With the help of decided cases: discuss in detail “Consideration of Privity” under the Indian Contract Act.

Question: With the help of decided cases: discuss in detail “Consideration of Privity” under the Indian Contract Act. [HPJS 2016]

Find the answer to the mains question only on Legal Bites. [With the help of decided cases: discuss in detail “Consideration of Privity” under the Indian Contract Act.]

Answer

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 to abstain from doing, something, such act or abstinence, or promise is called a consideration for the promise.”

In view of the clear language used in defining consideration in Section 2(d), it is not necessary that consideration should be furnished by the promisee. A promise is enforceable if there is some consideration for it and it is quite immaterial whether it moves from the promisee or any other person.

The leading authority is the decision of the Madras High Court in Chinnaya v. Ramayya [ILR (1876-82) 4 Mad 137]. In this case, an old lady, by deed of gift, made over certain landed property to the defendant, her daughter. By the terms of the deed, which was registered, it was stipulated that an annuity of Rs653 should be paid every year to the plaintiff, who was the sister of the old woman.

The defendant on the same day executed in the plaintiff’s favour an agreement promising to give effect to the stipulation. The annuity was, however, not paid and the plaintiff sued to recover it. It was clear that the only consideration for the defendant’s promise to pay the annuity was the gift of certain lands by the old woman to the defendant.

The defendant, therefore, tried to defend herself on the ground that the promisee (the plaintiff) had furnished no consideration. Briefly, the whole situation was this: the defendant’s promise was given to the plaintiff, but consideration was furnished by the plaintiff’s sister. The court could have easily allowed the plaintiff to recover the annuity, as consideration given by “any other person” is equally effective. The court reached the same result but on a somewhat different ground.

Innes J. tried to equate the situation with the facts of Button v. Poole [(1678) 2 Lev 211]. In that case, the defendant’s sister would have got her marriage portion but for the defendant’s promise. In the present case also it appeared that the plaintiff was already receiving from her sister an annuity of like amount out of the estate and when the estate was handed over to the defendant it was stipulated that the payment to the plaintiff should be continued and she promised accordingly.

That means that the failure to keep the promise would have deprived the plaintiff of an amount that she was already receiving and it is a legal commonplace that if a promise causes some loss to the promisee that is sufficient consideration for the promise. Thus the plaintiff had given consideration.

In the words of the great American writer Williston: “The rule that consideration must move from the promisee is somewhat technical, and in a developed system of contract Law there seems no good reason that why ‘A’ should not be able for a consideration received from ‘B’ to make an effective promise to ‘C’. Unquestionably he may in the form of a promissory note, and the same result is generally reached in India in the case of an ordinary simple contract”.

---

Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X