READING MATERIAL

PRIVITY OF CONTRACT

COURSE INSTRUCTOR

PROF. JOGINDER PATJOSHI

MR. PUNYASHLOK DASH
 DOCTRINE OF PRIVITY OF CONTRACT

(CAN A STRANGER TO A CONTRACT SUE?)



The Indian Contract Act clearly states that there cannot be a stranger to a
contract. The Indian Contract Act allows the ‘Consideration‘ for an agreement to
proceed from a third-party. However, a stranger (third-party) to consideration is
different from a stranger to a contract.
The law does not allow a stranger to file a suit on the contract. This right is
available only to a person who is a party to the contract and is called Doctrine of
Privity of Contract.

ENGLISH LAW VS INDIAN LAW

As a general rule, both Indian and English law are similar to each other that only
parties to contract can sue each other. In a leading English case of Tweddle v.
Atkinson, it was held that the plaintiff cannot sue as he was both a stranger to
the contract as well stranger to consideration. This concept of privity of contract
was again analyzed in the case of Dunlop Pneumatic Tyre Co.Ltd v. Selfridge &
Co. Ltd. In the Indian context also this concept of privity of contract is similar, the
only difference being that in India a person who is stranger to consideration can
sue whereas in England he cannot.

EXCEPTIONS TO THE DOCTRINE OF PRIVITY OF CONTRACT

As a general rule only parties to contract are entitled to sue each other, but now
with the passage of time exceptions to this general rule have come, allowing even
strangers to contract to prosecute. These exceptions are

1. A beneficiary under a contract:- If a contract has been entered into

between two persons for the benefit of a third person not being a
party, then in the event of failure by any party to perform his part, the
third party can enforce his right against the others.
 Illustration: In a contract between Alex and James, beneficial right in
respect of some property may be created in favor of Robin and in that
case, Robin can enforce his claim on the basis of this right. This
concept of a beneficiary under a contract has been highlighted in the
case of Muhammad Khan v. Husaini Begum.

2. Conduct, Acknowledgement or Admission:- There can also be

situation in which although there may be no privity of contract
between the two parties, but if one of them by his conduct or
acknowledgment recognizes the right of the other, he may be liable on
the basis of law of estoppel.

Illustration: If A enters into a contract with B that A will pay Rs 5000

every month to B during his lifetime and after that to his Son C. A also
acknowledges this transaction in the presence of C. Now if A defaults C
can sue to him, although not being directly a party to contract.

3. Provision for maintenance or marriage under family

arrangement: These type of provisions is treated as an exception to
the doctrine of privity of contract for protecting the rights of family
members who not likely to get a specific share and also to give
maximum effect to the will of the testator.

Illustration: If A gives his Property in equal portions to his 3 sons with

a condition that after his death all 3 of them will give Rs 10,000 each to
C, the daughter of A. Now C can prosecute if any one of them fails to
obey this.