DOCTRINE OF PRIVITY OF CONTRACT

DOCTRINE OF PRIVITY OF CONTRACT

 

MEANING OF PRIVITY OF CONTRACT

The doctrine of privity of contract means that a contract is a private relationship between the parties to the agreement and no other person can acquire the rights or liabilities under it. A contract is an agreement between two or more parties that create an obligation to do or not to do something. a contract cannot confer right or impose obligation on any person except the parties to it. Hence, only party to a contract can sue or be sued for the enforcement of the contractual obligations and a person who is not a party to a contract cannot sue or be sued. 

This establishes the rule "stranger to a contract cannot sue".

Ex. - If A makes a contract with B, he comes under a legal obligation to pay damages if he fails to keep his promise. The enforceability or liability as regards this contract lies firmly in the hands of A and B to the exclusion of others, this is the foundation of the doctrine of privity of contract.

A stranger to a contract means the person who is not party to the contract. the stranger to a contract is known as a third party. 

 

EXCEPTION TO THE DOCTRINE OF PRIVITY OF CONTRACT

The rule that a stranger to a contract cannot sue, is subject to the following exceptions: -

1. In case of beneficiary of a trust: - A trust is always created of some person called as beneficiary. A beneficiary can file a suit to enforce his right even though he is not a party to the contract. 

Ex. - kalu transferred certain property to balu under the trust, to be held by him for the benefit of ramu. if balu refuses to give benefit to ramu, then ramu can enforce the agreement even though he is not the party of contract.

2. In case of family settlement: - when certain arrangement are made for the marriage or maintenance of a particular member of the family then such person for whose benefit the provision is made may enforce the contract.

Note - Marriage and family settlement should be in writing.

Ex. - Two brother, on partition of joint property, agreed to invest certain sum of money, in equal shares, for the maintenance of their mother. later the brothers decided not to part away with such funds. held, mother was entitled to recover from her sons such amount that was invested by the sons.

3. In case of acknowledgement of liability - when the promisor, by his conduct, acknowledges or himself act as an agent of a third party, a binding obligation is thereby incurred by him towards the third party. 

Ex. - Amar receives some money from Akhbar to be paid to the Anthony. Amar admits of his receipt to Anthony. Anthony can recover the amount from Amar, who shall be regarded as the agent of Akhbar.

4. In case of assignment of a contract – Assignment refers to the transferring the right in a contract to a third person. when a contract is assigned in favor of someone, the assignee can enforce the contract, even though he is not a party of a contract.

Ex. - the assignee of an insurance policy of a deceased person, Endorsee of bill of exchange can enforce the contract though he is not a party to a contract.

Note- A contract requiring the use of personal skills (singing, dancing etc.) cannot be assigned