Case Briefs
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National Petroleum Co. Ltd. v. Popatlal Mulji


Author: Shrijeta Pratik, 1st Year student at KPMSOL, NMIMS, Mumbai.


Essential details of the case:

Citation: N/A

Appellant: Popatlal Mulji

Respondent: National Petroleum Co. Ltd.

Bench: J Beaumont, Kt., Rangnekar

Date of Judgment: 11 March, 1936

Original copy: N/A

 

Facts of the case:

  • The relevant facts are that Defendant no. 2 did business at the National Petroleum Company and engaged in a contract as a selling agent with the plaintiff and others. Plaintiff was designated selling dealer on behalf of defendant no. 2 under a contract with the plaintiff dated April 22, 1933. 
  • By Clause 3, the selling agent promised to deduct for items required by him and reimburse defendant no. 2, the actual value of goods as determined by the defendant at the time of delivery against railway receipts or shipping papers. Clause 15 required the plaintiff, as selling agent, to deposit an amount of Rupees 1,000 with the defendant which was to be repaid to the plaintiff upon termination of the agreement. 
  • In the meanwhile, if the deposit was made in currency, it was to earn 6% interest, but if it was placed in Government Securities, the actual income earned on the securities was to be given to the plaintiff. Defendant No. 2 was supposed to be able to use the down payment, whether it was in cash or in government securities. 
  • The plaintiff paid his deposit of Rupees 1,000, which is one of the payments he was suing for. There was also an amount of R. 3,649 payable to the plaintiff at the time the suit was filed under the agreement in respect of the total of money due to him in the way described below.
  • The first defendant corporation was incorporated on May 21, 1934, and it became eligible to do business on July 17, 1934. On June 5, 1934, defendant No. 2 and defendant No. 1 reached an agreement wherein all of defendant No. 2’s resources were transferred to defendant No. 1.
  • As far as the Bombay business was involved, the sale was to begin on April 1, 1934. The consideration for the sale was partly cash and partly shares for defendant no. 1, and he agreed to pay, gratify, discharge, and fulfill all debts and liabilities relating to the Bombay business beginning April 1, 1934, as the residue of the consideration for the sale. 
  • The plaintiff gave notice of termination of his selling agency agreement, and defendant No. 1 promptly returned his security of Rupees 1,000 and paid the balance owed to him on record. He filed this complaint as a preliminary suit on November 16. Defendant No. 1 was given unrestricted leave to defend on January 21, 1935, but on February 15, a decree was issued against defendant No. 2 for the whole sum sought by the plaintiff.

Issues:

  • Whether the plaintiff can sue on this arrangement, where he was not a party but benefited from, and if, by taking judgment against defendant No. 2, he barred himself from pursuing defendant No. 1?
  • Whether, for the time being, the plaintiff had a legal right to sue defendant No. 1 under the terms of the contract?

Judgment:

  • The rule of English law states unequivocally that the only people who can sue over a contract are the people who signed it. Without a doubt, there are several cases on the books where non-contracting parties have been permitted to file a plaint on the contract. However, those instances are based on the premise that the plaintiff is claiming through a contract party, that he is in the stance of a cestui que trust or a principal suing through an agent, and that he could have filed a suit in equity under the old process, even if he couldn’t have sued at common law.
  • Those incidents are a well-known exception to the general rule that only contracting parties can sue. Nothing in the Indian Contract Act, 1872 indicates that this principle does not prevail in India. True, the Indian Contract Act’s definition of “consideration” in Section 2 gives the term a broader meaning than that used in English law, because it covers consideration flowing from the promisee or any other person. The notion that consideration may come from a third party, however, does not imply that a third party could sue based on the contract.
  • Another well-established notion is that a cause of claim must be based on privity of contract. Nonetheless, in terms of the obligation of consideration flowing from the promisee, Indian law varies from English law. The concept of consideration in Section 2 of the Indian Contract Act is substantially broader, allowing for third-party consideration. 
  • But, in the view of the court, despite the contradictory decisions, the other assertion still stands in Indian law, and a person who is not a party to the contract is not obligated to retain an action for violation of that contract, and this appears to be clear from Section 2 of the Indian Contract Act. The entire premise of the section is that a promise exists when one person expresses his readiness to do or refrain from doing something to another, and the other person expresses his acceptance to it; the person who makes the offer is the promisor.

Critical Analysis:

  • However, the facts of that case were unusual. The plaintiff, who was not a party to the contract in question, had given up something that was thought to be a charge on assets to the defendant, who had agreed to pay the plaintiff’s debt with the other contracting party. 
  • As a result, the plaintiff was informed of the contract between the defendant and the other party, and the plaintiff had responded to that contract to his benefit by giving over something to the defendant, it was determined that the plaintiff could bring an immediate action against the defendant on the contract to which he was not a party.
  • Consideration must pass from the promisee under English law, and it is well-established that an outsider to the consideration cannot sue on the contract unless it has been formed on his account by an agent or trustee.

 

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