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liability created by a contract. The contract creates right in one party and
also be called as burden of that party upon whom it is imposed with his
consent. The question which may normally arise is when a stranger can be
allowed to reap the benefits of a contract and why can the contractual
cannot impose contractual burden upon a third party without his consent.
The reason is very simple. Since the third party has not given his consent
upon him. However, there are certain cases, where contractual liabilities
any contract into which they may enter, thereby impose contractual
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parts of the work to sub-contractors. A sub-contractor has no cause of
action against the employer for work done or materials supplied under the
the employer has nominated the sub-contractor and taken the benefit of
the sub-contractor's work, the employer will not be liable to the sub-
third parties.
parties who subsequently acquire the property with notice of the contract.
2 Hempton v. Glamorgan C.,C. [1917] A.C. 13. See also Schmaling v. Tomlinson (1815) Taunt 147 principal
and sub-agent.
3 But a claim may lie in tort
4 Unless there is a collateral warranty: see ante, p. 130.
5 See Gurry. Breach of Confidence (1984), pp. 271-82; Gornish Intellectual property, 4th edn. (1999), pp. 305-06.
6 Boardman v. Phipps [1962] 2 A.C. 46, at pp.127-8; ornish, op cit., p. 330, Cf. Gurry op. cit., pp. 46-56.
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owner of goods transfers possession to another (i.e. bails the goods), and
the bailee then sub-bails them to another, the owner may be bound by
a party to it. Thirdly, the land law doctrine of restrictive covenant has
been said to apply to chattels but, although there is some support in the
cases, this approach has been much criticized. Fourthly, a person who
sued, they relate to (I) Contract Concerning Land & (II) Contract Relating to
Chattels.
has long been an axiom of the common law that a contract between A and
meet it. It has already been seen that, where a lease was concerned, such
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measures originated at an early date in the common law itself and were
equity, and it did not emerge until 1848, when the case of Tulk v.
Moxhay7 was decided. The problem in that case was this: will a restrictive
contract of sale, bind persons who later acquire that land? The facts of the
plots of land in Leicester Square, sold the garden in the centre to one Elms,
who agreed not to build upon it but to preserve it in its existing condition.
one who was not a party to the contract, sought an injunction against the
The injunction was granted. The decisive factor in the view of the
purchaser not to perform certain acts of ownership upon the land bought,
may be enforced, not only against him as the contracting party, but also
against third parties who later acquire the land. It is undesirable to specify
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the conditions upon which enforcement depends, but it is essential to
observe that the liability of the third party soon ceased to be based
doctrine initiated by Tulk v. Moxhay, 1848, 2 Ph. 774 Past, P.453 and it
has been established since the later years of the nineteenth century that
something more than mere notice by the third party of the existence of the
the covenanted, i.e. the original vendor, should have retained other land in
the neighborhood for the benefit and protection of which the restrictive
covenant was taken. If an owner sells only a portion of his property, the
selling value of what he retains will often depreciate unless restrictions are
placed upon the enjoyment of the part sold and it is only where the
covenantee has retained land of being benefited in this way that equity will
applied where the subject matter of the contract is property other than
land. The relevant cases and statutes suggest that there are two different
(i) Attempts to enforce against third parties restrictions upon the use of
goods.
(ii) Attempts to enforce against third parties restrictions upon the price
8 See formby v. Barker [1903] 2 Ch. 539, and LCC v. Atten [1914] 3 KB 642.
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(i) Restrictions upon the use of goods
It was a restriction upon use of goods that the court enforced in Tulk
v. Moxhay 1848, 2 Ph. 774 Past, P.453 and within a few years of this
X mortgaged the ship to B, who knew at the time that this charter party
on appeal by Knight Bruce and Turner L.JJ. Knight Burce L.J observed:
Reason and justice seem to prescribe that, at least as a general rule, where
with a third person to use and employ the property for a particular purpose
in a specified manner, the acquirer shall not, to the material damage of the
third person, in opposition to the contract and inconsistently with it, use
and employ the property in a manner not allowable to the giver or seller.
'until the hearing of the cause' because of the 'difficult and important
questions to be tried at the hearing'. The case then went back to Wood V-C
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for the cause to be heard; and he ruled that, on the facts before him, no
failed. Lord Chelmsford emphasised. However, that his decision was based
on finding that the defendant had not in fact interfered with the
Five years later the same court was faced with similar facts in
The plaintiff had chartered a ship from X. During the currency of the
charter, X sold the ship to the defendant who knew at the time of the
existence of the charter but declined to allow the ship to fulil the charter-
brothers in the superior courts and granted the injunctions for which the
plaintiff asked.For the next fifty years the sweeping assertion of Lord
Justice knight Bruce was cited from time to time but in 1914 the Court of
Co. v. Dominion Coal Co. came before the Judicial Committee of the
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Privy Council12.
the terms that, for a period of years, A should be free to use her on the St.
Lawrence river for the summer season and should surrender her to B in
November of each year. During the currency of the charter party, but while
the ship was in B's possessions, B sold and delivered her to C, who in turn
resold her to D.D, though he knew of the charter party, refused to deliver
the courts of Nova Scotia restraining him from using the ship in any way
inconsistent with the charter party, and D's appeal to the Privy Council
was dismissed. The Privy Council quoted with approval the familiar words
of Knight Bruce L.J. The advice of the Board has often been read as
deciding in effect that the defendant in the case before them was caught by
the rule in Tulk v. Moxhay on the basis that he had bought a ship with
notice that she was affected by a restrictive covenant favour of the plaintiff
and was therefore, in their view, in the same position if he had bought an
since the case of De Mattos v. Gibson 1858 the rule in Tulk v. Moxhay
1848, 2 Ph, 774 Past, P.453 had been radically developed by the courts
11 London County Council v. Allen [1914] 3 KB 642 at 658, See also Barker v. Stickney [1919] 1
KB 121.
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land for the benefit of which the covenant was taken. Where was the
the necessity for its existence, but they could only assert that A enjoyed the
necessity for its existence, and an interest in the ship for the period
covered by the charter party. But this interest was no more than that
conferred by the very contract which A sought to enforce against the third
valid and worthy to command the assent of English courts has been the
confined 'to the very special case of a ship under a charter-party'14, and the
decision itself was challenged in Port Line Ltd. v. Ben Line Steamers
Ltd15.'
In March 1955, the plaintiffs chartered a ship from X the owner, for
be4 at the complete disposal of the plaintiffs. In February 1956, X sold the
that it never ceased to be in X's possession. The plaintiffs knew of the sale
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and acquiesced in it since the ship was to remain available under their own
that 'if the ship is requisitioned, the charter shall thereupon cease'. No
such clause existed in the plaintiffs' charter. The defendants, when they
bought the ship, knew of the existence of the plaintiffs' charter but not of
its terms.
requisition ended. The plaintiffs now sued the defendants to obtain this
compensation money and relied, inter alia, on the Strathcona case and the
defendants. He thought, in the first place, that the Strathcona case was
not good law.The difficulty I have found in ascertaining its ratio decidendi
right, the impossibility which I find of reconciling the actual decision with
wrongly decided.
Moxhay 1848, 2 Ph, 774 Past, P.453 and the absence of any such
principle, the facts before him did not fall within its scope. The
defendants, when they bought the ship, had no actual knowledge of the
plaintiffs' rights: though they knew that a charter existed, they did not
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know its terms. Nor were they in breach of any duty. It was not by their
act but by the act of the Crown that the ship had been used inconsistently
with the plaintiffs' charter. Finally, the only remedy possible under the
doctrine of Tulk v. Moxhay 1848, 2 Ph, 774 Past, P.453 and therefore
and the Strathcona case correctly decided, though he found some of the
16 [1979] Ch. 548, [1979] 2 All ER 853; the judgment of Browne Wilkinson J was varied by the Court of
Appeal (1980) 2 All ER 419 but in such a way that Court did not need to consider the correctness of his
judgment on the present issues.
17 That is, not only knowing of, but agreeing to be bound by, the earlier contract.
18 He thought this certainly one of the grounds of decision in the Stratheona case, though he expressed no
conclusion as to the correctness of this reason. It derives some support from cases such as Binions v. Evans
[1972] Ch. 359, [1972] 2 All ER 70.
19 See e.g. Winfield and Jolowiez on Tort (11th edn) pp. 479-488
20 (1859) 4 De G & J 276.
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rights' 21 It is perhaps unfortunate that discussion of the application of real
purchaser of the land22 and there is authority for the application of the
creates property rights analogous to a lease25. Such contracts, e.g. for the
rental of television sets or for hire or hire purchase26 of motor vehicles, are
extremely common and it is difficult to see any good reason why the owner
of the goods should be able to convert the hirer's right to possession into a
right to damages by selling the goods over his head. Holdsworth saw the
position with his usual clarity over forty years ago when he said;27
"It is obvious that if A has let or pledged his chattel to B and has
22 See e.g. London and South Western Rly Co. v. Gomm. (1882) 20 Ch.D. 562.
23 Falcke v. Gray (1859) 4 Drew 651.
24 Mac Donald v. Eyles [1921] 1 Ch. 631. Quaere whether this depends on the contract being specifically
enforceable.
25 This was not the case in The Strathcona since the charterer does not ordinarily get possession of the
chartered ship but merely a contractual right to control its use. In the special case of a charterparty by demise,
the charterer does get possession and in the leading authority on such charterparties, Baumwoll Manufacturer
Von Carl Scheibler v. Furness [1893] AC 8, extensive use was made of analogies from the law of leases.
26 A hire-purchase contract also contains an option to purchase, see p. 120, above.
27 49 L.Q.R. 576 at 579; see also Gutteridge 51 L.Q.R. 91 at 98; Thornely 13 JSPTL 150 at 151; Lawson
The Law of Property pp. 71-73.
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it subject to B's legal rights, and since they are legal rights whether C has
made in 1904 in the case of Taddy v. Sterious29. The plaintiffs, who were
sheet, stating that the tobacco was sold 'on the express condition that
retail dealers do not sell it below the prices above set forth' and adding that
and Messrs Taddy & Co. that he will observe these stipulations. In the
shall be deemed to be the agent of Taddy & Co.' The plaintiffs sold tobacco
the defendants were bound by the conditions. They put their case on two
contract between themselves and the defendants and that Messrs Nutter
were their agents. The court dismissed this attempt to create a contract by
28 In practice C will very often have notice since A will not have possession.
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however peremptory, could alter the legal position. Secondly, the plaintiffs
invited the court to extend to them the protection of the rule in Tulk v.
Moxhay 1848, 2 Ph, 774 Past, P.453. The invitation was summarily
Conditions of this kind do not run with goods and cannot be imposed
conditions which the court can enforce. Another attempt to enforce a price
restriction against a third party, made later in the same year, was met by
The legal position remained unchanged for half a century, but then
resale price maintenance32.Section 25 (1) of the 1956 Act had provided that
enforceable by the supplier against any person not party to the sale who
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subsequently acquired the goods with notice of the condition as if he had
been a party to the sale; but, with the application of the Resale Prices Act
1964 (in the light of which section 25(1) had thereafter to be read), there
By Section 1 (1) of the Resale Prices Act 1964, any term or condition
against a third party to the contract. The subsection was, however, subject
classes of goods. The combined effect of section 25 (1) of the 1956 Act and
197634. By section 26(i) and (ii) of the Resale Prices Act 1976, it is declared
Sec. 26, (i) Apply where goods are sold by a supplier subject to a
condition which is not unlawful under this Act as to the price at which
of Part 1 of this Act35.Sec. 26, (ii) Where goods are sold by a supplier
person, that condition may be enforced by the supplier against any person
(a) Who is not a party to the sale, and (b) Who subsequently acquires the
(a).
34 Resale Prices Act 1976, Part III, s. 26.
35 Resale Prices Act 1976, s. 8 of which relates to he interpretation of Part 1 of the Act.
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goods with notice 36 of the condition, as if that person had been party to the
sale In only two cases under the 1964 Act did the Restrictive Practices
Court exercise its powers to exempt any classes of goods from the scope of
the Act. Each of these cases is one in which, in the words of section 26 (1)
of the 1976 Act, goods may be sold subject to a condition which is not
unlawful under the Act. Whether or not there will be any further cases
depends initially on the success of any new applications to the Court for
PROPERTY
applicable to real and personal property38. The general rule set out above is
Courts may protect this interest against a third party39. It has also been
said that :
made by him with a third person, to use and employ the property for a
37 Resale Prices Act 1976, ss. 14 to 17. Maximum resale price conditions would also be enforceable under
s. 26 of the Act, but such conditions are seldom encountered in practice.
39 Falke v. Grey (1859) 4 Drew 651; Erskine Macdonald Ltd. v. Eyles [1921] 1 Ch. 631, 641, See also Swiss
Bank Corp. v. Lloyd's Bank Ltd. [1982] A.C. 584, at pp. 598, 613 (Contract did not create charge over
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particular purpose in a specified manner, the acquirer shall not, to the
inconsistently with it, use and employ the property in a manner not
has been influential, it will be seen that there are formidable difficulties in
applied to some types of contract (time charters) but not to others (resale
purchase the goods below certain price. For example, in Taddy & Co. Vs.
Sterious & Co.42 the plaintiffs, manufacturers of tobacco, sold the tobacco
each packet that the tobacco would not be resold below a certain price.
The whole-sale dealer resold them to defendants who resold it below the
fixed price. The plaintiffs' action for injunction against defendants failed.
It was held that the condition of this kind could not run with the goods.
condition on the wholesalers with whom they contract that the goods are
not to be re-sold at less than a fixed or minimum price. In this way they
property)
40 De Mattos v. Gibson (1858) 4 DeG. & J. 276, per knight Bruce L.J. at p. 282.
41 Law Debenture Trust Cpn. v. Ural Caspian Oil Cpn. Ltd. [1993] 1 W.L.R., 138, per Hoffmann L.J. at p.
144 rev'd on other grounds [1995] Ch. 152.
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attempt to bind retailers and others with whom they have no contractual
inflective against subsequent purchasers who did not take subject to the
ensure that his product shall be sold to the customer at a price which has
sometimes referred to as retail price maintenance, but the two terms are
charged from the retail customer, but where goods are handled by
the retail price to be paid by the retailer to the wholesaler. Under these
dealers, who do not maintain the specified prices. They may be individual,
43 Mc Gruther v. Pitcher [1904] 2 Ch. 306. See also tAddy v. Sterious & Co. [1904] 1 Ch. 354.
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suppliers44.
whole system of RPM. The practice of RPM was described in the report of
to the retail customer at a price which has been fixed in advance by the
almost always been associated with branded goods, goods carrying a trade
Where the manufacturer may make them for some other supplier, and the
goods may carry the mark or brand of the goods they are identified with
him; but the manufacturer may make them for some other supplier, and
the goods may carry the mark or brand of that supplier and so be identified
with him. Or, where the goods are imported, the importer may have his
and has his own distribution chain down to and including the retail
outlets, he can determine the retail selling price. For the manufacturer who
price maintenance give him to same result. It enables him to prescribe the
price, and so the margins. In the case of technical goods, i.e., goods which
may require extensive after sales service, the margin can be fixed to give
44 The Law of Restrictive Trade Practices and Monopolies, by Lord Wilberforce, Alan Campbell and Neil Elles, Second
Edition, p. 404.
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sufficient allowance for that service.There are two separate methods of
own resale price maintenance system by his own separate efforts, using
system was valid, but enforceable only where there was privity of contract.
This was decided in Dunlop Pneumatic Tyre co. Ltd. v. Selfridge & Co.
the distributor would not resell below Dunlops’ resale price and would only
resell to a trade buyer on condition that the latter would observe Dunlops’
resale price. Selfridges bought the tyres from the distributor, accepting that
condition and agreeing to pay Dunlops £5 for each tyre sold by them in
at which his products should be resold at the various stages down to retail
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sale-the prices were not necessarily the same as between each
be the same. If any distributor failed to comply with the resale price
condition, his name would be put on a “stop list” and all the
stop list might be operated not only by the manufacturers but also by the
governs the RPM in U.K. (See also Resale Prices Act, 1976). The general
from fixing minimum prices at which the goods are to be resold and to
prohibit the withholding of supplies from dealers who sell at a price below
any of the following grounds (which The Court have substantially adopted
reduce the quality or variety of goods available; (b) That abolition would
reduce the number of shop (c) That abolition would lead in general to
higher prices in the long run; (d) That abolition would create danger to
health ; or (e) That abolition would interfere with proper pre-sales or post-
sales services.
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In addition, there is a tailpiece requiring that any detriment to
seeking exemption under the Act are, however, permitted to continue to fix
and enforce resale price until the case had been decided by the Restrictive
Practices Court. Once a case has been decided, the decision applies to all
after the passing of the 1964 Act, even individual RPMs were brought
under the purview of the Act. In re footwear reference (No.2)47, it was held
issued under it will be of mandatory effect and that the whole scheme to
the act was to order people actually to supply goods that they may be
unwilling to supply ant this was within the ordinary sphere in which
prices. The dealer had suppliers’ goods as being available at lower than
recommended prices and it had been so after that objected . the dealer
supplier and claimed that the suppliers was granted but it was held that
46 The fair Trading Act, 1973 by James P. Cunningham (1974), p. 383, 385-6.
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its language so that the withholding of the supplies on some grounds other
other grounds is enough if the supplier can say that on the strength of this
by the Director-General. The U.K. law justifies exemptions also if the goods
reduced to the detriment of the pubic. When exemption has been granted,
the supplier is free to exercise both his common law rights and also the
prices.
U.K. they were neither sold nor sold by retail within the meaning of section
5(2) of the U.K. law. Nevertheless, all ethical drugs which a chemist held in
stock were available for sale within section 5(2)(a) so that a reduction in the
sale under section 2(a). Any service which was closely associated with a
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wholesalers’ deliveries of ethicals. Without resale price maintenance on
ethicals, short range distributors who emerge, would stock and sell only
fast moving ethicals. Because of their low overheads they would offer
paid for by a drastic reduction in their service whereby they would restrict
was held that without resale price maintenance super markets would cut
of the chemist’s other trade because fewer customers would visit chemist’s
general ban on the resale price maintenance on the grounds that without
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variety, (ii) retail establishment, and (iii) necessary services like stocking,
display, and weighing out and that it would necessary to increase the trade
reflected in higher retail prices. It was held that the burden of establishing
the case for exemption rested on the Respondents who applied for
exemption and the standard of proof required on all issues was that of the
balance of probabilities. It was also held that the public who purchased
confectionaries for small amounts would not travel more than a short
sale prices maintenance would not lead to a drastic diversion of trade from
diversion of trade which did occur would result in the closure of no more
markets and these reductions would not materially affect the public
outlets or the retail price of the confectionary. It was, therefore, held that
the manufactures has failed to make out the case for exemption.
EC competition law, and section 2 has broadly the same effect as the
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where a restriction affects trade between members of the EU 52.An
prices falls within the prohibition53. Although there are block exemptions in
apply to vertical agreements that have as their direct or indirect object the
market position may also fall within the UK and EC controls on the abuse
(a) Patents
A patentee has by statute the sole right to make, use, exercise, and
vend an invention; and no other person has the right to sell the patented
article except under license from the patentee, and subject to any
52 Ante, p. 383. For a full discussion, see Whish, Competition Law, 4th edn. (2001); Albors. Llorens EC.
Competition Law and Policy (2002).
53 Case 243/83 Binon v. Agencie et messagerie de la presse [1985] E.C.R. 2015, at para, 44; Case 27/87
Lovis Erauw-lacquery v. La Hesbignonne [1988] E.C.R. 1919 at para, 15.
54
55 Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2000, S.I. 2000 No. 310;
Regulation 2790/99 O.I. [1999] 1, 336/21, Art.-4.
56 Case 161/84Promptid de Paris Gmbl v. Prompna de Paris Irmgard Schillgallis [1986] E.C.R. 353.
57 Columbia Graphophone Ltd. v. Murray [1922] 39 R.P.C. 239, Dunlop Rubber Co. Ltd. v. Long Life
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manufacture with supplies purchased form the patentee, are rendered void
supply or license the patented article on reasonable terms and without any
such condition58.
(b) Copyright
existence will vest legal ownership in the transferee as soon as the work is
created if there is no other person with a superior equity60. It has been held
future work of an author may restrain another publisher who, although not
(iii) Bailment
transfer possession) of goods to a person (the 'bailee') who holds (or agrees
to hold) the goods either for or at the direction of the bailor, to whom they
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bailments and the question is whether, if the ultimate sub-bailee loses or
damages the goods and is sued by the bailor either in tort of for breach of
duties arising from the bailment63. It can rely on the terms of the contract
not clean furs himself, so, with the Morris's consent, he delivered it for
cleaning to the defendant, one of whose servants later stole it. The
On the facts the exemption clause was held not to apply, but Lord
Denning M.R. said that, had it applied, in principle the defendant could
have relied on it. Morris would be bound by the conditions if she had
containing those conditions. Since she had agreed that the furrier should
send the stole to the defendant, she impliedly consented to his making a
the carriage of goods from Taiwan to Hong Kong. The carrier was
permitted to sub-contract 'on any terms' and did so to the defendant who
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took possession of the goods under bills of lading providing that any
and K.H.E. sued in Hong Kong, contending that it was not bound by the
the defendants. The Judicial Committee of the Privy Council stated that a
person who voluntarily takes another person's goods into its custody holds
them as bailee of that person (the owner) even if it does so without the
owner's consent, but can only invoke the terms of the sub-bailment under
consent to sub-contract and therefore to sub-bail 'on any terms' was wide
enough to constitute express consent to the clause and K.H.E. was bound
by it.
Ltd68.The D. Co. had a long-term time charter party of a ship. The owners
sold the ship, which eventually came into the possession of the L.S. Co.,
who took it with notice of the charter-party and on the under-standing that
the agreement should be honoured. They did not honour the agreement,
and when sued by the charterers, D.Co. pleaded that they were not bound
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judicial Committee of the Privy Council upheld the decision of the Courts
in Nova Scotia granting the chatterers, D.Co. pleaded that they were not
them.
the L.S. Co. from using the ship inconsistently with the charter-party. The
Board relied upon the dictum of Knight Bruce L.J in De Mattos v. Gibson
quoted above. The case was said to fall under the rule in Tulk v. Moxhay
relating to the use of land; whether the subject matter was land or a
chattel, the principle is the same; 'the remedy is a remedy in equity by way
criticism70, and it has been said that the case was wrongly decided71. In the
first place, it is argued that reliance should not have been placed on the
from interfering with the performance of the charter. Knight Burce L.J's
reasoning did not, however, form part of the concurring judgment of Turner
L.J. and has been doubted72. When the case came before Lord Chelmsford
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L.C.73, a final injunction was refused74. Although the Lord Chancellor
expressed the opinion that the mortgagee was bound to abstain from any
act which would have the immediate effect of preventing performance of the
knowingly induces one party to break his contract with another is liable to
that other in tort in respect of any loss which may have been suffered by
the breach75.
analogy with the rule in Tulk v. Moxhay, this too will not bear examination.
We have seen that the Talk v. Moxhay rule is not now dependent upon
neighboring land for the benefit of which the covenant was imposed: the
party (even if of long duration) only has a personal right that the ship-
owner should continue to use the ship to perform the services which he
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Gibson has subsequently been applied in cases of the mortgage of ships
use of the ship inconsistent with his charter-party arises if, the conduct of
the Strathcona case. One is that there was an implied contract between
the third party and the charterers, or a 'notation' of the original agreement,
for the Board pointed out; 'This is not a mere case of notice of the existence
of a covenant affecting the use of the property sold, but it is the case of the
is some ground for saying that the third party was in the position of a
permit it to violate80.
of the decision. This was considered in Port Line Ltd. v. Ben Line
Steamers Ltd81. The M.V. Part Stephens was chartered to Port Line by its
owner, Silver Line Ltd., on a gross time charter for 30 months from march
77 Messageries Imperiales v. Baines {1863} 7 L.T. 763; The Celtic King [1894] p. 175.
78 Lumley v. Wagner [1852] 1 De G.M. & G. 604, See also Torquay Hotel Co. Ltd. v. Cousins [1969] 2 Ch.
106; Acrow Ltd. v. Rex Chaiubelt Inc. [1971] 1 W.L.R. 1676; La Debenture Trust Cpn. v. Ural Caspian Oil
Cpn. Ltd. [1995] 152. In Swiss Bank Cpn. v. Lloyd's Bank Ltd. [1979] Ch. 548, at p. 573 (rev'd [1982] A.C.
584), Browne-Wilkinson J. stated that the principle of Knight Bruce L.J. represented 'the counteraprt in equity
of the tort of knowing interference with contractual rights'. But although they may cover the same ground they
are doctrinally distinct and subject to different requirements: see Cohen-Grabelsky (1982) 45 Mod. L.R. 241,
at pp. 265-7; Gardner (1982) 98 L.Q.R. 279, at pp. 289-93; Tettenborn [1982] C.L.J. 58, at p. 82.
79 [1926] A.C. 108, at p. 116..
80 [1926] A.C. 108, at p. 125. See also Swiss Bank Cpn. v. Lloyd's bank Ltd. [1979] Ch. 548, at p. 573 (rev'd
[1982] A.C. 584).
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1955. In February 1956, Silver Line sold the vessel to the defendant, it
being agreed that the defendant should immediately charter the ship back
to Silver Line by demise in order that it might fulfil its contract with Port
Line. Unfortunately, this second charter-party contained the term that 'If
was unaware of this disparity. In August 1956 the ship was requisitioned
by the Crown, and as a result Port Line lost the use of the vessel. Its claim
against Silver Line was settled, but it then brought an action against the
Diplock J. stated that the Strathcona case was wrongly decided, but
held that even if it was correct Port Line could not bring its claim within its
of Port Line's rights under the time charter. The Principle in the
Strathcona case thus only applies where there is actual knowledge by the
considered that, even if notice had been shown, (a) the defendant was in no
breach of duty to Port Line since it was by no act of its that the vessel
during the period of requisition was used inconsistently with the terms of
Port Line's charter – it was by act of the Crown by title paramount – and (b)
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Port Line was not entitled to any remedy against the defendant except an
that the Court will not be prepared to grant an injunction if the situation is
such that, in any case, the vendor was incapable of further performing the
perform its obligations to the other contracting party: for example, where
goods for the other party over a certain period. In De Mattos v. Gibson
has been said that the Strathcona decision may be confined to 'the very
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special case of ship under charter-party'90 Never the less, there would seem
apply to any covenant by the owner of a chattel to use92 or not to use93 the
chattel in a particular manner. But the relief granted against the third
party purchaser would depend upon the fact of tortuous interference, and
a chattel would be held to 'run with the goods' so as to bind all persons
who subsequently purchased the chattel with notice of the covenant 94.
neighboring land from being put to a use that would be prejudicial to their
incumbrances on chattels.
under which a chattel is bailed to the hirer with an option to purchase the
chattel once all the installments have been fully paid, will be binding on a
90 Clore v. Theatrical Properties Ltd. [1936] 3 A;; E/R/ 483, per Lord Wright M.R. at p. 490.
91 See Cohen Grabelsky (1982) 98 L.Q.R. 279; Tettenborn [1982] C.L.I. 58.
92 Sefton v. Tophams Ltd. [1965] Ch. 1140 (land). But see Clarke v. Price (1819) 2 Wils. Ch. 157;
Haywood v. Brunswick Permanent Benefit Building Socy. (1876) 3 Ch. D. 694.
93 British Motor Trade Association v. Salvadori [1949] Ch. 556 (covenant not to re-sell chattel). See also
Esso Petrolcum Co. Ltd. v. Kingswood Motors (Addlestone) Ltd. [1974] Q.B. 142 (land); Law Debenture
Turst Cpn. v. Ural Caspian Oil Cpn. Ltd. [1995] Ch. 152 (shares).
94. Taddy v. Sterious & Co. [1904] 1 Ch. 354; Mc Gruther v. Pitcher [1904] 2 Ch. 306; ante, p. 453.
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third party purchaser of the chattel from its owner. But since such an
agreement confers upon the hirer a possessory interest in the chattel and
has been said to confer a proprietary interest,95 the better view is that the
possibly where there is no such notice96. The same principle could possibly
Under the Indian Law contractual liability can also be imposed upon
third parties. A policy of insurance effected by any married man on his own
life, expressed on the fact of it to be for the benefit of his wife, or children,
shall be deemed to be a trust for the benefit of his wife or such children 97.
An insurer issuing a policy under the Motor Vehicles Act covering third
compensation for loss to the third party against the insured in respect of
company is wound up, the rights of the insured against the insurer stand
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a person (Principal employer) employs a contractor for execution of any
insure on behalf of and for the benefit of other persons insured as well as
bill of lading and every endorsee of a bill of lading has the right of suit and
him104. For the extent to which any other assignees may sue on a contract,
If an agent makes a contract with a person who neither knows, nor has
New India Assurance Co Ltd. Rula AIR 2000 SC 1082 (third party entitled to amount although the policy may
be cancelled on the ground of non-payment of premium later).
100 The Workmen's Compensation Act 1923, s 12; for similar provision regarding payment of contribution
by the principal employer, the Employees' State Insurance Act 1948, s 40..
101 The Marine Insurance Act 1963, s 17.
102 The Negotiable Instruments Act 1881, s 8.
103 The Indian Bills of Lading Act 1856, s 1.
104 The Railways Act 1989, s 74.
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performance of the contract105. A user of goods or beneficiary of services
using or taking benefit with the consent of the person who has purchased
the goods or hired the services, is a consumer, and can file a complaint
industrial disputes binds not only the parties to that disputes, but also
binds all the workmen in the establishment, who are employed at the date
of the dispute and all persons who subsequently become employed in that
establishment108.
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under this Act. It has been observed by the Supreme Court in Tata
settlement has been arrived at between the company and the union of the
workmen by a vast majority of the concerned workmen with their eyes open
and has also been accepted by them in its totality it must be presumed to
be just and fair and not liable to be ignored merely because a small
tribunal was of the opinion that the workmen deserved marginally higher
weighted in any golden scale and the question whether it is just and fair
Management of ITC Ltd and others110 the Supreme Court observed that
admittedly, the settlement arrived at in the instant case was in the course
just and fair. It becomes binding on all the parties to the relates and all
The Supreme Court further ruled that the next principle to be borne
in mind is that in a case where the validity of the settlement is assailed, the
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limited scope of enquiry would be whether settlement arrived at in
accordance with sub-section (1) to (3) of section 12, is on the whole just
militates against the spirit and basic postulate of the agreement reached as
package deal and it should no be scanned "in bits and pieces" to hold some
parts goods and acceptable and others bad. The settlement has to be
part of those who were instrumental in effecting the settlement. That apart,
and in vacuum.
Ltd. v. Workmen, 1982 SCC (L&S) 1 (all the above cases relied on).
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Officer111 it was observed by the Supreme Court that from a persual of
employer on the one hand, and all the workmen in the establishment,
settlement beyond the parties thereto, subsection (3) departs from the
the High Court that a settlement arrived at between the employer and the
acquiescing or accepting the benefit was not a party, outside the purview of
the Act, is not binding on such a worker either under sub-section (1) or
under sub-section (3) of Section 18.In Wellman india Pvt. Ltd. v. ESI
of the Act is binding on all parties to the dispute as well as the successors
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and assignees and the subsequently employed workmen under Section 18
(3) of the Act. The settlement could not be put to an end to by any of the
and others113, the contention of the appellants was that they were not
members of the union with which the settlement dated 14.05.1987 and
13.09.1990 were entered into and, therefore, the said settlements were not
settlement dated 13.09.1990 was admittedly under Section 12 (3) read wit
appellants. Under the said settlement it is solemnly agreed that they will
not claim any arrears of the salary till 13.10.1990 on which day they were
appointed to the post of Asstt. Personnel Officer.It has been held in Sunder
Dass v. Asthetic Exports pvt. Ltd114. that the award of the Labour Court
The legal effects of both kinds of settlements are not identical. Under
in clause (a) to (d) of Section 18 (3) which in the case of workmen will
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include all persons who are employed in the establishment or part of the
establishment to which that dispute relates on the date of dispute and all
otherwise than in the course of conciliation proceedings will bind only the
of the Act :L "As regards the restrictive trade practices arising out of
charge, or providing for the charging of, minimum price of resale of the
seeking to obtain them for resale in India on the ground that he (a) Has
sold in India at a price below the resale price, goods obtained either directly
third party who had done so; or (b) Is likely, if the goods are supplied to
him, to sell them in India at a price below that price or supply them either
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Nothing contained in clause (b) shall render it unlawful for a supplier
goods has been using as loss leaders any goods of the same or similar
(Amendment) Act, 1984 has, however, not introduced any change in the
41, except some verbal changes, viz. , the substitution of the words "trade
mark or by a licensee of paten or trade mark" for the words "trade mark by
arrangements are void ab intitio and illegal per se. On the other hand, any
resale by the purchaser shall be the prices stipulated by the seller though
such, is prescribed for resale of the goods by the buyer. In other words, the
be permissible till they are subjected to a 'crease and desist' order of the
desist order is passed, the respondent may even plead any of the gateways
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specified in section 38(1). An arrangement, though fixing a fixed or
and/or section 2(0), provided it is clearly stipulated that prices lower than
at any price he likes even thought he had notice of any terms or conditions
as regards the price of patented article. However, the validity of any term or
In Dunlop Rubber Co. Ltd. v. Long life Battery Depot,116 it was held
that "ever since the decision in Incandescent Gas Light Co. Ltd. v. Brodgen
there has been no question that a purchaser who buys with knowledge of
contractual, but because they are incidental to and a limitation upon the
grant of the license to deal in the patented article, so that if the conditions
battery, Dunlops made the tyres under a patent and sold them subject to a
license which prohibited resale below Dunlop' current price list. Longlife
Battery, who had notice of the condition, resold below Dunlops, prices. An
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Prohibition of other measures for maintaining resale price
goods from any wholesaler or retailer seeking to obtain them for re-sale in
price below re-sale price, goods obtained, either directly or indirectly, from
third party who had done so; or Is likely if the goods are supplied to him to
sell them in India at a price below that price or supply them, wither directly
the wholesaler or the retailer, as the case may be, has been using as loss
those goods to the order of the dealer;Refuses to supply those goods to the
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dealer for the supply of goods, in a manner less favorable than that in
ground, he has any other ground which alone would entitle him to
any contract or agreement between the wholesaler or retailer and any such
supplier.
clearance sale not for the purpose of making a profit on the re-sale but for
the purpose of attracting to the establishment at which the goods are sold,
advertising is business.
But, at the same time. he has certain liabilities too under the Trust Act
117
The Indian Trusts Act,
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which are stated as : The first part of Section of the 33 of the Indian Trusts
Act, provides that a person other than trustee who has gained an
advantage from breach of a trust, must indemnify the trustee to the extent
of the amount actually received by such person under the breach of trust;
and where he is beneficiary the trustee has a charge on his interest for
such amount. This section, thus, lays down two principles of law : Firstly,
it makes it clear that any one who receives advantage from breach of a
provides that if the beneficiary receives any benefit from such breach he is
liable to compensate the trustee. The trustee, in such case, will have a
give his consent to the formation of trust. The consents are exchanged
between the settler and the trustee only. The beneficiary is, thus, a
stranger to the trust even, he is held liable to the trustee. However, the
second part of Section 33 of the Indian Trusts Act provides that where the
Similarly, Section 68 of the Act provides that where one of the several
intended to be committed and either actually conceals it, or does not within
beneficiaries, or (iv) has deceived the trustee and thereby induced him to
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commit a breach of trust, the other beneficiaries are entitled to have all his
beneficial interests impounded as against him and all who claim under him
until the loss caused by the breach has been compensated. This section
defines the liability of a beneficiary. But, it applies only when there are co-
primarily, be sought against the trustee who has caused breach of trust. As
who have suffered loss due to breach of trust by the trustee. The right to
important that they can even impound beneficial interest of the defaulting
beneficiary to compensate the whole loss. It is, thus, evident that liabilities
partnership. The first category includes those persons who have not given
from Section 18 of the Partnership Act. This section provides that 'subject
to provisions of the Act, a partner is the agent of the firm for purpose of
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business of the firm.' Consequently, the firm on which behalf a partner
principal (i.e. the firm) is a stranger as regards the contract made between
acting partner and third person. Similarly, other partners may be regarded
partner and third person. It is, therefore, necessary to examine the liability
against a firm119. But, in practice for mercantile purposes a firm can sue
and be sued120. A firm can be sued by disclosing names of all the partners
from its members. It is, therefore, useful to examine how far a firm (as a
(a) Liability for acts done by a partner under his implied authority
The general rule is that the firm is liable for acts done by a partner
on firm's behalf within the scope of his implied authority 121. Clause (1) of
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Section 22, the act of a partner which is done to carry on, in the usual
way, the business of the kind carried on by the firm binds the firm.' An
implied authority depends upon the nature of the business of firm. For
are needed : (1) The act must be done in relation to partnership business;
(2) The act must be done for carrying on the business of the firm in the
usual way ; and (3) The act must be done by the partner on behalf of the
firm122 i.e. in firm's name and not in the same of a partner.In Devji v.
Magan Lal & Others123, the Supreme Court has held that where a partner
Section 26 of the Partnership Act deals with the liability of the firm
for torts committed by a partner. The firm is bound for wrongful act of a
partner provided that (1) it has been done in the ordinary course of the
partner, or (2) with the authority (express) of his co-partners. The firm is
liable for both negligent and intentional tort. Thus, where a partner, for
instance, had received stolen goods and credited the proceeds of their sale
to the account of the firm all partners were held liable to the plaintiff124.
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purpose, it makes no difference that money or property has been received
by the partner or the firm. What is required is that the partner must be
person wronged.
19, 26 and 27 of the Partnership Act is that the firm is liable for acts and
Consequently, the firm is held liable to third person under the contract.
The partners are made jointly and severally liable for the act of the
firm by Section 25 of the Act125. This section provides that every partner is
liable jointly with all other partners and also severally for acts of the firm
done while he is a partner. When a partner does an act of the firm the act
is considered the act of the firm and not only of the acting partner. It
means even those partners are held liable under this section who have not
made the contract directly. All such partners who have not given their
consent to the contract are liable, although, in one sense, they are stranger
to the contract.
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notwithstanding the dissolution of a firm the partners continue to be liable
as such to third parties for any act done by any of them which would have
been an act of the firm if done before dissolution, until public notice is
of the firm is given, all the partners will be bound for acts of a partner done
after dissolution of the firm. But, the act must be of the kind which the
firm was usually doing before dissolution. It is clear that the act of a
partner is deemed an act of the firm. The partners who have actually not
contracted with third person are held liable for acts of contracting partner.
indeed, entered into the contract with the third person. The privity rule is
Bank filed a suit for recovery of money from the firm after firm's dissolution
of Firms. It was given only in a local newspaper. The firm continued its
business even after dissolution. It was held that mere publication of notice
in local newspaper was not sufficient to absolve retired partner from his
Sections 45(1) and 72 of the Partnership Act. The Court, further, held that
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could not affect rights of the plaintiff Bank who was a third party in view of
Section 32(3) of the Partnership Act. However, the proviso to the section
with the firm to be a partner, is not liable for acts done after the date on
It is, thus, clear that in order to absolve the retired partner from
the contract between firm and a third person, the retired partner is a
stranger even though he is held liable. It is, therefore, clear that burden of
Section 30 sub section (i) of the Indian Partnership Act provides that
down two general principles. The first is that a minor is, personally, not
Sri Rama Mohan Motor Service v. C.I.T.128, the Supreme Court held that
where partnership deed disclosed that one of five partners was a minor, the
The Second principle is that the share of a minor in the firm is liable
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for firm's act. That is, a minor is liable to third person to the extent of his
share in the firm but he is not liable personally. It follows from this that
deals with the liability of a drawee to the payee when cheque is presented
cheque must pay the cheque when duly required to do so. This section
makes it compulsory that the drawee must have sufficient funds of the
Meghji130, the Supreme Court held that the liability of drawee arises even
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hands. However, the Court, further, observed that under Section 32 of the
It is, thus, evident that the drawer transfers his liability to the
primary duty to pay the payee. There is, in fact, a contract between the
drawer and the payee. But, when a cheque is drawer are assigned to the
satisfied.' The expression 'prior party' means the maker or drawer, acceptor
and all the intervening endorsers. The general rule is that every prior party
payable date and without having sufficient cause to believe that any defect
existed in the title of the person from whom he derived his title131.' When
immediate prior party but all the prior parties are liable to holder in due
course. This principle, thus, approves that a stranger (i.e. prior parties) to
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the contract can be sued.
any person entitled in his own name to the possession thereof, and to
instrument, who derives title from a holder in due course has the right
thereon of that holder in due course. Thus, by this process the holder
acquires right equal to the rights o a holder in due course. The result is
that the holder may sue all prior parties in the same way as the holder in
due course could have133. In other words, logically, not only immediate, but
all the prior parties are liable to holder until the instrument is duly
satisfied.
Sec. 182, of the Indian Contract Act The relationship between agent
and the third party arises when the agent acting within the scope of his
authority enters into a contract with the third party. According to first part
of section 230 of the Indian Contract Act, the general rule is that the agent
can neither sue nor be sued by the third party on the contract made by
him with the third party. But, when there is a contract between the
principal and the agent to the effect that the agent would be, personally,
entitled to sue or bound by the contract, the agent can sue or be sued. The
second part of section 230 of the Act provides that in the following cases an
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agent can sue the third party : (a) Where contact is made by an agent for
the agent does not disclose the name of the principal.135 (c) where the
principal though disclosed, cannot be sued e.g. where the principal is non-
he makes with third party in his own name, even though he discloses his
principal's name. An agent can also sue the third party in his own name
'express contract' made between principal and agent138. The agent may also
auctioneer signs the contract of sale of property in his own name, it must
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agent140.Secondly, an agent can be held liable by 'operation of law'. The
cases where an agent can be sued by third person by operation of law are
purchase of goods for a merchant resident abroad141. (b) where the agent
does not disclose the name of his principal142. (c) where the principal
incompetent).
It is to be noted that in all the above cases (i.e. where an agent can
be personally sued) the third party has a right of election to hold the agent
between Indian law and English law on the point. Under the English law,
the third party has no right to sue both the principal and the agent. He
and the third party. Section 226 of the Indian Contract Act provides that
the obligation arising form acts done by an agent may be enforced in the
same manner and will have the same legal consequences as if the contracts
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had been entered into and acts done by the principal in person.
an agent, within scope of his authority, with third party confers rights and
An agent acting within the scope of his authority confers rights and
imposes liabilities of a contract upon the principal. Where the agent makes
the agent incurs no personal liability under the contract so entered into.
Further, the agent also does not acquire contractual rights. That is, the
contracts entered into through an agent and obligations arising from acts
done by an agent may be enforced in the same manner and will have the
same legal consequences, as if the contracts had been entered into and
who can sue and be sued on the contract. It is evident that the principal,
is in fact, not a party to the contract made by the agent with the third
person, Nevertheless, he (the principal) can sue and be sued by the third
that on termination of agency, the existing interest of the agent and that of
third party should be protected. It is submitted that the third party is not
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Further, there are three aspects of agency The first aspect creates a
contract. On the basis of this relationship the principal can sue and be
sued by the agent. A stranger cannot sue either the principal or the agent.
The 'relationship between the agent and third party' may be treated
between agent and third party especially, in those cases where the agent is,
personally, liable148. In other cases, rights are conferred and liabilities are
principal and third party.' This relationship arises when the agent, in
furtherance of agency, makes contract with third person. The main object
of agency centers around this aspect. The mutual rights and duties of the
principal and the agent are determined by this aspect. Accordingly, the
principal can sue and be sued by the third party 149. It is submitted that
between the agent and the third party, yet it is not the correct position. In
fact, the principal is represented through his agent to the outside world.
That is, the agent's job is to make contracts with third persons on behalf of
the principal and not on his own account. The agent signs the contract
made with third person showing that he is singing on his principal's behalf.
148 Sections 193, 227, 228 230(1), 230(2), 230(3), 233, 234, 235 and 238, The Indian Contract Act, 1872.
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However, the principal can be regarded as a stranger to the contract
entered into between the agent and the third party only in two cases : (i)
undisclosed151. In these two cases he can sue and be sued by the third
ASSIGNMENT OF LIABILITY
contract can't be assigned. The promisor has the right to insist that
reposed in him and, therefore, the promisor can object to the contract
This doctrine means that – when the parts to a contract agree to substitute
the existing contract with new contract. Indian contract Act Section 62
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provides for a similar rule to the English rule of Novation of contract. Sec.
Contract for it, or to rescind or alter it, the original contract need not be
parties to a contract may agree to substitute a new contract for the existing
The first rule contained in Sec. 62 of the Contract Act provides for
contract.
In Union of India Vs. Kishori Lal A.I.R. 1959 Supreme Court held
concluded in the term of the new, and that the substituted contract
cancels the earlier one and the arbitrator clause in the old contract
perishes along with it. It is must that the substituted agreement must be
valid.
of assignee.
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stranger.
other party to the contract. The general rule is that the contractual
the Indian Contract Act provides that 'the parties to a contract must either
with or excused under the provisions of this Act, or of any other law.' This
section, thus, makes it clear that only parties to a contract are bound to
Khardah Co. Ltd. v. Raymon & Co. (India) Pvt., Ltd.152, the Supreme Court
has approved this rule and held that the contractual liabilities cannot be
There are certain statutory exceptions to the above rule which are as
follows.
Contract Act lays down two general principles. The first principle is that
promisor personally and no other person can perform such promise, the
151 Sections 230(2), 231, 232, 233, The Indian Act, 1872.
- 261 -
obligations to a third person without consent of the promisee. Such
the promise stands discharged and the promisee cannot, afterwards, sue
the promisor.
accepts performance made by a third party, the primisor becomes free from
his obligation; and he cannot be held liable for not performing the promise.
152 Supra note 4. See also M/s Keshari Engineering Works v. Bank of India, A.I.R. (1991) Pat. 194.
- 262 -
However, this section does not apply where the third person has not
performed the promisor's promise, but has merely agreed to perform it.
the stranger in not enough to discharge the promisor from his obligation.
The Supreme Court held that since the appellants (plaintiffs) had
accepted the payment in full satisfaction of their claim, they were not
entitled to sue the respondent for the balance. The Court, further, held
153 Chegamull Suganmull Sowear v. V. Govindaswami Chetti and others, A.I.R. (1928) Mad. 972; Union of India v.
Gangabishan Bansilal, A.I.R. (1973) Cal. 141.
- 263 -
stranger will have the effect of discharging the promisor provided such part
i.e. the promisee loses his claim against the promisor if he accepts a part
stranger.
The principle embodied in section 132 makes it amply clear that the
the stranger (transferee) can sue the other party to recover such benefits of
contract. But, his claim is subject to such contractual burdens which the
coupled with liability; the assignee cannot enforce the actionable claim
unless he discharges the liability; the other party is entitled to get the
under section 132 of the Transfer of Property Act only shows that the
assignee can acquire no better title than the assignor i.e. if nothing is due
to the assignor the assignee gets nothing155. The term 'equities'156 under
section 132 of the Transfer of the Property Act means counter-claims which
the debtor is entitled to set off against the assignee and such counter-
claims which the debtor is entitled to set off against the assignee and such
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counter-claims could have been enforced by the debtor against the
assignor if the assignment had not been made 157. For example, A transfers
debt due by B to A. In such suit B is entitled to set off the debt due by A to
right to set off a cross decree under order 21, Rule 18 of the Code of Civil
Procedure, and he has this right also against an assignee of the decree
holder.
the assignee of the right to rents had sued the lessees for the rents. The
the debt he had mortgage certain property. The Court allowed the debtor
to set off such mortgage debt against the asignee. This decision makes it
clear that when a debtor is sued by the assignee of his creditor, he (i.e. the
debtor) is entitled to set off a debt due to him by the assignor on a contract
contract existing between assignor and debtor, yet he is liable to the debtor
for the liabilities or equities to which the assignor was bound to the debtor
155 Mulla, The Transfer to Property Act, 7th Ed. (1985) at 822.
156 Section 49, Code of Civil Procedure 1908.
157 S. M. Shah, Principles of The Law of Transfer, 5th Ed. (1982) at 326.
158 Illustration(i) to section 132 of The Transfer of Property Act, 1882.
159 (1889) 16 Cal. 619. See also Sinno v. Santhoji (1903) 26 Mad. 428.
160 (1907) 30 Mad. 235.
- 265 -
(ii) By Operation of Law
circumstances
that when promisors die without fulfilling their obligations, the obligations
are bound to fulfill such obligations because the obligations are assigned to
161 Ram Baran Prasad v. Ram Moti Hazara and others, A.I.R. (1967) S.C. 744; Pyarchand Kesrimal Bidi
- 266 -
perform such obligation, if promisors die without performing their
(i.e. 'the principle that a personal action dies with the person') has no
The Supreme Court held that the presumption clause was binding
are strangers to the contract entered into between promisor and promisee.
liabilities to perform a joint promise. This section lays down two principles.
The first is that if there is a joint promise, all the promisors are bound to
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perform such promise jointly. Unless, a contrary intention appears by the
after death of any of the joint promisors, his legal representative, jointly
with other surviving promisors will have to perform the promise. Thus, it
assigned to him by operation of law. But, where third party contracts with
the firm without knowing that the retired partner was a partner, the retired
partner is not liable to third party for such contract which the firm makes
partners continue to be liable as partners to third parties for any act done
by any of them which would have been an act of the firm if done before his
- 268 -
The general rule is that when a person becomes insolvent, the
Section 59 of the provincial Insolvency Act, 1920 provides that the receiver
The estate of insolvent debtor is, however, liable to discharge his debts
which he owned till the date on which he was adjudged insolvent by court
of law. His estate is not liable for such debts which he incurs after an
thereby dissolved165. The estate of such partner is not liable for any act of
the firm done after the date on which the order of adjudication is made166.
His estate is liable only for those acts of the firm which were done till the
contract does not ipso facto terminate only because of the fact that one of
with property of the insolvent is like a trustee and is liable to the creditors
164 The Provincial Insolvency Act, 1920. See also section 68, The Presidency Towns Insolvency Act, 1909.
165 Section 34(1), The Indian Partnership Act, 1932. See also Sections 41(a), 42(d) and 47, The Indian Partnership Act,
1932.
166 Section 34(2), The Indian Partnership Act, 1932.
- 269 -
of insolvent debtor.
are entered into between company and its members or company and its
may be made.
There is vast literature on third party rights in the United States. The
of the Western Australia Property Law Act 1969 enables the enforcement of
167 Section 57(1), Provincial Insolvency Act, 1920. (This section empowers the State Government to appoint Official
receiver for prosperity of insolvent debtor.)
168 Chitty on Contracts, 28th end, pp 1017-23, paras 19-103 to 19-114
- 270 -
a contract by the third party on whom benefit is conferred expressly by the
contract. All parties to the contract must be joined in an action by the third
until the third party adopts the transaction, either expressly or by conduct.
6.3.4 QUEENSLAND
Queensland Property Act 1974, provides that the promisor shall be subject
parties to the contract being possible without consent of the third party
perform any acts tat may be required of him by the terms of the promise.
The New Zealand Contracts (Privity) Act 1982, The New Zealand
express promises only. It reverses the onus of proof by requiring that the
parties to the contract have to establish that their promise was not
favour of the third party. It requires that the third party must be
or alter the promise benefiting the third person after he has materially
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The most important difficulties concern the test of enforceable
benefit, the validity of defences that would have been available had the
promisee such, and whether the contracting parties should have power to
vary or cancel the contract. The way that these issues are dealt with by the
CONCLUSION
Under the English Law the general rule is that contractual liabilities
However, there are certain cases, e.g., contract relating to land, contract
relating to chattels (i.e. restriction upon resale price, patents, ships under
required to be fulfilled by his legal representatives who are not party to the
performance.
169 For commentary on the Act see Andrews (2001) C.I.J. 353; Bridge (2001) 5 Edin. L. Rev. 85; Burrows
(2000) L.M.C.L.Q. 540; Merkin, Provity of Contract, Ch. 5 (Usefully containing the Law Commission
Consultation paper report and the Parliamentary debates on the bill in appendices).
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