Holding

No privity of contract exists between the advertiser and the financier and Section 70 is inapplicable as the financier derived no benefit, leading to dismissal of the appeal.

Summary

Aries Advertising Bureau placed an advertisement for a circus operated by Balakrishnan and sued C.T. Devaraj, the circus’s financier, for the Rs 27,000 advertising cost. The trial court held that a contract existed between the advertiser and Devaraj and awarded a decree, but the Madras High Court reversed, finding no privity of contract because Devaraj acted only as a financier and had not received any benefit from the advertisement. The appellant argued that Devaraj’s written agreement with Balakrishnan to pay the advertising charges and his entitlement to 30 % of circus profits created an oral contract and a benefit under Section 70 of the Indian Contract Act. The Supreme Court examined whether Devaraj’s approval of the advertising proposal, which was not in writing, could bind him and whether he derived any benefit from the advertisement. The Court held that there was no privity of contract and that Devaraj derived no benefit, so Section 70 did not apply, and dismissed the appeal.

Issues considered

Whether a contract exists (privity) between the advertiser and the financier for payment of advertisement charges.
Whether Section 70 of the Indian Contract Act, 1872 applies when the alleged beneficiary derives no benefit from the advertised service.
Whether oral approval of a proposal, without written consent, can create liability under the contract.

Legislation cited

Indian Contract Act, 1872s. 70

Subjects

privity of contractSection 70Indian Contract Actadvertisementbenefitcontract lawfinancieroral contractwritten approval

Judgment

ARIES ADVERTISING BUREAU A
v.
""-{ C.T. DEVARAJ {DEAD) BY LRS. ·

FEBRUARY 22, 1995 ...

[K. RAMASWAMY AND B.L. HANSARIA, JJ.] B

Indian Contract Act, 1872 : S. 7~Advertisement for circus-Charges
not paitf-Suit laid for recovery against cirau owner and its financier-&-
paTte decree against circus owne,-Decree against jinancier-l'rivity oftontract
,/
\ and Benefit pursuant to the advertisement-Yl.bsence of-Hence S.70 not at- - c
tracted.
The appellant-plaintifl' had advertised for the Circus ·run by the
/ second-defendant; it nJed a suit for recovery of advertisement charges of
Rs. 27,000 and odd against the respondent and the second-defendent.
Ex-parte decree was passed against the second defendant and it had D
become final. The trial Court decreed the suit against the respondent-first
defendant on finding that there was privity of contract between the appel·
lant and respondent.

On appeal, the High Court found that there was no privity of E
contract; since he was only a financier, tie did not derive any benefit under
the contract.

In this appeal it was contended that in view of clause (4) of the
agreement between the respondent and the first defendant, wherein the
~ respondent undertook to pay the advertisement charges, he was bound to F
pay.the same to the appellant, that since the proposal sent for advertise-
. ment by the appellant was admittedly approved by the respondent, there
emerged a concluded oral contract bet.en the appellant and the respon·
dent; and that since the respondent ~ to receive the-benefit of 30% of
__, the profit from Income derived by running of the circus, the respondent
G
derived benefit pursuant to the advertisement, he ls bound to reimburse
the appellant by operation of S.70 of the Contract ~

Dismissing the appeal, this Court

HELD : 1. There ls no prlvity of contract between the appellant and H
251
252 SUPREME COURT REPORTS (1995] 2 S.C.R.

A the respondent. Though proposal sent for the advertisement by the appel·
lant was approved by the respondent, he did it on behalf of the second
defendant. Th'e approval sought by the appellant was
not given in writing
so as to bind the respondent with the expenditure incurred from advertise-
ment. The High Court had considered this aspect of the matter and
B concluded that in the absence of any approval in writing by the respondent,
reliance upon self-serving statement made by the appellant in this regard,
was not sufficient to fasten the liability on the respondent for the expen- ·
diture incurred by the second defendant for advertisement to run the
circus. (253-E·F]
·~
C 2. In the present.case, the respondent was only a financer to run the I
circus and pursuant to the contract the respondent had suffered huge loss.
In the absence of any benefit derived by the respondent pursuant to the
advertisement made by the appellant, s. 70 of the Contract Act is not
attracted. (254-C]

D CIVIL APPELLATE JURISICTION : Civil Appeal No. 907 (N) of
1976.

From the Judgment and Order dated 14.2.75 of the Madras High ..,,
Court in A.S. No. 326 of 1971.
E A.T.M. Sampath for the Appellant.

The following Order of the Court was delivered :

This appeal by special leave arises from the judgment of the Division
F Bench of the Madras High Court in A.S. No. 226nl dated February 14,
1995. The facts lie in a short compass. The appellant-plaintiff had adver-
tised for the circus run by the second defendant Balakrishnan. It laid a suit
for recovery of a sum of Rs. 27,000 and odd towards the advertisement
charges impleading the respondent, as first defendant, alongwith Balakrish-
nan as second defendant. Balakrishnan remained ex-parte and an ex-pane
G decree against him became final. We are concerned only with the liability
of the first defendant- respondent, C.T. Devaraj. The trial court decreed
the suit against him on finding that there was privity of contract between
the appellant and the respondent. The High Court, on appeal, found that
there is no privity of contract. Though the appellant, relying on s. 70 of the
H Indian Contract Act, 1872, (for short 'the Act') attempted to fasten the
ARIES ADVERTISING BUREAU v. C.T. DEVARAJ 253

liability on the respondent, it was found that the respondent did not derive A
any benefit under the contract between him and Balakrishnan. On the
other hand, he was a financier to run the circus which had incurred a huge
loss. Consequently, it was held that the benefit of s. 70 of the Act was
inapplicable. The appeal was accordingly allowed and the suit against the
respondent was dismissed. Thus this appeal.
B
Shri Sampath, learned counsel for the appellant has strenuously
oontended that in view of the agreement (Ex. A-3) executed by the respon-
dent and Balakrishnan wherein Clause (4) states about the respondent
undertaking to pay the advertisement charges, he is bound to pay the same
to the ppellant. Proposal sent for advertisement by the appellant was C
admittedly approved by the respondent. Thereby there emerged a con-
cluded oral contract between appellant and the respondent. It is also
/ contended that since the respondent agreed to receive the benefit of 30%
of the profit from the income derived by running of the circus, he had
derived benefit pursuant to the advertisement made by the appellant and,
therefore, the respondent is bound to reimburse the appellant by operation D
of s. 70 of the Act.

We find no force in the contentions. The agreement Ex. A-3 is
bilateral between the respondent and Balakrishanan. The appellant is not
a party to the agreement. So, there is no privity of contract between the E
appellant and Devaraj. It is also an admitted fact that though proposal sent
for the advertisement by the appellant was approved by Devaraj, he did it
on behalf of Balakrishnan. The approval sought by the appellant was not
given in writing so as to bind Devaraj with the expenditure incurred for
advertisement. The High Court had considered this aspect of the matter
and concluded that in the absence of any approval in writing by the F
respondent, reliance upon self-serving statement made by the appellant in
this regard, was not sufficient to fasten the liability on the re_spondent for
the expenditure incurred by Balakrishnan for advertisement to run the
circus.

Section 70 of the Act provides thus :
G

"Where a person lawfully does anything for another person, or
delivers anything to him, not intending to do so gratuitously, and
such other person enjoys the benefit thereof, the latter is bound
to make compensation to the former in respect of, or to restore, H
254 SUPREME COURT REPORTS (1995) 2 S.C.R.
'
A the thing so done or delivered."

Admittedly, the appellant had not done anything directly to the respondent.
On the other hand, it had done the advertisement to benefit the seeond
defendant Balakrishnan only, who had run the circus. The High Court
found as a fact tliat the respondent did not derive any benefit out of the
B contract entered into between the respondent and Balakrishnan. The
respondent was. only a financier to run the circus and pursuant to the
contract the respondent had suffered huge loss. In the absence of any
benefit derived by the respondent pursuant to the advertisement made by
the appellant, s. 70 is not attracted to the facts of this case.
c Therefore, the High Court was right in negativing the relief to the
appellant, either becalise of lack of the privity of the contract or due to
non-applicability of s. 70 of the Act. The appeal is accordingly dismissed,
but without costs. ·

G.T. Appeal dismissed.

!.