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

and do not extend to a stranger. 2 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. 433.

2. 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 -

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 meansupon 'an agreement,

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-

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 [Link].
"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 delibe­
rate 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 Furms­
ton's Law of Contract, 11th Ed.(1986) at 106.
6. Anson's Law of Contract,(edited by [Link]) 26th Ed.
(1984) at 21.
 -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 agreementsare 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 -

to fulfil the contractual obligations. This means that only-

parties 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.

 -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

1872. 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
1

H- H-

i - “ ON
-=t CO

CTsOJ
rH rH
1

irsin
C7NCTN

VDVO
— OJ

a a
O O
—i rH

— —
1I

N N
I

td
to
ON

✓"S
vn

QO
ON

U1
il

LT\

o
o

o
—

3
1
 -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

a contract. Similarly, in Sprat v. Agar

IS 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

H
<rv4-

(1601) Cro. Eliz. 776, 807.

•
1

(1630) Hetley 30.

— — —
•
{< I1 {

mvo

(1658) 2 Sid. 115.

•

(1699) 1 Ventris 6. See also 'A History of Common Law

«

Contract' by A.W.S. Simpson (1975) dt 479-

1
— |i—
N-co

Supra note l4.

•

Supra note 15.

l

•
 - 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. 210. Also cited in Anson's Law of

Contract (edited by [Link]) 26th Ed. (1984)at 364.
 -9-

trees. The defendant promised (in consideration that his

father would refrain from cutting down the trees) to pay to

his sister Grizil pounds 1000. 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 . The

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.

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 364.
21. 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. .
22. (1724) 1 str. 592.
 - 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. 433.
24. (1861) IB. & S. 393-
 -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 23.
26. Supra note 24.
 - 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 1915- 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

oQ
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

29- (1968) A.C. 58.

30. (1975) 1 W.L.R. 1468.
 -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. 277-

32. 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-

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

[Link]. 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

some limitations through various enactments.

84 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

-prco

Supra note 24.

UUJU

Law of Property Act,1925;Road Traffic Act, 1972.

Vjl

The Indian Contract Act, 1872.

 -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, 1872. 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-

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-

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 [Link] [Link] Bank of Travancore,[Link]
(1970) S.C. 504.
 -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 &

[Link] was held that certain principles are fundamental.

38. Supra note 24.
39- Supra note 27.
 - 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

enforce it consideration .must have been given by him.

40 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 [Link].) 26th
Ed. (1984) at 86, 87.
42. 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

43 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.

^•3• Section 25, The Indian Contract Act, 1872. However,
there are three exceptions to the rule mentioned
under section 25 of the Act.
44. I.L.R. (1882) 4 Madras. 137-
 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 24.

46. For example; Sections 2(a), 2(b), 2(c), 2(e), 2(h),
73, 74, and 75, The Indian Contract Act, 1872.
 -23 -

absolute; it operates under certain limitations - both

statutory and non-statutory. These limitations will be

discussed separately in other Chapters of the Thesis.

********************