A contract is an arrangement between two parties enforceable by statute, assisted by some consideration, according to Section 2(h) of the Indian Contract Act 1872. The nature of contract law lies in the obligation that both parties have made to each other to satisfy their part of the contract.
Meaning and Scope
The doctrine of the privacy of a contract is a principle of common law that means that only parties to a contract are permitted to sue each other to enforce their rights and obligations, and no stranger is permitted to assign obligations to any person who is not a party to the contract, even if the contract was entered into for his benefit. The rule of privacy is fundamentally based on the 'theory of interest,' which means that the only person with an interest in the contract is entitled to protect his rights as required by law.
If Ramesh makes a pledge to Arun to deliver the products. In this case, if Ramesh breaks the contract, then only Arun has the right to sue him and he cannot be sued by any other person.
Essentials of Privity of contract:
1. A contract between two parties has been concluded:- The most important thing is that a contract between 2 or more parties has been concluded.
2. The Parties must have the competence and valid consideration should be given:- The competence and the presence of a consideration of the Parties are pre-requisites for the implementation of this doctrine.
3. A breach of contract by one party has occurred:- The basic condition for the enforcement of the doctrine of contract privacy is a breach of contract by one party.
4. Just the contracting parties will sue each other:- Now, after the violation, only the contracting parties are entitled to sue each other for non-performance of the contract.
English law v. Indian law
As a general rule, both Indian and English laws are identical to each other, such that only contracting parties may sue each other. It was held that the plaintiff should not sue in a leading English case of Tweddle v. Atkinson, since he was both a stranger to the contract as well as a stranger to consideration. In the case of Dunlop Pneumatic Tyre Co. Ltd v. Selfridge & Co., this principle of contract privacy was again analyzed. This definition of contract privacy is also similar in the Indian sense, the only difference being that an inconsiderate person can sue in India, whereas he cannot in England.
Role of Consideration
Consideration is the most critical aspect of any arrangement between the parties unless a contract is deemed to be null. Section 2(d) of the Indian Contract Act 1872 describes it. Consideration is regarded as the foundation of any negotiation and it forms the basis of it.
As a general rule, only contracting parties are allowed to sue each other, but now, with the passing time, exceptions to this general rule have arrived, enabling even strangers to prosecute contracts. The exceptions are those
1. A beneficiary under a contract:- If a contract has been concluded between 2 persons for the benefit of a non-party third person, the third party can enforce its right against the other party in the event of either party failing to perform its part. For Eg. In a contract between Alex and James, beneficial rights may be established in favor of Robin concerning the certain property and, in that case, Robin may enforce his claim based on that right. In the case of Muhammad Khan v. Husaini Begum, this notion of a beneficiary under a contract was illustrated.
2. Conduct, recognition, or admission:- There may also be a case in which, while there may be no privacy of signed between the two parties, he may be liable under the law of estoppel (Narayani Devi v. Tagore Commercial Corporation Ltd) if one of them acknowledges the right of the other by his conduct or acknowledgment. For example, if A enters into a contract with B, A will pay Rs 5000 to B during his lifetime and then to his son C every month. In the presence of C, A also acknowledges this transaction. Today, if A defaults, C will sue him, even if he is not a direct party to the contract.
3. Provision for maintenance or marriage under family arrangements:- These types of provisions is viewed as an exception to the contractual privacy doctrine for the preservation of the rights of members of the family who are unlikely to obtain a particular share and also to give full effect to the will of the testator. For example, if A gives his property to his 3 sons in equal portions with a condition that all 3 of them give Rs 10,000 each to C after his death, the daughter of A. If every one of them fails to follow this, C will now sue.
We have seen from the above discussion that while only parties to the contract may sue each other, no stranger is permitted to enter into suits between the parties. But the law has also evolved with the development of time and now even a stranger is entitled to sue to protect his interest under extraordinary circumstances.