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Table of Contents

ABSTRACT........................................................................................................................................................................1

ABSTRACT
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PRIVITY OF CONTRACT

Privity of contract is the relationship that exists between the parties to an agreement .
According to privity of contract , only contracting party can sue each other. In other words an
outsider or a stranger cannot sue the contracting parties or a person who is not a party to
contract does not have any rights under that contract and is not subject to any of its obligation.

Example: A went to supermarket and purchased some items but later on he came to
know that the food was tainted and he fell ill. Now he wanted to sue the supermarket and the
manufacturer of the food and the middlemen also. But he cannot sue the middlemen as he was
not in contract with the middlemen and had no relationship with middlemen and moreover
middlemen has not produced the food, he was just a retailer. Therefore A , cannot sue the
middlemen.

The areas of concern will be the exceptions to privity of contract and the cases which
proves privity of contract and these cases can be referred for privity of contract and a solution
can be known from these cases. There are many cases like Beswick v. Beswick and Dunlop
Pneumatic Tyre Ltd. v. Selfridge & Co. Ltd. In all these cases there are two parties which are in
contract with each other and they cannot sue the third party that is the stranger or outsider
party , only contracting parties can sue each other.

The main objective of the project is to know in detail in about the topic privity of contract
, various exceptions and the cases relating to privity of contract and rights available to third
party.There are many exceptions also for privity of contract i.e where the third party get the
beneficiary that is where benefit is provided to outsider , such outsider may sue the contracting
parties. These exceptions are trust or charge , marriage settlement , acknowledgement of debt .

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SYNOPSIS

Statement of the problem :

Due to the unsettled dissatisfaction as to the right of the third party to a contract, this
long essay conducted a wide and interesting research to settle the controversy . This is because
often times the operation of the doctrine causes hardship in practice.

A contract cannot confer enforceable rights or impose obligation arising under it on


any person except the parties to it. It follows that only those who have furnished consideration
towards the formation of the contract that can bring an action on it. This principle was
illustrated in the English case of Dunlop Pneumatic Tyres Co. Ltd. v. Selfridge Ltd. , where the
court held that only a person who is a party to contract that can sue on it.

The implication of the above decisions of the court is that strangers to a contract
cannot sue it since they are not parties to it.

This rule however was recently developed. As at 17th Century in the case of Dulton v.
Poole a father intended to sell wood to raise money for his younger children. His eldest son
dissuaded him from doing so by promising to pay 1000 pounds to each of the younger children.
When he failed to carry out his promise, one of the children sued him on it and was successful.

The doctrine of privity of contract cannot be over-emphasized. It is a settled fact that


people enter into contract because they desire to benefit from it. But there are times what they
bargain for does not come to them handy.

A promisor and a promise who have furnished consideration may be required to


perform other obligation for the enjoyment of the contract. They may be required to insert in
the contract clause certain obligations and duties which will guarantee easy access to the
contract.

However, they may have started on a good note but along the line conflict may arise as
a result of the emergence of a third party who was not even there when the contract was made.

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The loophole tend to create confusion and problem in the contract which was done with
pleasant exchange of hand shake among contracting parties.

Furthermore, a promisor and a promisee who have furnished consideration may have
inserted their contract clause that a third party is to benefit from their relationship even though
such party is not a privy.The third party may have been mentioned in the contract but is
required to perform an obligation under the contract but failed to do so may want to enforce his
right.

Privity of contract poses a lot of challenges and special problem between the promisor,
the promisee and the third party and this thus affect the enjoyment of the contract.
The care of these problem is that privity of contact centres on two basic aspect that is:
(i) No one except a party to a contract that can acquire rights under it .
(ii) No one except a party can be subjected to liabilities under it.

Although a third party cannot generally assert rights under a contract made for his
benefit, the contract remains nevertheless binding between the promisor and the promisee.
The fact that the contract was made for the benefit of a third party does however give rise to
special problems so far as the promisee’s remedies against the promisor are concerned. Actual
performance of the contract may also lead to dispute between promise and third party.

It is not an overstatement or an exaggeration to say that third parties have been


denied their rights and benefit in a contract entered on their behalf either because of their
failure to perform the obligation under the contract or because they are not privies to it.

With due respect to the court which represent the temple of justice , it is not also an
overstatement to say that the courts are occupied with irregularities that tend to sway their
mind from the right of the third party thereby denying them justice even when they believe that
they are working in the interest of justice.

The question then comes to mind whether a third party who has performed
obligation under the contract made on his behalf can enforce it in the law court? Yet another
question arises as to whether that party who has failed to perform the obligation under such
contract can sue it ? It is the above question and more this research seek to address.

In doing this however, consideration which is the bedrock of the contractual


relationship without which there will be no relationship must be born in mind. This is because
once there is valuable exchange of consideration between the contracting parties, then contract
comes into existence. Therefore absence of consideration between the promisor and the
promisee goes a long way to affect the claim of the third party.

It is this and more that we took an indepth research to x-ray the problems
encountered in the privity of contract and to settle the unrest between contracting parties. This
is because it would be wholly unreasonable for any legal system to subject a third party to a
contractual obligation to which he was completely unaware.

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Secondly, it would amount to injustice whereby a third party is denied his benefit in
a contract simply because he was not a party to it or merely because he did not perform the
obligation in the contract which he was not aware of. It should be noted that it is the inherent
problem that exist in contractual relationship between the parties to it that gave rise to the
burning desire to reconcile the two and the right of the third party under the doctrine of privity
of contract. This research is an attempt to find out why some third parties are denied their
rights in a contract made to benefit them .

Research Questions :
This long essay is set to give a befitting burial to the following questions raised
under privity of contract and as well provide answers to them. Such questions include but not
limited to the following :

(1) What is privity of contract ?

(2) What is the rationale behind its operation?

(3) Is it relevant in our legal sytem?

(4) Are there reasons for its application in our legal jurisprudence?

(5) Can a person enforce a contract which he was not a party?

(6) How has consideration influenced the operation of the doctrine?

(7) To what extent has the court applied the doctrine in adjudication of dispute?

(8) Are there remedies available to an aggrieved party who was denied his benefit under a contract
that was entered for his benefit?

(9) Are there limitation to the operation of the doctrine?

(10)What are the circumstances under which a third party can be denied his right?

Objectives of the study :

To state the law as it both under the English common law and under our legal
system which is the major point of interest , the following objectives come up:
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(1) To settle the conflict between parties to contract.

(2) To state the nature of privity of contract and how it has been applied in India.

(3) To bring the right of the third party into play.

(4) To unveil the duties and obligations required of a third party before the enjoyment of his right.

(5) To review how the doctrine has been applied in other jurisdiction of which India has a
relationship with.

(6) The constraints and limitations of its applications in India.

(7) The relevance of the doctrine in our legal system.

Research Methodology:

The method employed in putting together this long essay are primary and secondary
sources. The primary source would include case laws of both foreign and Indian law reports.
The secondary sources includes text books of renowned authors as well as internet.

The essence of using the above is to have wide knowledge on the topic as well as
unlimited contribution made by authors and scholars and the courts in the area of privity of
contract.

Significance of the study :

The long essay under discussion will be of beneficial interest in many ways. It will
educate and enlighten especially the layman who is a beneficiary in a contract of which he is
ignorant of. It will also benefit both writers and scholars specialized in the field of contract law ,
teachers and professors of law as well as the general public.

Furthermore, it will assist the disputing parties in a contract know their rights , duties
and obligation as well as their limitations. Also an analysis of doctrine will help a third party
understand his rights in a contract to which he is a beneficiary.

An x-ray of this work will provide possible solutions to curb the interference of certain
contractual clause from the enjoyment of the contract. It equally gives an avenue to criticize
certain unjust decisions of the court and how it has affected a third party. A study of the work
will give an insight into ways avoiding the doctrine.

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Scope of the study :
The scope of this long essay is within the confine of Indian Legal System. In this
regard, it means that references will be made to those case laws , statutes, that regulate
contractual relationship in India bearing in mind privity of contract which is the main reason of
this research.

Even though the vocal point of this study is with our legal jurisdiction references will
be made to the old common law where the received law came from. This is because any
discussion on the topic will first and foremost look at the evolution of the term contract out of
which came the offspring privity of contract. Furthermore , this work deals mainly on the scope
and limitation of privity of contract as it concerns third party.

Although there are other areas in contract that deals with the right of the third
parties in contractual relationship, this area of research focuses on the extent to which a third
party’s right can be protected under a contract which he is a mere beneficiary under Indian
Laws.

A closer look at the reviewed English Law gives a wide coverage and understanding
of the rules and principles in contract as it relates to privity of contract which is traceable to
foreign laws. It should be born in mind that this research cuts across all spheres of contract and
therefore shold not be limited to Indian law in terms of its application.

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RULE OF PRIVITY OF CONTRACT:
STUDY IN ENGLISH AND INDIAN CONTEXT

INTRODUCTION
The principle of privity of contract provides that, as a general rule, a contract cannot confer
rights or impose obligations arising under it to any person who is not a party. The doctrine has
long been criticized as artificial and contrary to the parties’ intention to benefit a third party. As
a result, the courts have frequently resorted to devices such as agency or trust to allow a third
party to enforce a benefit conferred upon it. Legislation has also made incremental inroads into
the doctrine by providing for certain specific exceptions.

Prior to 1833, there existed English decisions allowing contractual provisions to be enforced by
persons not party to it, usually the relatives of a promisee. The doctrine of privity emerged
alongside the doctrine of consideration, the rules of which state that consideration must move
from the promisee, 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. The year 1833
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saw the case of Price v. Easton, where a contract was made for work to be done in exchange for
payment to a third party. When the third party attempted to sue for the payment, he was held
to be not privy to the contract, and as such his claim failed. This was fully linked to the doctrine
of consideration, and established as such.

The doctrine of privity of contract means that only those persons who are parties to the
contract can enforce the same. Strangers to the contract enforce a contract even though the
contract may have been entered into for his benefit. If in a contract between A and B some

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benefit has been conferred upon X, X cannot file a suit to enforce the contract because A and B
are the only parties to the contract whereas X is stranger to the contact.

(1833)4B & Ad 433(C)

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The doctrine of privity of contract, which debars third party to enforce a contract, forbids the
parties to the contract from enforcing any obligation there under against a stranger. A person
cannot be subject to the obligation of a contract to which he is not a party and the logical
consequence is that a stranger cannot acquire rights under a contact. This general rule, no
doubt, is subject to certain exceptions.

PRIVITY OF CONTRACT: ENGLISH LAW


The doctrine of privity of contract means that only those involved in striking agreement can
enforce it. In general this is still the case. Only parties to a contract may sue for the breach of a
contract although in recent years, the rule of privity has eroded somewhat and third party
beneficiaries have been allowed to recover damages for breaches of contract they were not
party to. A recent example in England is passing of the Contract (Rights of Third Parties) Act
1999.

The rule of privity of contract was first recognized and established in the ruling of Tweddle v.
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Atkinson. Tweddle's father and Atkinson, Tweddle's father--in--law entered into a contracted to
contribute a sum of money each to support Tweddle and his wife. Tweddle’s father kept his part
of the bargain but Atkinson died before paying anything. Tweddle sued the executors of
Atkinson's estate. His suit was rejected because he himself was not party to the contract even
though it was for his benefit. The court held that it was not possible to claim that there was an
implicit contract between Tweddle and Atkinson, more so, in the absence of consideration from
Tweddle to Atkinson. In this case, the plaintiff was both a stranger to contract as well as stranger
to consideration and therefore, he could not enforce his claim.

The rule of privity of contract was reaffirmed by the House of Lords in Dunlop Tyre Co. v.
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Selfridge. The plaintiffs sold tyres to Dew & Co. wholesale distributors on terms that Dew
would obtain an undertaking from retailers that they should not sell below the plaintiff’s list

2
(1861)1 B & S 393
3
(1915) AC 847

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price. Dew sold some of the tyres to the defendants, who retailed them below list price. The
plaintiff sought an injunction and damages. The action failed because although there was a
contract between the defendants and Dew, the plaintiffs were not a party to the contract.

PRIVITY OF CONTRACT: INDIAN LAW

The rule of privity of contract has been applicable in India as well. Even though under the Indian
Contract Act the definition of consideration is wider than under English law, yet the common
law principle of privity of contract has been generally applicable in India, with the effect that
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only a party to the contract is entitled to enforce the same. The authority for the application of
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the rule in India is the decision of the Privy Council in Jamna Das v. Ram Avtar. In that case, A
had mortgaged some property to X. X brought an action against B to recover the mortgage
money. It was held by the Privy Council that since there was no contract between X and B, X
could not enforce the contract to recover the amount from B. In Advertising Bureau v. C. T.
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Devaraj, the circus owner placed order with the plaintiff--appellant for making advertisements
for circus. The plaintiff--advertiser did not make any agreement with the financer of circus. The
advertiser was not a party to the contract between financer and the circus owner. There being
no privity of contract between the advertiser and the financer, the suit by the advertiser against
the financer was therefore, dismissed.

Privity of contract occurs only between the parties to the contract, most commonly contract of
sale of goods or services. Horizontal privity arises when the benefits from a contract are to be
given to a third party. Vertical privity involves a contract between two parties, with an
independent contract between one of the parties and another individual or company. If a third
party gets a benefit under a contract, it does not have the right to go against the parties to the
contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer
sells a product to a distributor and the distributor sells the product to a retailer. The retailer

4
Narayani Devi v. Tagore Commercial Corporation Ltd. AIR 1973 Cal. 401.
5
(1911) 30 IA 7.
6
AIR 1995 SC 2251.
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then sells the product to a consumer. There is no privity of contract between the manufacturer
and the consumer.

This, however, does not mean that the parties do not have another form of action like in
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Donoghue v. Stevenson where a friend of Ms. D bought her a bottle of ginger beer which was
defective. Since the contract was between her friend and the shop owner, there was no privity
of contract, but it was established that the manufacturer has a duty of care owed to their
consumers and she was awarded damages in tort. Privity is the legal term for a close, mutual, or
successive relationship to the same right of property or the power to enforce a promise or
warranty.

EXCEPTIONS TO THE RULE OF PRIVITY OF CONTRACT:


1) Trust of Contractual Rights or Beneficiary Under a Contract: One of the exceptions to
the doctrine of privity of contract was recognized by Lord Haldane in Dunlop Pneumatic
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Tyre Co. v. Selfridge & Co. In this case it was mentioned that only a party to a contract
can sue on it and no such right is conferred on a third party, however, the court
conceded that such right may be conferred by way of property, as, for example, under a
trust. The basis of an action by the third party in such a case is actually not the enforcing
of contract.

2) Conduct, Acknowledgement or Admission: Sometimes there may be no privity of


contact between the two parties but if one of them by his conduct, acknowledgement,
or admission recognizes the rights of the other to sue him, he may be liable on the basis
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of the law of estoppel. In Narayani Devi v. Tagore Commercial Corp. Ltd. there was no
contract between the plaintiff and the defendant but the defendant in their agreement
with the plaintiff’s husband had agreed to pay certain amount to the plaintiff’s husband
during his lifetime and thereafter to the plaintiff. The question of the right of the

7
[1932] All ER Rep 1; [1932] AC 562.
8
Supra note 3.
9
Supra note 4.

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plaintiff to sue the defendant had arisen. It was established that defendant had made
certain payment to the plaintiff after her husband’s death in pursuance of the
agreement and had thereafter asked for the extension of the time to pay. It was held
that defendant had created such privity with the plaintiff by their conduct and
acknowledgement and therefore, the plaintiff was entitled to her claim.

3) Provision for Marriage Expenses or Maintenance Under Family Arrangements: Where


under a family arrangement, the contract is intended to secure a benefit to a third
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party, he may sue in his own right as a beneficiary. Such an action has been allowed in
many cases where, on the partition of joint family property between the male members,
a provision is made for the maintenance of the female members of the family. In
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Sundaraga Aiyanger v. Lakshmiammal, the partition--deed between the male
members of the family made a provision for the expenses for the marriage of the
plaintiff to be contributed by the defendants. She brought an action to enforce the
agreement between the defendants. It was held that even though the plaintiff was not a
party to the contract yet the contract constituted the situation like trust in her favour
and therefore, she was entitled to the amount.

EXAMPLES OF THE PROBLEMS CREATED BY THE DOCTRINE OF


PRIVITY OF CONTRACT:
Three scenarios help to illustrate the problems created by the doctrine of privity of contract
with respect to third party beneficiaries. The first parallels the situation in Beswick v. Beswick.
Where A and B enter into an agreement under which A agrees to pay a sum of money to C. Both
the parties intend that C should take the benefit of A’s promise, however, if A defaults, C cannot
sue A because of the doctrine of privity. B has to attempt to enforce the contract for the benefit
of C, even though B may not have suffered any loss. The second problem takes place in the
construction context, where A, a property developer enters into a building contract with B, the
contractor. A obtains warranties from B for the benefit of C, purchasers that any defects will

10 Mt. Dan Kuer v. Sarla Devi, AIR 1947 PC 8.


11 (1915) 38 Mad 788.
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be remedied within a stated period of time. If C subsequently discovers a defect in their building
they have no recourse against B since the purchasers are not privy to the building contract. This,
despite the fact that A obtained B’s warranties for the benefit of C. In practice a developer may
withhold a portion of its payment to the contractor to ensure that B fulfill its promise to A for
the benefit of C. The third scenario is the insurance context where A, the employer obtains
insurance from B, insurer, for the benefit of A and C, the employee. C may have difficulty in
obtaining indemnity from B as C is not a party to the insurance contract even though the parties
intend to benefit C.

PRIVITY OF CONSIDERATION:
The rule that stranger to contract cannot sue has to be distinguished from the rule that in India
where a person who is stranger to consideration can sue. The rule is that a person may not have
himself given any consideration but he can enforce the contract if he is a party to the contract,
because according to Indian Contract Act, consideration may be given either by the promisee or
any third party. That, however, does not affect the rule of privity of contact.

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According to the Contract Act, consideration may be given by ‘the promisee or any other
person’. It means that as long as there is a consideration for a 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. But in English Law, the position is different. There, the consideration must move from
the promisee himself. For example, A promises to give his watch to B and a consideration of Rs.
5000 for the same is given to A by C and not B himself. This will not be a valid contract in
England but in India as Section 2(h) clearly states that “…at the desire of the promisor, the
promisee or any other person” may provide consideration.

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This can be further understood in the case of Chinnaya v. Ramayya In this case A, an old lady
granted her estate to her daughter (the defendant) with a direction that the daughter should

12 S. 2(d).
13 (1882) 4 Mad. 137.

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pay an annuity of Rs. 653 to A’s brothers (the plaintiffs). On the same day, the defendants made
a promise with the plaintiffs that she would pay the annuity as directed by A. The defendant
failed to pay the stipulated sum. In an action against her by the plaintiffs she contended that
since the plaintiffs themselves had furnished no consideration, they had no right of action. The
Madras High Court held that in this agreement the consideration had been furnished by the
defendant’s mother and that it was enough consideration to enforce the promise between the
plaintiff and the defendant. In the said case, it can be seen that A enters in a contract with B but
A himself has not given any consideration to B, but the consideration has been provided by third
party i.e. C to B. Although A is a stranger to consideration, he can still enforce the contract
against B. One has to remember that this is only true under Indian Law and the situation is
different under English Law where the consideration can only move from the promisee and a
stranger to the consideration in no condition can maintain any action.

LAW REFORM COMMISSION REPORT ON PRIVITY OF


CONTRACT AND THIRD PARTY RIGHTS:
In the Final Report, the Law Reform Commission has identified and recommended that a third
party should be able to enforce its rights under a contract in three situations as discussed below
and also proposed for a draft bill titled “Contract Law (Privity of Contract and Third Party Rights)
Bill, 2008.” The LRC acknowledges that there ought to be a limit to when and how a contract can
be enforced by a third party. The three situations in which a third party should be entitled to
enforce the Contract are as follows:

1) When the term expressly confers a benefit on the third party, provided it was the
intention of the contracting parties that the third party ought to be able to enforce the
term and in circumstances when a contract expressly confers a benefit on a third party,
there ought to be a presumption that the parties intended for the third party to be
entitled to bring an action to enforce a term if the situation arose.

2) When that contract expressly states that the third party has a right of enforcement, even
in situations where the contract does not benefit the third party. The LRC

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accordingly recommends that provision should be made in legislation enacting the Bill to
give effect to the contracting parties' intentions that a third party is to have a right of
enforcement. If the parties have drafted this term into the contract, both parties clearly
intend that the third party ought to have a right of enforcement.

3) When the term permits a third party to rely on exclusions or limitations on liability,
provided that it was the intention of the contracting parties. The normal rules on the
incorporation and construction of exemption clauses shall apply to these circumstances
too.

The LRC makes a number of other recommendations and these include:

1) If possible, the contracting parties should identify the third party by name in the
contract and if it is impossible to name that third party prior to the execution of the
contract, then the contract must expressly identify the third party as being a member of
a particular class or as answering a particular description.

2) Third party should be able to enforce a term of a contract even if that third party has not
provided any consideration.

3) The contracting parties should not be able to cancel or vary the contract in a way that
would affect the rights of the third party once either contracting party is aware that the
third party has assented to the contract. After this point, the contracting parties are
required to obtain the consent of the third party if they wish to cancel or vary the
contract. If consent is not obtained then the third party may bring an action based on
the terms of the contract which existed before the variation.

4) The contracting parties should be able to include an express term in the contract
providing for variation or termination.

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5) The contracting parties can expressly agree to reserve an unlimited right to vary or
terminate the contract and while this would reduce the rights of the third party it
remains the choice of the contracting parties.

6) Where a contract jointly benefits more than one third party then each third party must
assent to the contract in order for the crystallisation of that third party’s rights to occur.

7) The proposed legislation should also apply where the third party is a consumer. The third
party will bring all actions against the promisor, i.e. the contracting party who promised
the benefit to the third party only.

8) A number of contracts should be excluded (either because third parties already have
enforceable rights or for policy reasons) and the creation of additional rights could cause
uncertainty and undermine the policy behind the existing rules.

9) The proposed legislation should not give third parties a right to sue an employee
through any contract of employment.

10) The proposed legislation should not apply to Section 25 of the Companies Act 1956.

LRC PROPOSALS AND THE ENGLISH APPROACH: A


COMPARISON:
The Contract (Rights of Third Parties) Act, 1999 was introduced in England and Wales and is a
very similar reform to that proposed by the LRC. In 1996, the Law Commission of England and
Wales issued its final report recommending changes to the doctrine of privity of contract. The
Law Commission recognised that a number of bodies had made calls for the reform of the
privity rule including the judiciary, academics and other law reform bodies in England and Wales
and also in other jurisdictions. The Law Commission looked to other jurisdictions that had
already reformed the privity rules and decided that the most effective way of reform would be
through legislation.

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The 1999 Act provides that a third party can enforce a contract, or a term of a contract, which is
made for their benefit if the contract expressly states that they may do so, or if the term
purports to confer a benefit on them and the contracting parties cannot show that they did not
intend the term to be enforceable by the third party. Comparing the 1999 Act with the draft
Contract Law (Privity of Contract and Third Party Rights) Bill, 2008 which the LRC appended to
the Final Report, it is clear that the LRC has taken a similar review and suggested reforms similar
to that of the Law Commission of England and Wales. The Bill almost replicates the 1999 Act
with some minor additional provisions inserted. One extra provision that is in the Bill but not in
the 1999 Act which is worth noting is that a third party may enforce a term of a contract
(provided the contract expressly provides that the third party may do so and that the term
expressly confer a benefit on that third party) even in circumstances where the third party has
not provided consideration for that contract. This provision is of course without prejudice to the
requirements for consideration between the promisor and promisee.

NEED FOR AMENDMENT:


Strict application of the doctrine of privity of contract undoubtedly results in hardship and
rigidity which to some extent causes injustice to the affected persons. Therefore, the Law
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Commission of India in its 13 report in order to avoid injustice from the rigid application of the
doctrine recommended that a new section 37A should be inserted in the Contract Act as
follows:
“37A: Benefit on third parties:

(1) Where a contract expressly confer directly on a third party, then, unless the contract
otherwise provides, it shall be enforceable by the third party in his own name, subject to any
defences that would have been valid between the contracting parties.

(2) Where a contract expressly conferring a benefit directly upon a third party, has been
adopted, expressly or impliedly, by the third party, the parties to the contract cannot

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substitute a new contract for it or rescind or alter it so as to affect the right of the third parties.”

CONCLUSION
The rule that no one except a party to a contract can be made liable under it is generally
regarded as just and sensible. But the rule that no one except a party to a contract can enforce
it may cause inconvenience where it prevents the person most interested in enforcing the
contract from doing so. The many exceptions to the doctrine make it tolerable in practice, but
they have provoked the question whether it would not be better further to modify the doctrine
or to abolish it altogether.

If the world of business was a building, contracts could be described as the foundation upon
which it depends for its stability. Trade as we know would be in chaos if a would--be promisor
felt free to break his word without the threat of legal sanctions pointing in his direction. A
contract is simply that promise or set of promises that the law finds enforceable. In essence the
universal law of contract requires that a valid contract possess certain factors, namely; an
intention to enter into legal relations, an agreement and a deed under seal (written) or
supported by consideration or 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. 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.

The concept of privity is part of the bedrock called common law which was made up of the
collective judicial decisions derived from court decisions. Today, however, the law has
recognized that with the increasingly complex world of commerce there must be some changes
to accommodate certain exceptions to the general rule and guarantee restitution to the

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aggrieved. Growing consumer rights questions including warranty claims have contributed to
this amendment of approach.

With the growing unpopularity of the doctrine, the judiciary developed several ways around it.
These were at times both complex and artificial and used the law relating to trusts and
agencies, along with other areas and ideas such as collateral contracts. These exceptions,
however, have been limited in how they can be used.

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BIBLIOGRAPHY

Primary Sources:

1) The Indian Contract Act, 1872


2) The Contract (Rights of Third Parties) Act, 1999

Secondary Sources:

th
1) Anson, Law of Contact (Oxford University Press, 28 edition)
th
2) Pollock & Mulla, Indian Contract and Specific Relief Acts (Lexis Nexis, 13 edition, 2006)
th
3) R. K. Bangia, The Indian Contract Act (Allahabad Law Agency, 14 edition, 2009)
4) R. L. Meena, Textbook on Law of Contract (Universal Law Publishing, New Delhi, 2008)

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