Contract Meaning and Scope

According to Section 2(h) of the Indian Contract Act 1872, a contract is an agreement enforceable by law
which is backed by some consideration which may be in cash or in kind. The main purpose of entering
into a contract is to legally bind the parties for their performance of the contract.

Introduction

Contract Meaning and Scope

According to Section 2(h) of the Indian Contract Act 1872, a contract is an agreement enforceable by law
which is backed by some consideration which may be in cash or in kind. The main purpose of entering
into a contract is to legally bind the parties for their performance of the contract.

Meaning of Restitution

Restitution in normal sense means to restore the benefit which a person has obtained and its main
purpose is First to restore the position of victim .i.e ‘ Plaintiff ‘ in case of a contract to the original
position which he enjoyed before entering into contract and secondly to prevent the unjust enrichment
of the defendant i.e. to stop him from making wrongful gains which he is not entitled as per law to
make.

Illustration

Mr.Deepak entered into a contract with M/S ABZ Pvt Ltd Delhi for a purchase of 20 tonnes of wheat.
Deepak paid an advance of Rs 50,000 which was 10% of the total value of the contract. Later at a future
date, ABZ Pvt ltd rescinded the contract due to some financial loss after which they were declared as
insolvent and decided to wind up their business. Now, in this case, the contract becomes void and ABZ
ltd must return the Rs. 50,000 to Mr.Deepak.

The doctrine of Restitution in Indian Contract act

Section 65 of the Indian contract act 1872 mainly deals with the doctrine of restitution and it relates to
the obligation of the person who has received some advantage under void agreement or contract. This
section starts from the very basis that there being an agreement or contract and if there was no
agreement or contract then the doctrine of restitution cannot come into play. This doctrine is based on
a very common rule of consideration which means that a person pays consideration only when he gets
something in return.
Provisions of Section 65 apply only when an agreement at a subsequent stage is discovered to be void or
when a contract becomes void later on by one person or the other. But Section 65 will never come into
play if the contract was void-ab-initio .i.e void from the very beginning. Supreme Court of India in the
case of Kujiu Collieries limited v/s Jharkhand mines ltd held that an agreement which was discovered to
be void at a later stage will invite Section 65 into the picture and in such a case an advantageous person
is bound to restore the disadvantaged party.

Doctrine of restitution includes the key points as follows

One party has entered into a contract with another for consideration.

There was some consideration involved in the said contract.

Both parties were competent to enter into a contract

Thereafter one party failed to perform his part of the contract or the contract became void due to any
unforeseen condition.

Now the party which has paid any consideration as the advance is entitled to recover the same from the
other party and other party is not entitled to receive an unfair advantage over it.

Applicability of Section 65

Section 65 is applicable only when an agreement was valid when it was entered into and became void
only at a future date. Moreover if the agreement was entered into between a major person being the
plaintiff and the minor defendant in this case then doctrine of restitution will not be applied, this was
held in the case of Mohiri Bibi v/s Dharmodass Ghosh but the scenario will be different if minor has
misrepresented his age and then he can be enforced by the court to return the benefit.

In another case Bank of Rajasthan Ltd v/s Sh Pala Ram Gupta it was held that an agreement or contract
which was void and illegal from the very beginning can never apply the provisions of this doctrine.

Restitution v/s Compensation

Most of the times these two termed as treated to have a similar meaning but the difference between
them lies in the manner in which monetary award is calculated for instance in compensation the award
is calculated based on how much loss the plaintiff suffered, whereas in restitution the award is
calculated based on how much gains the defendant has earned. However on certain occasions on the
discretion of judge based on the facts of a particular case the judge can very much give a choice to the
plaintiff to choose from restitution and compensation.

Exceptions to Doctrine of Restitution

Where an agreement is known to be void:- This doctrine will not be applied for an agreement known to
be void e.g, where an agreement is for some illegal act or an impossible act like an agreement that A will
pay B Rs 10,000 if B picks stars from the sky. A pays Rs 500 as security to B, now being an impossible act
to perform A cannot recover even his Rs 500.

Where an agreement has been entered into between incompetent persons:- Contract entered into
between incompetent persons like a person suffering from insanity, intoxication or a minor will not
invite this doctrine to play.

Where the party is required to give some earnest money as security and later on defaults:- This
provision deals with a situation like paying application money for a residential scheme. Now if a person
fails to future allotment money then his application money will also be forfeited and he can not claim his
earlier earnest money by revoking the doctrine of restitution.

Conclusion

Now after analyzing the key aspects of section 85 we can see that restitution involves restoring the
position of the affected party to his original position before entering into contract and one party is not
entitled to have an unfair advantage over the other and by enforcing the provisions of Section 65 he can
very much claim compensation or restitution as the case may be.