Doctrine of Restitution under Indian Contract Act, 1872

Doctrine of Restitution Basic Definitions:

1. According to section 2(e) of the Indian Contract Act, 1872 “Every promise and every set of promises, forming the consideration for each other, is an agreement.”
2. According to section 2(h) of the Indian Contract Act, 1872 “An agreement enforceable by law is a contract.”
3. According to section 2(g) of the Indian Contract Act, 1872 “An agreement not enforceable by law is said to be void.”
4. According to section 2(i) of the Indian Contract Act, 1872 “An agreement which is enforceable by law at the option of one or more parties thereto, but not at the option of other or others, is a voidable contract.”

Meaning of Doctrine of restitution:

The word restitution comes from a Latin word “restituere” which mean “to rebuild” or “to restore”. The word restitution means the restoration of the benefit and putting the plaintiff in the original position that would stand before the contract and restraining the defendant from making a wrongful gain. In simple terms, relinquishment of a benefit or the return of money or the property obtained through an improper means to the person from whom the property was taken. 

Definition of Doctrine of restitution:

Section 65 of the Indian Contract Act, 1872 defines the rules of Doctrine of restitution. It deals with the obligation of a person who has received advantage under void agreement or contract that becomes void. So according to section 65 of the Indian Contract Act, 1872 “When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it, to the person from whom he received it.”

Examples:

1. A enters into a contract with B to deliver 1000kgs of apple. A delivers 900kgs of apple to B and forgets to deliver the rest of the agreed apples. B retains the apples which was delivered and sells it to C. According to the principles of doctrine of restitution, B is bound to pay A for the 900kgs of apple which was delivered.
2. A who is a stand-up comedian agrees to perform in a theatre for a sum of $4000. The theatre owner pays A, a sum of $2000 as an advance. On the date of performance A falls sick and couldn’t perform at the theatre. According to the principles of doctrine of restitution, A should pay back the $2000 to the theatre owner.
3. A agrees to buy a television and speakers from B for a sum of $2500. A pays $2000 as an advance and agrees to pay the rest of it. B couldn’t deliver the product as it was damaged during transit. As A had nothing to do with the damages occurred during the transit, B is bound to return the $2000 back to A.

Applicability of Section 65 of the Indian Contract Act, 1872 (Doctrine of Restitution): 

1. Section 65 of the Indian Contract Act, 1872 is applicable if a certain stage or a process in an agreement becomes void.
2. Section 65 of the Indian Contract Act, 1872 is applicable if the contract becomes void at a later stage due to the actions of the persons involved in the contract.
3. Section 65 of the Indian Contract Act, 1872 is not applicable if the contract is said to be void-ab-initio (void from the beginning). It is not applicable for the agreements which are deemed illegal.
4. Section 65 of the Indian Contract Act, 1872 is not applicable for contracts entered between a major and a minor.

Essentials of Doctrine of restitution:

1. These should be a contract between the parties.
2. There should be a lawful consideration. 
3. The parties should be competent enough to enter into an agreement. 
4. There should be a failure to perform the part of the contract due to uncertain events.

Exceptions to the principles of Doctrine of restitution:

1. The principle of doctrine of restitution is not applicable if there is no agreement or contract between the parties.
2. The principle of doctrine of restitution is not applicable if the agreements are void-ab-initio.
3. The principle of doctrine of restitution is not applicable if the agreements are entered with incompetent persons. For examples: agreement entered with a minor or an unsound person.

Important Case Law:

Mohori Bibee vs Dharmodas Ghose: (1903) ILR 30 Cal 539(PC)

Facts of the case: Dharmodas Ghose was the owner of an immovable property. He mortgaged his property to Brahmo Dutt in order to secure 20000 rupees. There was also a 12 percent interest on the amount. During the time of mortgage, Dharmodas was a minor. The question before the court was the validity of minor entering into an agreement and there was also issues regarding the validity of the contract if an individual misrepresents his age.

Judgment of the case: The court held that Dharmodas Ghose was not bound to pay back the amount and gave the verdict in favor of Dharmodas Ghose. The court also set guidelines regarding the validity of contract between a minor and a major. The court held that any contract with a minor is void-ab-initio.

Conclusion:

Doctrine of restitution helps in restoring the position or the benefits of the affected party. It ensures the fact that there is no unfair advantage to the other person. As long as the essential principles of doctrine of restitution are met, a person can claim restitution.  

This article has been written by Sham Baradwaj, from D N of Kle Law College, Bengaluru.