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Relevance of Doctrine of Privity of Contract

Author - Associate Sanjani Shah

Rule of Doctrine of Privity of Contract

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This article will deal with the privity of contract meaning and importance of privity of contract. So let us see what is the privity of contract ? What is the rule of privity? Legal doctrine or creed, that a contract would award rights and thrust accountability only on its contracting parties. They and not any third party can prosecute each other under the duration of the contracts. Let us define the privity of contract. We must understand the privity of contract meaning. Privity is the legitimate term for a close, mutual, or successive relationship to the same right of property or the power to impose a promise or warranty.” This is how we define privity of contract as per dictionary.

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As per the legitimate Privity of Contract definition: “The doctrine of Privity in contract law provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it.”. Privity of contract definition clears it all.

After privity of contract definition as per Section 2 (h), of the Indian contract Act 1872, a contract is an agreement between two parties imposable by law backed by some deliberation. The rule of privity in contract law lies in the commitment which both parties have made towards each other for attaining their part of the contract.

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The doctrine of Privity of contract is an ordinary law principle which obliques that only parties to a contract are allowed to prosecute each other to implement their rights and accountabilities. No outsider is allowed to confer accountability upon any person who is not an alliance to contract even though the contract has been entered to his advantage. The statutory compliance/rule of Privity in contract law is primarily based on the ‘interest theory’ which states that the only person having an interest in the contract is eligible as per law to protect his rights. As statutory compliance changes on state or national level it’s the duty of companies to do work under that statutory compliances.

The importance of privity of contract is that there has been a contract between two or more parties. The capability of parties and the existence of consideration are preconditions for the application of this doctrine. Breach of trust or contract by one party is the vital need for the application of the doctrine of Privity of contract. After the breach of trust, only parties to a contract are eligible to prosecution against each other for non-performance of the contract.

{This Article reads on the line - what is privity of contract? privity of the contract definition, the doctrine of privity of contract} 

Remuneration or consideration is the most important part of any contract existing between the parties if there is no remuneration or consideration a contract is considered being inappropriate. It is defined in Section 2(d) of the Indian Contract Act, 1872. Remuneration or consideration is considered as the key foundation of every contract and it forms the basis of it.

As a common statutory compliance, only parties to a contract are eligible to prosecute each other, but now with the course of time exceptions to this common statutory compliance have come, permitting even outsiders to the contract to sue. After understanding the doctrine of privity of contract meaning let us know the exception. These exceptions are as follows:

{This Article reads on the line - what is privity of the contract?Privity of contract definition and the doctrine of privity of contract} 

• A legatee under a contract: If a contract has been undertaken between two persons for the advantage of a third person not being a part of the contract. Then in the circumstances of failure by any party to do his part, the third party can implement his right against the others. For example, if in a contract between Tom and Alex, an advantageous right in respect of some asset may be created in favour of Tom and in that case, Alex can demand his claim on the basis of this right.

{This Article reads on the line -privity of the contract definition, the doctrine of privity of contract} 

• Behaviour, Acknowledgement or acceptance: There can also be circumstances in which there may be no Privity of contract between the two parties but if one of them by his behaviour or acknowledgement realizes the right of the other, he may be accountable on the basis of law. For example: If X enters into account with Y will pay Rs.7500 every month to Y during his lifespan and after that, his son A. X also accepts this transaction in the presence of A. Now if X failed A can prosecute him, not directly a party to contract.

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• Provision for preservation or maintenance or weeding under family arrangement: These types of provisions are dealt with an exception to the doctrine of Privity of contract for safeguarding the rights of family members who on the contrary get a specific allowance and also to give maximum effect to the will of the mortal. For example: If B gives his asset in equal portions to his three sons provided that after his death all three of them will give Rs.15,000 each to D, the daughter of B. Hence D can sue if any one of them fails to obey this.

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From the above points and as we have defined privity of contract, importance of privity of contract, rule of privity in contract law. We have seen that only parties to a contract can prosecute each other and no outsider is allowed to enter between the parties to take legal actions. But with the course of time, the law has also evolved and now even outsider is allowed to prosecute to defend his interest under exceptional conditions. So this clears the privity of contract meaning and importance of privity of contract in the contract law.

{This Article reads on the line -privity of the contract, the doctrine of privity of contract}  

Keywords - privity of the contract, statutory compliance, importance of privity of contract, doctrine of privity, rule of privity in contract law.