In the Madras High Court Equivalent Citation: ILR (1876-82) 4 Mad 137 Appellants Venkata Chinnaya Respondent Venkata RamayyaGaru Decided on 21st October, 1987 Bench Innes J, Kindersley J.
Consideration is an important element of a contract. In English law, the doctrine of privity of consideration is accepted. According to this doctrine, consideration must move from the promisee only. If it is furnished by any other person, the promisee becomes a stranger to the consideration and, therefore, cannot enforce the promise. This doctrine is, however, not applicable in India. According to section 2(d) of the Indian Contract Act (1872), it is clear that for the formation of a valid contract consideration is essential. However, it is immaterial whether the consideration flows from the promisee or any other person. This case laid down this rule in India in 1882.
A lady transferred her property which consisted of certain lands to her daughter (defendant), by a deed of gift. Such deed was registered. One of the terms of the gift deed was that the daughter would pay a sum of Rs. 653/- every year to the lady’s sister (plaintiff). The defendant executed an Iqrarnama or agreement in favour of the plaintiff promising to do the same. The defendant failed to pay the annual amount to the plaintiff. Hence, the plaintiff sued the defendant for the recovery of the same.
Whether the plaintiff can bring an action against the defendant for the amount promised in a contract where the consideration for such promise has been furnished by the mother of the defendant (plaintiff’s sister)?
Contentions by the plaintiff
- The consideration for the defendant’s mother to gift the property to the defendant was defendant’s promise to pay an annuity to the plaintiff. Hence, the plaintiff is entitled to sue the defendant to recover the same.
Contentions by the defendant
- The plaintiff had not furnished any consideration under the contract. Hence, she is not entitled to sue the defendant for the recovery of the amount promised to her.
According to section 2(d) of the Indian Contract Act (1872), “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. From this definition, it is clear that in a valid contract the consideration need not flow from the promisee only. It could flow from any other person who is not a party to such contract. The Hon’ble Court in this case, upheld this point of law in the plaintiff’s right to recover the annuity due to her from the defendant under the contract in question but their reasons for the same were different.
Innes J drew similarities between the instant case and the English case Dutton v. Poole [(1677) 2 Levinz 210]. In Dutton v. Poole, a man had a daughter of marriageable age and wanted to sell a portion of wood that he possessed at the time to meet his daughter’s wedding portion. The man’s son (defendant) promised to pay the daughter (plaintiff) £.1000 if the man forbore from selling the wood. The man forbore but the defendant failed to pay the promised sum. The daughter and her husband sued the defendant for the sum. Though the defendant made the promise to his father and the father furnished the consideration for it, it was clear that the contract was made for the benefit of the plaintiff. The court held that it would be highly inequitable to deprive the plaintiff of the money and held the defendant liable to pay the same to her.
Innes J observed that prior to the creation of the contract in question, the plaintiff had been receiving a sum of money out of her sister’s estate. When the lady transferred the same to her daughter, the defendant, the contract stipulated that the same arrangement be continued by her. When the plaintiff’s sister transferred the property to the defendant, the plaintiff suffered a loss of annuity that she had been receiving so far. It was held that such loss formed the consideration for the promise. Hence, the plaintiff was deemed to have given the consideration.
Kindersley J also arrived at the same conclusion but his reasoning was different. The deed of gift and the defendant’s agreement to pay the annuity to the plaintiff were executed at the same time. Thus, they could be considered parts of the same transaction. The defendant’s promise to pay the plaintiff was the consideration for the defendant’s mother to transfer the property to the defendant. Hence, the defendant’s failure to pay the same would amount to breach of contract and would entitle the plaintiff to sue her for the recovery of the same. The defendant was held liable to pay the annuity to the plaintiff.
This case clarified the applicability of the doctrine of privity of consideration to Indian contract law. In this case, the court laid down that the doctrine of privity of consideration is not applicable in the Indian context.
Edited by Parul Soni
Approved & Published – Sakshi Raje