Introduction. One of the fundamental principles of the Indian Contract Act is that only parties to a contract can sue and be sued upon it. A “stranger to the contract” refers to a person who is not a party to the agreement. Although they may receive a benefit or be related to the transaction, they have no legal right to enforce the contract. This general rule is rooted in the doctrine of privity of contract. However, to ensure fairness, the law recognises several well-defined exceptions where a stranger may still enforce contractual obligations.
Meaning of Privity of Contract
The doctrine of privity of contract states that only those who are parties to the contract are bound by its terms and can enforce it. A stranger, even if mentioned or benefited by the contract, cannot sue for its enforcement.
Example: A promises B to pay ₹5,000 to C. C cannot sue A because C is a stranger to the contract.
Reasons Behind the Rule
- Contractual rights arise only by mutual consent: A person cannot be bound without agreeing to the contract.
- Prevents unnecessary litigation: Only actual parties should enforce obligations.
- Ensures clarity in liabilities: Rights and duties remain confined to the contracting parties.
Exceptions to the Rule
Although strict, the rule has important exceptions to prevent injustice. These exceptions allow certain strangers to enforce contractual rights.
1. Beneficiary Under a Trust
If a contract creates a trust in favour of a third party, the beneficiary can enforce it. The trustee holds property or benefit on behalf of the beneficiary.
Example: A transfers property to B to be managed for the benefit of C. C can sue to enforce the trust.
2. Family Settlements and Marriage Arrangements
Arrangements made during marriage or family settlements often intend to benefit third parties. Such beneficiaries may sue to enforce their rights.
Example: A promises B to pay maintenance to B’s daughter C. C, though not a party, can enforce the promise.
3. Acknowledgement or Admission of Liability
If the promisor acknowledges or admits liability to a third party, the third party can sue based on such acknowledgment.
Example: A debtor informs C that he will pay C from funds held by B. C can enforce the obligation.
4. Agency
When an agent enters into a contract on behalf of a principal, the principal may sue even though not personally a party to the negotiation.
5. Assignment
Rights under a contract may be assigned to a third party, who may then sue to enforce the assigned rights.
6. Covenants Running with Land
In cases involving land, certain covenants attach to the property and may be enforced by successors, even though they were not parties to the original contract.
7. Contracts Made for the Benefit of a Third Party
When parties clearly intend to benefit a third party, courts may permit such third party to sue.
Illustration: Life insurance contracts where nominee receives benefits are enforceable.
Extended Explanation
The doctrine balances contractual freedom with fairness. While privity limits enforcement to actual parties, exceptions ensure genuine beneficiaries are not deprived of rights. Over time, courts have gradually expanded exceptions to avoid injustice, especially in trusts, family arrangements, and land-related agreements.
These exceptions reflect social and commercial needs by recognising that contracts often affect persons beyond the two original parties.
Conclusion: The rule that a stranger to the contract cannot sue maintains contractual clarity and mutual consent. However, well-defined exceptions—such as trusts, family settlements, acknowledgment, agency, assignment, and third-party benefits—ensure justice and protect genuine interests beyond the immediate parties.