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Doctrine Of Privity Under Contract Law

The doctrine of privity of the contract states that "only parties to the contract can exercise rights and only they can be held liable".

The law of contract states that a contract in the ordinary sense cannot give rights or impose duties on someone who is not a party to it. For a long time, the doctrine has been criticized for being irregular and incompatible with the intention of the parties to aid the third party. Because of this, courts have frequently utilized mechanisms like an agency or trust to permit a third party to enforce a benefit that has been awarded to it. This theory has also been influenced by legislation, which permits a few specific deviations. Before the landmark decision in 1833, a number of English rulings permitted third parties�typically the promisee's family�to enforce contractual terms.

A key idea in contract law that regulates the rights and responsibilities of parties to a contract is the notion of privity of contract. It indicates that the terms of a contract may only be enforced by the parties to it.

In the field of law, the notion of privity of contract is crucial for ascertaining the legal connections between the parties to a contract. This foundational idea defines the extent of contractual responsibilities and the parties entitled to enforce those obligations. It also governs the rights and obligations resulting from a contract. Comprehending the concept of privity of contract is crucial for attorneys, companies, and people entering into contractual agreements.

In its most basic form, privity of contract explains the relationship that permits parties to a contract to enforce its terms against one another. In the past, if a third party was not a party to the original transaction, they were not able to pursue contractual rights or be bound by contractual obligations due to the common law idea of privity of contract. But as time has gone on, laws and court rulings have broadened the scope of situations in which a third party might enforce contractual rights, resulting in a more complex interpretation of privity of contract.

By adhering to this principle, the contract will always be considered confidential between the two parties and will not be enforceable against anyone else. Consequently, the provisions of a contract cannot be enforced against a third party that is not a party to it. A key idea in contract law that regulates the rights and responsibilities of parties to a contract is the notion of privity of contract. It indicates that the terms of a contract may only be enforced by the parties to it.

According to the doctrine of privity of contract, only those who act as parties to the contract enjoy the authority to enforce it. Strangers to the contract possess no legal right to enforce it, regardless of whether the arrangement was introduced expressly for their benefit. This doctrine prohibits parties to a contract from imposing any of their obligations on a third party, in addition to prohibiting a third party from enforcing a contract. Stated otherwise, no one can be held accountable for a contractual obligation to which he is not a party and a non-party cannot profit from the terms of the agreement.

The idea that contractual rights and duties flow directly between the parties to the contract is one of the basic principles of privity of contract. This means that in most cases, a party to a contract may only enforce it on their behalf. if Company A enters a contract with Company B, unless certain conditions or legal stipulations permit such enforcement, A third party, would normally would not be authorised to enforce the terms of a contract.

The privity of contract determines the liability of third parties who is not a party to a contract in case of breach of terms of contract.

Privity Of Contract Under English Law

The doctrine of privity of contract states that a contract can be enforced only by the parties who were involved in its formulation, and only they have the right to suit for its breach.

Tweddle v. Atkinson[1]
The Instant case served as the main foundation for and establishment of the doctrine under consideration. Tweddle's father and Tweddle's father-in-law, Atkinson, agreed in writing to give Tweddle and his wife a set amount of money apiece. While Atkinson passed away before making any payments, Tweddle's father was able to fulfil his half of the agreement. Tweddle brought legal action against the executors of Atkinson. Despite the fact that the contract was largely structured for his benefit alone, his claim was dismissed since he was not a party to it.

Privity Of Contract Under Indian Law

Although the definition of "consideration" under the Indian Contract Act 1872 is wider than in English law, the idea of privity has been extensively applied in India. The concept of privity of contract, which has been applied extensively in Indian legal contexts as well as the common law system, asserts that only a party to a contract is entitled to perform it.

Jamna Das v. Ram Avtar[2]
The decision of the Privy Council in the case of Jamna Das v. Ram Avtar[3] establishes the primary authority for the application of the doctrine of privity in India, where some property was mortgaged by the plaintiff (Jamna Das) to another and an action was brought against the defendant (Ram Avtar), a 3rd party, to recover the contract money. The claim was dismissed in light of this doctrine.

Justification Of The Rule Of Privity
  • It is unfair to allow a third party to sue on the contract and not be liable under it.
  • Enforcement of contracts by third parties would affect or limit the rights of contracting parties to differ or end the contract.
  • The consideration may not have been provided by the party, and therefore should not be allowed to enforce the contract.
  • It is likely that the promisor faces two actions, from the promisee and the third party.
  • Beneficiary to a contract: If a contract is entered into for the benefit of a non-party third party, the third party may assert its rights against the contracting parties in the event that the parties fail to comply.
  • Provisions relating to maintenance and marriage: In order to protect the interests of family members who might not get a specific share and to give the testator's wishes effect, such provisions are regarded as exceptions to the law of privity of contract.
  • Conduct, acknowledgement or Admission: The recognition, behaviour, or submission of another party constitutes another exception to the privity of contract under Indian contract law. Even in situations where there is no privity of contract between the two parties, the law of estoppel may hold the party who acknowledges the other's right to sue to enforce the terms of the agreement liable. This recognition may occur through acknowledgement, conduct, or admission.

A key idea in contract law is the notion of privity of contract, which states that only parties to a contract have the authority to sue one another. But as time went on, a number of exceptions to this theory developed that let non-contracting parties hold contracting parties accountable for their rights.

A beneficiary under a contract, conduct, acknowledgement or admission, and maintenance or marriage conditions made under family arrangements are some examples of these exclusions. When engaging in contracts, both individuals and corporations must be aware of these exclusions. Legal experts must also interpret and uphold contractual rights and obligations.

A complicated body of law has developed as a result of the privity of contracts and their exceptions, which enable third parties to have legally enforceable rights. In exceptional cases where it is possible to avoid artificiality and some complexity, reform is required.
Unless they are able to take advantage of one of the exceptions to the third-party rule, they should include clauses in their contract that are directly enforceable by a third party. Contracting parties should be able to easily grant third parties the authority to enforce the terms of the agreement.

  • Tweddle v. Atkinson (1861) EWHC J57 (QB).
  • Jamna Das v. Ram Avtar (1916) ILR 38ALL209.
  • Ibid.

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