Report No. 147
Persons by whom Contracts can be Specifically Enforced
4.1. Section 15 of the 1963 Act reproduces the provisions of section 23 of 1877 Act. It enumerates persons for or against whom contracts may be specifically enforced. The general rule is that a suit on a contract can be maintained by one of the parties to the contract is enumerated in clause (a). The right of a successor¬in-interest of any of the parties to the contract is enunciated in clause (b). Clause (d) to (g) provide for special cases where the cause of action (being assignable) is assigned by, or survives by operation of law on the death or extinction of, one of the parties to the contract. They all indirectly emphasise the rule that a third party to a contract cannot sue which stands established by a long catena of judicial decisions.1
1. Dunlop Penumatic Tyre Co. v. Selfridge & Co., 1915 AC 847; Scruttons Ltd. v. Midland Silicon Ltd., 1962 AC 446; Beswick v. Beswick 1967 (2) AER 1197 (HL). Clause (c) is perhaps the only real exception to this rule, very limited in its scope.
4.2. In England, the rule is that a third party to a contract cannot sue was inextricably intertwined with the principle that the consideration for a contract can move only from a party to it and not a third person. The courts there have, therefore, consistently insisted on strict adherence to the rule in common law though equity often sought to intervene, on one consideration or another, to give relief in appropriate cases.
4.3. The summary of the position in England on this aspect can be seen in Cheshire & Fifoot (11th Edition), pp. 430-455 and Anson (23rd Edition), Chapter X. Cheshire observes (p. 441):
"Thus the doctrine of privity, while not an irrational inference from the nature of contract in general and of English contract in particular, has in its incidence worked injustice and proved inadequate to modem needs. Parliament, when it has intervened, has offered only spasmodic and occasional relief. In these circumstances, it is not surprising that many and various attempts have been made to induce the courts to sanction evasions of the doctrine. These have, indeed, met with a considerable measure of success."
Anson has this to say (p. 398):
"The doctrine of privity of contract has been the subject of considerable criticism both in the courts and among the writers of text books on the law of contract. It is said that it seems only to defeat the legitimate expectations, of the third party, that it undermines the social interest of the community in the security of bargains, and that it is absent from the law of Scotland, and generally from the legal systems of the United States. In their Sixth Interim Report1 the Law Revision Committee recommended the abolition of the doctrine. The actual terms of their recommendations read:
"Where a contract by its express terms purports to confer a benefit directly on a third party, the third party shall be entitled to enforce the provision in his own name, provided that the promisor shall be entitled to raise as against the third party any defence that would have been valid against the promisee. The rights of the third party shall be subject to cancellation of the contract by the mutual consent of the contracting parties at any time before the third party had adopted it either expressly or by conduct".2
It is seen that Lord Denning was a persistent critic of the rule but his attempt to treat it as a nineteenth century innovation irrelevant to present modern times were unsuccessful.3 But though the House of Lords has reiterated the rule as one firmly entrenched in the law of England, there is no doubt that it does call for revision and relaxation.4
1. 1937 (Cmnd. 5449), para. 48.
2. The recommendation of the Committee has not been implemented in England.
3. Beswick v. Beswick (1968 AC 58) disapproving of Lord Denning's observations in Same v. Same (1966) Ch. 538 (See also Jackson v. Horizon Holidays Ltd., 1975 (3) All ER 92 which represented another attempt by Lord Denning to water down the strictness of the rule).
4. In Wodar Investment Development Ltd. v. Wimpey Construction (UK) Ltd., 1980 (1) All ER 571 (591) also, Lord Denning's view in Jackson was criticised but Lord Scarman has forcefully urged the desirability of the House of Lords reconsidering the rule.
4.4. There is no reason why such an inequitable rule should prevail in India particularly when, under the Indian Contract Act, the consideration for the promise need not move from the promisee but can move from any other person as well.1
1. Section 2(d) of the Indian Contract Act.
4.5. Indian courts have been frequently faced with situations where a contract is clearly intended for the benefit of a third party but still have been reluctant to enforce the contract at the instance of such third parties,1 although in India, unlike under the English Law, consideration for a contract may move even from a third party.2 Some relief has been granted in a very few cases by straining the law and importing some doctrine of equity or some special consideration of agency, trust, assignment or statute.3
1. See, for example, Shiv Dayal v. Union, AIR 1963 Punj 538. But there are also some dissenting voices as in Kshirode Bihari v. Man Govinda, AIR 1934 Cal 682, Debnarayan Dutt v. Chunilal Ghose, AIR 1941 Cal 129 and Dwarika Nath v. Priya Nath, (1917) 22 CW No. 279. See in this context Pollock & Mulla Indian Contract Act, 10th Edn., pp. 28-37.
2. Section 2(d) of the Indian Contract Act. See also Subbu Chetti v. Arunachalam Chetty, AIR 1930 Mad 382; Krishna Lal Sandhu v. Pramila Bala, AIR 1928 Cal 518 and Kepong Prospering Co. Ltd. v. Schmidt, (1968) 2 WLR 55, a Privy Council decision on a Malayan Ordinance which contains a provision identical with section 2(d).
3. Khwaja Muhammad Khan v. Hussaini Begum, (1910) 37 IA 152 (PC); Shuppu Amrnal v. Subramania, ILR (1910) 33 Mad 238; Sundararaja v. Lakshmi, ILR (1915) 38 Mad 788.
4.6. It is clear that there is no justification to continue this type of limitation on action in India. In the U.S.A., after much debate and controversy, it is now settled that third persons can sue on contracts made by others for their benefit.1 In Australia also the position is that while a person who is not a party to a contract may not sue on it so as to directly enforce its obligations, it is possible for that person to obtain the benefit "by steps other than enforcement by himself in his own right".2 As already pointed out, the Law Revision Committee in England recommended a revision of the law to provide "that when a contract by its express terms purports to confer a benefit directly on a third party, it shall be enforceable by a third party in his own name."3
1. See Pollock & Mulla Indian Contract Act, 10th Edn., p. 35.
2. Coulls v. Bagot's Executor and Trustee Co. Ltd., (1967) 40 ALJR 47.
3. Cmd. 5449 (p.31) referred to in Beswick v. Beswick, (1967) 2 AER 1197.
4.7. On the same lines, it is recommended that section 15 of the 1963 Act be amended by inserting a clause
(i) to the following effect:-
"(i) any person, where the contract by its express terms purports to confer a benefit directly on such person."