Doctrine of Unjust Enrichment in Contracts

2.1 Law of Contract-I

Submitted by

Ishan Kumar Jha

UID: UG2020-11

Academic Year (2020-21)

First Year, Semester II

Submitted to

Ms. Devyani Sharma

(Assistant Professor of Law)

FEBRUARY 2021

Maharashtra National Law University, Nagpur

INTRODUCTION

Where an individual misuses the property of another at the detriment of others, it is called
"unjust enrichment". According to Black’s Law Dictionary Unjust Enrichment is “A benefit
obtained from another, not intended as a gift and not legally justifiable for which the beneficiary
must make restitution or recompense”. The paper focuses on understanding this concept through
historical verdicts and famous sayings on this concept historically. The House of Lords in
“Lipkin Gorman v. Karpnale Ltd”1 specifically agrees that the notion of unjust enrichment is at
the core and is at the root of the principle instances in which the right of recovery of restitution is
given under the statute. The idea that no one at the detriment of others should be rewarded is old.
It was enunciated by the Romans, but the situations in which Roman law specifically provided
relief were much too common to clarify. It was imported into English law, as we can see, and
used to justify solutions that originally rested on a somewhat different basis. The theory of
unequal enrichment was originally based on the principle of presumption or 'had and received in
English law, and was mentioned by Lord Mansfield in a popular case, that the purpose of this
form of action is that the claimant is bound, under the conditions of the case, by the relations of
natural justice and equity to repay the money. The doctrine of unjust enrichment asserts that, to
the degree of the enrichment, an individual who has been unjustly enriched at the cost of the
other is expected to repay the other party.2

The principle of unjust enrichment, or as Prof. Winfield would like to call it, "unjust benefit,"
was considered by the 13th Report of the Law Commission of India as the best theoretical basis
for such kinds of relations that can be called quasi-contracts. This is taken from the old Roman
law principle: "Nemo debet locupletari ex aliena jactura," meaning that no man should become
rich from the suffering of another human. Another exponent of the theory was Denning LJ, as he
then was. In “Brewer Street Investments Ltd. v. Woollen Co. of Barclays.Ltd.” 3, he said: "On a
proposal implied in statute or, as I would like to put it, on a restitution claim, the best way to
articulate the claim is”. Unjust profit in the general field of contracts is usually the gain of one
party and, for a cause, might be considered another, which may be the object of the redress of

1
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. (United Kingdom)
2
H. C. Gutteridge and R. J. A. David, “The Doctrine of Unjustified Enrichment”, THE CAMBRIDGE LAW
JOURNAL, Vol. 5 No. 2 1934, pp. 204-229.
3
Brewer Street Investments Ltd v Barclays Woollen Company Ltd [1953] EWCA Civ J1019-6, [1953] EWCA Civ
J1019-3 (United Kingdom)
restitution either on the grounds that the legitimate owner was not completely considered or on
the basis of a relative merits award for a fair value. Such cases are sometimes referred to by
subtraction from the complainant as instances of enrichment. In this case, reimbursement
solutions do not respond to the inability of one party to fulfil the requirements of another party
under the contract. They are instead seeking to restore the money that they have paid or the
worth of a reward in situations where no deal has been concluded or where the duty to perform in
compliance with the admitted contract is no longer met. The focus of the paper is to relate those
historical concepts to the Indian laws and how they were eventually adapted and are part of the
Indian Contract Act, 1872. Under Indian law, rules for unfair enrichment under section 68-72 are
laid down with five fundamental concepts, under which the plaintiff may pursue the advantage of
the defendant's property or any advantage owing by the defendant. In India, section 69 and
section 70 of the theory have been established Indian contract law, 1872. Within a decade of the
passage of the act, it was held that the co-survey claims for contribution were, in fact, a
contractual concept, after all, and the earlier cases which addressed its contractual existence
were, it was argued, delivered before the act came into force, when legislation had not interfered
in plain language in order to give different intensity and effect to those relations between the
parties outside the framework of the act. they can be read with interest and advantage for
practical purposes to the point under consideration they are absolute and irrelevant. The rule
established thereby by the judiciary tends to find duties to derail the unjust enrichment or
unplanned recovery. 4The natural instinct of courts is to order restitution whenever and wherever
they are unjustly rewarded. These clauses, while not expressly referred to as undue enrichment as
in the American Restatement or as in the English Restitution Act, hold the same spirit. on
occasion, unjust enrichment claims go to court. These cases typically involve disputed contracts
due to a long-standing legal principle. This principle states that a party cannot obtain restitution
for unjust enrichment unless they cannot enforce the contract. In cases that involve rescinding a
written contract or allegation of fraud, unjust enrichment might be the only way for one party to
recover the goods or funds.

Essentials of a claim of Unjust Enrichment:

• The defendant was enriched at the claimant’s expense

4
Ruchir Rai, THE PRINCIPLE OF UNJUST ENRICHMENT, https://ssrn.com/abstract=2353502, (Visited on
February 24, 2021).
• There was no legal valid basis for the defendant’s receipt of the benefit as the same was not a
gift

• There exists no defence to the claim

• There must be some form of payment or transfer of property between the defendant and claim
that is some consideration must be there.

Aim

The aim of the researcher is to understand the theory of unjust Enrichment thoroughly with the
help of historical backgrounds and case laws to help understand the concept elaborately.

Objectives

 To understand its historical background.

 To analyze comprehensibly the theory of unjust enrichment.

 To discuss the theory and its essentials through Indian laws.

 To observe some of the relevent case laws on the topic to understand it profoundly.

Research Methodology

The research method so used to write this research paper is doctrinal. It is doctrinal in the sense
that it comes from the credible sources herein, books, articles published in renowned and
justified web pages and journals. The project also uses deductive reasoning for research. The
source of information also consists of theoretical knowledge the researcher possesses as a law
student. The data is excerpted from Journals, Articles, and e-law websites. The whole research
paper is done in an organized way. Firstly, the necessary chapters have been selected then only
possible efforts have been made to collect information required for each chapter.

Research Questions

1) How did the theory develop?

2) How can the theory be analyzed and relate to the current laws?
3) How the theory has developed in Indian Laws?
4) Which are the cases that help to understand the topic profoundly?
1) The theory of Unjust Enrichment

1.1) The Historical background

There are three phases to the history of the development of the theory of unjust enrichment.
Phase one lasted until the second half of the 18th century. Although in situations which would
later coalesce as unfair enrichment, there is clear trace of remedies provided, there was no
awareness of any feature linking them. Although mediaeval English lawyers were unaware of the
general rules of unfair enrichment, they gave reparations that would subsequently be categorised
in this way in many situations. Besides this, a number of legal acts dealing with those specific
cases have also been published and most of these claims have been taken into account in
common debt and accounts. The parties have legal capacity, which is a basic concept of
contractual liability. In the 15th century it was laid down that a child would have to pay for
necessary products such as food, clothing or educational purposes, although he is not normally
liable on contract. Sophisticated assessment would like to distinguish between liability of price
and liability for price of goods, but there was no hint of this before the end of sixteenth century.

1.2) Definitions and conceptual understanding

According to the Encyclopedic Rule5 Unjust enrichment happens when a person unjustly gains a
profit at the expense of another. In certain situations where money is received by errors,
deception or an account that has entirely collapsed, the statute requires an obligation to refund it.
In Section 70 of Indian Contract Act 1872, the provision against unjust enrichment is centered,
not on any contract or wrongdoing but on a third form of law: a quasi-contract or restitution.

According to Black Law Dictionary6 unjust enrichment is the

• The retention of a benefit conferred by another, without offering compensation, in

circumstances where compensation is reasonably expected.

• A benefit obtained from another, not intended as a gift and not legally justifiable for which
the beneficiary must make restitution or recompense.

5
Anil Ranjan Biswas, DR. AR BISWAS ENCYCLOPAEDIC LAW DICTIONARY, 3rd ed. 2008, p. 1486.
6
Bryan A. Garner, BLACK LAW DICTIONARY, 8th ed. 2002, p. 1573.
 • The area of law dealing with unjustifiable benefits of this kind.

According to Merriam Webster's Dictionary of Law7, unjust enrichment is the retention of a

gain (as money) given by another party where the rules of fairness and justice allow for
restitution to the other party; even the retention of property gained, in fact by deceit, by another
party in situations involving the judicial imposition of constructive trust on behalf of those who
are entitled to do so in equity. This theory requires a just redress for those who were harmed by
another's wrongful enrichment.

2) Unjust Enrichment and The Indian Contract Act, 1872

2.1) Section 70 of the Indian Contract Act 18728

obligation of person enjoying benefit of non-gratuitous act – where a person lawfully does
anything for another person or delivers anything to him, not intending to do so gratuitously and
thus another 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 and delivered. However there are certain
conditions for applying section 70 of this act. These conditions are:

 The goods are to be delivered lawfully or something has to be done for another person
lawfully

 The thing done or the goods delivered must be done or delivered without intention to do
so gratuitously.

 The person to whom the goods are delivered enjoys the benefit thereof.

There are certain agreements in the section with respect to incompetent persons where the act
would not apply. Section 70 of The Indian Contract Act does not apply to persons who are not
competent to contract. A minor is not liable for a suit under section 70.

The concept can also be understanded when there is a contract with corporations and in what
cases the Indian Contract Act, 1872 would be applicable. When a company has never been
entitled to commence businessmen's expenses incurred during its pre-and post-incorporation
period, it cannot be claimed for its benefit. Where a company collects money or property under
7
MERRIAM WEBSTER’S DICTIONARY OF LAW, 1st ed. 2005, p. 515.
8
Frederick Pollock and Dinshaw Fardunji Mulla ,INDIAN CONTRACT AND SPECIFIC RELIEF ACT, 14 th ed.
2013, p. 1070.
an arrangement that turns out to be ultra vires or unconstitutional, it is not allowed to keep the
money and repayment or reimbursement can be ordered regardless of an express contract.9

2.2) Restitution or Compensation in Unjust Enrichment10

Where a method of payment has helped the unjustly rewarded party, the party must pay it back to
the other. This is referred to as restitution. Restitution can also involve a provision for an
enriched group to return a particular object falsely removed.

For example, if an unjustly enriched party already has a car in order for maintenance, the party
might have to pay back for services not rendered other than the return of the vehicle.

other examples of unjust enrichment cases involving restitution include:

 one party gives money to the other on accident.

 Both parties agree to end a contract, but the other party remains in possession of money
or assets.

 one party provides goods or services to the other even though the two parties never
entered into a contract.

 one party settles a debt at the other party's request.

 Compensation involves an amount based upon how much the claimant lost, not on how
much the enriched party gained. The enriched party might pay the other for the property's
value when it came into ownership.

Imagine, for example, that both parents worked full-time and agreed that their teenage child was
responsible for much of the housework. That included chores, cooking meals, and taking care of
younger siblings. For some years, this arrangement was in place under the expectation that the
parents would leave the teenager their whole estate. The parents and the son had a falling out
several decades apart. Because of their frustration, the parents moved their properties to the trust,
leaving the oldest child out of the entire estate. The oldest child sued the parents and alleged

9
Gitanjali Kapur,EXPLORING THE LAW OF UNJUST ENRICHMENT IN INDIA,
https://www.livelaw.in/exploring-the-law-of-unjust-enrichment-in-india/. (Visited on February 24 th, 2021)
10
Madhu Sweta, UNJUST ENRICHMENT IN INDIA- AN INTROSPECTION,
https://www.mondaq.com/india/contracts-and-commercial-law/725214/unjust-enrichment-in-india-an-introspection
(Visited on February 24, 2021).
unjust enrichment because they had forced her to do the job with a guarantee to have the estate in
exchange. The court found that the parents had earned an unequal enrichment and that the eldest
child had been given a share of the assets.

3) Indian Judiciary and Unjust Enrichment

State of West Bengal v. M/S. B. K. Mondal and Sons 11 is the case where certain facts regarding
this theory was discussed and some elaboration had been done on how and when section 70
could be invoked. Three requirements must be met before section 70 can be invoked: first, a
person must legitimately do something for another person or offer something to him; secondly,
he must not wish to do it without charge; thirdly, another person for whom something is done or
to whom something is offered must 'voluntarily' enjoy the benefit of it. The other party must
have the choice not to embrace the item and return it. It is only when the individual knowingly
agrees the thing or likes the job done that the responsibility alluded to in section 70 occurs. The
person must not be incompetent to exercise his will in accordance with Section 11

Section 70 is not about contractual rights and privileges, but about ties that imitate contractual
partnerships. Thus the person giving profit to another person does not force or ask for any
damages because the contract between the individuals never existed. However, if the other party
receives the gain from it willingly, the other person can either seek compensation or
restoration in compliance with Section 70.

In addition, in compliance with Section 23 of the Indian Contract Act, "lawfully" under Section
70 must be recognised. Alternatively, after something is done or given to another person by
whom the profit is made, it implies a licenced relationship which leads to a demand for
compensation in compliance with section 70.

A minor is exempted from Section 70 because the situation is explicitly discussed in the same
chapter in section 68; and second, willingly allowing a job performed or something delivered
which constitutes the basis for any argument in section 70, because it has no power to exercise
his/her volition may not be sued in compliance with Section 70 of the Indian Contract Law

11
State of West Bengal v. M/S. B. K. Mondal and Sons AIR 779, 1962 SCR Supl. (1) 876 (India).
After the plaintiff had built the warehouse, it was open to the State of West Bengal to benefit or
demolish it and to instruct the plaintiff to take the goods used therein. In compliance with
Section 70 the government willingly benefited from the established warehouses. However, the
claimant is encouraged to execute the contract in breach of Article 299 of the Constitution in
allowing this cause of action to make it void. However, the case is not well known for the
appellant who did not demand a contract under section 70. The cause of the action referred to in
section 70 shall be irrespective of every contract; the cause of the action shall not be based on the
supply of the item or the results of the work as such, but on the reception and enjoyment of the
said goods or work. Article 299 may bar a government from taking up work under a contract that
has been made unlawful on the grounds that it does not agree with its terms, but does not make it
illegal for the government to take advantage of the work that it has done under no contract at all.
The request submitted by non-authorized officials on behalf of the Government was not at all a
request and did not amount to nothing.

In the case of “Govindram Gordhandas Seksaria v. Gondal State”12, the party had decided to
buy those mills and was permitted to recover from the seller the amount of municipal taxes
already owed from the seller in order to save the land from being sold at auction

In the case of "Dakshina Mohun Roy v. Saroda Mohun Roy Chowdhry," 13 it was held that, under
this clause, money paid by an individual while in possession of a property under the decree of the
court to prevent the selling of the property for the recovery of government revenue arrears could
be recovered by him.

According to Section 70, where a person legally does or provides things to another person, does
not wish to do so free of charge, and retains the profit of the other person, that person is obliged
to pay the former in respect of, or repair, the item that has been done or delivered. For instance,
if A, a businessman, mistakenly leaves products at B's home. B handles the items as though they
were his own and uses the merchandise. B is then expected or bound to pay the price for the
products to A.

12
Govindram Gordhandas Seksaria v. State of Gondal (1950) 52 BOMLR 450 (India)
13
Dakshina Mohun Roy v. Saroda Mohun Roy Chowdhry (1896) ILR 23 Cal 357 (India).
In the case of "Great Eastern Shipping Company Limited v. Union of India," 14 the appellant
legitimately brought the coal cargo and handed it to the Union of Defendants. The
correspondence revealed that the plaintiff did not wish to do so free of charge and that the
defendant acknowledged the freight and thereby became obligated to pay costs to the plaintiff
according to section 70.

In the case of “State of Rajasthan v. Raghunath Singh” 15, the grantee is entitled, in the event of
cancellation of the contract, to recover, by means of reimbursement, the different sums deposited
by him pursuant to the grant of the lease.

In the case of “Bhagavadas Krishnadas v. P.S. Soma Iyer”16, The purchaser of the property
allowed the defendants to live in the house until they sought another occupation, and there was
no proof of the evidence that the plaintiff had done so gratuitously, that the plaintiff was entitled
to remuneration for use and occupation.

In the case of “Bhicoobai v. Hariba Raghuji”17, The property belonging to a caste shall be
attached at the time of execution of the decree, and the member of the caste shall pay to the
holder of the decree the amount due to him under the decree to save the property from sale at the
time of execution of the decree, after which it was held that he was entitled to be paid out of the
caste property.

In the case of “Kashi Nath Singh v. Nawab Alam Ara”18 The villagers used water from the pine
tree for the construction of the bundle, and the donation to the construction of the bundle was
payable on behalf of the villages under section 70.

In the case of “Modi Sugar Mills Limited v. Union of India” 19, X had a contract with the Union
of India for the manufacture of biscuits for the Union, and parts were to be supplied in containers
by the Union. Later, amid the union's demand, X refused to return the containers. The union
14
Great Eastern Shipping Company Limited v. Union of India AIR 1971 Cal 150(India).
15
State of Rajasthan v. Raghunath Singh AIR 1974 Raj 4, 1973 WLN 424 (India).
16
Bhagavadas Krishnadas v. P.S. Soma Iyer AIR 1969 Ker 263 (India).
17
Bhicoobai v. Hariba Raghuji (1917) 19 BOMLR 650, 42 Ind Cas 9 (India).
18
Kashi Nath Singh v. Nawab Alam Ara AIR 1992 MP 244 (India).
19
Modi Sugar Mills Limited v. Union of India 1983 144 ITR 29 All (India).
removed the value of the containers from the security deposit and other figures due to X. X
bought a suit to reclaim the sums deducted. It was held that the materials and containers were
still the property of the union and never moved on to X. The Union did not wish to pass the
containers free of charge and the respondent had earned the advantage of not having to supply
them with its own containers. In this case, Section 70 was applied and the respondent was
entitled to pay costs.

In the case of “Noor Mohommad v. Mohammad Jiajddin”20, after the marriage ceremony, a
Muslim groom declined to take his wife because of her father's reluctance to pay for the nautch
girl who had been taken to the marriage party, and the payment of the girl's father for the
wedding party and for the band and the lights charged to the groom's father was not gratuitous
but for consideration of marriage, and could be returned to the bride's father.

In the case of “S. Ketrabarsappa v. Indian Bank”21, the bank falsely credits the customer's
account and the customer withdraws the number. He'd be bound to pay the money back along
with the interest.

CONCLUSION

The theory of unjust enrichment means that no one should be unjustly enriched at the expense of
another. It also means that no person should take advantage of position of another person which

20
Noor Mohommad v. Mohammad Jiajddin 1991 (0) MPLJ 503 (India).
21
S. Ketrabarsappa v. Indian Bank 1990 69 CompCas 683 Kar (India).
causes some loss to one party and gain to another party. The theory of unjust enrichment came
through English law.

The main objective of conducting the project was to understand the concept that has developed
from English law to this day and then study the decision of courts in Indian Scenario on the topic
of unjust enrichment. Various remedies are available for unjust enrichment in Indian Contract
Act, 1872. Section 68-72 deals with remedies available in the case of unjust enrichment in
various cases like when necessary goods are provided to one person, obligation of a person
enjoying benefit of a non gratuitous act, responsibility of the finder of goods, thing delivered to
another person by mistake or coercion. The courts also in most of the cases have always tried to
give decision in favour of plaintiff in the case of unjust enrichment. Whenever the court feels
that the defendant has taken benefit from the plaintiff and has not compensated him, then court
directs the defendants to either compensate the benefit received by the defendant.

BIBLIGORAPHY
Books
 Anil Ranjan Biswas, Dr. AR Biswas Enyclopediac Law Dictionary, 3rd ed, 2008
 Bryan A. Garner, Black Law Dictionary, 8th ed, 2002.
 MERRIAM WEBSTER’S DICTIoNARY oF LAW 1st ed, 2005.
 Frederick Pollock And Dinshaw Fardunji Mulla ,Indian Contract And Specific Relief
Act, 14th ed, 2013.
Journals
 H. C. Gutteridge and R. J. A. David, “The Doctrine of Unjustified Enrichment”, THE
CAMBRIDGE LAW JoURNAL, Vol. 5 No. 2 1934.
Websites
 https://ssrn.com/abstract=2353502
 https://www.mondaq.com/india/contracts-and-commercial-law/725214/unjust-
enrichment-in-india-an-introspection (visited on February 24, 2021).
 https://www.livelaw.in/exploring-the-law-of-unjust-enrichment-in-india/.
 https://www.upcounsel.com/unjust-enrichment-cases.