Project of Contract

8/12/2019 Project of Contract

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RESEARCH PROJECT of CONTRACT-1

ON THE TOPIC

PRIVITY OF CONTRACT

PRESENTED BY---KUMAR MANGALAM

B.A.LLB, FIRST YEAR

2NDSEMESTER

ROLL NO.-936

SUBJECT TEACHER--- VIJAY KUMAR VIMAL


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TABLE OF CONTENTS

1. INTRODUCTIONa.Aim of the researcher

b.Research methodology

c. hypothesis

2.CHAPTERISATION1. 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, conferrights or impose obligations arising under it on any person except the parties toit. 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 orbeneficiary is not entitled to take any enforcement action if that person deniedthe promised benefit.

According to Indian contract act, 1872 it is dealt under CONSIDERATIONtopic.

CONSIDERATIONis defined as When, at the desire of the promisor, thepromisee 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.1

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

1SECTION 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 inaccordance 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. Thisdoctrinal method includes books, library books, journals, case law books andonline 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 promisesof the contract.

2. Comparison with english law2

IN INDIA

In India, there is no provision providing for the doctrine of privity of contract inIndian Contract Act, 1872. However by judicial decisions it has been wellestablished that even in India the general rule is that a person who is not a partyto the contract cannot enforce the contract.

CASES RELATED THAT SHOWS APPLI CATION OF THE ABOVE

RULE3

2BOOK 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 hesold 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 personwho purchased the property for the recovery of the mortgage money. The courtheld that the contract was created between the seller and the purchaser andmortgagee was not a party of the contract thereto and therefore he was notentitled 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 acontract cannot enforce it. However this general rule is subjected to a fewexceptions. If a trust is created by contract in favour of a third party in relationto property, the third person can enforce the contract, even if he is not a party toa 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 aparty of the contract.

I N ENGLI SH LAW4

In England, the old rule is that if a person, who was to take a benefit under thecontract, was nearly related by blood to the promise a right of action would vestin him.

CASES RELATED TO THAT SHOWS THE ABOVE RULE APPLICATION

1. TWEDDLE vs. ATKINSON

In this case an agreement was entered between the respective fathers of ahusband and his wife. Under the agreement their fathers were to pay a sum of

3

BOOK OF CONTRACT-1 BY KAILASH RAI4BOOK OF CONTRACT-1 BY KAILASH RAI


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money to the husband and the husband could sue for such money. After thedeath 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 thecontract 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 enforcethe 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 helived, and then to pay his wife (the appellant) 5 per week for the rest of her lifeafter he died. He died, and the nephew only paid his aunt once before statingthat no contract existed between them. She was also the administratrix of herhusband'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 herown capacity as she was not a party to the contract. This overturns Denning'sfindings in the lower court allowing third parties to sue for benefits that wereguaranteed to them under a contract. However, in her capacity as theadministratrix she is able to sue him for the specific performance of his promisethat 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 contractbetween one of them and a third person relating to the same subject-matter. Forexample:

5http://www.lawteacher.net/PDF/Privity%20Lecture%20&%20Cases.pdf


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Shanklin Pier v Detel Products [1951] 2 KB 854. The plaintiffs hademployed contractors to paint a pier. They told them to buy paint made

by the defendants. The defendants had told them that the paint would lastfor seven years. It only lasted for three months. The court decided that the

plaintiffs could sue the defendants on a collateral contract. They hadprovided consideration for the defendants' promise by entering into anagreement with the contractors, which entailed the purchase of thedefendants' paint.

There must, however, be an intention to create a collateral contract before thatcontract can be formed

B. AGENCY

The concept of agency is an exception to the doctrine of privity in that an agentmay contract on behalf of his principal with a third party and form a bindingcontract between the principal and third party.

For example, a third party may be able to take the benefit of an exclusion clauseby proving that the party imposing the clause was acting as the agent of thethird party, thereby bringing the third party into a direct contractual relationshipwith the plaintiff:

In Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, a bill of ladinglimited the liability of a shipping company to $500 per package. Thedefendant stevedores had contracted with the shipping company to unloadthe plaintiff's goods on the basis that they were to be covered by theexclusion clause in the bill of lading. The plaintiffs were ignorant of thecontract between the shipping company and the stevedores. Owing to the

stevedores negligence, the cargo was damaged and, when sued, theypleaded the limitation clause in the bill of lading. The House of Lordsheld 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 contractualrelationship 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 clearthat 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 agentfor 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 theconcept of trust. A trust is an equitable obligation to hold property on behalf ofanother.

The device was approved by the House of Lords in Les Affreteurs Reunis vLeopold 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 acommission. It was held that B was trustee of this promise for C, who couldthus enforce it against A.

However, the trust device has fallen into disuse because of the strictrequirements of constituting a trust and most particularly that there should be aspecific intention on the part of the person declaring the trust that it should be atrust.

D. MARRIAGE SETTLEMENT, PARTITION OR OTHER FAMILY

MATTERS

If contract has been entered into for the purpose of marriage settlement or otherfamily arrangement, the person for whose benefit such agreement has beenmade 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 toprovide that each of them will contribute equally towards the mmarriage-

expenses of the female members or maintenance of the old members for whosebenefit the contract has been entered into, even though the member or membersare the party to the contract.

E. THIRD-PARTY BENEFICIARIES

InAustralia,it has been held that third-party beneficiaries may uphold apromise 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 CLR107). It is important to note that the decision in Tridenthad no clearratio,and

did not create a general exemption to the doctrine of privity in Australia.
http://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/w/index.php?title=Trident_General_Insurance_Co_Ltd_v._McNiece_Bros_Pty_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Trident_General_Insurance_Co_Ltd_v._McNiece_Bros_Pty_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Trident_General_Insurance_Co_Ltd_v._McNiece_Bros_Pty_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/Ratio_decidendihttp://en.wikipedia.org/wiki/Ratio_decidendihttp://en.wikipedia.org/w/index.php?title=Trident_General_Insurance_Co_Ltd_v._McNiece_Bros_Pty_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/Australia


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Queensland, the Northern Territory and Western Australia have all enactedstatutory provisions to enable third party beneficiaries to enforce contracts, andlimited the ability of contracting parties to vary the contract after the third partyhas 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 begranted (Beswick v. Beswick[1968] AC 59).

The issue of third-party beneficiaries has appeared in cases whereastevedore has claimed it is covered under the exclusion clauses in abill oflading.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 thecarrier contracts with theconsignor,it also contractsas anagent of the stevedore. That is, either the carrier must have hadauthority by the stevedore to act on its behalf, or the stevedore must laterratify (endorse) the actions of the carrier.

Any difficulties with consideration moving from the stevedores must bemade out.

The last issue was explored inNew Zealand Shipping Co Ltd v. A MSatterthwaite & Co Ltd[1975] AC 154, where it was held that the stevedoreshad provided consideration for the benefit of the exclusion clause by thedischarge 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 insuranceenforceable in favour of third parties. For example, under s148(4) of the Road

Traffic Act 1972, an injured party may recover compensation from an insurancecompany 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 losssustained by a third party who is intended to benefit from the contract wasraised in:
http://en.wikipedia.org/wiki/Specific_performancehttp://en.wikipedia.org/wiki/Beswick_v._Beswickhttp://en.wikipedia.org/wiki/Beswick_v._Beswickhttp://en.wikipedia.org/wiki/Beswick_v._Beswickhttp://en.wikipedia.org/wiki/Stevedorehttp://en.wikipedia.org/wiki/Bill_of_ladinghttp://en.wikipedia.org/wiki/Bill_of_ladinghttp://en.wikipedia.org/wiki/Common_carrierhttp://en.wikipedia.org/wiki/Consignorhttp://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/New_Zealand_Shipping_Co_Ltd_v._A_M_Satterthwaite_%26_Co_Ltdhttp://en.wikipedia.org/wiki/New_Zealand_Shipping_Co_Ltd_v._A_M_Satterthwaite_%26_Co_Ltdhttp://en.wikipedia.org/wiki/New_Zealand_Shipping_Co_Ltd_v._A_M_Satterthwaite_%26_Co_Ltdhttp://en.wikipedia.org/wiki/New_Zealand_Shipping_Co_Ltd_v._A_M_Satterthwaite_%26_Co_Ltdhttp://en.wikipedia.org/wiki/New_Zealand_Shipping_Co_Ltd_v._A_M_Satterthwaite_%26_Co_Ltdhttp://en.wikipedia.org/wiki/New_Zealand_Shipping_Co_Ltd_v._A_M_Satterthwaite_%26_Co_Ltdhttp://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/Consignorhttp://en.wikipedia.org/wiki/Common_carrierhttp://en.wikipedia.org/wiki/Bill_of_ladinghttp://en.wikipedia.org/wiki/Bill_of_ladinghttp://en.wikipedia.org/wiki/Bill_of_ladinghttp://en.wikipedia.org/wiki/Stevedorehttp://en.wikipedia.org/wiki/Beswick_v._Beswickhttp://en.wikipedia.org/wiki/Specific_performance


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Jackson v Horizon Holidays [1975] 1 WLR 1468. The plaintiff enteredinto a contract for himself and his family. The holiday provided failed tocomply with the description given by the defendants in a number ofrespects. The plaintiff recovered damages and the defendants appealed

against the amount. Lord Denning MR thought the amount awarded wasexcessive compensation for the plaintiff himself, but he upheld the awardon the ground that the plaintiff had made a contract for the benefit ofhimself and his family, and that he could recover for their loss as well asfor his own.

However, in Woodard Investment Development v Wimpey Construction[1980] 1 WLR 277, the House of Lords rejected the basis on which LordDenning had arrived at his decision, and reaffirmed the view that acontracting party cannot recover damages for the loss sustained by thethird party. Their Lordships did not dissent from the actual decision inJackson, which they felt could be supported either because the damageswere awarded for the plaintiff's own loss; or because booking familyholidays 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 oftires at a discounted price on condition that they would not resell the tires at lessthan the listed price and that any reseller who wanted to buy them from Dewhad to agree not to sell at the lower price either. Dew sold the tires to Selfridgeon 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 ofDunlop?

6CONTRACT-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 andDew and thus on account of privity of contract couldnt sue Selfridge for breachof its agreement with Dew. It was a mere beneficiary to it on account of PriceMaintenance Clause.

2) On whatever terms the contract between Selfridge and Dew was made was tobe solely determined by them and was not in any way regulated or stipulated byDunlop 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, aperson cant contract in two capacities in the same agreement. Hence, HoL heldthat Dunlop wasnt acting as the undisclosed principal of Dew.

3) Dew had the title to goods manufactured by Dunlop independently of anycontract 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 Dewand neither directly nor indirectly out of Dunlop. Neither Dunlop gave anyconsideration directly to Selfridge nor through Dew as his agent. Further since

all the terms of the contract including whether to give any discount to Selfridgeor not was solely stipulated by Dew on its own account and not as Dunlops

agent, therefore HoL unanimously held appellants contention that theirpermitting and enabling Dew, with the knowledge and desire of Selfridge, tosell to the latter on the terms of its contract was consideration moving fromDunlop to Selfridge, as unsustainable.

B.JAMADAS vs. RAM AVTAR

In this case, a person mortgaged his property to another person. Thereafter hesold his property to a third person who agreed to with the seller to mortgageddebt to mortgagee. The mortgagee brought an action against the third personwho purchased the property for the recovery of the mortgage money. The courtheld that the contract was created between the seller and the purchaser andmortgagee was not a party of the contract thereto and therefore he was notentitled to enforce the contract.


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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 acomplete 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 neverguaranteed 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 tohim. The father has an illegitimate son also. In consideration the legitimate sontherefore agreed with his father to give certain sum of money and a village tothe 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 theillegitimate son has right to enforce the contract and take his share of moneyand 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 begumand under the contract he was promised to pay Rs 500 per month in perpetuityas Kharch-e-Pandan if she married his son. He also charged his immoveable

property for the payment. After marriage they said allowance was paid toHussaini Begum for sometimes. On account of quarrel between HussainiBegum and her husband, both separated from each other and thereupon the

payment of the allowance was stopped. Hussaini begum filed a suit forenforcement of the contract.


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HELD

The court held that the property was specially payment of the said personalallowance 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 anagreement to contribute towards the expenses on the marriage of a female

member of the family. The female member brought a suit to enforce thecontract.

HELD

The court held that even though he was not a party of the contract, she couldenforce 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 hermarriage with the defendant. After attaining majority the plaintiff brought suitagainst 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 monthto 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 thecontract, and asked plaintiff to execute certain documents in this connection.

HELD:-

The court held that by making certain payments accordance with the contractand asking the execution of certain documents in this connection, the defendantaccepted the right of the plaintiff under the contract therefore, he was stopped todeny the right of the plaintiff. Thus, the court held that the plaintiff was entitledto 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 theseller in the hands of the buyer for the payment of his creditor. The buyer madea part of payment and informed the creditor that the balance would be paidsoon. He informed the creditor that the payment was made out of the sale priceleft by the seller in his hands. He failed to pay the balance and therefore thecreditor sued him.

HELD:-

The court held that the buyer acknowledged his liability to pay the amount dueto the creditor and also the right of the creditor to recover the balance from himand therefore the creditor was entitled to recover the balance, although he wasnot 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 contractthe sub tenant was to pay the rent directly to the landlord. He actually paid therent and landlord accepted it also.

HELD:-

The court held that sub tenant could be stopped from denying his liability to paythe 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. ConclusionAfter doing the research work, the researcher has came to the conclusion thatthe person who is not the party to the contract cannot enforce the contract orcannot file suit for the breach of the contract. There are also some exceptionalcases related to privity of the contract. The exceptional cases include:-

1. COLLATERAL CONTRACTS

2. AGENCY

3. TRUSTS4. 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 theresearch.

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 ACCESSEDON 16THApril 2014 AT 18 HRS

5

CONTRACT-1 BY KAILASH RAI FROM PAGE NO. 100-105
http://www.lawteacher.net/PDF/Privity%20Lecture%20&%20Cases.pdfhttp://www.lawteacher.net/PDF/Privity%20Lecture%20&%20Cases.pdf

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