Posted on: March 25, 2021 Posted by: admin Comments: 0

Author: Ayat Khursheed, Student at Bennett University.

Co-Author: Shambhavi Srivastava, Student at Bennett University.


Contracts and agreements that come under the periphery of the sale of goods are governed under the Sale of Goods Act 1930. This act basically came into effect on the 1st of July, 1930 in India. The various provisions of sale of goods act the act talks about a contract of sale. The basic thing in such agreements is that the seller transfers or agrees to transfer the property to goods to the buyer for a price, it elucidates that the basic requirement of such contract shall be absolute or conditional. The sale of goods act enumerates a difference in between sale and an agreement to sale. Sale is where a good is transferred from one party (seller) to another (buyer) the contract is sale however when the goods are transferred but the approach is futuristic or can be fulfilled under certain terms and conditions it is an agreement to sell. An agreement changes from an agreement to a sale when all the conditions are fulfilled and the property is transferred.

The following must be fulfilled:-

  • A contract
  • In such contracts, there must be transfer or agrees to transfer the property in goods to the buyer,
  • This transfer must have consideration or a price
  • Sale may be made between one part-owner

Section 2(h) of the Indian contract act 1872, a contract is an agreement between two parties that is valid and enforceable by law and is backed by some consideration. The doctrine of privity is a common law principle and it clearly states that only the parties to the contract can act as enforcing bodies in a contract and nothing else only these parties have the exemplary right to sue each other to enforce their rights liabilities and various obligation and anybody who is exclusive or is not a party to the contract or a stranger party to the contract is not allowed to confer obligation no stranger is allowed to confer any rights and obligation and this cannot be the case even though the contract is made or entered into for their own benefit. The basic idea of such a doctrine ‘Interest Theory’ which clearly entails that the person who has entered into the contract is entitled and has full power to protect his own rights and obligations as per law to protect his own rights.  For example, if I make an agreement to sell my car to Annika and if I breach the contract then in that case Ms. Annika has the right to bring a case against me or try to enforce her rights and obligations and no other person other than Annika can sue me.

  • Role of Consideration in privity of contract

As we all know that the consideration is the most essential or vital element of any contract without consideration a contact is void. The term consideration is enumerated in Section 2(d) of the Indian contract act 1872 consideration is a very basic foundation of every contact and it is the basis essentiality of a contract.

Essentials to the privity of contract

  • A contract that has been entered into between two parties
  • Parties must be competent should be valid consideration
  • There has been a breach of contract by one party
  • Only parties to contract can sue each other

Section 44 of sale of Goods Act 1930

Liability of buyer for neglecting or refusing delivery of goods-  in this case when the seller has complete readiness and willingness todeliver the particular goods and following this expects the buyer to take delivery of the goods  the only circumscribing factor is  that he must do this within a particular time that may not be specified but shall be reasonable enough if  this is not the case the buyer is liable and is under obligation with the seller for any kind of loss or  negligence so occurred  and for the refusal to do this in the reasonability of time and he must also maintain and can be charged for care and the custody due to the mere possession of goods. In the instant case matter

Section 54(2) of the sale of Goods Act 1930

The said section deals with the rescaling of the goods, upon few conditions applied. The resale can only be initiated if the goods involved are preshiable or it has been expressed that the seller has the right to sell the goods if there is no payment or default on the part of the buyer. He can also resell if he has retained the goods in transit and further given notice to the buyer about the reselling.

National small industries corporation limited v Ram Chandra ragunath joshi [1]

The plaintiff and the defendant entered into an agreement where plaintiff agreed to supply the machine to the defendant, who in-turn had been negotiating with a third party to supply them the said machine upon receiving it from the plaintiff. However, the defendant denied to the delivery of the said machine and in order to recover damages the plaintiff filed a suit against the defendant.

The defendant took on an defence that the plaintiff cannot sue them directly as they were acting in accordance to the third party and it was the third party, whom the plaintiff  had to sue for the damages and not them.

It was held by the court of law that the effect of the delivery upon the third party doesn’t dismay the privity within the defendants and the plaintiff and moreover the agency on part of the defendants for the third party was not stated anywhere. This arrives to a conclusion that even though the purpose of the contract effected the third party not the one  entering into it,  It cannot be contented that there is no contract of privity within the parties of the contract.

Section 27 of the sales of goods act 1930

 (Section 27 )Sale by person not the owner –  under this provision where goods are sold by a third person explicitly is not the owner or is a stranger who does not have authority  or with the consent of the owner the buyer can never have a better title than the seller and the owner has supreme role in terms of the is so important that  the buyer does this in good faith .

Section 61 of the sales of goods act 1930

(Section 61 ) interest by ways of damages and special damages-  it explicitly states that the section has no restriction on the seller or the buyer in order to take his damages and counter their rights  however, here it talks about the absence of the contract  the court here comes in to supreme picture and has absolute right to award the interest it deems fit for the same

Sukhjit Starch and Chemicals Ltd. Vs The Union of India (UOI) and Ors.[2]

The plaintiff had already paid for the maize belonging to an Argentine company  that was to be allocated by the government, but he only received a part of the maize and not the whole amount which was intended. After the partition it was informed to the plaintiff that the amount left, that was to be delivered to the plaintiff will not be delivered to him as the allocations have been cancelled by the government of East Punjab. Moreover,  the company to whom the maize belonged were asked to deal with the plaintiff separately, even though the allocation was under the control of the government. The plaintiff company filed a suit against Union of India and Government of Punjab.The defence pleaded by the Union of India and Government of Punjab was of, no existence of privity between the defendant parties or with the plaintiff.

It was held by the court of law that there existed a privity between the plaintiff  and the government even though the subject of the contract that was, the maize, belonged to a Argentine Company, it was said so by the court because, the bidding and the amount paid or the allocations were all done according and in presence of the government officials. The cancellation of allocation or transfer was under the control of the government. The government shared a full control and further stopped the transfer of maize to the plaintiff. Even though the maize belonged to the other company and the plaintiff was to procure the maize from them but government had attained control during the emergency, hence formulating new decisions regarding sale, allocation, purchase or delivery of the goods. Therefore, the company had performed it’s part of the bargain and being the privies of the contract due to above reasons, the government was entitled to pay the damages or compensation claimed.


The doctrine of privity can also be applied to the relationship of manufacturer and consumer. Warranty constitutes to be a part of sales of goods and it can be observed that a consumer enters into a contract of privity with manufacturer because he provides a warranty to the services and products that are produced by him and the warranty  travels from him to the seller,  retailer and then to the consumer.


It can be understood that the importance of the doctrine of privity is an essential topic to be dealt with, even if the definition of the same is narrow it has absolute wide outreach. The doctrine of privity is a principle  in which only parties to the contract can implement  their rights. The  accountabilities arising out of the doctrine and along with the interest theory, the knowledge of sale of goods  law and its legislation would help a business to flourish and understand various contractual obligation.  which will entail the parties   suffer no injustice and loss. It makes party obliged to perform their part of the bargain as it ensures fulfilment of one’s liability in a contract, even though it’s not visible at forts glance of the contract.

  1. Manupatra
  2. Heinonline
  3. Indian Sale of goods act 1930
  4. Indian contract act 1872

[1] 1994 (4) BomCR 598

[2] (1961)ILR 2Punjab and Haryana71

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