The relationship between privity and consideration

Doctrine of Privity of Consideration & its position in England & India

the relationship between privity and consideration

Supporters of this view concede that while privity and consideration are distinct doctrines, there is a strong relationship. It discusses the elements of an intention to create legal relations and the presumptions Finally, the chapter considers the doctrine of privity of contract, and the. The relationship the privity rule has with the rules of consideration is that under the doctrine of consideration, consideration must move from a.

Because this normally involves parties who are not part of the main contract, it has been used as a way around the doctrine of privity. Shanklin contacted a painting company and asked them to repaint the pier with paint produced by Detel Products, based on assurances from Detel that the paint would last for at least seven years. The painters bought the paint from Detel and used it to repaint the pier.

Within three months the paint had almost completely flaked off. Shanklin had no contractual relationship with Detel Products, but the Court of Appeal found like there was a collateral contract they could use to sue. Under the Road Traffic Actmotorists are obliged to take out third party liability insurance. This means that victims of car accidents can claim money from the insurer of the driver at fault, even though they are not part of the original contract.

Agency in English law An agency relationship is between three parties - a principalwho authorises an agent to make a contract on his behalf with a third party. In some circumstances the principal can sue the third party even when the agent has not disclosed to the third party that he is acting as an agent to the principal. In this situation, the third party can be sued by somebody that he had no idea was involved in the contract.

This can include the right to enforce a debt. In this situation the party who is assigned the debt can sue the debtor despite any contractual agreement between them. Contracts Rights of Third Parties Act The doctrine of privity was significantly reformed by the Contracts Rights of Third Parties Actwhich received the Royal Assent on 11 November and "thereby [removed] one of the most universally disliked and criticised blots on the legal landscape".

The report was not acted on; as late as the assumption was that Parliament would not act, and any reform would come from judicial sources particularly the House of Lords.

the relationship between privity and consideration

Contracts for the Benefit of Third Parties", which proposed a similar change, and in the final report No. The proposed changes were supported by the legal profession and academics alike, [34] and the Bill was finally introduced to parliament in January This causes problems with the idea that the doctrine of privity should be abolished, as the idea that third parties can claim benefits from promises that they gave nothing for clashes with the doctrine of consideration, which prevents parties who did not contribute something to the agreement from benefiting from it.

Under section 14 of the Companies Actthe registered memorandum and articles of association of a company bind the company and its members to the same extent as if they respectively had been signed and sealed by each member.

Various other jurisdiction either have it or have adapted it. Some believe it to be very likely that the introduction of the rule into English Law was accompanied by that in the French law as well, which took place in the early 19th century. Also, when the English Law explicitly, and without any ambiguity, reaffirmed the principle in Dunlop v Selfridge [xlviii]this set led to be followed in a number of common law legal systems- for example, in both Canada [xlix] and Australia [l]a strict privity doctrine took root.

Elsewhere, though particularly in the United States, a less strict approach had survived, with an explicit third party beneficiary rule being applied [li]. The same was true in Scotland [lii]. Also, in most of these jurisdictions, it has been experienced that it is remarkably difficult to maintain a strict line on privity and hence this doctrine is been criticized a lot, leading the paths to, either legislative relaxation in most of these jurisdictions, a well-known example of this being the New Zealand Contracts Privity Actor requiring the courts to address upon the need for reform in ahead-on fashion.

Kuehne and Nagel International Ltd [liv] are the two most significant cases in this aspect. In the Trident case, the question was whether McNiece, a contractor employed by Blue Circle, could rely on an insurance policy written by Trident for Blue Circle.

The policy was to cover Blue Circle and all its subsidiaries, contractors and sub-contractors involved in specified construction contracts. Although McNiece was within the category covered it was not directly in contract with Trident. Despite this lack of privity, the majority of the Hifh Court ruled in favour of McNiece.

  • Doctrine of Privity of Consideration & its position in England & India
  • Basis of Privity of Contract and Consideration
  • Privity of contract

In the words of Toohey J [lv]: Clause 11 b of the contract provided: The majority had little doubt that the circumstances were eminently appropriate: As such, the respondents are not complete strangers to the limitation of liability clause. Rather, they are unexpressed or implicit third party beneficiaries with respect to this clause. Section 11 of the Western Australian Property Law Actin line with the proposal of the English Law Revision Committee, amended the third party rule by providing that: The third party rule was abrogated by statute in Queensland in Section 55 of the Queensland Property Law Act provides that: A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise.

Inthe New Zealand Contracts and Commercial Law Reform Committee presented a Report on the third party rule, which appended draft legislation to implement the recommended reforms. The Report then considered developments in other jurisdictions, including the absence of a third party rule in most civilian systems [lxvi] and its abrogation, either by the courts or by statute, in the United States, Israel, Western Australia and Queensland. The Committee considered arguments that the practical difficulties caused by the rule, and the devices adopted for avoiding its operation in particular circumstances, were insufficient to justify a fundamental change in the law, but refuted the contention that the intentions of the contracting parties could usually be achieved by the courts.

the relationship between privity and consideration

There is a vast literature on third party rights in the United States, which no short account can adequately summarise. The following paragraphs merely highlight some of the main difficulties revealed by the case law. Since the decision of the New York Court of Appeals in Lawrence v Fox, [lxix] it has become generally accepted that a third party is able to enforce a contractual obligation made for his benefit.

However, the problem of defining what is meant by a third party beneficiary has never adequately been solved. Section of the first Restatement of Contracts published in distinguished donee beneficiaries, creditor beneficiaries and incidental beneficiaries: Two recent judgments of the Supreme Court of Canada have modified the law relating to privity: In the Fraser River case, a third party beneficiary sought to rely on a contractual provision so as to defend against an action brought by one of the contractual parties the insurer.

The court held that the third party beneficiary was entitled to rely on the waiver of subrogation clause whereby the insurer expressly waived any right of subrogation against the third party beneficiary. Iacobucci J emphasised that in appropriate circumstances the courts should not abdicate their judicial duty to decide on incremental changes to the common law which were necessary to address emerging needs and values in society.

The Supreme Court held that the privity rule could be relaxed where the parties to the contract had, expressly or by implication, intended the relevant provision to confer a benefit on the third parties the employeesand the action taken out by the third parties came within the scope of the agreement between the initial parties. The employees fulfilled these two conditions, and thus could benefit from the limitation clause, despite the privity doctrine.

the relationship between privity and consideration

The plaintiff brought an action against the defendant as the insurer for an indemnity. Hence, at issue was whether the scope of the indemnity extended to the plaintiff.

Lord Goff of Chievely of the Privy Council stated in an obiter dictum: Their Lordships have given consideration to the question whether they should face up to this question in the present appeal. However, they have come to the conclusion that it would not be appropriate for them to do so, first, because they have not heard argument specifically directed towards this fundamental question, and second because, as will become clear in due course, they are satisfied that the appeal must in any event be dismissed.

The debates are not just due to the lack of clarity in the statutes or dissenting judicial pronouncements but much of these owe to the academic and judicial debates linked with the ground roots of this doctrine. The debates and discussions on the Doctrine of Privity are relevant not only in daily life commercial contracts but also in the less frequent and comprehensive transactional contracts.

Interest of such third parties secured by the contracting parties through which they have been benefited or burdened by the contract. No doubt there are volumes of cases in the books and journals in which such related third parties who are not parties to a contract have been allowed to sue upon it and their interest is secured against any breach by the counter party.

Such decisions are recognized as exceptions to a general principle that only parties to the contract can sue upon it. Hence the main question in consideration under this part of the study is to discover if it possible for these related parties to enforce their rights or secure their interest in as a third party.

Section 2 d in The Indian Contract Act, When, at the desire of the promisor, the promisee or any other person has clone 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. It means therefore, 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, then from any other person. This is the principle as established by the English Courts in as early as in the case of Dutton v. It has been already established in this study that the Doctrine of Privity as such was established in the case of Tweddle v. Atkinson [lxxviii] and that the principle laid down, or the law declared in it was affirmed in Dunlop Pneumatic Tyre Co. The principle in Tweddle v Atkinson [lxxx] was based on two major grounds, firstly the third party was not privy to the contract and secondly, the consideration did not flow from the third party claiming under the contact.

The two principles of privity and consideration have become tangled but are still distinct. Even though under Indian Contract Act, the definition of consideration is wider than in English law and the consideration can very well be given by a non-contracting party, yet the common law principle of Doctrine of Privity is generally accepted in India.

In India also there has been a great divergence in of opinion in the courts as to how far a stranger to contract can enforce it. There are many decided cases which declare that a contract cannot be enforced by a person who is not a party to the contract and that the rule in Tweddle v. Atkinson [lxxxi] is very much applicable in India as well. The Privy Council in its decision in Jamna Das v.

the relationship between privity and consideration

Ram Autar [lxxxii] extended this rule to India. 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.

the relationship between privity and consideration

Lord MacNaughtan, in his very short judgment, said that the undertaking to pay back the mortgagee was given by the defendant to the vendor. He was no party to the sale. The purchases entered into no contract with him, and the purchaser is not personally bound to pay this mortgage debt.

In the words of Jenkins, CJ: Time and again Indian judiciary has reiterated that the administration of justice should not be hampered by Tweedle v Atkinson [lxxxiv] and that in India, we are free from these trammels and are guided in matters of procedure by the rules of justice, equity and good conscience. The application of Doctrine of Privity has been appreciated by the Indian courts with the well —recognized exceptions like beneficiaries of a trust, family arrangement and marriage settlements, tort, collateral contracts, creation of charge or covenants running with land.

The aforementioned are more or less the well- accepted and settled exceptions to the Doctrine of Privity. Hussaini Begum [lxxxvi] observed: VedachalaNaicker [lxxxvii]the Madras High Court held: It is unnecessary to cite authorities, but the principle is firmly established for this country by the decision of the Privy Council in Khwaja Muhammad Khan v.

Chacko v State of Travancore [lxxxix]held that a person not a party to a contract cannot subject to certain well recognized exceptions, enforce the terms of the contract. The recognized exception mentioned in the quoted judgment is worded widely so as to cover the beneficiaries under the terms of the contract. In this case, Shah AG. In a later case, Jamna Das v. It must be therefore taken as well-settled that except in the case of a beneficiary under a trust or in the case of a family arrangement, no right may be enforced by a person who is not a party to the contract…It is a settled law that a person not a party to a contract cannot enforce the terms of the contract.

For instance in Bhujendra Nath v. Sushamoyee Basu [xciv]the division bench of the Calcutta High Court has held that a stranger to a contract which is to his benefit is entitled to enforce the agreement to his benefit.

Vishwanath [xcv]it has been held the person beneficially entitled under the contract can sue even though not a party to the contract itself. In Khirod Behari Dutt v. Man Gobinda [xcvi]Lord-Williams J said: Though ordinarily only a person who is a party to the contract can sue on it, where a contract is made for the benefit of a third person, there may be an equity in the third person to sue upon the contract. In this section we focus our attention on calls for reform made by the judiciary in past cases.

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. In Woodar Investment Development Ltd v Wimpey Construction UK Ltd [xcviii]Lord Salmon dissenting 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.

The committee took a view that the relations between privity and consideration was largely unproblematic- the consideration requirement is relevant as to whether there is an enforceable bargain a contract ; the privity doctrine determines who is permitted to enforce the contract. The proposed right to enforce puts a third party beneficiary in a better position that the gratuitous promisee Neither the third party beneficiary nor the gratuitous promisee provides consideration; therefore The proposal must involve a relaxation of the consideration requirement.

The report, thus, signalled a decisive break from the orthodoxy of the privity doctrine which, in the earlier part of the century, was identified by Viscount Haldane LC as one of the fundamental principles of English contract law [ciii].

The current relaxed requirements of modern contract law and non-conventional approach of the judiciary in relation to Doctrine of Privity have provided an avenue for redress to genuinely affected persons who the strict interpretation of Doctrine of Privity might have been deprived of rights as such.

Under the current operation of the law, a stranger could be awarded damages if the infringement is proved. Palmer, The Paths to Privity: The Law Commission of England: Privity of Contracts for the Benefit of Third Parties.

Edited by Sinjini Majumdar [i] Infra n.

Basis of Privity of Contract and Consideration - Academike

Collidon; 1 Freem. This decision was supported, obiter, by Lord Mansfield in Martyn v. Hind 2 Cow p. A promised B that, in return for not arresting him, he would pay the debt. C failed in his action, on the ground, inter alia, that the promise had been made to B ; Taylor v Foster Cro Eliz ; 78 ER A, in return for B marrying his daughter, agreed to pay to Can amount which B owed to C.

In an action by B against A, it was held that B was the personto sue, being the promisee.

Privity in English law

Although in the former two cases, the reason why Cfailed was because he was a stranger to the consideration, Price v Easton contains seeds of moremodern doctrine: Harper 16 Ch D ; Paul v. Constance [] 1 WLR Law Society [] 1 AC ; Tito v. Russell [] 1 QB