The principle of privity of contract means that only the parties to the contract can sue or be sued on promises in it. The general rule is that a person who is not a contracting party can neither derive a benefit from the contract nor be subject to any obligations imposed by it. However, problems can arise in cases where a contract between two parties is specifically intended to benefit a third party.
The plaintiff was getting married. His father and the father of his bride, the defendant, agreed to make a payment to the plaintiff as a marriage settlement.
The plaintiff's father paid him £100 as agreed but the defendant failed to pay the £200 he had agreed.
Could the plaintiff, a third party, sue the defendant?
The plaintiff had not been privy to the contract so could not sue.
The plaintiff's father, who was privy to the contract and had given consideration (by paying £100) was not able to sue either. This is because he had not suffered any personal loss.
.. it is now well established that at law no stranger to the consideration can take advantage of the contract though made for his benefit....
The outcome of the case was widely viewed as unjust.
S1 : Introduces a statutory right for third parties to be able to take advantage of contractual promises, where the agreement was made for the third party's benefit.