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this post is a part of our important question answer series on Contract Law.
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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
- Existence of a contract: The
most important essential is that there has been a contract between 2 or more
parties.
- 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.
- 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.
- 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.
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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