PRIVITY OF CONTRACT 2

Topic of the day

- The application of the doctrine of privity

- The rationale behind the doctrine of privity

- The reform of the doctrine of privity

THE APPLICATION OF THR DOCTRINE OF PRIVITY

The principle of privity refers to the legal concept that only the parties to a contract enjoy the rights and obligations under the contract. In contract law, this principle limits the ability of third parties to enforce or benefit from a contract. This may vary between jurisdictions, but in general various legal cases have shaped the application of the principle of privity and this includes the cases of Tweddle v Atkinson and Dunlop Pneumatic Tire Co Ltd v Selfridge & Co Ltd, which established and clarified this principle in English law.

Within the statute, certain sections may modify or override the principle of privity. For example, the Contracts (Rights of Third Parties) Act in some jurisdictions allow a third party to enforce a contract if it is expressly named as a beneficiary. Such legal changes are intended to address the limitations of traditional privity rules.

THE RATIONALE BEHIND THE DOCTRINE OF PRIVITY

The basic principle of privity principle in contract law is to maintain the sanctity of private agreements between the parties.

The case of Tweddle v Atkinson (1861) reinforced the view that only parties who contributed to a contract have the legal standing to enforce it. Third parties, even intended beneficiaries, are deemed unable to bring claims and the case of Dunlop Pneumatic Tire Co Ltd v Selfridge & Co Ltd (1915) highlighted the lack of contractual relationship between the manufacturer and the retailer's customers. It confirms the limitations of confidentiality and prevents customers from suing manufacturers for breach of contract.

1. Protecting Freedom of Contract: Plativity protects freedom of contract by allowing parties to negotiate and structure agreements without interference from outside entities. It ensures that contractual rights and obligations are voluntarily assumed by the parties involved.

2. Avoiding Uncertain Liability: privity helps prevent situations where a party may have unforeseen and uncertain legal liability to an unknown third party. This promotes clarity and predictability in contractual relationships.

3. Certainty and precision of legal relationships: Mutuality contributes to clear and manageable legal relationships by limiting the scope of individuals with legal rights and obligations to those directly involved in the contract. This clarity facilitates effective resolution of contract disputes.

THE REFORM OF THE DOCTRINE OF PRIVITY

Some jurisdictions have addressed reform of the principle of privity through legislative changes, often allowing third parties to enforce contractual rights. The case of Beswick v Beswick (1968) highlighted the need for legislative intervention to correct the limitations of the privity rule where the courts also expressed dissatisfaction with this principle and recognized the importance of enabling third parties to enforce contractual rights.

Also, the case of Khushaldas S. Advani & Ors v. Dalpatram Iccharam Alias Nyalchand (AIR 1970 SC 706) which also highlighted the need for statutory modification of the doctrine of privity and the Court encourages legislative action to address injustices arising from strict compliance with privity.

However, the Contracts (Rights of Third Parties) Act 1999 (UK) is a legislation that represents a major reform, allowing third parties to enforce the terms of a contract in certain circumstances where section 1 of the Act outlines the conditions under which a third party may enforce a contract, providing exceptions to the traditional rules of privity while the Restatement (Second) of Contracts (United States) which is not a statutory law, also has influenced the development of American contract law where it provides a framework that allows third-party beneficiaries to enforce contractual rights in certain circumstances.

The Indian Contract Act, 1872 (as amended) have been proposed to address issues relating to privity. While the specific parts may vary, the general idea is to facilitate third-party enforcement in certain circumstances.