Doctrine of Privity of Contract: Meaning and Exceptions
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Doctrine of Privity of Contract: Meaning and Exceptions

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Doctrine of privity of contract is defined under the law of contracts. Today, we will discuss the doctrine of privity of contract meaning, essentials of privity of contract and exceptions of privity of contract doctrine.

Generally, either expressly or impliedly, every person enters into a contract in his daily routine. In the law of contract, there is one of the important principles of the contract is the 'Doctrine of Privity of Contract'.

The doctrine of privity of contract definition is nowhere provided in the Indian Contract Act, but the provision of privity of contract is found in the Common Law.

The doctrine of privity of contract means, it is a common principle of law which implies that only the parties to the contract can prosecute against each other if any of the party breaches the contract. Any third party who is not a party to the contract cannot sue against the parties to the contract.

What does the Doctrine of Privity of Contract exactly mean? And are there any exceptions to this? 

This is explained through the Doctrine of Privity of a Contract. 

Let's see. 

What is the Privity of Contract Meaning?

The Indian Contract Act clearly stated that there cannot be a stranger to the contract. The doctrine of privity of a contract is a common law principle.

And this principle implies that only parties to the contract are allowed to sue each other to enforce their rights and liabilities and no stranger is allowed to confer obligations upon any person who is not a party to the contract even though contract the contract have been entered into for his benefit. 

The doctrine of privity of contract does not grant any rights and duties to the other third person who is not a party in the contract. This principle was laid down in the case of Dutton v/s Poole.

The rule of privity is basically based on the interest theory’ which implies that the only person having an interest in the contract is entitled as per law to protect his rights.

Example: A makes a promise to deliver the goods to B’s house. If A failed to deliver the goods then only B has the right to sue against A for non-performance of contract and no other third person can prosecute against B. This is the doctrine of privity of contract example.

Essentials of Privity of Contract

The following are the essential elements that must be satisfied for the application of the doctrine of privity of contract. Let’s discuss one by one;

1. Two or More Parties

The first and essential requirement for the application of this doctrine is that there must be at least two or more parties to the valid contract.

2. Competent Parties

For the application of this doctrine, it is required that the parties to the contract must be competent to perform all the terms and conditions promised in the contract.

3. Valid consideration

The next condition for the application of the doctrine of privity of contract is that the consideration to the contract must be valid.

4. Breach of Contract

There must be a breach of a contract by one party, it is an essential requirement for the application of the doctrine of privity of contract.

5. Only Parties to the Contract can Sue

After the breach of contract by one party, then only another party has a right to sue against the other party for the non-performance of the contract.

Exceptions to Privity of Contract

Here, we will discuss some of the doctrines of privity of contract exceptions;

1. Trust

When interest has been created in favour of any person who is not a party to the contract then a person in whose favour interest has been created may enforce the contract. 

The trust is an exception to the rule of doctrine of privity, that the stranger who is the beneficiary of the trust can sue against the contracting parties.

In other words, if there is a contract formed between the trustee of a trust and another party, then the beneficiary of a trust who is a third party or stranger to the contract also may sue against him.

The trustee of a trust may be expressed or implied. 

In the case of Rana Umananath Singh v/s Jang Bahadur AIR 1938, the privy council has decided that the trust of a person who is not a party in the contract can take interest in the property.

Example: A makes an agreement with B for the benefit of C. Here, A is the trustee to B for the benefit of C. Then, even C is not a party to the contract but has the right to sue against the contracting parties.

2. Charge

Any person who is not a contracting party but the stranger person has a certain interest or charge in a contract in his favour then the stranger person also can enforce the contract.

In simple words, the third person who is a stranger to the contracting parties may hold a charge or interest even if he is not a party to the contract and a stranger to the contracting parties.

In the case of Khwaja Mohammad Khan v/s Hussani Begum 1910, it was held that any person who is not a party to the contract even a stranger person to the contracting parties can enforce the contract when the interest or charge has been created in his favour.

3. Marriage Settlement, Partition and Family Arrangements

If a contract is made in connection with the marriage, marriage settlement, partition of property, or any family arrangements, then any person who is not a party to the contract can enforce the contract.

In other words, any person who is beneficiary under the marriage settlement, partition of property or any other family arrangements, can enforce the contract even if he is not a party to the contract.

In the case of Rose Fernandez v/s Josepth Gonsalves, the father of the girl makes an agreement for her marriage with the defendant. 

It was held that the girl after attaining the age of majority can sue the defendant for damages for breach of the promise of marriage.

4. Acknowledgement and Estoples

In a contract, if it is required that the party pays some amount to a third party and he acknowledges it, then it would become a binding obligation to the party to pay the agreed amount to the third party. 

The acknowledgement can be either expressed or implied. In express acknowledgement, the third-party acknowledges the contract either orally or in writing. And, in implied acknowledgement, the third-party acknowledged the contract by the way of conduct and gestures.

Example: A purchased a pair of shoes in B's house and make one condition that the shoes should be delivered to B on the same day. But, B failed to deliver the shoes, then C has the right to sue against B.

5. Covenants running with the land

When a party purchases a piece of land with showing the notice that the owner of the land will be bound by all duties and liabilities which affect the land, then he can sue upon a contract between the previous land-owner and a settler even if he was not a party to the contract.

6. Contract by Agents

The relationship between the principal and agent is an agency. When the principal forms the contracts either expressly or impliedly with any person the agent of that principal also get interested in that contract. 

And, the agent can sue the other party on behalf of his principal, if there is any breach of contract.

The principal-agent rule states that if one of the contracting parties contracts as an agent, then either the agent or the principal, can sue to enforce the contract, but not both principal and agent together.

Conclusion

The doctrine of privity of contract is a general principle in common law that implies that only the parties to the contract can prosecute against each other if any of the parties breaches the contract. Any third party who is not a party to the contract cannot sue against the parties to the contract.

The doctrine of privity of contract does not grant the right to the third person to sue be sued in a contract to parties in a contract.

However, there are certain exceptions to the doctrine of privity of contract.

Referred Books:

Akash is a YouTuber by Hobbie and Blogger by Passion. He Loves to spread information that helps others to live in this legal world.

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