Demystifying Privity of Contract: Legal perspectives and Practical Applications

                                                PRIVITY OF CONTRACT

The rule of "privity of contract" which means that a stranger to contract cannot sue has taken firm roots in the English Common Law. But the principle has been generally criticized.'

In 1937, the Law Review Committee, chaired by Lord Wright, also criticized the doctrine and recommended its repeal. In its Sixth Interim Report the Committee noted: Where the express terms of a contract are intended to confer an advantage directly on a third party, the third party is entitled to perform the provision in its own name, provided that the promisor. is entitled to provide the third party with any defense that would be valid against the promise against the grantor.

                                                                          Beswick v Beswick

 B was a coal merchant. The defendant was assisting him in his business. B entered into an agreement with the defendant by which the business was to be transferred to the defendant. B was to be employed in it as a consultant for his life and after his death the defendant was to pay to his widow an annuity of £ 5 per week, which was to come out of the business. After B's death, the defendant paid B's widow only one sum of £5.

 The widow brought an action to recover the arrears of the annuity and also to get specific performance of the agreement. It was held that she was entitled to enforce the, agreement. 

 Thus the plain tiff was allowed to enforce the agreement in her personal capacity, although she was not a party to it and it was considered not necessary to infer a trust in favor of the plaintiff.  

                                                                           Position in India

  Nawab Khwaja Muhammad Khan v Nawab Hussaini Begum

In India, and in societies like the Mahomedans, among whom parents and guardians contract marriages for minors, serious injustice might be caused if the doctrine of common law were applied to contracts or agreements made in such contracts. Some Supreme Courts have followed this proposition the rule that Indian courts are not bound by Tweddle v. Atkinson set the rule.

The proposition that in this country, and indeed in a certain class in England, cases where a contract is made between "A" and "B" in favor of "C," "C" has n right to sue the defaulter. party It is not necessary to report to the authorities, but the principle is firmly established in this country by a decision of the Privy Council of Nawab Khwaja Muhammad Khan v. Nawab Hussaini Begum.

                                                                   Exceptions to privity rule

1. Beneficiaries under trust or charge or other arrangements

 Nawab Khwaja Muhammad Khan v Nawab Hussaini Begum 

The appellant agreed with the father of the respondent that on account of the marriage of the respondent with his son (both being minors at the time) he would pay the respondent Rs.500/-. monthly in perpetuity for the expenses of the betel leaf, and charges certain estates. the defendant is authorized to pay it. The spouses divorced due to a dispute, and the plaintiff-defendant filed a law suit to collect the earnings of the annuity. It was said that although the defendant was not a party to the contract, he was clearly entitled to due process to enforce his claim.

Rana Uma Nath Bakhsh Singh v Jang Bahadur:

U was appointed by his father as his successor and was put in possession of his entire estate. In consideration thereof U agreed with his father to pay a certain sum of money and to give a village to /, the illegitimate son of his father, on his attaining majority. It was held that in the circumstances mentioned above a trust was created in favor of / for the specified amount and the village. Hence he was entitled to maintain the suit.

2. Marriage settlement, partition or other family arrangements.

If an agreement is made in the context of a marriage, divorce or other family arrangement and is for the benefit of a designated person, he can benefit from the agreement even if he is not a party to it. For example, in the case of Rose Fernandez v Joseph Gonsalves, the girl's father entered into a marriage contract with the defendant, it was said that the girl could sue the defendant for damages for breach of duty when she became of age a promise of the marriage and the defendant could not accept the statement that he was not a party to the contract of.

3. Acknowledgment or estoppel.

 Where by the terms of a contract a party is required to make a payment to a third person and he acknowledge sit to that third person, a binding obligation is thereby incurred towards him. Acknowledgment may be express or implied. This exception covers cases where the promisor by his conduct, acknowledgment, or otherwise, constitutes himself an agent of the third party. The case of N. Devaraja Urs v Ramakrishniah is a good example: 

A sold his house to B under a registered sale deed and left a part of the sale price in his hands desiring him to pay this amount to C, his creditor. Subsequently B made part-payments to C informing him that they were out of the sale price left with him and that the balance would be remitted immediately. B, however, failed to remit the balance and C sued him for the same. The suit was held to be maintainable. "Though originally there was no privity of contract between B and C, B having subsequently acknowledged his liability, C was entitled to sue him for recovery of the amount."