Introduction: There is a general rule of law is that only the parties to a contract can sue. In other words, if a person not a party to a contract, he cannot sue. This rule is known as the “Doctrine of privity of contract”. Privity of contract means relationship subsisting between the parties who have
entered into contractual obligations.
There are two consequences of doctrine of privity of contract they are follows:
1) A person who is not a party to a contract cannot sue even if the contract is for his benefit and he provided consideration.
(Or)
A stranger to a contract cannot sue.
2) A contract cannot provide rights (or) impose obligations arising under it on any person other than the parties to it.
(Or)
A stranger to a contract can sue.
Example: Dunlop Pneumatic Tyre Co.Ltd (vs) Selfridge & Co.Ltd (1915).
Facts: ‘S’ bought tyres from the Dunlop Rubber company and sold them to ‘D’, a sub-dealer, who agreed with ‘S’ not to sell below Dunlop’s list price and to pay the Dunlop company L 5 (pounds) as damages on every tyre ‘D’ undersold. ‘D’ sold two tyres at less than the list price and there upon, the Dunlop Company sued him for the breach.
Judgment: The Dunlop Company could not maintain the suit as it was a stranger to the contract.
Exceptions: The following are the exceptions to the rule that a stranger to a contract cannot sue:-
1. A trust: In trust deed beneficiaries is allowed to sue the trustee for enforcement of trustee’s duties even though they are not contracting party. However, the name of the beneficiary must be clearly mentioned in the contract.
Example: Gandy (vs) Gandy (1884):
Facts: A husband who was separated from his wife executed a separation deed by which he promised to pay to the trustees all expenses for the maintenance of his wife.
Judgment: This sort of agreement creates a trust in favour of the wife and can be enforced.
2. Marriage settlements, partition (or) other family arrangements: When an agreement is made in connection of marriage settlements, partitions (or) other family arrangements and a provision is made for the benefit of a person, he may sue although he is not a party to the agreement.
Example: Daropti (vs) Jaspat Rai (1905):
Facts: ‘J’s wife deserted him because of his ill treatment. ‘J’ entered into an agreement with his father-in-law to treat her properly (or) else pay her monthly maintenance. Subsequently, she was again ill-treated and also driven out.
Judgment: she was entitled to enforce the promise made by ‘J’ to her father.
3. Acknowledgement (or) Estoppel: The person, who becomes an agent of a third party by acknowledgement (or) Estoppel, can be sued by such third party.
4. Assignment of contract: Assignment means voluntary transfer of the rights by a person to another. In such a case an assignee becomes entitled to sue and enforce the rights which are assigned to him.
5. Contracts entered into through an agent: The principal enforce the contract entered into by his agent provided the agent act within the scope of his authority and in the name of the principal.
6. Covenants running with the land: In case of transfer of immovable property, the purchaser of land (or) the owner of the land is bound by certain conditions (or) covenants created by an agreement affecting the land.