Exceptions to the Doctrine of Privity of Contract [lxi]Queensland Property Law Act 1974, ss 55(2). 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”. The Law Reform Commission of Hong Kong Report. The father refrained from selling the wood, but the son did not pay. “Doctrine of Privity” is one of the most controversial doctrines under law of contracts, including that in the country of India. 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. [lvii] Further, the legislation permits the enforcement of all terms of the contract against the third party which are “in the terms of the contract…imposed on the [third party] for the benefit of the [promisor]”. 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. Are there any criteria to be met to fall under the category of “beneficiary”? The rule of consideration states that a person can enforce a contract when the other party has promised a consideration. Click to see full answer. [lxxxiii]DebnarayanDutt vs ChunilalGhose, reported in (1914) ILR 41 Cal 137; approved and followed in N DevarajeUrs v M Ramakrishniah AIR 1952 Mys 109. Thus insurance brokers are both agents of the insured and of the insurer.[xxx]. The term “parties” may seem simple enough but there are situations where it may become doubtful as to exactly who the parties are and resultantly, who, in the eyes of the law should be liable or should be compensated in event of inevitable breaches that may occur from time to time. He was no party to the sale. The same was true in Scotland[lii]. 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. The debates and discussions on the Doctrine of Privity are relevant not only in daily life commercial contracts but also in the less frequent and comprehensive transactional contracts. [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. Godfrey VP (with whom Ribeiro JA agreed) nonetheless stated incidentally: “[the court is] aware of the judicial abrogation of the rule effected in Australia by the decision of the High Court (split 4 to 3) in [the Trident case], a case the facts of which bear many similarities to our own. A promised B that, in return for not arresting him, he would pay the debt. Such decisions are recognized as exceptions to a general principle that only parties to the contract can sue upon it. C failed in his action, on the ground, inter alia, that the promise had been made to B); Taylor v Foster(1600) Cro Eliz 776; 78 ER 1034 (A, in return for B marrying his daughter, agreed to pay to Can amount which B owed to C. In an action by B against A, it was held that B was the personto sue, being the promisee). It may move from the promisee or, if the promisor has no objection, then from any other person. Section 2(d) in The Indian Contract Act, 1872:  When, at the desire of the promisor, the promisee or any other person has clone 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. 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]. • 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 … Section 11 of the Western Australian Property Law Act 1969, in line with the proposal of the English Law Revision Committee, amended the third party rule by providing that: …where a contract expressly in its terms purports to confer a benefit directly ona person who is not named as a party to the contract, the contract is…enforceable by that person in his own name…, All defences which would have been available to the promisor had the third party been a party to the contract are available in an action by the third party,[lvi] and in any action on the contract by the third party, all parties to the contract must be joined. The consideration for the promise is the abstinence by the father to sell the wood. As such, the respondents are not complete strangers to the limitation of liability clause. If the third party is to be regarded as having an independent right under the contract, the fact that the promisor has performed in favour of the promisee should not necessarily eliminate the third party’s right to performance. No doubt there are volumes of cases in the books and journals in which such related third parties who are not parties to a contract have been allowed to sue upon it and their interest is secured against any breach by the counter party. The relevant covenant may relate to freehold land or leasehold land. Under Indian Law, a stranger to consideration can file a suit to enforce the promise as you might have noticed in the case of Chinayya v. ... To create legal relationship, privity of contract (contractual relationship) is necessary. [lxii]Queensland Property Law Act 1974, s 55(3)(a) and (d). In this case, the plaintiff’s father, and his prospective father-in-law, mutually agreed to pay sums of money to the plaintiff on marriage. Unlike in English law, this concept is wholly contrary to Indian concept. [lxxvi]Short for cestui a que use le trust estcréé, meaning ‘the person for whose benefit anything is given in trust to another’. This was due mostly to issues associated with ancillary contract terms that dealt with acceptance and consideration. The plaintiff filed a suit upon the failure of the defendant to pay the annuity.eval(ez_write_tag([[728,90],'lawtimesjournal_in-medrectangle-4','ezslot_1',112,'0','0'])); The defence put forward by the defendant was that the promisee, i.e. K.B. As such, they are considered to be closely related to one another. [xxix] Under this, the principal, i.e. The relationship between father and daughter was found to extend the consideration that the father gave in the promise to the children. 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.eval(ez_write_tag([[580,400],'lawtimesjournal_in-box-3','ezslot_4',134,'0','0'])); Firstly, the doctrine of privity of consideration was not applicable in England. Position of Privity of Consideration in England, Firstly, the doctrine of privity of consideration was not applicable in England. In the above case, ‘C’ cannot sue the parties as he has not provided any consideration for the contract. the third party, may be benefited o burdened. 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. “Though originally there was no privity of contract between B and C, B having subsequently acknowledged his liability, C was entitled to sue him for recovery of the amount.”. Although McNiece was within the category covered it was not directly in contract with Trident. It was held that the defendants’ representation gave rise to a collateral contract that the paint would last seven years. Since the defendant did not take the point that the plaintiff was not a party to the insurance contract, the Hong Kong Court of Appeal proceeded on the footing that the plaintiff’s claim, if otherwise good, was enforceable in the usual way. the Consideration must move from the promisee to the promisor only. In the legal system, the term consideration in contract law refers to The third party rule was abrogated by statute in Queensland in 1974. The Report said: “We are not convinced by such arguments. The doctrine of privity emerged alongside the doctrine of consideration, the rules of which state that consideration must move from the promise, that is to say that if nothing is given for the promise of something to be given in return, that promise is not legally binding unless promised as a deed. Privity can be either Privity of Consideration or Privity of Contract. Hence it is clear that Indian judiciary has recognized “beneficiary” to the contract as an exception to the general rule of Doctrine of Privity. In this section we focus our attention on calls for reform made by the judiciary in past cases. The son in return, would make a payment to his sister of £1000 once she had married. 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. [lxvi] The Report, at para 3.1, considered the law of France, Germany, South Africa, Denmark, [lxxv] THE LAW REFORM COMMISSION OF HONG KONG, REPORT,PRIVITY OF CONTRACT, September 2005. [xxx]Toucheross& Co v Colin Bakr [1992] 2 Lloyd’s Rep 207; Sin Yin Kwan v Eastern Insurance [1994] 1 All ER 213. Hence, although the ship-owners may not have been privy to the contract of carriage (between shipper and charterer) they took possession of the goods on behalf of, and as agents for, the charterers and so could claim the same protection as their principals. It can be seen that practices such as imposing obligations on other party’s affiliates, relatives and agents with respect to terms like restrictive covenants, non-compete and confidentiality obligations are quite common for the parties under a contract these days. The main principle highlighted by this concept of Privity of Contract is regarding the rights of third parties in a contract. The court did not consider the plaintiff’s privity to the contract nor interested in the consideration. 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. [xiv]Bourne v Mason (1669) 1 Ventr 6; 86 ER 5; Crow v Rogers (1724) 1 St 592; 93 ER 719; Price vEaston (1833) 4 B & Ad 433; 110 ER 518. The plaintiff duly married, but the father-in-law died before his portion of money had been paid. [lxv]New Zealand Contracts and Commercial Law Reform Committee, Privity of Contract (1981). The aforementioned are more or less the well- accepted and settled exceptions to the Doctrine of Privity. There is a vast literature on third party rights in the United States, which no short account can adequately summarise. In its central recommendation, the Commission proposed that the third parties (subject to being expressly identified) should have the right to enforce contractual provisions where either. 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. A would not pay, and C would sue A. Whether affiliates, relatives and agents of the parties can be treated as “beneficiary” if their role is restricted to few terms like mentioned hereinabove? 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. The assent of the promisor is not necessary for an assignment. 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]. In a later case, Jamna Das v. Ram Autar[xciii], the Judicial Committee pointed out that the purchaser’s contract to pay off a mortgage could not be enforced by a mortgagee who was not a party to the contract. Cloninger had asked the court to dismiss the case because it was NCNB, the lender, which had commissioned the appraisal and the Alvas were not in privity to that contract. It was held that the plaintiff could not recover the money, even though the agreement had expressly provided that the plaintiff should have the right to sue on it. He then executed an agreement with her father, promising him to treat her properly, and if he failed to do so, to pay her monthly maintenance and to provide her with a dwelling. The Supreme Court of India has approved the … This has been upheld in various case laws[xlvi]. This was the case of Levettv. H.) Estoppel or Acknowledgement: Where by the terms of a contract a party is required to make a payment to a third person and he acknowledges it to that third person, a binding obligation is thereby incurred towards him. In Gandy v Gandy[xvii], Bowen LJ said that, in spite of earlier cases to the contrary, Tweddle v Atkinson[xviii]had laid down “the true common law doctrine”. [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. In this case, a son made a contract with his father to forbear him to cut down an oak woodland. Subsequently she was again ill-treated by the defendant and also driven out. The case of Davaraja Urs v. Ram Krishnaiah[xl]is a relevant case under this head: A sold his house to B under a registered sale deed and left a part of the sale price in his hands desiring him to pay this amount to C, his creditor. 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. 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”. [lii]Dundee Harbour Trustees v. Nicol1915 SC (HL) 7, 13 per Lord Dunedin. The court was of the opinion that the action ought to have been brought by the son, “for the promise is made to the son’s use and the ordinary covenants of marriage are with the father to stand seized to the son’s use; and the use shall be changes and transferred to the son, as if it were a covenant with himself; and the damage of non-performance is thereof to the son.”[vi], Rippon v. Norton[vii]which was decided in the year of 1602. It is unnecessary to cite authorities, but the principle is firmly established for this country by the decision of the Privy Council in Khwaja Muhammad Khan v. Hussaini Begum[lxxxviii].”. 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. [lviii]Western Australia Property Law Act 1969, s 11(2)(c). In addition to assignment by an act of the parties, there exists assignment by operation of law. Hawes[v]. 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. 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]. Subsequently she sold her property to C for ₹44,000 and allowed C, the purchaser, to retain ₹400,000 of the price in order to redeem the mortgage if he thought fit. Nevertheless, as Godfrey VP reiterated in the B + B case, the privity doctrine is still part of the Hong Kong law.[lxxv]. Thus, though the contract entered between his father and ‘G’ was for he is benefiting he remained stranger the contract and the contract denied to give him rights to enforce the terms of the contracts.eval(ez_write_tag([[580,400],'lawtimesjournal_in-medrectangle-3','ezslot_5',111,'0','0'])); Further in Dunlop Pneumatic Tyre v. Selfridge and Co. Ltd.,[3] the fundamental proposition in the English law, i.e. Though the doctrine of privity was recognised and established in the case of Tweddle v. Atkinson[iii], its foundations had been laid by the English courts over the years, starting from as early as the end of 16th century. The main principle highlighted by this concept of Privity of Contract is regarding the rights of third parties in a contract. [xxii][1962] AC 446 (Lord Denning dissenting). The economics arena has always been my strength and in my career, I would like to link economics with law. [xliii]Portavon Cinema Co v. Price & Century Insurance Co [1939] 4 All ER 601; Mark Rowlands Ltd v. Berni Inns Ltd [1986] QB211; Vural Ltd v Security Archives Ltd (1989) 60 P & CR 258, 271-272; [xliv] Marine Insurance Act 1906, s 14(2). 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.”. He was no party to the sale. 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. [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. 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