Doctrine of privity of contract for CLAT - Practice Questions & MCQ

Passage: 3

Read the passage and answer the questions that follow.

An Introduction to the controversy related to the "Doctrine of Privity": "Doctrine of Privity" is one of the debated doctrines under the law of contracts, not only in India but around the world. The uncertainty behind the legal position in this regard is not merely because of the lack of clarity in the statutes or dissenting judicial pronouncements but much of it owes to the academic and judicial debates associated with the very basis of this doctrine and its comparative advantages and disadvantages. The controversy and unsettled position with respect to the Doctrine of Privity is not only relevant in day to day commercial contracts but also for high value and complex transactional contracts. In practice, it is not uncommon for the contracting parties to impose obligations on other party's affiliates, relatives and agents with respect to terms like restrictive covenants, non-compete and confidentiality obligations. The credit for the emergence of the doctrine of Privity of Contractis attributed to the common law courts, but now it is applied in many countries like India, England, Canada, Australia and New Zealand with certain statutory and judicial exceptions. This doctrine ensures that a stranger to a contract can neither sue nor be sued by the parties to the contract. However, in course of time, it was realized that the doctrine is too rigid to cope with the social demands, for a contract affects not only the parties to it but society at large as well.

Tweddle v. Atkinsonis the case in which the doctrine of privity of contract was finally established by the Court of Queen’s Bench in 1861. In this case plaintiff’s suit was dismissed by the court. It is to be noted that the court in rejecting plaintiff’s claim laid more emphasis on doctrine of privity of consideration than on the doctrine of privity of contract. Nevertheless, the doctrine of privity of contract acquired a definite shape in this case.This doctrine finally got approval by the House of Lords in the leading case of DunlopPneumatic Tyre Co. Ltd vSelfridge & Co. Ltd., in the year 1915. It is to be noted that in some subsequent cases efforts were made to abolish the doctrine. However, the doctrine isnot considered absolute by the Courts across the globe.

Question : Which of the following is/are considered as the justifications for which the doctrine of privity of contract was propounded?

(1) Enabling the third parties to enforce the contract might terminate the basic purpose for which the contract was formulated.

(2) Enforcement of the contracts by third parties would limit the rights of the contracting parties.

(3) Imposition of obligations upon a third party, who may not have given his consent to be bound, might be unfair.

Read the passage and answer the question that follow.

 In the case of J. P. Pathak vs M/S Pratibha Industries Ltd, it was held that “Onus to prove this issue to the effect whether there is privity of contract between the parties was placed upon the defendant. It appears that there is a typographical error in this issue. This is for the reason that it was the defendant's stand that there was no privity of contract between the parties. Therefore, the defendant cannot possibly be asked to prove something which is entirely opposite to its own stand. It could be asked to prove only what it sought to establish by raising the plea that there was no privity of contract. This issue should instead have read as follows: Whether there is no privity of contract between the plaintiff and the defendant? (OPD). Or, in the alternative: Whether there is privity of contract between the plaintiff and the defendant? (OPP). I accordingly proceed ahead to give my finding on this issue on the basis that the onus is on the defendant to prove that there is no privity of contract between the parties. On a conspectus of the entire evidence on record, I hold that there was no privity of contract between the plaintiff and the defendant. However, the answer to this issue would be incomplete without examining whether the plaintiff's case is covered within exceptions to the rule of privity of contract. If the plaintiff's case is found to be covered within exceptions to this rule, CS 136/13 J. P. Pathak vs. Pratibha Industries Ltd. Page 10/14 then he can maintain the instant action even though there was no privity of contract with the defendant. To the rule of privity of contract, courts have introduced a few exceptions. And one such exception is ­ whereby the terms of a contract a party is required to make payment to a third person and he acknowledges it to that person, a binding obligation is thereby created. A good illustration of this exception is the case of Devaraja Urs vs. Ram Krishnaiah AIR 1952 Mys. 109. The facts were - A sold his house to B under a registered sale deed and left a part of the sale price in his hands desiring him to pay this amount to C, his creditor. Subsequently, B made part­ payments to C informing him that they were out of the sale price left with him and that the balance amount would be remitted immediately. B, however, failed to remit the balance and C sued him for the same. The suit was held to be maintainable. It was held that though originally there was no privity of contract between B and C, B having subsequently acknowledged his liability, C was entitled to sue him for recovery of the amount.”

Question :The law of contracts states that only the parties to a contract have the right to enforce it. Which doctrine of common law governs this?

Read the passage and answer the question that follow.

 In the case of J. P. Pathak vs M/S Pratibha Industries Ltd, it was held that “Onus to prove this issue to the effect whether there is privity of contract between the parties was placed upon the defendant. It appears that there is a typographical error in this issue. This is for the reason that it was the defendant's stand that there was no privity of contract between the parties. Therefore, the defendant cannot possibly be asked to prove something which is entirely opposite to its own stand. It could be asked to prove only what it sought to establish by raising the plea that there was no privity of contract. This issue should instead have read as follows: Whether there is no privity of contract between the plaintiff and the defendant? (OPD). Or, in the alternative: Whether there is privity of contract between the plaintiff and the defendant? (OPP). I accordingly proceed ahead to give my finding on this issue on the basis that the onus is on the defendant to prove that there is no privity of contract between the parties. On a conspectus of the entire evidence on record, I hold that there was no privity of contract between the plaintiff and the defendant. However, the answer to this issue would be incomplete without examining whether the plaintiff's case is covered within exceptions to the rule of privity of contract. If the plaintiff's case is found to be covered within exceptions to this rule, CS 136/13 J. P. Pathak vs. Pratibha Industries Ltd. Page 10/14 then he can maintain the instant action even though there was no privity of contract with the defendant. To the rule of privity of contract, courts have introduced a few exceptions. And one such exception is ­ whereby the terms of a contract a party is required to make payment to a third person and he acknowledges it to that person, a binding obligation is thereby created. A good illustration of this exception is the case of Devaraja Urs vs. Ram Krishnaiah AIR 1952 Mys. 109. The facts were - A sold his house to B under a registered sale deed and left a part of the sale price in his hands desiring him to pay this amount to C, his creditor. Subsequently, B made part­ payments to C informing him that they were out of the sale price left with him and that the balance amount would be remitted immediately. B, however, failed to remit the balance and C sued him for the same. The suit was held to be maintainable. It was held that though originally there was no privity of contract between B and C, B having subsequently acknowledged his liability, C was entitled to sue him for recovery of the amount.”

Question :

X plans to sell his car for an amount of 5 lakhs. Y goes to X with the intent of purchasing the car but offers 4 lakhs in exchange. X denies the offer, Y goes to X the next day offering 5 lakhs, however, X tells him that he is offered a larger sum by Z. Y sues X for breach of contract and damages. Decide.

Vidya purchases a property from Krishna. Rajiv is already living in the property on a three-year lease. As a part of the purchase agreement, Vidya takes over the lease. There are some leakages in the house that Krishna promises to fix, as a part of the contract. A few months go by and the leakages are still no fixed. Rajiv calls Vidya, the new owner, and she says that it is Krishna’s responsibility. Can Rajiv file a suit for repairs against Krishna?