The Doctrine of Privity

by
The Doctrine of Privity

Author: Gourvika,
1st year,
National University of Study and Research in Law.

A legally binding agreement between two or more persons by which rights are acquired by one or more acts or forbearance on the parts of other.
-Sir William Anson


Abstract

The legal definition of Privity of contract says that the doctrine of Privity in contract law provides that a contract cannot confer rights or impose obligation arising under it on any persons or agent expect the parties to it. In general, the meaning of Privity is that the only parities to a contract may sue for the breach of contract. But the Privity of contract has been much criticised, the criticism stated that when a contract terms expressly purports to confer a benefit directly to a third party shall be entitled to the provision in his name. In the case of Bestwik v Bestwik[1] Lord Denning said that where a contract is made for the benefit of a third person who has legitimate interest to enforce it, it can be enforced by the third person in the name of the contracting party or jointly with him, the statement in its real sense means that the third person has a right arising by the way of contract. He has an interest which will be protected by the law. Under Indian law Consideration may move from the promisee or any other person and it indicates that a person who is not a party to a contract can also sue. In the recent years the rule of Privity of contract has somewhat started to diminish and the third party has the right to safeguard his interest in the contract.
INRODUCTION

According to section 2(h) of Indian contract act1872 An agreement enforceable by law is a contract and Section 2(d) defines consideration which states that- when, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence or a promise is called consideration for the promise. Consideration is an important foundation for formation of a contract and it is necessary for both the parties of the contract to fulfill their part of promise and if one of the party fails to perform his part of promise the other party has right to sue and demand compensation for his losses. The doctrine of Privity is a common law principle which implies that only the parties to contract are allowed to sue each other.

The Privity of Contract

The General Rule of the Doctrine

The doctrine of Privity in a contract law provides that a contract cannot confer rights or impose obligation arising under it on any person or agent expect the parties to it. The doctrine of Privity in general states that only party to contact may sue for the breach of the contract and no third party acquires any right or any liabilities under such contract. The rule of Privity is primarily based on the ‘interest theory’ which states that the only person having an interest in the contract is eligible as per law to protect his rights. The English law states that a contact cannot be enforced by any person who is not a part to it even though it is made for his own benefit. The principle of English law was affirmed in the case Dunlop Pneumatic Tyre Co v Selfridge &Co[2]. but the principle is different in Indian law as  Section 2(d) defines consideration which states that- when, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence or promise is called a consideration for the promise that is in the Section 2(d) of Indian Contract Act, 1872, the word “any other person” is present in the definition states that as long as there is a consideration for a promise, it is immaterial who has furnished it. The principle of Indian law can be affirmed in the case of Chinnaya v Ramyya[3].
Difference in English Law and Indian Law

The general rule in the doctrine of Privity is same in both Indian Law as well as English Law the rules states that that only the parties to a contract can sue each other but in Indian Law the Rule has difference that is in India a person who is a stranger to a Consideration can sue whereas in England he cannot. The principles in English law are[4] –
  1. Consideration must move from the promisee and the promisee only. If it is furnished by any other person, the promisee becomes a stranger to the consideration and, therefore, cannot enforce the promise.
  2. A Contract cannot be enforced by a person who is not a party to it even though it is made for his benefit. He is a stranger to a contract and claims no right under it.
In the leading case of Tweddle v Atkinson[5] the plaintiff was to be married to the daughter of A and in consideration of this intended marriage A and the plaintiff’s father entered into an written agreement by which it was agreed that each would pay the plaintiff a sum of the money. A failed to do so and plaintiff sued his executors. The Court of Queen’s Bench gave the Judgment that although the sole purpose of the contract is to secure a benefit to the plaintiff, he was not allowed to sue as the contract made was with the plaintiff father and not with him this case leads to foundation of the principle of the doctrine of Privity.

Whereas in India Section 2(d) of Indian Contract Act 1872 states that – when, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence or promise is called a consideration for the promise. Which gives the principle that a promise is enforceable if there is some consideration for it and it is quite immaterial whether it moves from the promisee or any other person. In the case of Kshirodebigari Dutta v  Mangobinda[6] Panda the Calcutta High Court observed that  there is not anything in the Indian Contract Act 1872 which p
revents the recognition of a right in a third party to enforce a contract made by others, which contains a provision for his benefit.

Exception to Doctrine of Privity

A person who is not a party to a contract can sue on a contract as the exceptions in the rule of Privity helps a person to enforce a contract which has been made for his own benefit but without being the party of the contract. The Exceptions:
  1. A beneficiary under a contract

As per the Section 2(d) of The Indian Contract Act, 1872 which states that an act which is to constitute a consideration may be done by “promisee or any other person”
It means that as long as there is a consideration for a promise it is immaterial who has furnished it. It may move from the promisee, or, if the promisor has no objection, from any other person .The beneficiary under a contract states that when a contract has been entered between two persons for the benefit of a third person then the third party can enforce his right against another. For example-when A enters into a contract with B that A have to pay Rs 5000 to C. If B fails to pay the amount C then has the right to sue.

2. Trust


A person or a beneficiary who is under a trust, charge or other interest in some specific property can enforce such a trust even though he is not a party to the contract.
It can be illustrated in the case of Rana Uma Nath Bakhsh Singh v Jang Bahadur[7]
A was appointed by his father as his successor and was put in possession of his entire estate. In consideration of this promise A agreed with his father to pay a certain sum of money and to give a village to D, the illegitimate son of his father, when D attains majority. It was held that a trust was created in the favour of D for the specific amount and village. Hence D is entitled to maintain the suit.
3. Agreement for Marriage Settlement, Partition or other Family Arrangement


When an agreement is made and a person who is a beneficiary under that agreement for marriage settlement, partition or any other family arrangements, can enforce such an agreement as he as the right to enforce such an agreement
In Veeramma v Appayya
[8] where the plaintiff along with her husband agreed that she will maintain her mother if the property of her father is conveyed to them, the mother was entitled to maintain the suit even though she was not the party of the contract but was a beneficiary to the contract.

4. Acknowledgment or Estoppel



    When an agreement requires a party to make a payment or to carry out an act for a third party and acknowledges it to that party, a binding obligation is incurred to the contracting parties. Acknowledgement may be either express or implied. Such party’s acknowledgement or conduct itself amounts to an acknowledgement which he is bound to carry out as an act. Where he fails to do so, the third party has the right to sue to the contracting party.
    In N. Devaraja Urs v Ramakrishniah[9] where A sold his house to B under a registered sale deed and left a part of the sale price in his hand desiring him to pay this amount to C (his creditor). B made part payment to C informing him that they were out of the sale price left with him and the balance would be remitted immediately. B however failed to do so and C sued him for the same. The suit was held to be maintainable.


      5. Covenant Running with land



        In the case of Tulk v Moxhay[10] the principle laid was that a person who purchases a land with notice that the owner of the land is bound by certain duties created by an agreement or covenant affecting the land, shall be bound by them although he was not a party to the agreement. It states that when a buyer purchases a land with the knowledge that there are existing covenants on the land which binds the seller of the land then the buyer shall also be bound to the contract.
        CONCLUSION
        In the above discussion we have seen that according to the Contract law only the parties to the contract can sue each other but with the development of time, in some of the exceptional circumstances, a contract which is made for the benefit of the third person. The third person has the right sue for the breach of that contract to safeguard his interest.
        REFERENCE
        [1] 1968 AC 58


        [2] 1915 AC 847


        [3] (1883) 6 Mad 351


        [4]  AVTAR SINGH CONTRACT AND SPECIFIC RELIEF 12TH EDITION Pg no. 113.


        [5] 123 ER 762


        [6] AIR 1934 Cal 682


        [7] AIR 1938 PC 245


        [8]  AIR 1957 AP 965


        [9]  AIR 1952 Mys 109


        [10] (1919) 88 LJKB 861 (HL).

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