“RESTITUTION STOPS WHERE REPAYMENT BEGINS”

[A PROJECT OF LAW OF CONTRACT-1]

Supervised by- Dr. Ruchi Gupta

Assistant Professor Law of Contract-1

Himachal Pradesh National Law University, Shimla (HPNLU).

Submitted by- Aman Singh Sengar.

Roll no. 164.

Enrollment no. 1020220164.

Session-2022-2027
 INDEX

1. Acknowledgement and bonafide certificate.

3. Income Effect.
4. Substitution Effect.
5. Case Study.
 BONAFIDE CERTIFICATE.

This certificate declares that this project based upon ‘Restitution stops where Repayment begins’
is an original work of Aman Singh Sengar who is a bona fide student of Himachal Pradesh
National Law University, Shimla.

Signature:

Aman Singh Sengar.

The accomplishment of this project is owed to the constant support and guidance of people to
whom I’d like to convey my sincerest gratitude.

Dr Ruchi Gupta, our Law of Contract-1 professor, enabled me to complete this project, with his
constant encouragement. His valuable help and guidance were instrumental in this project and in
resolving all the doubts encountered during the making of this project.

Library staff aided me in my research for the project through the usage of the online databases
and journal collection available in the library.

Lastly, I would like to sincerely appreciate my parents and friends for their constant
encouragement and moral support to enable me to complete this project.
DOCTORINE OF RESTITUTION:

According, to English law, if a minor has obtained undue benefit in any transaction, he is
required to restore back the benefit so received by him, under the equitable doctrine of
restitution. Under the doctrine he is asked to restore back the exact things taken by him. It is
applicable only to goods or property received by a minor so long as they can be traced, and are
still in his possession. Since it is difficult to identify money and to prove whether it is the same
money or different one, the doctrine does not apply to money. Even as regards goods or property,
if the same have been consumed or transferred and are no more traceable, the doctrine of
restitution does not apply there.

The case of Leslie v. Sheill', explains this doctrine. In this case, the defendant, a minor, falsely
misrepresented himself to be a major, and obtained two loans of £ 200 each from the plaintiffs,
who were money-lenders. The plaintiffs brought an action to recover £475, being the amount of
loan taken and interest thereon. It was held by the Court of Appeal that the money could not be
recovered. If that were allowed, that would amount to enforcing the agreement to repay loan,
which is void under the Infants' Relief Act, 1874.

It was explained that the object of the doctrine of restitution is to restore back the ill gotten gains
taken by the minor, rather than enforcing the contract. If a minor is asked to pay money which
cannot be traced and which he no more possesses, it would amount to enforcing the agreement.
Where the question of repayment there, the doctrine of restitution does not help, or as stated by
Sumner, "Restitution stops where repayment begins.”

The doctrine has been explained by Lord Sumner in the following words:

“When an infant obtained an advantage by falsely stating himself to be of full age, equity
required him to restore his ill gotten gains, or to release the party deceived from obligations or
acts in law induced by the fraud, but scrupulously stopped short of enforcing against him a
contractual obligation, entered into while he was an infant, even by means of a fraud."

As regards the question of restoring back the property is concerned, Lord Sumner referred to the
following observations of Lush J. in Stocks v. Wilson:

"What the Court of Equity has done in cases of this kind is to prevent the infant from retaining
the benefit of what he has obtained by reason of his fraud. It has done no more than this, and this
is a very different thing from making him liable to pay damages and compensation for the loss of
the other party's bargain. If the infant has obtained property by fraud he can be compelled to
restore it."

As regards the question of refund of money which had arisen in Leslie v. Sheill, Lord Sumner
further observed:

"In the present case the money was paid over in order to be used as the defendant's own and he
has so used it and, I suppose, spent it. There is no question of tracing it, no possibility of
restoring the very thing got by fraud, nothing but compulsion through a personal judgment to pay
an equivalent sum out of his present or future resources, in a word nothing but a judgment in
debt to repay the loan. I think this would be nothing but enforcing a void contract. So far as I can
find, the Court of Chancery never would have enforced any liability under circumstances like the
present, any more than a Court of Law would have done so."

Capacity to contract:

Section 10 of the Contract Act requires that the parties must be competent to contract.
Competence to contract is defined in Section 11:

S. 11. Who are competent to contract. -Every person is competent to contract who is of the age
of majority according to law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law

to which he is subject.

Thus, the section declares the following persons to be incompetent to

Contract-

(1) minors,

(2) persons of unsound mind, and

(3) persons disqualified by law to which they are subject.

MINOR

Age of majority
The age of majority is generally eighteen, except when a guardian of a minor's person or
property has been appointed by the court, in which case it is 21.² The age of majority of a person
is to be determined "according to the law to which he is subject".3

In England the age of majority formerly was 21 years. But now under the Family Law Reform
Act, 1969, "a minor is a person under the age of eighteen years". Formerly a minor was referred
to as an "infant", but this Act has changed the term to "minor".

Nature of minor's agreement

Section 10 requires that the parties to a contract must be competent and Section 11 declares that
a minor is not competent. But neither section makes it clear whether, if a minor enters into an
agreement, it would be voidable at his option or altogether void. These provisions had, therefore,
quite naturally given rise to a controversy about the nature of a minor's agreement. The
controversy was only resolved in 1903 by the Judicial Committee of the Privy Council in their
well-known pronouncement in Mohori Bibee v. Dhurmodas Ghose. Sir Lord NORTH
observed: "Looking at Section 11 their Lordships are satisfied that the Act makes it essential that
all contracting parties should be competent to contract and expressly provides that a person who
by reason of infancy is incompetent to contract cannot make a contract within the meaning of the
Act. The question whether a contract is void or voidable presupposes the existence of a contract
within the meaning of the Act, and cannot arise in the case of an infant."

Ever since this decision it has not been doubted that a minor's agreement is absolutely void.

Effects of minor’s agreement:

1. No estoppel against minor

Suppose that a minor by misrepresenting his age induces another to con-tract with him, will there
be any estoppel against him, or, in other words, will he be precluded from disclosing his true age
in a litigation resulting from the contract?

The infant is not estopped from setting up the defence of infancy. The reason is very simple.
There can be no estoppel against a statute. The policy of the law of contract is to protect persons
below age from contractual liability and naturally the doctrine of estoppel cannot be used to
defeat that policy. Thus, in a case before the Bombay High Court, BEAUMONT CJ reviewed the
earlier authorities and concluded by saying: "The court is of opinion that where an infant
represents fraudulently or otherwise that he is of age and thereby induces another to enter into a
contract with him then in an action founded on the contract the infant is not estopped from
setting up infancy."

2. No liability in contract or in tort arising out of contract

A minor's agreement is, of course, in principle devoid of all legal effects. "A minor is in law
incapable of giving consent, and, there being no con-sent, there could be no change in the
character" or status of the parties." In England it was laid down as early as 1665 in Johnson v
Pye¹s that "an infant who obtains a loan of money by falsely representing his age cannot be made
to repay the amount of the loan in the form of damages for deceit". The court pointed out that if
infants were held liable on their contracts by means of actions in tort, all the infants of England
would be ruined. Hence a minor cannot be held responsible for anything which would be an
indirect way of enforcing his agreement. "You cannot convert a contract into a tort to enable you
to sue an infant."19 This principle has been generally followed in India. The Calcutta High
Court, for example, refused to hold a minor liable in tort for money lent on a bond. The court
said: "If the tort is directly connected with the contract and is the means of effecting it and is a
parcel of the same transaction, the minor is not liable in tort."

Indian Law: Compensation by a minor

It has been noted above that in England restitution, that is, the restoring back the property by a
fraudulent minor is permitted, if the property can be traced. According to Leslie v. Sheill," the
money obtained by a minor cannot be recovered from the minor as the same cannot be traced. If
a minor is asked to pay back the money, it may mean enforcing contractual obligation against a
minor, which the law does not permit.

The question which has arisen in India is, how far a minor can be asked to restore back the
benefit wrongly obtained by him under a void agreement? Can a minor be asked to pay
compensation to other party?

. Compensation under Sections 64, 65 and 70, Indian Contract Act

The question, whether a minor can be asked to pay compensation to the other party, under
Sections 64 and 65, Indian Contract Act had arisen in Mohori Bibee v. Dharmodas Ghose, While
discussing this case, it has already been noted that in this case the Privy Council had held that the
question of compensation under Sections 64 and 65, Indian Contract Act, arises where the parties
are competent to contract, and these provisions do not apply to the case of a minor's agreement.
The matter came for consideration before the Law Commission of India.2 The Law Commission
disagreed with this interpretation put to Section 65 by the Privy Council. In its view
compensation under Section 65 be allowed, even if the invalidity of the agreement is because of
the fact that a party is incompetent to contract. It has recommended that an Explanation be added
to Section 65 to indicate that the Section is applicable where a minor enters into an agreement on
the false representation that he is a major. In spite of the above stated recommendation by the
Law Commission, no amendment has been made in the Act so far.

Section 70 of the Indian Contract Act, 1872 recognizes quasi-contractual liability to compensate
a person at whose cost some benefit has been enjoyed. According to that provision, where a
person lawfully does anything 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. The
question which arises is: Can a minor, who has enjoyed the benefit as contemplated under
section 70, be required to pay compensation under that provision? It has been held that Section
70 cannot be invoked against a minor.

Section 70 cannot be invoked against a minor.

In this context, it has been observed:

"The minor is excluded from the operation of Section 70 for the reason that his case has been
specifically provided for by Section 68.... Besides, in the case of a minor, even the voluntary
acceptance of the benefit of work done or thing delivered which is the foundation of the claim
under Section

70 would not be present, and so, on principle, that Section cannot be invoked against a minor."

It is submitted that the above stated interpretation is neither logical nor in consonance with the
provision contained in Section 70. Section 70 deals with every "person", which would include a
minor, and moreover, there is nothing in the Indian Contract Act, which prevents the case of a
minor being covered both under Sections 68 and 70 of the Act.

2. Compensation under Specific Relief Act, 1963

Whether a fraudulent minor can be asked to pay compensation in view of provisions of Sections
39 and 41, Specific Relief Act, 1877, came in for consideration in some cases. Before discussing
the case, the relevant provisions may be noted :
Section 39: "Any person against whom a written instrument is void or voidable, who has
reasonable apprehension that such instrument, if left outstanding, may cause him serious injury,
may sue to have it adjudged void or voidable; and the Court may, in its discretion, so adjudge it
and order it to be delivered up and cancelled."

Section 41: "On adjudging the cancellation of an instrument, the Court may require the party to
whom such relief is granted to make any compensation to the other which justice may require."

In Mohori Bibee's case, the minor had applied for the cancellation of the mortgage deed,
executed by him, under Section 39, Specific Relief Act and the Privy Council considered the
question of compensation to be paid by him under Section 41 of that Act. It was held that since
in this case the loan had been advanced to the minor with the full knowledge of his minority, the
question of payment of compensation to such a money-lender did not arise.

KHAN GUL V. LAKHA SINGH CASE:

In the Lahore High Court

Case No.: AIR 1928 Lah 609

Equivalent Citation: (1928) ILR9LAH701

Khan Gul: Appellant

Lakha Singh: Respondent.

Decided on- 2nd April 1928

Bench

Sir Shadi Lal; Justice Broadway; Justice Harrison; Justice Tek Chand; Dalip Singh.
Facts:

1. Plaintiffs brought a suit for possession of half a square which had been sold to them by defendant
1 for Rs. 17,500 out of which Rs. 8,000 had been paid in cash before the Sub-Registrar and Rs. 9,500
was secured by a promissory note payable on demand from the plaintiffs.

2. The plaintiffs alleged that defendant 1 had been duly paid Rs. 17,500 because the promissory note
for Rs. 9,500 in his favour had been discharged by another promissory note executed by the plaintiff
in favour of the defendant’s brother-in-law Muhammad Hussain at the request and with the consent
of the defendant, that the plaintiffs had paid Rs. 5,500 out of the Rs. 9,500 to Muhammad Hussain
and were prepared to pay the balance.

3. Defendant 1 had refused to deliver possession of the property and the plaintiffs prayed that
possession of the property sold might be delivered to them, or, in the alternative, that a decree for Rs.
17,500, the consideration money, together with interest or damages arising from breach of contract at
the rate of one per cent per mensem, amounting to Rs. 1,050, i.e., for Rs. 19,000, in all, might be
passed against the other property of defendant 1.

4. Defendant 1 pleaded minority.

5. Defendant 2, wife of defendant 1, pleaded minority of defendant 1, and also pleaded a prior gift by
defendant 1.

Issues

The questions, which have been formulated for decision by the Full Bench, are in these terms:

1. Whether a minor, who, by falsely representing himself to be a major, has induced a person to
enter into a contract, is estopped from pleading his minority to avoid the contract.

2. Whether a party, who, when a minor, has entered into a contract by means of a false
representation as to his age, whether he be defendant or plaintiff, in a subsequent litigation,
refuse to perform the contract and at the same time retain the benefit he may have derived
therefrom.
Judgment:

1. As regards the minor’s capacity to enter into a contract there was some uncertainty prior to
1903 as to whether a minor’s contract was void or voidable.

2. But all doubt on the subject has been dispelled by the judgment of their Lordships of the Privy
Council in Mohori Bibee v. Dharmodas Ghose[3] which declares that a person who, by reason of
infancy as laid down by S.11, Contract Act, incompetent to contract, cannot make a contract
within the meaning of the Act. The transaction entered cannot be recognized by law.

3. The law of estoppel is a general law applicable to all persons, while the law of contract
relating to capacity to enter into a contract is directed towards a special object; and it is well
established principle that, when a general intention is expressed by the legislature, and also a
particular intention, which is incompatible with the general one, particular intention is
considered an exception to the general one: per Best, C.J. in Churchill v. Crease[4].

4. In India the rule against the application of the doctrine of estoppel to a contract void the
ground of infancy has been adopted, not only by the Calcutta High Court, but also by the High
Courts at Madras, Allahabad and Patna. A Division Bench of the Lahore High Court has,
however, favoured the view taken by the Bombay High Court in Wasinda Ram v. Sim Rant[5].

5. In the case of Mohoree Bibee v. Dharmodas Ghose, which was an appeal from the judgment
of the Calcutta High Court in Brahma Datt v. Dhurmo Dass Ghose[6] their Lordships
refrained from expressing their opinion and disposed of the question by making the following
observation:
The Courts below seem to have decided that this section (S. 115) does not apply to infants but
their Lordships do not think it necessary to deal with that question now. They consider it clear
that the section does not apply to a case like the present, where the statement relied upon is
made to a person who knows the real facts and isnot misled by the untrue statement.

6. The balance of the judicial authority in India, is decidedly in favour of the rule that where an
infant has induced a person to contract with him by means of a false representation that he was
of full age, he is not estopped from pleading his infancy in avoidance of the contract and, though
S. 115, Evidence Act is general in its terms, the court considering that it must be read subject to
the provisions of the Contract Act, declaring a transaction entered into by a minor to be void.

7. Thus, answer to the First question referred to is therefore in the negative.

8. Second issue: A false representation by an infant that he was of full age gives rise to an
equitable liability. The Court, while relieving him from the consequences of the contract may in
the exercise of its equitable jurisdiction restore the parties to the position which they occupied
before the date of the contract (Doctrine of Restitution).

9. In Stocke v. Wilson[7] an infant, who had obtained furniture from the plaintiff by falsely stating
himself to be of age, and had sold part of it for £ 30 was directed to pay this amount as part of
the relief granted, to the plaintiff.

10. Answer to the second question is that an infant though not liable under the contract, may in
equity required to return the benefit he has received by making a false representation as to his
age.

11. Harrison J. dissenting, that a minor who has entered into a contract by means of false
representation as to his age, though not liable under the contract, may, in equity, be required to
return the benefit he has received by making a false representation as to his age, whether he be a
defendant or plaintiff.

Amended provisions in the Specific Relief Act, 1963

The Law Commission of India preferred the view of Sir SHADILAL CJ and accordingly the
controversy has now been set at rest by the new Specific Relief Act, 1963. The principle of
restitution is contained in Section 33 of the new Act. The net result of the amendment may be
stated in terms of the following two propositions:

(1) Where a void or voidable contract has been cancelled at the instance of a party thereto, the
court may require him to restore such benefits as he has received under the contract and to make
any compensation to the other party which justice may require.
(2) Where a defendant successfully resists any suit on the ground that the contract, by reason of
his being incompetent, is void against him, he may be required to restore the benefits, if any,
obtained by him under the contract, but only to the extent to which he or his estate has
benefited thereby.

Sub-section (1) of the above provision, as noted before, incorporates the principle that he who
seeks equity must do equity. The courts have the discretion to require the minor-plaintiff to
restore the advantages he has obtained under a void agreement. A good illustration of the
circumstances in which this power is to be exercised is Jagar Nath Singh v Lalta Prasad,49 where
BANERJI J of the Allahabad High Court said: "Where persons who are in fact underage induce
others to purchase property from them, they are liable in equity to make restitution to the
purchasers for the benefit they have obtained before they can recover possession of the property
sold."50

But the court will not compel any restitution by a minor even when he is a plaintiff, where the
other party was aware of the infancy so that he was not deceived, or where the other party has
been unscrupulous in his dealings with the minor, 52 or where, though the minor had
misrepresented his age, the other party was so zealous to enter into the transaction that the false
rep-resentation exerted no influence on him, 53 or where the other party lays no material before
the court for coming to the conclusion that justice requires return of the money paid to the minor.
54

Section 33(1) of the Specific Relief Act, 1963 does not alter the earlier law. If the minor comes
to the court as a plaintiff, he can be compelled to disgorge his gains under the agreement. Sub-
section (2), however, makes this difference that if a minor is brought before the court as a
defendant, he can be compelled to account for such portion of the money or anything else
received by him as has gone to benefit him personally, such as education or training, or has
resulted in an accretion to his estate.
7. Thus ,answer to the First
question referred to is therefore
in the negative.
8. Second issue: A false
representation by an infant that
he was of full age gives rise to an
equitable
liability. The Court, while
relieving him from the
consequences of the contract may
in the exercise of
its equitable jurisdiction restore
the parties to the position which
they occupied before the date of
the
contract (Doctrine of
Restitution).
9. In Stocke v. Wilson[7] an
infant, who had obtained
furniture from the plaintiff by
falsely stating
himself to be of age, and had sold
part of it for £ 30 was directed to
pay this amount as part of the
relief
granted, to the plaintiff.
10. Answer to the second
question is that an infant though
not liable under the contract, may
in equity
required to return the benefit he
has received by making a false
representation as to his age.
11. Harrison J. dissenting , that a
minor who has entered into a
contract by means of false
representation
as to his age, though not liable
under the contract ,may ,in
equity, be required to return the
benefit he
has received by making a false
representation as to his
age ,whether he be a defendant or
plaintiff.
Conclusions
While deciding the case, Sir
Shadi Lal, C.J. made a liberal
interpretation of the above stated
statutory
provisions and also the equitable
doctrine of English law. Decision
on the following two points in the
case needs a mention :
1. According to Section 39,
Specific Relief Act, 1877, a
minor may sue for the
cancellation of an
instrument pertaining to a Void
agreement, and when he so goes
to the Court (as a plaintiff) to
claim
the relief, the Court may ask the
minor to pay compensation to the
other side under Section 41. In
this
particular case the minor was not
the plaintiff but was the
defendant. The Lahore High
Court still held
that the minor should be asked
to pay back the money. In its
view the other party deserves
to be
compensated by a fraudulent
minor, in equity, irrespective of
the fact that the minor is the
plaintiff or
the defendant.
7. Thus ,answer to the First
question referred to is therefore
in the negative.
8. Second issue: A false
representation by an infant that
he was of full age gives rise to an
equitable
liability. The Court, while
relieving him from the
consequences of the contract may
in the exercise of
its equitable jurisdiction restore
the parties to the position which
they occupied before the date of
the
contract (Doctrine of
Restitution).
9. In Stocke v. Wilson[7] an
infant, who had obtained
furniture from the plaintiff by
falsely stating
himself to be of age, and had sold
part of it for £ 30 was directed to
pay this amount as part of the
relief
granted, to the plaintiff.
10. Answer to the second
question is that an infant though
not liable under the contract, may
in equity
required to return the benefit he
has received by making a false
representation as to his age.
11. Harrison J. dissenting , that a
minor who has entered into a
contract by means of false
representation
as to his age, though not liable
under the contract ,may ,in
equity, be required to return the
benefit he
has received by making a false
representation as to his
age ,whether he be a defendant or
plaintiff.
Conclusions
While deciding the case, Sir
Shadi Lal, C.J. made a liberal
interpretation of the above stated
statutory
provisions and also the equitable
doctrine of English law. Decision
on the following two points in the
case needs a mention :
1. According to Section 39,
Specific Relief Act, 1877, a
minor may sue for the
cancellation of an
instrument pertaining to a Void
agreement, and when he so goes
to the Court (as a plaintiff) to
claim
the relief, the Court may ask the
minor to pay compensation to the
other side under Section 41. In
this
particular case the minor was not
the plaintiff but was the
defendant. The Lahore High
Court still held
that the minor should be asked
to pay back the money. In its
view the other party deserves
to be
compensated by a fraudulent
minor, in equity, irrespective of
the fact that the minor is the
plaintiff or
the defendant.