Although one person cannot, as a rule, by contract with another, impose liabilities, nor confer rights, on a third person not a party to the contract, one person may represent another, as being employed by him, for the purpose of bringing him into contractual relations with a third. Employment for this purpose is called "agency," the employer being called the "principal" and the employed his "agent." The acts of the agent in making contracts are done on behalf, and generally, though not necessarily, in the name, of his principal. The principal really becomes a party to the contract made for him by his agent. A contract made by an agent can bind the principal only by force of a previous authority or subsequent ratification by the principal, and this authority or ratification is nothing else than the assent of the principal to be bound. The contract which binds him is his own contract. After all, therefore, this is only an apparent exception to the rule that persons not parties to a contract are not bound or given rights thereby.
If John Doe contracts with Richard Roe, their contract cannot impose liabilities or confer rights upon John Styles. There are circumstances, however, under which John Doe or Richard Roe may substitute John Styles for himself as a party to the contract, and there are circumstances under which the law would operate to effect this substitution. John Styles thus becomes a party to the contract. This substitution is called assignment of the contract. Before discussing assignment we will take up in turn, and explain, each subdivision of the general rule mentioned in the black-letter text, and show the exceptions to which it is subject.
1 Anson, Cont (4th Ed.) 209.
189. A contract cannot impose liabilities on a person who is not a party to it.
190. A contract, however, between master and servant at least, imposes a duty on third persons not to interfere maliciously with its performance by inducing the servant to break it, and for a violation of this duty an action will lie. Many courts hold that the doctrine applies to all contracts.
The proposition that a man cannot incur liabilities from a contract to which he was not a party is a part of a wider rule that liability ex contractu cannot be imposed upon a man otherwise than by his act or consent. "A man cannot, of his own will, pay another man's debt without his consent, and thereby convert himself into a creditor." 2 Two persons cannot, by any contract into which they may enter, thereby impose liabilities upon a third person.3 Where a person, for instance, contracts with another to perform services for him, or to sell him goods, he may, under some circumstances, procure the services to be rendered or the goods delivered by a third person, and thus perform his contract; but he cannot, by any such agreement with a third person, confer upon the latter the right to require payment of the other party. Nor will the law create a contract between the latter and such third person because of the acceptance of the services or goods, where there was no intention to enter into legal relations with the third person.4
2Durnford v. Messiter, 5 Maule & S. 446; Hearn v. Cullin, 54 Md. 533. See "Contracts," Dec. Dig. (Key-No.) § 1S6; Cent. Dig. §§ 790-797; "Money Paid," Dec. Dig. (Key-No.) § 1; Cent. Dig. § 13.
3Rossman v. Townsend, 17 Wis. 9S, S4 Am. Dec. 733; Bolles v. Carli, 12 Minn. 113 (Gil. 62); Evansville & S. I. Traction Co. v. Evansville Belt Ry. Co., 44 Ind. App. 155, 87 N. E. 21. See "Contracts;' Dec. Dig. (Key-No.) § 177; Cent. Dig. §§ 771-774.
4Schmaling v. Thomlinson, 6 Taunt 147; BOSTON ICE CO. v. POTTER, 123 Mass. 28, 25 Am. Rep. 9, Throckmorton Cas. Contracts, 305; School Dist