DOCTRINE OF PRIVITY OF CONSIDERATION

ABSTRACT

“A contract never confers rights or impose obligations arising under it of any person except the parties to it “. – Pollock and Muller

The two fundamental doctrine of the contract that is privity of contract and privity of consideration. As per the Indian contract act ,1872 the provision of consideration mentions in section 2(d) which states that promises to do or abstain from doing, something, such act or restrain or promise is a promise of consideration. Consideration means something in return and this is the price paid for the contract. It should be valid; the contract is void without consideration. For the formation of contract consideration is n essential element of it. For example – in the contract for the sale of the care, the price paid for the car is a consideration. As per the Indian law it becomes immaterial who has furnished the consideration as long as there is a consideration. The fundamental propositions of the English law states that consideration should be furnished by the promisee only and not any other person and the consideration is not universally valid.

The exception in consideration is mention in section 25 of the Indian contract act, 1872 where it clearly stated that agreement without consideration an agreement of no consideration and it is a void agreement whether it is in a written form or in the registered form, or it is a promise to pay debt barred by the limitation act where it stated that no consideration, no agreement. The doctrine of privity of consideration refers to the strangers to consideration can sue or be sued and the consideration is can be also paid by the other party.

Finally, this article will highlight the doctrine of consideration where it includes all the aspects of the privity of consideration in the contract law or in the English law. By shedding lights for the deeper understanding of the article aims to contribute of this contractual aspect.

KEYWORDS:

Consideration, contract, agreement, contractual aspect, enforceable, breach, agreement, imposing obligations, direct relationships, third party, beneficiaries, assignment of rights and novation.

INTRODUCTION

Under the law of contract, the doctrine of privity is a common law principle in which privity is a relationship between two parties to a contract is compulsory. The meaning of privity refers to a legal relationship that exist between two people or a group who have both signed a contract. the definition of consideration is mention in the section 2(d) of the Indian contract act ,1872 which made a consideration for a contract from the third party to flow. It is not necessary that the consideration came from the parties to a contract even it can be flow from the other party. The privity of consideration is not an important and pertaining to a contract, consideration may flow from the third party to the contracting party. Under the act, the agreement of consideration from the third party it may proceed but it does not follow that the third-party has right to sue on the agreement. The statement used in the definition of consideration that any other person here any other person refers to stranger, under the Indian law consideration may be from the other person or even the stranger. Consideration is an incentive given to set foot into a contract that is sufficient to contribute the promise which is enforceable in the court.

Privity of consideration in contract law refers to the principle that only parties who provide consideration in a contract have legal standing to enforce it. It implies that the third party, who has not furnished consideration, generally cannot sue to enforce the contract or be sued for its breach. This doctrine helps maintain the integrity of contractual relationships by limiting rights and obligations to the involved parties. however, exceptions exist, such as when the contract explicitly confers benefits or impose obligations on a third party, allowing them to enforce the agreement. privity of consideration underscores the notion that contractual rights and duties are personal and do not automatically extend to outsiders.

DOCTRINE OF CONSIDERATION

If the promise either of the two below–mentioned act on the promisor will

1. Does something (past, present or future)

2.Abstain from doing something (in the past, present or future)

The maxim through which we learn consideration is QUID PEO QUO means something in return. Under the contract law section 25 of the Indian Contract Act ensures that if there is no consideration means that the agreement not fulfills the conditions of the contract. section 10 of the Indian contact act, where there must be a lawful consideration.[1]

KINDS OF CONSIDERATION

PAST CONSIDERATION – it is something which is completely done by the promise even before making of agreement; it is supported by the future promise.
PRESENT CONSIDERATION – in this type of consideration both the parties has right to form consideration together to a contract, it is also said as an executed consideration.
FUTURE CONSIDERATION – when consideration for a promise moves after the contract is formed, it is the future consideration, and it is also valid if it depends on the situation.

ELEMENTS OF DOCTRINE OF CONSIDERATION

Consideration must move at the desire of the promisor -if the contract is based on the desire of the third party or against the will of the contracting party, it is considered that is not a consideration. The desire of the promisor only the consideration must be offered by the promise only.
Consideration may move from the promise or any other person – the stranger has the right to a contract the provision is essentially in India. it can be beyond the parties. in this there is no stranger to contract but stranger to consideration must be there.
Consideration may be past, present and future. – The previous consideration is referred as a good to a consideration and the other consideration i.e., future and present consideration whereas future consideration refers as a valid consideration it may be depends on the situation on the ither hand present consideration where the promisor and the promise consideration must be available and promise to a contract.
Consideration may be something has a value in the eye of law- in the eye of law the contract has their own value because it is a lawful agreement where nobody could breach the contract of consideration where the judicial review cannot avoid the inadequacy in the contract. The issue must be genuine in front of the court and also have a substantial consideration in the eye of law, it will look to determine whether the will of the party s free or not.
It must not be unlawful – the provision is mention in the section 23 of the Indian contact act ,1872, according to tis provision an agreement has an unlawful consideration where the agreement is consideration as a void agreement. Policies which are made foe the public welfare against the law is not valid consideration.

ESSENTIALS OF PRIVITY OF CONTRACT

Privity of contract is a legal doctrine that specifies the parties to a contract are the only ones bound by it, and they can enforce its terms. Third parties generally cannot claim rights or obligations under the contract. This principle has exceptions and variations across jurisdiction.

Key aspects of privity of contract:

Direct relationships:

The doctrine establishes a direct relationship between parties who enter into a contract. only these parties have rights and obligations.

Third-party limitations:

Generally, a person who is not a party to the contract cannot enforce its terms, even if the contract may benefit or affect them indirectly.

Contractual intent:

Privity is based on the idea that contractual obligations arise from the mutual consent of the involved parties. those who haven’t consented to the contract should not be bound by it.

Exception for beneficiaries:

Some jurisdictions recognize exceptions for the third- party beneficiaries. if a contract is intended to benefit a third party, that party might have enforceable rights.

Assignment of rights:

While the original parties may not want third parties may not want third parties involved, contractual rights can sometimes be assigned. This occurs when one party transfers its rights under the contract to another.

Novation:

In certain cases, the original parties may agree to replace one of them with a new party, releasing the exiting party from its obligations. This is known as novation.

EXCEPTIONS OF PRIVITY OF CONTRACT

Privity of contract refers to the principle that only parties to a contract have rights and obligations under it. however, there are exceptions where third party may acquire rights or be bound by contract. some exceptions include:

Third–party beneficiaries:

If a contract is made expressly for the benefit of a third party, that party may enforce the contract.

Intended beneficiaries are those whom the parties clearly intended to benefit.

2. Assignment of rights:

A party to a contract can transfer its rights to a party through assignment.

The third party then steps into the shoes of the original party can enforce those rights.

3. Agency:

An agent may enforce a contract made a behalf of a disclosed principal.

The agent is not personally bound by the contract, and the third party can’t enforce the contract against the agent.

4. Statutory exceptions:

Some statutes create exceptions to privity. for instance, consumer protection laws may confer rights against the consumers against manufactures or supplies, even if the consumer did not directly contract with them.

5. Collateral contracts:

A collateral contract is separate contract that is linked to the main contract. a third party may have rights under a collateral contract.

6. Trusts:

In cases where a contract involves a trust, beneficiaries of the trust may be able to enforce the contract.

7. Covenants running with the land:

In real property transactions, certain promises may run with the land, binding subsequent owners even if they were not parties to the original contract.

8. Equitable exceptions:

Equitable doctrines, such as promissory estopple may allow a third party to enforce a promise made for their benefit.

DOCTRINE OF CONSIDERATION CASES

DURGA PRASAD V. BALDEO

The decided point that consideration should be at the desire of the promisor. Consideration is an essential element to a contract and it must be fixed by the promisor, if any third person that will not a valid contract.

Durga Prasad was a contracted who made shops in the market, due to the order of the area collector he made more shops in which one of the shopkeepers is Baldeo who promise to pay the commission of the sell to Durga Prasad. When he didn’t have the commission then he sued the Baldeo for the breach of contract. The court held that shopkeeper is not bound to pay commission. The desire of the promisor for the consideration must move by the promisor.

CHINNAYA V. RAMAYYA (1882)

This case is based on the rule of privity of consideration where only if his partyto a contract can give consideration to each other. It is recognized in India that consideration can be given by any other person as well.

A mother gifted her property to her daughter named Ramayya and her mother put a condition that she will pay to chinnaya as an annuity every year. Ramayya agreed to pay to her masi. She entered into a contract after the mother got passed away then her daughter stop paying to the aunt who is entitled to an annuity then chinnaya sued for the breach of contract. Chinnaya filed against the Ramayya contended that there must be consideration for valid contract and also, she said that the property was of her mother and chinnaya was stranger to contract. The madras high court held that in the agreement the consideration has been furnished by the plaintiff sister on the behalf of plaintiff. Court held that the plaintiff was stranger to consideration and the sister is entitled to a decree for payment of the annual sum of money.

An agreement without consideration is a void agreement it is based on the maxim Ex Nudo pacto non oritur which means no action less on a bare promise. The doctrine of consideration is recognized in India as well as applicable in England. The doctrine used in section 25 of the Indian contract act ,1872 this doctrine is not absolute there are some conditions where there is no need to use the doctrine of consideration then it converted into legal contract where there in the agreement where there is no consideration.

THERE ARE CERTAIN EXCEPTIONS OF DOCTRINE OF CONSIDERATION

The certain exception includes agreement in writings and registered under the law for the registration of a document in a time on the account of natural love and affection of the near relation parties of each other.
There is a promise to compensate in a manner of wholly or in part, the free consent of to promisor where the promisor is legally compellable to done.
Agreement which is made in writing and the agreement is signed by the or by the specially authorized to pay the debt in special authorized to contact if it is singed on the other hand in which the creditor might have enforced payment but for the law for the limitation of suits.

An agreement to which consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the court assured that free consent is not present.Nothing shall affect the validity, as between the donor and done, of any gift actually made.

ILLUSTRATIONS

A Promise, for no consideration, to give to B Rs.1, 000. This is a void agreement.
A for natural love and affection, promises to give his son, C Rs .2, 000. A put his promise to B into writing and registered a document of it.
A agrees to sell dog worth Rs.3, 000 for Rs.100. A denies that his free consent to the agreement was freely given.[2]

Section 63 of the Indian contract act, 1872, bailment, creation of agency and the doctrine of promissory estoppels are also the exceptions of the doctrine of consideration where there is no requirement of consideration to a contract, whereas bailment can be gratuitous or non-gratuitous and no consideration is necessary for the creation of agency.

The doctrine of promissory estoppels also allows aggrieved parties to pursue justice for the performance of a contract in court, even in the absence of any consideration.

DOCTRINE OF PRIVITY OF CONSIDERATION

The applicability of the doctrine of privity is not applicable in India. Who may supply consideration when we study section 2(d) in India consideration can be given by the promise and any other person or third party; it means consideration can be supplied by any other person or stranger.

In the case of chinnaya v. ramayya it ensures that the doctrine of privity of consideration is not recognized in India but doctrine of consideration is applicable in this case on the other hand this doctrine recognize in England. Through this particular case court held that any other person is equal to promise, both are equally effective in a contract.

In the case of Tweddle v. Atkinson (1861) it mentions that the party to a contract can only supply the consideration, third party not allowed to give consideration through this case doctrine of privity of consideration is applicable in England.

Different between Indian law and England law;

1. The doctrine of privity of consideration is not applicable in India but it is applicable in England.

2. Past consideration is not considered in English but on the other hand it is considered as valid in India.[3]

Fundamental propositions of English law

The two fundamental propositions of English law which is referred in the court as a lordship in the English law are:

The Consideration must move through the promisee to promisee, in the English law. If it can be furnished by any other person, the other person, the promise becomes a stranger to the contract consideration and, therefore, cannot enforce the promise.
A contract of consideration cannot be enforced by those parties who are not a part of a contract, it even though it is made for his benefit. If the third party i.e.is a stranger to the contract cannot claim any right under the contract law.

CONCLUSION

The doctrine of privity of consideration is a informative topic of law of contract where be understand which types of contract is valid or void. this article represents all the aspects of doctrine of privity of consideration where it includes the exceptions of the doctrine of consideration which reflects the condition of the doctrine of privity of consideration. It indicates all the circumstances where there is no need of consideration and no agreement. It also [5]explains about the English law and Indian law related to the doctrines under the Indian contract act, 1872 this article encompasses applicability of the law in the doctrine of privity of consideration.

REFERENCES

[1] WWW.SSCONLINE.COM

HTTP://WWW.SIMPLEKANOON.COM

[2] DR.S. K KAPOOR, INDIAN CONTRACT ACT, DIGLOT EDITION

[3] TWEDDLE V. ATKINSON [1861] EWHC J57(QB),(1861) 1 B&S393

[4] www.ssc.online.com

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