As a general rule, only the parties to the contract have contractual rights
and obligations towards each other, i.e.; only the parties to the contract can
sue and be sued in case of breach of contract.
This rule is based on the doctrine of privity of contract which means that only
those persons who are parties to the contract can enforce the same. Thus, a
stranger to the contract cannot enforce it.
For instance, A & B enter into a contract for the benefit of X. Here, X, being a
stranger to the contract cannot file a suit to enforce it even though it was
entered into for his benefit.
In the landmark case of Tweddle v. Atkinson
, it was held that only
parties to the contract can sue each other.
In this case, the plaintiff, Mr.Tweddle (A) married a girl, B. There was a
contract in writing between A's father and B's father that A's father would pay
a certain sum of money to B and B's father would pay a certain sum of money to A
if they got married. But, right after the marriage, B's father died before he
could fulfil his promise.
Now, A brought an action against the executor of B's father, Mr.Atkinson to
recover the promised amount. It was held that A could not sue for the same as he
was a stranger to the contract. Hence, he could not enforce the claim.
The rule of privity of contract is equally applicable in India as in England.
Even though under the Indian Contract Act,1872, the definition of consideration
is wider than that under the English law, yet the common law principle of
privity of contract is generally applicable in India, with the effect that only
parties to the contract is entitled to enforce the same.
This is apparent from analogous cases in India that parallel those in England.
In Jamna Das v. Ram Avtar
, A had mortgaged some property to Mr.Jamna
Das (X). Subsequently, A sold this property to Mr.Ram Avtar (B), B having agreed
with A to settle the outstanding mortgage debt owed to X and recover the
property. However, B defaulted on the mortgage payment, leading X to bring an
action against B to recover the money. It was held by the Privy Council that
since there was no contract between X & B, X could not enforce the same to
recover the amount from B.
The rule of privity of contract was criticised by many jurists on various
grounds, leading to the recognition of the following three exceptions to the
Beneficiary under a contract: Under this exception, the basis of an action by
the third party is actually not the enforcement of the contract but of the
rights conferred in his favour in the form of trust.
For instance, A & B enter into a contract whereby a beneficiary right is created
in favor of C in respect of some property. In such a case, C can enforce his
claim on the basis of the rights conferred upon him.
This exception was recognised by Lord Haldane in Dunlop Pneumatic Tyre Co. v.
Selfridge & Co
Indian law has also recognised this exception. In Narayani Devi v. Tagore
Commercial Corporation Ltd
., A held various shares of the value of
Rs.40,500. It was agreed that A would sell his shares in favor of B and in
return B would pay to A Rs.500 per month and after A's death, would pay Rs.250
per month to A's widow during her life, if she survived her husband. C stood a
surety for B. Some payments were made to A and after his death to A's widow.
Thereafter, the payments were discontinued, leading A's widow to bring an action
against B & C to recover the amount.
The defendants' contention was that the rule of privity of contract should be
applicable in this case. Rejecting the contention, the Calcutta High Court held
that from the facts and circumstances of the case, an obligation in the nature
of trust could be inferred in favor of the plaintiff, and an equity having been
created in her favor, she was entitled to sue even though she was not a party to
the contract. A decree was passed in her favor for the arrears of the amount
Please note that the question whether in a particular case there is an
obligation in the nature of a trust in favor of a third party arising out of a
contract will depend on the facts of the case.
- Conduct, Acknowledgement, or Admission:
Under this exception, if one of the parties to the contract by his conduct,
acknowledgement, or admission recognises the right of the third party
(stranger to contract) to sue him, he may be liable on the basis of the law
Let's take an example of the previous case (Narayani Devi) only where no
direct contract existed between the plaintiff and the defendants, but the
defendants under the contract with the plaintiff's husband, had agreed to
pay a certain amount to him during his lifetime and thereafter to his widow
(the plaintiff). It was also established that the defendants had made
certain payments to the plaintiff after her husband's death, in pursuance of
the contract. Apart from this, it was also found that the defendants, by
their admission had earlier called upon the plaintiff to execute certain
documents in this connection, which implies they considered the plaintiff to
be entitled to certain rights.
It was, therefore, held that the defendants had created such privity with
the plaintiff by their conduct, acknowledgement and admission, that the
plaintiff was entitled to her action even though there was no direct
contract between the plaintiff and the two defendants.
- Provision for marriage expenses or maintenance under family
Under this exception, where there is a family arrangement and the contract
is intended to secure a benefit to a third party, he may sue in his own
right as a beneficiary.
Such an action has been allowed in many cases where, on the partition of
joint family property between the male members, a provision is made for the
maintenance of female members of the family.
The basis of the recognition of such an action is the application of the
rule (the stranger is entitled to claim as a beneficiary) laid down in
Khwaja Muhammad Khan v. Husaini Begum to such situations.
In Veeramma v. Appayya
, under a family arrangement, the father's house
was to be conveyed to his daughter and the daughter undertook to maintain him in
his lifetime. The daughter being a beneficiary under the compromise arrangement,
it was held that she was entitled to sue for the specific performance in her
Therefore, as a foundational principle, a third party to the contract cannot
enforce it. However, if such a party aligns with any of the aforementioned
exceptions, they may assert their rights.
- (1861) 1 B & S 393
- (1911) 30 IA 7
- (1915) AC 847
- AIR 1973 Cal. 401
- Section 115 of The Indian Evidence Act, 1872
- ILR (1910) 32 All. 410 (P.C.)
- AIR 1957 AP 965