Doctrine of Privity of Contract


INTRODUCTION- A contract consists of the rights which if not fulfilled imposes liabilities on the parties which are contacting. According to section 2(h) of the Indian Contract Ac, 1872, a contract is defined as an agreement between two parties that is enforceable by law and is backed up by consideration for the same. The basis of the law of contract is in the promise which both parties make towards each other which deals with fulfilling their part of the contract. The doctrine of privity is a law principle with states that only the parties to a contract would be allowed to sue each other and can enforce their rights as well as liabilities, and no stranger to the contract would be allowed to sue or be sued. This implies that only that person who has an interest in the contract would be entitled to protect his rights according to the contract. The consideration of the parties is one of the most important elements of any existing contract unless the consideration is void. Only those parties which are parties to a contract would be able to sue one another for any breach in the contract. However, in the recent rulings it has allowed some third party beneficiaries who are allowed to recover the damages for the breaches of contract in which they were not a party. The foundation of the doctrine of privity was laid in the case of Tweedle vs Atkinson in which two fathers entered into a contact that if their children got married then both of them will pay a sum of amount to the groom, when their children got married the groom's father fulfilled his promise and paid his part to the groom but the bride’s father failed to pay the amount and died. After the death of the bride’s father an action was initiated by the groom against his father in law to recover the amount. The court held that as the groom was not a party to the contract then even if the contract was in favour of the groom it still doesn't change the fact that he was not a party to the contract. And according to the doctrine a third party who did not execute the contract does not have rights and obligations in the contract.

ESSENTIALS- A few of the essential conditions which are required for the privity of contract is that the contract should be entered between two parties, the parties must be competent and there should be a valid consideration, these are the prerequisites and essential for the application of this doctrine. A breach must be committed by one of the party. Only the parties to the contract would be able to sue each other, the basic objective of the contract is that the two parties who have promised one another a performance of an act must complete their part of the contract and if non performance of the contract takes place the parties can sue each other. However the basic rule around which the doctrine revolves is that a third party on any party which is not a party to the contract cannot sue or be sued for any non performance.

THIRD PARTY BENEFICIARIES- A third party beneficiary is a person who enjoys the benefit of a contract or an agreement which is entered into by two or other parties. Generally, the third party beneficiaries do not have the right to sue or be sued under the contract as they are considered strangers to the contract and are not allowed to have any right or obligations under the contract. However, some statutory provisions enable a third party beneficiary to overcome the doctrine of the privity of contract. Such third party beneficiaries can sue you under contract but, such third party beneficiaries must be an intended beneficiary and not an incidental beneficiary. And the burden of proof lies on the third party to prove that they are an intended beneficiary.

EXCEPTIONS- The exceptions to the doctrine of privity are- Agency - When an agent enters into a contractual relationship with the third party and the agent’s principle has the right to enforce a contract against the agent or the third party, as the case may be. However two conditions must be fulfilled in order to enforce an action against him, the agent should have entered into an agreement with the name of the principle and the agreement should not be outside the scope of the authority of the agent. Agreement for marriage settlement, partition- Any person who is a beneficiary under any agreement for the purpose of the marriage settlement , partition of the family or any other family arrangement can successfully enforce an agreement in a position that he is a party to the agreement. Trust - A beneficiary who is undercharge or trust may enforce such a trust or charge even if he's not a party to the contract and not responsible for creating such a trust or charge. Estoppel – When an agreement exists which requires any party to carry out an action for any third party and such a party acknowledges themselves in such a manner which amounts to the acknowledgement then they are bound to carry out such an act and if they fail to do so a third party would be liable to sue them.

CONCLUSION- The doctrine of the privity of contract generally focuses on the relationship held between parties to a contract and that the parties to contract have several rights and obligations under the contract. They can enforce such obligations which arise out of the contract against each other for non performance and can sue or be sued. The doctrine at first restricted the third parties from enforcing contract, as a party which is not a party to the contract is considered a stranger to the contract. But with the evolution of law and various judicial pronouncements third parties are now made beneficiaries under a contract. And the doctrine comes with several exceptions and provides the third parties with an opportunity to enforce contracts and sue the parties which act in a manner which is adverse to the interests of third party beneficiaries.

38 views0 comments