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Privity of Cotract

Privity of contract refers to the principle that only parties to a contract can sue each other over the contract. The key elements are that there must be a valid contract between two competent parties, consideration, and a breach by one party. English law and Indian law generally follow this principle, though India allows strangers to consideration to sue while England does not. Consideration is an important element of any contract. Exceptions to privity of contract exist for beneficiaries under a contract, those acknowledged by a party's conduct, and provisions for family maintenance or arrangements.

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79 views2 pages

Privity of Cotract

Privity of contract refers to the principle that only parties to a contract can sue each other over the contract. The key elements are that there must be a valid contract between two competent parties, consideration, and a breach by one party. English law and Indian law generally follow this principle, though India allows strangers to consideration to sue while England does not. Consideration is an important element of any contract. Exceptions to privity of contract exist for beneficiaries under a contract, those acknowledged by a party's conduct, and provisions for family maintenance or arrangements.

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ashish arora
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PRIVITY OF COTRACT

Essentials of Privity of contract

1. A contract has been entered into between two parties:- The most important
essential is that there has been a contract between 2 or more parties.
2. Parties must be competent and there should be a valid consideration:- Competency
of parties and the existence of consideration are pre-requisites for application of
this doctrine.
3. 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.
4. 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.

English law vs Indian Law


As a general rule, both Indian and English law are similar to each other that only parties to
contract can sue each other. In a leading English case of Tweedle vs 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. In the Indian context also this concept of
privity of contract is similar, the only difference being that in India a person who is stranger
to consideration can sue whereas in England he cannot.

Role of consideration in Privity of contract

Consideration is the most important element of any contract existing between the parties
unless there is consideration a contract is considered to be void. It is defined in section 2(d) of
the Indian contract act 1872. Consideration is considered as the foundation of every contract
and it forms the basis of it.

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 under 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 eg. In a contract between Alex and James, beneficial right in respect
of some property may be created in favor of Robin and in that case, Robin can
enforce his claim on the basis of this right.  This concept of a beneficiary under a
contract 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 eg., 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, marriage or under family arrangement:- These
type of provisions is 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 eg., 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.

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