DOCTRINE OF PRIVITY OF CONTRACT

A contract is defined as an agreement between two parties that is supported by consideration and legally enforceable under Section 2(h) of the Indian Contract Act 1872. The cornerstone of contract law is the pledge made by each party to the other to fulfil their portion of the agreement.

The idea of privity of contract is a key idea in contract law that establishes the relationship between parties to a contract. It specifies who has the rights and obligations under a contract, as well as who can enforce those rights. The Indian Contract Act of 1872, which is a component of Indian law, governs the fundamentals of contracts, especially the notion of the doctrine of privity of contract.

Meaning ofprivity of contract

• The “interest theory,” which holds that the only party with an interest in the contract has the right to defend his rights, is the foundation for the rule of privity.
  
• The doctrine of privity of contract is a common law principle that states that only parties to a contract may bring legal proceedings against one another to enforce their rights and obligations and that no stranger may impose obligations on any non-party, even if the contract has been entered into for that person’s benefit.
  
• Example:If X agrees to bring Y the items. Here, no other party may file a lawsuit against X in the event that he violates the terms of the agreement; only Y may do so.

doctrine of privity of contract: Essentials

• The existence of valid consideration and the competence of the parties are prerequisites for the application of this concept.
  
• The most important need is that two or more parties have engaged in a contract.
  
• In the case that one Party violates the agreement, the privity of contract theory must be applied.
  
• The only people who can bring a lawsuit against another party for breaching a contract after it has been broken are the parties themselves.

Privity of contract case law

The privity of contract case laws is as follows:

• In Pratapmull v State of West Bengal, the widow was listed as a nominee under the policy but was not a party to the insurance company’s contract with the deceased. As a result, she did not receive any interest from the policy simply because it mentioned her, and her attempt to collect the money owed under her deceased husband’s insurance policy was turned down.
  
• In the case of Advertising Bureau v C. T. Devaraj, the plaintiff-appellant was given a directive by the circus owner to create commercials promoting the entertainment. The plaintiff-advertiser and the circus financier did not have an agreement. The advertisement was not included in the contract between the financier and the circus owner. Because there was no privity of contract between the advertiser and the financer, the advertiser’s complaint against the financer was dismissed.

Exceptions toprivity of contract

A Contract’s Beneficiary:

• One of the most significant exceptions to a contract’s privity is the recognition of beneficiaries under the terms of the agreement.
  
• The conditions of a contract may be enforced by a non-signatory third party if the third party is specifically meant to profit from them.
  
• This exemption ensures that beneficiaries will have access to legal recourse and aligns with the objectives of the contractual parties.
  
• As an illustration, X may enforce its claim based on a beneficial interest over property that Y and Z’s contract produced for them.

Behaviour, Recognition, or Admission:

• An additional exemption occurs when one of the parties recognizes the rights of a third party through actions, declarations, or recognitions. In certain situations, the third party may be able to make a claim by relying on the legal principles of promissory estoppel.
  
• This omission emphasizes how important it is to honour promises made by the parties and uphold their end of the bargain, even when a third party isn’t a direct signatory.
  
• It prohibits the parties from violating their word when a third party has rightfully relied on them to their cost.
  
• As an illustration, suppose that A and B agree that A will give B’s son C Rs. 5,000 per month for the rest of their lives. If A breaches this agreement, and A certifies this to C in C’s presence, C may sue A even though C was not a signatory to the contract.

Getting Married or Setting Up Maintenance:

• In certain circumstances, third parties with an interest in the contract’s execution but who are not parties to it directly may enforce it; this means that the idea of privity of contract does not apply to agreements containing provisions pertaining to marriage or maintenance.
  
• As an illustration, suppose that A leaves his three sons equal shares of his property and directs them to give C, A’s daughter, Rs. 10,000 upon his passing. Now, C has the right to file a lawsuit if any of them disobey.

Even though the strict application of the concept of privity of contract has been loosened to accommodate the evolving needs of contemporary society, it is still a cornerstone of contract law. By providing third parties with a legal means of enforcing agreements where justice and fairness are necessary, these exceptions bring contract law into compliance with the evolving needs of business and society.

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