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Unjust Enrichment

Doctrine Of Unjust Enrichment under Contract Law

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Sections 68-72 of the Indian Contract Act, 1872 deals with certain relations resembling those created by contract. It incorporates those obligations which are known as “Quasi Contracts” under English Law. In layman language, quasi means “pseudo or artificial”. In various situations, a person is obliged to compensate another although there was no contract between the parties or there was no damage caused to the aggrieved party by the party bound to compensate. The basis of the obligation is that no one should have an unjust benefit. If ‘X’ gets an unjust benefit at the cost of ‘Y’ then, ‘X’ has an obligation to compensate ‘Y’ for the same. This concept can be understood with the following example.

  • ‘Z’ gave Rs. 200/- to ‘X’ & ‘Y’ as a loan. 
  • Later, ‘X’ alone paid the whole amount i.e. Rs. 200/- to ‘Z’. 
  • The subsequent day, ‘Y’ who was unaware of the fact that ‘X’ had returned the entire amount to ‘Z’, gave Rs. 200/- over again to ‘Z’. 
  • In this case, ‘Z’ is bound to repay the amount to ‘Y’ since the former has got an unjust benefit from the latter.

In the aforementioned example, it can be inferred that though there was no contract as such between ‘Y’ & ‘Z’ but, ‘Z’ was bound to pay the money back to ‘Y’, like it was a contractual obligation on ‘Z’. Such types of contracts are called quasi-contracts and if any party gains such benefit from the contract to which he was not even entitled then it is called an unjust benefit. Putting it all together brings up the Doctrine of unjust enrichment.

Essentials of Unjust Enrichment

In the case of Mahabir Kishore v. State of M.P.1, the Apex Court held that in an action for unjust enrichment, the following essentials have to be proved:

  1. The Defendant has been “enriched” by the receipt of a “benefit”.
  2. The enrichment is “at the expense of the Plaintiff”.
  3. The retention of the enrichment is “unjust”.

Important provisions under the Indian Contract Act, 1872

There are five different provisions with respect to quasi-contractual obligations and unjust enrichment under the Indian Contract Act, 1872 which are as follows:

Section 68 – Claim for necessities supplied to a person incompetent to contract.

Where one person supplies necessities suited to the condition in life of a person, who is incompetent to contract (for example, a minor or a lunatic), or to anyone whom such incompetent person is legally bound to support (for example, lunatic’s wife or children), then the person furnishing such supplies is entitled to reimbursement from the property of such incompetent person. The main reason behind introducing this provision that since a contract with a minor is void ab initio i.e. void from the very beginning, therefore, the person who provided him with certain necessities of life must be able to get the amount reimbursed which he spent on the incompetent person. A below-cited example would give clarity regarding the provision.

  • ‘A’ and ‘B’ were close friends. 
  • Due to an accident, ‘B’ became a lunatic.
  • ‘A’ being a friend of ‘B’ started taking care of the wife & child of ‘B’.
  • ‘A’ provided them with various necessities of life which were vital for their survival.
  • In this case, ‘A’ is entitled to be reimbursed from the property of ‘B’.

Section 69 – Reimbursement of money paid, due by another.

For the application of this section, the following essentials are to be there:

  1. The person is interested in the payment of money, and therefore, he pays it.
  2. Another person is bound by law to pay the same but fails to pay.

The person so making the payment is entitled to be reimbursed by the person who was bound to pay. The general purpose of the section is to afford a person who pays money in furtherance of some existing interest an indemnity in respect of the payment made against any other person who, rather than he, could have been made liable at law to make the payment.

Section 70 – Obligation of a person enjoying the benefit of a non-gratuitous act.

For the application of this section, the following conditions are to be satisfied:

  1. A person should lawfully do something for another person or should deliver something to him.
  2. The person making the payment or delivering the thing must not do so gratuitously, i.e. he should expect payment for the same.
  3. The other person should enjoy the benefit of this payment of the delivery of the thing.

When all of the above conditions are satisfied, the person receiving the benefit becomes bound to pay compensation to the person conferring the benefit. 

The applicability of this section can be perfectly demonstrated with the case of Indu Mehta v. the State of U.P.2. The facts of the case are as follows:

  • Miss Indu Mehta was a practicing advocate at the District Court in Kanpur.
  • Later, she was appointed as Asst. District Government Council and she started rendering her services as well to the government.
  • However, the appointment was found to be void under Section 24(2) of the Code of Criminal Procedure, 1973.
  • It was held that even though the said appointment was void but, the State had enjoyed the benefit of the services rendered by her and therefore, the government was not entitled to recover the fees or salary paid to her for her services.

In the aforementioned case all of the necessary conditions were satisfied, which were:

Firstly, Indu Mehta lawfully did something for the government.

Secondly, she was not rendering her services gratuitously.

Thirdly, the benefit of the services rendered by her was enjoyed by the government.

Section 71 – Responsibility of finder of goods.

A finder of goods is a person who finds goods belonging to another and takes the goods into his custody. Although as between the finder of the goods and the owner of the goods, there is no contract, yet some responsibilities have been fixed on the finder of the goods by Section 71 of the Indian Contract Act, 1872. The finder of the goods is bound to:

  1. Take as much care of the goods as a man of ordinary prudence would.
  2. Not mix the goods found by him with his own goods.
  3. Return the goods to the true owner, if he can, after a reasonable search is found.
  4. Compensate the owner of the goods if due to the finder’s default, the goods cannot be returned to the true owner or it gets destroyed or deteriorated.

However, the finder of the goods has a certain right of lien & compensation which are that:

  • Though the finder of the goods has no right to sue the owner for compensation for the trouble and expense voluntarily incurred by him to preserve the goods and find the owner but he may retain the gods against the owner until he receives such compensation.
  • Where the owner has offered a specific reward for the return of the goods lost, the finder may sue for such reward and may retain the goods until he receives it.
  • Even if no specific reward has been offered, but, if after the goods are found, the owner promises to pay something to the finder for his services, the finder can enforce this promise.

Section 72 – Liability of a person getting benefits under mistake or coercion.

The unjust benefit under a mistake.

Section 72 of the Indian Contract Act, 1872, covers a situation where money has been paid or anything delivered by one person to another either by mistake or under coercion. If any of the aforementioned happens then the person to whom the money has been paid or the good has been delivered must repay or compensate for the same.

Two vital points which must be noted with respect to this provision are as follows:

  1. Regarding unjust enrichment under a mistake, Section 72 does not apply only to a mistake of fact, it equally applies to a mistake of law as well. It can be best illustrated with the case of Sales Tax Officer Banaras v. Kanhaiya Lal3, the facts of which were:
  • Under the U.P. Sales Tax Act, the Respondent had paid sales tax on his forward transactions in silver bullion.
  • Eventually, the levy of sales tax on such transactions was held to be ultra vires (outside the power/ authority) by the High Court of Allahabad.
  • The Respondent then claimed the refund of the tax already paid.
  • Hon’ble Court held that Section 72 did not make any distinction between a mistake of fact & mistake of law. Therefore, the refund of payment made under a mistake of law, in this case, was allowed.
  1. Regarding unjust enrichment under coercion, Section 72 gives wider interpretation to the word ‘coercion’ as compared to Section 15 (where coercion is defined) under the Indian Contract Act, 1872. It includes every type of compulsion even if it does not measure up to coercion defined under Section 15. To illustrate the concept, the case of T.G.M. Asadi v. Coffee Board4 comes into the picture, the facts of which are as follows:
  • The Plaintiff firm purchased some coffee from the Coffee Board and made necessary payments of the price and sales tax.
  • Thereafter, the Coffee Board demanded further sales tax from the Plaintiff firm and informed them that if the said payment was not made, a deposit of the Plaintiff’s firm with the Coffee Board would be appropriated for that purpose.
  • The said demand for further sales tax could not be legally made under the Madras General Sales Tax Act.
  • The Plaintiff firm repudiated the demand but paid the amount to the Coffee Board under protest reserving the right to recover back the amount by filing a suit for the same.
  • It was held that the Plaintiff’s firm had paid the amount under compulsion and duress because there was a threat from the Defendant’s side. So the Defendant i.e. the Coffee Board was bound to return the payment.

Suppose in the case stated above, the demand for further sales tax was legally valid under the Madras General Sales Tax Act then, in that case, judgment would have been completely different because compulsion of law is not treated to be as coercion.

Conclusion

There are many situations in which law, as well as justice, require a certain person to conform to an obligation even when he has not violated any terms of the contract nor has he committed any tort. A liability of this kind is hard to define or classify. Partly, it resembles liability under the law of tort in as much as it arises independently of any contract. Partly it resembles a contract in as much as it is owed only to one party and not to persons generally. Thus, it can be accounted for either under an implied contract or under natural justice and equity for the prevention of unjust enrichment.

Endnotes

  1. A.I.R. 1990 S.C. 313, at 317.
  2. A.I.R. 1987 All. 309.
  3. A.I.R. 1959 S.C. 135.
  4. A.I.R. 1969 Mys. 230.
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Siddhant Srivastava

Student, ILS Law College, Pune

Siddhant is an aspiring lawyer who is pursuing his final year of 3 years LL.B from ILS Pune. He is a diligent & meticulous person who possesses experience in both Corporate & Litigation sector and wishes to aware the general public regarding some crucial aspects of law in as simple language as possible. Siddhant is always willing to groom himself and prove to be a valuable asset to any organization he becomes a part of.

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