PRIVITY OF CONTRACT

1. Privity- A contract is only enforceable by the parties to the contract and no other
person.
2. Aspect of privity:- benefit and obligation / liability (MC Chako case) (Raja case)
3. Two tests:-
a. Who does the offer have to move from?
Section 2(d)- “At the desire of the promisor”
Dunlop Pneumatic Tyre v Selfridges
i. Facts:-
The appellants gave to sell goods to the respondents (distribution) and
foreseeing that no product is sold less than the price stated by appellants.
The distributor in turn gave the goods to Selfridges (respondents) and
contracted for not selling at less than the aforesaid price. The respondents
sold a tyre below the price. Dunlop sued Selfridges.
ii. Issue:-
 Was there any contract between Dunlop and Selfridges?
No because the Selfridges had contract only with the distributor and not
Dunlop- Privity of contract rule.
 Assuming there is a contract, whether the act of not selling below the
said price “at the desire of promiser i.e. Dunlop or distibutor?
The desire flowed from the distributor, Dunlop to the Selfridges; hence as
per privity of contract, Dunlop cannot sue Selfridges as the act is not the
desire of Dunlop. {Note:-In case of Indian law, Dunlop could have sued}
iii. Set out three important aspects:-
 Doctrine of privity of contract:- Only the person who is party to contract
can sue on the contract.
 Doctrine of privity of consideration:- The consideration must flow from the
promisee at the desire of the promisor or any other person nominated.
In the given case, the consideration was going from the Dunlop to the
distributor and hence suing selfridfes to Dunlop did not help.
 If we consider the distributor as an agent of Dunlop, could Selfridges sue
Dunlop in case of any breach? A certain agent principal came into
picture- disclosed and undisclosed principals.

4. The two aspects of privity rule:-

a. Privity of consideration
i. Under the English law, specifically states that the consideration must
flow from the promise (i.e. form one of the parties to the contract it.) It is
does not happen, then there is no consideration.
Dutton v Poole:-
 Facts:-
The father wanted to sell the timber form his farm and then gives
money to his daughter. The son tells the father to not cut the timber
 and leave the payment to daughter on him. Thus, they entered into a
contract-In consideration of father not cutting the timber; the son
agrees to give payment to daughter. The son fails to make the
payment.
 Analysis:-
The daughter cannot sue as she is stranger to the contract or
consideration. But, she was granted some benefit. So, can she
sue for that benefit? The benefit detriment applied as the
daughter was at a detriment by foregoing the payment amount
earlier in anticipation of getting payment later.
 Tweedle v Atkinson(1861):-
 Facts:-
A couple were getting married. The father of the bride entered an
agreement with the father of the groom that they would each pay the
couple a sum of money. The father of the bride died without having paid.
The father of the son also died so was unable to sue on the agreement.
The groom made a claim against the executor of the will.
 Issue:-
Whether the plaintiff can claim any right against the defendant against a
contract to which he is not a party?
 Analysis:-
The court held that “it is now established that no stranger to consideration
can take advantage of a contract even through it is made for his benefit”.
Also, in this case, since the plaintiff had already married. So, the benefit
detriment test fails.
To the general rule stated in the case, there was two exceptions i.e.
beneficiary and if the parties are of such close relation that it they cannot
be considered as one party.
ii. INDIAN LAW:-
 Section 2(d)- “any other person”- so the Indian law explicty
disregarded the Tweedle v Atkinson rule and incorporated the
principle of Dutton v Poole.
 Chinnanaya V Ventaramaya
 Facts:- The mother and uncle had an agreement under which the
former had or give a property to the latter and till it was not given, the
former had to pay some money regularly to the latter. Mother passed
away. Before dying, she told her daughter to continue paying the
uncle.
 Analysis:-
 In this case, the consideration was flowing among the parties.
Unlike Tweedle v Atkinson case.
 Tweedle v Atkinson was held to be different from this case as in
that case it there plaintiff did not put him at any detriment or
 benefitted from the contract as irrespective of money he has
already married. In this case, the uncle was at a detriment as he
letting go of the entitlement (for some time) to a property for
payment till he does not get it.
 Dutton v Poole was also cited. It was argued that in the aforesaid
(Dutton case) case the benefit detriment test applied. The court
held that the uncle is entitled to compensation he was at a
detriment like the aforesaid case.
 Important aspects of the case:-
 It diverged from the Tweedle and Atinkon and used Dutton v
Poole case’s principle.
 It also stated that Indian law does not recognise the stranger to
the consideration rule because the section 2(d) states
“promisee or any other person” Hence, the consideration can
come from any other person and incorporated a situation where
even a stranger to a contract could be entitled to sue under the
contract.

b. Privity of contract
i. In Indian law, third person can also give consideration. Only the parties to
the contract can sue upon the contract. Two aspects:-
 When the benefit goes to third party can that party sue in the contract?
 When the contract provides for an obligation on third person. Such a
contract is not enforceable as the contract can only place liabilities on the
parties to the contract and not the third person.
ii. MC Chacko v The state bank of Travancore- beneficiary aspect of
privity
 Facts:-
Highland bank having a debt towards Kottayam bank, this debt
guaranteed by KC Chacko. KC Chacko entered into an agreement with M
C Chacko and some other family members that the latter will make the
payment by some property. KC passed away. Kottayam bank earlier did
not know about the contract between MC and KC. Suddenly, the bank
realised that there was such a contract between MC and KC. The bank
sued the KC Chako.
 Analysis:-
 In case of debt are a personal obligation and it gets extinguished with
the death of the person. So, one cannot go after the person who
inherit the property but can go after his property. The moment KC
Choko passed away, the contract of the guarantee is extinguished.
The obligation of the guarantee was stated in a partition deed
between MC and KC which also stated about the obligation of the
guarantee. The court held the contract being between KC and MC,
 hence the plaintiff cannot sue for it. It used principle of Tweedle v
Atkinson. Since, the claim about beneficiary was not stated in
arguments, hence it is did not apply to the case.
 “It is settled law that a person not a party to a contract cannot subject
to certain well recognised exceptions, enforce the terms of the
contract: the recognised exceptions are that beneficiaries under the
terms of the contract or where the contract is a part of the family
arrangement may enforce the covenant.”

iii. Contracts of trust:-

A father has a lot of money. He has a son who is ten years old. The father
passes away. Since the son is very young, the father puts the money in
trust managed by the trustee who uses the money for the benefit of the
son. There are some agreements and contracts wherein certain activities
have to be done for a recognised beneficiary. Under Trust act, the
beneficiary can enforce can trust agreement if is recognised as a
beneficiary and the reason for such arrangement is due to natural love and
affection.
iv. No Liability of third party under a contract to which the person is not
a party:- Raja of Ventagiri v Krishayya:-
 Facts:- A and B have an ongoing case. C decides to tell A that I fund your
case. if A wins then he has to give the money. If A loses, then there was
no need to give the money. C passed away. D is the son of C.
 Issue:- Should D be liable to pay the money to A?
 Analysis:- D was to be held not liable under privity of contract rule. There
was a consideration whether D voluntary assumed the responsibility to
pay the contract or not? This was on basis of Section 25(2). On facts, the
court held that D did assume the voluntarily assume the risk/
responsibility.

v. When a party relies on the promise of the other person and proceed
with an act or abstinence and put himself into a detriment, then the
other party is obligated to fulfil his promise.

 Doraswami Iyer v Arunachala Ayyar

 Facts: The repair of a temple was in progress. As the work proceeded,
more money was required and to raise this money subscriptions were
invited and a subscription list raised. The defendant put himself down on
the list for Rs. 125 and it was to recover this sum that the suit was filed.
The plaint found the consideration for the promise as a reliance on the
promise of the subscriber that they have incurred liabilities in repairing
the temple.
  Issue:- whether the other person has relied on the promise and put
themselves into a detriment or whether they would have done the act
irrespective of the other’s party’s promise?
 Judgment: The learned judge held that there was no evidence of any
request by the subscriber to the plaintiff to do the temple repairs. Since,
the temple repairs were already in progress when the subscriptions
were invited. The action was not induced by the promise to subscribe
but was rather independent of it. Hence, no recovery was allowed.

 Kedarnath v Gorie Mohamed (1886)

 Facts:-
It was thought advisable to erect a town hall at Howrah provided
sufficient subscription could be got together for the purpose. To this
end the Commissioners of Howrah municipality set out to work to
obtain necessary funds by public subscription. The defendant was a
subscriber to this fund for Rs.100 having signed his name in the
subscription book for the amount. On the faith of the promised
subscriptions, the plaintiff entered into a contract with a contractor for
the purpose of building the hall. But the defendant failed to pay the
amount and contended that there was no consideration for this
promise.
 Issue:-
Whether the other person has relied on the promise and put
themselves into a detriment or whether they would have done the act
irrespective of the other’s party’s promise?
 Analysis:-
He was held liable. Persons were asked to subscribe knowing the
purpose for which the money was to be applied, they knew that on the
faith of their subscription an obligation was to be incurred to pay the
contractor for the work. The promise is: ‘In consideration of your
agreeing to enter into a contract to erect, I undertake to supply money
for it.’ The act of the plaintiff in entering into contract with the
contractor was done at the desire of the defendant (the promisor) so
as to constitute consideration within the meaning of Section 2(d).
5. ARTICLE BY PROFESSOR SHIV:-
1. The great Indian Privity trick:-
i. General thinking:-
 2(d)- made to answer privity of consideration-“promisee or any other
person”
 2(c)- made to exclusively answer the privity of contract. The section 2(d)
stated that the there can only be a promisor and promisee.
  So, ICA does not expressly answer the question of privity of contract or
consideration. In effect, the ICA recognises both these doctrines. This is
called “the great Indian privity trick”. The section 2(c) states for privity of
consideration and Section 2(d) allows for privity of contract.
ii. Arguments:-
 It is not correct to see two concepts as different having places in two
different sections in ICA.
 The division of these two concepts is illusory. They mean the same thing
as this same meaning has actually been dismantled by section 2(d)
which was the intended (intention- the privity rule does not exist as strictly
as in English law) of the framers of the contract act.
iii. Conclusion:-
The rule of privity of contract as stated in India is not correct and is not in
accordance with the intention of the framers of 2(d) and we need to look
back at old cases to ascertain the and ensure the intention of the framers
in present law scenario.

The English law principles of stranger to consideration cannot sue and only parties to
contract can sue on a contract. If we say that rule was directly recognised in MC
chocko that privity of contract exists with an exception of beneficiary. The English
rule was realised to be redundant. The contracts right to third party Act, 1999 did
away with the requirement. It expressly recognises that the third party to a contract
in effect can enforce the contract with two exceptions:-
a. The contract specifically mentions that he was conferred a right or benefit.
b. The contract confers a benefit on him.

It could be argued that the above stated principle is what was stated in the MC
Chocko case. But, the Indian law went one stage further. The act recognised that the
benefit or entitlement to sue is automatically and default conferred unless the
contract specifically says that the right to third party cannot apply. Hence, the in the
Indian law this is recognised as an exception and in English law it is recognised as
standard rule. If it is correct that privity of contract need not be there and instead the
rule that third party can sue should be recognised in law, then the same principle has
been incorporated in English law in 1999 despite not being done in Indian law.

6. Indian law:-
a. A stranger to contract cannot sue upon a contract.
Exceptions:- Beneficiary or conference a right in a family arrangement
b. In Indian law, the privity of consideration rule is not considered.
c. When a benefit is conferred then the third party can enforce the contract.
But, no third party is liable for a contract as he is not a part of the contract.

Bullets:-

Only party to contract can sue.

Section 2(d)- any other person: exception from English rule.

25(1)- natural love and affection is an exception to the general rule.-with respect of
giving of gifts.

Chinnaya case- diverged from the English law-tweedle v Atkinson.

A. sPECIFICALLy stated that section 2(d) says that “any other person”
Contract of consideration:-
1. Dutton v poole: 1673-beenficairy could sue in England- it was stated that
there are two concepts-privity of contract and privity of consideration.
2. Stated that beneficiary rule in Dutton case ia not applicable in most
cases- tWeedlw v Atkinson(1861)
3. Indian contract act- incorporated a phrase a 2(d) “any other person”-
disregarded the tweedle v atinkson case.
4. Chinnaya v Ventaramamya(1881)
 Differentiated between 1861 law
 Indian contract act has gone beyond and acknowledged that
consideration can come from third party.
B. Privity of contract
1. MC Chaoko case- (case for privity of contract)- the contract being mc
and kc, the bank is not the party to contract and hence cannot sue.
They used tweedle v. atinkson principle.
 Exceptions goes back to C v V.
Beneficiary rule
Family arrangement- love and arrangement.
C. Contract of trusts-beneficiary exception