Skip to main content

Privity of Contract

                     Privity of contract 

The rule of “Privity of contract” which means that a stranger to contract cannot sue, has taken from roots in the English Common Law. But the principal has been generally criticized. In 1937, the Law Revision Committee under the chairmanship of Lord Wright, also criticised the doctrine and recommended its abolition. In its Sixth Interim Report the committee stated:

 Where a contract by its express terms purports to confirm a benefit directly on a third party, the third party shall be entitled to enforce the provisions in his own name, provided that the promisor shall be entitled to raise against the third  party any defence that would have been valid against the promise of

Lord Justice DENNING has also criticised the rule in a number of cases in one of which the lordship observed :

 It (the privacy principle) has never been able entirely to supplant another principle whose roots go much deeper. I mean the principle that a man who makes a deliberate promise which is intended to be binding, that is to say, under seal or for good consideration, must keep his promise; and the Court will hold him to it, not only at the suit of the party who gave the consideration, but also at the suit of one who was not a party to the contract, provided that it was made for his benefit and that he has sufficient interest to entitle him to enforce it, subject always, of course, to any defences that may be open on the victims.

In the subsequent case of Beswick versus Beswick the Court of Appeal adopted the same approach. In that case:

B was a coal merchant. The defendant was assisting him in his business. B entered into an agreement with the defendant by which the businesses was to be transferred to the defendant. B was to be employed in it as a consultant for his life and after his death the defendant was to pay to his widow an annuity of $5 per week, which was to come out of the business. After B’s death the defendant paid B’s widow only one sum of $5. The widow brought an action to recover the arrears of the annuity and also to get specific performance of the agreement.

It was held that she was entitled to enforce the agreement. Thus the plaintiff was allowed to enforce the agreement in her personal capacity although she was not a party to it and it was considered not necessary to infer a trust in favour of the plaintiff. Lord DENNING MR concluded with the words:

Where a contract is made for the benefit of a third party who has a legitimate interest to enforce it, it can be enforced by the third party in the name of the contacting party or jointly with him or, if he refuses to join, by adding him as a defendant. In that sense, the 3rd party has a right arising by the way of contract. He has an interest which will be protected by law. The observations to the contrary are in my opinion erroneous. It is different when a third person has no legitimate interest, as when he is seeking to enforce the maintenance of prices to the public disadvantages.

Position in India: Decisions following English Law

In India also there has been a great divergence of opinion in the courts as to how far a stranger to a contract can enforce it. There are many decided cases which declare that a contract cannot be enforced by a person who is not a party to it and that the rule in Tweddle v. Atkinson is as much applicable in India as it is in England. But there are no provinces in the contract act either for or against the rule. The Privity counsel extended the rule to India in its decision in Jamma Das versus Pandit Ram Autar Pandey.

A borrowed Rs.40,000 by executing a mortgage of her zamindari in favour of B. Subsequently she sold the property to C for Rs. 44,000 and allowed C, the purchaser, to retain Rs.40,000 of the price in order to redeem the mortgage if he thought fit.  B sued C for the recovery of the mortgage money, but he could not succeed because he was not part of the agreement between A and B.

Decisions not following English law

There is, however another line of thinking also which is mainly based upon and observation of the Privity council. The Calcutta High Court observed: Nor is there anything in the Indian contract Act, which prevents the recognition of a right in a third party to enforce a contract made by others, which contains a provision for his/her benefit.  The Supreme Court of India has expressed itself in favour of the rule in Tweddle v. Atkinson. This means that the supreme court upholds the rule of Privity.  

Exceptions to Privity rules 

In the course of time, the courts have introduced a number of exceptions in which the rule of Privity of contract does not prevent a person from enforcing a contract which has been made for his benefit but without his being a party to it. Many of the exceptions are connected with the special branches of the law of contract, such as negotiable instruments, agency, bill of lading, railway receipts, transfer property, etc. Some of the most commonly known exceptions may be considered here.

1. Beneficiary under trust or charger other agreements. 

2. Marriage settlement, partition on other family arrangements

3. Acknowledgement or Estoppel

4. Convenants running with land


Comments

Popular posts from this blog

Section 58B of The Advocates Act - Special provision relating to certain disciplinary proceedings

 Section 58B The Advocates Act Description (1) As from the 1st day of September, 1963, every proceeding in respect of any disciplinary matter in relation to an existing advocate of a High Court shall, save as provided in the first proviso to sub-section (2), be disposed of by the State Bar Council in relation to that High Court, as if the existing advocate had been enrolled as an advocate on its roll. (2) If immediately before the said date, there is any proceeding in respect of any disciplinary matter in relation to an existing advocate pending before any High Court under the Indian Bar Councils Act, 1926 (38 of 1926), such proceeding shall stand transferred to the State Bar Council in relation to that High Court, as if it were a proceeding pending before the corresponding Bar Council under clause (c) of sub-section (1) of section 56: Provided that where in respect of any such proceeding the High Court has received the finding of a Tribunal constituted under section 11 of the Indian B

Case Laws related to Defamation in favour of ClaimantCase Laws related to Defamation in favour of Claimant. TOLLEY Vs, J.S FRY & SONS LTD – (1931) Facts The defendants were owners of chocolate manufacturing company. They advertised their products with a caricature of the claimant, who was a prominent amateur golfer, showing him with the defendants’ chocolate in his pocket while playing golf. The advertisement compared the excellence of the chocolate to the excellence of the claimant’s drive. The claimant did not consent to or knew about the advertisement. Issue The claimant alleged that the advertisement suggested that he agreed to his portrait being used for commercial purposes and for financial gain. He further claimed that the use of his image made him look like someone who prostituted his reputation for advertising purposes and was thus unworthy of his status. At trial, several golfers gave evidence to the effect that if an amateur sold himself for advertisement, he no longer maintained his amateur status and might be asked to resign from his respective club. Furthermore, there was evidence that the possible adverse effects of the caricature on the claimant’s reputation were brought to the defendants’ attention. The trial judge found that the caricature could have a defamatory meaning. The jury then found in favor of the claimant. Held The House of Lords held that in the circumstances of this case – as explained by the facts – the caricature was capable of constituting defamation. In other words, the publication could have the meaning alleged by the claimant. The Lords also ordered a new trial limited to the assessment of damages. NEWSTEAD V LANDON EXPRESS NEWSPAPER LTD, (1939) Facts: A newspaper published a defamatory article about Harold Newstead. However, another person with this name brought an action in libel. He claimed that the article had been misunderstood as leading to him. The defendant newspaper recognised that they published the article. Also, they denied that they had the intention of being defamatory of him. Consequently, the claimant argued that the newspaper was under a duty. The duty was to give a clear and complete description of the correct person. Moreover, the claimant argued that the defendants were in breach of the duty. Issues: The issue in Newstead v London Express Newspaper, was if the reasonable persons would have understood the words complained of to refer to the plaintiff. Held: The Court of Appeal stated that in accordance with the current law on libel, liability for libel does not depend on the intention of the defamer; but on the fact of the defamation. Accordingly, a reasonable man, in this case a newspaper publisher, must be aware of the possibility of individuals with the same name and must assume that the words published will be read by a reasonable man with reasonable care.

  Case Laws related to Defamation in favour of Claimant.  TOLLEY  Vs,  J.S FRY & SONS LTD – (1931) Facts The defendants were owners of chocolate manufacturing company. They advertised their products with a caricature of the claimant, who was a prominent amateur golfer, showing him with the defendants’ chocolate in his pocket while playing golf. The advertisement compared the excellence of the chocolate to the excellence of the claimant’s drive. The claimant did not consent to or knew about the advertisement.   Issue The claimant alleged that the advertisement suggested that he agreed to his portrait being used for commercial purposes and for financial gain. He further claimed that the use of his image made him look like someone who prostituted his reputation for advertising purposes and was thus unworthy of his status. At trial, several golfers gave evidence to the effect that if an amateur sold himself for advertisement, he no longer maintained his amateur status and might be aske

Rules as to delivery of goods

                             Rules as to delivery of goods Section 2(2) of Sale of Goods Act defines ‘delivery’ as a ‘voluntary transfer of possession from one person to another.’ Thus, if the transfer of goods is not voluntary and is taken by theft, by fraud, or by force, then there is no ‘delivery. Moreover, the ‘delivery’ should have the effect of putting the goods in possession of the buyer. The essence of the delivery is a voluntary transfer of possession of goods from one person to another. There is no delivery of goods where they are obtained at pistol point or theft. 1. Mode of Delivery: According to Section 33, delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf. Delivery of goods may be actual, symbolic or constructive. 2. Expenses of Delivery: According to Section 36(5), unless otherwise agree