Privity of Contract and Privity of Consideration

In one line

Two different rules wear similar names: a stranger to the consideration may sue in India, and a stranger to the contract may not, and keeping them apart is the whole of this chapter.

In the words a student can write in an exam: privity of consideration is the rule that consideration must move from the promisee, and India does not follow it, because section 2(d) of the Indian Contract Act 1872 says consideration may be furnished by "the promisee or any other person". Privity of contract is the rule that only a party to a contract may sue on it, and India does follow it, as the Supreme Court confirmed in M.C. Chacko v. State Bank of Travancore, AIR 1970 SC 504, subject to a settled list of exceptions.

Why students confuse them, and how to stop

Both rules use the word privity, which means the relation between parties to a contract. Both are about strangers. The difference is which thing the person is a stranger to.

Ask two separate questions and the confusion disappears.

Question one: who paid? If the answer is "somebody other than the promisee", you are in the field of privity of consideration. In India that is no objection at all.

Question two: who is suing? If the answer is "somebody who is not a party to the contract", you are in the field of privity of contract. In India that is an objection, unless an exception applies.

A single set of facts can raise both, and the standard family settlement problem does exactly that, which is why the two get merged.

Privity of consideration: India departs from England

Section 2(d) is the whole answer, and the words are express:

"When, at the desire of the promisor, the promisee or any other person has done or abstained from doing ... such act or abstinence or promise is called a consideration for the promise."

In English law consideration must move from the promisee. If A promises B something, and C provides the consideration, B cannot sue, because B has given nothing.

In India the words "or any other person" make the promise good. The doctrine this produces is sometimes called constructive consideration: the consideration furnished by the third person is treated as furnished for the promise, whoever supplied it.

The classic illustration in Indian textbooks is the old Madras case of a sister who sued on a deed by which her brother agreed to pay her an annuity, the consideration for that promise having been furnished by their mother, who had settled property on the brother on that footing. The sister had given nothing, and she succeeded, because in India she did not have to.