Case Note & Summary
The Supreme Court of India entertained an appeal by special leave against a Division Bench judgment of the Madras High Court in A.S. No.226 of 1971 dated February 14, 1995. The appellant, an advertising bureau, had filed a suit for recovery of a sum of Rs.27,000 and odd towards advertisement charges from the respondent and one Balakrishnan. The appellant had advertised for a circus run by Balakrishnan, the second defendant. Balakrishnan remained ex-parte, and an ex-parte decree against him became final. The only issue before the Supreme Court was the liability of the first defendant-respondent, C.T. Devaraj. The trial court had decreed the suit against the respondent on the finding that there was privity of contract between the appellant and the respondent. On appeal, the High Court reversed that finding and held that there was no privity of contract; further, Section 70 of the Indian Contract Act, 1872 was inapplicable because the respondent did not derive any benefit under any contract and was only a financer who incurred huge losses. The High Court therefore allowed the appeal and dismissed the suit against the respondent. Hence the present appeal. Before the Supreme Court, the appellant's counsel contended that the agreement Ex. A-3 executed between the respondent and Balakrishnan contained clause (4), under which the respondent undertook to pay the advertisement charges; that the proposal sent for advertisement by the appellant had been approved by the respondent, thereby creating a concluded oral contract; and that since the respondent had agreed to receive 30% of the profit from the circus income, he had derived benefit pursuant to the advertisement, attracting Section 70 of the Act. The Supreme Court rejected these contentions. It noted that Ex. A-3 was a bilateral agreement between the respondent and Balakrishnan, and the appellant was not a party to it, so there was no privity of contract between the appellant and the respondent. The court also observed that although the advertisement proposal was approved by the respondent, he did so on behalf of Balakrishnan, and the approval was not given in writing; in the absence of written approval, reliance upon a self-serving statement by the appellant was insufficient to fasten liability on the respondent. Regarding Section 70, the court reproduced the provision, which requires that a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously, and the other person enjoys the benefit thereof. The court found that the appellant had not done anything directly for the respondent; the advertisement benefited only Balakrishnan. The High Court's factual finding that the respondent derived no benefit and was only a financer who suffered losses was not disturbed. In the absence of any benefit enjoyed by the respondent, Section 70 was not attracted. Consequently, the Supreme Court held that the High Court was right in negativing relief to the appellant on both grounds, namely lack of privity of contract and non-applicability of Section 70. The appeal was dismissed without costs.
Headnote
A) Contract Law - Privity of Contract - Requirement of direct contractual relationship - Indian Contract Act, 1872 (General Principles) - The dispute concerned liability of a financer for advertisement charges incurred by a circus operator; the appellant was not a party to the bilateral agreement Ex. A-3 between the respondent and the second defendant, and the respondent's approval of the advertisement proposal was given on behalf of the second defendant and not in writing; Held that there was no privity of contract between the appellant and the respondent, and the respondent was not liable for the advertisement charges (Paras 2-3). B) Contract Law - Unjust Enrichment/Quantum Meruit - Applicability of Section 70 - Indian Contract Act, 1872, Section 70 - The appellant claimed that the respondent enjoyed benefit of the advertisement because he was entitled to 30% profit; the court found that the appellant had not done anything directly for the respondent and the respondent derived no benefit; the respondent was only a financer who suffered losses; Held that Section 70 was not attracted and the High Court rightly negatived relief (Paras 4-5).
Issue of Consideration
Whether the respondent was liable to pay advertisement charges to the appellant either due to privity of contract or under Section 70 of the Indian Contract Act, 1872.
Final Decision
Appeal dismissed, without costs. High Court's judgment allowing appeal and dismissing suit against respondent affirmed.
Law Points
- No privity of contract between non-parties to a bilateral agreement
- Approval without writing on behalf of another does not create contractual liability
- Section 70 requires direct benefit and enjoyment by the defendant
- Financer not liable for advertisement charges if no benefit derived
