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. Privity and consideration. Privity can be either Privity of Consideration or Privity of Contract. In Swain v Law Society[c], Lord Diplock referred to the general non-recognition of third party rights as “an anachronistic shortcoming that has for many years been regarded as a reproach to English private law”. 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.”. [li]Lawrence v Fox 20 NY 268 (1859), New York Court of Appeals Decision. 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. Despite several attempts by Denning LJ to allow rights of suit by third party beneficiaries,[xxi] the House of Lords reaffirmed the general rule in Midland Silicones Ltd v Scruttons Ltd[xxii] Viscount Simonds said: “[H]eterodoxy, or, as some might say, heresy, is not the more attractive because it is dignified by the name of reform. [xxii] AC 446 (Lord Denning dissenting). [lxxxiii]DebnarayanDutt vs ChunilalGhose, reported in (1914) ILR 41 Cal 137; approved and followed in N DevarajeUrs v M Ramakrishniah AIR 1952 Mys 109. 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. The consideration for the promise is the abstinence by the father to sell the wood. 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. 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. A promised B that, in return for not arresting him, he would pay the debt. The economics arena has always been my strength and in my career, I would like to link economics with law. [xxiii]Tomlinson v. Gill (1756) Amb 330; Lloyd’s v. Harper (1880) 16 Ch D 290; Paul v. Constance  1 WLR 527. In the Trident case, the question was whether McNiece, a contractor employed by Blue Circle, could rely on an insurance policy written by Trident for Blue Circle. [xliii]Portavon Cinema Co v. Price & Century Insurance Co  4 All ER 601; Mark Rowlands Ltd v. Berni Inns Ltd  QB211; Vural Ltd v Security Archives Ltd (1989) 60 P & CR 258, 271-272; [xliv] Marine Insurance Act 1906, s 14(2). 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].”. 176. American judicial opinion also recognizes this rule and the doctrine of privity of consideration does not hold well in American judicial system. -provided that the contracting parties do not also intend that the third party beneficiary should not have the right to enforce the contract. For the 200 years before 1861 it was settled law that, if a promise in a simple contract was made expressly for the benefit of a third person in such circumstances that it was intended to be enforceable by him, then the common law would enforce the promise at his instance, although he was not a party to the contract.”. [lxii] On acceptance, the beneficiary is bound to perform any acts that may be required of him by the terms of the promise. 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). Hence it is clear that Indian judiciary has recognized “beneficiary” to the contract as an exception to the general rule of Doctrine of Privity. [lvi]Western Australia Property Law Act 1969, s 11(2)(a). 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]. In this case, the bride’s father (the defendant) had promised the groom’s father (the plaintiff) that he would pay would pay 200 pounds to the plaintiff’s son after the marriage had taken place and hence the plaintiff on this condition gave his consent for the marriage. This exception covers cases where the promisor by his conduct, acknowledgment, or otherwise, constitutes himself an agent of the third party. 1872, allows the ‘consideration’ for an agreement to proceed from a third-party. If A makes a contract with B, he comes under a legal obligation to pay damages if he fails to keep his promise. So the next question arises as to who may be treated as a “beneficiary” under a contract? 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. She was held entitled to enforce the promise made by the defendant to her father. But the objection made by the defendant party, which was relied upon the case of Levettv. B owed money to C. A would agree with B to pay C in return for B doing something for A, such as working or conveying a house. A person was a “donee beneficiary” if the purpose of the promisee was to make a gift to him, or to confer upon him a right not due from the promisee. 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. This is referred to as the Doctrine of Privity. [xxviii] By Law of Property Act 1925, s 78. [civ], [iii] 123 ER 762: I B&S 23: 30 LJ QB 218: 4 LT 468: 124 RR 610, [iv]Corny and Curtis v. Collidon; 1674 (1) Freem. Life Insurance: By section 11 of the Married Women’s Property Act 1882, a life insurance policy taken out by someone on his or her own life, and expressed to be for the benefit of his or her spouse or children, creates a trust in favour of the objects named in the policy. It was held that the defendants’ representation gave rise to a collateral contract that the paint would last seven years. The court in, Later, in 1861, the position in England changed in, Position of Privity of Consideration in India, This principle of the doctrine of privity of consideration is not applicable in India. For if, immediately after a contract for a third party’s benefit is made, the promisee assigns his rights under it to that third party, the third party can enforce the contract and the promisee loses all right to enforce, vary or cancel the contract. In Muniswami Naickerv. However these are not exhaustive and from time to time, number of exceptions against the Doctrine of Privity has been evolved and recognized by Indian judiciary and more than often quoted exception is that a person for whose benefit the contract is entered into can certainly sue as it is “beneficiary” in the contract.[lxxxv]. 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]Western Australia Property Law Act 1969, s 11(2)(b). 2. The recognized exception mentioned in the quoted judgment is worded widely so as to cover the beneficiaries under the terms of the contract. In this case: U was appointed by his father as his successor and was put in possession of his entire estate. After establishing the position in England, the student tries to discuss the position of the concept of Privity, in detail, in the Country of India, mostly with the help of landmark case laws, changing the course of the rule despite of the very high influence of the English Laws and cultures on the Indian laws. 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. Fire Insurance: Under section 83 of the Fire Prevention (Metropolis) Act 1774, where an insured house or building is destroyed by fire, the insurer may be required “upon the request of any person or persons interested” to lay out the insurance money for the restoration of the building. 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”. [xi](1797) 1 Bos& P 101, n (c); 126 ER 801, n (c). Consideration forms the basis of a contract and considered as the foundation of every contract. Despite this lack of privity, the majority of the Hifh Court ruled in favour of McNiece. A study of a few cases decided in the 18th century and the 19th are essential in order to reach that establishment. The suit was held to be maintainable. In this case, a son made a contract with his father to forbear him to cut down an oak woodland. Now to make the contract valid, the consideration must be lawful. Being in my initial years of college, all the subjects at present like Law of Contracts attract me but I always keep reading Constitutional Law. 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. 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.”. Something I love a lot apart from reading books and watching movies is traveling. Also, in most of these jurisdictions, it has been experienced that it is remarkably difficult to maintain a strict line on privity and hence this doctrine is been criticized a lot, leading the paths to, either legislative relaxation in most of these jurisdictions, a well-known example of this being the New Zealand Contracts (Privity) Act 1982, or requiring the courts to address upon the need for reform in ahead-on fashion. The Supreme Court has, by its decision in M.C. That argument can be met either by admitting the principle and saying that it does not apply to this case, or by disputing the principle itself. 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”. In Westralian Farmers’ Co-Operative Ltd v Southern Meat Packers Ltd[lx], the Supreme Court of Western Australia found that, where the plaintiff third party had established the existence of a contractual payment term in its favour, and the defendant claimed that it had already made payment to the original promisee, the plaintiff third party could nevertheless maintain its claim to payment. The doctrine of privity of contract is that a contract cannot confer rights or impose those obligations arising under it, on any person except the parties to it. [xxvi]Richards v Delbridge(1874) LR 18 Eq 11; Cleaver v. Mutual Reserve Fund Life Association  1 QB 147, 152; Re Foster  3 All ER 357; Green v. Russell  1 QB 28. The court did not consider the plaintiff’s privity to the contract nor interested in the consideration. According to Frederick Pollock “Consideration is a price for which the promise of the other is brought and the promise is thus given for value is enforceable”. When the cargo-owners sued in tort, the stevedores unsuccessfully attempted to rely on a limitation clause contained in the bill of lading between the carriers and the cargo owners. 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. [lxi]Queensland Property Law Act 1974, ss 55(2). 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. B, however, failed to remit the balance and C sued him for the same. Since the decision of the New York Court of Appeals in Lawrence v Fox,[lxix] it has become generally accepted that a third party is able to enforce a contractual obligation made for his benefit. [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. 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. For example, the classic case of negligence, Donoghue v Stevenson[xxxi], established that where A supplies goods to B under a contract with B, A may owe a duty to C in respect of personal injury or damage to property caused by defects in those goods. In this case A borrowed ₹40,000 by executing a mortgage of her zamindari in favour of B. Thus, the relationship between the father and the son had made the sister a party to the agreement, even if she was not included at the time the contract was agreed. The defendant executed in plaintiffs favour and, The defence put forward by the defendant was that the promisee, i.e. This claim was rejected by the Court of Common Pleas. [lix]Western Australia Property Law Act 1969, s 11(3). 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. But those cases are based on the view that such related third parties are claiming through a party to the contract, that it is in the position of a “cestuique trust”[lxxvi] or of a principal suing through an agent, that under the old procedure he/it could have filed a suit in equity, even if he/it could not have sued at common law. In Beswick v Beswick,[xcvii] Lord Reid cited with approval the Law Revision Committee’s proposals that when a contract by its express terms purports to confer a benefit directly on a third party, it should be enforceable by the third party in its own name. 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,”. In spite of these cases favouring actions by third party beneficiaries, it is not accurate to say that the third party rule was entirely a 19th century innovation. [xxiv]Swain v. Law Society  1 AC 598; Tito v. Waddell (No 2)  Ch 106. [lxxvi]Short for cestui a que use le trust estcréé, meaning ‘the person for whose benefit anything is given in trust to another’. Copyright © 2020 Lawctopus. He was no party to the sale. The terms being that a stipulated annuity of ₹ 653 should be paid every year to the plaintiff, sister of the old lady. There were also cases where the reason given why the third party could not sue was because he was a stranger to the consideration, that is, he had given nothing in return for the promise[xiv]. The purport behind the agreement was to provide the plaintiff a certain amount of money. The court relied on the judgment of Dutton v Poole, that the gift deed and the contemporaneous agreement between the plaintiff and the defendant may be considered as one transaction and the defendant obtained an estate from her mother that would suffice to constitute consideration under Section 2(d). The consideration for the iqraranama, the agreement between the plaintiff and the defendant,was furnished by the old, the plaintiff’s sister. Chacko v State of Travancore[lxxxix], held that a person not a party to a contract cannot subject to certain well recognized exceptions, enforce the terms of the contract. The assignment is effected through a contract between the promisee under the main contract (that is, the assignor) and the third party (that is, the assignee). [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. In this section we focus our attention on calls for reform made by the judiciary in past cases. LAWFUL CONSIDERATION The most important factor of valid contract is the consideration. 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 Law Reform Commission of Hong Kong Report. The court recognised a limited exception to the doctrine in the circumstances of the case so as to conform to “commercial reality and justice”. In the legal system, the term consideration in contract law refers to 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. Dunlop Pneumatic Tyre v. Selfridge and Co. Ltd. AC 847.eval(ez_write_tag([[250,250],'lawtimesjournal_in-box-4','ezslot_10',114,'0','0'])); Venkata Chinnaya v. Venkataramaya Garu ILR (1881) 4 Mad 137. Under the current operation of the law, a stranger could be awarded damages if the infringement is proved. 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. F.) Vicarious Immunity: The principle vicarious immunity is illustrated by the case of Elder, Dempster Ltd v Paterson Zochonis& Co Ltd.[xxxvi]. Later, in 1861, the position in England changed in Tweddle v. Atkinson. 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. 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. Apart from this, I do adjudicate and mooting. Although the principle of vicarious immunity was subsequently generally accepted by the lower courts, it did not survive the decision of the House of Lords (Lord Denning dissenting) in Midland Silicones Ltd v Scruttons Ltd.[xxxvii]the defendant stevedores, engaged by the carrier, negligently damaged a drum containing chemicals. Another relevant case is that of Daroptiv. Although one can normally say that the principal is the real party to the contract concluded by his agent, agency can also be viewed as an exception to the privity doctrine as in that the principal, on the basis of a contract with a third party, that contract being concluded by his agent, is able to sue (and be sued) 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. What can be done when the city police tow the vehicle in a non parking zone? the plaintiff had furnished no consideration. Then, what do you mean by privity of contract? The traditional law was very strict and third parties had no redress of any manner if they were affected. Exceptions to the Doctrine of Privity of Contract If an immediate assignment is valid, there can hardly be fundamental objections to allowing the third party to sue without an assignment. 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