Doctrine of Restitution: Meaning, Exceptions and FAQs

What is a Contract?

Indian Contract Act, 1872 frames the contracts or agreements between different parties. An agreement involving legal enforceability is said to be a contract. It specifies the responsibilities of the parties concerned. In every contract, the offeror makes an offer to enter into a contract with the offeree. The offeror agrees to do something in particular, and if the offeror accepts the offer, a contract is made. The contract itself must prove to have certain elements.

Meaning of ‘Contract’ as per the Indian Contract Act, 1872

The Indian Contract Act, 1872 defines the term “Contract” under its Section 2(h) as “An agreement enforceable by law”. In other words, we can say that a contract is anything that is an agreement and enforceable by the law of the land.

Geeky Takeaways:

• A contract is the heart of most professional relationships.
• A contract is legally enforceable which ensures that if one party fails to do what he or she has agreed to do, the other party can then proceed to the court as a result of violation of the terms of the contract.
• A contract can be considered valid only if it satisfies the essential elements of a valid contract.
• Thus, most importantly, a valid offer and a valid acceptance must be present in a contract to be legally enforceable.

What is Restitution?

Restitution means “to rebuild” or “to restore”. Restitution when discussed in respect of law is the restoration of the benefit. Putting the plaintiff in the original position as he would have been before the contract, and restraining the defendant from making any wrongful gains is known as Restitution. Under Restitution, the party who has taken unfair and unjust advantage is ordered to return money or the property to which he is not entitled to hold and he has obtained it through any improper means.

For example, Ross entered into a contract with Chandler to purchase his car worth ₹5 lakhs. Ross paid advance money of ₹50,000 to Chandler, and Chandler agreed to make the delivery of the car after a month. However, due to unavoidable circumstances on Chandler’s side, he was unable to deliver the car to Ross. Under such circumstances, Chandler is obligated by the law to return the advance amount to Ross, as he was not able to deliver the car, and keeping the advance money with himself would amount to a loss towards Ross. The reason for Ross getting his advance back and the process of Chandler giving back the money is known as the Doctrine of Restitution.

Doctrine of Restitution in the Indian Contract Act

According to Section 65 of the Indian Contract Act 1872, the Doctrine of Restitution deals with the obligation of a person who has received an unfair advantage under a void agreement or contract that becomes void.

Section 65 of the Indian Contract Act 1872 states that “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.”  This section states that there must be an existence of an agreement or a contract. If there was no agreement or contract, then the Doctrine of Restitution cannot be applied. The Doctrine of Restitution is based on a rule of consideration, which says that a person will pay consideration only when he gets something in return. Provisions of Section 65 can only be applied when an agreement becomes void at a subsequent stage, or due to default of one party after contracting the contracts becomes void. But, it is worth noting that Section 65 will never be applied in a case where the contract was void ab initio; i.e., void from the very beginning.

The Doctrine of Restitution has the following elements:

• Parties to the contract must have entered the contract with others for consideration.
• Both the parties to the contract are competent to enter the contract.
• The contract must not have been void ab initio; i.e., a contract should not have a character to be void from the beginning.
• During the contract, one party failed to perform his part of the obligation as per contract or the contract became void due to any unforeseen condition.
• The party that has paid any consideration as the advance token will be entitled to recover the same from the other party and the other party shall be restrained from receiving any unfair advantage over it.

As in the case of Kujiu Collieries Limited v/s Jharkhand Mines Ltd, it was held by the supreme court that an agreement that was discovered to be void at a later stage will invite the application of Section 65 and in such a case an advantageous person is bound to restore the benefits to the disadvantaged party.

Furthermore, if in an agreement between a major person being the plaintiff and the minor being a defendant, the Doctrine of Restitution will not be applied, as held in the case of Mohiri Bibi v/s Dharmodass Ghosh. However, the consideration of the case will be different if in a case the minor has misrepresented his age and then he can be forced by the court to return the benefit.

Exceptions to the Doctrine of Restitution

1. Where an Agreement is known to be Void: The Doctrine of Restitution will not be applied to an agreement that was already known to be void or it was void ab initio. Where an agreement is constituted to commit an illegal act or for an impossible act, the agreement shall be void.

For example, A contracts with B that A will pay B ₹10,000 if B murders C. A pays ₹500 as security to B, now being an illegal act to perform, A cannot recover even his ₹500 which was paid as advance money.

2. Agreement entered between Incompetent Persons: In a contract, it is important to understand the capacity of the parties to the contract to make sure that the contract is valid. A contract can be entered between incompetent persons like a person suffering from insanity, a drunkard, or a minor. In case a contract is made with the person who is incapacitated to contract, the Doctrine of Restitution will not be invoked.

For example, A contracts with B, a minor to purchase his phone for ₹10,000 and pays ₹500 as advance. But B didn’t transfer the phone to A. Here the contract was void ab into, and A can’t recover his money by revoking the doctrine of restitution.

3. Where the Party is required to give some Earnest Money as Security and Later on Defaults: This provision is created to deal with the situation of paying application money for any residential scheme. In this case, if a person fails to deposit future allotment money then his application money will be forfeited and he cannot claim his advance money by revoking the Doctrine of Restitution.

For example, A showed interest in purchasing a plot advertised by B. As per the conditions, A had to pay ₹50,000 as advance to book the plot and the remaining amount after one month to complete the purchase. A failed to pay the remaining amount. On such a failure, A will lose his advance deposit as well, as he didn’t pay the allotment money. A will fail to revoke the Doctrine of Restitution.

Conclusion

Section 65 of the Indian Contract Act establishes that restitution involves restoring the position of the plaintiff to his original position before he entered the contract. Restitution makes sure that one party cannot have an unfair advantage over the property of any other to which he does not hold any legal right. Any plaintiff by enforcing the provisions of Section 65 can claim compensation or restitution. To revoke the Doctrine of Restitution, the contract should have all the essential elements of a valid contract and it must not be void ab initio. The Doctrine of Restitution will not apply if the contract is already known to be void.

Frequently Asked Questions (FAQs)

1. What is a Contract?

Answer:

The Indian Contract Act, 1872 defines the term “Contract” under its Section 2(h) as “An agreement enforceable by law”. Hence, a Contract is anything that is an agreement and enforceable by the law of the land subject to the presence of all the essential elements to form a valid contract.

2. What do you mean by Restitution?

Answer:

Restitution means “to rebuild” or “to restore” as things were earlier.

3. What is the Doctrine of Restitution?

Answer:

The Doctrine of Restitution deals with the obligation of a person who has received an unfair advantage under a void agreement or contract that becomes void. Section 65 of the Indian Contract Act of 1872 states that “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.”

4. What are the exceptions to the Doctrine of Restitution?

Answer:

The exceptions to the Doctrine of Restitution are as follows:

• When an agreement is void ab initio.
• Agreement entered between incompetent persons.
• Where the party is required to give some earnest money as security and later on defaults.

5. What are the provisions of the Doctrine of Restitution concerning contracts with minors?

Answer:

If in an agreement between a major person being the plaintiff and the minor being a defendant, the Doctrine of Restitution will not be applied, as held in the case of Mohiri Bibi v/s Dharmodass Ghosh. However, the consideration of the case will be different if in a case the minor has misrepresented his age and then he can be forced by the court to return the benefit.