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PRIVITY OF CONTRACT (OR) STRANGER TO CONTRACT
Privity of contract means a relationship subsisting between the parties who have entered into a contract.
The two consequences of privity of contract :
1. A stranger to a contract cannot file a case.
A person who is not a party to a contract cannot file a case when there is breach of contract.
2. only the person who is the party can file a case.
A person who is the party in the contract has the right to file a case when there is breach of contract.
Example: in a contract between karthik and Rahul , the third person (shyam) who is not a party to a contract cannot file a case. As there is a contract between only karthik and Rahul , shyam is a stranger to the contract so he cannot file a case. Means that shyam cannot file a case karthik or Rahul if there is any breach of contract.
Case law : Dunlop pneumatic tyre company ltd vs selfridge & co.
Case law : Dunlop pneumatic tyre company ltd vs selfridge & co.
There was an agreement between the Dunlop tyre company and the distributors that the distributors cannot sell than the minimum lower prices which will be decided by Dunlop [Example: Rs 3000] . Distributor agreed to that and then he sold the Tires to the Selfridge company , which sold the tires at lesser prices than the minimum prices decided by Dunlop.[ Example :Rs 2500].
Then Dunlop filed a case on Selfrigde .
Court has given a judgment that as selfridge is not a party to a contract so Dunlop cannot file a case selfridge.
EXCEPTIONS: 1. EXPRESS TRUST
There was grandfather who appointed a trustee that he will work for the benefit of the granddaughter and there was contract only between them and the grand daughter is a stranger to contract.
If the trustee is not working for granddaughter’s benefit then she can file a case on his as he was appointed for the benefit of her only. Though she is a stranger to a contract. Here the privity of contract does not apply
EXCEPTIONS: 2. IMPLIED TRUST
EXAMPLE : Ramesh couriered goods to suresh( Beneficiary) and in case if suresh didn’t received the goods then suresh can file a case the courier company ( constructive trustee) even though there was no contract between the courier company and suresh but as suresh is the beneficiary for whom the goods were couriered. Here the privity of contract does not apply.
EXCEPTIONS:3. FAMILY SETTLEMENT ( H.U.F).
EXAMPLE: IF there are 3 brothers in a joint family who divided the joint property among themselves then incase if the brothers are not doing the marriage of their sister then sister has the right to file a case her brothers though she was not a party in the contract but she used to get the benefits out if that property. Here the privity of contract does not apply.
EXCEPTIONS:4. ASSIGNMENT OF CONTRACT.
This will not come under the Indian Contract Act but it is defined under the Transfer of Property Act.
Two parties will be there Assigner and Assignee.
Example : suraj have to recover some money from a company then he wants to transfer that money to the other person , now suraj will become the assigner and the person on whose favour he transfer the money which have to be recovered from the company will become the assignee
There will be an assignment of contract in favour of the assignee.
Assignee has the right to file a case the company even though there was no contract between the company and the assignee.
Assignee will come in the exceptions.
Assignment can be done in favour of any person, a family member or some other person.
EXCEPTIONS: 5 . CONTRACT OF AGENCY.
AS the agent works for the Principal and if any case is action on the agent by the third party then the principal will be liable.
If the agent accepted the advance amount by the third party and then makes default then the principal can file a case.
Examples of agent are Broker, Auctioneer, property agent, etc.
EXCEPTIONS:6 OFFICIAL RECEIVER
IN Case of insolvent. If any person becomes insolvent then the court will appoint an official liquidator.
Insolvent ( who is unable to pay the debts owned by him).
Example : X is a share holder and if he becomes insolvent then on his behalf the official liquidator will save his shares.
EXCEPTIONS: 7. ACKNOWLEDGMENT OF A DEBT.
Repayment of the loan amount.
Example : if X have to pay some money to Y then X will give that money to Z.
Z have to give acknowledgment of the amount received from X and he should inform this to Y that he received the debt amount .
In case of any default by Z then Y can file a case him law of contract.
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sowjanya advocate
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29 авг 2024
