diff --git a/ledger-api/grpc-definitions/com/daml/ledger/api/v1/event.proto b/ledger-api/grpc-definitions/com/daml/ledger/api/v1/event.proto
index 2cf7f8fb87d1..7451d3d97e79 100644
--- a/ledger-api/grpc-definitions/com/daml/ledger/api/v1/event.proto
+++ b/ledger-api/grpc-definitions/com/daml/ledger/api/v1/event.proto
@@ -71,6 +71,7 @@ message CreatedEvent {
   repeated string signatories = 8;
 
   // The observers for this contract as specified explicitly by the template or implicitly as choice controllers.
+  // This field never contains parties that are signatories.
   // Required
   repeated string observers = 9;
 
diff --git a/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/ActiveContractsServiceIT.scala b/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/ActiveContractsServiceIT.scala
index ec0b540f0491..52611f0279fc 100644
--- a/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/ActiveContractsServiceIT.scala
+++ b/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/ActiveContractsServiceIT.scala
@@ -19,11 +19,13 @@ import com.daml.ledger.test.model.Test.{
   Dummy,
   DummyFactory,
   DummyWithParam,
+  WithObservers,
   Witnesses => TestWitnesses,
 }
 import io.grpc.Status
 import scalaz.syntax.tag._
 
+import scala.collection.immutable.Seq
 import scala.concurrent.ExecutionContext
 
 class ActiveContractsServiceIT extends LedgerTestSuite {
@@ -377,6 +379,21 @@ class ActiveContractsServiceIT extends LedgerTestSuite {
     }
   })
 
+  test(
+    "ACSnoSignatoryObservers",
+    "The ActiveContractService should not return overlapping signatories and observers",
+    allocate(TwoParties),
+  )(implicit ec => { case Participants(Participant(ledger, alice, bob)) =>
+    for {
+      _ <- ledger.create(alice, WithObservers(alice, Seq(alice, bob)))
+      contracts <- ledger.activeContracts(alice)
+      Seq(ce) = contracts
+    } yield assert(
+      ce.observers == Seq(bob),
+      s"Expected observers to only contain $bob, but received ${ce.observers}",
+    )
+  })
+
   private def createDummyContracts(party: Party, ledger: ParticipantTestContext)(implicit
       ec: ExecutionContext
   ) = {
diff --git a/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/TransactionServiceIT.scala b/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/TransactionServiceIT.scala
index 48b76dc54de3..bbd71e5dba5f 100644
--- a/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/TransactionServiceIT.scala
+++ b/ledger/ledger-api-test-tool/src/main/scala/com/daml/ledger/api/testtool/suites/TransactionServiceIT.scala
@@ -38,6 +38,7 @@ import io.grpc.Status
 import scalaz.Tag
 
 import scala.collection.compat._
+import scala.collection.immutable.Seq
 import scala.collection.mutable
 import scala.concurrent.Future
 
@@ -1083,6 +1084,31 @@ class TransactionServiceIT extends LedgerTestSuite {
     }
   })
 
+  test(
+    "TXnoSignatoryObservers",
+    "transactions' created events should not return overlapping signatories and observers",
+    allocate(TwoParties),
+  )(implicit ec => { case Participants(Participant(ledger, alice, bob)) =>
+    for {
+      _ <- ledger.create(alice, WithObservers(alice, Seq(alice, bob)))
+      flat <- ledger.flatTransactions(alice)
+      Seq(flatTx) = flat
+      Seq(flatWo) = createdEvents(flatTx)
+      tree <- ledger.transactionTrees(alice)
+      Seq(treeTx) = tree
+      Seq(treeWo) = createdEvents(treeTx)
+    } yield {
+      assert(
+        flatWo.observers == Seq(bob),
+        s"Expected observers to only contain $bob, but received ${flatWo.observers}",
+      )
+      assert(
+        treeWo.observers == Seq(bob),
+        s"Expected observers to only contain $bob, but received ${treeWo.observers}",
+      )
+    }
+  })
+
   test(
     "TXFlatTransactionsWrongLedgerId",
     "The getTransactions endpoint should reject calls with the wrong ledger identifier",