Theory of Unjust Enrichment
What is unjust?
Unjust can be defined as something which is not in accordance with the accepted standards of fairness or justice and which is also unfair.
What is enrichment?
When a person gains something from another, then it is said that the person is enriched. This enrichment can be both just and unjust. A student receives graduation present from his parents for the graduation; it is also an enrichment which is just. When a person wrongfully uses others property at the expense of other, then it is unjust.
What is unjust enrichment?
The principle of unjust enrichment is simply stated as:
A person who has been unjustly enriched at the expense of another is required to make restitution to the other. The meaning of this line is that if a person has gained benefit from other person and thereby causing loss to the other person, then the person who has gained is required to reimburse the plaintiff equal to the amount of benefit received by the defendant.
The principle of unjust enrichment can be understood in three ways:
· Unjust enrichment can be interpreted as a principle of Aristotelian equity, providing correction when normally sound rules produce unjust results in particular cases.
· Unjust enrichment can be characterised as a ‘legal principle’ incorporating a broad ideal for justice, from which courts can deduce solutions to particular restitution problems.
· Unjust enrichment can be understood simply as expressing a common theme of restitution cases.
Let us take a hypothetical situation- A owns a house and he approaches B who is a builder to construct a garage for B. There contract is only for the construction of garage. After constructing the garage, B also constructs driveway outside the house of A. Then A becomes liable to pay the expenses incurred by B in the making of driveway.
Statement of problem
The theory of unjust enrichment states that a person who has been unjustly enriched at the expense of the other is required to reimburse the other party to the extent of the enrichment. It happens that sometimes a person uses the benefit from other person and then there is no point of compensation raised at the time of contract but after the completion of the act, sometimes the person becomes morally liable to pay the damages to the party. Then at that times whether the person should reimburse the other party or not.
Objectives of the study
· To critically understand the theory of unjust enrichment in the Indian Scenario.
· To know how the court responded to the enrichment claimed by the claimant.
Hypothesis of the study
The researcher has assumed that the person is required to pay if he is liable.
Scope of the study
The research is a doctrinal research. The researcher here would like to study only through the enrichment at the expense of the claimant. The researcher has tried to analysis the topic by studying various authors, experts, cases of The Indian Apex Court and High courts, articles, etc. The researcher has strictly followed the boundary of the project.
The present research study is mainly a doctrinal and analytical. Keeping this in view, the researcher has gone through different books, journals, Web references, E-journal, reports etc.
The relevant material is collected from the secondary sources. Materials and information are collected both legal sources like books.
o Unjust Enrichment
The concept of Unjust Enrichment has been explained in various different books in different terms and in brief it means that when a person takes benefit from other person and does not gives anything in return i.e. the person unjustly enriches himself at the expense of another, this is the theory of unjust enrichment.
According to Black Law Dictionary, 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.
· The area of law dealing with unjustifiable benefits of this kind.
According to Encyclopaedic Law Lexicon, the principle of unjust benefit implied that the person having passed on the burden of tax to another, directly or indirectly, would not be entitled to get the refund, even if such refund is permissible. Having passed on the burden of tax to another person, directly or indirectly, it would be clearly a case of unjust enrichment if the importerseller is then able to get the refund of the duty paid from the government notwithstanding the incidence of tax having already been passed to the purchaser.
According to Oxford Law Student Dictionary, a cause of action developed at the common law and equity, whereby, roughly, a person who is unjustly enriched, either by receipt of value from the plaintiff in circumstances where he or she ought to return it, or by profiting from a wrong done to the plaintiff, is required to pay over the value of that enrichment to the plaintiff.
According to Capital Legal and Medical Dictionary, person taking advantage of unclear legal position during the pendency of leis, would be subjected to the doctrine of unjust enrichment and will be liable to refund back the money so received.
According to Encyclopaedic Law Dictionary, where a person unjustly obtains a benefit at the expense of another. In certain cases where money is obtained by mistake or through fraud or for a consideration which has wholly failed, the law implies a promise to repay it. The rule against unjust enrichment is embodied in section 70 of Indian Contract Act, 1872 and founded not upon any contract or tort but upon a third category of law, namely quasi contract or restitution.
According to Merriam Webster’s Dictionary of Law, the retaining of a benefit (as money) conferred by another when principles of equity and justice calls for restitution to the other party; also: the retaining of property acquired especially by fraud from another in circumstances that demand the judicial imposition of a constructive trust on behalf of those who in equity ought to receive it. It is a doctrine that requires an equitable remedy on the behalf of one who has been injured by the unjust enrichment of another.
So the basic meaning is that it would be unjust to allow one person to retain a benefit received at the expense of another person. There is a legal maxim also that Nemo Debet Locupletari ex Aliena Jactura which means that no one should grow rich out of another person’s loss. The unjust enrichment has been stated to have three things:
· That the defendant has been enriched by the receipt of benefit.
· He must have been enriched at the expense of plaintiff and
· Allowing defendant to keep the benefit will be unjust.
Historical Background of theory of Unjust Enrichment
The historical background of the theory of unjust enrichment can be divided into three phases. The first phase lasted till the second half of eighteenth century. Although there are clear traces of remedies being given in the situations that would later coalesce as unjust enrichment, there was no consciousness of any feature linking them to each other. Although the medieval English lawyers knew nothing about the general principles of unjust enrichment, even then in number of situations they did give remedies that would later be explicitly categorised in this way. Apart from this a number of statutory writs were present to deal with such specific cases and majority of these claims were taken into consideration in the common writs of debt and account. It is a basic concept of contractual liability that the parties had legal capacity. In the fifteenth century, it was laid down that an infant, though not normally liable on contract, would be liable to pay the price of necessary items like food, clothing or educational purposes. Sophisticated analysis would want to differentiate between liability of price and liability for price of goods, but there was no hint of this before the end of sixteenth century.
The action of assumpsit
The development of the action of assumpsit did not produce any immediate changes in the substance of these rules, though as a matter of form it came to supersede the older remedies of debt and account. So the person who had discharged another’s liability might bring assumpsit to obtain an indemnity only in case when the payment is made at the request of the defendant. The capacity of assumpsit is best seen in the development of quantum meruit which means that what one has earned. Here the plaintiff typically alleged that the defendant in consideration of some service rendered to the plaintiff at his request, promised to pay to the plaintiff the reasonable value of the service. It may be possible that sometimes there is no such express agreement but then it can be deduced from the circumstances of each case. If a person takes a cloth to tailor for making shirt then it was not difficult to infer that the person has promised to pay for the shirt. Before the middle of eighteenth century, quantum meruit claims were being allowed where the inference of a genuine agreement to pay a reasonable sum was far less secure. In the second half of the eighteenth century Lord Mansfield introduced the principle that in some cases the action would be allowed where both the request and promise were fictitious. The quantum meruit and indetatitus assumpsit for money laid out essentially took over and expanded those situations that in medieval law had clustered around the central core of contractual liability. Alongside these, taking over and expanding those situations clustering around property notions in the middle ages was the action of indebitatus assumpsit for money had and received. This action started to emerge at the beginning of seventeenth century but it was in the eighteenth century that it really came into its own. Since the early years of eighteenth century the courts have moved from the proposition that these are based on implies promises to the wholly inaccurate proposition that they were based on implied contracts.
The doctrine of unjust enrichment was originally based in English law upon the principle of assumpit or ‘had and received’, and was declared by Lord Mansfield in Moses v. Mcfarlon, that the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money. In the case of Sadler v. Evans, he commented that the action for money had and received was: a liberal action, founded upon large principles of equity, where the defendant cannot conscientiously hold the money. The defence is any equity that will rebut the action. The courts of equity covered much ground as the common law action for money had and received, by the eighteenth century, the courts of equity exercised a general jurisdiction to grant relief where there is unjust for a recipient of property to retain the property himself.
The second half of eighteenth century and in the nineteenth century the law of torts and the law of contract were structured around each other in theoretical framework in which former based on the natural lawyers’ theory of imputation and the latter on the will theory. The American lawyers at the start of twentieth century brought the broad principles of Joseph Story’s equitable jurisprudence and were able to manipulate constructive trusts into remedial devices so as to reverse the unjust enrichment.
The first, faltering steps away from the implied contract theory were taken in India in the 1860s in the case of Rambux Chittangeo v. Modhoosoodun Paul Chawdhry, 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 Indian was not dependent on the forms of action could profitably abandon all the talks of implied contracts. The Indian Contract Act, 1872 followed this line: under the heading of ‘of certain relations resembling those created by contract’, it included claims for necessaries supplied to those without contractual capacity, claims for indemnity or contribution, claims to be paid for the beneficial services provided without the intention of making any gift, claims against the finder of goods and claims for the money paid by the mistake. It went certain changes through judicial interactions and came to be based more and more on the doctrine of restitution. In India, the principle was developed under section 69 and section 70 of Indian Contract Act, 1872. Within a decade of the passing of the act it was held that the co surety claims for contribution was in fact a contractual term after all and the earlier cases discussing its contractual nature, it was said, were delivered before the passage of the act, ‘’ when legislation had not stepped in the plain language to give distinct vitality and affect to certain relations between parties out of those moral obligations one to another a legal fiction had grown up for implying a contract and while as learned expositions of law, they can be read with interest and advantage for practical purposes to the point under consideration they are absolute and irrelevant.
The judicial mind is unconsciously moved by the major inarticulate promise, in this breach of the law that no one should be allowed to unjustly enrich himself at the expense of another. The law so developed by judicial conscience appears to discover obligations to defeat unjust enrichment or unintended acquisition by the restitution. The natural tendency of courts is that wherever they find unjust enrichment is to order restitution.
Remedies available for Unjust Enrichment
According to Section 68, if a person, incapable of entering into a contract or anyone whom he is legally bond to support, is supplied by another person with necessaries suited to his conditions in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. For example, A supplies B, a lunatic, with necessaries which are necessary for his survival. A is entitled to be reimbursed from the B’s property
In the case of Jai Indra Bahadur Singh v. Dilraj Kaur, a minor being bound to support his sister, money advanced to a minor for marriage of his sister has been held to be necessaries under this section and also recoverable from the property.
In the case of Benaras Bank Limited v. Dip Chand, it was said that a creditor can recover money advanced to the minor for necessaries and can recover the money out of the minor’s estate.
According to Section 69, a person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it is entitled to be reimbursed by the other.
In the case of Govindram Gordhandas Seksaria v. State of Gondal, the party had agreed to purchase certain mills, he was allowed to recover from the seller the amount of already overdue municipal taxes paid by him in order to save the property from being sold at the auction.
In the case of Dakshina Mohun Roy v. Saroda Mohun Roy Chowdhry, 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 recovering the arrears of government revenue may be recovered by him under this section.
According to Section 70, where a person lawfully does something 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. For example, if A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as if they are of his own and uses that good. Then B is required to or bound to pay the amount to A for the goods.
In the case of Great Eastern Shipping Company Limited v. Union of India, the plaintiff lawfully carried a cargo of coal and delivered it to the defendants union. The correspondence showed that the plaintiff did not intend to do it gratuitously and the defendant had accepted the cargo and thus defendant became liable to pay compensation to the plaintiff under section 70.
In the case of State of Rajasthan v. Raghunath Singh, a grantee of leeses of minor minerals is entitled to recover by way of compensation various amounts deposited by him in pursuance of the grant of the lease in the event of cancellation of lease.
In the case of Bhagavadas Krishnadas v. P.S. Soma Iyer, the purchaser of property allowed the defendants to continue their residence in the building until they found other occupation and there was no indication in the evidence that the plaintiff had done so gratuitously, the plaintiff was entitled to remuneration for use and occupation.
In the case of Bhicoobai v. Hariba Raghuji, a property belonging to a caste is attached in execution of a decree and a member of the caste pays to the decree holder the amount due to him under the decree to save the property from sale in execution then it was held that he is entitled to be reimbursed out of the caste property.
In the case of Kashi Nath Singh v. Nawab Alam Ara, the villagers utilised water from the pyne on the construction of bund, contribution towards the construction was payable on the account of villages under section 70.
In the case of Modi Sugar Mills Limited v. Union of India, 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 respondent was liable to pay compensation.
In the case of Noor Mohommad v. Mohammad Jiajddin, a Muslim groom after solemnisation of the marriage refused to take his wife because of her father’s refusal to pay for the nautch girl brought with the marriage party, the expenses borne by the girl’s father on the meals for the marriage party and for the band and lights paid to the groom’s father were not gratuitous but for consideration of marriage, and could be restituted to the bride’s father.
According to Section 71, a person who finds goods belonging to another and takes them into his custody is subject to the same responsibilities as that of bailee.
In the case of Union of India v. Amar Singh, goods booked for Quetta before the partition of the country were found to be missing when the wagon containing the goods was received at New Delhi. The owner sued East Punjab railway which was handling the wagon from Indo- Pakistan border into India. It was held that when the railway administration in Pakistan left the wagon containing goods within the borders of India and the forwarding railway administration took them into their custody, it could not deny liability under section 71.
In the case of Newman v. Bourne and Hollingsworth, P, a customer in D’s shop, put down a brooch with her coat and forget to pick it up. One of the D’s assistant found it and placed it in a drawer over the weekend. It was found missing on Monday, D was held liable to P in view of the absence of that ordinary care which in the circumstances a prudent man would have taken.
In the case of Union of India v. Mahommad Khan, plaintiff’s timber was lying on a piece of land which was subsequently leased out to the defendant. The latter gave notice to the owners of timber to remove it but it was not removed. The defendant then cleared the site and the timber was damaged or removed. The plaintiff’s claim under section 71 was dismissed as the defendant had not taken the goods into the custody.
According to Section 72, a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. For example, A and B jointly owe 100 rupees to C, A alone pays the amount to C and B not knowing of this fact, pays 100 rupees over again to C. Then C is bound to repay the amount to B
In the case of Tilokchand Motichand v. Commissioner of Sales Tax, a firm paid sales tax of more than twenty six thousand rupees in respect of sales to consumers outside the state of Bombay and which were not liable to pay any sales tax. The firm had itself collected the tax money from its customers. The amount was ordered to be refunded on one condition that it should produce receipts from customers outside Bombay showing that the refund in question had been passed over to them. The firm was order to return the tax money and it would be recovered as arrears of land revenue. The firm paid it. The firm sought to recover back the money as it is paid under mistake under coercion. The court held that payment was made under coercion and would have been recoverable under section 72.
In the case of Associated Cement Company limited v. Union of India, the railway authorities charged extra fare under the mistaken belief that the goods would have to be carried by longer route, they were ordered to return the extra fare.
In the case of S. Ketrabarsappa v. Indian Bank, a bank mistakenly credits entry in customers account and customer withdraws the amount. He would be bound to pay back the money along with the interest.
In the case of Food Corporation of India v. K. Venkateswara, where the ricemillers were paid an amount in excess of the agreed rate because of a mistake in the classification according to quality, they were required to disgorge the unjust enrichment.
Conclusion and Suggestions
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 causes some loss to one party and gain to another party. The theory of unjust enrichment came through English law. In the early 18th century, the general lawyers knew nothing about the theory of unjust enrichment, even then in number of situations they had given remedies that were later categorised under theory of unjust enrichment.
The researcher has assumed that the person is required to pay if he is liable. The hypothesis of the researcher is true that if a person has taken benefit from another person and has not given anything in return, then he is liable to pay back. In all the cases of unjust enrichment wherever the court feels that one person has taken benefit out of another person and has not given anything in return, the court makes the person liable and directs the person to compensate or return the benefit.
The main objective of conducting the project was to understand 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.
In section 72 of Indian Contract Act, only thing delivered by mistake or coercion is taken into consideration. Like coercion and mistake there are other ways also like undue influence, misrepresentation , fraud which can be used by a person to take benefit out of another person. So provision related to misrepresentation, fraud and undue influence should also be made under Indian Contract Act, 1872.
# http://dictionary.reference.com/browse/unjust?s=t&ld=1089 visited on 30th July, 2012
# Birks, Peter, Unjust Enrichment- Clarendon Law Series 2nd edition referred on 30th july, 2012
# Pollock and Mulla- Indian Contract & Specific Relief Acts, Volume II 13th edition 2009 referred on 30th july 2012
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# United Australia Limited v. Barclays Bank Limited 1941 AC 1,7
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# Sadler v Evans (1766) 4 Burr 1984 at 1986 (98 ER 34 at 35)
# R. Pound, ‘ the progress of the law- equity’ (1920) 33 harv LR 420
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# Mitra SC, The law of Contracts volume 2, 2nd edition orient publishing company Referred on 10th September 2012
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# AIR 1936 All 172
# Section 69, Indian Contract Act, 1872
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# Section 70 , Indian Contract Act, 1872
# AIR 1971 Cal 150
# AIR 1974 Raj 4
# AIR 1969 Ker 263
# AIR 1917 Bom 556
# AIR 1934 Pat 346
# AIR 1984 SC 1248
# AIR 1992 MP 244
# Section 71, Indian Contract Act, 1872
# AIR 1960 SC 233
# (1915) 31 TLR 209
# AIR 1959 Ori 103
# Section 72, Indian Contract Act, 1872
# AIR 1970 SC 898
# AIR 1998 MP 241
# AIR 1987 Kant 236
# (1988) 1 Andh LT 930
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