Venkata Chinnaya Rau V

Venkata Chinnaya Rau v.
Venkataramaya Garu (1881)1 ID

137 (Mad.)
Venkata Chinnaya Rau vs Venkataramaya Garu case laid down the rule that the
doctrine of privity of consideration is not applicable in Indian contract law in these
types of cases and that under the Indian Contract Act 1872, consideration may move
from the parties or anyone who is not a party to a contract.
…
NAME : WANIYA IZHAR
YEAR : 1ST YR
COURSE : BA LLB
SECTION : ‘B’
TITLE : VENKATA CHINNAYA RAU v. VENKATARAMAYA GARU (1881) 1 ID (Mad.)
SUBJECT : LAW OF CONTRACT
SUBMITTED TO : MR. JHANGIR BADAR
INTRODUCTION
Venkata Chinnaya Rau vs Venkataramaya Garu case laid down the rule that
the doctrine of privity of consideration is not applicable in Indian contract law
in these types of cases and that under the Indian Contract Act 1872,
consideration may move from the parties or anyone who is not a party to a
contract. The doctrine of privity to contract is a common law principle that
states that a contract cannot confer rights or enforce obligations on someone
who is not a party to a contract. It implies that only the parties to a contract
are subjected to contractual obligations. It defends third parties from
unsolicited legal obligations. It is a well-known fact that consideration is an
essential element of a contract.
FACTS
 An old woman transferred certain property consisting of a few acres of
land in the name of her daughter, the defendant, by a deed of gift. The
deed of gift was registered by the respective authorities.
 The terms of the contract specified that the defendant will have to pay an
amount of Rs. 653/- annually to the woman’s sister, the plaintiff. The
defendant signed an Iqrarnama (agreement), in favour of the plaintiff,
agreeing to do the same.
 However, after the old woman passed away, the defendant failed to pay the
money she had promised to the plaintiff. Hence, the plaintiff sued the
defendant to recover the promised amount.
ISSUES RAISED
Whether the plaintiff can sue the defendant for the amount promised in a
contract where the consideration for such promise has been furnished by a
person who is a party to the contract?
ARGUMENTS ADVANCED
CONTENTIONS BY THE PLAINTIFF CONTENTIONS BY THE DEFENDANT
The consideration for the The plaintiff had not furnished any
defendant’s mother to gift the consideration under the contract.
property to the defendant was Hence, she is not entitled to sue the
defendant’s promise to pay an defendant for the recovery of the
annuity to the plaintiff. Hence, the amount promised to her.
plaintiff is entitled to sue the
defendant to recover the same.
CONTENTIONS
 The plaintiff claimed that the consideration for the property transferred to
the defendant by her mother was the defendant’s promise to pay the
promised sum annually to the plaintiff. Hence, the plaintiff has the right to
sue the defendant and is entitled to the amount promised by the
defendant.
 The defendant argued the plaintiff was not a party to the contract and
hence had no legal right to sue the defendant or to compel her to pay the
promised amount. According to the doctrine of privity of consideration, the
consideration may move only from a party to a contract and not from a
third party.
JUDGEMENT
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.
JUDGEMENT
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.
DECISION
The Court observed that according to the definition of “consideration”
provided in Section 2 (d) of the Indian Contract Act, 1872, it is clear that in a
valid contract, consideration does not have to move solely from the promisee.
The Court held that the defendant was entitled to payment for the annual
sum of money and issued a decree ordering the plaintiff to pay an annuity to
the defendant.
ANALYSIS
 According to English Law, the consideration must be moved from the promisee only. If
any other person fulfils the consideration, then the promisee will be a stranger to the
consideration and will not be able to enforce the promise.
 But the proposition “Stranger to Consideration” is not applicable in the Indian scenario.
 Section 2(d) of the Indian Contract Act states that-
 “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 to abstain from
doing, something, such act or abstinence or promise is called a consideration for the
promise”.[3]
 The language in section 2(d) reveals that under the Indian contract act, it is not
mandatory that the consideration must flow from the promisee only, any other person
also can furnish the consideration for the promise.
 We can put it this way, that a promise can be enforceable if there is a consideration for it
and it is completely irrelevant who has furnished the consideration – the promisee or any
other person.
 In the present case, if we incorporate the gift deed executed by the old lady to the
defendant and the defendant’s promise to the plaintiff, it would be one transaction as
suggested by Justice Kindersley, where the old lady had already furnished the
consideration on the behalf of the plaintiff as the gift deed. Hence, the defendant was
supposed to pay the annuity to the plaintiff according to the promise. As the defendant
failed to do so, the plaintiff could claim the enforcement of the promise even though she
did not furnish the consideration herself.
CASE COMMENTARY
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.
CONCLUSION
This case explained the applicability and relevance of the doctrine of privity of
consideration to Indian contract law. In Venkata Chinnaya Rau v.
Venkataramaya Garu, the court ruled that the doctrine of privity of
consideration does not apply in India. Under the Indian Contract,
consideration may be provided by the pledge or by someone else. According to
the Indian Contract Act, 1872, consideration may move not from the
promisee, but even from a third person who is not a party to the contract, as
opposed to English law, which requires consideration to move only from the
promisee.
…
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Venkata Chinnaya Rau v.

Venkataramaya Garu (1881)1 ID

THANK YOU <3

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