The doctrine of privity of contract

The doctrine of privity of contract

The doctrine of privity of contract states that only those persons who are parties to a contract can initiate action with respect to the contract. Only the parties can sue or be sued upon. This rule is called the ‘doctrine of privity of contract. Privity is the term that describes the relationship between the parties in a contract. In essence, it tries to state that the third party to a contract generally does not have any role in a contract. There are certain exceptions to this which are discussed later on in this article. Dunlop Pheumatic Tyre Co. V. Selfridge & Co. is a case that can be used to help understand this doctrine in a better way. In this case Dunlop was a tyre manufacturer who was in agreement with their dealer to not sell the tyres below the recommended retail price.

The agreement also prescribed that the dealer come into an understanding with their retailers regarding the same, who in this case was Selfridge. As part of the understanding between the dealers and Selfridge, an agreement was made where, if the tyres were sold below the mentioned retail price, they would have to pay a fine of five pounds per tire in damages to Dunlop. This made Dunlop a third party to their agreement. Selfridge violated the terms and a case was filed. The court unanimously decided that Dunlop could not claim for the damages in this circumstance as they were not a party to the contract and there had been no consideration given to Selfridge by Dunlop and there could be no binding contract between them.

See also  Doctrine of Stare Decisis

The Doctrine of  Privity helps preserve the sanctity of the contract and is purely exclusive to the parties involved. In the case of Tweedle V. Atkinson, A father and father in law entered into an agreement to pay the groom a certain amount after marriage. But they died before paying him. He sued the executors of the father in law for compensation. It was held by the court that the groom was not part of the agreement made between the fathers and did not provide any consideration for the same. He was merely a stranger to the contract and could not enforce it. His claim was rejected.

In Durgaprasad v. Baldeo, ‘A’ constructed an establishment on the order of the collector. The occupants of the establishment told that they would pay ‘A ‘the commission in return for the shops but the occupants failed to pay ‘A’ and ‘A’ sued the shopkeepers. The court in this case was of the opinion that since the shops were built at the desire of the collector and not the shopkeepers, the consideration moved from the collector and the consideration was invalid as per section 2(d) and hence the contract was null and void.

Exceptions to the doctrine of privity

There are various exceptions to the doctrine of privity such as nearness in relation, estoppel, trust, past, present, and future consideration.

  • Nearness in relation: A landmark case which is relevant in this scenario is Dutton v. Poole. In this case X promised to give financial support to his daughter Y after her marriage. He planned to do so by cutting Timber. But in the course of events , the older brother in the family promised to pay for his sister instead of the father. But he failed to do so. The court held that Y could sue her brother. The court looked into the intention of the agreement and made an exception for nearness of relation. In this case the daughter was neither a party to the consideration nor had the consideration. But the court overlooked this and enabled her to claim.
  • Acknowledgement/Estoppel: If in case a contract requires that a party pay a certain amount to a third party and he/she acknowledges it, then it becomes a binding obligation for the party to pay the third party. The acknowledgement can also be implied. For instance, A gives some money to B to give it to C , but B fails to give the money despite acknowledgement. In this case C can sue B even though he is not a party to the contract directly.
  • Trust: Trust as an exception can be understood through the case of Baksh Singh v. Jang Bahadur. Baksh Singh was given an estate by his father as a part of succession. In consideration, Baksh Singh agreed to pay a certain sum of money and to give a village to Jang Bahadur, the illegitimate son of his father, on attaining the age of majority. After Jang Bahadur attained the age of majority, he asked Baksh Singh for the promised money, but he refused to give the money and claimed that he was not a party to the contract. The issue in this case is whether Jang Bahadur can claim damages. The court held that in circumstances where a trust was created between 2 people, in favour of another, the beneficiary could claim damages. Hence Jang Bahadur could sue Baksh Singh for maintainability of contract.
  • Present, past and future consideration: A consideration can consist of a past, present or a future one. It can also consist of abstinence. Past consideration is when something has been done or suffered before the date of the agreement. It is described in detail under Section 24(4) of the Indian contract act 1872. A past consideration is considered to be a good one only if it is given by the promisee at the desire of the promisor. A present consideration is a consideration that moves along with the promisee at the same time. It can also be referred to as ‘executed consideration.’ The offer and acceptance will be fulfilled at the same time. A future consideration is a consideration which has been planned to move at a future date. It can be referred to executory consideration as well. For instance, if X promises to give Y 5 pens and Y says that he will pay for the pens in three days.

Author: Anil George,
Christ University, 2nd year

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