The Doctrine of Restitution under Contract Law

What does the doctrine of restitution hold?

The term “restitution” means the act of restoring something to its true owner after it has been taken away, lost, or relinquished. When a contract becomes void, neither party is required to perform on it. However, if one party has received a benefit from the other party under such a contract, he must return it or compensate the other party for it. This is the basic meaning of the doctrine of restitution; it means restoring the benefit that had been availed earlier in a contract that has now become void.

For example, assume that A promises to sell a particular amount of gold to B after 6 months in exchange for Rs. 5,000 in advance. However, private sales of gold get prohibited by law and become illegal soon after the agreement. Hence, the contract becomes null and void, and A must repay Rs. 5,000 to B.

Section 65

Section 65 of the Indian Contract Act, 1872 also provides for restitution when an agreement is found to be void. For example, A pays Rs. 5,000 in exchange for B promising to marry C, A’s daughter. C is no longer alive at the time of the promise. The arrangement is found to be null and void, and B is required to repay Rs. 5,000.

According to Section 65 which deals with the doctrine of restitution, when an agreement is determined to be void, or when a contract becomes void, any person who has obtained any benefit under such agreement or contract is obligated to restore the same or compensate the person from whom he received it. The principle stated in this section is that when the parties engage in a lawful contract and some benefits are passed under it, and the contract is later determined to be void, the party who received the benefits must return them to the other party.

The doctrine of restitution in the case of a minor

It is worthy of note here that there is no restitution where the parties are completely incapable of contracting, such as when one of the parties is a minor. The minor cannot be required to restore the benefit. For example, if a minor borrows Rs. 1,000 from B, he cannot be asked to repay Rs. 1,000 to B because the contract is void [Mohori Bibi v. Dharmodas Ghose (1903) 30 Cal 539].

Conditions

The doctrine of restitution becomes applicable when the following conditions are fulfilled:

  • There is a valid contract between the parties.
  • The contract involves a lawful consideration.
  • Both the parties are competent to contract.
  • Following that, one party failed to perform his or her part of the contract or the contract became void, due to an unanticipated event.

In the case of these conditions, any party who has received a benefit under the said contract (e.g., in the form of an advance, etc.) shall be obligated to return it to the other party.

Exceptions to the doctrine of restitution

The following are some exceptions to the doctrine of restitution:

  • The doctrine of restitution will not be used when there is no agreement or contract between the parties.
  • Section 65 does not apply if the contract is void from the start, i.e., void-ab-initio.
  • The doctrine of restitution will not be used if there is an agreement with a minor.

It should be highlighted that the doctrine of restitution only applies to contracts that become void later on, due to an incident that the promiser could not prevent or because of supervening impossibility. The principle of restitution does not apply to contracts that are void-ab-initio, with the exception where a minor has entered into a contract by misrepresenting his age. In this scenario, the minor may be enforced by the Courts to return the benefit.

Relevant case laws

Mohori Bibi v. Dharmodas Ghose (1903) 30 Cal 539

In this case, the respondent Dharmodas Ghose had mortgaged his immovable property (a house) in favour of the appellant Brahmo Dutta who was a moneylender, for the purpose of taking up a loan of Rs. 20,000 at a 12% rate of interest. At the time of mortgaging the immovable property and taking up the advance/loan, the respondent was a minor, i.e., he had not attained the age of 18 years.

The trial court ruled that the contract was void ab initio (i.e., void from the start) because a minor (respondent in this case) cannot enter into a contract. A contract cannot be formed between a minor and a major. The Privy Council confirmed the judgment of the lower courts to order in the respondent’s favour without directing him to refund the money advanced. It was held that Dharmodas Ghosh, the respondent, who was a minor, was not bound by the promise executed in the contract and therefore can’t be forced to pay back the sum advanced to him. The Court dismissed the appeal.

It might be concluded that any agreement or act in which a minor is a party should be considered void ab initio, that is, void from the start because such arrangement is not an agreement in the eyes of the law. The above decision protects the rights and interests of the minor, who is in a vulnerable position while entering into a contract with a major.

Leslie Ltd. v. Sheill (1914) 3 K.B. 607

This case is well-known because it resulted in the establishment of the doctrine of equitable restitution.

If a minor obtains property by falsely representing his age, he may be forced to return the property or goods obtained as long as they are traceable in his possession. This is referred to as the doctrine of equitable restitution. Under English law, a minor may be compelled to return goods or property as long as they are traceable and in his possession. Because money is often not traceable, a minor cannot be requested to restore it because it is extremely difficult to trace and recognize the exact notes/coins. But remember, if the amount is traceable and the minor has misrepresented his age, he may be asked by the Courts to restore the benefit received.

In this case, the defendant got a loan from the plaintiff by falsely asserting that he was of full age at the time of the contract. The minor spent all of the money and did not pay it back. The plaintiff sued him in order to recover money.

Because the money had been spent by the defendant, there was no way to track it down or restore it. Even if the Court demands repayment of any similar amount, it would result in enforcing a void contract, thus there lies no action either on torts or quasi-contractual claims. As a result, the defendant faces no legal action in this case.

Conclusion

A person can claim restitution as long as the key principles of the doctrine of restitution are met. Restitution entails restoring the benefit and reinstating the plaintiff to the same position that he held prior to the contract, as well as preventing the defendant from obtaining an unlawful gain. Thus, it ensures that one party does not get an unfair advantage over the other.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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