CHAPTER I INTRODUCTION : MEANING AND HISTORICAL DEVELOPMENT OF THE DOCTRINE OF PRIVITY OF CONTRACT.

Transcription

1 CHAPTER I INTRODUCTION : MEANING AND HISTORICAL DEVELOPMENT OF THE DOCTRINE OF PRIVITY OF CONTRACT. (A). Meaning of the Doctrine of Privity of Contract "No one may be entitled to or bound by the terms of a contract to which he is not an original party.1 2 In other words, a person, who is not a party to a contract, is neither entitled to the contractual benefits nor is he bound by the contractual obligations. Rights and obligations emerging out of a contract are limited to its parties only 2 and do not extend to a stranger. This is known as the doctrine of privity of contract. The rights and obligations are strictly, the private matters of contracting parties and because of this a stranger has no legal access to them. Thus, 'the doctrine of privity of contract means that a non-party cannot bring an action on the contract. The doctrine enunciates a fundamental principle of law of contract that a stranger to a contract cannot sue upon it. However, full connotation of the doctrine would be better possible if we break it up in two parts privity and contract. In common parlance, the term 'privity' may mean 'something secret'. The term 'privity' has not been defined 1. Price v. Easton (1833) 4b. & Ad A stranger is a person who is not a party to the contract. 3- Cheshire, Fifoot and Furmston's Law of Contract 11th Ed.(1986) at 438.

2 2- in the Indian Contract Act. The Webster Third International Dictionary, however defines the term 'privity' as 'something that is not made public or displayed'. Under the Random House Dictionary, the word 'privity' signifies 'private or secret knowledge or participation in the knowledge of something private or secret especially as implying concurrence or consent.' According to the Oxford Encyclopedic Dictionary 'privity' means 'any relation between two parties that is recognised by law. ' The word 'contract' in the general sense means an 'agreement'. According to the Random House Dictionary a contract is 'an agreement between two or more parties for doing or not doing something specified.' Contract means 'an agreement, upon A some consideration, to do or not to do a particular thing. According to Oxford Encyclopedic Dictionary contract means'a mutual agreement between the parties or an agreement 4 Comm. 449, Justice v. Lung (as cited in Black's Law Dictionary).

3 -3- enforceable by law.' The definition of the word 'contract' 5 has been attempted by many jurists^, but the definition given by William Anson contains all the essentials of a contract and is the most workable. According to him, "A Contract consists of an actionable promise or premises. Every such promise involves at least two parties, a promisor and a promisee, and an outward expression of common intention and of expectation as to the declaration or assurance contained in the promise0." 5«"A contract may be defined as an agreement which is either enforced by law or recognised by law as affecting the legal rights or duties of the parties." Treitel, 'An Outline of the Law of Contract' (1975). (reprinted in 1977) at 1. "A contract is an agreement which will be enforced by the law." Charlesworth's Mercantile Law, 13th Ed. (1977) at 1. "Contract contains every description of agreement, obligation or legaltie, whereby one party binds himself, or becomes bound expressly or impliedly to another, to pay a sum of money or to do or to omit to do any particular act." Chitty on Contracts, l8th Ed. (1930) at 2. "A Contract is an agreement creating and defining obligations between the parties." Salmond on Contracts, at 10. "A Contract is an agreement made between two or more persons which is intended to be enforceable at law and is constituted by the acceptance by one party of an offer made to him by the other party to do or abstain from doing some act." Halsbury's Law of England Vol.VIII. "An agreement as the source of legal contract imports that one party shall be bound to some performance, which the other shall have a legal right to enforce." Leake on Contracts (1867) at 3- "Agreement, consideration and intention of parties to create legal relations are three elements constituting a contract." Cheshire, Fifoot and Furmston's Law of Contract, 11th Ed. (1986) at 106. "The Common Law does not require any positive intention to create legal obligations as an element of contract...a deliberate promise seriously made is enforced irrespective of the promisor's views regarding his legal liability." Williston on Contracts (3rd EdJ S.l. Also cited in Cheshire Fifoot and Furmston's Law of Contract, 11th Ed.(1986) at Anson's Law of Contract,(edited by A.G.Guest) 26th Ed. (1984) at 21.

4 -4- Section 2(h) of the Indian Contract Act, 1872 defines contract as "an agreement enforceable by law". It means that an agreement not enforceable by law is not a contract. It is obvious that an agreement can be enforced by law only when it fulfils essentials of a valid agreement prescribed by law. The essential conditions of a valid agreement are given in section 10 of the Contract Act, which provides that all agreements are contracts if they are made by the free consent' of parties competent to contract0, for a lawful consideration and with a lawful object^, and are not expressely declared to be void.^^ Section 2(h) read with Section 10 of the Contract Act, thus affirms the well known phraseological expression that 'all the agreements are not contracts but all the contracts are agreements.' This expression reveals that a contract is nothing but a valid agreement. Thus, the doctrine of privity of contract is a combined result of these two words, i.e. 'Privity' and 'contract'. Consequently, the doctrine means something private or secret about a contract or it means the privacy of a contract between the parties. The privacy of contract signifies a privacy or secrecy to terms of the contract. It means that only parties to the contract are bound to comply with the terms of the contract and third party is not bound 7. Section l4 of the Indian Contract Act, 1872 defines free consent. 8. Section 11 of the Indian Contract Act, 1872 deals with capacity of a person to contract. 9- Section 23 of Indian Contract Act,l872 deals with lawful considerations and objects of a contract. 10. Sections 20,23,24,25,26,27,28,29,30,36 & 56 of the Indian Contract Act,lo72 deals with agreements which are void and as such are not enforceable.

5 -5- to fulfil the contractual obligations. This means that onlyparties to a contract are entitled to enjoy benefits of a contract and no third party can claim the benefits of a contract, because he has no concern with the contract. In Black's Law Dictionary a clear concept of the doctrine is visibl e. It purports that 'privity of contract' is that connection or relationship which exists between two or more contracting parties. For the maintenance of an action on any contract it is essential that there should exist a privity between the plaintiff and the defendant in respect of the matter sued on.' However, the doctrine of the privity of contract is not only that which the common people perceive. The dictionary meanings also do not. give a complete idea about the doctrine. The common man's approach about the doctrine and its dictionary meanings are, although, helpful in understanding the doctrine to some extent, but they do not assist us in understanding the legal importance of the doctrine. The Indian Contract Act does not specifically define the doctrine of privity of contract, but the doctrine has been well-established in England and its meaning and scope are very clear. It is, therefore, pertinent to discuss the historical development of the doctrine in England in order to understand its full connotation.

6 -0- (B?. Historical Development The doctrine of privity of contract is basically a common law doctrine. It was during the British regime in India that the Indian Contract Act was enacted in the year The Act, therefore, is mostly based on the principles of English legal system. Therefore^ a discussion of historical development of the doctrine in England will help in better understanding the development of law in India. (1) Position in England: The doctrine of privity of contract owes its origin to the common law courts. This doctrine originated during the period when the judges were busy in discovering a suitable principle for determining as to who was entitled to sue for breach of a promise. It, however, took considerable time to come to prominence. The doctrine of privity of contract was, for the first time, applied in the case of Jordan v. Jordan1'8'. In this case the suit of a non-party to a promise did not lie. 12 But, in Lever v. Keys the court overruled the decision in Jordan v. Jordan and allowed the stranger's suit on a contract. In this case the father of a girl promised the father of a boy that if he would be willing to give his consent to the marriage of the boy with the girl and assure QO ON LT\ i l -=t CO C7NCTN irsin 1 i rh 1 IOJ rh rh a a O O 1 1I 1 H- H- N N CTsOJ i - ON VDVO ON vn to 3 oo "S td U1 o

7 -7- pounds 40 to the son, he would pay pounds 200 to the son in marriage. The action of assumpsit was brought by the son upon breach of the promise. It was held that the son was entitled to sue. 13 But, in Taylor v. Foster reaffirmed the decision in Jordan's case and applied the doctrine of privity of contract and a stranger to the contract was prevented to maintain his action upon breach of the contract. In this case, the defendant, in consideration that the plaintiff would marry his daughter, promised to pay pounds 100 in two instalments to one J.S., to whom the plaintiff was indebted. The court held that the plaintiff was the proper person to l4 sue and not J.S. But, again in Provender v. Wood the court overruled the Taylor's case and allowed stranger's action on IS a contract. Similarly, in Sprat v. Agar the father of a girl promised the father of a boy to transfer certain land to the boy in consideration of the boy's marriage with his daughter. It was held that the son, although, not a promisee, could sue. 1 ^ But, in the leading case of Bourne v. Mason the court overruled the Provender ' and Spratx cases and held that the doctrine of privity of contract was applicable. In «<rv4- mvo N-co H 1 {< I1 { 1 i l (1601) Cro. Eliz. 776, 807. (1630) Hetley 30. (1658) 2 Sid (1699) 1 Ventris 6. See also 'A History of Common Law Contract' by A.W.S. Simpson (1975) dt 479- Supra note l4. Supra note 15.

8 -8- this case there was one Parry who was indebted to Bourne, Mason and Robinson (who was a co-defendant). Chaunter was indebted to Parry. Mason, in consideration that Parry would allow Mason to sue Chaunter promised to pay to Bourne a part of the sum owed to him by Parry. The plaintiff's action to sue the contract failed. The court held that the plaintiff was not a proper person to sue. It said that the plaintiff was a stranger and no meritorious cause moved from him. It appears from this judgement that the court has based its verdict on the ground that the plaintiff has neither incurred any loss nor provided benefit to the defendant and therefore, he should be treated as a stranger to the cotract. In other words, as the consideration did not move from the plaintiff, he could not be held entitled to bring an action for enforcing his claim on breach of contract. However, in Dutton v. Poole^ the court of King's Bench again overruled the decision in Bourne v. Mason case and upheld the stranger's claim,but on a different ground. The court did not follow the doctrine of privity of contract strictly. The court observed- that the stranger was having very close relations to the promise. He could, therefore, maintain an action on a contract as a beneficiary. In this case the father of the defendant wanted to sell some timber 19- (1678) 2 Lev Also cited in Anson's Law of Contract (edited by A.G.Guest) 26th Ed. (1984)at 364.

9 -9- trees. The defendant promised (in consideration that his father would refrain from cutting down the trees) to pay to his sister Grizil pounds Grizil (as Mrs. Dutton) with her husband sued for breach of the promise. It was held that the action was maintainable. It appears that the basic ground in this case for ignoring the doctrine of privity of contract was the very near and affectionate relation between the plaintiff and her father who was the promisee under the contract. The court was of the opinion that natural love and affection could constitute consideration. Therefore, the consideration and promise to the father could extend to the children for there P0 exists natural love and affection between them. plaintiff was no doubt, a stranger to the contract, but not a stranger to the consideration, she was deemed to have furnished consideration, so she.was held entitled to sue. The It is submitted that this was the case where an idea emanated that if the stranger, upon whom contractual benefit was to be conferred, was closely related by blood to the 21 promisee, a right of action would vest in him. 22 Crow v. Roger was a case where a stranger could not base his claim on breach of a promise. In this case, a 20. Anson's Law of Contract (edited by A.G. Guest) 26th Ed. (1984) at See also The Master, Wardens and Commonality of Felt Maker V. Davis, (1797) 126 E.R. 801; Pigott v. Thompson^1802) 127 E.R.80. The decision of Dutton v. Poole was approved in these cases (1724) 1 str. 592.

10 -10- person named Hardy owed pounds 70 to Crow. An agreement was made between Rogers and Hardy whereby Rogers promised to repay Hardy's debt in consideration that Hardy would give a house to him. On the basis of this promise Crow sued Rogers. But, the court rejected his claim on tine ground that he was a stranger to the agreement and consideration. The above view was confirmed in the leading case of Price v. Easton. However, in the present case, the court preferred to accept only one of the two reasons given for rejecting the claim in Crow v. Rogers. This reason was that as the plaintiff was a stranger to the contract he could not enforce the contract. The facts of the case were that one W.P. owed pounds 13 to Price. He promised to work for Easton who in lieu of it, promised to repay his debt to Price. W.P. did the work but, Easton failed to repay the debt. Price sued Easton for breach of this promise. The suit was rejected. The observation of the court in this case in defence of privity of contract is worth quoting: "No one may be entitled to or bound by terms of a contract to which he is not an original party." oh Tweddle v,atkinson is the case in which the doctrine of privity of contract was finally established by the Court of Queen's Bench in l86l. In this case in consider- tion of an intended marriage between plaintiff and daughter 23. (1833) 4 B. & Ad (1861) IB. & S. 393-

11 -11 of one W. Guy the plaintiff's father entered into a contract with W. Guy. By this contract both agreed to pay the plaintiff a definite sum of money. But, Mr. Guy failed to do so. The plaintiff sued his executors. The suit was dismissed by the court. It is to be noted that the court in rejecting plaintiff's claim laid more emphasis on doctrine of privity of consideration than on the doctrine of privity of contract. Nevertheless, the doctrine of privity of contract acquired a definite shape in this case. An analysis of above judicial decisions reveals that although the origin of the doctrine of privity of contract 25 may well be traced in some earlier decisions, ^ but it was the decision in Tweddle v, Atkinson,^ which indeed ended the uncertainty about the doctrine and gave a finality to it. Ever since the decision of this case, the doctrine of privity of contract has been followed. The above mentioned judicial decision also makes it clear that the doctrine of privity of contract lays down two general principles of law of contract. Firstly, it purports to say that a stranger to a contract cannot sue. Secondly, it states that a stranger to a contract is not bound by the contract. 25. Jordan v. Jordan, supra note 11; Taylor v. Foster, supra note 13; Crow v. Rogers, supra note 22; Price v. Easton, supra note Supra note 24.

12 -12- contract. It is pertinent to mention that a doctrine which had been toiling hard for its existence in the nineteenth century has finally succeeded in getting the final seal of approval by the House of Lords in the leading case of Dunlop 27 Pneumatic Tyre Co.,Ltd. V. Selfridge & Co. Ltd., 1 in the year The plaintiff in this case sold a number of tyres to Dew & Co. with an agreement that Dew & Co. would not resell them below a fixed price. Dew & Co. sold the tyres to Selfridge who agreed to observe the restriction and promised to pay to Dunlop Co. pound 5 for each tyre if he violelted the restriction clause. But, Selfridge sold the tyres to another at a price which was below the price fixed by restriction clause in the agreement. The court rejected the claim of the plaintiff and held that a stranger to a contract had no right to sue upon it. It is clear that the plaintiff was a stranger to the contract between Dew & Co. and Selfridge. It is submitted that the claim of the plaintiff was rightly rejected, as in the absence of such an attitude of the court the commerce would have suffered badly. It is to be noted that in some subsequent cases efforts were made to abolish the doctrine. For example, in o Q Drive Yourself Hire Co, Ltd,(London) v. Strutt, Lord Denning (who opposed the doctrine) observed, "For the last two 28. (1954) 1 Q.B. 250.

13 hundred years before l86l it was settled law that, if a promise in a single contract was made for the benefit of a third person in such circumstances that, it was intended to be enforced by him, then the common law would enforce the promise at his instance, although he was not a party to the contract." 29 In Beswick v. Beswick ^ the views expressed by both Lord Denning and Dankwerts L.J. in the court of Appeal was that the doctrine of privity of contract could not be applied. But, the House of Lords, rejecting the views of Lord Denning and DankwertsL.J. unanimously emphasised the utility of the doctrine of privity of contract. In this case, there was a contract between the plaintiff's husband and her husband's nephew transferring the coal business by the husband to his nephew. It was held that the plaintiff was not entitled to enforce obligation in her personal capacity since she was a stranger to the contract, however, she could as the personal representative of her husband {the promisee) obtain specific performance of the promise in favour of herself as third party. In Jackson v. Horizon Holidays Ltd. J a very important question came before the court for cosideration. The question was as to whether the promisee could recover substantial damages (due to breach of contract) for loss (1968) A.C. 58. (1975) 1 W.L.R

14 -14- suffered by a third party and not by himself. The court of Appeal upheld the award. In Wooder Investment Development Ltd., v. Wimpey Construction U.K, Ltd. similar arguments were taken before the court. The facts of the case in brief were that the defendant agreed to buy from the plaintiff l4 acres of land for pounds 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, T.T. Ltd. The plaintiffs sued for damages for breach of contract and repudiation 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 for T.T. Ltd., have recovered damages for non-payment of the pounds 1,50,000. This judgement shows that the court proceeded on the assumption that a stranger to a contract cannot sue even if made for 32 his benefit.. But, Lords Salmond and Russel forming the minority view dissented. They expressed that the defendant's conduct amounted to a repudiatory breach. However, the majority view Is correct because it allows the promisee to recover damages for loss suffered due to failure of promisor 31. (1980) 1 W.L.R See also Sea Calm Shipping Co. S.A.v. Chantries Navals de I'Estered S.A., (1986) 2 Lloyd's Rep. 294; E.D.& F. Man (Sugar) Ltd. v. Evalend Shipping & Co. S.A.,(1989) 2 Lloyd's Rep. 192.

15 15- to pay the agreed sum to the third person. Thus, the doctrine of privity of contract came into prominence in England in l86l in the case of Tweddle v.atkinson. J Ever since the decision in this case, it has been regarded as one of the basic principles of law of contract in England. However, the doctrine is not absolute. Certain limiations have also been imposed upon it. For instance, trust and agency are the most common examples of such limitations. Besides, the legislature has also enacted 84 some limitations through various enactments. These limitations constitute exeptions to the doctrine. (2) Position in India: As. we know there is no independent' enactment on the doctrine of privity of contract in India. But, fortunately, unlike England, the law of Contract in India is codified. 85 The Indian Contract Act~^ 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 relating to the doctrine of privity of contract. Therefore, the position of the doctrine may be visualised in the light of various provisions of the Contract Act. For instance, Section 2 (h) of the Indian Contract Act, 1872 defines the term 'contract' in the form of an U U J U Vjl -prco Supra note 24. Law of Property Act,1925;Road Traffic Act, The Indian Contract Act, 1872.

16 -16- agreement. It states that "an agreement enforceable by law is a contract." In other words, a contract is nothing but a valid agreement. The 'agreement' has been defined under section 2(e) of the Indian Contract Act, According to section 2(e), "Every promise and every set of promises forming the consideration for each other is an agreement." Thus, an agreement is a precondition to the contract. The agreement may be divided into two parts - 'promise' and 'consideration of the promise.' The term 'promise' has been defined under section 2 (b) of the Contract Act. According to section 2 (b), "a proposal when accepted becomes a promise." Thus, finally we find two terms - proposal and acceptance. The 'proposal' has been defined under section 2 (a) of the Contract Act and the 'acceptance' under section 2 (b) of the Act. According to section 2 (a), 'when a person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.' Section 2 (b) of the Act says that 'when the person to whom the proposal is made signifies his- assent thereto, the proposal is said to be accepted.' It is evident that only that person can accept the proposal to whom the proposal is addressed. The proposal is generally regarded as a starting point of a contract and on the other hand, an acceptance as its concluding point. The person who makes a proposal may be called the proposer, offeror or promisor and

17 17- the person to whom a proposal is made or who accepts the proposal may be said the acceptor, offeree or the promisee. Section 2 (c) of the Act defines the term 'promisor' and 'promisee'. According to it, "the person making the proposal is called the 'promisor' and the person accepting the proposal is called the promisee." It can, therefore, be inferred from the above provisions of the Contract Act that the promisor is answerable to the promisee and the promisee is answerable to.the promisor. That is to say, that only parties to a Contract are the appropriate persons who can enforce the contractual rights and shoulder the contractual obligations. A person who is not a party to a contract can neither sue nor be sued for the breach of the contract. Thus, there exists a privity of contract between parties to the contract. Further, it is obvious from Section 73 of the Indian Contract Act, 1872 that the party who suffers by breach of a contract is entitled to receive damages from the other party to the contract. In view of section jh of the Act, it can be said that if a sum is named in the contract as the amount to be paid in case of breach of a contract, the party complaining of breach is entitled to receive a reasonable compensation not exceeding the amount so named, or as the

18 -18- case may be, the penalty stipulated for. Section 75 of the Act provides that a person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through non-fulfilment of the contract. It follows from section 73, 74 and 75 (which deal with consequences of breach of contract) that only that person is entitled to sue for breach of the contract who is a party to the contract and has suffered loss due to such breach. A person who is not a party to the contract i.e. a stranger cannot,therefore,bring an action for breach of the contract. Thus, from the provisions of Indian Contract Act discussed above it is implied that it incorporates the doctrine of privity of contract. However, certain statutory^ and non-statutory^ exceptions to the doctrine are accepted in India as well. (C). Doctrine of Privity of Consideration The doctrine of privity of consideration must be distinguished from the doctrine of privity of contract. The doctrine of privity of consideration lays down that a contract can be enforced only by that party to a contract who has himself given the consideration. The doctrine emphasises that the consideration must move from the promisee and not from a stranger. On the other hand, the doctrine of privity of contract means that a person who is 36. Statutory exceptions have been discussed in Chapters III to VII of the Thesis. 37* See M.C.Chacko v.state Bank of Travancore,A.I.Hv (1970) S.C. 504.

19 -19- not a party to a contract can neither sue nor he sued for breach of the contract. These two doctrines are basically different. To illustrate, it can be submitted that the plaintiff may be a party to a contract, but he may be a' stranger to the consideration. For example, A, B, and C constitute a contract whereby A promises to pay Rs.500 to B and C provided B will repair his car. Accordingly, B repairs the car. No doubt, C is a party to the contract, but he is a stranger to the consideration. He has not done the act of repair i.e. he has given no consideration. On the other hand, a person may not be a party to a contract, but he may be a party to the consideration. For example, A and B agree that A will pay Rs. 100 to B if C paints a picture for him. C does so. C is a stranger to the contract which has been made between A and B, but as he has given consideration, he is not a stranger to the consideration. In the English case of Tweddle v. Atkinson^ both of these doctrines were emphasised. The court held that no action could lie as the plaintiff was not only a party to the contract, but also no consideration had moved from him. Further, in Dunlop Pneumatic Tyre Co., Ltd. v. Selfridge & Co.it was held that certain principles are fundamental. 38. Supra note Supra note 27.

20 -20- One is that only a person who is a party to a contract can sue on it. The second is that if a person with whom a contract, not under seal, has been made is to be able to 40 enforce it consideration.must have been given by him. That is to say, under English law there are two important principles of law of contract-doctrine of privity of contract and doctrine of privity of consideration. About the doctrine of privity of consideration it is notable that it is not enough that consideration should have been given; it must have have been given by the promise. In other words, the consideration under English law must move from the promisee. However, in India it is not necessary that the consideration should have been given by the promisee; it may be given by a stranger also. Section 2 (d) of the Indian Contract Act makes it amply clear that the acts which amount to a consideration may be done by the promisee or by any other person. The special mention of the expression "the promisee or any other person" under section 2(d) of the Contract Act which defines the term 'consideration' reveals that the consideration may move from the promisee or from a 42 stranger provided the promisor so desires. An agreement 40. Supra note 27 at 853, per Lord Viscount Haldane. 41. Anson's Law of Contract (edited by A.G.Guest.) 26th Ed. (1984) at 86, The principle has its origin in decision of Dutton v. Poole (1677) 2 Lev. 210,an English case decided by the court of King's Bench.

21 made without consideration is void J i.e. an agreement cannot be enforced unless it contains consideration. But, it is immaterial as to who has given the consideration - the promisee or a third person. The principle that the consideration may also be given by a stranger was affirmed in the leading case of 44 Venkata Chinnaya Rau Garu v. Venkata Ramaya Garu and others. In this case, Lakshmi Venkanna Rau, a lady made a gift of her estate to the defendant Chinnaya Rau, her daughter by a registered deed. She directed her to make annual payment of Rs. 653/- to her brothers, (the plaintiffs) and their descendants until she gave them a village yielding the same income. The gift deed contained this direction. She gave such direction because she was paying Rs. 653/- annually to her brothers till the gift was made. On the same day, the defendant executed an agreement in favour of the plaintiffs to carry out her mother's direction. However, the defendant did not pay the stipulated amount. The plaintiffs sued for breach of contract. Thus, briefly stating, the defendant promised to pay Rs. 653/- to the plaintiffs, but the consideration to this promise was given by the plaintiff's sister. That is, the plaintiffs were although a party to the contract, they were strangers to the consideration. ^ Section 25, The Indian Contract Act, However, there are three exceptions to the rule mentioned under section 25 of the Act. I.L.R. (1882) 4 Madras. 137-

22 -22- The Madras High Court dismissed the appeal and held that the plaintiffs were entitled to sue. It is to be noted that the consideration given by a stranger lias the same effect as consideration given by the promisee. In other words, the doctrine of privity of consideration is not applicable in India. It follows from the above discussion that the doctrine of privity of contract lays down two fundamental principles of law of contract. Firstly, a contract cannot be enforced except by a party to the contract. In other words, a stranger to the contract cannot sue for breach of the contract, even though the contract is made for his benefits; and Secondly, a contract cannot bind except parties to it i.e. a stranger to a contract cannot be sued for breach of the contract even if the contract imposes burden upon him. The doctrine of privity of contract is a common law doctrine. It has its genesis in the decision of an English leading case of Tweddle v. Atkinson. ^ But, it is equally applicable in India. Although there is no specific provision under the Indian Contract Act, dealing with the doctrine, it is to be noted that the doctrine is implicit in various 46 provisions of.the Contract Act. However, the doctrine is not 45. Supra note For example; Sections 2(a), 2(b), 2(c), 2(e), 2(h), 73, 74, and 75, The Indian Contract Act, 1872.

23 -23- absolute; it operates under certain limitations - both statutory and non-statutory. These limitations will be discussed separately in other Chapters of the Thesis. ********************