The Legal Doctrine of Privity of Contract Under the Indian Contract Law

Introduction

An agreement enforceable by law becomes a contract. A contract involves both rights and obligations because a contract is an agreement enforceable by law. An agreement involves promises from both sides, and thus, there is the creation of both rights and obligations. For instance, X promises to sell his car to Y, and Y promises to pay Rs. 5,00,000 for his car. This constitutes a valid contract between X and Y. Here, the right on the part of X is to get Rs. 5,00,000 as consideration for selling his car and the obligation for X is to deliver the car to Y as consideration for Rs. 5,00,000 paid to X by Y for selling his car.

A contract involves two parties: the promisor and the promisee. The doctrine of privity of contract means that only those persons who are parties to the contract can enforce the performance of the contract. The legal doctrine of privity of contract confers rights and imposes obligations and liabilities only on the contracting parties and not on any third party, thus barring a third party to contract to enforce the contract.

Privity of Contract under the Indian Contract Law

Privity of contract refers to a legal concept that states and governs who is eligible/allowed to enforce a contract between the parties to a contract and it describes the relationship between the parties to a contract. For instance, X had mortgaged some property to Y and X then sold the same property to Z and Z agreed to pay off the mortgage debt to Y. Y brought an action against Z for recovering the mortgage debt. In this case, since there was no contract between Y and Z, Y could not bring an action to recover the mortgage debt from Z.  The applicability of the doctrine of privity of contract is quite similar to that of English Law. Under the Indian Contract Law, it has been duly held in several cases that the common-law principle of Privity of Contract is generally applicable in India, empowering/enabling only a party to contract to enforce the contract. 

There are four main essentials to ensure the applicability of a contract. These are as follows:

1. The first essential is that the contract has been entered between two or more parties.

2. The second essential is the competency of parties and the existence of valid consideration to ensure the applicability of this doctrine.

3. The breach of contract by one party is an essential requirement to ensure the applicability of this doctrine.

4. The last essential is that after the breach, only the parties to a contract are entitled to enforce against each other for the breach of contract by the other party.

Exceptions to Privity of Contract under the Indian Contract Law

There are certain exceptions under the Indian Contract Law which empowers even a stranger to contract can enforce the contract. There are three major exceptions discussed in several cases under the Indian Contract law. These three exceptions are:

1. Beneficiary Under a Contract

Even though it has been duly stated that only a party to a contract can enforce the contract, but in the landmark judgment of Dunlop Pneumatic Tyres v. Selfridge & Co., it has been stated by Lord Haldane that the right to enforce the contract can be conferred upon a third party through the way of property, as, for instance, under a trust. For instance, in a contract between X and Y, Z is given the beneficial right in the form of trust. In such a case, based on the right conferred to Z, Z can enforce his claim. It has also been stated that the obligation in nature of trust in favor of a stranger to a contract/third party arising out of a contract basically depends on the facts and circumstances of the case. 

2. Conduct, Admission, or Acknowledgement

The second Exception to the Privity of Contract under the Indian Contract Law is acknowledgment, conduct, or submission. There are instances where there is no privity of contract between the two parties, but if one of the parties to contract recognizes the right of the other to sue them to enforce the contract through acknowledgment, conduct, or admission, then the party recognizing the right can be made liable based on the law of estoppel. For instance, X enters into a contract with Y to pay Y during his lifetime and Y’s wife, Z after Y’s death for a specific period. If after Y’s death, X doesn’t pay a certain amount to Z, then Z has the right to enforce the contract if X fails to pay that certain amount during that specific period. In this case, X through his conduct recognized the right of Z, who originally was not a party to the contract. 

3. Provision for Maintenance under Family Agreement

The third exception to Privity of Contract under the Indian Contract Law is provided for maintenance under the family agreement. When, under a family agreement, the main intent of the contract is to secure a benefit to a then third party, then the third party is entitled to the rights of a beneficiary and they are empowered to sue in their own right for the enforcement of the same. Such a contention is allowed in several cases, where due to the partition of the joint family and division of property between the male members of the family, a special provision is made to ensure the maintenance of the female members of the family.

Conclusion 

 A contract involves two parties: the promisor and the promisee. The doctrine of privity of contract means that only those persons who are parties to the contract can enforce the performance of the contract. The legal doctrine of privity of contract confers rights and imposes obligations and liabilities only on the contracting parties and not on any third party, thus barring a third party to contract to enforce the contract. Privity of contract refers to a legal concept that states and governs who is eligible/allowed to enforce a contract between the parties to a contract and it describes the relationship between the parties to a contract. 

There are four main essentials to ensure the applicability of contract, namely: the contract has been entered between two or more parties, competency of parties and existence of a valid consideration, breach of contract by one party, and only the parties to a contract are entitled to enforce against each other. There are three major exceptions discussed in several cases under the Indian Contract law, namely: beneficiary under a contract; conduct, admission or acknowledgment; and provision for maintenance under the family agreement.

Edited by: Harsh Nath Tiwari

Approved by: Purnima Ojha

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I am Raghav Sehgal, a 1st Year FYIC BALLB student at Rajiv Gandhi National University of Law, Patiala. I am new to the arc of law. I am actively seeking opportunities in Academic Writing, Networking and Critical Skills Development. My fields of interest include International Humanitarian Law, Human Rights Law, Current Affairs and Legal Developments around the law. I have two publications under my belt, and this is indicative of my orientation towards academic writing. My career objective is to be an expert in my profession and improve my standard of thought and mental capabilities and to add wealth to my nation and make my nation and family proud.