Iswaram Pillai v. Tharagan

The Judgment of the Court was delivered by

Tyabji, J.:— The plaintiff sues for a decree for a sum of Rs. 610, which includes the principal sum of Rs. 450 and interest. This sum is claimed as due on a hypothecation bond purporting to be executed on 27th August 1907 to which the plaintiff was not a party, but which was executed by one Sahib Sheik Udunan Tharagan in favour of defendants 1 and 2 and of the father of defendants and 4, whom I shall refer to for brevity as the defendants. Sheik Uduman Tharagan, the executant of that bond, was a debtor of the plaintiff, and he asked the defendants (in terms to which I shall immediately refer) to pay off the sum of Rs. 450, which was due from Sheik Uduman Tharagan himself to the plaintiff.

2. The material portions of the hypothecation bond are as follows: “The hypothecation bond executed on 27th August 1907 to defendants………the sum received on the hypothecation to you of the following properties belonging to me……”, Then the particulars of the Rs. 2,000 are given which includes the following item “a sum of Rs. 450 is kept with you in order to be paid to and get a receipt from……… the plaintiff” on account of the balance “due to him in respect of the purchase of yarn.” It will thus be seen that the plaintiff claims to have a contract enforced, to which he was not a party but which was entered into between his debtor and the defendant.

3. The defence is first, that the plaintiff being a stranger to the contract could not sue on it; and secondly, that though the consideration for the hypothecation bond was originally fixed at Rs. 2,000, (including the payment of the sum now in question), yet that agreement was modified by a notice given by the defendant's vakil 20 days after the date of the hypothecation bond; and that subsequent, to that notice even as between the said Sheik Uduman and the defendants there was no contract that the defendants should pay the said sum to the plaintiff and that the charge created by the hypothecation in favour of the defendants was effective only in so far as the consideration had actually passed between the parties thereto at the date of the said notice, viz. for Rs. 1,250. The endorsement of the hypothecation bond and a decree, Ex. 4, which refers to it are relied upon as evidence of this modification of the terms of the hypothecation bond.

4. Both the lower Courts have dismissed the suit and the learned District Judge in doing so said. “The only question argued is whether there was privity of contract between the plaintiff and the defendants.”

5. It was argued before us that plaintiff was entitled to sue on the contract notwithstanding that he was not a party to it—and mainly on two grounds. The first argument was that by the terms of the hypothecation bond it was agreed that a trust should be created in favour of the plaintiff, and that if this was so the plaintiff could enforce the agreement. In the second place it was argued that the general rule of law that a person who is not a party to a contract cannot become entitled by that contract to demand the performance of any duty under it was no more applicable in India after the decision of the Privy Gounoil in Nawab Khwaja Mahommad Khan v. Nawab Husaini Begam(1), especially as that decision is explained and applied in Deb Narain Dutt v. Ram Sadhan Mandal(2), a decision of Sir Lawrence Jenkins, C.J, and Sir Asutosh Mukerjee, J., of the Calcutta High Court. It seems to me however that what were put forward as two distinct heads of arguments were in the circumstances of the present case indistinguishable and that both depend upon the consideration of the same question. For it is admitted that if the terms of the hypothecation deed are given effect to in their entirety, the plaintiff would receive the money from the defendants. The consideration of the question whether the plaintiff is entitled to have the terms of the hypothecation deed enforced is not, it appears to me, materially advanced by determining whether, if they were enforced, the money would be payable to the plaintiff through a trust or otherwise, or, to use the terms the Trusts Act, by determining whether the defendants agreed to annex to their ownership of the money the obligation of paying it to the plaintiff or he merely agreed to pay it to the plaintiff. Assuming that the money would be payable through a trust, the question would still remain whether the plaintiff can require that the trust should be completed. Assuming, in other words, that when the defendants agreed to pay to the plaintiff the sum claimed they agreed to become the trustees of the plaintiff, the question still remains whether that agreement can be enforced by the plaintiff. Every trust requires at its creation an agreement between the trustee and the author of the trust: see Section 10 of the Trusts Act. It is true that such an agreement is not always expressed, but is often implied, and in the case of constructive trusts it may be imposed upon a person against his will.

6. Here it is evident that it is sought to be imposed against the will of the alleged trustee. It is necessary to mention that in the present case the trust can be imposed only if the agreement is enforced at the instance of the plaintiff, for here there is no property Transferred to the defendants of which they agreed to become trustees, but all they agreed to do was at the most to allocate a certain sum in their own hands and to make that sum the trust fund. The principle of constructive trust can have no bearing on this point, for it cannot be contended that if A agrees with B to become a trustee for C, the mere agreement between A and B, even if B afterwards repudiates it (and if A consents to such repudiation), will make B a constructive trustee for C. An agreement to become a trustee is not for the purposes of the present case and in respect of its enforceability distinguishable from an agreement to pay a sum of money. In such cases the trust can arise only after the contract has been performed; until the trust arises it is merely a contract to create a trust and so long as the trust is not complete it is what in another connexion is called an N executory trust as distinguished from an executed trust; and until the trust is, executed there will be no trustee but only some person possibly “in progress towards being a trustee” in the words used by Sir Thomas Plumer in Wall v. Bright(3). Even after he has completed his progress of being a trustee he may occupy a position such as the vendor it. Shaw v. Foster(4) was held to occupy. That position is thus described by Earl Cairns: “The trustee was not a mere dormant trustee; he was a trustee having a personal and substantial interest in the property—a right to protect that interest, and an active right to assert that interest if anything should be done in derogation of it. The relation therefore of trustee and cestui que trust subsisted, but subsisted subject to the paramount right of the vendor and trustee to protect his own interest as vendor of the property”: p. 338.

7. The present case for these reasons seems to me to be quite different from others where a trust has already been created and the beneficiary seeks to enforce it.

8. I come therefore to consider whether the agreement referred to can be enforced at the instance of the plaintiff. In the decision of the Privy Council in Nawab Khwaja Mahommad Khan v. Nawab Husaini Begam the parents of a bride and bridegroom (who were both minors) entered into an agreement which the bride sought to enforce by suit. The marriage was recited as the cause leading up to the agreement. Their Lordships allowed the suit on the following grounds: “(1) that Tweddle v. Atkinson(5) was an action of assumpsit, and that he rule of Common law, on the ??? of which it was dismissed, is not………applicable to the facts and circumstances of the case.” They bate, apparently, as the reason ??? Tweddle v. Atkinson did not apply, (2) that the agreement executed the defendant specifically charged immovable property for the allowance which he bound himself to pay to the paintiff; (3) that the plaintiff was the inly person beneficially interested under it, and from this they draw the conclusion (4) that “although no party to the document, she was clearly entitled to proceed in equity to enforce her claim.” After this they remark,: (5) “In India and ??? communities circumstanced as the ??? among whom marriages are ??? for minors by parents and ???, it might occasion serious ??? if the Common Law doctrine were applied to agreements or agreements entered into in connexion with ??? contracts.” Their Lordships do of refer to Section 23 of the Specific Relief Act which provides that “where a contract is a settlement on marriage any person beneficially entitled thereunder” may obtain specific performance of the contract.

9. It seems to me that none of the circumstances on which their Lordships based their decision are present in the case now before us. The facts in Deb Narain v. Ram Sadan Mandal are some what similar to the facts of the case with which we are dealing; but there were present in that case certain very material circumstances which are not present here: (1) all the parties to the contract sued upon were on the record; (2) the contract was communicated to the plaintiff and he accepted the arrangement; (3) in consideration of such acceptance the plaintiff handed over a patta which had been deposited with him under the impression that by so depositing it a charge was created on the property in his favour; (4) by the agreement sued upon, the plaintiff's debtors had parted with the whole of their property moveable and immovable, to defendant 5; (5) the sum sued for “was allocated and held by defendant 5 for the benefit of the plaintiff so that in a sense the money was reified and earmarked for this purpose.” Sir Lawrence Jenkins, with reference to these facts, states; “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 defendant 5.” Then he states that Tweddle v. Atkinson does not bind the Indian Courts because (1) that decision was “on a form of action peculiar to the Common Law Courts in England and was influenced by the fact that no action in assumpsit could be maintained upon a promise unless the consideration moved from the party to whom it was made,” whereas under the Section 2(d) of the Contract Act, we have a definition of consideration, which is wider than the requirements of English Law; (2) Sir Lawrence Jenkings' second reason is stated in the following terms: “We now have ample authority for saying that the administration of justice in these Courts is not to be in any way hampered by the doctrine laid down in Tweddle v. Atkinson. That I take to be the result of the decision of the Privy Council in a recent case which is reported as Nawab Khawaja Muhammad Khan v. Husaini Begam.

10. In the report of that case in the Calcutta Weekly Notes there is an interlocutory remark of Lord Macnaghten which indicates the limits imposed on a Court of Common Law. He there says: “Supposing she (that is the plaintiff) were an English woman it is true she could not bring an action in the King's Bench Division, but could she not bring a suit in equity?” The answer of the learned counsel was “Yes” …. The bar then in the way of an action by the person not a direct party to the contract was probably one of procedure and not of substance. In India we are free from these trammels and are guided in matters of procedure by the rule of justice equity and good conscience.” (3) After that Sir Lawrence Jenkins referss to three cases Gregory v. Williams(6), Touche v. Metropolitan Railway Warehousing Company(7) and Gahdy v. Gandy(8). And finally he concludes by saying, “There is a valuable exposition of the law by Lord Hatherley……The case comes within the authority that where a sum is payable by AB for the benefit of CD, CD can claim under the contract as if it had been made with himself.” That appears to me to be a principle which is of distinct use in the consideration of this case.”

11. It was argued before us, mainly on the authority of the ruling to which I have just referred, that the doctrine that a stranger to a contract cannot sue on it was no more applicable in India. With reference to this contention it is necessary to consider some of the remarks in the decision. It must be observed that the statement of Lord Hatherely in Touch v. Metropolitan Railway Warehousing Company cited by Sir Lawrence Jenkins cannot be said to have been accepted by the Courts of equity in England as a sufficient exposition of the law: see per Lord Bowen in Gandy v. Gandy. Sir Frederick Pollock refers to it (Contracts, Edn. 9, p. 202) as having been overruled by the Court of Appeal in England and he cites In re Rotherham Alum & Chemical Co.(9). Lindley L.J, says in that case: “An agreement” between A and B that B shall pay C, gives C no right of action against B. I cannot see that there is in such a case any difference between equity and Common Law; it is a mere question of contract. It is said that Mr. Peace has no equity against the Company because the company has had the benefit of his labour. What does that mean? If I order a coat and receive it, I get the benefit of the labour of the cloth manufacturer; but does anyone dream that I am under any liability to him? It is a mere fallacy to say that because a person gets the benefit of work done for somebody else he is liable to pay the person who did the work.” See also In re Empress Engineering Company(10), per Jessel, M.R, in the course of the arguments and Lindley on Companies, p. 148, cited by Pollock, Op. Cit.

12. Sir George Jessel says in the case last cited: “I know of no case where when A simply contracts with B to pay money to C, C has been held entitled to sue A in equity.” These decisions also show, that this doctrine is not one merely based on the technicalities of Common Law procedure in England, but that it finds a place in the equitable principles which Sir George Jessel, M.R, and other eminent exponents of equity were not reluctant to enforce. This agreement between the rule of Common Law and equity is brought out also in the remarks of Brett, L.J, in Wilson v. Bury (Lord)(11), while the point where equity and Common Law differ is indicated by Cotton, L.J, in Gandy v. Gandy and by Bowen, L.J, ib., pp. 69-70. The latter points out that if the true intent and effect of a contract is to give to third parties a beneficial right under it, that to say, to give them a right to have the covenants in the contract performed—and this can only happen [as pointed out by Sir George Jessel in In re Empress Engineering Co.] when the partie have no power to coming to a new agreement the next day releasing the old on—then the stranger may be allowed in a Court of equity to enforce his right; under the contract: but that the whole application of this doctrine depends upon its being made out that upon the true construction of the contract such a beneficial right is given. Cotton, L.J, says: “Now, of course, as a general rule a contract cannot be enforced except by a party to the contract, and either of the two persons contracting together can such the other, if the other is guilty of a breach of or does not perform the obligations of that contract. But a third person—a person who is not a party to the contract—cannot do so. That rule however is subject to this exception: if the contract, although in form it is with ??? is intended to secure a benefit to B so that B is entitled to say he has a beneficial right as cestui que trust under that contract, then B would in a Court of equity, be allowed to insist upon and enforce the contract.” The distinction between Courts of Equity and Common Law does not exist in India. But the exception referred to by Cotton, L.J, necessarily presupposes that the trust has already been created, that the progress towards being a trustee has been completed, as I have already pointed out.

13. It would therefore appear that some of Sir Lawrence Jenkins' remarks in Deb Narain's case might be misleading if they are not read in connexion with the acts of the particular case.

14. In connexion with the law as enforced by the Courts of equity in England it may be well to refer to In re Empress Engineering Co. which contains the following comment by James, L.J, on Gregory v. Villiams most nearly approaching to the contention put forward on behalf of the appellant: “In Gregory v. Williams the man with whom the contract was made was one of the plaintiffs and the only defence there would have been misjoinder of plaintiffs, and that is a defence which the Court was not likely to view with much favour.” In Deb Narain's case the original promisee was not a plaintiff, out he was one of the parties to the suit.

15. The result may therefore be shortly stated that no case has been cited to us ??? which, unless the contract has been ??? or fully performed, so that a trust has been already created, a suit on a contract has, under circumstances similar to those with which we have to deal, been allowed to be maintained without the presence on the record of all the parties to the contract, and no English case has been cited in which one of such parties is not a plaintiff.

16. It has been pressed upon us however at we are not bound necessarily to allow the law as laid down by the English Courts; that in the absence of ??? provisions the law of our Courts is that indicated by justice, equity and ??? conscience. One of the ??? owing to which it has been ??? that the rule that ought to be followed by us must be different from that ??? prevails in England is that the ??? “consideration” contained in the ??? Act, S. 2(d), does not require that consideration should necessarily move from the party seeking to enforce the contract. This circumstance may not be so relevant to the point under consideration as might at first appear, for the definition of “consideration” in the Contract Act has direct reference in its very terms to the parties to the contract who are referred to in the Act as the promisor and promisee. The effect of S. 2(d) is that if a promisee wishes to have the contract enforced, his promisor cannot object that the consideration proceeded from a; third party, and not from the promisee seeking to enforce the contract. It does not seem to me to be equally clear that the definition can affect the question whether a third party (who is neither the promisor nor the promisee) can enforce the contract. If A and B agree that in consideration of X paying to B Rs. 100, B will repair A's house, it is true that A can enforce the contract against B, who cannot object that he received the money from X and not from A (though, if X does not pay, there may be a failure of consideration and B may be entitled to rescind the contract on that account). On this point the English law does not seem to be different: Davenport v. Bishopp(12) and Gaudy v. Gandy. But is the definition of any assistance in considering whether X can sue on a contract by which A promises B that A will pay to X Rs. 100? The definition refers to the third party (X) as the person from whom the consideration moves; not as the person (being neither the promisor nor the promisee) for whose benefit the contract is made. The definition can therefore have only a remote bearing on the totally distinct question whether a person, who benefits by a contract but who, is not the promisee, can sue on the contract.

17. Finally it has been contended that the rule against a stranger to a contract being allowed to sue is one merely of procedure and that we should not hesitate to disregard it in order to do justice. It is indeed described as a rule of procedure by Willes, J., in Gray v. Pearson(13), but in terms which are far from implying that therefore the rule is opposed to justice and should be disregarded. He says: “I am of opinion that this action cannot be maintained, and for the simple reason—a reason not applicable to merely the procedure of this country, but one affecting all sound procedure — that the proper person to bring an action is the person whose right has been violated. Though there are certain exceptions to the general rule, for instance, in the case, of agents, auctioneers or factors, these exceptions are in truth more apparent than real.”

18. It was pressed before us however that the Privy Council have definitely stated that Tweddle v. Atkinson was not applicable to the facts and circumstances of the case before them, and that serious injustice might result if the Common law doctrine had been applied thereto and this supplied, in the words used in Deb Narain v. Ram Sadhan Mandal, “ample authority for saying that the administration of justice in these Courts is not to be in any way hampered by the doctrine laid down in Tweddle v. Atkinson.” It seems to me, with great respect, that this argument is based on a misapprehension of the Privy Council decision. Their Lordships only say that the Common law doctrine did not apply to the facts and circumstances of the case before them, but that doctrine would not, it seems to me, be applicable in England in a case where immovable property is specifically charged for the sole benefit of a third party in consideration of her marriage and where she is a minor whose natural guardian is a party to the contract and when the marriage has already taken place and everything done to complete the creation of the trust. Their Lordships of the Privy Council do not purport to go beyond what the Courts of equity would have done in England; this is expressly stated by them Assuming however that they intended to say that the law prevailing in England should not be applied in disregard of the circumstances in India—and that would not be any new proposition—it is necessary to bear in mind that in any case a person who is not a party to the contract cannot be permitted to enforce it without being subject to all the equities which would be present between the parties themselves; and this would almost invariably necessitate that all the parties to the contract should be impleaded in the suit: the question whether the contract is revokable at the option of either of the parties or whether it has been altered by mutual consent or been performed in part, whether the parties can be restored to their original position, and other similar questions would have to considered and would affect the third party's claim: see In re Empress Engineering Co. and the interlocutory remarks of Jessel, M.R, during arguments; and per Grant, M.R, in Gregory v. Williams.

19. In all these respects the plaintiff's suit is defective.

20. I am therefore of opinion that the principle that the proper person to bring an action is the person whose right has been violated: see per Willes, J., in Gray v. Pearson, a principle recognized both by Common law and equity [see pe: Lord Lindley In re, Rotherham Alum and Chemical Co.], applies in India also no less than in England, and that, except in cases which are not material at present the person who acquires a right to enforce a contract of such a nature as we have to deal with is the promisee and not a stranger to the contract, who may benefit under the contract, and that therefore the lower Courts were right in dis missing the plaintiff's suit. The appeal will be dismissed with costs.

Ayling, J.:— I agree.

S.N/R.K

21. Appeal dismissed.