The principle enunciated or applied in this case is the fundamental rule of privity of contract which is to the effect that
- Only a person who is party to a contract can sue or be sued on it.
- Only a person who has provided consideration is privy to a contract.
- A stranger to consideration cannot sue or be sued on the contract even if it was intended to benefit him.
The common law doctrine of privity of contract has several exceptions for example:
- Agency: A principal may sue or be sued on a contract entered into by the agent.
This exception is more apparent than real in that in law, the agent represents the principal who is therefore party to the contract.
- Negotiable Instruments: a holder of a negotiable instrument can sue on it in his own name even though he has not provided consideration. This exception is contained in section 27 (1) of the Bills of Exchange Act.
- Third Party Insurance: under the provisions of the Insurance (Motor vehicles Third Party Risks) Act Cap 45, a victim of a motor accident is entitled to compensation
by the insurer for any injuries sustained. The insurer is liable as long as the motor vehicle was in the hands of the insured or an authorized driver.
- Legal assignment: if a creditor assigns his debt to a third party e.g. pursuant to the provisions of the Indian Transfer of Property Act, 1882, the assignee is entitled to
sue the debtor as if he were the original creditor.
- Trust:: the beneficiary is in certain circumstances permitted to sue the trustee notwithstanding the absence of privity between the two.
- Contracts or Covenants running with land: certain benefits and liabilities attached to or imposed on land are in certain circumstances enjoyed by subsequent holders of the land upon whom liability may also attach.