Doctrine of Unjust Enrichment and Governmental Contract

Submitted by
Khushi Agarwal

Batch 2019-2024

Division – E Prn- 19010223091

of Symbiosis Law School, NOIDA

Symbiosis International (Deemed University), PUNE

August, 2021

Under the guidance of

Ipsita Ray

Course in-charge
Doctrine of Unjust Enrichment and Governmental Contract

A valid contract is an agreement which is enforceable by law pertaining to certain

essentials element. But in Quasi contract if essential elements are not qualified still a
contract can come into force.

Quasi Contract is based on a principal of Unjust Enrichment, where one person cannot
avail benefit from the cost of another’s person’s loss. The word unjust itself is not in
accordance with the principles of justice and fairness. As the enrichment gained is unjust
in nature for example a student score first rank seeking to this student receives gift from
his parent, this is just. But if a person uses someone else property in order to seek
advantage is not just and the person needs to restitute the other. In a situation of
unjust enrichment, the reimbursement has to be done. There can be instances where
the person is benefited from another person and during that period of contract there
exist no liability to compensate, but thereafter morality place’s important role and due to
which the person is morally liable. In a landmark judgment of Indian Council for
Environment Legal Action v Union of India1. In this case the water was polluted by
the waste of hazardous chemical industries due to which people were deprived of clean
water. Thereby court held that in order to earn more profit it cannot do loss to another
person. In this case the principle of unjust enrichment had evolved and law cannot
permit anyone to be the benefactor.

In the context of scholar’s interpretation different scholars have different interpretation

in the light of Lord Mansfield the assumption was in aspect that the actions undertaken
where fictitious in nature, and the doctrine based upon the principal of ‘had and
received’ interpreted by a case law Moses v McFarlon2 where the defendant was
bounded by the principal of justice and equity and was obliged to refund the money.

The principle of unjust enrichment is specified in Indian Contract Act from section 68
to 72. In contract law, contract with a minor or with lunatic is termed as void ab intio
contract thereby any claim cannot be enforced, but in quasi contract the contract take
place, under section 68 where the claim or reimbursement can be done from the
incompetent person if item of necessity is supplied. Like for instance if a handicapped

1
1996 AIR 1446. 1996 SCC (3)212
2
(1760) 2 Burr 1005, 1012.
person is provided with the basic necessity for the means of survival the same can be
recovered from its estate. In a situation where payment is made by interested party that
party can claim for reimbursement this is stated in section 69, as for instance a person
undertook a property on lease and undergo a shoe business. The revenue incurred from
that business is the only source of income, but the owner of the factory is incompetent
to pay the taxes to the government levied on that property. Due to which the lease has
to suffer loss and to overcome that loss had to pay taxes on behalf of the government.
Following the principles of unjust enrichment, the owner cannot unjustly take the
advantage and has to reimburse the lease. In a famous case of Exall v Partridge3 the
goods were placed by plaintiff but were seized by landlord as the defendant had not paid
the arrears of rent. So thereby plaintiff cleared the due, on applying the doctrine of
unjust enrichment that the defendant cannot be benefitted. As law states that no person
can go rich at the cost of another’s person loss. So various remedies are been available
of them two are already mentioned, coming on the next remedy that is under section
70 which states that payment for non-gratuitous act where consideration is involved,
due to which payment for the same is expected, as the delivery of goods are
undertaken.

In a case of Kashi Nath Singh villagers were entitled to pay the amount for the purpose
of utilizing the water. Still there is a quasi- contractual situation under section 71
where the finder of the lost good is reimbursed by the actual owner, although there lays
no contract between the finder and the owner of the goods. For instance a person lost a
wallet and some another person finds it so the finder of the good spent some amount to
approach the owner, thereby the finder can claim that much amount as owner cannot be
unjustly take advantage. In a case of Newman v Bourne and Hollingsworth 4, the
customer left a broach in a shop which was when seen by the assistant of the
shopkeeper and was kept inside the drawer. The manager was held liable as there was
negligence in taking due care, was so liable. Also, when payment made under mistake or
coercion that amount deemed to be returned under section 72 of Indian Contract Act.
For instance, two of the people owed money jointly out of which one among them paid
the money to third party and by mistake the second joint owner also paid the money, so
thereby the third party is bound to repay the extra amount which was mistakenly paid.
3
(1799) 101 ER 1405.
4
(1919) 31TLR 209.
In a case of T.G.M Asadi v Coffee Board5 on purchase of coffee the firm made the
required payment of purchase and sales tax. Thereafter Coffee Board demanded further
payment on sales tax it was held that the payment made on further demand was due to
compulsion and threat to make the payment. So, the court held that board was bound to
return the amount.

In context of own opinion of understanding the principle of unjust enrichment and

governmental contract is based on a moral principle of person’s not taking undue
advantage of getting unjustly benefitted. In such circumstances law based on principles
of equity demands the enriched person to refund the money, as a legal maxim states
that no one grow rich at the cost of another person loss. The principle relates with
breach of contract as in such type of contract the action of defaulter party leads to unfair
practice and not adhering to the agreements made in contract. The basic element for the
test of unjust enrichment is to see whether there lays consideration in context of making
payment or in transferring of the property. Also, most importantly intention matter as to
see whether the claimant’s intent to carry the business was with mal motives or in good
faith. The problem is not with the person enrichment but with unjustly enrichment.
Through various case laws also we have seen that the court directs to compensate the
aggrieved party as no person can be unjustly be benefitted.

Unjust enrichment happens when contract made with mala fide intention for the purpose
of not fulfilling it, or if entered in good faith but later intention turns into unjust motives
of enrichment. The benefits which are unjust in nature can be in form of duress, due to
the fear of threat the transaction happens. Or by mistakenly where the claimant made
double payment. Or in a manner of undue influence where a fiduciary relationship exists
and advantage of claimant trust is been taken into consideration. Also, when there is a
failure of consideration the intention of good faith tends to disappear which unjustly
benefits the defendant. In all such cases there is an option of refund and money can be
reimbursed by personal or proprietary remedies. In accordance to my opinion personal
remedy is obtained in a fastest manner, as defendant is ordered to repay the undue
amount obtained also termed as restitution. Another remedy is proprietary, where loss
of damage not had been occurred at initial level but happen thereafter as defendant is

5
AIR 1969 Kant 230, AIR 1969 Mys 230.
not pertaining to the contracts. In this remedy the court can also pass order to
defendant for repayment when specific interest is not meant.

According to my opinion there lies distinction in terms of compensation and restitution

as both the words means to repay the claimant but actually differ in some sense as the
word compensation is used in cases where there is a breach of contract and aggrieved
party is bound to be compensated with no other element of unjust. Whereas in
restitution the aggrieved party is restored to its actual position, it can also by way of
returning the particular good to the owner. Compensation of a something is done as to
substitute a particular thing which can’t be restored so has to be compensated. The
word compensation is border than restitution since, they are used to express an
exchange of value which is given voluntarily. These principles of unjust enrichment help
the claimant to be in an actual position where the owner was but not to benefit in unjust
manner.