Q. Write a short note on privity of contract.

 

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Meaning of Privity of Contract

The doctrine of privity of a contract is a common law principle which implies that only parties to a contract are allowed to sue each other to enforce their rights and liabilities and no stranger is allowed to confer obligations upon any person who is not a party to the contract, even though the contract have been entered into for his benefit.

The rule of privity is basically based on the ‘interest theory’ which implies that the only person having an interest in the subject matter of contract is entitled as per law to protect his rights.

 

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Essentials of Privity of contract

1.        Existence of a contract: The most important essential is that there has been a contract between 2 or more parties.
2.        The contract must not suffered from any of the legal impairments: Such as: the contracting parties should have attained the age of majority, the subject matter of the contract should not be prohibited by law, it should contain a valid consideration etc.
3.        There has been a breach of contract by one party: Breach of contract by one Party is the essential requirement for the application of the doctrine of privity of contract.
4.        Only parties to contract can sue each other: Now after the breach, only Parties to a contract are entitled to sue against each other for non-performance of contract.
5.  

Position in English Law

In a leading English case of Tweddle v. Atkinson, it was held that the plaintiff cannot sue as he was both a stranger to the contract as well stranger to consideration.

This concept of privity of contract was again analyzed in the case of Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd.

 

Position in India

In the context of India, similar to the English law, the doctrine is followed in its letter and spirit, the only difference being that in India a person who is stranger to consideration can sue whereas in England he cannot.

The Law Commission of India, in its 87th Report, proposed that when a certain contract clearly imparting a benefit to a third party is adopted by that party, the contracting parties must not terminate, replace or amend the contract in order to affect the interests of that particular party.

However, this recommendation has not yet been adopted.

 

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Exceptions to the Doctrine of Privity of contract

As a general rule, only parties to contract are entitled to sue each other, but now with the passage of time, exceptions to this general rule have come, allowing even strangers to contract to prosecute. These exceptions are

1.       A beneficiary of a contract: If a contract has been entered into between 2 persons, for the benefit of a third person not being a party, then in the event of failure by any party to perform his part, the third party can enforce his right against the others.

For e.g. In a contract between Abhi and Pradyumna, beneficial right in respect of some property may be created in favor of Shivansh. In that case, Shivansh can enforce his claim on the basis of this right. 

The above described concept has been highlighted in the case of Muhammad Khan v. Husaini Begum.

 

2.       Conduct, Acknowledgement or Admission: There can also be situation in which although there may be no privity of contract between the two parties, but if one of them by his conduct or acknowledgment recognizes the right of the other, he may be liable on the basis of law of estoppel ( Narayani Devi v. Tagore Commercial Corporation Ltd).

For e.g., If A enters into a contract with B that A will pay Rs 5000 every month to B during his lifetime and after that to his Son C. A also acknowledges this transaction in the presence of C. Now if A defaults C can sue to him, although not being directly a party to contract.

 

3.       Provision for maintenance or marriage under family arrangement: These types of provisions are treated as an exception to the doctrine of privity of contract for protecting the rights of family members who not likely to get a specific share and also to give maximum effect to the will of the testator.

For e.g., If A gives his Property in equal portions to his 3 sons with a condition that after his death all 3 of them will give Rs 10,000 each to C, the daughter of A. Now C can prosecute if any one of them fails to obey this.

4.       Covenants running with land: if a person buys some land knowing that its owner is under specific duties created by a covenant or agreement regarding the land, they would be bound by those, irrespective of the fact that they were not a party to that agreement, the same was held in the case of Tulk v Moxhay.

5.       Cases of natural love and affection are also exempted from the application of this doctrine.

 

 

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