This article has been written by Anisha Sahu pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho.
Table of Contents
Introduction
On September 1, 1872, the Indian Contract Act came into force. The word ‘contract’ has been interpreted from the Latin word ‘constructus’ which means ‘to bring together’. The contract law is based on the principle of ‘Pacta Sunt Servanda’ which means ‘agreements must be kept’.
This article has been edited and published by Shashwat Kaushik.
The law of contracts is a civil law that regulates contractual obligations between parties. This Act is based on English Common Law, consisting of judicial precedents. It is not exhaustive, as it does not concern all the branches of the law of contracts. It is a substantive and codified law. The parties are referred to in the contract as the defendant and claimant. The person proposing is called the “promisor,” and the person accepting the proposal is called the “promisee.”
History of contracts
In primitive societies, the concept of contract was not developed. Primitive society follows the barter system, which means the exchange of goods. For ex- a farmer may exchange a tonne of rice for a pair of shoes from a shoemaker. The barter system is based on “quid pro quo,’’ meaning something for something. The principle of contract is derived from different origins of Hindu law, namely the Vedas, the Dharma Shastra, the Smritis, and the Shrutis, which give descriptions of the law similar to contracts.
At the time of Muslim rule in India, all concepts belonging to contracts were commanded under the Mohammedan Law of Contracts. The word contract in Arabic is called “Aqd,” which means conjunction. It indicates the conjunction of proposal, which is called “Ijab,” and acceptance, which is called Qabul. In a contract, there should be two parties; one party should make a proposal and the other accept it, and the minds of both parties/meetings of minds, agree on the same matter in the same sense.
Slowly, society developed, and division of labour took place due to the increase in the needs of people and changes in lifestyle. With the increase in industrialization, commercialization, modernisation, and globalisation, people started to enter into contracts, breaches of contracts took place and disputes arose. To overcome this problem, we needed a set of rules. In this way, the formation of the Indian Contracts Act took place.
Meaning of contract under the Indian Contract Act, 1872
Section 2(h) deals with a contract; an agreement enforceable by law is a contract. A contract is an agreement that lays down the rights and liabilities towards parties. When two people agree upon something in the same sense and in the same manner, it is called a contract.
Illustration: Person A agrees to sell his house to Person B for 50 lakhs, and B agrees to buy A’s house for 50 lakhs. A formed a contract with B
An agreement that is defined under Section 2(e) of the Indian Contract Act 1872. Every promise and every set of promises forming consideration for each other is an agreement. Section 10 of the ICA deals with what agreements are contracts.
All agreements are contracts if they were made for:
- Free consent of parties (Section 13-22 ICA 1872)
- Competent to contract (Section 11-12 ICA 1872)
- For lawful consideration and (Section 2(d), 23 -25 ICA 1872)
- With a lawful object and not expressly declared to be void under Indian Contract Act 1872 or any other law. (Section 26-30 ICA 1872)
- Parties having legal Intention
Differences between an agreement and a contract
| Agreement | Contract | ||
| Meaning | When a proposal is given by one party and accepted by another party with lawful consideration, an agreement is formed. | An agreement that is enforceable by law is a contract. | |
| Essentials | Proposal and acceptance. | Enforceable by law is a contract (Section 10 gives essentials for enforceability of the Indian Contract Act of 1872). | |
| Defined in | Section 2(e) | Section 2(h) | |
| Legal obligation | There is no legal obligation in the agreement. | There is a legal obligation. | |
| Scope | Wide | Narrow | |
All contracts are agreements, but all agreements are not contracts
This was quoted by Anson, “all contracts are agreements but all agreements are not contracts.” This means that in order for an agreement to be considered a contract, it must meet all of the essential elements of a contract. These elements are:
- Offer and acceptance: There must be an offer made by one party and an acceptance of that offer by the other party.
- Consideration: Each party must give something of value in exchange for the other party’s promise.
- Intent to create a legal obligation: Both parties must intend for their agreement to be legally binding.
- Capacity to contract: Both parties must be legally capable of entering into a contract.
- Legality: The subject matter of the contract must be legal.
If an agreement does not meet all of these elements, it is not considered a contract. For example, if someone offers to sell you their car for $100, but you do not accept the offer, there is no contract. Similarly, if you agree to give someone $100 for their car but they do not intend for the agreement to be legally binding, there is no contract.
This principle can be compared to the statement, “all cats are animals but all animals are not cats.” Just as not all animals are cats, not all agreements are contracts. However, all contracts are agreements.
Types of contracts
- Valid contract – When all the ingredients of Section 10 of ICA 1872 are fulfilled, it is called a valid contract and it is enforceable by law.
- Void contract or agreement- Section 2(j) of the ICA 1872 Act deals with a void contract as “a contract which is not to be enforceable by law becomes void contract or agreement when it stops to be enforceable.”
- Voidable contract- As defined in Section 2(i) of the ICA 1872, “an agreement which is enforceable by law at the option of one or more parties, but not at the option of the other parties, is a voidable contract.” When one party has the option to get it declared void by a court of law or otherwise.
- Void agreement- Void ab initio. It means it never becomes a contract. Void from the beginning (contract with a minor).
The doctrine of restitution in Indian law
Meaning of restitution
The word restitution means to restore the benefits that a person has obtained.
According to the Merriam Dictionary: A legal action serves to cause the restoration of a previous state.
According to the Black Law Dictionary: Unjust enrichment means money obtained that is not a gift that the beneficiary needs restitution for. Thus, restitution means restoring the benefits that a person has obtained
Object of restitution
- To restore the plaintiff’s position in the contract to the original position that he enjoyed before entering into the contract.
- To prevent the unjust enrichment of the defendant and stop him from making wrongful gains from the contract, which he is not entitled to as per the law.
Illustration- A gives Rs 1,000 to B in consideration of B’s promise to marry C, A’s daughter. C was dead at the time of the promise. The contract is void, but B has to pay A Rs 1,000.
The doctrine of restitution in Indian law
The doctrine of restitution is conferred under Section 65 of the ICA 1872. It conferred the obligation upon the person who had received some benefits under a void agreement. This section starts with the words ‘When an agreement is discovered to be void, or when a contract becomes void’, the doctrine of restitution comes into the picture. The doctrine is based on the rule of consideration, which means that if a person pays something at the beginning of an agreement and the contract later becomes void, then the paid money should be returned to the plaintiff (the party who pays the money). The contract is void ab initio—void from the very beginning.
Section 65 of the Indian Contract Act 1872
As per Section 65 of the Indian Contract Act 1872, there is an obligation on a person who has received an advantage under a void agreement or contract that becomes void. When an agreement is declared to be void, or when a contract becomes void, any person who has received any advantage/benefits under such an agreement or contract is bound to restore it or to make compensation for it to the person from whom he received it.
Essentials of doctrine of restitution
- One party must enter into a contract with another party with lawful consideration.
- There must be some lawful consideration.
- Both parties must be competent to contract, as per Section 11 of the Indian Contract Act.
- One party was unsuccessful in performing his part of the contract obligation or the contract became void due to unforeseen conditions.
- The party that has paid any consideration as an advance before the contract becomes void to another party is entitled to receive an unfair advantage over it.
Difference between restitution and compensation
| Compensation | Restitution |
| Compensation is the amount for a loss or injury suffered by the plaintiff during the business defendant’s actions. Thus, Compensation is the amount the innocent party lost | Restitution is the amount that the defendant gained under a void agreement or contract that becomes void. When an agreement is declared to be void, or when a contract becomes void |
| Compensation refers to the act of compensating a person who is unable to perform his part of the contract. | Restitution refers to the act of restoring a person to his/her former position and/or returning something to its rightful owner. |
| Section 2(d) defines compensation under the Indian Contract Act 1872 | The concept of restitution refers to Section 65 of the Indian Contract Act 1872. |
The doctrine of restitution in England
The doctrine of restitution was first developed in court during the 17th century as a contractual obligation. Later on, the concept migrated to the courts of the United States and slowly expanded throughout the country. Today, the Court applied restitution in the areas of maritime, criminal law, and tort.
In Halsbury’s Laws of England, Miles stated, “Any civilised device of regulation is sure to offer treatments for cases of what has been referred to as unjust enrichment or unjust advantage, that is, to prevent a person from retaining the money of, or some benefit derived from, every other which it’s miles against conscience that he has to hold.”
In law, the term restitution is used in three ways:
- Return of some specific thing to its rightful owner.
- Compensation for the loss caused to another.
- Compensation for the benefit derived from a wrong done to another.
Exceptions to doctrine of restitution
Exceptions to doctrine of restitution are:
- The doctrine will not be applied in cases where an agreement is void for example, when an agreement is made for an illegal act. For example, if A will pay B 10,000 if B gives a slap to Z and A gives 500 as an advance to B, it is impossible to perform, and A can’t recover even his Rs 500.
- If a contract is entered into by an incompetent person who is suffering from intoxication or insanity, then this doctrine does not apply. For example, when there is an agreement between the minors, the doctrine of restitution will not be applied.
- If the contract is void ab initio, then Section 65 is not applicable.
- When there is no agreement or contract between the parties, the doctrine of restitution will not be applied.
Case laws
Mohini Bibee vs. Dhurmoda Ghose (1903)
In the present case, Dharmodas Ghose, a minor, entered into an agreement with Brahmodutt, who is a moneylender, to secure a mortgage of Rs 20,000. At the time of the whole transaction, the attorney, who acted on behalf of the moneylender, was aware of the fact that Dharmodas was a minor. Later on, a minor brought an action against the defendant, stating that he was a minor when the mortgage was done between Dharmodas Ghose and Brahmodutt, and, therefore, the mortgage became void and inoperative because he was a minor while making the contract. The plea was filed by way of Brahmodutt’s executors and they contended that the minor represented his age fraudulently; therefore, the law of estoppel should apply.
After considering the facts of the case, the Privy Council found that the contract with the minor was void from the outset, that is, invalid. The court also sustained the defendant’s arguments that first estoppel did not apply as Brahmadatta’s counsel, Dharmodasa, knew minority facts and secondly, Sections 64 and 65 of the Indian Charter did not apply as there was no contract in the first instance.
Thus, the prior construction of the minor’s contract is invalid and void ab initio in the present case
S.M. Deshmukh vs. Ganesh Krishnaji Khare (1973)
In this case, it was held by the Bomaby High Court that the doctrine of restoration is based on the principle that courts should be careful that the action of the court does not cause any injury or injustice to the suitors. The duty or power of the court to grant restitution lies within the full discretion of the courts to act fairly and equitably in the circumstances of all the parties.
Conclusion
The doctrine of restitution is a legal principle that restores the injured party to their original position before entering into a contract. This can be done by requiring the other party to return any benefits they received under the contract or by compensating the injured party for their losses.
There are a number of different situations in which the doctrine of restitution may be applied. For example, if one party to a contract makes a misrepresentation, the other party may be entitled to restitution if they relied on the misrepresentation and suffered a loss as a result. Similarly, if one party to a contract breaches the contract, the other party may be entitled to restitution for any losses they incur as a result of the breach.
The doctrine of restitution is based on the principle of unjust enrichment. This principle holds that a person who has been enriched at the expense of another person is required to make restitution to the other person. In the context of contracts, the doctrine of restitution prevents one party from benefiting from a contract that was entered into as a result of fraud or misrepresentation.
The doctrine of restitution is a powerful tool that can be used to protect injured parties. It can help to ensure that those who have been wronged are made whole and that those who have been unjustly enriched are required to give back what they have taken.
References
- Singh, Avtar. Textbook on Law of Contract and Specific Relief (2016 ed.). Eastern Book Company. p. 488.
- https://www.indiacode.nic.in/bitstream/123456789/2187/2/A187209.pdf
- https://blog.ipleaders.in/what-is-the-doctrine-of-restitution/ https://www.scribd.com/document/421613689/13-chapter4
- https://www.livelaw.in/top-stories/section-65-contract-act-supreme-court-principle-restitution-contract-act-illegality-loop-telecom-and-trading-limited-vs-union-of-india-2022-livelaw-sc-238-193287#:~:text=Section%2065%20of%20the%20Contract,for%20it%2C%20to%20the%20person
- https://corporate.cyrilamarchandblogs.com/2022/04/restitution-under-the-contracts-act-the-in-pari-delicto-exception/
- https://thelawexpress.com/doctrine-of-restitution-under-indian-contract-act-1872
- https://lawbhoomi.com/doctrine-of-restitution-under-cpc/
- https://www.lhlt.mpg.de/2896816/01-surana-the-law-of-restitution-for-unjust-enrichment-in-india
