NOTES

CAN A PERSON WHO IS NOT A PARTY TO A CONTRACT SUE UPON IT?

The doctrine of Privity of Contract: According to the doctrine of privity of contract only a party to a contract is entitled to enforce a right created by the contract. No one is entitled to or bound by the terms of a contract to which he is not an original party. A third party (stranger to contract) has no locus standi in a contract, he is debarred from interfering with the contractual rights or obligations of the parties. Only a person who is a party to a contract can sue on it. The doctrine of privity of contract prevent imposition of contractual obligations upon a person without his consent.

D bought tyres from Dunlop Rubber Co. and sold them to S, a sub-dealer, who agreed with D not to sell below Dunlop's list price and to pay to Dunlop co. $ 5 as damages on every tyre he undersells. S sold two tyres at less that the list price, and thereupon, the Dunlop co. sued him for the breach. Will the Dunlop Co. succeed?

No. Dunlop Co. cannot claim the benefit of the contract as against S, a sub-dealer. There is no privity of contract between the two.

Difference between the right of a stranger to a contract and of a stranger to the consideration. A stranger to a contract, i.e., one who is not a party to it, cannot file a suit to enforce it. A contract between P and Q cannot be enforced by R. But a stranger to the consideration can sue to enforce it provided that he is a party to the contract. A contract between P, Q and R whereby P pays money to Q for delivering goods to R can be enforced by R although he did not pay any part of the consideration.

Upon A's marriage his father and father-in-law entered into a contract to contribute a certain sum of money to be given to A after his marriage. A's father paid his contribution but his father-in-law failed to pay. Held: A could not sue his father-in-law since he (A) was a stranger to the contract [Twaddle v. Atkinson (1861) 1 B. & S. 393],

Exceptions - There are certain exceptions to the rule that a stranger to the contract cannot sue upon it. They are as follows:

1. Beneficiaries in the case of trust

An agreement to create a trust can be enforced by the beneficiary (though he was not a party to the contract between the settlor and the trustee). S agrees to transfer certain properties to T to be held by T in trust for the benefit of B. B can enforce the agreement though he was not a party to the agreement.

In Khwaja Muhammad v. Hussaini Begum (1910) 32 ALL 410, A and B made an agreement that A’s son S, and B’s daughter D, would he married, both being minors at the time. In consideration of this marriage, A promised to B that he will give to D, his daughter-in-law, an amount in perpetuity as, what is a traditional payment, 'kharcha-e-paan daan ’. He even made his immovable property liable for the payment. After the marriage, S and D separated on account of some quarrel D filed a case against A for the recovery of the promised amount.

In spite of A’s argument that D was a stranger to his contract with B, court allowed D to recover the amount because A had specifically charged his immovable property for the liability. This charge did not amount to creation of a trust, but the seriousness of the situation was found to be similar to that of the trust.

2. Family settlement

When family disputes are settled by mutual agreement and the terms of settlement are written down in a document it is called a Family Settlement. Such agreements can be enforced by members of the family who were not originally parties to the settlement.

3. Assignee of contract

In case of assignment of a contract, when the benefit under a contract has been assigned, the assignee can enforce the contract for e.g., S sell goods to B and is entitled to receive the price. S may by giving notice to B assign his right to receive the price in favour of third party X. X, the assignee, may then sue B for the price of goods. The assignee of an insurance policy can sue even though he was not party to it.

4. Provision for marriage or maintenance

At the time of partition of property of a joint family, the male members may agree that a certain portion of property shall be kept aside for the benefit of, for example, some elderly person or the education and marriage of a female child. Such beneficiaries may not be party to the arrangement. But, they have been held entitled to enforce the agreement for their benefit (Sundararajav. Lakshmi Ammal (1914) 38 Mad 788).

5. Contracts entered into through an agent

The principal can enforce the contracts entered into by his agent provided the agent acts within the scope of his authority and in the name of the principal.

6. Acknowledgement

The person who becomes an agent of third party by acknowledgement or otherwise, can be sued by such third party. (If the promisor acknowledges his liability to the third person, then such a third person can file a suit to recover the benefit.)

Example: X gives to Y ₹ 5,000 again to be given to Z. Y informs Z that the holding the money for him. Later on, Y refuses to pay the money. Z is entitled to recover the money from Y (Lily v. Hays, 1886, 111 ER 1272).

7. Covenants attached with the land

In case of covenant running with the land, the person who purchases land with the notice that the owner of the land is bound by certain duties affecting the land, the covenant affecting the land may be enforced by the successor of the seller.