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The Privity of Contract: Origin and Reception of The Doctrine in India

Gayatri Kasibhatta | Social Thikana

The doctrine of privity existed as a single doctrine since the 13th century (for a sealed contract) and later in the 19th century, it evolved into two separate (debatable) doctrines – privity of consideration and privity of contract. Privity of consideration states that “consideration must move from the plaintiff.” The more popular version today is, “the consideration must move from the promisee.”[1] Privity of contract holds that stranger to the contract cannot sue upon it. According to the rule of assumpsit who can sue depended on consideration, understood as a benefit to promisor or detriment to the promisee.[2] The latter definition of consideration was established in Bourne v Mason (1670).[3] In Dutton v Poole (1677) court held that nearness in relation sufficed to bring an action.[4] Tweddle v Atkinson[5] is held to be the authority on the privity of contract rule. Though the case held that “a stranger to consideration cannot sue upon it” the legal treaties by Leake (1867), Polluck (1876), and Anson (1879) came to regard the case to be about privity of contract.[6] This projection is a result of efforts to fit the existing rules and forms of action into Will theory imported from the continent. Pothier rules out benefits to third party stating that agreements affect only contracting parties, however, the application of will theory, which gives most importance to consent between parties, theoretically allows the third party to benefit from a contract.

Indian cases Chinnaya Rau v Ramaya[7] and Samuel v Anantha[8] were decided based on the privity of consideration rule in Tweddle and Dutton. Justice Innes highlighted the detriment faced by plaintiffs and held that they were entitled to sue upon the contract as consideration moved from them indirectly. Justice Kindersley held that the definition of consideration in S 2(d) removes the privity of consideration barrier. Section 2(d) reads: When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise (my emphasis). Chinnaya was criticized by Polluck and Mulla on grounds that it went against the privity of contract rule.

The reception of doctrine of privity of contract rests on Polluck and Mulla’s two silos argument that wide definition of consideration in s 2(d) removes privity of consideration barrier and s 2(c) upholds the privity of contract barrier by defining “promisor” and “promisee” excluding third parties from suing on a contract. Section 2(c) reads: The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”.

The basis for privity of contract is found in Roman legal principle “alteri stipulari” which aim to confer legal effects only on parties involved in the legal acts/formations. Polluck and Mulla superimposed a foreign principle on s 2(c) that had nothing to do with the question of who can sue upon a contract. The effectiveness of Polluck and Mulla’s argument is that in section 2(h) which reads “an agreement enforceable by law is a contract,” it adds “at the option of either party.”

Iswaram Pillai v Sonivaveru (1914) was one of the first cases to explicitly support Polluck and Mulla’s argument that section 2(d) dismantled privity of consideration and has no effect on privity of contract. It is section 2(c) that answers the question of privity of contract rule. The same is reflected in multiple cases- Shankar Vishvanath v Umabai (1913), Subbu Cheety v Arunachalam Cheittiar (1929), Krishnalal Sadhu v Promila Bala Oassi (1928), Aadhar Mondal v Dalgobinda (1936) and even the First Law Commission in 1958 recognized the same argument. In Krishnalal, Justice Sir George Ranking said that any possibility of “jus quaesitum tertio” is excluded by the definition of “promisor” and “promisee” as defined in section 2(c) of ICA. This reasoning was upheld by the apex court in MC Chacko v State Board of Travancore[9] and held that cases decided on contrary argument were bad law.

The drafters did not intend to introduce any barrier to stop a third-party beneficiary from suing on a contract. They instead removed privity barriers by expanding the definition of consideration in broad terms “promisee or any other person.” As long as the promisor gets what they desired, who provided the consideration is irrelevant. This definition includes possible cases of a third party suing on a contract to which they gave consideration. Hence, the reception of privity of contract doctrine in India does not have a basis for it in ICA yet it is widely held to be held in narrow definitions of promisor and promisee in s 2(c).

[1] The word plaintiff is replaced by ‘promisee’ due to Henry Stephen’s New commentaries on the laws of England (1842). [2] An easy way to understand who is a promisor and who is a promisee, remember, the one who comes to court to enforce a promise is the promisee. [3] 1 Vent, 6. [4] Dutton v Poole (1677) 2 Lev 210. [5] (1861) 1 B&S 393. [6] Swaminathan S, “The Great Indian Privity Trick: Hundred Years of Misunderstanding Nineteenth Century English Contract Law” (2016) 16 Oxford University Commonwealth Law Journal 160. [7] (1882) 4 ILR 4 Mad 137 (Madras High Court). [8] (1883) 6 ILR Mad 351 (Madras High Court). [9] 1970 AIR 500

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