Doctrine of Privity of Contract
Section 2(d) of the Indian Contract Act, 1872 and the common law rule that only parties can sue
In one minute
Privity of contract means that only the parties to a contract can sue or be sued on it. A stranger to the contract cannot enforce it, however much the contract was meant to help that stranger.
The Indian Contract Act has no section named privity. It is a rule of common law. Indian law differs from English law on one point: a promisee need not have given the consideration personally.
This distinction is the most tested point in this topic. In real life, it decides who can sue when a contract is made for someone else's benefit.
Exam focus
- Frequency: Rarely asked
- Usually asked as: Short answer (4 to 6 marks)
Legal provision
- No numbered section. The Act does not contain a section on privity. The rule came into Indian law through court decisions.
- Section 2(d): consideration may be given by "the promisee or any other person". This wording is the basis for Indian law on privity of consideration.
- Section 2(c): the person who makes the proposal is the promisor and the person who accepts is the promisee. These are the parties to the promise.
Meaning and definition
Privity of contract is the legal link between the parties to a contract. Because of that link, they alone have rights and duties under it. A person outside the link is a stranger to the contract.
The rule has a reason. A contract is an agreement between named persons, and the law binds only those who agreed. If strangers could sue, parties could not know who might claim against them. The Latin maxim res inter alios acta alteri nocere non debet (a thing done between others should not harm a third person) expresses the idea.
- A and B can sue each other on the contract.
- C cannot sue A or B on the contract, as a rule (Dunlop v. Selfridge).
- C can sue only if an exception applies. The exceptions are in the note on exceptions to the privity of contract.
Detailed explanation
The doctrine has two parts, and Indian law treats them differently.
1. Privity of contract: the rule
Only a party can sue. Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. is the leading case. Dunlop, a tyre maker, sold to Dew and Co. on price-maintenance terms. Selfridge got tyres from Dew, signed an undertaking addressed to Dew to keep the list prices, and sold below them. Dunlop sued Selfridge. The House of Lords held that Dunlop could not recover. Only a party can sue on a contract, and no consideration had moved from Dunlop to Selfridge.
Example. Ravi agrees with a builder to build a house for his friend Suresh. The builder delays. Suresh is not a party to the contract and cannot sue the builder on it.
2. Indian cases applying the rule
Indian courts apply the same rule. In Jamna Das v. Ram Autar Pande (1911), a mortgagee could not enforce a promise made between the mortgagor and a buyer of the property to pay off the mortgage debt. The mortgagee was not a party to that agreement.
Example. Hari mortgages his land to a bank. Hari sells the land to Gita, who promises Hari to repay the loan. The bank cannot sue Gita on that promise, because the bank is not a party to Hari's agreement with Gita.
3. Privity of consideration: where India departs
Privity of consideration asks whether a promisee who gave no consideration can sue. English law says no. Indian law says yes, because section 2(d) allows consideration to come from "the promisee or any other person". In Chinnaya v. Ramayya (1882), a woman gave property to her daughter, who promised to pay an annual sum to the woman's sister. The sister gave nothing but was the person to whom the promise was made. The Madras High Court allowed her to enforce it.
Example. Meera's father gives Suresh a plot of land. In return Suresh promises Meera a monthly stipend. Meera gave no consideration herself, but the promise was made to her. She can sue.
Don't confuse: privity of contract and privity of consideration
Students often write that Indian law has abolished privity. It has not. It has relaxed only the rule about who must give consideration.
| Point | Privity of contract | Privity of consideration |
|---|---|---|
| Question asked | Can a non-party enforce the contract? | Can a party who gave no consideration enforce the promise? |
| English law | No | No |
| Indian law | No, subject to exceptions | Yes |
| Leading case | Dunlop v. Selfridge | Chinnaya v. Ramayya |
Inside the concept. Dunlop was not a party to Selfridge's undertaking, so it had no right to sue on it.
Just outside the concept. Chinnaya was the person to whom Ramayya's promise was made, though she gave no consideration. She was allowed to sue.
Common mistakes
- Saying Indian law has abolished privity. It has relaxed it only on privity of consideration.
- Searching for a section number. There is none.
- Mixing the two ideas, or treating a stranger to the contract as a promisee.
- Presenting Dunlop v. Selfridge as decided on privity alone. The House of Lords also relied on the absence of consideration from Dunlop.
Apply it
Problem
Anil agrees with a coaching centre to pay Rs 20,000 so that his nephew Bharat can attend a course. The centre does not teach Bharat. Can Bharat sue the centre?
Issue. Can a person who is not a party to the contract enforce it?
Rule. Only a party to a contract can sue on it, as in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd.. Indian law relaxes only the rule on who gives consideration.
Application. Bharat is not a party. The promise was made to Anil, not to Bharat.
Conclusion. Bharat cannot sue unless an exception applies. Anil can sue the centre.
Leading case laws
- Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. (1915)
Facts. Dunlop sold tyres to Dew and Co. on price-maintenance terms. Selfridge signed a price undertaking addressed to Dew, then sold below list price. Dunlop sued Selfridge.
Principle. Only a party can sue on a contract. Also, no consideration moved from Dunlop to Selfridge.
Why it matters. It is the leading authority on the rule. All six Lords rested on the absence of consideration, and Lord Haldane also relied on privity.
- Chinnaya v. Ramayya (1882)
Facts. A woman gave property to her daughter, who promised to pay an annual sum to the woman's sister. The daughter refused to pay.
Principle. Consideration may come from a third party. The sister could enforce the promise.
Why it matters. It marks the Indian departure on privity of consideration.
- Jamna Das v. Ram Autar Pande (1911)
Facts. A mortgagor sold the property and the buyer promised to pay off the mortgage. The mortgagee tried to enforce that promise.
Principle. The mortgagee was not a party to the promise and could not enforce it.
Why it matters. It is an early Indian case that applies the strict rule.
How to write this answer in the exam
5-mark answer
- State the rule: only parties can sue.
- Note that there is no section. It is a common law rule.
- Cite Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. and one example.
10-mark answer
- Meaning and reason for the rule.
- Privity of contract: Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. and Jamna Das v. Ram Autar Pande (1911).
- Privity of consideration and section 2(d): Chinnaya v. Ramayya (1882).
- A table of the two ideas.
- A one-line pointer to the exceptions.
Key points to remember
- Only parties to a contract can sue or be sued on it.
- There is no numbered section. The rule is common law.
- English law applies the rule to both contract and consideration.
- Indian law applies it to contract, but not to consideration (section 2(d)).
- Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. is the leading case. Chinnaya v. Ramayya marks the Indian difference.
Quick self-test
1. What is the rule of privity of contract?
Only parties to a contract can sue or be sued on it.
2. Which words of section 2(d) allow consideration from a third person?
"The promisee or any other person".
3. Which case is the leading authority on the rule?
Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd..