Privity of Contract and Discuss Third Party Rights and Obligations.

Consideration – “When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence or Promise is called a consideration for the promise “- Section 2(d).

Doctrine of Privity of Contract 

Privity is a doctrine of law that means the relation between the parties in a contract which entitles them to sue each other but a third party cannot enforce to the Contract or be sued under it. 

For example, a party ‘A’ promised ‘B’ to pay rs.500 to the third party ‘C’ thus ‘A’ and ‘B’ can sue each other in case of breach of contract but ‘C’ cannot sue the parties of the Contract, if he fails to pay rs.500.

There are two aspects of the doctrine of privity of Contract 

1. No one except a party to a contract can acquire right u under it. 

2. No one except a party can be subjected to liabilities under it. 

Position in India : decision following English law

In English case ie. Tweddle v. Atkinson satiated the rule stranger to contract cannot enforce the Contract.  The same is as much applicable in India as it is in England, but there is no provision in contract act either for or against the rule. The only difference being that in India a person who is stranger to consideration can sue whereas in England he/she cannot. 

Privy council extant the rule to India in its decision in ;

Jamunadas v.  Pandit Ram Autar Pande.

Fact:

Jamuna Das, the plaintiff claimed the sum of Rs. 33009 together with interest. Masummat lakhpati kunwar made a mortgage in favour of Jamuna das. The mortgage consisted of zamindari property and also mortgage right in other mortgage property. Musammat lakhpati sold entire mortgaged property, that is to say the mortgage right to the Defendant Pandit Ram Autar Pande for the sum of Rs.44,000 leaving Rs.40,000 for payment of money due to jamuna Das.  Jamuna Das sued for sale of the mortgage property.

Judgement

High Court decide in this case it is absolutely clear that no trust was created in favor of the plaintiff. He was no party to the transaction and the sale did jot in anyway affect his rides to proceed against the property mortgage to him. We consider that the decision of the court below was quite correct and must be confirmed. We accordingly dismiss the appeal with costs.

In case   Tweddle v.  Atkinson     

Fact:

John Tweddle and William are both agreed to give 100 euro and 200 euro, respectively to William Tweddle’s Son and William Guy’s son-in-law. William Guy died before making the payment and when Mr Atkinson, the executor of William Tweddle sued.

Issue:

William Tweddle cannot enforce the agreement between John Tweddle and William Guy as a third party. 

Judgement

In this case the court held that since William Tweddle was not part of the agreement between John Tweddle and William Guy, and since he did not provide any consideration in exchange for the promise from William Guy, he could not enforce the agreement.

Imp. case: -  Chinnaya v.  Ramayya    for Privity of Consideration

Exceptions of the privity of Contract, third-party have Rights / Obligations.

There are some exceptions to the doctrine of privity of Contract, under which third party to a contract may sue. These are: 

1. Beneficiary under trust: Any kind of trust charge has been created in any specific property in favour of a person than; that person act as beneficiary to the contract and can enforce the contract even if he is a stranger to the contract  

2. Marriage / Family settlement: Marriage and family arrangement a provision is made in the interest in the person, such person may take advantage of the agreement through he/she is not the party to contract it.  Case- Daropti v Jaspat Rai 

3. Acknowledgement or Estoppel: If a contract calls for that a party will pay a certain amount to a third-party and he/she recognize it, then it will be become a binding responsibility for the party to pay the third-party.  The acknowledgment also can be implied. 

4. A Covenant of land: When someone purchases a piece of land with the notice that the proprietor of the land will be bound through all obligations and liabilities effecting the land, then he can sue upon a contract among the preceding land-proprietor and a settler even if he was not a party to the contract. 

Conclusion 

The Doctrine of privity of Contract in English law is different from Indian law in regards to the privity of Consideration where stranger to consideration cannot sue in English law but he /she can sue under the Indian law. There is a third party could not sue the parties for damages but over time, Indian courts have recognized several equitable and legal exceptions to this rule, allowing third parties to assert rights or claims in specific situations—such as trusts, family settlements, agency, assignment, and estoppel. These exceptions ensure that justice is not denied merely due to technicalities and reflect the Indian judiciary’s commitment to fairness and the evolving nature of contract law.

This article is authored by Aarti, who was among the Top 40 performers in the Civil Procedural Law Quiz Competition organized by Lets Learn Law. The views and opinions expressed in this piece are solely those of the author.