Privity of Contract

TANMOY MUKHERJI INSTITUTE OF JURIDICAL SCIENCE

Dr. Tanmoy Mukherji

Advocate

Privity of Contract-

Tanmoy Mukherji

Advocate

→Privity of Contract means a contract is enforceable only by and against the parties to it.

→If you are not a party, you are a stranger and cannot sue or be sued.

Classic Definition (Pollock & Mulla)-

"A stranger to a contract cannot sue upon it, even if the contract is made for his benefit."

Two Important Aspects-

1.Enforcement of contract – Only a party can enforce.

2.Imposition of liability – A stranger cannot be made liable under the contract.

Leading English Case Laws-

Indian Position-

→Indian Contract Act, 1872 does not expressly state the doctrine of privity.

→But Indian courts follow English principles.

→However, Indian courts are more flexible and have carved out many exceptions.

Exceptions to Privity of Contract (Indian Law)-

1.Beneficiary of a Trust-

 If a contract is made for the benefit of a beneficiary under a trust, he can enforce it.

2.Family Arrangements / Marriage Settlements-

 Members of a family can enforce agreements made for their benefit, even if not parties.

3.Acknowledgment of Liability / Estoppel-

 If a party acknowledges liability to a third party, he is bound.

4.Agency-

 Contracts entered into by agents can be enforced by principals.

5.Assignment of Contract-

 Rights under a contract may be transferred (assigned) to a third party. The assignee can enforce them.

6.Charge or Covenant Running with the Land-

If a contract creates a charge or covenant attached to land, the successor in title can enforce it.

Why the Rule Exists?

→To maintain certainty in contract law.

→Prevents strangers from interfering in agreements.

→Ensures obligations are mutual and voluntary.