( 1 ) THE plaintiff is the appellant. The facts are these. One Nagayya owned a house and vacant site forming the subject-matter of this second appeal. He had a daughter Veeramma, the plaintiff. She married K. Basavayya, a nephew as well as the wife's brother of Nagayya. Nagayya was a whimsical old man who quarrelled with his wife frequently. Their quarrels culminated in a suit by the wife for separate maintenance against Nagayya and a decree allotting a portion of the suit house for her residence. Nagayya gifted tiie house and site in favour of his nephew K. Appayya the defendant, under Exhibit A-1, dated 20th June, 1945. There is a recital in Exhibit A-1 that the donee had been maintaining Nagayya and that the gift was made out of love and affection. Differences soon arose between the plaintiff and the defendant the former being backed by her husband and other relations. The defendant was unr ble to take possession of the property gifted under exhibit A-1. The gift was challenged as having been procured by fraud practised on Nagayya. The lower appellate Court was inclined to the view that the gift exhibit A-1 was nominal and could have been got cancelled by Nagayya. Be it as it may, the defendant filed a criminal complaint Exhibit A-2 dated 26th March, 1946, against the plaintiff's husband K. Basavayya and three others accusing them of offences under section 323, 341, 447 and 504, Indian Penal Code. The defence was that the complaint was false. On the intervention of certain mediators the parties compounded the case under Exhibit A-3, dated 24th April, 1946. One of the terms of Exhibit A-3 is that the defendant should execute a dakhal deed conveying ' the house and site in favour of the plaintiff who should thereafter maintain he? father Nagayya in the house for his life. The plaintiff however, was not a party to Exhibit A-3 though she and her father Nagayya took an active part in biinging about the compromise. There was a settlement of a family quarrel and the plaintiff took charge of her father and maintained him till his death pendente lite. The defendant defaulted to execute a dakhal deed in her favour as agreed by him in exhibit A-3- The plaintiff therefore sued for specific performance of the arrangement. The defendant pleaded that Exhibit A-3 had been obtained from him fraudulently and that a sum of Rs. 100 and a quantity of paddy had been agreed to be paid to him though not so specified in Exhibit A-3 and that there had been default in such payment. The Courts below have rejected this plea of the defendant the trial Court granted a decree for specific performance while the appellate Court dismissed the suit. Hence this second appeal.
( 2 ) IT appears to have been conceded by the advocate for the plaintiffin the lower appellate Court, in deference to authority that the plaintiff being a stranger to the arrangement evidenced by Exhibit A-3 could not sue to enforce its terms. It was argued before me that this admission was due to a misapprehension of the law. On question of fact parties are bound by the admissions of their advocates, whether made in the course of the trial or in the appellate Court, because an advocate's general powers in the conduct of a suit include the abandonment of aa issue of fact, which in his discretion, he thinks it inadvisable to press. Venkata v. Bhashyakarlu, (1902) L. R. 29 I. A. 56: I. L. R. 25 Mad. 367 (P. C. ). and Ulichi v. Nallamalli, A. I. R 1928 Mad. 900. Such admissions cannot be resiled from merely on the ground that the party or his advocate was not posted with all the facts at the time. Admissions of counsel on a point of law are, however, not binding on the parties as an estoppel and the Court is free to give effect to its view of the law irrespective of such admissions. Tagore v. Tagore, (1872) 9 Beng. L. R. 377, 401 (P. C. ). Beni Prasad v. Dhudnath, (1899) L. R. 26 I. A. 216 : I. L. R. 27 Cal. 156, 162-163. Societe Banqut etc. , v. Girdhari, A. I. R. 1940 P. C. 90. Muthusami v. Loganatha, A. I. R. 1935 Mad. 404. and Nachiappa v. Muthu, (1946) 1 M. L. J. 343 : I. L. R. (1947) Mad. 99 : A. I. R. 1946 Mad. 398. The question of law whether the plaintiff, being a stranger to the arrangement evidenced by Exhibit A-3, is entitled in the circumstances of the case, to specific performance therefore falls to be decided here. English case-law oscillated and wavered for a considereble time between yielding to the demands of justice, commonsense and business convenience on the one hand and loyal adherence to the venerable old traditions of the common law on the other. It will be a profitless task to attempt to follow the course of English decisions during the last three centuries. Suffice it to say that Tweddle v. Atkinson, (1861) B. and S. 393. authoritatively decided that a stranger to a contract could not enforce it because there was no privity of contract between him and the promissor and he was a ranger to the consideration. Earlier decisions to the contrary like Button v. Poole, (1678) 2 Lev. 210. were considered to have been erroneously decided and devoid of authority. In Dunlop pneumatic Tyre Co. Ltd. v. Selfridge Co. Ltd. , L. R. (1915) A. C. 847. Viscount Haldane, L. C. , enunciated the law of England in these terms : "my Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to the contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in persmam. A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promissor or to some other person at th promissor's request. "
( 3 ) THIS passage was cited and followed by the Judicial Committee in Vandepitte v. Preferred Accident Insurance Co. of N. T, (1933) A. C. 70. After these weighty pronouncements one would have thought that the ghost of button v. Poole, had been laid for ever. That was not to be. Not only was there a resurrection but Button v. Poole, strode so impressively on the legal stage in 1953 that i am tempted to quote the following passage from the judgment of Denning, L. J. , in Drive Tour self Hire v. Strutt, (1953) 2 All E. R. 1475, 1482-1483. "it is often said to be a fundamental principle of our law that only a person who is a party to a contract can sue on it. I wish to assert, as distinctly as I can, that the common law in its original setting knew no such principle. Indeed, it said quite the contrary. For the 200 years before 1861 it was settled law that, if a promise in a simple contract was made expressly for the benefit of a third person in such circumstances that it was intended to be enforceable by him then the common law would enforce the promise at his instance although he was not a party to the contract. That was clearly laid down by the Court of Exchequer Chamber in 1677 in Dutton v. Poole 100 yean later it was so well accepted that Lord Mansfield in Martyn v. Hind, 2 Cowp. 443. said it was a matter of surprise how a doubt could have arisen about it; and Buller, J. , said in Marchington v. Vernon, 1 Bos. and P. 101 N. quite categorically that ' if one person makes a promise to another for the benefit of a third, that third person may maintain an action upon it. ' Finally, in 1823 the Court of King's Bench, then in its golden age including as it did Abbot, C. J. and Bayley, Holroyd, JJ. , specifically so held : see Carnegie v. Waugh, 2 Dow. and Ry. K. B. 277. and in 1844 Joseph Ghitty in his highly authoritative work on Pleading, 7th edition, Volume I, pages 4 and 5, treated the law as settled accordingly. He would be a bold man who would say that a principle supported by the names I have mentioned did not represent the law of England, especially when it is so eminently just and reasonable. In 1861, however, came the unfortunate case of Tweddle v. Atkinson, (1861) 1 B and S. 393 in which the Court of Queen's bench departed from the law as it had been understood for the previous 200 years and held, quite generally, that no stranger could take advantage of a contract, although made for his benefit, and that was assumed, without argument, to be the law by the House of Lords in Dunlop Pneumatic Tyre co. Ltd, v. Selfridge Co. Ltd, (1915) A. G. 847. I do not pause to consider whether this new rule was legitimately introduced the law. "
( 4 ) REFERRING to section 56 (1) of the Law of Property Act of 1925 which, so far as it is now relevant, provided that "a person may take. . . . . . the benefit of any. . . . . . . . agreement. . . . . . . . respecting. . . . . . . . property, although he may not be named as a party to the mstiument ". Denning, L. J. , observed that he could think of no words more apt to do away with the rule in Tweddle v. Atkinson, leaving the Courts free, in cases respecting property, to go back to the old common law, whereby a third party can sue on a contract made expressly for his benefit and be rid of the old rule about deeds inter partes. The learned Judge cited some recent decisions in support of his view.
( 5 ) IN spite of or on account of the 'reluctance of common law judges to relax the rigour of the rule that a person not a party to the contract could not enforce it, courts of equity resorted to the device of a trust to afford relief against the strict enforcement of the doctrine of privity of con tract. Lord Hardwicke, considered to be one of the greatest exponents of English equity, expressed the view that where a contracted with B to pay money to C, B could be regarded as a trustee for C of the benefit of the contract. Tomlinson v. Gill, (1756) Amb. 330. This view was given effect to by grant M. R. in Gregory v. Williams, (1817) 3 Mer. 582. That was a case where a vendee agreed to pay a creditor of the vendor as part of the consideration for the sale but defaulted to do so. The Court held that the vendor of the creditor could, in equity, compel performance of his promise by the vendee. In Towche v. Mettopolitan Railway Co. , LR. (1870 6 Ch. A. 671, 677 lord Hatherley, L. C. , said : "the case comes within the authority that where a sum is payable by A. B. for the benefit of c. D. , C. D. can claim under the conn act as if it had been made with himself. "
( 6 ) IN Lloyd's v. harper, LR. (1880) 16 Ch. D. 290. in consideration of the admission of R. H. Harper as an underwriting member of Lloyd's, Samuel Harper tendered his guarantee on behalf of the former and held himself responsible for all his engagements, as underwriter. R. H. Harper having defaulted on certain marine insurance policies, Lloyd's sued Samuel harper on the guarantee contract for the benefit of the holders of such policies. It was held that Lloyd's could recover the amount that was due to the holders of the insurance policies. Lush, L. J. , said :-"i consider it to be an established rule of law that where a contract is made with A for the benefit of B, A can sue on the contract for the benefit of B and recover all that B could have iccovered if the contract had been made with B himself. "
( 7 ) THE ratio decidendi was that the promisee, Lloyd's was a trustee for the benefit of third persons, that is to say the holders of the maiine insurance policies, and entitled to recover on the contract of guarantee the full amount that was due to the policy-holders. It was not because that the promisee had a right to such amount that it was allowed to sue but because the Court recognised a legal enforceable right in the persons, viz. , the palicy holders. In cases where the promisee is a trustee for a third person, it is a mere formality to require the suit to be brought in the name of the promisee and there can be no objection to the beneficiary himself suing in his own name impleading the promisee as a co-defendant.
( 8 ) IN Les Afreteurs Reunis Societe Anonyme v. Waltard, L. R. (1919) A. C. 801. the House of Lords allowed a broker who was not a party to a charter party to sue the owners of a steamship for recovery of his commission or brokerage. Lord Birkenhead, L. G. , said that the charterers could sue the owners of the steamship as trustees on behalf of the broker, though so far as the broker was concerned, the contract was res intet alias acla and that since the parties agreed to treat the action as if it had been laid by the broker and the charterers as co-plaintiffs, the broker could recover his commission in his action.
( 9 ) IT must, however, be confessed that the course of English decisions has not been uniform, and this device of a trust has been employed and rejected on no obvious principle except, if I may be pardoned for saying the predilections of the presiding judges. It is unnecessary to examine the opposing sets of decisions at length. In re Flavell, Murray v. Flavell, L. R. (1883) 25 Ch. D. 89. a trust in favour of a third party to the contract was implied, but in Gandy v. Gandy, L. R. 30 Ch. D. 57. it was not, Fry, L. J. , observing "that the covenant is not a simple covenant to pay a sum of money 'or the benefit of the children but a covenant contingent on the observance of many things by the trustees. " even the Judicial Committee in Vandepitte v. Preferred Accident Insurance Co. of N. Y. , L. R. (1933) A. G. 70. looked askance at the resort to the "theory of a trust for enabling a stranger to a contract to sue for a benefit secured to him thereunder. It was observed that the burden of proof of a trust was heavy and that the intention to constitute the trust " must be affirmatively proved ". It was no doubt recognised that a party to a contract can constitute himself a trustee for a third party of a right under the contract and thus confer such rights enforceable in equity on the third party. Emphasis was also laid on the need for the third party and the trustee to remain merely as passive instruments, the former to pass and the latter to receive the benefit of the contract without the necessity for the performance of active duties or the exercise of a discretion on the part of the trustee. On facts similar to those of In Re Flavell Mirray v. Flavell, a contrary conclusion was come to in Re Schebsman Official Receiver v. Cargo Superintendents (London) Ltd. and Schebsman, L. R. (1944) Ch. 83. Du Paroq, L. J. , observing in a slightly cynical vein as follows :-"it is true, that, by the use possibly of unguarded language, a person may create a trust, as monsieur Jourdian talked prose without knowing it, but unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the Court ought not to be astute to discover indications of such an intention. "
( 10 ) THE device of a trust could well have been applied by a sort of fiction even to cases where the contracting parties did not adopt it and perhaps were not even conscious of such a legal concept. This was a comparatively small and sweet pill to swallow in comparison with the indebitatus assumpsit writ in which the allegation was made, without factual basis that the defendant " not regarding his said promise and undertaking, but contriving and fraudulently intending craftily and subtlely to deceive and defraud the said plaintiff, hath not yet paid the said sum of money. " If the device of charging a breach of contract as deceit and resorting to the writ of indebitatus assumpsit for relief in respect of a breach of contract was permissible, I fail to see why the Courts should have shrunk from finding a trusts in order to support an action by a stranger to a contract. Various and varying excuse were found for not invoking the doctrine of trust in such cases and this uncertainty of the law led a learned writer to remark that "the way in which the Court will decide a novel case is almost completely unpredictable. " In Pollock on Contracts, page 167, Professor Winfield candidly remarks : "it must be confessed that some of the English decisions raise the inference that if the Court wish to enable X to sue they make T a trustee, but that if they wish to prevent him from doing so the fall back upon the dogma that there is no privity of contract between X and Y. "
( 11 ) THE unsatisfactory state of the English law was referred to by the Lord Chancellor's Law revision Committee in their Sixth Interim Report, 1937. To quote professor Winfield, again, the Committee :"pointed out the inconvenience arising from the uncertainty whether the Courts will, in any particular case, apply the trust idea or the idea of privity of contract ; the procedural difficulties where the trust idea is held to be applicable ; and the special necessity of clarifying this branch of the law in the case of Bankers' Commercial Credits, which are a prominent feature in modern business, particularly foreign trade. They recommended that where a contract by its express terms purports to confer a benefit to a third party, it shall be enforceable by the third party subject to any defences that would have been valid between the contracting parties, but that the parties to the contract may, unless it otherwise provides, cancel it at any time before the third party has adopted it expressly or by conduct. "
( 12 ) THE common law of England with regard to the necessity of consideration for supporting a contract has also come in for criticism. It is well known that till the middle of the last century, a moral obligation was regarded as a sufficient consideration and it was only thereafter that the view that the moral obligation was sufficient to support a contract was abandoned by the Courts. Consideration in the sense of either a benefit to the defendant or a detriment to the plaintiff was considered essential for a valid contract. The commercial instincts of the people led to the recognition of contracts supported by valuable consideration and only those contracts, as deserving of legal recognition and sanction. Indeed, Lord dunedin in the House of Lords case already cited, Dunloft Pneumatic Tyre Co. , Ltd. v. Selfridge Co. , Ltd. , L. R. (1915) A. C. 847. adopted the following definition of consideration by Sir frederick Pollock : "an act or forbearance of one party, or the terms thereof is the price for which the promise of the other is bought and the promise thus given for value is enforceable. " the problem of consideration came to be presented by jurists and Judges in the language of purchase and sale. Once the idea of the sufficiency of moral obligation to sustain a contract was abandoned, it was an easy step for the Courts to take that only he could sue on a promise who had paid the price for it. This view was often expressed by saying that " the consideration must move from the promisee. "
( 13 ) A person may be a party to the contract and yet may not furnish the consideration, and a third person may furnish it. The person for whose benefit a promise is made and who is anxious to enforce the promise may not be the promisee at all. If the promissor fails to fulfil his part of the bargain it was only the promisee who had given the consideration that could sue on the contract and not the person for whose benefit the promise was intended but who did not furnish the consideration. There was widespread dissatisfaction with these views which had been recognised by the lawyers and judges of a previous age as vital in the law of contracts. The report of the Law Revision Committee adverted to the difficulty of discovering the raison d'etre of the English doctrine of consideration and recommended that consideration should no longer be required when the promise upon which the plaintiffs sued was contained in a comprehensive written document. Indeed, under the English law, there is no need to prove consideration for a contract under seal and the distinction between contracts under seal and ordinary contracts is artificial. The only test of the enforceability of a contract should be whether it was intended to create a legal obligation binding on the parties.
( 14 ) THE position in England to-day is that no one can enforce a contract to which he is not a party even though he has a direct interest in the performance of it. To this rule, Courts of equity introduced an exception by resort to the fiction of a trust. It was held that if a person can claim through a party to a contract, as in the case of a cestui que trust claiming through a trustee, he could enforce the contract though he is not a party to it. When the Courts of equity said that a promisee was a trustee of the contract right and was entitled as such to enforce the promised performance, it was only another way of stating that the facts created a right in the third party who was entitled to the benefit. In an action by the beneficiary for enforcing the benefit secured to him, the participation of the trustee as a party was a formality required for the purpose of making the judgment conclusive against him. The object of the action was to compel performance by a promissor who has received a consideration for his promise. The expansion of the conception of a trust to include cases where a third party to a contract sought to recover the benefit secured to him under it was quite legitimate. After all, what is a trust ? Professor maitland in his work on Equity, at page 44, observed : "where a person has rights which he is bound to exercise on behalf of another or for the accomplishment of some particular purp se, he is said to have those rights in trust for another or for that purpose and he is called a trustee. "
( 15 ) IF the subject-matter of a trust is some property such as land or a fund, the application of the above rule is easy. In other cases, the promisee may be considered to be a trustee of a contract right, that is to say, a right created by a promise made for a third person's benefit. In view of the divergent trends of decisions in England, it was not to be expected that the course of Indian decisions would run smooth. In Khwaja Muhammad khan v. Hussaini Begam, (1910) 20 M. L. J. 614 : L. R. 37 I. A. 152 : I. L. R. 32 all. 410 (P. C. ). the Judicial Committee applied the equitable exception to the rule that a stranger to a contract cannot sue to enforce it. It was held that although the plaintiff was not party to the contract which she sought to enforce yet she "was dearly entitled to proceed in equity to enforce her claim "against her father-in-law for the recovery of money which under a contract between him and the plaintiff's father, he had agreed to pay to the plaintiff. With reference to the authority of Tweddle v. Atkinson, (1861) 1 B. and S. 393. the Judicial Committee observed that "it is enough to say that the case relied upon was an action of assumpsit and that the rule of common law, on the basis of which it was dismissed, is not, in their Lordships' opinion applicable to the facts and circumstances of the present case. "
( 16 ) THEIR Lordships held that although no party to the contract between her father and her father-in-law, the plaintiff was entitled to proceed in equity to enforce her claim. The formality of the trustee of the promise being made a party was dispensed with. Shortly after this decision, the Judicial Committee upheld the common law rule and decided that a purchaser's contract to pay off a mortgage on the property could not be enforced by the mortgagee who was not a party to the contract of sale, Jamna Das v. Ram Avtar, (1911) 21 M. L. J. 1158 : L. R. 39 I. A. 7 : i. L. R. 34 All. 63 (P. C. ). Unfortunately, Lord Macnaghten's judgment was a summary one without any adequate statement of the law. The Calcutta High Court had to deal with the question in a number of decisions. In Deonarayan Dutt v. Chunilal Chose, (1913) I. L. R. 41 Cal. 137. Sir Lawrence Jenkins, C. J. , delivering the judgment of the Bench consisting of himself and Mookerjee, J. , held that where a transferee undertakes an obligation to pay a creditor of the transferor and the undertaking is for the benefit of that creditor, it is open to the creditor to sue the transferee for enforcing the latter's liability under the contract. The learned chief Justice expressed his conclusion in these terms :-"we have here then a position in which it would be in accordance with the principles of justice, equity and good conscience, the abiding rule in these Courts, that the plaintiff should be entitled to enforce this claim against the defendant. "
( 17 ) THE authority of Tweddle v. Atkinson, was held not to be binding on Indian courts in view of the wide definition of consideration in section 2 (d) of the Contract act. Liter decisions of the Calcutta High Court, however, spoke in a different voice. In Jiban Krishna Mullick v. Nirupama Gupta, (1926) I. L. R. 53 Cal. 922. Page, J. , (sitting with Cuming, j) criticised the view of Sir Lawrence Jenkins, C. J. , in the case previously cited and arrived at a conclusion contrary to that reached in the earlier case on more or less similar facts. In Krishna Lal Sadhu v. Pramila Bala Dasi, (1928) I. L. R. 55 Cal. 1315. Rankin, C. J. , and c. C. Ghose, J. , held that a widow could not sue for recovery of money payable under an insurance policy taken out by her husband under which the money was made payable to her on the death of the husband. It was held that there was no privity of contract between the widow and the insurance company and that no trust was created in favour of the widow by a life policy expressed to be for the benefit of the wife of the assured. Sir George Rankin, C. J. , adverted to the wide definition of consideration in section 2 (d) of the Contract Act and the possibility of Indian Courts enforcing contracts in certain cases in which the English law would refuse to do so on the ground of nudum pactum and observed : "not only, however, is there nothing in section 2 (of the Contract Act) to encourage the idea that contracts can be enforced by a person who is not a party to the contract but this notion is rigidly excluded by the definition of promissor and promisee. "
( 18 ) THE learned Chief Justice held that, putting aside cases where ' there is an obligation in equity amounting to a trust arising out of the contract', the principle that a contract can only be sued upon by a party thereto held good under the Contract act and that in the case of a trust founded on the contract, it should be enforced by a party to the trust in appropriate proceedings including the beneficiary as a party. The next decision in order of date is Kshirodhebihari v. Mangobinda, (1933) I. L. R. 61 Cal. 841. where Lort-Williams and M. C. Chose, JJ. , took a contrary view. Lort-Williams j. , considered the evolution of English law on this topic and came to the conclusion that there was nothing in the Contract Act which prevented the recognition of a right in a third party to enforce a contract made by others which contains a provision for his benefit. According to the learned Judge, the administration of the law of contracts in India was not affected by the doctrine laid down in Tweddle v. Atkinson, (1861) 1 B. and S. 393. that only a person who was a party to the contract could sue Upon it. The expansion of the equitable concept of a trust to enable a third party to enforce a contract between others was held only to be an instance of the growth of law by means of legal fictions resorted to for getting rid of common law rules which had become out of date and irrational. The learned Judge boldly asserted that there was no need for Indian Courts empowered to decide according to the rules of justice, equity and good conscience, to import the anomalies of English law into india and that without pretending that there was something in the nature of a trust or agency in such cases. Indian Courts should recognise a right in a third party to enforce a contract made by others which contains a provision for his benefit. This view of Lort-Williams, J. , was considered to be heretical even by his Indian colleagues and was soon dissented from in Adhar Chandra v. Dole Gobinda, (1936) I. L. R. 63 Cal. 1172. where it was broadly laid down that a stranger to a contract cannot take the benefit of the contract between two other persons reserving a benefit to him, unless from the terms of the contract it is clear that a trust for him was intended. The learned Judges were of the opinion that Sir Lawrence Jenkins, C. J. , in Debnarayan dutt v. Chunilal Ghose, (1913) I. L. R. 41 Cal. 137. had laid down the rule regarding the right of a stranger to a contract too broadly. They followed Jiban Krishna Mullick v. Nirupama Gupta, (1926) I. L. R. 53 Cal. 922. and Krishna Lal Sadhu v. Pramila Bala Dasi, (1928) I. L. R. 55 Cal. 1315. Malda District Board v. Chandra ketu Narayan Singh, I. L. R. (1937) 2 Cal. 698. was another case where the Calcutta High Court dissented from Debnarayan Dutt v. Chunilal Chose, and Kshirodhebihari v. Mangobinda, and laid down that the only exceptions to the rule that a stranger to a contract could not sue for a benefit conferred upon him thereunder, were where the third party was shown to hold a beneficial interest in the performance of the contract, that is to say, to be in the position of a cestui que trust vis-a-vis one of the contracting parties or where the third party might be regarded as a principal claiming through an agent who was a party to the contract. The last of the Calcutta decisions cited was Jnan chandra Mukherjea v. Manoranjan Mitra, I. L. R. (1941) 2 Cal. 576. which held that a creditor of a vendor could not sue the purchaser for recovery of a debt which the purchaser had agreed with his vendor to discharge as part of the consideration for the sale. The learned judges held that the vendee was not in any way a trustee for the creditor in respect of the money due to him and the creditor could not enforce the contract. The earlier English and Indian decisions were all reviewed.
( 19 ) THE Bombay High Court in National Petroleum Co. v. Poppatlal, (1936) I. L. R. 60 Bom. 954. decided that where A and B entered into a contract under which A agreed to indemnify B against his debts, a creditor of B could not sue upon the contract. Beaumont, c. J. , observed as follows :-"the rule of English law is clearly established that the only persons who can sue upon a contract are the parties to that contract. No doubt there are many cases in the books in which persons who are not m terms parties to a contract have been allowed to sue upon it. But those cases are based on the view that the plainliffis claiming through a party to the contract, that he is in the position of a cestui que trust or of a principal suing through an agent, and that under the old procedure he could have filed a suit in equity even if he could not have sued at common law. Those cases are a recognised exception to the general principle that only parties to a contract can sue upon it. There seemi to me to be nothing in the Indian Contract Act which suggests that that principle does not apply in India.
( 20 ) IF the rule is to be introduced into this country that any person may sue upon a contract if he takes a benefit under it, although a stranger to such contract, I think that such rule must be introduced by the Legislature, and not by the Courts. " the Court dissented from Kshirodhebihari v. Mangobinda, (1933) I. L. R. 61 Cal. 841. It is unnecessary to consider the earlier decisions of the Madras High Court in view of the decision of the Full Bench in Subbu Chetti v. Arunachalam Chettiar, (1929) 5b M. L. J. 420 : I. L. R. 53 Mad. where is was decided that if all that appeared was that a person transferred property to another and stipulated for the payment of the purchase price to a third person, a suit to enforce that stipulation by the third party would not lie. The Court further held that a person not a party to a contract cannot sue on it though a benefit is secured to him thereunder, unless the case fell within the exceptions recognised by the decisions to which reference was made. The exceptions to the rule recognised by previous decisions were not precisely formulated by the Full Bench. It is, however, gatherable from the discussion of the case-law that where the contract between a and B creates a trust in favour of C or where a payment is to be made to C under a partition or other family arrangement, it would be open to C to enforce the contract though he is not a party to it. It is unnecessary to discuss the cases referred to by the Full Bench relating to provisions made in family partitions or family arrangements for the maintenance or marriage expenses of the female members of the family. It has since been authoritatively laid down by the Judicial Committee in Dan Kuer v. Sarla Devi, (1946) 2 M. L. J. 420 : L. R. 73 I. A. 208 : I. L. R. 1946 A. 756 (P. C. ). that"where a contract is intended to secure a benefit to a third party as a beneficiary under a family arrangement he may sue in his own right to enforce it. This seems to be the principle underlying the decision of this Board in Khwaja Muhammad Khan v. Hussaini Begam, (1910) 20 M. L. J. 614 : L. R. 37 LA. 152 :i. L. R. 32 All. 410 (P. C. ). This ruling has since been followed in India in many cases, where provision is made for the maintenance of the female members of a Hindu family on a partition of the joint family property between the male members. "
( 21 ) THE result of the foregoing discussion is that I am bound by authority to hold that a person not a party to a contract cannot sue on the contract unless the case comes within one of the recognised exceptions. One such exception is where the contract creates a trust in favour of a stranger. Persons not parties to partitions or family arrangements claiming benefits provided for them in s
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uch transactions really come under the category of beneficiaries and the arrangements conferring benefits on them are in the nature of trusts. The fact that third persons benefited under a contract are near relations of the parties to the contract will not per se enable the former to sue on the contract but would be a circumstance indicative of a trust, per Rankin, C. J. , in Krishna Lal Sadhu v. Pramila Bala Dasi, (1928) I. L. R. 55 Cal. 1315. That a trust may be inferred from the situation of the parties, their relationship to one another and the nature of the provisions made in a document is established by the decisions of the Judicial Committee and these decisions have also recognised the rights of persons not parties to the original contract to sue directly as beneficiaries. See uma Math v. Jang Bahadur, A. I. R. 1938 P. C. 245 :43 C. W. N. 1 (P. C. ). Suleman Quadir v. Salimullah Bahadur, (1922) I. L. R. 49 Cal. 820. Lakshminarayana Ananga Deo v. Sri Durga Madhava Deo, (1892) I. L. R. 16 Mad. 368 : L. R. 30 I. A. 9 (P. C. ). Khwaja Muhammad Khan v. Hussaini begam, (1910) 20 M. L. J. 614 : L. R. 37 I. A. 152 :i. L. R. 32 All. 410 (P. C. ). See also section 56 of the Trusts Act. ( 22 ) THE gift deed Exhibit A-1 executed by Nagayya to the defendant was being challenged and its rescission could well have been demanded by Nagayya according to the lower Appellate Court. The quarrels between the members of the family over the house and site comprised in Exhibit A-1 had reached the criminal Court and were likely to lead to a ruinous civil litigation. In these circumstances, the arrangement now sought to be enforced came into existence. It is obvious that nagayya was a party to the arrangement though Exhibit A-3 presented to the criminal Court was signed only by the complainant, the accused and the mediators. Nagayya wanted the house and site to be conveyed to his daughter instead of to himself and the defendant agreed to do so. The defendant undertook to convey the house and site to the plaintiff at the instance of Nagayya who had a claim to a reconveyance of the property. The defendant stated that the only reason for his not conveying the house as agreed was that he was not paid Rs. 100 and the value of 10 bags of paddy. The Courts below held that there was no agreement at all to pay these sums and the defendant's case in this respect was not true. The defendant was relieved from the necessity of maintaining Nagayya and this obligation was undertaken by the plaintiff. Till he died Nagayya was maintained by the plaintiff as stipulated in the compromise. In these circumstances, the plaintiff as a beneficiary under the compromise arrar gement and as one who has discharged her obligations thereunder is entitled to specific performance. If the arrangement is to be considered as one directly effected between the plaintiff and the defendant as was done by the trial Court, it will clearly be enforceable. The lower Appellate Court did not give a finding on this point under the erroneous view that there was no consideration for such an arrangement. In this evidence, the defendant stated that he had to maintain Nagayya and was maintaining him pursuant to the terms of Exhibit A-1. This obligation was undertaken by the plaintiff who maintained Nagayya for the rest of his life-time. This undertaking was sufficient consideration. For these reasons, I allow the second appeal and restore the decree of the District Munsif. In view of the difficulties caused by the informal manner in which the arrangement sought to be enforced was treated by the parties and in view of the admission on the point of law made by the appellant's counsel in the Court below, I direct that the parties bear their own costs throughout. No leave. Appeal allowed, No leave.