Contract Law · Consideration and Capacity

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.

6 min readReviewed by Advocate Aditya Sharma
Section 2(d)Sections 37 and 40

In one line

Consideration may move from a third person, but a person who is not a party to the contract ordinarily cannot sue on it.

After this note, you should be able to

  • Separate privity of consideration from privity of contract.
  • Identify whether the claimant is a party to the agreement.
  • Apply the recognized exceptions without treating them as one broad fairness rule.

Two rules students often mix up

Indian law is wider on who may provide consideration, but it still asks who actually made the contract.

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.

Work through the facts

Illustration

Facts

A contracts with B that B will pay Rs 1 lakh directly to C. C gives no promise and is not made a party, beneficiary of a trust or assignee.

Likely result

C ordinarily cannot sue B merely because the contract intended to benefit C. A, as a party, may have contractual remedies against B.

What to learn

First identify the parties. Then check each recognized exception on its own facts.

Cases with a purpose

Landmark judgments

Learn the rule and where to use it. A case name without its legal function adds very little to an answer.

M.C. Chacko v. State Bank of Travancore

Further reading

AIR 1970 SC 504

Principle: 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.

Use in an answer: Use it as the leading Indian authority for the privity rule and its limited exceptions.

Dunlop Pneumatic Tyre Co. v. Selfridge & Co.

Further reading

[1915] AC 847

Principle: Only a party to a contract can ordinarily sue upon it under the common law doctrine of privity.

Use in an answer: Use it as the classic common law statement, then explain the Indian distinction under Section 2(d).

For a 10-mark answer

Answer structure

  1. State the ordinary privity rule.
  2. Clarify that Section 2(d) allows third-party consideration.
  3. Identify whether the claimant was a contracting party.
  4. Test the facts against a specific exception.
  5. Use M.C. Chacko and conclude on enforceability.

Common mistakes

  • 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.

Before you close the tab

Quick revision

  • 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.

Test yourself

  1. Why do the two privity rules produce different answers?
  2. Can every intended beneficiary sue?
  3. Which exception fits an assigned contractual debt?

Short answers

Frequently asked questions

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.

Primary sources

This is an educational study note. Always read the bare provision and the full judgment before relying on a proposition in research or practice.