RESEA RESEA RCH RCH PROJECT PROJECT of CON CON TRA CT -1 ON TH E TOPI TOPI C
―PRIVITY OF CONTRACT ‖ PRESENTED BY - --- K U M A R B.A.LLB,
M A N GA GA L A M
FIRST YEAR
2 ND SEMESTER ROLL NO.-936 SUBJECT TEACHER--- VIJAY KUMAR VIMAL 1
TABLE OF CONTENTS
1. INTRODUCTION a. Aim of the researcher b. Research methodology c. hypothesis
2.CHAPTERISATION 1. 2. 3. 4. 5.
INTRODUCTION COMPARISION WITH BRITISH LAW DEFENCES RELATED TO PRIVITY OF CONTRACT Cases related to privity of contract 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 1 promise.”
There are several types of exceptions to privity of contracts:A) COLLATERAL CONTRACTS B) AGENCY C) TRUSTS D) ) MARRIAGE SETTLEMMENTS, PARTITION 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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OR OTHER
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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IN INDIA
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
TH AT
SH OWS APPLI CATION
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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.
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I N E N GL I SH L A W
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 THA T SH OWS TH E ABOVE RUL E A PPLI CATION
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 3
BOOK OF CONTRACT-1 BY KAILASH RAI 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 wife‘s 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.
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: 5
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 7
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 mmarriageexpenses 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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