Introduction
According to Section 2(h) of the Indian Contract Act, 1872, a contract is an agreement between two parties that’s enforceable by law and includes some form of consideration. The heart of contract law is the promise each party makes to the other, committing to fulfil their part of the deal.
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Privity of contract Meaning and scope
The doctrine of privity of contract is a common law principle that means only the parties involved in a contract can sue each other to enforce their rights and responsibilities. No outsider can impose obligations on someone who isn’t part of the contract, even if the contract was made for their benefit. This rule is based on the ‘interest theory,’ which suggests that only those directly interested in the contract have the legal right to protect their interests.
Illustration: Let’s say Ramesh promises to deliver goods to Arun. If Ramesh breaks this promise, only Arun has the right to take legal action against him. No one else can step in and sue Ramesh over this breach.
Also Read: Meaning and Nature of Contract
Essentials of Privity of Contract
- A Contract Between Two or More Parties: First and foremost, there must be a contract between at least two parties.
- Competent Parties and Valid Consideration: The parties involved must be legally competent, and there should be something of value exchanged (consideration).
- A Breach of Contract: One of the parties must have breached the contract for this doctrine to come into play.
- Only Parties to the Contract Can Sue Each Other: After a breach, only the parties who are part of the contract can sue each other for not fulfilling the agreement.
Privity of Contract in English Law Vs Indian Law
In general, both Indian and English law agree that only the parties involved in a contract can sue each other. A famous English case, Tweddle v. Atkinson, decided that the plaintiff couldn’t sue because he was a stranger to both the contract and the consideration.
This idea was further examined in another case, Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd. The House of Lords ruled that Dunlop couldn’t sue Selfridge because there was no consideration between them.
In India, the concept of privity of contract is quite similar. However, there’s a key difference: in India, a beneficiary of the contract can sue, whereas, in England, a beneficiary usually cannot under certain circumstances.
Role of consideration in the Privity of contract
Consideration is the most important element of any contract. Without it, a contract is considered void which is given in section 25 of Indian Contract Act, 1872. Section 2(d) of the Indian Contract Act, 1872, defines consideration. Think of it as the foundation of every contract—it’s what gives the agreement its substance and validity.
Exceptions to the Doctrine of Privity of Contract in India
Generally, only the parties involved in a contract can sue each other. However, over time, exceptions to this rule have emerged, allowing even those who aren’t part of the contract to take legal action. Here are some key exceptions:
1. A Beneficiary Under a Contract
If a contract is made between two people for the benefit of a third person, this third person can enforce the contract if it’s not fulfilled.
For example, if Alex and James make a contract where James promises to benefit Robin, Robin can enforce his rights if James fails to deliver, even though Robin isn’t directly part of the contract. This concept was highlighted in the case of Muhammad Khan v. Husaini Begum.
Illustration: Alex promises James that he will transfer a piece of property to Robin. If Alex fails to do so, Robin can sue Alex to enforce this promise, even though he wasn’t directly part of the original agreement.
2. Conduct, Acknowledgment, or Admission
There can be situations where, even without a direct contract, one party recognizes the rights of another through their actions or acknowledgements. This is based on the law of estoppel.
For instance, in Narayani Devi v. Tagore Commercial Corporation Ltd, if someone acknowledges a transaction in front of a third party, they might be liable to that third party.
Illustration: A agrees to pay B Rs 5,000 every month during B’s lifetime and then to B’s son, C, after B’s death. A acknowledges this arrangement in front of C. If A stops the payments, C can sue A to enforce the payments, even though C wasn’t directly part of the contract.
3. Provision for Maintenance or Marriage Under Family Arrangement
Family arrangements that provide for maintenance or marriage are another exception. These provisions protect family members who may not have a specific share and honour the will of the testator. In Sunsaraja Aiyangar v. Lakshmiammal, even though the plaintiff was not directly part of the contract, the court treated it as a trust in her favour.
Illustration: A divides his property among his three sons with the condition that they must each give Rs 10,000 to their sister, C, after A’s death. If any son fails to pay, C can take legal action to enforce this condition.
Conclusion
From these examples, it’s clear that while the basic rule is that only parties to a contract can sue each other, the law has evolved. Now, under certain exceptional circumstances, even someone who isn’t a direct party to the contract can take legal action to protect their interests.
