All about Doctrine of Privity

Introduction

Privity is a contract law doctrine that states that contracts are exclusively enforceable on the parties to the contract and that no third person may enforce or sue under the contract. When parties have no contractual commitment to one another, obligations, liabilities, and access to certain rights are eliminated.

A contract, according to Section 2(h) of the Indian Contract Act of 1872, is an agreement between two parties that is legally binding and is supported by some form of compensation.

The core of contract law is found in the commitment made by both parties to each other to perform their respective parts of the contract. The rule of privity is established on the ‘interest theory,’ which states that the only person with an interest in the contract has the legal authority to secure his rights.

Requisites for Privity of Contract

1. A contract has been entered into between two parties – The most crucial need is that a contract has been entered into between two or more parties.
2. Parties must be competent, and there must be a legitimate consideration: – The existence of consideration and the competence of the parties are required for the implementation of this doctrine.
3. One party has violated the terms of the contract – A breach of contract by one party is required for the doctrine of privity of contract to be applied.
4. Only parties of a contract can sue each other- Following a breach, only parties involved in a contract have the right to sue each other for non-performance of the contract.

Role of Consideration in Privity of Contract and Exceptions to the Doctrine of Privity of contract

Consideration is the most crucial component of any contract between the parties; if there is no consideration, the contract is deemed null and invalid. Consideration is regarded as the cornerstone of any contract and serves as its foundation.

Exceptions-

1. A beneficiary under a contract: If a contract is entered into between two people for the benefit of a third person who is not a party, the third party can pursue his claim against the others if one of the parties fails to execute his duty.
2. Conduct, Acknowledgement, or Admission:  Although there may be no privity of contract between the two parties, if one of them acknowledges the right of the other by his conduct or acknowledgment, he may be responsible under the doctrine of estoppel.
3. 3. Provision for maintenance or marriage under family arrangement: These forms of provisions are regarded as an exception to the doctrine of privity of contract in order to safeguard the rights of family members who are unlikely to gain a specific share and to maximise the effect of the testator’s will.

The Doctrine under English and Indian Law

Tweddle v. Atkinson, a seminal English decision, determined that the plaintiff could not sue since he was both a stranger to the contract and a stranger to consideration. In the case of Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co. Ltd, the concept of contract privity was reviewed. The notion of privity of contract is identical in the Indian setting, with the main distinction being that in India, a stranger to consideration can sue, but in England, he cannot.

The rule of Privity of Consideration is not to be applied in India because, as stated in Section 2[d], it is not required that consideration be provided only by the promisee. In India, a promise is enforceable provided there is some consideration for it, and it makes no difference whether the consideration comes from the “promisee” or another person.

Tweedle v. Atkinson

In this case, William Tweddle’s father, John Tweddle, arranged with William Guy to provide William Tweddle £100 when his daughter married. The written agreement includes a provision specifically authorising William Tweddle to sue for the agreement’s implementation. William Guy died, and the estate refused to pay, prompting William Tweddle to sue.

The court ruled that no stranger to the consideration can take action, even if it is for his benefit, and that third parties to a contract do not derive any rights from it or are subject to any burdens imposed by it, and that natural love and affection are not sufficient consideration in the eyes of the law.

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