As the old adage goes, “ignorance of the law is no excuse.” This is especially true in the world of contracts, where the concept of “stranger to contract” comes into play.
In simple terms, a stranger to contract is someone who is not a party to a contract but is affected by its terms. For example, let`s say that Company A enters into a contract with Company B to provide services. If a third party, such as an employee of Company A, is injured while the services are being performed, they might try to sue Company B for damages. However, the stranger to contract doctrine would typically prevent them from doing so.
The reason for this is that the injured party is not a party to the contract, and therefore cannot claim any rights or protections under it. The contract only affects the two companies involved, and any obligations or liabilities they have towards each other. This means that even if the contract between Company A and Company B was breached, the injured party would not have the right to sue for damages.
However, there is an important exception to the stranger to contract doctrine. This exception applies when the contract was made for the benefit of the third party. In such cases, the third party may have the right to sue for damages if they can demonstrate that they were intended beneficiaries of the contract.
For example, let`s say that Company A enters into a contract with Company B to provide security services for a music festival. During the festival, a concertgoer is injured due to a security guard`s negligence. In this case, the concertgoer may be able to sue Company B for damages because they were an intended beneficiary of the contract. The security services were provided for their benefit, and they were directly affected by the actions of the security guard.
It is important to note that determining whether a third party is an intended beneficiary of a contract can be a complex process. Courts will consider factors such as the language of the contract, the parties` intentions, and the circumstances surrounding the contract. As such, it is important for businesses to carefully consider the language and scope of their contracts to minimize potential legal risks.
In conclusion, the stranger to contract doctrine can be a powerful tool to protect businesses from litigation by third parties. However, companies should be aware of the potential exceptions to this doctrine, particularly in cases where a contract is made for the benefit of a third party. By seeking legal advice and drafting contracts carefully, businesses can avoid potential legal pitfalls and protect their interests.