MEANING
The doctrine of Privity of a contract is a common law principle which implies that only parties to a contract are allowed to sue each other i.e. contract are only binding on the parties to a contract or be sued under it. However, this doctrine has proved to be problematic due to its effects on contracts designed to help outsiders who are unable to enforce contractual corporate obligations.
Contract only occurs between the parties to a contract, usually a contract for the sale of goods and services. Horizontal independence arises when contractual benefits will be provided to a third party. Direct firming involves a contract between two parties, with an independent contract between the party and another person or company. If a third party receives a profit under a contract, it does not have the right to challenge the parties to the contract in addition to its profitability. An example of this is when a manufacturer sells a product to a distributor and a distributor sells the product to a retailer. The seller then sells the product to the buyer. There is no contract ownership between the manufacturer and the buyer.
Illustration
If A & B enters into a contract in which A promises B to deliver goods in exchange for some amount of money. If there is a breach of contract either by A or by B, then only they both have sue each other and no other third person can sue.
ESSENTIALS
- There must be two parties to enter into a contract.
- There must be a valid consideration of the parties and they must also be competent to enter into a contract.
- There must be a breach of conduct by either parties in the contract.
- The parties in the contract can only sue each other after any breach of contract.
EXCEPTIONS
- Beneficiary under a contract–
If a contract is entered into between 2 persons for the benefit of a third party who is not a party, then in the event of the failure of either party to do its part, the third party may exercise his right against the others. Eg. In the agreement between A and B, a lucrative right to property may be created in C’s favour and in that case, C may use his claim on the basis of this right. This has been highlighted in the case of Muhammad khan vs Husaini Begum.
- Provision for maintenance or marriage under family arrangement–
This type of provision is considered to be an alternative to the legal validity of the contract in order to protect the rights of family members who may not be able to obtain a specific assignment and give greater effect to the will of the attestator. Eg , If A gives her Property in equal shares to her three sons with the condition that after her death all 3 will give Rupees 10,000 each to C, A’s daughter. Now C can prosecute if one of them fails to obey this.
- Negligence– In the event of a person if he suffers personal injury as a result of negligence, the negligent party may be sued by third parties who have not entered into an agreement with the negligent person.
- Trust – In some cases, a contract between a trustee and another party may affect the owner. For example, if a contract is entered into between a trustee and another party, the beneficiary of the trust may file a claim for enforcing his or her right under the trust, even if he or she is a foreigner to the contract.
- Insurance company– According to the doctrine of privity, the beneficiary of the life insurance will not have the right to enforce the contract as they were not part of the contract and the signer is dead. Given this inequality, the contracts of foreign companies, which allow foreign companies to submit claims from the policies issued for their benefit, are one of the differences in the doctrine of privity. A third party involved in a car accident with an insured car may, in some cases, sue the insurance company in a court decision in favour of the owner of the car.
CONCLUSION
As we all can clearly see changes and developments around us, we can say like earlier only parties to the contract can sue each other and no third person has the right but with time law also changes according to the new circumstance it faces and now even a third party has the right to sue under some circumstances, which means a stranger can get the damages if the infringement is proved.