Privity of Contract – The Ongoing Debate on Allowing A Third Party to Sue For Their Benefit

Profile of the author: Mayank Raj Pranav is a 2nd Year student pursuing BBA.LLB from Gujarat National Law University. His areas of interest include criminal law, constitutional law, the law of contracts, and the law of torts.

INTRODUCTION

Privity of Contract is one of the discussed conventions under the law of contracts, in India as well as around the globe. The vulnerability behind the lawful situation in such a manner isn’t just a result of the absence of clearness in the rules or contradicting legal declarations however quite a bit of it owes to the scholarly and legal discussions related to the very premise of this convention and its similar favorable circumstances and burdens. The debate and disrupted situation concerning the Doctrine of Privity isn’t just pertinent in everyday business contracts yet also, for high worth and complex conditional agreements. The interest of such outsiders is all around secured through the contracting parties through which they are identified with the agreement. This article endeavors to dissect the current lawful situation in such a manner and potential insurances while archiving the said statements and also analyze the ongoing debate allowing a third party to use it for their benefit.

DEFINITION

To begin with, it is exceptionally important to comprehend what this tenet talks about. In Layman’s language, the Doctrine of Privity can be phrased to imply that an agreement can’t present rights or force those commitments emerging under it, on any individual aside from the gatherings to it. The doctrine of privity of an agreement is a custom-based law standard that infers that only parties to an agreement are permitted to sue each other to implement their rights and liabilities and no outsider is permitted to present commitments upon any individual who isn’t involved with the contract even though agreement the agreement have been gone into for his advantage/benefit. The rule of privity is fundamentally founded on the interest theory which infers that the only individual having an interest in the agreement is qualified according to law to protect his rights.

THE ONGOING DEBATE

ARGUMENTS IN FAVOR

After a due thought of the suggestions and the core objective of this doctrine, let us investigate the contentions of this convention:-

1. If the third is permitted to sue, at that point it is unreasonable to the contracting parties as the third party will reserve the option to sue, and yet, no obligation can be forced upon him.
2. Empowering the third party to implement the agreement, denies the contracting parties the adaptability to change or end the agreement.
3. Moreover, regardless of whether the third party can straightforwardly sue, nothing stops the parties from agreeing to sue for specific performance to serve the third party even where the number of damages payable is ostensible.

ARGUMENTS AGAINST

A contention that can be made against this doctrine is that if the outsider depends on the agreement to direct his affairs, may endure an out-of-line misfortune in the form of an unfair loss and can disappoint the expectation of a third party to profit from the agreement. To counter circumstances like these, the law accommodates special cases for this convention which are to a great extent for the third party enveloping different circumstances that can emerge.

EXCEPTIONS TO THE LAW OF PRIVITY OF CONTRACT

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

These exceptions are as follows:

1. A beneficiary under a contract - On the off chance that an agreement has been gone into between 2 people to serve a third individual not being a party, at that point in case of failure by any party to play out his part, the outsider can uphold his privilege against the others. For eg. In an agreement between Alex and James, beneficial rights regarding some property might be made for Robin and all things considered, Robin can uphold his case based on this right. This idea of a recipient under an agreement has been featured on account of Muhammad Khan v. Husaini Begum.[1]
2. Conduct, Acknowledgement, or Admission - There can likewise be a circumstance in which even though there might be no privity of agreement between the two gatherings, however, if one of them by his director affirmation perceives the privilege of the other, he might be subject based on the law of estoppels. (Narayani Devi v. Tagore Commercial Corporation Ltd [2]). For eg., If A goes into an agreement with B that A will pay Rs 5000 consistently to B during his lifetime and after that to his Son C. An additionally recognizes this exchange within the sight of C. Presently if A defaults C can sue him, albeit not being straightforwardly involved with the contract.
3. Provision for maintenance or marriage under the family arrangement - These kinds of provisions are treated as an exception for the doctrine of privity of contract for securing the rights of relatives who are not prone to get a particular offer and to give the greatest impact to the desire of the departed benefactor. For eg., If A gives his Property in equivalent bits to his 3 children with a condition that after his demise every one of them will give Rs 10,000 each to C, the little girl of A. Presently C can indict if any of them neglects to comply with this. The Specific Relief Act, 1963 empowers the specific performance of a contract being a marriage settlement, and family courses of action at a suit of any individual advantageously entitled thereunder and makes an exception for the rule that involved with a contract can sue (Janaki Bala Debya v Maheshwar Das [3]).

CASE LAWS

English cases

It is by and large concurred that the Tweddle v Atkinson[4] has set out the genuine precedent-based law principle of the advanced outsider rule3. In this case, the Court recognized the presence of opposite specialists, yet held that the Doctrine of Privity of agreement implied that the outsider recipient couldn’t uphold against the promisor the guarantee that the promisor had made to the promisee. The standard was confirmed in Dunlop Pneumatic Tire Co. Ltd. v. Selfridge and Co. Ltd[5] and hence been reaffirmed in various cases.

Indian cases

In India, the Supreme court has by its decision in M.C. Chacko v State of Travancore[6] in a sweeping endeavor of freeing the ambiguities in the application of the Doctrine of Privity held that an individual not involved with an agreement can’t expose to certain all around perceived special cases, uphold the particulars of the agreement. The perceived special case referenced in the cited judgment is phrased broadly to cover the recipients under the particulars of the agreement. Perspectives on the privileges of outsider recipients have been set somewhere near different courts of the nation.

For instance in Bhujendra Nath v Sushamoyee Basu[7], the division seat of the Calcutta High Court has held that an alien to an agreement that is to his advantage is qualified to uphold the consent to his advantage. In Pandurang v Vishwanath[8], it has been held a person beneficially entitled under the contract can sue even though he is not involved with the contract itself.

CONCLUSION

The current loosened up necessities of present-day contract law and non-customary methodology of the legal executive comparable to Doctrine of Privity have given a road to review to truly influenced people who the exacting understanding of Doctrine of Privity may have been denied of rights in that capacity. The perspectives of the legal executive and academicians with regards to the extent of and appropriateness of doctrine are not uniform and the chance of contention or question can’t be precluded. From a useful point of view, it is fitting to remember a particular provision for the understanding expressing that the gatherings can authorize their privileges as & a quota third party beneficiary & quota under the agreement.

Therefore, it can be contended that albeit parties to the agreement can sue one another, and no outsider is permitted to enter between the gatherings to sue. In any case, with the improvement of time, the law has likewise evolved and now even an outsider is allowed to sue to defend his premium under extraordinary circumstances.

1. (1907) ILR 29 All 222.
2. AIR 1973 Cal 401.
3. AIR 1942 Pat 460.
4. (1861) 1 B & S 393.
5. [1915] AC 847.
6. AIR 1970 SC 504.
7. AIR 1936 Cal 66.
8. AIR 1939 Nag 20.

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