Doctrine of Privity of Consideration and Its Position in India: Can a Stranger to the Consideration Sue, and How It Differs from Privity of Contract

Two rules are commonly run together under the single label of privity, and they are distinct. Privity of consideration asks whether the person suing must be the person from whom the consideration moved. Privity of contract asks whether the person suing must be a party to the contract. English law answers yes to both. Indian law answers no to the first and yes to the second, and the reason for the divergence lies in seven words in Section 2(d). Keeping the two questions apart is the whole of this topic.

1. The Two Doctrines Distinguished

	Privity of consideration	Privity of contract
The question asked	Must the consideration have moved from the person suing?	Must the person suing be a party to the contract?
English answer	Yes. Consideration must move from the promisee	Yes. A person not a party acquires no rights under the contract
Indian answer	No. Section 2(d) permits consideration to move from any other person	Yes. A stranger to the contract cannot sue, subject to recognised exceptions
Source of the Indian answer	The words 'the promisee or any other person' in Section 2(d)	Judicial doctrine; the Act contains no provision on the point
Practical consequence in India	A party to the contract may sue even though the consideration was furnished by someone else	A person for whose benefit the contract was made cannot ordinarily sue on it

2. The English Rule

The English rule is that consideration must move from the promisee. A person who has given nothing cannot enforce the promise, even though the promise was expressly made for his benefit and even though consideration moved from someone else.

📖 Tweddle v. Atkinson, (1861) 1 B & S 393

Facts: On the marriage of a couple, the fathers of the bride and groom entered into a written agreement with each other by which each promised to pay a sum of money to the groom. The agreement expressly provided that the groom should have full power to sue for the sums. The bride's father died without paying, and the groom sued his executor.

Held: The claim failed. No stranger to the consideration can take advantage of a contract, although made for his benefit. The groom had given nothing; the consideration moved from his own father to the bride's father. The express provision permitting him to sue could not manufacture a right that the law did not recognise.

Ratio: In English law consideration must move from the promisee. A person from whom no consideration moved cannot sue on the promise, whatever the parties may have stipulated.

The rule was reaffirmed in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd., [1915] AC 847, where Lord Haldane stated the two propositions together: only a person who is a party to a contract can sue on it, and consideration must move from the promisee. English law has since modified the first proposition by statute for certain third-party beneficiaries, but the common law position is as stated.

3. The Indian Position on Privity of Consideration

Section 2(d) provides that consideration may be furnished by the promisee or any other person. The words were deliberately chosen, and they displace the English rule. In India a party to the contract may enforce the promise made to him even though he himself gave nothing and the consideration moved from a third person.

📖 Chinnaya v. Ramayya, (1882) ILR 4 Mad 137

Facts: An elderly woman made a gift of landed property to her daughter by a registered deed, on the condition, stipulated in the deed, that the daughter should pay an annuity to the donor's brother, who had until then been receiving that annuity from the donor. On the same day the daughter executed a separate deed in favour of the brother agreeing to pay the annuity. She later stopped paying, and the brother sued. Her defence was that no consideration had moved from him.

Held: The Madras High Court held the daughter liable. The consideration for her promise was the gift of the property, which had moved from her mother and not from the plaintiff. Under Section 2(d) consideration furnished by any other person is good consideration, and the plaintiff's promise was therefore supported. He was a party to the agreement contained in the deed executed in his favour, and could sue on it although he had given nothing.

Ratio: In India a stranger to the consideration may sue, provided he is a party to the contract. Section 2(d) permits consideration to move from a person other than the promisee, and the promise is enforceable notwithstanding that the promisee gave nothing himself.

⚠ Chinnaya is not authority that a stranger to the contract may sue

The case is often cited loosely for the proposition that a third party may enforce a contract in India. It decides no such thing. The plaintiff succeeded because he was a party to the agreement contained in the deed the daughter executed in his favour; what he was a stranger to was the consideration, not the contract. If he had been a stranger to the contract as well, Section 2(d) would not have helped him, because that section defines consideration and says nothing about who may sue.

4. Privity of Contract in India

The Indian Contract Act contains no provision corresponding to the rule that a stranger to a contract cannot sue, but the courts have applied it consistently. The leading Indian statement is in Jamna Das v. Ram Autar Pande, (1911) 38 IA 209, where the Privy Council held that a mortgagee could not enforce against a purchaser of the mortgaged property a promise, made by the purchaser to the mortgagor, to pay off the mortgage debt; the undertaking was given to the mortgagor and formed no part of any contract with the mortgagee.

4.1 The recognised exceptions

The rule that a stranger to a contract cannot sue is subject to a number of exceptions, several of which are of daily practical importance.

Trust or charge on property. Where the contract creates a trust in favour of the third party, or charges specific property with the payment, the beneficiary may enforce it.
Marriage settlement, partition or family arrangement. Where provision is made for a member of the family under a family settlement or on partition, that person may sue although not a party, and the Indian courts have applied this exception liberally.
Acknowledgment or estoppel. Where the promisor has, by words or conduct, acknowledged his liability to the third party and thereby constituted himself an agent or trustee for him, he is estopped from denying the third party's right.
Covenants running with land. A purchaser of land takes subject to covenants of which he had notice, and the person entitled to the benefit may enforce them.
Agency. Where one party contracted as agent for the third party, the principal, disclosed or undisclosed, may sue on the contract under the rules in Sections 226 to 234.
Assignment. An assignee of a contractual benefit may enforce it, subject to the equities affecting the assignor.

5. How the Two Rules Interact

Because India rejects privity of consideration but retains privity of contract, the two questions must be asked in sequence and in the right order.

Is the claimant a party to the contract? If he is not, Section 2(d) is irrelevant and he must bring himself within one of the exceptions to privity of contract.
If he is a party, did consideration move from him? If it did not, that is no objection in India, because Section 2(d) permits consideration to move from any other person.
Did the consideration move at the desire of the promisor? This requirement is not relaxed. Whoever furnished the consideration must have furnished it at the promisor's desire, as Durga Prasad v. Baldeo establishes.

The third step is the one most often missed. Section 2(d) widens the class of persons who may furnish consideration; it does not dispense with the requirement that the consideration move at the desire of the promisor. A benefit conferred on the promisor by a third party spontaneously, and not at his request, is no better as consideration than one conferred spontaneously by the promisee.

6. The Position Stated Shortly

Privity of consideration and privity of contract are different rules and must be kept apart.
English law requires consideration to move from the promisee, per Tweddle v. Atkinson and Dunlop v. Selfridge.
Section 2(d) permits consideration to move from the promisee or any other person, so India does not apply privity of consideration.
Chinnaya v. Ramayya: a party to the contract may sue although the consideration moved from a third person.
Chinnaya does not decide that a stranger to the contract may sue; the plaintiff there was a party to the contract.
India retains privity of contract, and a stranger to the contract cannot ordinarily sue, per Jamna Das v. Ram Autar Pande.
The recognised exceptions cover trusts and charges, family settlements and partitions, acknowledgment and estoppel, covenants running with land, agency and assignment.
The requirement that consideration move at the desire of the promisor is not relaxed by Section 2(d).

7. Related Topics and Provisions

Topic or provision	Connection
Consideration under the Indian Contract Act	The definition in Section 2(d) and its essentials
No Consideration, No Contract under Section 25	When no consideration is required at all
Intention to Create Legal Relations	Family arrangements, which also form an exception to privity of contract
Section 2(d), Indian Contract Act	Consideration from the promisee or any other person
Section 2(h), Indian Contract Act	Who the parties to a contract are
Sections 226 to 234, Indian Contract Act	Agency, and the rights of a disclosed or undisclosed principal
Section 37, Indian Contract Act	Who is bound to perform and to whom performance is due