Revision

This article has been written by Anjali Raut pursuing a Diploma in Corporate Law & Practice: Transactions, Governance and Disputes course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

From the early morning to late night, i.e., from the time we get up from bed until we go to bed at night, we enter into a number of transactions, and these transactions directly or indirectly, expressly or implicitly, result in contracts. For instance, for shelter, we enter into a contract with the seller or builder to purchase an independent house on rent or lease. Similarly, for all our needs like medical, food, education, entertainment, etc., it can be oral, written, expressed, or implied. An agreement entered into between two or more persons or parties for a lawful consideration,subject to certain terms and conditions, is what is defined as a contract. Let us understand it more with an illustration. Consider ‘A’ and ‘B’, who entered into an agreement wherein ‘A’ guaranteed ‘B’ that he would sell his house for Rs. 50,000/- and ‘B’ agreed to buy it for that sum. It is an agreement between both parties. This agreement is enforceable in a court of law, and hence, it is a contract.

Download Now

In India, the primary legislation governing Indian contract law is the Indian Contract Act of 1872, which established the legal framework for contracts in the country. The English Common Law Principles serve as the foundation for the act. It is relevant to every state in India. It establishes the conditions under which a contract’s parties’ promises are enforced. A contract is defined as an agreement under the Indian Contract Act of 1872 that is enforceable by law under Section 2(h). Sections 03 – 75 deal with the general principles. But in this article, we will be talking more about Section 65, which mostly deals with the doctrine of restitution. For example,what happens, though, if, according to the terms of the contract, person ‘B’ sends money to person ‘A’, but it ends up going to person ‘C’, who then claims it as his own and refuses to give it back to person ‘A’, even though he is the one who is supposed to receive it. The doctrine of restitution is applied in such cases.

The doctrine of restitution

A simple definition would be ensuring that something that belongs to a party that has been wrongfully denied a right to receive it is given to the party that was rightfully entitled to it. Restitution literally means ‘Restoration’, the restoration of something lost or stolen to its proper owner. In the Indian Contract Act of 1872, Section 65 deals with the principle of restitution.

Section 65- This section clearly states that anyone who has benefited from an agreement or contract that is later shown to be invalid must return the benefit to the source of the agreement or contract or pay the recipient compensation. A contract that is not legally enforceable is deemed void, as per the Indian Contract Act of 1872. For instance, a contract with a minor.

Key elements of restitution

  1. Remedying injustice: Restitution seeks to correct unjust enrichment or deprivation by returning the benefits or property to the rightful party.
  2. Unjust enrichment: The principle applies when one party has gained an unfair advantage or benefit at the expense of another.
  3. Restoration: The primary goal of restitution is to restore the aggrieved party to their original position, as if the wrongful act had never occurred.

Restitution in Contract Law

In contract law, the principle of restitution is often invoked in cases of breach of contract or misrepresentation. If a party fails to fulfil their contractual obligations or provides false information, the innocent party may seek restitution to recover any losses or benefits gained by the breaching party.

Example: If a buyer pays for goods that are never delivered, the buyer can claim restitution to recover the purchase price.

Restitution in Property Law

Restitution plays a significant role in property law, particularly in cases involving the recovery of stolen or wrongfully acquired property. The rightful owner can seek restitution to regain possession of their property.

Example: If a person’s car is stolen and later sold to an unsuspecting buyer, the true owner can claim restitution to recover the vehicle.

Restitution in Tort Law

In tort law, restitution can be awarded as a remedy for certain types of wrongs, such as conversion (unauthorised possession or use of another’s property) or unjust enrichment.

Example: If someone converts another person’s property for their own use, the court may order restitution to restore the property or its equivalent value to the rightful owner.

Restitution is a fundamental legal principle that promotes fairness and justice by ensuring that parties are not unjustly enriched at the expense of others. It provides a remedy for those who have suffered a loss or have been deprived of their rightful property or benefits.

We can also find the Principle of Restitution in Section 144 of the Civil Procedure Code, which explains that “the court’s responsibility is to put the parties back in the same position that they would have been in, except for the decree or the portion that has been changed or overturned.” Section 144 of the Civil Procedure Code only includes a portion of the general restitution law.

Conditions to the doctrine of restitution 

A legally binding agreement between the parties

A legally binding agreement that is enforceable by the Contract Act of 1872 qualifies as a valid contract. A contract must be enforceable by law in order to be deemed legal. The agreement should contain all the necessary components. In order for a contract to be considered enforceable, certain conditions need to be fulfilled: offer, acceptance, consideration, lawfulness, capacity, and consent.

There must be consideration in the contract

Consideration is something of value exchanged between the parties to a contract. It can be money, work performance, property, or many other things. It means ‘something in return’. For a contract to be valid and enforceable, there must be a lawful consideration.

 Both parties should be competent to enter into a contract

A person is competent to enter into a contract under Section 11 of the Indian Contract Act if they meet the following requirements: they should be a major and not a minor, which means they must be 18 years of age or older; they should have a sound mind, which means they should not be insane or crazy, which makes a person unable to take serious decisions; and lastly, they should be qualified to enter into a contract as per the current law.

Due to unforeseen circumstances, one of the contract’s parties either failed to execute the agreement or was unable to do so

This is also called a contingent contract. Contracts that are subject to the possibility of unforeseen future events are not legally enforceable until such events have taken place. If, for any reason, such a contract becomes impossible, it is void.

The party that has paid any consideration in the form of an advance is entitled to recover the same from the other party

The paying party may recover from the other party any advance consideration that was paid. Both parties participating in the agreement should have acknowledged it in the contract and given their consent.

Exception to the doctrine of restitution

Restitution under contract law does not apply to certain kinds of contracts; they are listed below:

Where a contract is known to be void

A void contract is one that has no legal standing and is either void from the beginning or void later on. The Indian Contract Act, 1872, states in Section 2(g) that “an agreement not enforceable by law is said to be void.” For instance, ‘A’ enters into an agreement with ‘B’ where ‘A’ gives money to ‘B’ for the murder of ‘C’. ‘B’ takes the money but does not kill the ‘C’. Now ‘A’ can not file a suit against ‘B’ for breaching the contract because the object of the contract was unlawful. Which makes it void ab initio (void from the beginning).

Where a contract has been entered into between incompetent persons.

People who are not of sound mind are considered incompetent to contract under the Indian Contract Act. Under Indian law, a person of unsound mind cannot enter into a contract; this is in contrast to English law, which does not recognise mental incompetence as a defence. A contract made by a person of unsound mind is void in India.

Where the party is required to give some earnest money as security and later defaults

This clause addresses circumstances such as the payment of application fees for housing schemes. Now , by rejecting the idea of restitution, the individual will not be able to claim his earlier earnest money and will lose his application money as well.

An important judgement to the doctrine of restitution

The defendant in Sadashiv Panda vs. Prajapati Panda and Anr. (2017) and others consented to sell the plaintiff his land in exchange for a payment of Rs. 5,000. The plaintiff gave the defendant a payment advance of Rs. 2,600 and instructed him to complete the sale deed by giving the plaintiff possession of the property. The plaintiff would then reimburse the defendant with the remaining amount of Rs. 2,400. Meanwhile, the defendant, with the remaining amount of Rs. 2,600, declined to give the plaintiff ownership rights since the defendant had already sold the property to a different buyer. In accordance with Section 65 of the Indian Contract Act of 1872, the plaintiff brought legal action against the defendant. Since plaintiffs have given an advance of Rs. 2,600 to the defendant, the court decided that this case falls under the doctrine of restitution because there was a sale deed between the two parties. Because it violates the terms of the contract, the defendant’s sale of the property to a third party was unlawful. The plaintiff was entitled to receive money back from the defendant.

In Mohori Bibee vs. Dharmodas Ghose (1903), in order to obtain a loan of Rs. 20,000, the plaintiff, who was a minor, mortgaged his home in favour of the defendant, who is a moneylender. He was in fact given an advance on some of this sum. The lawyer representing the moneylender learned that the plaintiff was a minor while evaluating the suggested advance. The child then filed this lawsuit, claiming that since he was not yet of legal age when he signed the mortgage, it should be revoked.

In the case of Leslie Ltd. vs. Sheill (1903), a minor, misled a moneylender about his age by claiming to have reached the age of majority and having obtained a certain sum of money. This particular case shares similarities with the well-known ruling of Mohori Bibee vs. Dharmodas Ghose, which established important principles regarding the legal capacity of minors in contractual matters. In both cases, the common theme is the inability of minors to engage in legally binding contracts due to their status as minors. This incapacity renders them exempt from any legal obligations or liabilities arising from such contracts.

The courts in both Leslie Ltd. vs. Sheill and Mohori Bibee vs. Dharmodas Ghose emphasised the fundamental principle that minors, due to their immature judgement and lack of experience, are deemed incapable of understanding and assuming the full legal implications of contractual agreements. Consequently, they are legally protected from the potentially detrimental consequences of entering into contracts that may not be in their best interests.

These rulings serve as a reminder of the importance of safeguarding the welfare and rights of minors in financial transactions and contractual matters. By recognising the vulnerability of minors and their limited legal capacity, the courts ensure that they are not held responsible for obligations they may not fully comprehend or be able to fulfil.

In a recent ruling in Loop Telecom and Trading Limited vs. Union of India and Another, the Supreme Court refused to return money that the appellant had paid under a null and void contract. The Court relied on the theory of “in pari delicto” and reaffirmed that courts shall not assist a party who has paid the money or turned over the property in pursuance of an illegal or immoral contract, while rejecting the claim for restitution under Section 65 of the Indian Contract Act, 1872. Because this case was not a valid contract based on a lawful object, it does not fully satisfy the requirements for the restitution of the contract.

Conclusion

The aforementioned cases and judgements have demonstrated the depth to which the doctrine of restitution in contract law is embedded in the Indian legal system. In a civilised society where there is a chance for unfair profit and gain, we can fall into these kinds of problems by deceiving others or even by being ignorant of the remedies that are accessible to us. In these cases, the doctrine of restitution has proven to be a crucial remedy. We now understand certain requirements and the exclusions from the restitution doctrine. The doctrine of restitution is also present in civil law, tort law, and criminal law; for example, Section 144 of the Civil Procedure Code.

References

RELATED ARTICLESMORE FROM AUTHOR

LEAVE A REPLY

Please enter your comment!
Please enter your name here