Stranger to Contract [Privity of Contract] and Stranger to Consideration [Privity of Consideration]

Fathima Nusheeba

Stranger to Contract [Privity of Contract] and Stranger to Consideration [Privity of Consideration]

A person who is not a party to contract cannot claim rights, even though the contract is for his benefit, and such a person is known as stranger to contract. Similarly, when consideration is furnished not by the promisee but by a third person, the promisee becomes a stranger to consideration.

The term privity of consideration is a doctorine which means stranger to the consideration or consideration given by any other person than the promisee.

Thus under English Law, a stranger to consideration can not sue, and the consideration must move from the promisee and not from a stranger,

But under the Indian Contract Act consideration may move from the promisee or any other person. So in India a consideration made by the stranger is lawful and enforceable.

However, doctrine of privity of contract is applicable in India also. That is a stranger to contract can not sue in England as well as in India, though it may be made for his benefit. This rule is known as the doctrine of privity of contract.

Exceptions to the rule that a stranger to contract and stranger to considertion can not sue:

1. Trusts

In a contract creating a trust, the beneficiary who is a stranger to the contract, can enforce the trust.

Example : Arya agrees to transfer certain properties to Cindy, to be held by Cindy in trust for the benefit of Basil. Basil can enforce the agreement even though he was not a party to the agreement.

2. Where provision is made in a marriage settlement

When agreement is made in connection with marriage and a provision is made for the benefit of a person, he may sue although he is not a party to the agreement.

Example : The father of the bridegroom and the father of the bride entered into a contract. Where by it was

agreed that in consideration of marriage the father of the bridegroom would pay a definite amount as Pin-

money or Kharachi – i – Pandan to his daughter in law.

The allowance was stopped sometime after the celebration of the marriage. The daughter sued her father – in – law to recover arrears of the

allowances. It was held that, though she was not a party to the contract, she could recover the money (Khwaja

Muhammad Khan Vs. Husaini Begum)

3. Where provision is made in a partition or family arrangement for maintenance or marriage expenses of female members

The female member can enforce the promise though she may be a stranger to the contract.

Example : On partition of a Hindhu undivided family, the two brothers agreed that, they would jointly pay (in equal shares) a sum

to their aged mother. The brothers subsequently refused to pay the amount. It was held that, the aged mother, though is not a party to the contract, can enforce the promise (Shuppuammal Vs.Subramanyan(1910)).

4. Acknowledgement or estoppel

Where a promisor by his conduct, acknowledges or otherwise constitutes himself as an agent of a third party. A binding obligation is thereby incurred towards him and is estopped from denying his liability to the third party.

Example : Thomaskutty receives some money from Anand to be paid over to shaban. Thomaskutty admits of this receipt to shaban. Shaban can recover the amount from Thomaskutty who shall be regarded as the agent of shaban.

5. Contracts entered into through an agent

The principal can enforce the contracts entered into by his agent provided the agent acts within the scope of his authority and in the name of the principal.

6. An assignee can also sue on the basis of assignment

Assignment is a process whereby right to enforce a contract is vested in someone other than original creditor without the consent of original debator. An assignee of a contract can also enforce the benefit which has been as signed under the contract. Thus the folder in due course of a negotiable instrument can realize the amount on it even though there is no contract between him and the person liable to pay.