GEDU COLLEGE OF BUSINESS STUDIES

GEDU: CHUKHHA

Module: BLT101

Case study

SUBMITTED BY:

Rajesh Monger (03200262)

Robin Rai (03200276)

Rinzin Dolkar (03200273)

Prabin Acharya (03200259)

Sangay Tenzin (03190277)

Sonam Euden Dorji (03200493)

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DECLARATION FORM

Module Code: BLT101Module: Legal Considerations in Business

Module Tutor: Mr. SonamPhuntsho

Type Of course Work: Group Assignment

Date of Submission: 30th March 2021

We hereby declare that this academic work is our own and those derived from other sources have been
appropriately acknowledged. We understand that if found otherwise, our academic work will be cancelled and no
mark will be awarded besides the legal consequences.

Signature:

Rajesh Monger (03200262)

Robin Rai (03200276)

RinzinDolkar (03200273)

Prabin Acharya (03200259)

Sangay Tenzin (03190277)

SonamEudenDorji(03200493)
For Module Tutor

Marking Criteria/ Q. No. Marks Assigned Marks Secured

1. Proper analysis of the case ( 3 ) ( )

2. Finding Problems ( 2 ) ( )
3. Solutions ( 2 ) ( )
4. Referencing ( 1 ) ( )
5. Answering questions based on the question ( 2 ) ( )

Total Marks 10

Comments: ……………………………………………………….

……………………………………………………………………..

Signature of Module Tutor

Contents
Introduction.................................................................................................................................................1
Background:............................................................................................................................................1
Rationale:................................................................................................................................................1
Limitations:.............................................................................................................................................1
Methodology:..........................................................................................................................................1
Nepalese law on Privity of Contract........................................................................................................2
Case One (Janak Singh Sahagal vs. Dwarika Parasd Acharya, 2019)..........................................................2
Case Two (Rajendra Man Kuwar vs. Rastriya Banija Bank, 2058).............................................................4
Analysis of the case study:..........................................................................................................................5
Recommendations.......................................................................................................................................7
Conclusion...................................................................................................................................................8
Acknowledgement...................................................................................................................................8
Cases used in the research as well as in this case study:..........................................................................9
Bibliography...............................................................................................................................................10
Introduction

Background:
The case study “Doctrine of Privity of Contract and its Exceptions – Neetij Rai” (Rai,
2012) provides a detailed research and analysis about the privity of contract. The author of the
case study has portrayed some of the renowned definition by different authors in the text.
However in a simplified words, privity of contract means that only the parties of the contract are
subjected to those rights and obligations in the contract. A third party or a person who is not
binding with the contract is not under the obligations of contract. (Digestible Notes )

The study has a systematic way of giving us the information on the topic. It starts with a
history of the doctrine of privity of contract, followed by the exceptions which were implied
during the course of different cases and finally gives an outlook of the author’scountry and its
perception and law towards privity of contract.

Rationale:
Given the study, the group aims at analyzing this study. Provide a better outlook and
different perspective on the concept of privity of contract and its exceptions.

Limitations:
The group study is neither to defame nor to prove wrong of the given study. The group
only intends to give more research and facts on the concept of privity of contract.

Methodology:
The group study has applied the case study method provided by the tutors. The citation
rule in the study has been based on the American Psychological Association referencing style.

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Nepalese law on Privity of Contract.

Nepal Contract Act, 2056 in Chapter 11 has the provisions regarding doctrine of Privity
of Contract which has provided the rights to claim or sue to the contracting parties only.
However there are exceptions regarding rights of beneficiary and the agent, who is third party to
enforce the contract. Certain selective cases such as (Janak Singh Sahagal vs. Dwarika Parasd
Acharya, 2019) and (Rajendra Man Kuwar vs. Rastriya Banija Bank, 2058)are given in the
study.

The following are the cases associated with the Doctrine of Privity of contract

Case One (Janak Singh Sahagal vs. Dwarika Parasd Acharya, 2019)

Introduction

The first case is about the third party of the contract who will not be able to demand
payment or claim rights against the parties of the first contract.

Key Findings

The two parties Janak Singh and CNN Board were in a contract for a construction work.
Therefore the two parties were the actual and enforceable party in the contract. The invitation of
third party is been made when Janak Singh made another contract with Dwarika Prasad. In the
contract between Janak Singh and Dwarka, Janak Singh delegated his obligation with CNN
Board to Dwarika (Rai, 2012).

Dwarika Prasad is a third party in the contract and according to the doctrine of privity of
contract a third party does not have any right or obligation towards the contract. The law of
doctrine also states that a person who is not a party to a contract cannot claim the benefit of it,
although the contract was entered with relation to the third party. Therefore in the case (Janak

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Singh Sahagal vs. Dwarika Parasd Acharya, 2019), does Dwarika have the rights to claim the
benefit or not.

The court had also made the judgment that the third party is not eligible to demand
injunction against the party of the original contract. However the question arises whether the
judgment was a fair judgment in consideration with the exception and doctrine (Rai, 2012).

Solution

The judgment was in the favor of the contracting parties and the third party was not
allowed to claim the payment. The judgment is rightfully fair because the doctrine of privity of
contract allows the judgment to be true. For example in the case (Price v Easton, 1833)where a
contract was made for work to be done in exchange for payment to a third party. When the third
party attempted to sue for the payment, he was held not to be in privity to the contract, and as
such his claim failed (Teacher, Price v Easton - 1883 - Case Summary., 2013). Similar to the
case the doctrine of privity of contract also does not allow Dwarika Prasad to claim the payment
from the promisor. The case fall under the arrangement of sub-contract, the promisor cannot sue
the sub-contractor (who is not the promisee) for any damage or defect in the work - (Junior
Books Ltd v Veitchi Co Ltd, 1983). Conversely, the sub-contractor cannot bring an action of
non-payment against the promisor too. Therefore the third party is also not entitled to claim the
payment (Teacher, Privity of Contract Lecture, 2018).

Recommendation

The doctrine of privity of contract only allows the contracting parties to enjoy the rights
and bear the liabilities which makes it a clear statement to the third parties that they are not
eligible to carry out the conract. In the case Dwarika Parasd Acharya got into the agreement with
Janak Singh Sahagal withot knowing that Janak Singh was in a contract with other party already.
Then the issue arises when Dwarika is unable to claim the payment for the contract. Therefore, it
is advisable to carfully monitor or examine the contracting party and know if he/she is already
bound to another contract or not. If the contracting party is already into another contract
associated with the current contract. The smart thing to do is not to sign into a contract with such
person and not become a third person.

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Conclusion

It can be concluded that Dwarika Prasad does not have the right to claim injuction against
the parties of the first contract.

Case Two (Rajendra Man Kuwar vs. Rastriya Banija Bank, 2058)

Introduction

The second case which occured in Nepal is about the Bank that is not a party of the
contract is not liable in the contract between importer and exporter (Rai, 2012).

Key Findings

The contract was between an importer and an exporter where the Bank was a third party
who only helped the parties to transfer the money from one account to another.

A dispute between the bank and it’s contracting party led to the parties trying to claim a
false claim against the bank.

Solution

In this case the Bank was also a third party whereby the Bank was not in the contract.
Therefore the parties could not claim any damages from the bank and the court held the decision
that the bank is not liable if it was not in the contract (Rai, 2012).

Recommendation.

It is advisable to follow the doctrine of privity of contract and do not allow the third
parties to be a party of the contract.

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Conclusion.

The bank was not liable because bank was a third party to the contract and the judgement
from the supreme court was just and fair.

Analysis of the case study:

The given cases are primarily about the significance of Privity of Contract. Privity of
Contract is needed to shield the gatherings in a contract from the third party who intend to claim
rights from the contract that they are not contracted to.

Due to a number of cases such as (Price v Easton, 1833), (Tweddle v. Atkinson, 1861),
(Dunlop Pneumatic Tyre vs. Selfridge and Co. Ltd., 1915), and many others have led to the
establishment of the principle of the doctrine of privity of contract. The law started has now been
implemented by majority of states and country in the world. The doctrine of privity which is
considered as the right and obligation of the third party is now the basis of the law of contract.

Firstly, the Price and Tweddle case made it necessary to have the doctrine of privity of
contract. However, arguments were still going on due to some of the exceptions and the basis of
the law was not that strong to be considered. The law was held that ‘no stranger to the
consideration can take advantage of the contract, although made for his benefit’ the law lead to
many disputes and discussions of whether the law gives justice to all or not?

With the passage of different cases related to the privity of contract, such as (Tulk v.
Moxhay. , 1919), (Kshirodebehari Datta vs. Mangobinda Panda, 1933), (Tattersall v. Drysdale ,
1935), and many more cases were an exception towards privity of contract. It has brought the
law of privity of contract to the point where the law is still implacable that; only the parties of the
contract have the right and obligation towards the contract but under certain circumstances the
third party can also enjoy the rights and bear the losses of the contract. Issue and the context of
the text should also be kept in consideration before the judgment.

In this exceptional cases such as a third party agency or a family agreement, the persons
who are not even the contracting parties can enjoy rights or bear losses. The exceptions have
truly provided some relief and a fair justice to some of the third parties.

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 However, having said that, not all the third parties will have the rights and obligations
because a contract is an agreement between the parties intended to create legal obligations
between them to be legally enforceable. The concepts of only the parties who are the original
parties are applicable to the terms of the contract. A hypothetical example can be portrayed
whereby, A, whois initially in a contract with B, has now agreed to pay to C for the work of B.
Here the work is done by C who is not a party of the contract. Incase if B refuses to pay to C, C
cannot sue B because C was not a contracting party in the contract. This is the basic law of
contract which all the states and countries in the world have been following.

In the cases where the exceptions are mentioned, there might be differences with the
perspective of different people around the world. The exceptions given in the study are fairly
true for most of the country but some of the exceptions are not applicable in some other
countries. As compared to the given exceptions in Bhutan, Bhutanese contract law provides
exceptions towards third party agency which states that

“Where the sub-agent is not properly appointed, he or she shall not be capable of
representing the principal in dealings with third persons and there shall be no privity of
contract between such a sub-agent and the principal. In such a case, the agent shall be liable
for the acts and omissions of the sub-agent both to the principal and to thirdpersons.”
(Parliment of Bhutan, 2013, p. 43).

The exceptions on the privity of contract in Bhutan also include the insurance policy
and the family agreement, but the judgment is always subjected to the issue and the matter of
the case.

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Recommendations
The doctrine of privity of contract is the law of contract which is enforced due to
interference of a third party in an agreement. It has been followed since the late eighteenths. The
principle is necessary to consider and apply in our day to day life. The fact that a third party will
disturb or manipulate the course of the contract makes it more important for knowing and
analyzing the doctrine of privity of contract. In addition, the exceptions are equally valid and
important in the privity of contract. The exception provides valid rights and justice to those
beneficiary third parties who are not a contracting party.

However the doctrine and the exception of privity of a contract is a confusing concept
whereby it is difficult to segregate the two situations and implement the law accordingly. It is to
be noted that the Bhutanese act does not contain a single provision relating to the doctrine. The
other contract law such as formation and eligibility of a party covers a certain portion of the
doctrine of the contract. Similarly, in terms of the exceptions, not all the exceptions of the privity
are mentioned in the Contract Act of Bhutan. This lack of doctrine and exception of privity of
contract would lead to many disputes and false judgment of the case. The problem is not with the
Contract Act of Bhutan, the confusion lies on the vague nature and clarity of the law.

The author of the case study “Doctrine of Privity of Contract and its Exceptions – Neetij
Rai” (Rai, 2012) tried to convince the law but due to the lack of clarity the concept seemed
confusing. Nepalese Contract Act has a chapter about the “Privity of Contract”. However does
the chapter contain all the doctrine and exemption or not, it is still debatable. The principle of
privity of contract is really important. Most countries do not have a concrete privity law but the
common law principle of Doctrine of Privity is generally accepted.

Therefore, the doctrine though lays to rest the rights of third parties, it is vague in nature
and lacks clarity. Abatement of the doctrine is required to enable a third party to sue on a
contract made for his benefit under certain circumstances. A clear cut definition or a statutory
provision must be inserted or a separate legislation must be passed for third party rights under
certain qualified circumstances similar to contracts. (Raghavan, 2019).

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Conclusion
According to the Contract Act of Bhutan (Parliment of Bhutan, 2013), a contract is an
agreement where it creates a legal obligation, enforceable by law. Therefore, parties of the
contract are bound to fulfill the terms of the contract. However, the rights and obligations are
only for the parties and any other third party are not given the duties and rights of the contract.
Privity of contract law is about the exemption of the rights of the third party. Bhutan does not
have a separate section or law for the doctrine of privity of contract but it does follow the
principle of the law. Through the course of different cases, there are some exceptions to the
privity of contract. Among the given exceptions, the third party agency rights and the insurance
rights are portrayed in the Bhutanese law. The privity of contract law is an important aspect of
contract law, but due to its vague and unclear nature the Parliament of Bhutan has not mentioned
in the Contract law. However as mentioned, Bhutanese law do follow the principles and
exceptions of the Privity of Contract.

Acknowledgement
The group would like to acknowledge the author of the case study “Doctrine of Privity of
Contract and its Exceptions – Neetij Rai” (Rai, 2012) for providing the basis and essential
information for the case study. It was a well organized and informative research which provided
knowledge and key points in our case study.

The group would also like toacknowledge the module tutor for bringing up with such a
challenging and competent topic and a more competent research paper for our case study.

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Cases used in the research as well as in this case study:
(Janak Singh Sahagal vs. Dwarika Parasd Acharya, 2019)

(Dunlop Pneumatic Tyre vs. Selfridge and Co. Ltd., 1915)

(Rajendra Man Kuwar vs. Rastriya Banija Bank, 2058)

(Klans Miltelbachert vs. East India Hotels, 1997)

(Kshirodebehari Datta vs. Mangobinda Panda, 1933)

(Price v Easton, 1833)

(Tattersall v. Drysdale , 1935)

(Tulk v. Moxhay. , 1919)

(Tweddle v. Atkinson, 1861)

(Junior Books Ltd v Veitchi Co Ltd, 1983)

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 Bibliography
Digestible Notes . (n.d.). Privity of Contract. Retrieved from Digestible Notes :
https://digestiblenotes.com/law/contract/privity.php

Dunlop Pneumatic Tyre vs. Selfridge and Co. Ltd., 847, 853 (A.C 1915).

Janak Singh Sahagal vs. Dwarika Parasd Acharya, 250 (NKP 2019).

Junior Books Ltd v Veitchi Co Ltd, 1, 520 (AC 1983).

Kahiga, J. (2017, May 22). Third Part Privity and Assignment. Retrieved from Slidesshare.net:
https://www.slideshare.net/JohnKahiga1/third-party-privity-and-assignment?
fbclid=IwAR3ERgtlwOmylGCo9CATZ8j9mYQbR7ECEvKtayx-vNY_HXs4C5h7_AiHy_g

Klans Miltelbachert vs. East India Hotels, 221 (Delhi 1997).

Kshirodebehari Datta vs. Mangobinda Panda, 61, 841 (Cal 1933).

Parliment of Bhutan. (2013). Contract Act of Bhutan. In Section 153 (p. 43). Thimphu: Kuensel
Coorporation.

Parliment of Bhutan. (2013). Contract Act of Bhutan. Thimphu: Kuensel Coorporation.

Price v Easton, 4, 433 (B&Ad 1833).

Raghavan, K. (2019, May 27). Doctrine Of Privity Of Contract: Should It Be Discarded Or Not? Retrieved
from Lawyered: https://www.lawyered.in/legal-disrupt/articles/doctrine-privity-contracts-advocate-
karthik-raghavan/

Rai, N. (2012, December 15). Doctrine of Privity of Contract and its Exceptions. 10.

Rajendra Man Kuwar vs. Rastriya Banija Bank, P 127 (NKP 2058).

Singh, A. (2008). Law of Contract and Specific Relief (8th edition ed.). Lucknow: Eastern Book Company.

Tattersall v. Drysdale , 2, 174 (K.B 1935).

Teacher, L. (2013, November ). Price v Easton - 1883 - Case Summary. Retrieved from Law Teacher :
https://www.lawteacher.net/cases/price-v-easton.php?vref=1

Teacher, L. (2018, November). Privity of Contract Lecture. Retrieved from Law Teacher:
https://www.lawteacher.net/lectures/contract-law/privity-of-contract/?vref=1

Tulk v. Moxhay. , 88, 861 (KB 1919).

Tweddle v. Atkinson, J57 (EWHC QB 1861).

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