For instance in Bhujendra Nath v. Sushamoyee Basu[xciv], the division bench of the Calcutta High Court has held that a stranger to a contract which is to his benefit is entitled to enforce the agreement to his benefit. the Consideration must move from the promisee to the promisor only. The aforementioned are more or less the well- accepted and settled exceptions to the Doctrine of Privity. The court held that it was inequitable for the defendant to keep the wood also and deprive the plaintiff of her share. The plaintiff brought an action against the defendant as the insurer for an indemnity. [xxiii]Tomlinson v. Gill (1756) Amb 330; Lloyd’s v. Harper (1880) 16 Ch D 290; Paul v. Constance [977] 1 WLR 527. The Supreme Court held that the privity rule could be relaxed where the parties to the contract had, expressly or by implication, intended the relevant provision to confer a benefit on the third parties (the employees), and the action taken out by the third parties came within the scope of the agreement between the initial parties. While implying that the way forward was by legislation, he stated that the House of Lords might find it necessary to deal with the matter if there was a further long period of Parliamentary procrastination. The Trident case was considered in B + B Construction Ltd v Sun Alliance and London Insurance Plc,[lxxii]the facts of which were similar to those of the Trident case. In the words of Toohey J[lv]: “When a rule of the common law harks back no further than the middle of the last century, when it has been the subject of constant criticism and when in its widest form, it lacks a sound foundation in jurisprudence and logic and further, when that rule has been so affected by exceptions or qualifications, I see nothing inimical to principled development in this Court now declaring the law to be otherwise in the circumstance of the present case.”. ... Privity of Contract. Nevertheless, as Godfrey VP reiterated in the B + B case, the privity doctrine is still part of the Hong Kong law.[lxxv]. CONSIDERATION Consideration is considered to be one of the most important essentials in a valid contract. [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]. 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. He was no party to the sale. If an immediate assignment is valid, there can hardly be fundamental objections to allowing the third party to sue without an assignment. C would lose because he or she had given nothing for A’s promise. 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. Richardson, J. stated that the action should have been “more properly” brought by the son, for he was the person “in whom the interest is”. 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 love to listen to people and when it comes to debate, it’s the best opportunity to learn by listening. 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. Vedachala Naicker[lxxxvii], the Madras High Court held: “There is ample authority for he proposition that in this country, and indeed in a certain class of cases in England where a contract is made between ‘A’ and ‘B’ for the benefit of ‘C’, ‘C’ is entitled to sue the defaulting party. 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.”. Then, the student tries to look into the position held by this concept in other major countries of the world. However, in the Report, the Commission’s reasoning ran along the following lines: The report, thus, signalled a decisive break from the orthodoxy of the privity doctrine which, in the earlier part of the century, was identified by Viscount Haldane LC as one of the fundamental principles of English contract law[ciii]. G.) Collateral Contract: A contract between two parties may be accompanied by a collateral contract between one of them and a third party. The Privy Council in Re the Mahkutai[lxxiv]mentioned both the Trident case and the London Drugs Ltd case. According to Section 2(h) of the Indian contract act 1872, a contract is an agreement between two parties enforceable by law backed by some consideration. The Privy Council in its decision in Jamna Das v. Ram Autar[lxxxii]extended this rule to India. D.) Motor Insurance: Under section 148(7) of the Road Traffic Act 1988, a person issuing a policy under Section 145 of the Act shall be liable to indemnify the persons or classes of person specified in the policy in respect of any liability which the policy purports to cover in the cases of such persons. The employees fulfilled these two conditions, and thus could benefit from the limitation clause, despite the privity doctrine. Subsequently she was again ill-treated by the defendant and also driven out. These questions were highly prevalent in England from 17th to 20th century. K.B. Thought the position in various countries is now similar, if not the same, it was not the same when the rule came into being. However, they have come to the conclusion that it would not be appropriate for them to do so, first, because they have not heard argument specifically directed towards this fundamental question, and second because, as will become clear in due course, they are satisfied that the appeal must in any event be dismissed.”, The Privy Council here raised the possibility of “a fully-fledged exception” to the privity doctrine. The law does not allow a stranger to file a suit on the contract. [xxi]Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board [1949] 2 KB 500; Drive Yourself Hire Co (London) Ltd v Strutt[1954] 1 QB 250. A promisee can be held to be a trustee for a third party only if he has the intention to create a trust[xxiv] and this intention must be to benefit the particular third party and not third parties generally. 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. 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. The Law Reform Commission of Hong Kong Report. Under the rules of consideration, consideration must be presented from a promisee. 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 London Drugs case, the Canadian Supreme Court has followed the example of the Trident case by openly relaxing the privity doctrine in the London Drugs were as follows Pursuant to a warehousing contract, London Drugs delivered a transformer to Kuehne and Nagel for storage. Under the current operation of the law, a stranger could be awarded damages if the infringement is proved. It lasted for only 3 months. 2. 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. Privity of contract & third party beneficiary 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? This is referred to as the Doctrine of Privity. When two parties enter into the agreement in order to return something to each other is consideration. [lxxxiii]DebnarayanDutt vs ChunilalGhose, reported in (1914) ILR 41 Cal 137; approved and followed in N DevarajeUrs v M Ramakrishniah AIR 1952 Mys 109. 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]. [xxv] And a mere intention to confer a benefit is not enough, there must be an intention to create a trust. It means therefore, that as long as there is a consideration for a promise, it is immaterial who has furnished it. This is the postulate of the doctrine of privity of consideration. The current relaxed requirements of modern contract law and non-conventional approach of the judiciary in relation to Doctrine of Privity have provided an avenue for redress to genuinely affected persons who the strict interpretation of Doctrine of Privity might have been deprived of rights as such. A promised B that, in return for not arresting him, he would pay the debt. [lxii] On acceptance, the beneficiary is bound to perform any acts that may be required of him by the terms of the promise. The leading authority, in this case, is the case of Venkata Chinnaya v. Here, the agreement was between the father and the son, the defendant had made a promise to pay the amount to the plaintiff. on Part. This rule although distinct from privity doctrines it often yields to same result as to be so connected. Copyright © 2020 Lawctopus. 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. [xiii]Jordan v Jordan (1594) Cro Eliz 369; 78 ER 616 (C gave a warrant to B to arrest A for an alleged debt. 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. This decision was supported, obiter, by Lord Mansfield in Martyn v. Hind (1776) 2 Cow p. 437, 443: ER 1174, 1177. 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. • 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 … [xli] ILR (1924) 48 Bom 673: AIR 1925 Bom 97. [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. A collateral contract may in effect allow a third party to enforce the main contract (between A and B). The court in Dutton v. Poole[1] did not consider this principle. Despite this lack of privity, the majority of the Hifh Court ruled in favour of McNiece. We also can say that only a person who has provided consideration can enforce a promise. [xxxiv]Farrow v Wilson (1869) LR 4 CP 744. 1872, allows the ‘ Consideration ‘ for an agreement to proceed from a third-party. 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. Marriage Settlement, Partition or Other Family Arrangements: Where an agreement is made in any of the mentioned concerns and a provision is made for the benefit of a person, he may take advantage of that agreement although he is no party to it. 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. It is only in a very wide sense, therefore, that standard examples of the tort of negligence constitute exceptions to the third party rule. Also, the intention to benefit the third party must be irrevocable. Then, what do you mean by privity of contract? 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]. 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. 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 main principle highlighted by this concept of Privity of Contract is regarding the rights of third parties in a contract. Thought the position in various countries is now similar, if not the same, it was not the same when the rule came into being. the plaintiff had furnished no consideration. At all times, whether it’s working, studying or just sitting idle I aim to find happiness. 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). Juan and Elsa Alva had sued Cloninger for failing to detect damage to the house they would soon mortgage. 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. A decision of the High Court of Australia Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd[liii]and that of the Canadian Supreme Court London Drugs Ltd v. Kuehne and Nagel International Ltd[liv]are the two most significant cases in this aspect. A would not pay, and C would sue A. The relationship between father and daughter was found to extend the consideration that the father gave in the promise to the children. 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’. The two principles of privity and consideration have become tangled but are still distinct. The defendant executed in plaintiffs favour and, The defence put forward by the defendant was that the promisee, i.e. 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,”. Strictly speaking, of course, a collateral contract is not an exception to the third party rule in that the ‘third party’ is a party to the collateral contract albeit not a party to the main contract. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd.[xix] the House of Lords accepted that it was a fundamental principle of English law that only a party to a contract who had provided consideration could sue on it. B.) In this section we focus our attention on calls for reform made by the judiciary in past cases. 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. want. Though many cases were decided in the 17th century, the privity rule was still not established. In this case, the father of a child’s assumpsit on the father of another child in order to stop the latter child from assaulting the former. An old lady gave to the defendant, her daughter, and certainly landed property by way of gift deed. [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. [lxiii]Queensland Property Law Act 1974, s 55(3)(b). Also, an agent may be the agent of both the contracting parties. If any other person furnishes the consideration, the promisee becomes the stranger and, therefore, cannot enforce the promise. The Indian Contract Act. It has been already established in this study that the Doctrine of Privity as such was established in the case of Tweddle v. Atkinson[lxxviii]and that the principle laid down, or the law declared in it was affirmed in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd[lxxix]. 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. …But here, in Hong Kong, the law remains as magisterially stated by Viscount Haldane LC in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd: ‘… only a person who is a party a contract can sue on it. In this case A borrowed ₹40,000 by executing a mortgage of her zamindari in favour of B. 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. The court of appeals ruled that Cloninger was liable for the loss suffered by the Alvas because he was hired under the understandi… “The mortgagee has no right to avail himself of that. 176. 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.”. A study of a few cases decided in the 18th century and the 19th are essential in order to reach that establishment. Contracting parties a consideration for the rule of consideration and the purchaser is not applicable England... Gift. [ xxvi ] [ xlvi ] well-established exception to the children merely highlight of... Abstinence by the defendant party, may be benefited o burdened only parties to contracts should be noted difference... Promisee may vary or discharge the terms of the main difficulties revealed by the defendant in... U was appointed by his father to forbear him to cut down an woodland! The father-in-law died before his portion of money had been paid cases where the is! 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