Doctrine of Unjust Enrichment

Introduction

In the Indian Contract Act, 1872, the doctrine of unjust enrichment was codified in enactments and this concept was further defined by the court. 

“Unjust” refers to something that is not morally right or fair and not by justice. 

“Enrichment” can be defined as getting or gaining something from another person. There are two types of enrichment: Just Enrichment and Unjust Enrichment.

If a person is unfairly benefitted or enriched at the expense of another person or wrongfully uses the other’s property at the expense of another person then it is called unjust enrichment.

Evolution of the Doctrine of Unjust Enrichment

There is a general principle in Indian Contract Law that if a person is not paying any consideration or restitution against the service received then he is liable and in layman’s terms, it is called or stated as a breach of contract. This doctrine was based on English Law that states a legal maxim “no one should be benefitted from another’s expense.”

Judge Lord Mansfield explained this doctrine in Moses v MacFarland: Moses got four promissory notes issued by Jacob. Then Moses endorsed these four promissory notes to MacFarland and there was a written agreement that Moses will not be liable for the payment of the money which is signed by MacFarland. Even so, MacFarland summoned Moses on the endorsement and he was held liable despite the agreement. The court gave judgment against Moses and was compelled to discharge the liability that he had excluded. Then in court, Moses paid the money to the value of those four promissory notes and MacFarland withdrew the money at the court’s order. But Moses was allowed to sue to recover back his money from MacFarland. Judge Lord Mansfield held that the plaintiff should get the money or benefit from the respondent who is bounded by the ties of natural justice and equity. This judgment was tracked in the 18th century. 

In India, this doctrine of unjust enrichment was codified under Sections 68-72 of the Indian Contract Act of 1872 and developed by various judgments. There was a landmark case Indian Council for Enviro-Legal Action v Union of India and others, which brought the most remarkable development in the doctrine. In this case, pollution was caused by several industrial plants which produce toxic chemicals, and these toxic chemicals are polluting or harming the fertility of the soil and polluting the water body by dumping the hazardous waste into them and not accurately disposing of them. Even people were alleged to have contracted the disease because of this pollution.

The environment was affected in a very large area. Considering the industries guilty, the court defined the relation of unjust enrichment with its restitution as when a person received or benefitted from the act of enrichment is against the fundamental principles of justice and equity. It is a doctrine which neither legal nor can be considered a gift. Unjust Enrichment causes one to unfairly gain and others to loss. 

Fundamental Principles of the Doctrine of Unjust Enrichment

The Doctrine of Unjust Enrichment is followed by three main principles:

• The respondent must be enriched by the unjust or unfair benefit or gain respectively.
• The enrichment must be taken place at the expense of the defendant. 
• This enrichment should be unfair or unjust to another person by the person who benefitted. 

Example of the Doctrine of Unjust Enrichment

Let the doctrine of Unjust Enrichment understand by an example: 

A, a woman drops her two cats off to B, who grooms the animals, to have both the cats clipped and cleaned. B can clean and clip the first cat but he is not able to clean and clip the second cat before the end of the workday as he becomes too busy. So, if B received payment for both cats but cleaned and clipped only one cat then B would be unjustly enriched. Similarly, if A receives services for both cats but paid for one cat then she would be unjustly enriched as well. 

In a breach of contract, unjust enrichment results in a situation where one party receives goods or services which can be considered unfair or unjust. 

Unjust Enrichment or Unjust Benefit

Unjust Enrichment was further elaborated by the court as the unjust retention of a benefit to the loss of another person or the retention of money or property of another person against the fundamental principles of justice and equity. If the benefit, a person received is unjust then he would be unjustly enriched. 

The Court referred a case Fibrosa Spolka Akeyjna v Fairbairn Lawson Combe Barbour Ltd., there was a contract for the supply of a machine or the supply of machinery, and a sum of money was paid in advance or prepaid. But the performance was obstructed by the outbreak of war. Lord Wright observed that:

      “There is a note which is very clear that any civilized, developed, and advanced system of law is bound to give or provide remedies for cases of the doctrine of unjust enrichment or unjust benefit, to prevent a man from maintaining or retaining the money of, or some benefit derived from, another which it is against conscience that the man should keep. In English law, such remedies are generally different from the remedies in contract or tort law, and are now recognized to fall within a third category of the common law that has been called quasi-contract or restitution.” 

Then their Lordships allowed the advance to be recovered back that had been paid for a consideration that had failed. 

Restitution and Unjust Enrichment

The doctrine of Unjust Enrichment is very essential for the ‘restitution’ subject. The term ‘restitution’ means the restoration or giving back of something to its rightful owner. This doctrine also includes compensation, indemnification, reimbursement, or reparation for benefits derived from or for loss or injury caused. 

Unjust Enrichment can be considered as a ground for restitution. Even it may be said that there can be no restitution without unjust enrichment. The Supreme Court said and explained that ‘unjust enrichment’ and ‘restitution’ can be considered as the two shades of color ‘green’- one is defining towards ‘yellow’ color and the other is defining towards ‘blue’ color. In the case of restitution, justice is not fulfilled or completed until the misfortune of others has not been wholly repaid or reimbursed. 

There are two phases pre-suit and post-suit, in which the two terms ‘unjust enrichment’ and ‘restitution’ must be based, said the court. The court will consider the case as it is a substantive law (or common law) right, in the former case, but the parties are under the watchful eye of the court, and any act or omission brings benefit to one person or unjust enrichment to the other person then the jurisdiction of the court to equalize and do equity to both parties in the latter cases, otherwise, it will be difficult in the court’s process along with time and delay and there will be a chance of injustice. In the cases, while dealing with matters of unjust enrichment, the courts have the right to exercise their powers and applied the fundamental principles of equity and justice. 

Remedies for Unjust Enrichment

Justice should be provided in matters when one party suffered a subtraction of wealth and the other party received a benefit at the same time. But Sections 68-72 of the Indian Contract Act, of 1872, give various remedies for unjust enrichment considering the various circumstances or situations. 

Section 68 of the Indian Contract Act, of 1872, Supply of necessaries: 

This section says a person who supports and supplies life-saving necessities to a person who is a minor or a lunatic or who is incapable of entering into a contract, then that person is entitled to reimbursement from the property of such incapable person but there is a condition that reimbursement is not allowed from any personal action. 

Some conditions should be satisfied for the reimbursement:- 

• Necessities should be supplied by a person. 
• These necessities should be supplied to a person who is minor or lunatic or incapable of entering into a contract. 
• There should not be a personal action for getting a reimbursement.

Necessities are not only a portion of food, shelter, or cloth but they can be anything necessary or required to maintain a person. It may differ from person to person like status, education, and other important requirements. 

Example- A minor girl who lost her parents in an accident. B, a guardian of A, supports her and provides important requirements that she needed the most in life. Here, B can reimburse from A’s property. 

There is a case, Jai Indra Bahadur Singh v Dilraj Kaur: a minor was bound to support his sister, and money was advanced for his sister’s marriage and this was found to be considered a necessity and recoverable from the property. 

Section 69 of the Indian Contract Act, of 1872, Payment by interested person:  

This section provides a remedy to the person who is interested to pay the money which the other person is bound to pay money by law. That person who paid the money is entitled to get the money back from such a person. 

Some conditions of liability should be satisfied for this section:-

• The plaintiff should be interested in paying the money and should not be bound by law which means the plaintiff should not have any legal compulsion to pay the money. 
• The defendant should be bound to pay the money by law. 
• There should be a transfer or payment of money from one person to another person. 

Example- X paid money for a car loan on behalf of Y, who wants to buy a car. X was interested in paying the money and he has also no legal compulsion to pay the money. Here, Y was under a legal obligation to pay the money back to X. 

In the case, Govindram Gordhandas Seksaria v The State of Gondal, the party had agreed to buy certain mills as he was permitted or allowed to recover the amount from the dealer of effectively overdue municipal taxes paid by him to save the property from being sold in an auction. 

Section 70 of the Indian Contract Act, of 1872, Liability to pay for non-gratuitous acts:

This section says that when a person lawfully does something or delivers anything to another person but not with gratuitous intention and such act causes benefit to such a person then the person who benefitted is liable or bound to pay compensation or remedy or affect the restoration of the thing delivered.  

Some conditions of liability under this section:-

• A person must do something for another person or delivers anything to him and it should be done in a lawful manner. 
• The intention of the person who does something or delivers anything must be non-gratuitous. 
• The other person must receive benefits from the act or anything done by such a person. 

Example- A saves B’s property from being stolen then he is not entitled to compensate B if the situation shows the gratuitous intention of A behind the act. 

In the case, Great Eastern Shipping Company Limited v Union of India: the plaintiff delivered a coal carriage to a defendant’s union but the intention of the plaintiff was not gratuitous. So, the defendant who benefitted had the duty to reimburse or to repay the compensation to the plaintiff for the service provided. 

 Section 71 of the Indian Contract Act, of 1872, Finder of goods:

This section gives a remedy to the owner of the goods or property from a person who finds goods and takes them into his custody by providing him with the same responsibility as a bailee. The person who finds the goods or property must try to find the actual owner of the goods or property and should not use them. 

For example, X went to a place where the party was going on, and there, she found a purse lying on the table. She picked it up and it came into her custody. So, she is bound to take care of it and is supposed to find out the real owner of the property (purse). 

There is the case of Newman v Bourne and Hollingsworth, the plaintiff left goods in the defendant’s shop then the assistant of the defendant put goods in a drawer in the shop. But it was missing from the shop. Here, the defendant was liable to the plaintiff as he was unable to take care of the goods. 

Section 72 of the Indian Contract Act, of 1872, Mistake or Coercion:

This section provides a remedy to the owner whose goods were delivered to another person by mistake or under coercion. The person who possessed or received those goods must return them to the actual owner. 

Example- A purchased goods from B worth rupees 2000. But A paid two notes of rupees 2000 by mistake and he is not aware of that. Here, B was bound to return extra rupees 2000 to A. 

In the case of Associated Cement Company Limited v Union of India, the railway authorities were bound to return the extra money which they charge for the goods that were considered to be carried by a longer route. 

Conclusion

The doctrine of unjust enrichment has gradually become a wider concept. Basically, this doctrine means that no one should be unjustly benefitted at the expense of another. This theory came through English Law in the judgment of the 18th century. Various remedies are available for unjust enrichment under Sections 68-72 of the Indian Contract Act, of 1872 which discuss the supply of necessaries, payment by an interested person, liability to pay for non-gratuitous acts, finders of goods, and mistake or coercion. But there are also illicit activities like fraud, undue influence, misrepresentation, and many more, where such remedies are still constrained under the provisions of the Indian Contract Act, of 1872. However, the doctrine still has a long path to cover and will be providing an independent source of rules and regulations. It is the duty of the court to make unjust enrichment ineffective.

This article has been written by Nishita, 3rd Year B.Com LLB (H) from the University of Petroleum and Energy Studies, Dehradun