It is a general rule of law that only parties to the contract may sue and may be sued on contract. It means that only parties to the contract can enforce their rights against each other. This rule goes by the name of ‘Doctrine of Privity of Contract’.
According to this rule, there exists a relationship between the parties who have entered into contractual obligations. It means that a person who is not a party to the contract cannot sue for carrying out the promise made by the parties to a contract.
In other words, a contract cannot be enforced by a person who is not a party to the contract. A valid contract between the parties creates certain rights and duties in favor of the parties and no other person can acquire these rights or incur liabilities under it if not a party to the contract.
The repercussions of the Doctrine of Privity of Contract are as follows:
- A person who is not a party to the contract cannot sue upon it even though the contract is for his benefit, and he provided for its consideration.
- A contract cannot confer rights or impose obligations originating out of it on any person other than the parties to the contract.
Under English Law, only the party to the contract i.e. a promisor and promisee can enforce the contract against each other and a stranger though beneficiary cannot enforce the contract against each other.
EXCEPTIONS TO PRIVITY OF CONTRACTOR CONSIDERATION-
In the course of time, the Courts have introduced a number of exceptions in which the Rule of Privity of Contract is disregarded i.e. not followed and the party can enforce a contract which has been made for his benefit but without him being a party to it.
Trust or charge: A person in whose favor a charge or other interest in some specific property has been created may enforce it though he is not a party to the contract.
- Marriage settlement, partition, or other family arrangements:
In an agreement made in relation to marriage, partition, or other family arrangements, if the provision made is benefiting a person who is not a party to the agreement, he can take advantage of it.
- Acknowledgement or estoppel:
When the promisor by his conduct, acknowledges or otherwise constitutes himself as an agent of a third party, a binding obligation is sustained by him towards the third party.
A receives a specific amount of money from T which is to be paid to P. A acknowledges this to P. Thus, P can recover this amount from A, who is considered to be the agent of P.
- Covenants running with the land:
The principle relating to the Transfer of immovable property is taken from the famous case of Tulk vs. Moxhay (1919). According to this principle, a person who purchases land with a notice that the owner of the land is bound by certain duties created by an agreement or covenants affecting the land shall be compelled upon him although he was not a party to the agreement.
- Contracts entered into through an agent:
The principal can enforce the contract entered into by his agent provided the agent acts within the scope of his authority and in the name of the principal.
- Tweedle vs. Atkinson, 1861
Facts: There were two friends, one was having a son and the other one had a daughter. The two friends agreed to pay the son i.e. the plaintiff a certain sum of money if the son marries the daughter of the other. Accordingly, marriage was solemnized. The son’s father paid the agreed amount but the father-in-law died without paying the amount agreed to the son-in-law. Therefore, he filed a suit for recovery of amount.
Held: The Court of King’s Bench held that although the sole object of the contract was to confer benefits to the plaintiff, he was not allowed to sue as the contract was made with his father and not with him.
This case laid down the foundation of Doctrine of Privity of Contract, which means that the parties to the contract only and no third person can sue upon it even if it is made for his benefit.
- Dunlop Pneumatic Tire & Co vs. Selfridge & Co. (1915)
Facts: The Plaintiff’s company which manufactured tires, sold certain goods to another company known as Dew & Co. An agreement was entered between the plaintiff’s company and Dew & Co that Dew & Co. shall not sell the goods below the price list. It was also provided in their agreement that if Dew & Co sold the goods to another trader, it would (Dew & Co.) obtain the goods back from such trader to maintain the price list, i.e. not to sell the goods below the price list. Dew & Co. sold motor tires to Defendant’s company, i.e. Selfridge & Co. who agrees to not sell the tires to any private customer at less than the price list. However, the defendant’s company sold the tires to the customer at less than the price list. Hence the plaintiff sued the defendant for damages for breach of contract.
Held: The House of Lords held that no consideration moved from plaintiff to defendant and therefore the contract is not enforceable. The suit is thus not maintainable and dismissed.
- Muhammad Khan vs. Hussaini Begam (1910)
This case is an exception to the Doctrine of Privity of Contract.
Facts: The father of the bridegroom had contracted with the bride’s father to marry his daughter and assured allowances called Kharch-i-pandan if she marries his son. After marriage, the father-in-law used to make regular payments to the respondent i.e. daughter-in-law, Hussaini Begum. But after the death of the father of the respondent, the father-in-law i.e. appellant stopped making payments to the respondent. Therefore, the respondent sued the appellant for the recovery of arrears of allowance. The trial court allowed the suit and directed the appellant to make payment to the respondent. The appellant thereafter appealed to the Privy Council.
Held: The Privy Council held that though the Respondent was not a party to the contract, she was clearly entitled to proceed in equity to enforce her claim. Trust is the exception which is followed in this case and thus the party is entitled to proceed in equity though not a direct party to the contract.
As we can see that, only the parties to the contract can sue and may be sued on the contract. Still, the Doctrine of Privity has developed over a period of time. The Courts have introduced a few exceptions to this Doctrine through which a party can enforce a contract made for his benefit without him being a party to the contract.