship.


F. STATUTES
Certain exceptions to the doctrine of privity have been created by statute,
including price maintenance agreements; and certain contracts of insurance
enforceable in favour of third parties. For example, under s148(4) of the Road
Traffic Act 1972, an injured party may recover compensation from an insurance
company once he has obtained judgment against the insured person.

G. REMEDIES OF THE CONTRACTING PARTY
The question of the extent to which a contracting party may recover for loss
sustained by a third party who is intended to benefit from the contract was
raised in:
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Jackson v Horizon Holidays [1975] 1 WLR 1468. The plaintiff entered
into a contract for himself and his family. The holiday provided failed to
comply with the description given by the defendants in a number of
respects. The plaintiff recovered damages and the defendants appealed
against the amount. Lord Denning MR thought the amount awarded was
excessive compensation for the plaintiff himself, but he upheld the award
on the ground that the plaintiff had made a contract for the benefit of
himself and his family, and that he could recover for their loss as well as
for his own.
However, in Woodard Investment Development v Wimpey Construction
[1980] 1 WLR 277, the House of Lords rejected the basis on which Lord
Denning had arrived at his decision, and reaffirmed the view that a
contracting party cannot recover damages for the loss sustained by the
third party. Their Lordships did not dissent from the actual decision in
Jackson, which they felt could be supported either because the damages
were awarded for the plaintiff's own loss; or because booking family
holidays or ordering meals in restaurants calls for special treatment.

4. Cases related
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A. DUNLOP PNEUMATIC TYRE CO. LTD. V. SELFRIDGE & CO.
LTD.
FACTS:
Dunlop, a tire manufacturing company, made a contract with Dew for sale of
tires at a discounted price on condition that they would not resell the tires at less
than the listed price and that any reseller who wanted to buy them from Dew
had to agree not to sell at the lower price either. Dew sold the tires to Selfridge
on the same Price Maintenance Terms, but Selfridge proceeded to sell the tires
below the price he promised to sell them for.
ISSUES:
1) Whether there was any contract between Dunlop and Selfridge?
2) Whether Dew contracted with Selfridge in the capacity of an agent of
Dunlop?

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CONTRACT-1 BY KAILASH RAI
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3) Whether Dunlop gave any consideration by itself or through the promisee,
acting as his agent in giving it?
HELD:
1) Dunlop was acting as complete stranger to the contract between Selfridge and
Dew and thus on account of privity of contract couldnt sue Selfridge for breach
of its agreement with Dew. It was a mere beneficiary to it on account of Price
Maintenance Clause.
2) On whatever terms the contract between Selfridge and Dew was made was to
be solely determined by them and was not in any way regulated or stipulated by
Dunlop apart from the Price Maintenance Clause. While Dew was assumed to
be acting as agent while inserting PMC in the contract it was acting as principal
while stipulating terms of the contract with Selfridgebut as held by Court, a
person cant contract in two capacities in the same agreement. Hence, HoL held
that Dunlop wasnt acting as the undisclosed principal of Dew.
3) Dew had the title to goods manufactured by Dunlop independently of any
contract with Selfridge. They were free to sell the tyres to anyone they wished.
Secondly, the consideration by way of discount was given wholly out of Dew
and neither directly nor indirectly out of Dunlop. Neither Dunlop gave any
consideration directly to Selfridge nor through Dew as his agent. Further since
all the terms of the contract including whether to give any discount to Selfridge
or not was solely stipulated by Dew on its own account and not as Dunlops
agent, therefore HoL unanimously held appellants contention that their
permitting and enabling Dew, with the knowledge and desire of Selfridge, to
sell to the latter on the terms of its contract was consideration moving from
Dunlop to Selfridge, as unsustainable.

B. JAMADAS vs. RAM AVTAR
In this case, a person mortgaged his property to another person. Thereafter he
sold his property to a third person who agreed to with the seller to mortgaged
debt to mortgagee. The mortgagee brought an action against the third person
who purchased the property for the recovery of the mortgage money. The court
held that the contract was created between the seller and the purchaser and
mortgagee was not a party of the contract thereto and therefore he was not
entitled to enforce the contract.

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C. M.C. CHACKO V. STATE BANK OF TRAVANCORE

FACTS:
H bank had an overdraft account with State Bank. MC Chacko was the manager
of H bank and his father K had guaranteed the repayment of debt. K gifted his
properties to members of his family. The gift deed provided that liability if any
under the said guarantee should be met either by MC personally or through
property gifted to him under the said deed. State Bank sued all the heirs under
the deed alongwith MC; albeit limitation period to sue on letter of guarantee had
already passed.
ISSUES:
1) Whether a charge was created in favour of State Bank under the said deed
to satisfy the debt under the letter of guarantee?
2) Whether the charge, assuming that a charge exists, is enforceable by bank
when it is not a party to the deed?
HELD:
A charge may be created on immovable property when either through express
words or implied from deed, it is clear that party intended to make a specified
property or fund, belonging to him, liable for debt due by him.
In present case, no such charge was created in favor of State Bankthe deed
merely set out an internal arrangement between the donor and members of
family which conferred a right of indemnity upon them against M.C. Chacko
and his inherited propertyhowever, no intention to convert a personal debt
into a secured debt in favor of the bank could not be inferred. Since it was a
debt of K such that he was personally liable under the debt; after his death all
his inheritors were liable to satisfy the debt out of his estate, inherited by them.
However, in such a case, other members would have been indemnified by M.C.
Chacko for any share of debt paid by them.
By the definition of promisor and promisee as contained in S.2 along with
constructive interpretation of ICA in light of similar provisions in English Law,
the notion that a stranger to a contract could enforce the obligations there
under is completely excluded. A person not a party to contract cannot enforce
the terms of the contract unless he is a beneficiary under the contract or the
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contract is one of family arrangement (which confers upon him equitable rights,
albeit not contractual)
Even if charge would have been created in favour of State Bank, it wouldnt
have been able to enforce it since it is not a party to the deed and, was a
complete stranger to it: it wasnt a beneficiary under the contract.
Since limitation period has passed, State Bank couldnt claim anything under
the letter of guarantee either from MC Chacko (who personally never
guaranteed payment) and or from any other heir of K.

D. RANA UMANATH BAKSH SINGH Vs. JUNG BAHADUR
FACTS:-
A son was appointed by his father as his successor. The entire state was given to
him. The father has an illegitimate son also. In consideration the legitimate son
therefore agreed with his father to give certain sum of money and a village to
the illegitimate son after he attains majority. But later he refused to his promise.
HELD:-
The court held that since it is matter of trust between son and father so the
illegitimate son has right to enforce the contract and take his share of money
and village. The decision was in the favour of the illegitimate son.

E. KWAJA MOHAMMAD KHAN vs. HUSSAINI BEGAM
FACTS
Kwaja Mohammad khan entered into a contract with father of Hussaini begum
and under the contract he was promised to pay Rs 500 per month in perpetuity
as Kharch-e-Pandan if she married his son. He also charged his immoveable
property for the payment. After marriage they said allowance was paid to
Hussaini Begum for sometimes. On account of quarrel between Hussaini
Begum and her husband, both separated from each other and thereupon the
payment of the allowance was stopped. Hussaini begum filed a suit for
enforcement of the contract.

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HELD
The court held that the property was specially payment of the said personal
allowance and she was beneficiary of the charge and therefore, she could
enforce the contract, even though she was not the party of the contract.

F. SUNDARARAJA AYENGAR vs. LAKSHMIAMMAL
FACTS
In this case on the partition of the family, the male members entered into an
agreement to contribute towards the expenses on the marriage of a female
member of the family. The female member brought a suit to enforce the
contract.
HELD
The court held that even though he was not a party of the contract, she could
enforce the contract as it was entered into for her benefit.

G. ROSE FERNANDES vs. JOSHEPH CONSLAVES
FACTS:-
The father of the plaintiff, a minor girl entered into an agreement for her
marriage with the defendant. After attaining majority the plaintiff brought suit
against the defendant for breach of contract.
HELD:-
The court held that the plaintiff could sue the defendant for the breach.

H. NARAYAN DEVI vs. TAGORE COMMERCIAL CORP. LTD.
There was a contract between plaintiffs husband and the defendant. According
to this contract the plaintiffs husband was to sell certain shares to the defendant
and as a consideration thereof the defendant was to pay Rs. 500 per month to
the plaintiffs husband during his lifetime and after his death, Rs. 250 per month
to his wife during her lifetime. After the death of the plaintiffs husband, the
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defendant made certain payments to the plaintiff in accordance with the
contract, and asked plaintiff to execute certain documents in this connection.
HELD:-
The court held that by making certain payments accordance with the contract
and asking the execution of certain documents in this connection, the defendant
accepted the right of the plaintiff under the contract therefore, he was stopped to
deny the right of the plaintiff. Thus, the court held that the plaintiff was entitled
to enforce the contract, although she was not party to the contract.

I. DEV RAJ URS vs. RAMAKRISHNIAH
FACTS:-
A person sold his house to another person. A part of the price was left to the
seller in the hands of the buyer for the payment of his creditor. The buyer made
a part of payment and informed the creditor that the balance would be paid
soon. He informed the creditor that the payment was made out of the sale price
left by the seller in his hands. He failed to pay the balance and therefore the
creditor sued him.
HELD:-
The court held that the buyer acknowledged his liability to pay the amount due
to the creditor and also the right of the creditor to recover the balance from him
and therefore the creditor was entitled to recover the balance, although he was
not a party to the contract.
J. KHIROD BEHARI vs. MAN GOVIND PANDA
FACTS:-
There was a contract between tenant and sub-tenant. According to this contract
the sub tenant was to pay the rent directly to the landlord. He actually paid the
rent and landlord accepted it also.
HELD:-
The court held that sub tenant could be stopped from denying his liability to pay
the rent to the landlord and landlord could sue to recover the unpaid rent,
although he was not a party to the contract.
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5. Conclusion
After doing the research work, the researcher has came to the conclusion that
the person who is not the party to the contract cannot enforce the contract or
cannot file suit for the breach of the contract. There are also some exceptional
cases related to privity of the contract. The exceptional cases include:-
1. COLLATERAL CONTRACTS
2. AGENCY
3. TRUSTS
4. MARRIAGE SETTLEMMENTS, PARTITION OR OTHER
FAMILY AGREEMENTS
5. STATUTES
6. REMEDIES OF THE CONTRACTING PARTY
7. IMPOSSIBILITY OF PERFORMANCE
Therefore the hypothesis of the researcher proved wrong at the end of the
research.


BIBLOGRAPHY
1. SECTION 2(D) OF INDIAN CONTRACT ACT, 1872
2. BOOK OF CONTRACT-1 BY KAILASH RAI PAGE NO.102
3. BOOK OF CONTRACT-1 BY KAILASH RAI PAGE NO.100-101
4. http://www.lawteacher.net/PDF/Privity%20Lecture%20&%20Cases.pdf ACCESSED
ON 16
TH
April 2014 AT 18 HRS
5. CONTRACT-1 BY KAILASH RAI FROM PAGE NO. 100-105