Introduction
A contract is an agreement between two or more persons/parties subject to certain terms and conditions for a lawful consideration. Indian Contract Act defines Contract as "an agreement enforceable by law." For example, X and Y enter into an agreement. X promises Y to Sell his Car for Rs.5,00,000/- and Y accepts to purchase it for the said amount. It is a Contract between X and 'Y'. The general rule is that only those person who are parties to a contract may sue and be sued on that contract. Any person other than the parties/ persons to a contract is called "Stranger to the Contract" That means in the above example X and Y may sue and be sued. There are two consequences of this rule:
1) A person who is not a party to a contract cannot sue upon it even though the contract is for his benefit and he provided consideration. This rule is known as the Doctrine of Privity of contract. Privity of contract means a relationship subsisting between the parties who have entered into contractual obligations. It implies a mutuality of will and creates a legal Bond or tie.
2) A contract cannot confer rights or impose obligations arising under it on any person other than the parties to it. Thus, if there is a contract between A and C, C cannot enforce it.
Exceptions to the Doctrine of Privity of Contract:
The following are the exceptions to the doctrine Privity of Contract.In other words "a stranger to a contract can sue.
1) A trust or charge :
A person in whose favor a trust or other interest in some specific immovable property has been created may enforce it even though he is not a party to the contract
Example :
a) A agrees to transfer certain properties to B to be held by B in trust for the benefit of C. C can enforce the agreement (I.e, trust) even though he is not a party to the agreement
b) 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. In this case, court held that the agreement created a trust in favour of the wife and could be enforced. [Gundy Vs Gundy (1884)]
c) A had a son SA and B had a daughter DB. A agreed with B that in consideration of the marriage of DB with SA, he would pay to DB, his daughter in law an allowance of 5000 a month in perpetuity. He charged certain properties with the payment with the power to DB to enforce it. In this case, court held that, DB although no party to the arrangement, was clearly entitled to recover the arrears of the allowance. [Khwaja Mohd. VS Husaini Begum (1910)]
2) Marriage settlement, Partition or other family arrangements :
Where an agreement is made in connection with marriage, partition 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 arrangement
Examples:
a) Two brothers on a partition of joint properties agreed to invest in equal share a certain sum of money for the maintenance of their mother. In this case, she( Mother ) was entitled to require her sons to make the investment.
b) J's wife deserted him because of his ill treatment. J entered into an agreement with his father in law to treat her property or else pay her monthly maintenance, subsequently, she was again ill treated and also driven out, here she was entitled to enforce the promise made by J to her Father.
3) Acknowledgement or estoppel
If the promisor by his conduct or acknowledgment or part payment or by estoppel creates privity of contract between himself and the stranger, the stranger can sue.
Example: A receives some money from B to be paid over C. A admits of this receipt to C. C can recover the amount from A who shall be regarded as the agent of C.
4) Assignment of a contract
If the benefits under the contract are assigned to the third party, the assignee can sue.
Example :
Krishnan Lal Sahu Vs. Promila Bala, A.I.R (1928) 518 cal. In this case, Court held that "the assignee of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities between the original parties.
5) Contracts entered into through an agent
In a contract of Agency, a person appoints another person to act on his behalf with a third party. The person who appoints another person is called 'Principal' and the person, who is appointed is called 'Agent'. When an agent enters into a contract on behalf of the principal, the principal can enforce the contract.( here Principal is a stranger to the Contract; the agent and other parties are parties to the Contract.
[Note: A stranger to Contract cannot sue. But, a stranger to Consideration can sue. Both have exceptions.]
A contract is an agreement between two or more persons/parties subject to certain terms and conditions for a lawful consideration. Indian Contract Act defines Contract as "an agreement enforceable by law." For example, X and Y enter into an agreement. X promises Y to Sell his Car for Rs.5,00,000/- and Y accepts to purchase it for the said amount. It is a Contract between X and 'Y'. The general rule is that only those person who are parties to a contract may sue and be sued on that contract. Any person other than the parties/ persons to a contract is called "Stranger to the Contract" That means in the above example X and Y may sue and be sued. There are two consequences of this rule:
1) A person who is not a party to a contract cannot sue upon it even though the contract is for his benefit and he provided consideration. This rule is known as the Doctrine of Privity of contract. Privity of contract means a relationship subsisting between the parties who have entered into contractual obligations. It implies a mutuality of will and creates a legal Bond or tie.
2) A contract cannot confer rights or impose obligations arising under it on any person other than the parties to it. Thus, if there is a contract between A and C, C cannot enforce it.
Exceptions to the Doctrine of Privity of Contract:
The following are the exceptions to the doctrine Privity of Contract.In other words "a stranger to a contract can sue.
1) A trust or charge :
A person in whose favor a trust or other interest in some specific immovable property has been created may enforce it even though he is not a party to the contract
Example :
a) A agrees to transfer certain properties to B to be held by B in trust for the benefit of C. C can enforce the agreement (I.e, trust) even though he is not a party to the agreement
b) 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. In this case, court held that the agreement created a trust in favour of the wife and could be enforced. [Gundy Vs Gundy (1884)]
c) A had a son SA and B had a daughter DB. A agreed with B that in consideration of the marriage of DB with SA, he would pay to DB, his daughter in law an allowance of 5000 a month in perpetuity. He charged certain properties with the payment with the power to DB to enforce it. In this case, court held that, DB although no party to the arrangement, was clearly entitled to recover the arrears of the allowance. [Khwaja Mohd. VS Husaini Begum (1910)]
2) Marriage settlement, Partition or other family arrangements :
Where an agreement is made in connection with marriage, partition 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 arrangement
Examples:
a) Two brothers on a partition of joint properties agreed to invest in equal share a certain sum of money for the maintenance of their mother. In this case, she( Mother ) was entitled to require her sons to make the investment.
b) J's wife deserted him because of his ill treatment. J entered into an agreement with his father in law to treat her property or else pay her monthly maintenance, subsequently, she was again ill treated and also driven out, here she was entitled to enforce the promise made by J to her Father.
3) Acknowledgement or estoppel
If the promisor by his conduct or acknowledgment or part payment or by estoppel creates privity of contract between himself and the stranger, the stranger can sue.
Example: A receives some money from B to be paid over C. A admits of this receipt to C. C can recover the amount from A who shall be regarded as the agent of C.
4) Assignment of a contract
If the benefits under the contract are assigned to the third party, the assignee can sue.
Example :
Krishnan Lal Sahu Vs. Promila Bala, A.I.R (1928) 518 cal. In this case, Court held that "the assignee of rights and benefits under a contract not involving personal skill can enforce the contract subject to the equities between the original parties.
5) Contracts entered into through an agent
In a contract of Agency, a person appoints another person to act on his behalf with a third party. The person who appoints another person is called 'Principal' and the person, who is appointed is called 'Agent'. When an agent enters into a contract on behalf of the principal, the principal can enforce the contract.( here Principal is a stranger to the Contract; the agent and other parties are parties to the Contract.
[Note: A stranger to Contract cannot sue. But, a stranger to Consideration can sue. Both have exceptions.]
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