Doctrine of Unjust Enrichment and Indian Contract Act

What is Doctrine of Unjust Enrichment?

When a person has been unfairly benefitted at the expense of the other person is called unjust enrichment. The doctrine of unjust enrichment was based on English Law. In the cases related to unjust enrichment, the court directs the unfairly benefitted person to give back all the benefits which he/she acquired unfairly or to give compensation. The defendant is obliged by natural justice and equity to pay back the money.

In Moses v. Mc Farlon[1], it was held that defendant is obliged by the principle of natural justice and equity to refund the money which he/she has unjustly gained. Further, the implied contract theory were taken in India in the 1860s in the case of Rambux Chittangeo v. Modhoosoodun Paul Chawdhry[2], it was held in this case with reference to Pothier and Austin jurisprudence that a claim for contribution from a co surety was not a contractual claim, that the use of the language of implied contracts was something forced on the common law by the purely fortuitous fact that the remedy was framed in the assupsit and the system like India was not dependent on the forms of action could profitably abandon all the talks of implied contracts.

Illustrations

“A” hires an interior designer, “B”, for decorating his/her house. “A” terminates the contract prematurely due to a breach and till that time only a few rooms were decorated. “A” refuses to pay “B” for the work which was already done by him. “A” was unjustly enriched .

Section 68 to 72 of Chapter V of The Indian Contracts Act, 1872 deals with five obligations which are known as “Quasi- Contracts” or “Constructive Contracts” under English Law. Under Indian Contracts Act, 1872 these obligations are described as “certain relations resembling those created by the contract. ” Quasi contract is a legal obligation which is imposed on one party by the another party which comes into play without any agreement between the party. It is not express or implied contract. For example, A visits B’s house and by mistake he left his phone in B’s house. A has duty towards B of returning his phone. Such obligations are called as quasi-contractual obligations. This obligation comes into play without any contract between the two individuals. The quasi-contractual obligations prevents unjust enrichment.

Essentials of Doctrine of Unjust Enrichment

1) The defendant has been enriched by the unjust benefit.

2) This enrichment has taken place at the expense of the plaintiff.

3) The enrichment which has been acquired is unjust or unfair.

Remedies of Doctrine of Unjust Enrichment

I. Section 68 of the Indian Contact Act, 1872

Supply for necessaries: – If a person supplies necessaries to a minor or a lunatic person who is incapable of entering into a contract, then reimbursement is allowed from the property or estate of such incapable person but not from any personal action.

According to Section 68, reimbursement can be possible only if the following conditions are satisfied:

1. Necessaries are supplied,

2. to a person who is incapable of entering into a contract

3. to a person who is dependent upon the person who is incapable of entering into a contract

4. appropriate for the conditions of a person.

Necessaries does not mean mere necessities of life like food, shelter, cloth but it includes necessary things which are required to maintain a person i.e. his status and requirements. Necessaries may differ from person to person. Mere luxurious items cannot be considered necessaries.

Eg: Funeral expenses of the husband by the infant widow is considered as necessary for her .

Illustrations

· A is 11 year old boy and his parents died in a car accident and B is legal guardian of A who provides him with necessaries suited to his conditions in life. B can reimburse from A’s property.

Judicial Pronouncement

In the case of Jai Indra Bahadur Singh v. Dilraj Kaur[3], a minor being bound to support his sister, money advanced to a minor for marriage of his sister has been considered as necessaries under this section and also recoverable from the property.

II. Section 69 of the Indian Contract Act, 1872

Payment by an interested person :- A person who is interested in paying the money which another person is bound to pay that money by law then the person who has paid the money is entitled to get the money back from that person.

Liability arises only if:

1. The plaintiff is interested in paying the money.

2. It is not necessary that the plaintiff should have any legal obligation of paying the money.

3. Defendant should be bound by the law to pay.

4. Payment should be by one person to another person.

Illustration

When company X agreed to buy certain mills from Y, he was allowed to recover the amount from Y which he paid as municipal taxes in order to the property from being sold in execution. X was interested in paying the money in order to safeguard his property and he was not legally obliged to pay the amount. Y was under legal obligation to pay the money back to X as he paid the tax on behalf of Y.

Judicial Pronouncement

In the case of Dakshina Mohun Roy v Saroda Mohun Roy Chowdhry[4], it was held that money paid by a person while in possession of an estate under the decree of the court for preventing the sale of the estate for covering the arrears of government revenue may be recovered by him under this section because Daksina Mohun Roy paid on behalp of Saroda Mohun Roy Chowdhry.

III. Section 70 of the Indian Contract Act, 1872

Liability to pay for non-gratuitous act- Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.

Illustration

A leaves his goods by mistake in B’s house . B treats the goods as his own. He is bound to pay A for them. B is unjustly enriched at A’s expenses.

Judicial Pronouncements

In the case of Modi Sugar Mills Limited v Union of India[5], X had a contract with Union of India for the manufacture of biscuits for the Union, and component material was to be supplied by the union which it did in containers. Later, X failed to return the containers, despite demand from the union. The union deducted the amount of value of containers from the security deposit and other sums due to X. X bought a suit for the recovery of amounts deducted. It was held that the material and containers were always the property of union and it never passed to X. The union did not intend to pass the containers gratuitously and respondent had received benefit, in that it did not have to supply in its own containers. Section 70 was applied in this case and X was liable to pay compensation.

IV. Section 71 of the Indian Contract Act, 1872

Responsibility of finder of goods: A person who finds goods belonging to someone else and takes them into his custody has to take the same responsibility as a bailee. He has to take care of goods as a prudent man would have taken care of it. He must try to find out the actual owner of the goods and should not use the property.

Illustration

X went to a party and found a diamond ring lying on the floor. He picks it up and it comes into his custody. He is bound to take care of it as a prudent man. He is supposed to find its actual owner and he cannot consider it as his own.

Judicial Pronouncement

In the case of Newman v. Bourne and Hollingsworth[6], X, a customer, has left a brooch with her coat in Y’s shop. Y’s assistant put the brooch in a drawer in the shop. But later it was found missing, Y was liable to X as he was unable to take care of the brooch as a prudent man would have taken care of.

V. Section 72 of the Indian Contract Act, 1872

Liability of person to whom money is paid, or thing delivered, by mistake or under coercion- A person to whom money has been paid or anything delivered, by mistake or under coercion, must repay or return it.

Illustration

X and Y combinedly purchased goods from shop Z. They owe Rs 2000/- to Z. X paid money to Z but Y is not aware of it and he even paid money to Z. Z is bound to return Rs 2000/- which is paid by Y.

Judicial Pronouncement

In the case of Associated Cement Company limited v. Union of India[7], the railway authorities by mistake considered that the goods will be carried by longer route so they charged extra money. They were instructed to return the extra money which was charged.

Quantum Meruit vs Unjust Enrichment

When a party has entered into a contract, he has done some work and the performance of the remaining work has been made useless by the another party, he can recover compensation on the basis of the quantity of work done under the contract. There is no written contract specifying an amount for the services provided. For example, if A agrees to sing in B’s restaurant for one month and when A has already sung for 10 days, B refuses A to give any further performance. A can recover money of his performance of 10 days. In order to avail remedy in quantum meruit, the original order must have been discharged by the defendant to entitle the plaintiff to regard himself as discharged from any further performance.

Unjust enrichment is failure to pay for the services rendered and quantum meruit is the fair paid that should be given on the basis of the quantity of work. The amount awarded in a quantum meruit case is generally based on the fair market value for the services rendered because there is no written agreement specifying the amount which has to be paid for the services. The amount to which a plaintiff is entitled on the basis of unjust enrichment is the value of the benefit obtained by the defendant, and not the loss to the plaintiff assessed as if the contract were fulfilled.

In Indian Contract Act, the doctrine of quantum meruit is implied in section 70 of the act which provides for compensation in cases where a person does something lawfully for the benefit of some other person without any intention to do such act gratuitously.

Conclusion

The theory of unjust enrichment means that when a person is benefitted at the expense of another person, it causes loss to one party and unjust gain to another party. This theory came from English Law. The concept of quasi contract is based on the doctrines of unjust enrichment and quantum meruit. In India, its remedies are mentioned in Section 68 to 72 of Indian Contract Act, 1872. The court directs the unfairly benefitted person to give back all the benefits which he/she acquired unfairly or to give compensation.

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References

[1] (1760) 2 Burr 1005, 1012.

[2] (1867) 7 W.R. 377, F.B.

[3] AIR 1921 Oudh 14.

[4] (1893) 21 Cal 142.

[5] AIR 1984 SC 1248.

[6] (1915) 31 TLR 209.

[7] AIR 1987 Kant 236.

Author Details: Afshan Ahmad (Dharmashastra National Law University, Jabalpur)

The views of the author are personal only. (if any)