TABLE OF CONTENTS

SR. NO. CONTENTS PAGENO.

1. ACKNOWLEDGEMENT 3
1. TABLE OF ABBREVIATIONS 4
2. I. TABLE OF CASES AND STATUTES 5
II. BOOKS 6
3. RESEARCH METHODOLOGY 7
1. RELEVANCE OF TOPIC
2. OBJECT OF STUDY
3. LIMITATION OF THE STUDY
4. INTRODUCTION 8
5. WHAT IS PRIVITY OF CONTRACT? 9-10
6. HISTORICAL BACKGROUND 10-12
7. DOCTRINE OF ‘PRIVITY OF CONTRACT’ IN INDIA 13-16

 Sections In Indian Contract With Regard To Doctrine

Of Privity Of Contract

8. SUPREME COURT ON PRIVITY OF CONTRACT 16

9. THE DOCTRINE OF PRIVITY OF CONTRACT UNDER 16-17
ENGLISH LAW
10. REFORMS IN THE RULE 17-18
11. EXCEPTIONS TO THE PRIVITY RULE 18-22

i. Beneficiaries Under Trust Or Charge

ii. Family Arrangements

iii. Estoppel Or Acknowledgements

iv. Covenants Running With Land

12. CONCLUSION 22-23

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 1

 TABLE OF ABBREVIATION

S.NO. ABBREVIATION FULL FORM

1. & And

2. ¶ Paragraph

3. SC Supreme Court

4. Hon’ble Honourable

5. Ors. Others

6. r/w Read with

7. Co. Company

8. i.e. That is

9. v. Versus

10. Cal Calcutta High Court

11. ILR Indian Law Review

12. Ltd Limited

13. Pg. Page Number

14. UK United Kingdom

15. ILR Indian Law Review

16. AIR All India Reporters
17. HL Halsbury Laws
18 BOM Bombay High Court

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 2

 INDEX OF AUTHORITIES

TABLE OF CASES

S.NO CASE NAME PAGE NO.

.

1. Beswick v. Beswick 17

2. Chinnaya v. Ramayya 19

3. Corny And Curtis v. Collidon 18

4. Dutton v. Poole 9

5. Dunlop Pneumatic Tyre v. Selfridge And Co. Ltd. 12

6. Jamna Das v. Ram Autar Pande 15

7. Kanta Devi Berllia v. Mohit Jhunjhunwala 12

8. Kshirodebihari Dutta v. Mangobinda Panda 17

9. Levett v. Hawes 9

10. M.C. Chacko V. State Bank Of Travancore 16

11. N. Devaraja Urs V. Ramakrishniah 21

12. Nawab Khwaja Muhammad Khan v. Nawab Hussaini Begam 15

13. Rana Uma Nath Baksh Singh V. Jang Bahadur 19

14. Rose Fernandes v. Joseph Gonslaves 20

15. Shappu Ammal v. Subramaniyan

16. Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board 22

17. Swain v Law Society 21

18. Tweddle v. Atkinson 11

19. Woodar Investment Development Ltd v. Wimpey Construction UK Ltd 18

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 3

 BOOKS

I. AVTAR SINGH, CONTRACT AND SPECIAL RELIEF ACT, Pg- 114, 12 Edition, EBC
Explorer.
II. NILIMA BHADBHADE : MULLA, INDIAN CONTRACT AND SPECIFIC
RELIEF ACTS, 12th Edition 2005
III. J.BEATSON, A. BURROWS, ANSON’S LAW OF CONTRACT, OXFORD
UNIVERSITY PRESS, 30TH EDITION, 2016.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 4

RESEARCH METHODOLOGY

RELEVACE OF THE TOPIC

This topic is an important area of study for a student of Contract law. Contracts are pivotal
parts of an individual’s life. An individual knowingly or unknowing enters into contracts. It is
important for an aware citizen to know his rights, duties and obligations. Privity of contract is
an important doctrine, which tells the position the strangers and the parties to contract when
they can sue or when they cannot. A proper study of ‘reforms of the rule of privity of
contract’ is of great relevance. It is important to know the evolution, and application of
doctrine. So as to understand its applicability in present scenario.

--------------------------------------------------

OBJECT OF THE STUDY

The study is a doctrinal based research. That is library base research. The object of the study
is to do a deep research the reform, evolution, and relevance of the doctrine of privity of
contract. The object is to ponder and discuss in the light of various rules, cases, and views
that “Should an individual be allowed to sue for breach of a contract if he is not a party to the
contract?

LIMITATION OF THE STUDY

The shortcoming in the study is that it only doctrinal based approach is used; i.e. only
theoretical data is used and no empirical research is done. Also the number of case sis used is
limited. Only important cases have been studied and discussed in the assignment. Due to
paucity of time new were also not studied.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 5

 REFORMATION OF RULE OF PRIVITY OF CONTRACT

INTRODUCTION

The doctrine of “privity of contract” is a common law principle which provides that a
contract can neither confer rights nor impose its obligations upon any person who is not a
party to the contract. The rule of “privity of contract” removes the possibility of a third party
suing for in the case of breach of contract. “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.”1 The principle revolves s by it. A third person cannot be entitled to
demand the performance of an obligation under a contract even though he has a direct interest
in such performance.

Under the act, the consideration for an agreement may proceed from a third party, but does it
follow that the third party can sue on the agreement?2 But the principle met with criticism
from time to time for various reasons. One of it being that it neglected the rights of
beneficiary. Privity of the contract is preserved if the parties to a contract are held answerable
to each other and not to a third person. In 1937, the Law Revision Committee under the
chairmanship of Lord Wright, also criticised the doctrines and recommended its abolition.3 It
would be illogical and unjust to abolish the doctrine totally. If it is abolished, each and every
member of society will become free to sue the contracting parties. Consequently, chaos will
result and the social fabric and bond of brotherhood may be weakened. The tendency to make
the contracts may also decrease because people may be afraid of doing so.

WHAT IS PRIVITY OF CONTRACT?

A contract is an agreement between two or more parties that creates an obligation to do or not
to do something or to promise to do or to abstain from doing something. The parties to the
contract are under an obligation to perform the terms and conditions as laid down in the

1
GH TREITEL, THE LAW OF CONTRACT.
2
See notes under section 2(d ), which says consideration can flow either from Promisee or any other person.
3
AVTAR SINGH, CONTRACT AND SPECIAL RELIEF ACT, Pg- 114, (12 Ed of 2017.)

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 6

contract. Thus a contract can confer rights or impose obligations arising under the contract on
the parties to the contract. Third parties cannot be under such an obligation to perform or
demand performance under a contract. This is referred to as Privity of contract. Though this
doctrine is of immense importance, but there had been different views and perspectives
regarding the rule. And all of which are important. But there can be certain implications of
the doctrine, i.e. are as follows: -

1. A contract cannot confer rights or impose obligations arising under it on any person
except the parties to it.
2. Parties to a contract cannot impose liability on a third party.

PRIVITY OF CONTRACT AND PRIVITY OF CONSIDERATION

The two expressions, the 'doctrine of privity of contract' and the 'doctrine of privity of
consideration' are distinguished from each other. The 'doctrine of consideration' is also an
English doctrine. But, both the doctrines are, basically different from each other. A person
may be a party to a contract, but he may be a stranger to the consideration. Similarly, a
person may not be a party to a contract, but he may be a party to the consideration.
The 'doctrine of privity of consideration' means that the consideration must move from the
promisee and not from a stranger. On the other hand, the 'doctrine of privity of contract'
signifies that a person, who is not a party to the contract', can neither sue nor be sued for
breach of the contract.

The Indian law, however, differs from the English law on this point. The definition of
'consideration' under the Indian Contract Act clearly recognises that consideration may move
from a third person also. The expression 'promisee or any other person' in section 2 (d) of the
Indian Contract Act makes it amply clear that the consideration may either be given by the
promisee or by a third person. The Indian law on the point is, thus, more liberal than the
provisions of the English law.

HISTORICAL BACKGROUND

There is a long standing history of privity of contract with different views prevailing at different times. The
credit for development of the doctrine of Privity of Contract is credited to the common law courts, yet now it is
used in numerous nations like India, England, Canada, Australia and New Zealand with certain statutory and

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 7

legal exceptions.4 Its foundations had been laid by the English courts over the years, starting
from as early as the end of 16thcentury. Since all the arguments for and against the doctrine are
important. So as to understand the present stance of law, jurists and academicians, it is important to study the
evolution and reform of this doctrine.

LEVETT v. HAWES5

The first recorded case of such an instance was decided upon in 1599.
In this case, a father brought an action of assumpsit, which was a term used in Common Law
which meant an action to recover damages for breach of a contract. The contract upon a
promise made directly to him that marriage money would be paid to his son.
The court in the case 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.” This case is an important case because it sowed the seeds of this doctrine.
And the seeds germinated in the case of Tweedle v. Atkinson.

DUTTON V. POOLE6

The present case is a quintessential case in the history of contact laws. The case came before
the court of King’s Bench as early as 1667. This case brought into light and distinguished
between the parties to contract as to which can be a part of the contact and which cannot.
Before this case the rule prevalent was that those who neither were privy to the contract nor
to the consideration cannot sue in the Court for the enforceability, breach of contracts. The
facts of the case are as follows: -
A person had a daughter to marry and for providing her a marriage portion he intended to sell
a wood, which he possessed at the time. Thereafter his son, the defendant promised that if
“the father would forbear to sell at his request, then he would furnish and pay the daughter
£1000”. The father accordingly forbore but the defendant did not pay. The daughter and her
husband sued the defendant.

4
Abhishek, I PLEADERS, PRIVITY OF CONTRACT, PUB: JANUARY 28 2018, 15, MAY 2018
https://blog.ipleaders.in/privity-to-contracts-and-its-analysis/.html.
5
Crown. Eliz. 654.
6
Court of King’s Bench, (1677) 2 Levinz 210:83 ER 523.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 8

It is clear from the above mentioned facts that the defendant gave the promise to his father
and it was the father only who, by abstaining from selling the wood furnished the
consideration. So, the plaintiff was neither a party to contract nor interested in the
consideration. But it is equally clear that the whole object of the agreement was to provide a
proportion to the plaintiff. If it would have been decided that the defendant is not liable, than
would it not be wrong for the plaintiff? It would have been highly inequitable to allow
inequitable to allow the defendant to keep the wood and yet to deprive his sister of her
portion.

It was held subsequently and accordingly that the defendant is liable to pay the plaintiff.
Therefore it was said “as long as there is a consideration for the promise, it is immaterial who
has furnished it. It may move from the promisee, or, if the promisor has no objection, from
any other person.

The foundations of the doctrine of privity of contract was laid down by the English Courts in
as early as 16th century. The doctrine was first recognised, established and adopted in the
celebrated case of Tweddle v. Atkinson. The case came nearly after two hundred years later
in 1861. The case explained the position of the beneficiary who was not a party to contract.

TWEDDLE v. ATKINSON7

The facts of the case are that A, father of groom B, agreed with C, father of the daughter D to
pay B £100 after B married D. The written agreement contained a clause which specifically
granted B the power to sue for enforcement of the agreement. C died, without paying any
sum to B, B sued to recover the money out of C’s estate.

The claim was rejected by the Court. It was held that the groom was not a part of the
agreement between the fathers and he did not provide any consideration for the promise made
by the father of the bride. Also, B being stranger to the contract, he could not enforce it. On
this basis, the court found in favour for the executor of the will. WHITMAN J considered it
to be an established principle ‘that no stranger to the consideration can take advantage of a
contract, although made for his benefit’.

7
123 ER 762: 1 B&S 23, 393: 30 LJ QB 218; 4LT 468.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 9

Although the sole object of the contract was to secure the benefit to the plaintiff, he was not
allowed to sue as the contract was made was made with his father and not with him. The case
laid the foundation of the doctrine of “privity of contract”, which means a contract is a legally
enforceable agreement between the parties and no third party can sue upon it even if it is
avowedly made for his benefit,8 it can also be said that nor such an individual can be sued on
the contract. Thus a stranger to the consideration cannot sustain the action on the promise
made between two persons unless he has in some way intervened in the agreement.

DUNLOP PNEUMATIC TYRE v. SELFRIDGE AND CO. LTD.9

Dunlop was a tire manufacturer who agreed with the dealer not to sell the tires below a
recommended retail price. Dunlop also required his dealer to gain the same agreement with
their retailers, Selfridge. The agreement held that if tires were sold below the fixed price, they
would be required to pay £5 per tire in damages to Dunlop. This was agreed between the
dealer and Selfridges, which effectively made Dunlop a third-party to that agreement.
Sometime after this, Selfridge sold the tires below the agreed price and Dunlop sued for
damages and an injunction to prevent them from continuing this activity. At the initial trial,
the decision was given to Dunlop. Thereafter Selfridge appealed and the decision was
reversed. Dunlop unsatisfied appealed again.

The issue in the case was whether it is lawful for Dunlop to sue Selfridge even though no
contractual relationship exists between them? The court set forth that the beneficiary can also
enforce the contract between two parties. The court held decision that Dunlop could not claim
for damages in the circumstances.

The court found that firstly, only a party to a contract can claim upon it. Secondly, Dunlop
had not given any consideration to Selfridge and therefore there could be no binding contract
between the parties. Also Dunlop was not listed as an agent within the contract and could
therefore not be included as a valid third-party who had rights to claim on the contract. The
Lords agree fundamentally there was no contract between Dunlop and Selfridge and therefore
Dunlop cannot sue.

8
Kanta Devi Berllia v. Mohit Jhunjhunwala, (2006) 2 CHN 161.
9
[1915] AC 847

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 10

DOCTRINE OF ‘PRIVITY OF CONTRACT’ IN INDIA

The word ‘privity of contract’ consists of two words ‘privity’ and ‘contract’.and the law
regarding contract is formally written in The Indian Contract Act 187210. The Indian Contract
Act, 1872 deals with general principles of the law of contract and certain specific contracts. It
is to be, however, noted that the Indian Contract Act does not explicitly contain a single
provision connected or related with the doctrine of privity of contract. Therefore, the position
of the doctrine may be visualised or pictured in the light of various provisions of the Contract
Act. Those provisions are: Sections 2(a), 2(b), 2(c), 2(e), 2(h), 73, 74, and 75 of the Indian
Contract Act, 1872.

In India, there had been great divergence, and incredible differences of opinion in the courts,
in debates and discussions as to how far a stranger to a contract can enforce it. There are
numerous chosen old cases which proclaim that a contract can’t be implemented by an
individual who is not a party to it and that the doctrine laid in Tweddle v. Atkinson, is as
much pertinent in India as it is in England.11 The Privy Council extended the principle to
India in its choice in Jamna Das v. Ram Autar Pande12.

SECTIONS IN INDIAN CONTRACT WITH REGARD TO DOCTRINE OF PRIVITY

OF CONTRACT

SECTION 2(D)

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 promise;

As per this interpretation, it is clear that in India we do not have or use the doctrine of privity
of consideration as it says the consideration can be from promise or any other person to the
promisee. But this adheres to the privity of contract as whatever is being done towards
fulfilment of the contract should be as per the desire of the promisor.
10
The Indian Contract Act, 1872 (9 of 1872).
11
AVTAR SINGH, CONTRACT AND SPECIAL RELIEF ACT, Pg- 111, (12 Ed 2017).
12
ILR (1911-12) 34 All 63

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 11

SECTION 41: - Effect of accepting performance from third person

When a promisee accepts performance of the promise from a third person, he cannot
afterwards enforce it against the promisor.

This section is on different line from the rule of privity of contract it includes or allows the
non-party to the agreement to perform the conditions of agreement. But can be done only if
the promise is willing to accept the performance by third party.

SECTION 70: - Obligation of person enjoying benefit of non-gratuitous act.

Where a person lawfully does anything for another person, or delivers anything to him, not
intending to do so gratuitously, and such another person enjoys the benefit thereof, the letter
is bound to make compensation to the former in respect of, or to restore, the thing so done or
delivered. For example: -

A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is
bound to pay A for them.
In this situation although there was no agreement between the A and B. but B will still be
held liable so as to conserve the rights of A.

SECTION 71: - Responsibility of finder of goods.

A person who finds goods belonging to another, and takes them into his custody, is subject to
the same responsibility as a bailee.

Although the person who finds the goods ‘A’ is no way related nor has entered into an
agreement to act as the bailee of the person ‘B’ whose goods have lost. But it is in regard to
spirit to protect the rights of the ‘B’ and to not allow unlawful enrichment of the ‘A’. this can
again act as an exception to the cases of privity of contract.

JAMNA DAS v. RAM AUTAR PANDE

The facts of the case are as follows- A borrowed ₹ 40,000 by executing a mortgage of her
zamindari in favour of B. Subsequently she sold the property to C for ₹ 44,000 and allowed

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 12

C, the purchaser to retain the amount in order to redeem the mortgage if he deemed fit. B
sued C for the recovery of the mortgage money, but he could not succeed because he was no
party to the agreement between A and B.
Thus it was held that where a person transfers property to another and stipulates for the
payment of money to a third person, a suit to enforce that stipulation by the third party will
not lie. This case was decided on the lines of Tweedle v. Atkinson.
It was also made clear that the party making the contract may sue for specific performance
for the benefit of third part.

There have been certain decisions in India which did not follow the doctrine of English Law.
There is, however a thin line of demarcation. Another line of thinking was maintained based
upon an observation made by the Privy Council in the below mentioned case.

NAWAB KHWAJA MUHAMMAD KHAN v. NAWAB HUSSAINI BEGAM13

There was an agreement between the father and father-in-law of ‘A, a Mahomedan lady’ that
in consideration of her marriage with his son, he would pay to her Rs.500 per month for the
betel-leaf expenses to perpetuity and some immovable property was charged for the payment
of these expenses. In suit by ‘A’ for recovery of arrears, it was held that although she was not
a party to the agreement, she was entitled to enforce her claim being the beneficiary.
In the case it was seen during the hearing of appeal- the Lordship’s desire to observe that in
India and among communities circumstanced as the Mahomedans, 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 the case of Kshirodebihari Dutta v. Mangobinda Panda,14 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 is
benefit”. This case is an important case, as it showed a different direction to the legal history
of Contract Law in India. JENKINS CJ said in another significant case.15 “We now have
ample authority for saying that the administration of justice in British India is not to be in any

13
(1910) 37 I.A. 152.
14
ILR (1934) 61 Cal 841: AIR 1934 Cal 682.
15
Debnarayan Datt v. Chunnilal Ghose,ILR (1914) 41 Cal 137.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 13

way hampered by the doctrine laid in the case Tweedle v. Atkinson. That I take to be the
result of the decision of the Privy Council in Nawab Khwaja Muhammad Khan v. Nawab
Hussaini Begum”.

SUPREME COURT ON PRIVITY OF CONTRACT

The Supreme Court expressed its views in the favour of the rule in Tweedle v. Atkinson. The
position of SC became clear after the case given below. It is now a settled law that a person
not a party to a contract cannot enforce the terms of the contract.

M.C. CHACKO v. STATE BANK OF TRAVANCORE.16

The facts of the case were as following: -

The Bank A was indebted to the Bank B for an overdraft. One manager M of A and father K
guaranteed the repayment of the overdraft. K, accordingly gifted his properties to the
members of his family. The gift deed provided that the liability, if any, under the guarantee
should be met by M either from the Bank or from the share gifted in the property. B
attempted to hold M liable, under the provision of the deed.

The court held m not liable stating that he was not a party to contract. The Court stated “B not
being a party to the deed was not bound by the covenants in the deed, nor could it enforce the
covenants. It is settled law that a paerson not a part to contract cannot enforce the terms of the
contract.”

The Doctrine of Privity of Contract under English Law

The rule laid down in Tweedle v Atkinson17 laid down the foundation of the doctrine of
Privity of Contract´ which means that a contract is a contract between the parties only and no
stranger to the contract can sue even if the contract is avowedly made for his benefit. Thus a stranger to the
consideration cannot sustain the action on the promise made between two persons unless he
has in some way intervened in the agreement. In the above case the plaintiff was to be married to the
daughter of one G and inconsideration of this intended marriage G and the plaintiff’s father

16
(1969)2 SCC 343: AIR 1970 SC 504.
17
(1861) 1 B & S 393.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 14

entered into a written agreement by which it was agreed that each would pay the plaintiff a
sum of the money. G failed to do so and the plaintiff sued his executors. Thus, although the
sole object of the contract was to secure a benefit to the plaintiff, he was not allowed to sue as
the contract was made with his father and not with him.

REFORMS IN THE RULE

The Third Party rule had been criticized widely over the number of years by various law
reform bodies, academicians, researchers, scholars, and the judiciary. The reforms has been
done by ways of various cases, one of most important of which is Beswick v Beswick

Beswick v Beswick18

The facts were A was in poor health and agreed with the defendant, his nephew, that he
would transfer the trade and goodwill of his business to him in liew of which the nephew
employed him as a consultant for the rest of his life and paid him for this. The nephew also
agreed to pay A’s wife after A death in perpetuity. Upon the death of A, the nephew paid A
wife just once. A’s widow brought an action as administrator of A’s estate and also in her
personal capacity claiming for specific performance.
As per the judgement held, the court granted the widow an order of specific performance for
the payment owed by A’s nephew as an administrator to her husband’s estate. The court held
that the damages would also not be limited duloss that had been caused to A’s estate.
However, the court found that PB’s widow could not claim under her personal capacity as she
was a third party to the contract and was not a party to the original agreement.
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”. 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.

WOODAR INVESTMENT DEVELOPMENT LTD v. WIMPEY CONSTRUCTION

UK LTD19

18
[1968] AC 58, 72.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 15

The facts of the above mentioned case, were that the defendant agreed to buy from the
plaintiff 14 acres of land for pound 8,50,000. It was agreed that on completion pounds
1,50,000 of this sum would be paid by the defendant to a third party of a firm A. The plaintiff
sued for damages for breach of contract and relinquishment of contract.
The majority view of the House of Lords was that the contract was actually not repudiated.
Their Lordships agreed that if the contract had been repudiated, the plaintiffs could not,
without showing that they had themselves suffered loss or were agents or trustees A, have
recovered damages for non-payment. This judgment shows that the court proceeded on the
assumption that a stranger to a contract cannot sue even if made for his benefit.

Lord Salmon, who had dissenting opinion regarded the law concerning damages for loss
suffered by third parties as most unsatisfactory and hoped that, unless it were altered by
statute, the House of Lords would reconsider it.
But in these cases, it can be seen that the Courts rather decided upon them by keeping in
mind the so-called ‘Interest Theory’. This theory basically meant that only he who had an
interest in the promise could bring up an action before the court, or in the words of the
Court, “He that hath interest in the promise shall have the action”20.

EXCEPTIONS TO THE PRIVITY RULE

Using the doctrine in totality ought to infringes the right of the right. It may put third party in
loss. So in order not to mar the interests of the third party who may not be a part of the
contract per se, but still owes interests in the contract or be related to the subject matter of the
contract. The Courts have introduced various exception to the rule of privity of Contract in
which allows an individual to enforce a contract which was made for his benefit but without
being a member to it.

1. BENEFICIARIES UNDER TRUST OR CHARGE

19
[1980] 1 WLR 277
20
Corny and Curtis v. Collidon; 1674 (1) Freem. K.B. 284.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 16

A person in whose favour a charge or an interest in some specific good or property has been
created may enforce the contract thought he is not a party to contract. Trust is a well-
established exception to the rule of privity. This means that if A makes a promise to B for the
benefit of C, C can enforce this promise if B has constituted himself trustee of A’s promise
for C21. But this rule is subject to certain restrictions. With trust comes a word a constructive
trust. What is it? A constructive trust is created in favour of an addressee of insured articles
and he can claim compensation from the central government on non-delivery of such articles.

A promisee can be held to be a trustee for a third party only if he has the intention to create a
trust22 and this intention must be to benefit the particular third party and not third parties
generally, otherwise this will create a problem and then contract law will not regard only to
the two parties; but also all the parties directly or indirectly. Also, the intention to benefit the
third party must be irrevocable.23’

And a mere intention to confer a benefit is not enough; there must be an intention to create a
trust. An intention to create a trust is clearly distinguishable from a mere intention to make a
gift.24 Taking stand for the beneficiaries, he took the stand in
the case Swain v Law Society25, Lord Diplock called that 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”.

CHINNAYA V. RAMAYYA26

The case is an important case in which it was discussed that if the bases of contract is the
benefit to a third party. Then the benefit must be provided to the third party or else the
contract would stand void.

The facts of the case in brief are, that an old women by deed of gift, made over certain
landed property to the daughter, ‘R’. As per the terms of the deed it was stipulated that an
annuity of Rs 653 should be paid every year to the Plaintiff, the mother's sister ‘C’. The
21
Tomlinson v. Gill (1756) Amb 330; Lloyd’s v. Harper (1880) 16 Ch D 290; Paul v. Constance [977] 1 WLR
527.
22
Swain v. Law Society [1983] 1 AC 598; Tito v. Waddell (No 2) [1977] Ch 106
23
Re Sinclair’s Life Policy [1938] Ch 799; Re Burgess’ Business Policy (1915) 113 LT 443; Re
Schebsman[1944] Ch 83.
24
Richards v Delbridge(1874) LR 18 Eq 11; Cleaver v. Mutual Reserve Fund Life Association [1892] 1 QB
147, 152; Re Foster [1938] 3 All ER 357; Green v. Russell [1959] 1 QB 28.
25
[1983] 1 AC 598, 611.
26
(1882) 4 Mad 137

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 17

defendant ‘R’ on the same day executed in plaintiff's favour anagreement promising to give
effect to the stipulation, but ‘R’ later did not perform her obligation. So, ‘C’ sued to recover it
from Ramayya. The defendant, ‘R’ tried to defend herself on the ground that the promise had
furnished no consideration. But the court used a different footing to decide the case. The
Court used the Dutton v. Poole for reference. The court set forth that in the present case it
appeared that the plaintiff was already receiving from her sister annuity of the same amount
out of the estate and when the estate was handed over to the defendant it was stipulated that
the payment to the plaintiff should be continued and she promised accordingly. Hence, the
court allowed the Plaintiff to recover. Thus in this case, Privity of contract has been abolished
in case of the beneficiary as the contract was made for her benefit.

RANA UMA NATH BAKSH SINGH v. JANG BAHADUR27

It is a relevant Indian case where this exception was considered is that of. In this case: A’ was
appointed by his father as his successor and was put in possession of his entire estate. In
consideration thereof ‘A’ agreed with his father to pay a certain sum on money and to give a
village to ‘B’, the illegitimate son of his father, on his attaining majority.

It was held that in the circumstances mentioned above a trust was created in favour of J for
the specified amount and the village, Hence he was entitled to maintain the suit. This case
fulfilled all the requirements of the case. As the intention to benefit the third party, the
illegitimate son was irrevocable. And there was a clear intention to create trust.

2. FAMILY ARRANGEMENTS

Where an agreement is made in connection with marriage, partition or other family

arrangements and a provision is made for the benefit of a person, he may take advantage
of that agreement although he is no party to the agreement. The case of Dutton v. Poole
could be referred in this case as well. As the sister was allowed to get the money from her
brother and restored her rights.

ROSE FERNANDES v. JOSEPH GONSLAVES28

27
AIR 1938 PC 245

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 18

 Another case in the regard of exception in the rule of privity of contract is this. The facts
of this case are that the girl’s father entered into an agreement with the defendant for the
marriage of the daughter. It was set forth that the girl after attaining the age of majority
could sue the defendant for damages for breach of the promise and the defendant could
not take the plea that she was not a party to contract. Therefore the defendant was held
liable.

Also in the case Shappu Ammal v. Subramaniyan29 there were two brothers and the
brothers during the partition of joint properties, agreed to invest in equal shares a certain
sum of money for the maintenance of their mother. But the defendants failed to do so.
Therefore the mother was held entitled to require and ask them to maintain the
investment.

3. ESTOPPEL OR ACKNOWLEDGEMENTS

This situation arises whereby 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 the individual.30 This exception of
acknowledgement covers cases where the promisor either by his conduct, express will,
acknowledgement, or, otherwise, constitutes himself an agent of the third party.
Acknowledgement can be of both kinds i.e. implied or explicit.

N. DEVARAJA URS v. RAMAKRISHNIAH31

This case is a good the example of the aforesaid exception. The facts of the case in brief
are: -‘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 creditors. Subsequently ‘B’ made
part-payments to ‘C’ informing him that they were out of the sale price left with him and
that the balance would be remitted immediately. B failed in remitting the balance. C sued
for the same. The suit was maintained. And the Court held “Though originally there was
no privity of contract between B and C, but B having subsequently acknowledged his

28
ILR (1924) 48 BoM 673 :AIR 1925 Bom 97.
29
ILR (1910)33 Mad 238.
30
AVTAR SINGH, CONTRACT AND SPECIAL RELIEF, 12 TH EDITION , PG -124 EBC EXPLORER,
DELHI 2017.
31
AIR 1952 Mys 109.

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 19

 liability” and so on the basis of this ‘C’ was entitled to sue him for the same. At the end
the suit was decided in the favour of ‘C’.

4. COVENANTS RUNNING WITH LAND

The reform of rule of privity of contract has seen modifications and exception so as to
cover the immovable property. The principle of the famous case of Tulk v. Moxhay32 is
that a person who purchases land with notice that the owner of the land is bound by
certain duties created by an agreement or covenant affecting the land, shall be bound
them although he was not a party to the agreement.33

The law allows certain covenants, which can be positive and restrictive as well to run
with land so as to benefit people other than the original contracting parties. The relevant
covenant can be in regard or relate to freehold land or leasehold land.

Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board34

This is a case of year 1940. The fact are that in 1938, by an arrangement under seal,
defendant catchment board, as the relevant drainage authority under Land Drainage Act
1930 (repealed), covenanted with the owners of certain lands which were subject to
flooding, situate between the Leeds and Liverpool Canal and the River Douglas, and
adjoining the El. The covenant was to maintain a riverbank that existed between the two
parties' land. An original party sold his land and the purchaser then leased the land to
Smith. In 1946 the riverbank collapsed and caused3 Smith's property to flood.

The Court set forth that both the plaintiffs were stranger to the agreement with the board,
but even so the Court of Appeal allowed them to sue the Board for breach of the contract,
for the whole agreement was for the benefit of the landowners whoever they might be and
not merely the parties to contract.

CONCLUSION

32
(1919) 88 LKJB 861(HL).
33
AVTAR SINGH, CONTRACT AND SPECIAL RELIEF, 12 TH EDITION , PG -125 EBC EXPLORER,
DELHI 2017.
34
(1949) 2KB 500 (CA)

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 20

The real objective of this doctrine is to protect the interests of the contracting parties and to
ensure that a contract does not confer rights or impose obligations arising under it on any
person except the parties to it. Considering the fact that a contract is essentially a private
arrangement, this doctrine reaffirms the sanctity of the concept. However there have been
attempts to amend this doctrine.35

In Indian Contract Act, 1872 there is no section or part specifically dedicated to the doctrine
and exceptions of Privity of Contract but there are sections which had been used by various
judges in various cases to modify, develop, and create exception for the doctrine of privity of
Contract. To name a few section is the section 2(d) of the Indian Contract Act, which
explains that in that in Indian context there is no privity of consideration. Contrary to the
English Law for a contract to exist consideration can move from anywhere and anybody, but
considerations must flow.

There had been much criticism against this theory. Like it does not recognise the role of third
party or the roll of beneficiaries. But cutting this theory off from the base is not a good
solution. With the continual judicial and legal reforms. Jurists have created certain
exceptions. And the rule of privity of contract combined with the various exception (that have
been created over-time) it makes for a very powerful doctrine, that is just faire and as per the
good conscience for the benefit of the parties to the contract and the other related to the
contract significantly. But no doctrine is perfect Jurist; lawmakers must keep themselves
open and flexible to modify this theory to improve it further.

***

35
Nilima Bhadbhade : Mulla, Indian Contract and Specific Relief Acts, 12 th Edition 2005, Pg.109

LAW OF CONTRACT’S ASSIGNMENT, SEM-II SHIVANI CHOUDHARY 21