Why Can You Not Sue Over a Promise Made About You? You Were Not a Party
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English law held for centuries that only the people who made a contract could enforce it, even where the whole purpose of the agreement was to benefit somebody else entirely.
The rule and its logic
A contract is an agreement between parties, and the traditional English position was that it creates rights and duties only between those parties. Somebody who was not a party could neither sue on it nor be bound by it, regardless of how directly the agreement concerned them. The reasoning was that a contract is a private arrangement supported by the exchange of something of value between the parties, and a stranger who gave nothing has no standing to demand anything. That is coherent as a principle and produces results that are obviously unjust in a recognisable set of cases.
Where it produced absurdity
The awkward cases share a shape:
- •A contract whose whole purpose is to benefit a third person
- •That person cannot enforce it when it is broken
- •The contracting party can sue but has suffered little or no loss
- •So damages recovered are small while the real loss is large
- •A promise deliberately made for somebody becomes unenforceable by them
- •Both parties may have intended exactly the opposite
How the courts worked around it
Rather than abandoning the rule, English law built an accumulation of devices to escape it, which is a recognisable pattern when a principle is too entrenched to overrule. Agency reasoning treated one party as contracting on the third party's behalf. Trust reasoning treated a promise as held on trust for them. Collateral contracts were found alongside the main one. Claims were framed in negligence instead of contract. Statutes created exceptions for insurance, for shipping and for particular relationships. The result was a doctrine of great complexity in which the outcome frequently depended on finding the right device rather than on the merits.
The other side of the rule
The doctrine has a second limb that is less discussed and remains largely intact. Just as a third party could not take the benefit of a contract, a contract cannot impose a burden on somebody who is not a party to it, and that half of the rule is generally regarded as sound. Two people cannot agree between themselves that a stranger must do something, which would otherwise be an obvious route to imposing obligations on anybody. Exceptions exist where a restriction attaches to land and binds whoever later owns it, which is a genuinely awkward area precisely because it cuts across the principle.
How it was changed
Legislation in 1999 addressed the problem directly for English law, allowing a third party to enforce a term of a contract where the contract expressly says they may, or where the term purports to confer a benefit on them and the parties did not intend otherwise. The parties can exclude the operation of the act, and many commercial contracts do exactly that as a matter of routine, which preserves the old position where the drafters want it. Other jurisdictions had reached comparable positions earlier, and several legal systems never adopted the rule at all, which is worth knowing when reading across systems.
The takeaway
Treating a contract as creating rights only between the parties means somebody the agreement was made for cannot enforce it, while the party who can enforce it has lost little, so the damages recovered do not match the real loss. Courts built agency, trust and collateral contract devices to escape that rather than overruling it. Legislation in 1999 gave third parties direct rights, which commercial contracts routinely exclude.