Contract Law
Privity of Contract
Understand who may enforce a contract, why third-party consideration does not remove the privity rule, and the main exceptions recognized in India.
The short answer
Consideration may move from a third person, but a person who is not a party to the contract ordinarily cannot sue on it.
Two rules students often mix up
Indian law is wider on who may provide consideration, but it still asks who actually made the contract.
Privity determines who receives contractual rights and obligations. It protects party autonomy by preventing an outsider from enforcing selected terms while remaining outside the bargain as a whole.
The Indian rule on consideration is different. Section 2(d) allows consideration to move from the promisee or any other person, so a contracting promisee does not lose the right to sue merely because another person supplied the consideration.
Stranger to consideration
A promisee may sue even when consideration moved from another person, because Section 2(d) expressly permits this.
Stranger to contract
A person who is not a party ordinarily has no contractual right to sue, even if the contract was intended to benefit that person.
Important exceptions
A third person succeeds only through a recognized legal route, not merely because enforcement seems fair.
Trust or charge
A beneficiary may enforce an obligation where a trust or charge in the beneficiary's favour has been created.
Family settlement
A beneficiary under a marriage arrangement, partition or family settlement may enforce the benefit in appropriate cases.
Acknowledgment or estoppel
A person who clearly acknowledges holding money or an obligation for another may be prevented from denying it.
Assignment, agency or statute
Rights may reach a third person through a valid assignment, an agent-principal relationship or an express statutory provision.
A reliable method for third-party claims
Do not begin by listing exceptions. Begin with the claimant, the promise and the legal route relied upon.
Identify the parties
Read the agreement and surrounding documents to determine who made the promises and in what capacity.
Identify the claimed right
State the exact payment, performance, property interest or restraint that the claimant wants to enforce.
Find an independent route
Test trust, charge, family settlement, acknowledgment, assignment, agency, covenant running with land or an applicable statute.
Check the remedy
Even where the third person cannot sue, a contracting party may seek damages, specific performance or another remedy for breach.
Privity in modern transactions
Multi-party arrangements require careful attention to the actual contract structure.
Group companies, online platforms, insurance arrangements and construction chains often involve several connected contracts. Commercial connection does not by itself make every participant a party to every agreement.
The correct question is whether the document, agency relationship, assignment, statutory scheme or other recognized rule gives the claimant an enforceable right. Courts do not disregard separate contracting identities merely because the transactions form part of one commercial project.
Leading cases and what they establish
Read each authority for the proposition it proves, the legal question it answers and the reasoning that supports the result.
M.C. Chacko v. State Bank of Travancore
AIR 1970 SC 504
Held: A person who is not a party to a contract cannot ordinarily enforce it, subject to recognized exceptions such as a trust or family arrangement.
Why it matters: Use it as the leading Indian authority for the privity rule and its limited exceptions.
Read the judgmentDunlop Pneumatic Tyre Co. v. Selfridge & Co.
[1915] AC 847
Held: Only a party to a contract can ordinarily sue upon it under the common law doctrine of privity.
Why it matters: Use it as the classic common law statement, then explain the Indian distinction under Section 2(d).
Khwaja Muhammad Khan v. Husaini Begum
(1910) 37 IA 152
Held: A beneficiary under a marriage arrangement could enforce an annuity expressly secured for her benefit through a charge on property.
Why it matters: Use it for the family settlement and charge exception, not as a general rule that every beneficiary may sue.
Read the judgmentBeswick v. Beswick
[1968] AC 58
Held: A third-party beneficiary could not recover personally at common law, but the promisee acting as administratrix obtained specific performance.
Why it matters: Use it to show that the promisee's remedy may protect the intended benefit even when the beneficiary faces privity.
Using this topic in a legal answer
A clear answer sequence
- State the ordinary privity rule.
- Clarify that Section 2(d) allows third-party consideration.
- Identify whether the claimant was a contracting party.
- Test the facts against a specific exception.
- Use M.C. Chacko and conclude on enforceability.
Points that are often confused
- Assuming that a beneficiary can always sue.
- Treating a stranger to consideration as a stranger to the contract.
- Listing exceptions without connecting one to the facts.
Open the revision and self-check sheet
Rules to retain
- Third-party consideration can be valid in India.
- A non-party ordinarily cannot sue on the contract.
- Trust, family arrangement, acknowledgment, assignment, agency and statute are key routes.
- A commercial connection between parties does not itself displace privity.
- Always identify both the claimant's legal route and the appropriate remedy.
Questions to test understanding
- Why do the two privity rules produce different answers?
- Can every intended beneficiary sue?
- Which exception fits an assigned contractual debt?
Questions students ask
Can consideration come from a third person in India?
Yes. Section 2(d) permits consideration to move from the promisee or any other person.
Does that mean every third-party beneficiary can sue?
No. A person who is not a party must bring the claim within a recognized exception or another legal right.
Can a beneficiary under a family settlement sue?
A beneficiary may enforce the benefit where the arrangement and the applicable exception create an enforceable right, as illustrated by marriage settlement cases. The result depends on the document and legal route, not benefit alone.
Can contractual rights be assigned to a third person?
Contractual benefits are generally capable of assignment unless the contract, the nature of the right or law prevents it. Obligations cannot ordinarily be transferred without the consent required for novation.
Does privity apply to group companies?
Yes. Companies in the same group remain separate legal persons. A group relationship alone does not make each company a party to contracts signed by another group company.
Primary sources and further reading
- Indian Contract Act, 1872 on India Code
- M.C. Chacko v. State Bank of Travancore, Supreme Court of India
- Husaini Begum v. Khwaja Muhammad Khan, Allahabad High Court
This article is written for legal education. Verify the governing provision, applicable amendments and complete judgment before relying on a proposition in practice.