Third Party Right

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THIRD PARTY

RIGHT

S U B M I T T E D T O :

A J I T K A U S H A L

L A W O F C O N T R A C T

B A - L L B

Abhinav

Aratrik Das

Kanika chhabraSap id:- 50002850

Sap id:- 50002858

Sap id:- 5000285!

R"## n":- R502$!00%

R"## n":- R502$!02

R"## n":- R502$!05



ACKNOWLEDMENT

I have taken efforts in this project. However, it would not have been possible without the kind

support and help of many individuals. I would like to extend my sincere thanks to all of them.

I am highly indebted to my Torts teacher for his guidance and constant supervision as well as for

providing necessary information regarding the project & also for her support in completing the

project.

I would like to express my gratitude towards my parents & my friends for their kind cooperation

and encouragement which help me in completion of this project.

I would like to express my special gratitude and thanks to seniors for giving me such attention

and time.

!y thanks and appreciations also go to my colleagues in developing the project and people who

have willingly helped me out with their abilities.

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RESEARCH METODOLOGY

"or the purpose of research the researcher has relied on primary sources to look for information

relating to the laws and statutes relating to #$I%IT '" (')T$*(T, THI$+ #*$T $IHT.

The researcher has done this keeping in mind the fre-uently asked -uestions arising out of this

topic. The researcher has aimed at doctrinal method of research and will try to critically analye

and provide an unbiased account of the #$I%IT '" (')T$*(T, THI$+ #*$T $IHT

from past to present world.

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OBJECTIVE

The researcher prime objective is to introduce /#$I%IT '" (')T$*(T, THI$+ #*$T

$IHT0 from its inception in the past to present world. It aims to critically provide a vivid

account of the case law, statutes and legislations which provide a platform in #$I%IT '"

(')T$*(T, THI$+ #*$T $IHT. The researcher will provide its all aspects in present

scenario.

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CONTENT

CHAPTER 1

Introduction

Hitor!

A "ri#$ t%t#&#nt o$ t'ird (%rt! ri)'t in contr%ct

CHAPTER *

T'ird (%rt! ri)'t und#r Indi%n +%,

M#%nin) o$ doctrin# o$ (ri-it! o$ contr%ct

CHAPTER .

Doctrin# o$ (ri-it! o$ contr%ct

E&#r)#nc# $ro& En)+%nd to Indi%

Poition in Indi%

CHAPTER /

L%nd &%r0 c%#

T,#dd+# V At0inon

Jordon V Jord#n

Ju&n% P%nd#! V P%ndit R%&%-t%r P%nd#!

Ari# Ad-#rtiin) "ur#%u V CT D#-r%2

CHAPTER 3

E4c#(tion to t'# doctrin# o$ contr%ct und#r Indi%n +%,

E4c#(tion 15 t'# "#n#$it #4c#(t o$ t'# contr%ct

E4c#(tion *5 t'# "urd#n o$ #4(#ct

E4c#(tion .5 Doctrin# o$ Pri-it! o$ contr%ct und#r +%, o$ A)#nc!

E4c#(tion /5 A++oc%tion o$ contr%ct contr%ctu%+ dut!

E4c#(tion 36 Contr%ctu%+ %++oc%tion (%i-#



CHAPTER 7

Critici&

CHAPTER 8

9indin)

Su))#tion

Conc+uion

Introduction

5



This project is the doctrine of the contractual relationship under Indian law. (redit for emergence

of the doctrine of the contractual relationship is attributed to the common law courts, but is now

applied in many countries including India, 1ngland, (anada, *ustralia and )ew 2ealand, with

certain legal and judicial exceptions. This doctrine ensures that a stranger to a contract cannot

sue or be sued by the parties to the contract. However, in over time, he realied that the doctrine

is too rigid to cope with social demands, for a contract affects not only the parties but also

society in general. Thus certain limitations 3or exceptions4 have evolved and are recognied in

the literature, both legislative and judicial.

(ontractual relationship is an ingrained part of the law of contract. The essence of the

privity rule is that only people who negotiated a contract 3that they are aware of it4 have the right

to impose its terms. 1ven if a person is mentioned in the contract and the contract was

intentional for your benefit this 5third party5 cannot rely on or enforce the terms of that

contract.

The doctrine of privity of contract law provides that a contract cannot confer rights or

impose obligations arising under it on any person or agent except the parties to it.

This seems to make sense right, in which only the parties to the contract should be able to

sue to enforce their rights and claim damages as such. However, the doctrine has proven

problematic because of its implications on contracts made for the benefit of others who are not

able to enforce the obligations of the contracting parties.

It has been a fundamental principle of 1nglish law known as the doctrine of /privity of

contract0 that only the parties to a contract may sue or be sued upon the contract.

The passing of the (ontracts 3$ights of Third parties4 *ct 6777 fundamentally changed

the law of this area. The 6777 act make it possible for third parties to contract to obtain right

under the contract provided this was the intention of the contracting parties do intend to conferright on third parties, and so the rights of such parties will continue to be governed by the

traditional law and by the common law rules and techni-ues that have been developed as

exceptions to the rule that third parties have no right or as means of avoiding the rule0s effects.

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The act 6777 only modifies that part of the traditional doctrine which states a contract

cannot confer rights on third party8 it leaves enact the rule that a contract cannot impose duties

on third party.

Hitor!

9efore 6:;6 there were decisions in 1nglish law allow the provisions of a contract to be applied

by people who are not part of it, usually relatives of a promise and decisions undermines the

rights of others. The doctrine of privity doctrine emerged along with the account, the rules of

which states that consideration must move from the promise. <o if it is not given the promise of

something to give in return, that promise is not legally binding, unless promised as fact. 6:==

saw the case of #rice v 1aston, where he became a contract for work to be done on payment of a

third party. >hen the third tried to sue for payment, it is considered that it is not aware of

contract, so that your claim has failed. This was completely linked to the doctrine of the bill, and

was established as such, with the most famous case of Tweddle v *tkinson. In this case, the

plaintiff could not sue the executor of his fatherin law, who had promised the father of the

applicant to make payment to the applicant because he had not provided any consideration to the

contract.

The doctrine was further developed in +unlop #neumatic Tyre v <elfridge and (o. ?td. through

the judgment of ?ord Haldane.

(ontractual relationship played a key role in the development of negligence as well. In the first

case of >interbottom v >right 36:@A4, in which >interbottom, driver postal service trolley, is

injured due to a defective wheel, tried to sue the manufacturer for your injuries >right. The court

nevertheless decided that there was no contractual relationship between manufacturer and

consumer.

This problem appeared repeatedly to !ac#herson v 9uick !otor (o. 3676;4, a similar case

involving >interbottom v >right faulty wheel of a car. Budge (ardoo , writing for the (ourt of

*ppeals of )ew ork , decided not to re-uire any collusion when the manufacturer knows that

the product is probably dangerous if harmed by such defect third defective 3eg , consumers4 , and

there was more tests after the initial sale. Injuries occurred foreseeable uses. (ardooCs

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innovation was to decide that the basis of the claim was that it was an unlawful act is not a

breach of contract. In this way he refined the problems caused by the doctrine of privity in a

modern industrial society. *lthough his opinion was only the law of the <tate of )ew ork, the

solution lead was widely accepted elsewhere.

A Bri#$ St%t#&#nt o$ t'# T'ird P%rt! Ru+# in Contr%ct

* contract or its performance can affect a third party.6 However, the doctrine of privity means

that, as a general rule, a contract cannot confer rights or impose obligations arising under it on

any person except the parties to it.A This $eport is concerned with the conferral of rights on third

parties 3including whether a third party should be able to claim the benefit of an exclusion clause

contained in a contract to which he is not a party48 and, as we have indicated above, references in

it to the Dthird party ruleE are to this aspect of the privity doctrine. It was provisionally

recommended in the (onsultation #aper that the present rule should be retained whereby, subject

to a few exceptions,= parties to a contract cannot impose an obligation on a third party. There was

no dissent from this by consulates.@ It would be an unwarranted infringement of a third party0s

liberty if contracting parties were able, as a matter of course, to impose burdens on a third party

$ As 'h(n ) *+arant((s a d(bt "'(d b, A t" and A pa,s. th+s r(#(asin* ) 'h"

th(r(b, indir(ct#, *ains a b(n(/t S(( Tr(it(#. Th( 1a' " )"ntract 34th (d. $445 p

55$

2 9efore +onoghue v <tevenson F67=AG *( ;A, the privity doctrine was seen as precluding actions in tort by third

parties arising from negligence by a party to a contract in carrying it out >interbottom v >right 36:@A4 6J ! &

> 6J78 6A 1$ @JA.

! The exceptions include agency, restrictive covenants running with land, restrictive covenantsrunning with goods

3see, eg, ?ord <trathcona << (o v +ominion (oal (o F67A;G *( 6J:4,

bailment 3eg, !orris v (> !artin & <ons ?td F67;;G 6 K9 L6;8 <inger 3MN4 ?td v Tees and

Hartlepool #ort *uthority F67::G A ?loyd0s $ep 6;@, 6;L6;:8 The (aptain regos 3)o A4 F677JG

A ?loyd0s $ep =7, @J8 NH 1nterprise 3cargo owners4 v #ioneer (ontainers 3owners4, The #ioneer (ontainer F677@G A *( =A@4, and the (arriage of oods by <ea *ct 677A, s =.

*lthough a few consultees did suggest further exceptions that, at least at this stage, we considerare better left to

common law development 3eg that the situations in which exclusion clauses bind

third parties should be extended4.

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without his or her consent. 'ur proposed reforms do not, therefore, seek to change the /burden0

aspect of the privity doctrine or the exceptions to it.

T'ird P%rt! Ri)'t in :K INTROD:CTION

The (ontracts 3$ights of Third #arties4 *ct 6777 amends the rule of 5contractual relationship 5

under which a person can only enforce a contract if it is a part of it. The rule means that even if a

contract is made in order to confer a benefit on someone who is not a party , that person 3a 5third

party5 4 has no right to sue for breach of contract.

The *ct sets out the circumstances in which a third party is to have the right to enforce a term ofthe contract 3*rticle 64 , the assumptions on which such term may be varied or terminated

3 section A4 and the defenses available to the promisor if the third seeks to enforce the term

3 *rticle =4. !akes clear that *rticle 6 does not affect the rights of the promisee , or any right of

the third party to have, which are independent of the ?aw 3 *rticles @ and L 3 6 4 4 . The *ct does

not apply to certain contracts 3either fully or partially4 3 *rticle ;4

E$$#cti-# D%t#

The *ct came into force on )ovember 66, 6777. #rovisions of the *ct do not apply to all

contracts entered into prior to that date.

The law applies only to contracts that were entered into during the six months after its entry into

force if the contract expressly provides to do so. >ithout an express provision to that effect shall

not apply to contracts concluded during this period of six months.

The *ct applies to all contracts, except those listed in <ection ;, held after the expiration of six

months 3ie, from !ay 66, AJJJ4.

Ri)'t o$ T'ird P%rt! to En$orc# % Contr%ctu%+ T#r&

The central purpose of the law is to give a third party the right to enforce a term of a contract that

the third party is not a party.

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* Third #arty may apply a term of a contract if

3 *4 the contract expressly provides that the Third #arty may do so8 or

3 9 4 the term of the contract purports to confer a benefit on the third party .

#rovision 3 b 4 above does not apply if on a proper construction execution of the contract that the

parties did not intend the term to be enforceable by the third party .

The third party must be expressly identified in the contract

3 *4 by name8 or

3 9 4 as a member of a class 8 or

3 ( 4 as answering a particular description but need not be in existence when the contract was

concluded .

9y law, only a third is given the right to enforce a term of a contract subject to and in accordance

with any other relevant terms of the contract. It is open to the parties to the contract to limit or

condition the right of third parties . "or example , a third user wishes to enforce a law that he is

doing so by way of arbitration and not litigation.

>hen enforcing a third party right can be granted to any resources that have been available to

him in an action for breach of contract if it had been party to the contract . *s such , the rules

relating to damages , injunctions , specific performance and any other relief shall apply

accordingly all . <uch rules act to place the burden regarding causation and remoteness in the

)eutral and sets a duty on him to mitigate his loss.

In addition to allowing a third party to enforce a 5positive 5 to the right of the *ct also applies in

order to allow a third party to take advantage of an exclusion or limitation clause in the contract.

The law, for example, allows a duration of a contract which excludes or limits the liability of the

promisee to the promisor for damage caused by negligence, and expressly stated that the

exclusion or limitation is for the benefit of the 5agents or employees of the promise or

subcontractors 5and should be re-uired by these groups

V%ri%tion %nd R#ciion o$ Contr%ct

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>here a third party has the right to enforce a term of a contract, the contracting parties may , by

agreement , rescind or modify the contract in a manner that affects the rights of others without

their consent if

3 *4 the third party has notified its consent to the deadline for the promisor

3 9 4 the promisor is aware that the Third #arty has relied on the term 8 or

3 ( 4 the promisor can reasonably be expected to have foreseen that the third party would rely on

the term and the third has trusted her .

The use of the term 5 variation 5 of the law is strict in its legal sense to mean a change in the

terms of an agreement by the higher agreement between the parties to the original agreement.

)ote that this restriction does not affect the terms of a construction contract that allows one party

to the contract unilaterally alter or 5 vary 5 the details of the work to be performed. * 5 variation

5 of this type was made 5under5 the contract, not 5a5 of the contract.

The consent referred to in 3a 4 above may be by words or conduct , and if sent to the promisor by

post or by other means will not be considered as communicated to the promisor until received by

him.

The law allows the contracting parties to rescind or vary an agreement where the agreement

contains an express clause allowing them to do so without the consent of the Third #arty.

!oreover, the agreement may contain terms that specify the circumstances in which the consent

of the third party is re-uired before the agreement can be terminated or modified.

The law provides certain powers to the court or arbitral tribunal to dispense with any consent that

may be re-uired in certain circumstances. In such case, the payment of compensation to the

Third #arty may be ordered if the court believes that fits

D#$#nc# A-%i+%"+# to t'# Pro&ior

The *ct allows the promisor in an action by the Third #arty to rely on any defense or

compensation arising out of the contract and relevant to the term is forced , which would have

been available to him had been the claim by the promisee . The promisor may also depend on

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any defense or compensation , or make any counterclaim, where this would have been possible if

the Third party to the contract.

These defenses available can be classified into three groups for which examples are given

below .

D#$#n# 1

The promisor shall have available as a defense or settlement of any matter arising out of or in

connection with the contract and is relevant to the term , and would have been available by way

of exception or compensation if the action was brought by the promisee .

1xample 6 #6 3 promisor 4 and #A 3 the promise 4 contract to sell merchandise #A to #6 , who

will pay the contract price to #= 3 #art Three 4 . In breach of contract, #A delivers goods that are

not of the standard contract . In an action for the price of #= 3 as in an action for the price of #A4 ,

#6 has the right to terminate or reduce the price because of damages for breach of contract .

D#$#n# *

The promisor shall have available as a defense or settlement of any matter if an express condition

of the contract expected to be available to him in the proceeding initiated by the Third #arty, and

that would have been available by way of defense or compensation if the proceedings had been

brought by the promisee .

1xample A #6 and #A #6 contract that will pay you if your car transfers #= #A to #6 . #6 #A

owes money under a contract wholly unrelated . #6 and #A agree on an express term in the

contract that states that #6 can raise against a claim for any matter #= to #6 would have a defense

or setoff a claim by #A.

D#$#n# .

The promisor shall have available as a defense or settlement of any matter, and by way of

counterclaim any matter not arising from the contract, which would have been available by way

of exception or compensation or , where appropriate , by way of counterclaim against the third

party if the third party had been a party to the contract.

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1xample =* contracts with #6 #A #= to pay 6,JJJ pounds. #6 and #= should be ;JJ pounds . #6

has a claim for compensation to the #= to #6 is only re-uired to pay #= @JJ pounds.

1xample =9 #= #6 induced to conclude the contract for misrepresentation with #A , but #A has

no actual or constructive notice of the forgery. #6 may have a defense 3 or counterclaim for

damages 4 against #= that had not been available the action had been brought by #A.

It should be noted that the availability of +efense and +efense !arch 6 may be reduced by an

express term in the contract.

En$orc#&#nt o$ t'# Contr%ct "! t'# Pro&i##

The rights of the Third #arty do not affect any right of the #romisee to enforce any term of the

(ontract.

Prot#ction o$ t'# Pro&ior $ro& Dou"+# Li%"i+it!

The *ct provides that where the #romisee has recovered damages 3or an agreed sum4 from the

#romisor in respect of either the Third #arty0s loss or the #romisee0s expense in making good

that loss, the court or arbitral tribunal shall reduce any award to the Third #arty enforcing a term

in accordance with the *ct to take account of the sum already recovered.

It must be noted that whilst this provision prevents the #romisor from paying the same damages

twice, it also makes it clear that even though the #romisor and #romisee may have settled,

between themselves, the matter over which the Third #arty subse-uently takes action, that action

is not prevented. The settlement of a dispute between the contracting parties in respect of an

obligation owed to a Third #arty does not provide the #romisor with a defence against a

subse-uent action by the Third #arty.

E4c#(tion

The *ct excludes the rights of Third #arty0s in respect of several matters including

6. (ontract on a bill of exchange, promissory note or other negotiable instrument8

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A. (ontract binding on a company and its members under section 6@ of the (ompanies *ct 67:8

=. *ny term of a contract of employment against an employee8

@. *ny term of a worker0s contract against a worker 3including a home worker48

. *ny term of a relevant contract against an agency worker8

;. (ontract for the carriage of goods by sea8

L. (ontract for the carriage of goods by rail or road, or for the carriage of cargo by air, which is

subject to the rules of the appropriate international transport convention.

Su((+#&#nt%r! Pro-iion R#+%tin) to t'# T'ird P%rt!

The *ct does not affect any existing right or remedy of the Third #arty and allows for the judicial

development of third party rights.

The *ct prevents a Third #arty from invoking <ection A3A4 of the Mnfair (ontracts Terms *ct

67LL to contest the validity of a term excluding or limiting the #romisorCs liability under the *ct

to the Third #arty for negligently caused loss or damage 3other than personal injury or death4.

The *ct applies the standard limitation periods for actions for breach of contract by third parties

3see <ections and : of the ?imitation *ct 67:J4.

The *ct makes it clear that the Third #arty shall not be considered as a party to the (ontract for

the purposes of any other *ct.

Ar"itr%tion Pro-iion

In the event that the (ontract under which the Third #arty is enforcing a right contains an

arbitration agreement then the Third #arty shall be treated as a party to that arbitration

agreement. This provision applies where the arbitration agreement is in writing for the purposes

of #art I of the *rbitration *ct 677;.

Contr%ctin) Out o$ t'# Act

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*t <ection 63A4 of the *ct it states that Dif on a proper construction of the contract it appears that

the parties did not intend the term to be enforceable by the third partyE then the provisions of the

*ct will not apply. In other words, unlike the (onstruction *ct, the parties can either by express

words or by implication choose to contract out of the provisions of the *ct.

It is suggested that the use of express words is the preferred method of opting out of the

provisions as relying on an implied term runs the risk of the court finding that such a term does

not exist or is not re-uired.

T'# Poition und#r St%nd%rd 9or& o$ Contr%ct

The B(T have introduced amendments to all editions of all 677: models of contract for which the

contract of the parties of the provisions of the law. "or example, outsourcing provision has been

introduced as (lause 6.7 of the B(T 677: >ith (ontractor "orm +esign by *mendment )o. 6

thereto.

The new contract 1ngineering and (onstruction (ontract <econd 1dition 3)1(1((4 has been

provided with the option 3MN4 =, which provides a clause to contract provisions. *s with all

secondary options under this option re-uires )1(1(( referred in the first part data contracts in

order to be effective.

*s for the I(1 family of contracts similar provisions have been incorporated in the latest editions

of both the seventh edition and design and construction contract.

Ri)'t o$ t'ird (%rti# to #n$orc# contr%ct t#r&.

364 <ubject to the provisions of this *ct, a person who is not party to a contract 3a 5third party D4

may enforce in its own right a term of the contract if

3*4 The contract expressly provides that may or

394 <ubject to subsection 3A4, the term purports to confer a benefit on him.

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3A4 <ubsection 364 3b4 does not apply in case of a successful construction execution of the

contract that the parties did not intend the term to be enforceable by the third party.

3 =4 The third party must be expressly identified in the contract by name, as a member of a class

or as answering a particular description but need not be in existence when the contract was

concluded .

3@4 This section does not confer a right on a third party to enforce a term of a contract otherwise

than subject to and in accordance with any other relevant terms of the contract.

34 In order to exercise its right to enforce a term of the contract , there shall be available to the

third party any remedy that would have been available to him in an action for breach of contract

if he had been party to the contract 3 and rules relating to damages , injunctions , specific

performance and other relief shall apply accordingly 4 .

3;4 >hen he construed the term of a contract excludes or limits liability in relation to any matter

referred to in this *ct to enforce third term as references to his availing himself of the exclusion

or limitation.

3L4 In this *ct, in relation to the term of a contract that is enforceable by a third party

D(ommittedE means that portion of the contract against whom the term is enforceable by the

third party and

D"rom #romise D#art of the contract is meant by the term which is enforceable against the

promisor.

V%ri%tion %nd t#r&in%tion.

3 64 <ubject to the provisions of this section , where a third party has the right under section 6 to

enforce a term of the contract , the parties to the contract may not, by agreement , rescind the

contract , or vary such so as to extinguish or alter his entitlement under that right, without his

consent if

3*4 The third party has notified its consent to the deadline for the promisor,

394 The promisor is aware that the third party has relied on the term, or

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3(4 The promisor can reasonably be expected to have foreseen that the third party would rely on

the term and the third has trusted her.

3A4 The opinion referred to in subsection 364 3a4

3*4 !ay be by words or conduct, and

394 If sent to the promisor by post or other means, shall not be considered as communicated to

the promisor until received by him.

3=4 <ubsection 364 is subject to any express term of the contract under which

3*4 The parties to the contract may by agreement rescind or modify the contract without the

consent of the third party, or

394 The consent of such third parties in the circumstances specified in the contract rather than

those set out in subsection 364 3a4 to 3c4 is re-uired.

3@4 >here the consent of a third party under subsection 36 4 or 3 =4 the court or arbitral tribunal

may, at the re-uest of the parties to the contract , without their consent is re-uired if you are

satisfied

3*4 That consent cannot be obtained because his whereabouts cannot reasonably be determined

or

394 >ho is mentally incapable of giving consentO

34 The arbitral tribunal may, at the re-uest of the parties to a contract, dispense with any consent

that may be re-uired under subsection 3c4 364 if satisfied that it cannot reasonably be determined

if the third party actually has relied on the term.

3;4 If the judge or referee dispenses with the consent of a third party may impose such conditions

as it considers appropriate, including a condition re-uiring the payment of compensation to the

third party.

3L4 The jurisdiction conferred on the court by subsections 3@4 to 3;4 may be exercised by the

<upreme (ourt and a county court.

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P D#$#n# %-%i+%"+# to (ro&ior

364 <ubsections 3A4 to 34 apply where, under section 6, the procedures for the application of a

term of a contract are carried by a third party.

3A4 The promisor shall have available to them by way of defense or for any matter

3*4 *rises from or in connection with the contract and that is relevant to the term, and

394 Had been available for him as a defense or compensation if the proceedings had been

brought by the promise.

3=4 The promisor shall also be available as a defense or settlement of any matter if

3a4 *n express condition of the contract expected to be available for him in the proceeding

initiated by the third, and

394 That would have been available by way of exception or compensation if the proceedings had

been brought by the promise.

3@4 The promisor will also have at your disposal

3a4 Through the defense or settlement of any matter, and

3 9 4 by way of counterclaim any matter not arising from the contract, which would have been

available by way of exception or compensation or , where appropriate , by way of counterclaim

against the third party if the third party had been a party to the contract .

34 <ubsections 3A4 and 3@4 are subject to any express term of the contract with regard to matters

that are not available to the promisor as a defense, counterclaim or offset.

3; 4 >here an action against a third party looking in reliance on section 6 to enforce a term of a

contract 3 including, in particular , a term purporting to exclude or limit liability 4 , may not do so

if could have not 3either because of the particular circumstances relating to him or otherwise4 if it

had been party to the contract .

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; Prot#ction o$ (ro&ior $ro& dou"+# t%4%tion

If by virtue of section 6 of a term of a contract can be enforced by a third party, and the promise

of the promisor has recovered a sum of

3*4 The loss of the third party with respect to the expression or

3 9 4 the expense that the promise of doing good to the third part of the promisor default , then,

an action in reliance on that section by the third party , the judge or referee must reduce any

award to the third party to the extent it deems appropriate to account for the amount charged by

the promise .

E4c#(tion

364 <ection 6 confers no rights on a third in the case of a contract on a bill of exchange,

promissory note or other negotiable instrument.

3A4 *rticle 6 does not confer rights to a third party in the event of any contract binding on a

company and its members under section 6@ of the (ompanies *ct 67:.

3A* 4 <ection 6 confers no rights on a third party for any document for establishing a limited

liability company agreement or limited liability company as defined in $egulation of ?imited

?iability AJJ6 3<I )o. AJJ6 Q 4 .

3=4 <ection 6 confers no rights of third parties to enforce

3*4 *ny term of a contract of employment against an employee,

394 *ny condition of the contract of an employee to an employee 3including an employee of the

house4, or

3(4 *ny term of the relevant contract against an agency worker.

3@4 In paragraph 3=4

$4



3*4 5 (ontract of employment D, 5employee 5,E employment contract Dand 5worker Dhas the

meaning given by section @ of the )ational !inimum >age *ct 677:,

394 5 Home workerE has the meaning given by section = 3A4 of the *ct,

3(4 5 *gency workerE has the same meaning as in section =@ 364 of that *ct, and

3+4 5$elevant contractE means a contract in a case where section =@ of the *ct applies, the

agency worker as aspects work falling within subsection 364 3a4 of that paragraph.

34 <ection 6 confers no rights on a third in the case of

3*4 * contract for the carriage of goods by sea

3 9 4 a contract for the carriage of goods by rail or road , or for the transportation of cargo by air ,

which is subject to the rules of the appropriate international transport convention , except that a

third party may in reliance on that benefit section of an exclusion or limitation of liability in a

contract of this type .

3;4 In paragraph 34 Dcontract of carriage of goods by sea 5 means a contract of carriage

3*4 (ontained in or shown a bill of lading, sea waybill or a corresponding electronic transaction,

or

394 Mnder or for the purpose of which is not given to a company that has delivered by a ship or a

corresponding electronic transaction.

3L4 "or the purposes of subsection 3;4

3*4 5 9ill of lading 5,E sea waybill 5 and 5 shipCs delivery order 5 have the same meaning as in the

transport of goods by <ea *ct 677A and

394 * corresponding electronic transaction is a transaction within section 6 34 of the *ct, which

relates to the issuance, endorsement, delivery or transfer of a bill of lading, sea waybill or the

delivery of vessel.

3:4 In paragraph 34 Dthe appropriate international transport convention Dmeans

20



3*4 in relation to a contract for the carriage of goods by rail, the (onvention which has the force

of law in the Mnited Ningdom under *rticle 6 of the International Transport (onventions *ct

67:=

3 9 4 in relation to a contract for the carriage of goods by road , the (onvention which has the

force of law in the Mnited Ningdom under *rticle 6 of the (arriage of oods by $oad *ct 67;

and

3(4 In relation to a contract for the carriage of cargo by air

3I4 of the (onvention which has the force of law in the Mnited Ningdom under *rticle 6 of the

*ir Transport *ct 67;6, or

3Ii4 The (onvention which has the force of law under *rticle 6 of the ?aw on *ir Transport

3<upplementary #rovisions4 *ct 67;A, or

3Iii4 *ny of the amended (onventions set out in #art 9 of <chedule A or = for transport by *ir

*cts 3*pplication of #rovisions4 'rder 67;L.

Addition%+ (ro-iion r#+%tin) to t'# t'ird (%rt!

364 <ection 6 does not affect any right or remedy of a third party which exists or is available apart

from that *ct.

3 A4 <ection A 3 A4 the terms of the Mnfair (ontract *ct 67LL 3 exclusion restriction , etc. of

liability for negligence 4 shall not apply where the negligence consists of the violation of an

obligation under a term of a contract and the person seeking to enforce a third party acts in

reliance on section 6.

3 =4 <ections and : of the ?imitation *ct 67:J the references to an action founded on simple

contract and an action on a specialty respectively include references to an action brought under

section 6 relating to a contract singled and brought an action in reliance on the article on a

specialty.

3@4 * third party may not, under *rticle 6 34 or = 3@4 or 3;4, be treated as a party to the contract

for the purposes of any other law 3or any instrument made under any other *ct4.

2$



P #rovisions of *rbitration.

364 >here

3*4 * right under section 6 to enforce a term 3Dthe term nounE4 is subject to a term providing for

the submission of disputes to arbitration 3D*rbitration *greement 5 4, and

3 9 4 the arbitration agreement is a written agreement for the purposes of #art I of the *rbitration

*ct 677; , the third part will be deemed , for the purposes of that *ct as a party to the arbitration

agreement as to the disputes between himself and the promisor relating to the enforcement of the

substantive term by the third.

3 A4 >here3a 4 a third party is entitled under section 6 to enforce a term that provides one or

more descriptions of dispute between the third party and the promisor to be submitted to

arbitration 3 5*rbitration *greement 5 4 ,

394 The arbitration agreement is a written agreement for the purposes of #art I of the *rbitration

*ct 677; and

3(4 the third party will not fall to be treated under subsection 364 as part of the arbitration

agreement, that party must, should exercise the right shall be treated for the purposes of the *ct

as part of the arbitration agreement relation to the matter in respect of which the right is

exercised, and be treated as if it had been immediately before the exercise of the right.

P )orthern Ireland.

364 In its application to )orthern Ireland, this *ct has effect with the modifications specified in

subsections 3A4 and 3=4.

3A4 In section ; 3A4, for 5*ct section 6@ of the 67: !6(ompaniesE notE section A of the

(ompanies 3)orthern Ireland4 67:;E replaced.

3=4 In section L, subsection 3=4 has been replaced

22



53 =4 In *rticles @ 3 a4 and 6 of the ?imitation 3)orthern Ireland 4 67:7 , references to an action

founded on simple contract and an action on an instrument under seal shall include, respectively ,

references to an application under section 6 on a simple contract and an action under this section

relating to a contract with the label resource. 5 .

3@4 ?aw $eform 3Husband and >ife4 3)orthern Ireland4 67;@, the following provisions are

repealed

3*4 'f *rticle , and

3 9 4 in section ; , in subsection 3 6 4 3 a4 , the words 5 in the case of section @5 and 5 and in the

case of section of the contracting party 5 and , in paragraph 3 =4 , the words 5 or section . 5

P <hort title, commencement and extent.

364 This *ct may be cited as the 6777 *ct (ontracts 3$ights of Third #arties4.

3A4 This *ct comes into force on the day it was approved, but subject to subsection 3= 4 does not

apply in relation to a contract before the end of the period of six months beginning with that day.

3=4 The restriction in subsection 3 A4 does not apply in relation to a contract which

3 a4 is entered into as of the day when this law was passed , and

39 4 expressly provides for the application of this law .

3@4 This *ct extends as follows

3*4 *rticle 7 extends only to )orthern Ireland 8

39 4 the remaining provisions extend to 1ngland and >ales and )orthern Ireland only.

T'# Pri-it! o$ Contr%ct und#r Indi%n L%,The term 5contract 5 does provide that it is a form of legal agreement between two people and

two of them are under the obligation created by the contract they parts . 9ut then, a reasonable

-uestion that comes to mind that if a contract does confer some benefit to the third partyO Is it

justified not to allow third parties to sue if denial of the benefit conferred expressly in a contractO

2!



Therefore, it is necessary to consider the doctrine 1ffect of light on this -uestion. This doctrine

ensures that a stranger to a contract cannot sue or be sued by the parties to the contract. However,

over time, he realied that the doctrine is too rigid to address current social, because the contract

does not only affect the parties theret, but also society in general. (onse-uently, certain

limitations 3or exceptions4 were developed and were applied to the doctrine therefore legislative

and judicial.

M#%nin) o$ t'# Doctrin# o$ Pri-it! o$ Contr%ct5

5)o one may be entitled to, or bound by the terms of a contract for which there is original

game.5 In other words, rights and obligations are strictly private affairs contracting parties and

therefore no stranger has legal access to them. Therefore, the doctrine of contractual relationship

means that a nonparty cannot bring an action in the contract;

(ontractual relationship has three major effectsL

• * third party cannot receive a benefit is not part of that contract.

• * third party cannot be liable under a contract, if not a party to that contract.

• * third party cannot enforce a contract if it is not party to that contract.

<u#tion in-o+-#d in t'# doctrin#= 5

The doctrine of collusion can affect any 3or more4 of the following -uestions

• (an a person enforce a contract which is not a partyO

5 Price v Easton 3$8!!6 Ad !! )it(d r"7 .Chesire Fifoot and Furmaston’s Law of

Contract . +tt(r'"rths. 1"nd"n3$!th (dn$44%.p%2

% Chesire,Fifoot and Furmaston’s Law of Contract, id p%!

& R,an +rra,. Contract Law The Fundamentals , S'((t 6 a9'(##. 1"nd"n 3$st (dn

2008.p &5

8 P"##"ck 6 +##a. Indian Contract and Specic Relief Act, 1(9is (9is. +tt(r'"rths. ('D(#hi. 3$!th (dn200%. pp$0&-$08

2



• (an a person created a defense based on the terms of a contract in which he is not a

relevant parts of the contractO

• (an a contracting party to establish a defense based on the terms of your contract, In

response to a lawsuit filed by a person who is not party to the corresponding contractO

• (an a contracting party to impose its own contract against a person not a party to the

contract forO

T,o %(#ct o$ t'# doctrin#5

Burd#n %(#ct5 #arties cannot impose its contract obligations or cargo on a third . There is a

sound logic behind this rule how can we justify imposing any contractual obligation on a person

who is a stranger 7 to a contract.

B#n#$it %(#ct5 <trange to a contract cannot take advantage under the contract and he cannot

sue on the contract. This is similar to the doctrine of consideration which says that a person who

is not party to the test, is not entitled to sue on the contract. Indeed, this aspect of the collusion

has undergone many criticisms.

Juti$ic%tion o$ t'# doctrin# o$ (ri-it! o$ contr%ct1>5

*lthough this doctrine has no strong basis for its position, but there are some justifications who

continue to support their survival

• In a contract is based on mutual agreement, it would be unfair to impose obligations of

the parties who have not given their consent to be bound.

• 1nabling third parties to enforce contracts affect, or restrict the rights of contracting

parties to modify or terminate the contract.

• * third party may not have provided the consideration, and therefore should not be able

to enforce the contract.

• The promisor is likely to face two actions, since the promisor and the third.

4 A stran*(r is a p(rs"n 'h" is n"t a part, t" th( c"ntract

$0 P"##"ck 6 +##a. supra n. p$$2

25



Doctrin# o$ T'ird P%rt! Ri)'t5 E&#r)#nc# $ro&

ENGLAND to INDIA115

Poition in En)+%nd5

The doctrine of contractual relationship owes its origin to the common law courts. This doctrine

was for the first time, is applied in the case of Bordan v jordan6A . In this case the demand for a

non a promise not to lie. 9ut ?ever v Heys6= the court -uashed the decision of Bordan v Bordan

and allowed foreign suit on a contract. 9ut the Taylor v "oster 6@ (ourt reaffirmed the decision in

the case of Bordan and apply the doctrine of the contractual relationship and, conse-uently, a

stranger to the contract was prevented from maintaining their action in case of default the

contract.

T,#dd+# - At0inon13 is the case in which the doctrine of the contractual relationship was finally

established by the <uperior (ourt of the Kueen in 6:;6. In this suit the plaintiffCs case was

dismissed by the court. It is noteworthy that the court dismissed the applicantCs claim more

emphasis in the doctrine of privity of consideration that the doctrine of the contractual

relationship.

$$ S(( id at p$08 S(( a#s" Dr 1Rsin*h. The octrine of Pri!it" of Contract under theIndian Law, 3D Phi#Th(sis. ;niv(rsit, " A##ahabad. $44 .G#"ba# P+b#icati"n. A##ahabad. 3$st

(dn$444.pp - $2

$2 3$54 )r" <#i= !%4 )it(d r"7 Dr1RSin*h. s+pra n & p

$! $548 )r" <#i= %$4. %52>3$548 "" K 550 )it(d r"7 Tr(it(#. The Law of Contract,S'((t 6 a9'(##.1"nd"n3$2th (dn 200&. pp%2-%25

$ 3$%0$ )r" <#i= &&%.80&)it(d r"7 Tr(it(#.id#

$5 3$8%$ $ 6 S !4! )it(d r"7 R"b(rt ?(nni*an. Pri!it"$The End %f An Era &Error',v"#$0!. 1a' @+art(r#,R(vi('. 3R(print. 200$ pp5%&-5%8

2%



However, the doctrine of the contractual relationship ac-uired a definite form in this case.

It appears from the judgment that the doctrine of the contractual relationship establishes two

general principles of contract law.

• It is meant that a stranger to a contract cannot sue.

• It provides that an alien to a contract is not bound by the contract.

This doctrine eventually won approval from the House of ?ords in the leading case o$ Dun+o(

Pn#u&%tic T!r# Co Ltd - S#+$rid)# ? Co Ltd17 in 676. It is noteworthy that in cases efforts

were made after the abolition of the doctrine. However, the doctrine is not absolute. (ertain

limitations have been imposed on it. This doctrine has been generally criticied. In 67=L, the

(ommittee on $evision of ?aws, under the chairmanship of ?ord >right also criticied the

doctrine and recommended its abolition. In its <ixth Interim $eport committee stated6L

5 >hen the contract by its express terms purports to confer a direct benefit on the third party, the

third party shall be entitled to enforce the provision in its own name, provided that the promisor

is entitled to assert against the third party any defense would been valid against the promisor.E

Poition in Indi%5

1 Pro-iion und#r Indi%n Contr%ct ,'ic' i&(+icit+! co-#r t'i

doctrin#1/5

*s we know that there is no independent sanction the doctrine of privity of contract in India but

fortunately, unlike 1ngland, the law of contract in India is encoded. It should be, however, noted

that the (ontract *ct, 6:LA of India not explicitly contain a provision on the doctrine of the

contractual relationship. Therefore, the teaching position can be visualied in the light of various

provisions of the (ontract ?aw. Those provisions are S *@% *@" *@c *@# *@' 8. 8/ %nd

83 o$ t'# Indi%n Contr%ct Act 1=8*

$% 3$4$5 $ @ 250 )it(d r"7 Tr(it(#. supra n4

$& Avtar Sin*h. Law of Contract and Specic Relief, <ast(rn ""k )"7pan,. 1+ckn"' 34th

(dn R(print 200%. p4

2&



S#ction * @' of the (ontract ?aw of India, 6:LA defines the term 5contract5 in the form

of an agreement. It states that 5an agreement is a legally enforceable contract5 In other words, a

contract is simply an agreement valid. The 5agreement5 is defined in S#ction * @# of the contract

*ct, 6:LA of India. *ccording to S#ction * @# 5*ll the promises and every set of promises

forming the consideration for each other is an agreement.5 Therefore, one agreement is a

condition precedent to the contract. The agreement may be divided into two parts 5#romise5 and

5consideration of the promise. The term (ro&i# has been defined in S#ction * @" of the

(ontract *ct. *ccording to S#ction * @" 5a proposal that accepted becomes a promise5 <o,

finally, we find two terms proposal and acceptance Pro(o%+ is defined in #ction * @% of

the (ontract ?aw and the %cc#(t%nc# under S#ction * @" of the *ct. *ccording to S#ction *

@%, 5 when a person representing another his willingness to do or abstain from doing anything ,

in order to obtain the consent of that other such act or abstinence , is said to make a proposal. 5

66Q67QAJ6=<ection A 3b4 of the *ctsays that 5when the person to whom the proposal is made

signifies his assent thereto, the proposal is said to be accepted.5 It is clear that only that person

can accept the proposaltargeted by the proposal. The proposal is generally regarded as a starting

point for the contract and , moreover , an acceptance and nearing completion. The person making

a proposal may be called the proposer, offeror or promisor and the person who is proposal is

made or to accept the proposal applies to the acceptor, recipient or promise. <ection A 3c4 of the

*ct defines the term 5promisor5 and 5promise.5 *ccordingly, 5The person making the proposal is

called the5 promisor5 and the person who accepts the proposal is called the promise 5ou can ,

therefore , be deduced from the above provisions of the (ontract *ct the promisor is accountable

to the promise and the promise is responsible to the promisor . it suggests that only parties to a

contract are the right people who can meet the contractual rights and contractual obligations of

the shoulders. Therefore, there is an effect on the contract between the parties to the contract.

!oreover, it is clear from section L= of the (ontract *ct, 6:LA of India that the party suffering as

a result of breach of contract is entitled to compensation from the other party in the contract. In

view of section L@ of the *ct , we can say that if the sum is named in the contract as the amount

to be paid in case of breach of contract , the complainant in the rape is entitled to reasonable

compensation not exceeding the amount so named or as they may be , the penalty stipulated for .

*rticle L of the ?aw states that a person lawfully terminates the contract is entitled to

compensation for the damage suffered for breach of contract. It appears from the sections L=, L@

28



and L 3referring conse-uences of breach of contract4 that only that person has the right to sue

for breach of the contract that is a party to the contract and has suffered losses due to the breach.

Therefore, a person who is not party to the contract, i.e., a stranger cannot, therefore,

bring an action for breach of contract. Therefore, the provision of the Indian (ontract ?aw

discussed above, it is clear that *ct implicitly incorporates the doctrine of the contractual

relationship. However, some legal and nonmandatory exceptions to the doctrine accepted in

India also.

D#ciion %riin) En)+i' +%,1=

In India there has been a wide divergence of opinion in the courts of how much a stranger to a

contract can be enforced. There are many unresolved cases which state that a contract cannot be

enforced by a person who is not part of it and that the standard Tweddle v *tkinson67 is

applicable both in India and 1ngland. The #rivate(ouncil extended the state to India in its

decision Bamna +as v $*! *utar AJ ?ord !ac)aughtan , in his view very short , said the

commitment to pay new mortgagee was given by the defendant to his supplier. *ccording to (B

$*)NI) this seems to be the effect of the (ontracts *ct itself in ?al Nrishna v #romila 9alaA6

observed that )ot only , however , there is nothing in section A to promote the idea that contracts

can be enforced by a person not a party to the contract , but this notion rigidly excluded from the

definition of 5 promisor 5 and 5 promiseC In my judgment is wrong. India to assume that people

who are not parties to a contract may be entitled to sue immediately afterwards.+ecisions that do

$8 Avtar Sin*h. supra n$!. pp4%-48

$4 Supra n$$

20 3$4$$ !0 IA &: I1R ! A## %! S(( a#s" Iswaram Pillai v Soni!a!eru Tera(an, I1R3$4$!!8ad &!!> )aneshas v *t# +anto,3$4!5 $% 1ah $$8: AIR $4!5 1ah !5. and +au Ram

+udhu *al v han Sin(h +ishan Sin(h,AIR $45& P+n $%4 In th( #ast- 7(nti"n(d cas( th( rst 7"rt*a*(( 'as n"t a##"'(d t"r(c"v(r th( 7"n(,r(tain(d b, th( s(c"nd 7"rt*a*(( +nd(r th( a*r((7(nt b(t'((n th( "'n(r and s(c"nd7"rta*((

2$ AIR $428 )a# 5$8

24



not follow 1nglish ?awAAThere is another line of thought that is based on the observation of the

#rivy (ouncil in Nhwaja !uhammad Nhan v 9egumA= Husaini . its ?ordships observe

In India and circumstantial communities like !uslims , among

who contract marriages of minors by parents and guardians that would result in serious injustice

if the common law doctrine applies to agreements or agreements relating to such contracts.

This statement has been adopted by some higher courts as establishing the rule that

Indian courts are not bound by the rule in Tweddle v *tkinsonA@.

L%nd&%r0 %nd c%# r#+%t#d to (ri-it! o$ contr%ct

T,#dd+# - At0inon

9%ct5 Bohn Tweddle, Tweddle >illiamCs father, according to >illiam uy >illiam Tweddle pay

AJJ pounds after marrying his daughter. The written agreement contained a clause >illiam

Tweddle specifically grants the power to sue for enforcement of the agreement. >illiam uy

died, and the state will not pay and >illiam Tweddle sued.

Iu#5 +oes >illiam Tweddle have standing to seek enforcement of the contractO

Jud)&#nt5 The courts ruled that a promise cannot bring an action unless the consideration from

the promise moved from him. (onsideration must move from party entitled to sue upon the

contract. )o legal entitlement is conferred on third parties to an agreement. Third parties to a

contract do not derive any rights from that agreement nor are they subject to any burdens

imposed by it.

E4(+%n%tion5 >ightman said there was no precedent that a stranger to the consideration of a

promise can still have an action if the relationship is close enough 3 9ourne v !ason , 6;;7 4 .

22 Avtar Sin*h.supra n$!. pp4%-48

2! 3$4$0 !& IA $52: $2 "7 1R %!8

2 Supra n$$

!0



+espite this precedent , argues that the current situation is no stranger to the consideration can

take action , even if it was for their benefit.

(rompton examines whether there was consideration of the child and claims that the natural love

and affection 3 of marriage 4 was not sufficient consideration. This is in contrast to forage in the

ethics of government was the honor, here is the paradigm that governs the exchange and

reciprocity. (rompton also says it would be 5monstrous proposal 5 if a person would be able to

sue for a contract, but you cannot be sued under it .

9lackburn is an argument of the agency that runs off natural love and affection from father to son

and this son is entitled to sue in place of his father 3 as if it had been scheduled for

consideration 4 . 9lackburn argues that the cases say the natural love and affection are not

sufficient consideration for an action.

Jord%n - Jord%n

9%ct5 +unlop, a manufacture of tires, made a contract with dew, a buyer of trade, tires at a

reduced price on condition that they would not sell tires unless the share price and that any

retailer who $ocio wanted to buy had to agree not to sell at the lowest price either. $ocRo

<elfridge tires sold in the trading price and done <elfridge agree not to sell at a lower price and

they either pay five pounds for damages if they violate this agreement. <elfridge proceeded to

sell the tires below the price you agreed to sell for. +unlop brought action and succeeded at trial

but was overturned by the (ourt of *ppeal

Iu#5 Is it possible to sue the +unlop <elfridge, although there is no contractual relationship

between themO

Jud)&#nt5 %iscount Haldane based his argument on three fundamental principles of law. "irst,

the doctrine of privity re-uires that only a party to a contract can sue. <econd, the doctrine of the

bill re-uires a person who made a contract with the label not only able to apply if the

consideration of the promise that the promisor. Third, the doctrine of agency re-uires that the

director is not named in the contract can only be sued if a party has been hired as an agent.

!$



In application to the facts, Haldane could not find any consideration between +unlop and

<elfridge, nor could I find any indication of an agency relationship between +ew and <elfridge.

*ccordingly, the action must fail +unlop.

E4(+%n%tion5 The lords are fundamentally agree with the decision of the (ourt of *ppeal , there

was no contract between +unlop and +unlop <elfridge and therefore cannot sue . There are some

fundamental principles of law that support this decision

a4 The doctrine of privity, which states that only one party to a contract, can sue on breach of

contract,

b4 The doctrine re-uire consideration of the promise 3+unlop4 to consider <elfridge for the

contract to be performed, and this did not happen as +unlop gave nothing to <elfridge here

3<elfridge +unlop made a promise to only sell at a certain price , but it was free because +unlop

gave no consideration to change4,

c4 The only way that a director not named in a contract can be sued is if he acted as agent on

behalf of one of the private parts of the contract . <elfridge was no dew agent therefore this does

not apply in this case.

J%&n% D% - P%ndit R%& Aut%r P%nd#

In this case it was held that the action is brought by a mortgagee against a purchaser of the

mortgaged a company that signed your vendor. The creditor is not entitled to benefit from that. It

was not part of the sale. The buyer signed a contract with him, and the buyer is not personally

obligated to pay this mortgage debt. Therefore, it is not a person who, in the words of <ection

7Ja of the #roperty Transfer *ct, or the balance is legally recoverable.

Their ?ordships will therefore humbly advise Her !ajesty that this appeal should be dismissed

with costs.

Ari# Ad-#rtiin) Bur#%u - CT D#-%r%2

This special license appeal from the judgment of the +ivision 9ench of the !adras High (ourt

in *< )o. AA;QL6 dated "ebruary 6@, 677 . The facts are in short compass. The appellant

plaintiff had announced for the circus performance in the second 9alakrishnan defendant. He put

!2



on a suit for recovery of a sum of $s 'dd ALJJJ and advertising charges accusing the defendant ,

as the first defendant and second defendant along with 9alakrishnan . 9alakrishnan was ex

panel and a glass former decree against him was strong. >e are concerned only with the

responsibility of first defendant informant, (T +evaraj. The court ruled the claim against him

on the grounds that contractual relationship existed between the plaintiff and the defendant . The

<upreme (ourt, on appeal, found that there is no contractual relationship. *lthough the basis of

*rticle LJ of the (ontract ?aw of India , 6:LA, 3 for short Cthe *ctC 4 attempted to establish the

liability of the defendant , the defendant was found not obtain any benefits under the contract

between he and 9alakrishnan. 'n the other hand, was a financier to run the circus that had

incurred a huge loss (onse-uently, it was considered that the benefit of <ection LJ of the *ct did

not apply. The appeal was accordingly allowed and the claim against the defendant was

dismissed. Thus, this appeal.

<hri <ampath , learned counsel for the appellant has argued forcefully that , in view of the

agreement 31x. *=4 , executed by the defendant and 9alakrishnan that clause 3 @4 provides for

the defendant agreeing to pay the costs of advertising , is obliged to pay the same to the appellant

. #roposal sent to the announcement by the appellant was certainly adopted by the respondent.

This gave rise to a verbal contract entered into between plaintiff and defendant . It is also argued

that since the defendant agreed to receive the benefit of =J S of.

E4c#(tion to t'# Doctrin# o$ Pri-it! o$ Contr%ct

und#r Indi%n L%,5*3

There are a number of exceptions introduced by our courts, in which the doctrine of

contractual relationship does not prevent a person from enforcing a contract that has been

for his benefit, but he is part of it. !any of the exceptions relate to

special branches of the law of contract, such as debt securities, agency bill

shipping, railway receipts, transfer of ownership, etc. <ome of the more commonly known

exceptions can be seen here.

25 Dr 1 R Sin*h. supra n&. pp$45-2$2

!!



1 E4c#(tion I to t'# doctrin#5 T'# B#n#$it A(#ct o$ Contr%ct

The benefit aspect of the doctrine is that a contractual benefit application may be forced by the

party to the contract is entitled to it. In this case, an important -uestion arises whether an alien

may, in any case, claim the benefit of a contract. Judici%+ E4c#(tion*7

5

@% Contr%ct cr#%tin) % trut5

>hen the contract creates a trust in favor of a third person, such third person may sue the

contract. In the main event !( (hacko v <tate 9ank of Travancore,AL the <upreme (ourt held

that the beneficiary under a contract that creates a trust in their favor can sue the contract.

@" Contr%ct in-o+-in) % 9%&i+! Arr%n)#&#nt 5

The family members can confer benefits of a contract to a stranger if the contract must be related

to some kind of family arrangement. In the case of !.(. (hacko v <tate 9ank of Travancore, the

<upreme (ourt held that a beneficiary of a contract involving a family arrangement may enforce

the contract. The <upreme (ourtCs decision in this case appears to be reasonable, that benefits a

third person and reduces his miseries to reduce his Q her financial responsibilities.

St%tutor! E4c#(tion5

The following are the statutory exceptions to the privity rule

@A Trut5 ItCs the most common legal exception to the doctrine of privity of contract. *ccording

to *rticle ; of the Indian Trust *ct, 6::A the beneficiary entitled to have the intention of the

author of the trust, executed to the extent the beneficiaryCs interest.

@B Contr%ct o$ inur%nc#5 * person can take an insurance policy for another of benefit. "or

example, if the husband has insurance policy for the benefit of their wife and children, may sue

the ?ife Insurance (orporation, although outside the insurance contract and consideration. The

corporation is the obligation to pay the sum insured for all policies, including any bonus. <uch

policies and bonds should also be guaranteed by the (entral overnment under *rticle =L of the?aw of ?ife Insurance (orporation, 67;. <imilarly, <ection 6@; 3 64 of the !otor %ehicles *ct ,

67:: provides that the holder of a motor vehicle is intended to get the vehicle insured not only

2% Tr(it(#. supra n 4 .p%85

2& AIR $4&0 S) 50

!



against their own risk, also against the risk of a third party. Therefore, if a third party is injured in

an accident involving a vehicle, you can sue the insurance company to recover compensation for

the loss suffered by him.

@C To "#n#$it $ro& % &inor und#r t'# P%rtn#r'i( Act5

<ection =J of the Indian #artnership *ct, 67=A is another exception to the doctrine of collusion .

* minor is unable to make such a contract cannot become a partner of the company. However,

section =J 3 64 of the #artnership *ct provides that , with the consent of all the partners of a

minor may be admitted to the benefits of association . The minor admitted it is entitled to such

part of the property and benefits. (ompany as may be agreed upon , and may also have access to

inspect company accounts .

It is accepted that the above exceptions are fair and reasonable that help improve the socio

economic condition of the third party

* E4c#(tion II to t'# doctrin#5 T'# Burd#n A(#ct o$ Contr%ct

The 5load aspect5 of the contract is another exception to the doctrine of privity. *ccording to her,

there are certain circumstances in which the parties to a contract may mutual agreement to

transfer cargo or contractual liability of a third party and while third person can be sued . The

following are legal exceptions

@A T'# L%, o$ A)#nc!5

Mnder the law of agency the principal is bound by contractual obligations performed by the agent

in his Q her name 3manager4 , although the contract is concluded between the agent and the third

person dealing with the agent.

@B T'# Indi%n P%rtn#r'i( Act 1.*5

<ection 67 of the *ct provides that a company is responsible for all acts of a partner done under

its authority, express or implied. This corporate responsibility extends even to torts of a partner

as negligence, willful misconduct and misapplication of money or property received from third

parties, provided that such grievances expressed or falls within implied authority of the company.

*rticle A of the Indian #artnership *ct speaks of the liability of members of a company is joint

and several. Therefore, an act performed by a partner on behalf of the signature binds all other

partners , although they have not directly contract. <ection @ 3 64 of the Indian #artnership *ct

imposes contractual obligations after dissolution of the company in those couples who have not

entered into the contract with a third person . <uch liability may be imposed on other partners for

!5



the contract made by a couple with the third party, provided , first, the act is such that is

commonly made by the firm prior to dissolution and <econd, no public notice of the dissolution

of the company is given.A:

<ection =J 3=4 of the Indian #artnership *ct , states that despite a minor is not personally liable

for a companyCs responsibility , however , participation in society is responsible by signing

ceremony.

@C T'# N#)oti%"+# Intru&#nt Act 1==15 <ection =6 of the *ct provides that the holder of a

check is liable to pay the money mentioned in the recipient. The debtor is strangers to the

contract made between the drawer and the beneficiary, but still are re-uired to pay money to the

beneficiary.

*rticle =; of this ?aw stipulates that all parties before is responsible to the holder in 'f course. It

should be noted that the contract is between an immediate front and holder in due course and the

previous parts that remain are strange of the contract , but are held responsible until the

instrument is duly satisfied. *ccording to *rticle = of this ?aw , each party before the holder is

liable to derives its title from a holder in due course . (learly, in terms of contract between the

owner and holder in all the previous are liable to the holder until the instrument is duly satisfied,

although not parties to such contracts. It follows that the imposition of contractual obligations in

an third parties under certain circumstances , it seems fair and ade-uate , as it promotes trade

relations between people who are not directly linked to the contract , but are likely to be

affected .

. E4c#(tion III to t'# doctrin#5 Doctrin# o$ (ri-it! o$ contr%ct

und#r t'# L%, o$ A)#nc!

The *gency *ct is another exception to the rule of collusion . To the extent that the relationship

between the principal and the agent is concerned, there is a contractual relationship between

them. The relationship between the agent and the third party enters existence when the agent

acting within the scope of his authority , entered into a contract with the third party. The

relationship between the principal and the third appears an exception to the doctrine of the

contractual relationship. >hen there is any express contract or by operation of law 3*rticle A=J

28 C# Assiamma v State +an- of *"sore . others, AIR 3$440 K(r $5&

!%



3 64 , 3A4 , 3=4 of the (ontract ?aw of India , 6:LA 4, an agent can be sued personally by the third

party and the agent can run the contract against the third. *ll dependency law can not be treated

as an exception to the doctrine of contractual relationship. It provides only two exceptions .

These are

3*4 >hen the contract with the third party is composed of a sub agent , and

394 If the principal is disclosed.

In these two cases, but the main one is a stranger to the contract , however , may sue and be sued

by the third party .

/ E4c#(tion to t'# doctrin# IV5 A++oc%tion o$ Contr%ctu%+ dut!

The 5assignment of contractual rights to a stranger5 is also one of the exceptions to the collusion

rule. >hen contractual rights may be transferred, this will ac-uire all rights of the transferor or

deceased party. The transferee is certainly a stranger to the contract, however, is entitled to sue

the other party to the contract. Therefore, a valid assignment of contractual restricts the

application of the doctrine of relative impact contract. These restrictions are genuine, as they

provide an opportunity for an alien to perform the contract and therefore force the promisor to

perform his promise.

3 E4c#(tion V to t'# doctrin#5 Contr%ctu%+ A++oc%tion (%i-#

The 5contractual allocation of responsibilities to a stranger is another exception to the doctrine of

the contractual relationship. The general rule is that contractual obligations cannot be assigned

by the promisor to the third person without the consent of the promise. 9ut certain circumstances

in which it may take that assignment. "or example, when a contract is impersonal , the promisor

may use a third party to perform its promise.A7

ou can , therefore , states that the exceptions built into various legislations such as the (ontract

*ct , 6:LA of India and the Indian #artnership *ct 67=A are right reduced the scope of the

doctrine of the contractual relationship, since in the current society of the rights of a stranger is

24 Section 40. Th( Indian )"ntract Act. $8&2: Pe!on "# $%o& 'o&i!e i! to "e'e(o&e): BI it app(arsr"7 th( nat+r( " th( cas( that it 'as th( int(nti"n " th( parti(st" an, c"ntract that an, pr"7is( c"ntain(din it sh"+#d b( p(r"r7(d b, th( pr"7is"r hi7s(#. s+ch pr"7is( 7+st b( p(r"r7(d b, th(pr"7is"r In "th(rcas(s. th( pr"7is"r "r his r(pr(s(ntativ( 7a, (7p#", a c"7p(t(nt p(rs"n t" p(r"r7 itC

!&



likely to be affected by the contracts in different dimensions . Therefore, the limitations of the

doctrine of contractual relationship are for the benefit of foreigners.

Third-party beneficiaries

In *ustralia , it has been argued that thirdparty beneficiaries can keep a promise made for his

benefit in an insurance contract which is not a party 3 Trident eneral Insurance (o ?td v

!c)iece 9ros #ty ?td 3 67:: 4 6; (?$ 6JL 4 . It is important to note that the decision had no

clear relationship Trident , and did not create a general exception to the doctrine of privity in

*ustralia .

Kueensland, the )orthern Territory and >estern *ustralia have all enacted laws for thirdparty

beneficiaries to enforce contracts , and has limited the ability of contracting parties to modify thecontract after the third party has relied on it. "urthermore, *rticle @: of the Insurance (ontracts

*ct 67:@ 3(th4 allows thirdparty beneficiaries to enforce insurance contracts.

*lthough the damages are the usual remedy for breach of a contract for the benefit of a third

party , if the damages are inade-uate , specific performance may be granted 3 9eswick v 9eswick

F 67;: G *( 7 4 .

The issue of third party beneficiaries has appeared in cases where a longshoreman has stated that

they are covered by the exclusion clauses in a bill of lading . "or this to be successful, three

factors must be made

P The bill of lading must have clearly intended to benefit a third party.

P It is clear that when support contracts with shippers, but also as an agent contracts +ocker. That

is, whether the carrier should have had the authority by the stevedore to act on their behalf, or

later stevedore must ratify 3approve4 the shares of the company.

P The difficulties moving from the stevedores consideration should be extended.

The last issue was discussed in )ew 2ealand <hipping (o ?td v *! <atterthwaite & (o ?td

F67LG *( 6@, where it was held that the stevedores had provided consideration for the benefit

of the exclusion clause in the unloading of the goods from the ship.

!8



)ew 2ealand has enacted the (ontracts *ct 67:A connivance , which allows third parties to sue

if they are sufficiently identified as beneficiaries of the contract , and the contract is expressed or

implied to be able to apply for this benefit.

Critici&

The doctrine of privity has been under severe attack for its refusal to recognie the right of a

Third beneficiary to enforce the contractual provisions made for his Q her benefit. *mendments to

the ?aw, commentators and judges have noted that sometimes differences between contract

theory on the one hand, and the commercial reality and justice in the other. The availability of the

exceptions above does not always correspond to your needs.

)o wonder that law reform agencies in various common law jurisdictions have critically

examined the doctrine and recommended its reform.=J In *ustralia 3 >estern *ustralia and

Kueensland4 , (anada 3 )ew 9runswick 4 , 1ngland, )ew 2ealand and <ingapore on privity

doctrine was finally repealed by legislation.=6

T'# $o++o,in) %r# t'# critici& o$ t'# doctrin# o$ (ri-it!5

• +oes injustice to parties who have relied on the contract to regulate their issues, and thus

upset the reasonable expectations of third parties to obtain benefits under contract.

!0 S+ch as th( @+((ns#and 1a' R("r7 )"77issi"n. R(p"rt "n a i## t" )"ns"#idat(. A7(ndandR("r7 th( 1a' R(#atin* t" )"nv(,ancin*. Pr"p(rt,. and )"ntract and t" T(r7inat( th(App#icati"n " )(rtain I7p(ria# Stat+t(s 3$4&!> th( 1a' )"77issi"n 3<n*#and. Privit, " )"ntracts: )"ntracts "r th( (n(/t " Third Parti(s 3$44%> th( (' (a#and )"ntracts and)"77(rcia# 1a' )"77itt((. R(p"rt "n Privit, " )"ntract 3$48$> and 1a' and R(visi"nDivisi"n. Att"rn(, G(n(ra# )ha7b(rs 3Sin*ap"r(. R(p"rt "n th( Pr"p"s(d )"ntracts 3Ri*hts" Third Parti(s i## 200$: 1a' R("r7 )"77issi"n " "va Sc"tia. R(p"rt "n Privit, " )"ntract 3Third Part, Ri*hts 3200

!$ S(( th( E(st(rn A+stra#ian Pr"p(rt, 1a' Act $4%4 3E(st(rn A+stra#ia. th(@+((ns#andPr"p(rt, 1a' Act $4& 3@+((ns#and. th( 1a' " Pr"p(rt, Act 2000 3th( "rth(rn

T(rrit"r,.th( 1a' R("r7 Act $44! 3(' r+ns'ick. th( )"ntracts 3Ri*hts " Third Parti(s Act $4443<n*#and. th( )"ntracts 3Privit, Act $482 3(' (a#and. and th( )"ntracts 3Ri*ht " ThirdParti(s Act 200$ 3Sin*ap"r(

!4



• It frustrates the intentions of the parties in the contract when the purpose of conferring

some benefit to the third party=A.

• In case of third suffers no harm, then he has no chance of claiming compensation

collusion because of this rule. "ourth, such third party suffers a loss cannot sue, however,

promise that has suffered any loss as possible.

• This doctrine is unduly complex and uncertain. +uring the passage of time, the judiciary

has made these doctrine loopholes to reduce their stiffness and reduced in a principle

vulnerable and weak.

The courts have developed exceptions to the doctrine of avoiding injustice, as we have seen with

'ver time the exceptions are continuously increasing , this shows the basic deficiencies and

demonstrates that existing exceptions have not solved the problem in its entirety and the scope of

the new amendments are still persistent , denying the very existence of this doctrine.==

9indin) %nd u))#tion5

N##d codin) co&(+#&#nt%r! (rinci(+# =@

In the preamble of the (ontract *ct, 6:LA of India says, this *ct does not profess to be a

complete (ode relating to the law relating to contracts. The legislature, while the enactment of

this *ct, did not intend to comprehensively codify the entire law of contract to be enforced by the

courts. (onse-uently, the issues on which it is silent, the courts have had to resort to the rules of

1nglish (ommon ?aw as principles of 5justice, e-uity and good conscience5 by ?aw

(ommission report this reliance on the principles of 1nglish law to supply the deficiencies

Indian enactment is not conducive to safety or simplicity of the law. It is preferable to add to the

?aw of the 1nglish common law principles that have been applied by our courts for nearly a

century, so it may not be necessary to refer to the law in 1nglish many cases.

!2 Supra n$$

!! P"##"ck 6 +##a.supra n .p $$2. s(( a#s" )h(sir(. ?i""t 6 ?+r7st"n. supra

n2.p582

! $!th 1a' )"77issi"n R(p"rt " India 3)"ntract Act.$8&2 .$458. para !.avai#ab#(athttp:FF#a'c"77issi"n"/ndianicinF$-50FR(p"rt$!pd 31ast visit(d "n A+*+st 20. 20$$

0



"rom the above discussion we find that there is no reason why reform should not be welcome.

<teyn ?B in +arlington 9orough (ouncil v )orth >iltshire ?td.= said

5The law of the contract shall comply with the reasonable expectations of contracting parts, no

doctrinal, logical or policy reason why the law should deny the effectiveness of a contract for the

benefit of others that this is the intention expressed of the parties.5

* rigid adherence to the doctrine of collusion is bound to cause difficulties. The current state of

relevant Indian legislation is not true and is still evolving. 1xceptions have been recognied by

our judiciary and the legislature does not cover all cases of difficulty and thus enhance the

confusion of layman. *ccording to ?aw 6= (ommission $eport 67:, the best course would be

to adopt a general exception to cover all cases of contracts executed benefits to third parties

while neglecting the particular cases in which the rule of collusion apply should not. The student

is in line with the recommendation of ?aw $eview (ommittee that a separate section to be

incorporated as the section =L *, which is similar to the (ontracts 3$ights of Third #arties4 *ct

6777. It should read

S#ction .8 A T'# "#n#$it )r%nt#d to t'ird (%rti#5

• >hen the contract expressly confers a benefit directly to a third party, unless the contract

provides otherwise, shall be enforceable by the third party in its behalf, subject to the

defenses that would have been valid between recruitment parts.

• >hen a contract expressly conferring the benefit directly from a third party has been

approved , expressly or impliedly , by a third party , the parties to the contract cannot

replaced by a new contract for him or terminate or modified so as to affect the rights of

third.

There are four possible types options@6 reform

3*4 +evelopment Budiciary collision avoidance doctrine.

394 The legislative exceptions to the privity doctrine to be made in specific cases.

!5 3$445 $ E1R %8

$



3(4 The adoption of a general statutory provision that no third party should be denied the

execution of a contract made for his benefit on the grounds of lack of collusion.

3+4 reform through detailed legal system .

1ach option has its pros and cons. >e are aware that the options 3a4 and 3b4 have the advantage

of being flexible and can meet the needs of specific circumstances. Its main shortcoming is that

both not address collusion doctrine within a comprehensive plan, systematically and consistently.

The problem is even more delicate in option 3a4 that the courts may act only when there is an

appropriate case. To option 3b4, the creation of specific legal exceptions inevitably a complicated

area the law and is generally regarded as technical, artificial and complex. 'ption 3c4 may is

simple to implement, but it is not feasible because it leaves too many fundamental -uestions

unanswered and would create considerable uncertainty in its operation. 'ption 3d4, which speaks

of a comprehensive reform of the privity doctrine would certainty, clarity and coherent body of

law, which is not available in the other options and therefore more suitable with the subject. This

approach is also adopted by *ustralia, 1ngland, )ew 2ealand and <ingapore.

Conc+uion5

+uring the project, the we found that the hypothesis is justified and wellillustrated in the

previous project. It is hereby concluded that the idea behind the concept of +octrine of the

contractual relationship itself is vague and does not fit the modern context. The student is against

retention of the rigors of this doctrine but simply the abolition of the doctrine of collusion or

ignore it would not solve the crisis and instead constitute a serious challenge the legal system.

Therefore, there is a strong need for redefining.

*lthough it has existed in many common law systems in the world from a long time, so

challenge and change would not be entirely justified. >hat is re-uired is to modify the building

provisions

• * separate section as recommended by the Indian ?aw (ommission 6= $eport that may

be useful to decrease the difficulties created by this doctrine , or

2



• The enactment of a new law that entitles a stranger to the insurance contract -ualifying

circumstances that may be an alternative to it.

>hat should be the elements of the new legislative framework is an open space for greater

project.

Third Party Right

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