Page 46 - DCOM103_COMMERCIAL_LAW

Unit 4: Consideration

month. With a view to reduce the municipal tax, A made two agreements with B. One by which Notes
the rent was stated to be ` 4,500 only and the other by which B agreed to pay ` 7,500 for services

in connection with the flat. Held, A could not recover ` 7,500 since the agreement was made to
defraud the municipal authority and thus void [Alexander v. Rayson (1939) IK. B.169]. (iii) Where it
is fraudulent. A, being an agent for a landed proprietor, agrees for money without the knowledge
of his principal to obtain for B, a lease of land belonging to his principal. The agreement between
A and B is void as it implied a fraud by concealment by A, on his principal. (iv) Where it involves
or implies injury to the person or property of another. An agreement between some persons to
purchase shares in a company, with a view to induce other persons to believe contrary to the fact

that there is a bona fide market for the shares, is void. (v) Where the court regards it as immoral
or opposed to public policy. A who is B’s power of attorney promises to exercise his infl uence
as such with B in favour of C, and C promises to pay ` 5,000 to A. The agreement is void being
against public policy.

Example: (i) X agrees to buy from a jeweller certain jewellery to be delivered to him after
two months. In the meantime, the government enacts a law on gold control and prohibits dealings
in gold. When the time for delivery of the jewellery comes the jeweller refuses to deliver the same.
What can X do? He has no cause of action. The contract becomes void when the law is enacted.
Thus, the contract was originally valid but becomes void later on by subsequent (supervening)
illegality.
(ii) A dealer enters into a contract to sell a smuggled item to X. The import of such type of goods
is illegal under the laws of the country. A refuses to deliver the item as promised. What are the
rights of X? The contract is void.

4.4 Stranger to Contract

It is a general rule of law that only parties to a contract may sue and be sued on that contract.
This rule is known as the doctrine of privity of contract. “Privity of contract” means relationship
subsisting between the parties who have entered into contractual obligations. It implies a
mutuality of will and creates a legal bond or tie between the parties to a contract.
There are two consequences of the doctrine of privity of contract:

(1) A person who is not a party to a contract cannot sue upon it even though the contract is for

his benefit and he provided consideration.
(2) A contract cannot confer rights or impose obligations arising under it on any person other
than the parties to it. Thus, if there is a contract between A and B, C cannot enforce it.

Example: 5 bought tyres from the Dunlop Rubber Co. and sold them to D, a sub-dealer,
who agreed with S not to sell these tyres below Dunlop’s list price and to pay the Dunlop Co.
£5 as damages on every tyre D undersold. D sold two tyres at less than the list price and thereupon
the Dunlop Co. sued him for the breach. Held, the Dunlop Co. could not maintain the suit as
it was a stranger to the contract [Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd., (1915)
AC. 847].
Exceptions. The following are the exceptions to the rule that “a stranger to a contract cannot
sue”:
(1) A trust or charge. A person (called beneficiary) in whose favour a trust or other interest in

some specific immovable property has been created can enforce it even though he is not a party

to the contract [Madhu Trading Co. v. Union of India & Others, AIR (1979) NOC 47 (Delhi)].

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