RESEARCH PAPER ON RESTITUTION IN VOID AND VOIDABLE

CONTRACTS

SUBMITTED TO: SUBMITTED BY:

Miss. Pragya Aishwarya Avinash kumar

Faculty, Law of Contracts Roll no. - 862

B.A. L.L.B. ( semester 1 )

Table of Contents
Introduction...........................................................................................................................................3
Voidable Contracts.................................................................................................................................3
Restoration of benefits and in a voidable contract.................................................................................4
Section 64..........................................................................................................................................4
 Restitution under loss due to misstatement........................................................................................5
Restitution under void agreements.........................................................................................................6
Restitution in Agreements by Persons Incompetent to Contract........................................................7
Nature of a Minor's Agreement..........................................................................................................7
Liability to Pay Restitution by a Minor.............................................................................................8
Restitution under The Indian Contract Act........................................................................................8
Restitution under Sections 64 and 65.................................................................................................8
Section 68: Contracts by Infants......................................................................................................10
Section 56…....................................................................................................................................10
Conclusion...........................................................................................................................................12

Introduction

Damages are the amount of money or pecuniary restitution obtained by successfully bringing
action to any wrong which is either an infringement of legal right tort or a breach of contract,
the restitution being in the form of a lump sum awarded without any condition and is

pg. 2
generally, but now not necessarily, expressed in currency. Pecuniary satisfaction by way of
‘restitution’ or compensation also is permitted under Civil Law1. The situation where there is
depression in a voidable contract, or where the agreement is void ab initio, or a contract
subsequently becomes void, or it being a quasi- contract or restitution is permitted by statute,
meaning thereby, under the Fatal Accident Act or Motor Vehicles Act, are some of the
instances of restitution or restitutions.

Law of contract could be described as the branch of law which determines the
circumstances in which a promise shall be legally binding to the person making it2. It deals
with self-imposed obligations, binding the parties under consideration to undertake the same.
Obligation to perform a contract also includes the obligation to be responsible for the breach
of the same.

Generally, no legal obligation arises until the contract is formally concluded3. Party
which breaches the contract is held liable for the payment of damages, for the consequences
thereof to the other party.

Generally, the term ‘restitution’ can be used in three senses: (i) return or restoration a
specific object to its rightful owner or status, (ii) restitution for gain through the wrong done
to a person, (iii) reparation for the wrong done to a person.

Voidable Contracts

Where agreement is entered into without free consent and through the use of coercion,
fraud, misrepresentation, or undue influence, the agreement is a contract voidable by the part
of the party whose consent was so obtained4. Apart from the remedy for rescission of
contract, the remedy of compensation or restitution is also available in certain situations. The
position in that context can be examined under the following headers:

(i) Restoration of benefits or restitution in a voidable contract; and

(ii) Restitution for losses due to misrepresentation.

1 Although payment of restitution to the injured party I generally by way of a civil remedy, in certain
exceptional cases, such as provided under section 357 of Cr. P.C. 1973, even a criminal court while passing
judgement may order that the injured party be paid restitution out of the fine imposed such restitution may not
be sufficient to cover the damage caused to the injured party. In such a case the injured party may also bring a
civil suit, and the civil court shall take into account the amount of restitution paid by the criminal court.
2 Anson’s Law of Contracts, 24th ed. (1975). P. 1.
3 Section 2(h), Indian Contract Act defines a contract as “agreement enforceable by law”
4 In case of coercion , fraud or misrepresentation, the contract is voidable under 19 and in case of undue
influence the same is voidable under section 19A of the Indian Contract Act, 1872.

pg. 3
 Restoration of benefits and in a voidable contract

When a party intend to cancel a voidable contract equity requires that if he has
obtained gained some benefits under the contract from the other party, the prior is liable to
restore the same. This equitable principle has been included in section 64 of the Indian
Contract Act, which reads as:

“When a person at whose option a contract is cancelled, the other

party does not need to perform any of the promise contained therein.

The party cancelling a contract shall, if he/she has received any benefit
shall restore it to the next part”

Section 64

(1) That the contract is voidable at the option of the parties;

(2) He can cancel it;
(3) In such an event the other party shall not perform the promise;
(4) The party cancelling the contract should restore all benefits derived from it till then
from the contract through the other party from whom he has received it. In Sinaya
Pillai v. muniswami Ayyar5. It was postulated:

“This principle is recognized in section 64 of the Indian Contract

Act, in section 35 of the transfer of property Act and generally by
The Indian Court of Equity and good conscience.”

When an individual seeks to cancel a voidable contract through a court of law under the
Specific Relief Act, 1963 the court, while granting such relief can require such individual to

restore the benefits which he has received under the contract, and to pay any restitution which
is just by law, Section 30 of the Specific Relief Act, 1963 makes the following provision6.

“On adjudging the rescission of a contract, the court, may require

the party to whom such relief is granted to restore, so far as may
be, any benefits which he may have received from the other party
and to make any restitution to him which, justice may require”

5 22 Mad. 289, 291.

6 See Section 33(2), of the Specific Relief Act, 1963 for a similar provision with regard to an instrument which
is voidable.

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 The Indian Contract Act simply furnishes for the restitution of the benefits received by the
party cancelling the contract, whereas the Specific Relief Act prescribes for restitution also,
as justice may requires.

Restitution under loss due to misstatement

It has been noted that the contractual remedy for both the fraudulent and non-
fraudulent representation under Section 19 of the Contract. Fraud is also a tort and, therefore,
the remedy of damages under this branch of the law is available in such a case7 the distinction
between a fraudulent and non-fraudulent statement has continued to exist for the purpose of
liability. Therefore, in Derry v. Peek8, the directors of a company, who honestly believing the
statement to be true made the same, a shareholder, who had been misled by the statement
while purchasing shares of the company, could not make the directors liable for such a
statement.

Non-fraudulent statements could be made either negligently or innocently. In respect

of negligent misstatements it had been urged in some cases9 that just like other cases of
negligence the liability for negligence misstatements should also be there. But the plea was
rejected on the ground that even though at one time the liability could not be there been
recognized10, such a liability could not there for non-fraudulent misstatement in view of the
decision of Derry v. Peek11. After the decision in Donoghue v. Stevenson12 which explained
the liability for negligent misstatements should also be covered by the rule laid down in that
case. The courts, however, did not agree with this view on the ground that the decision was
with regard to dangerous chattels which were transferred negligently rather than the making
of the negligent misstatement.

Restitution under void agreements

In this regards section 65 of the Indian Contract Act lays down:

“ When an agreement is discovered to be void, or when a contract becomes, void, any

person who has received any advantage under such agreement or contract is bound to restore
it, or to make restitution for it, to the person from whom he received it. ”

7 Such an action has been recognised ever since the decision of Pasley v. freeman, (1789) 3 TR 51.
8 (1889) Ac 337.
9 Le Lievre v. Gould (1893) 1 QB 491.
10 In Cann v. Wilson , (1888) 39 Ch D 39 liability for negligent mis-statement had been recoginzed
11 (1889) A.C. 337
12 (1932) A.C. 562.

pg. 5
The section postulates that when: (a) an agreement is discovered to be void; (b) or when a
contract becomes void the person who had received any advantage under such agreements or
contract is bound to restore it to the other party or to pay adequate restitution for the same.

An agreement discovered to be void indicates an agreement not enforceable by law,

i.e. , which is void from its very inception as distinct from a contract which becomes void
subsequently13. Section 65, therefore, applies to agreements that are void ab initio. Privy
counsel postulates in Harnath Kaur v. Inder Bahadur Singh14 in the following terms:

“ The section deals with (a) agreements and (b) contract. The distinction between them
is apparent from section 2. By clause (e) every promise and every se of promises forming the
consideration for each other is an agreement and by clause (h) an agreement enforceable by
law and clause (g) an agreement not enforceable by law is void. An agreement, therefore,
discovered to be void is one not enforceable by law, and the language of the section would
include an agreement that was void in that sense from its inception as distinct from a contract
that becomes void. “

It may be noted that Section 2 clause (j)15 of Indian Contract Act, 1872, states that an
agreement not enforceable by law is said to be void. Section 2 clause (j) says that:

“ A Contract which ceases to be enforceable by law becomes void when it ceases to be

enforceable. “

So Section 65 will not apply to a case where it is stipulated that by reason of warranty
by one of the contraction parties, the other party shall be discharged from the performance of
his part of the contract. It is on this, ground that an insurance company is excused from
refunding the amount is a breach of warranty arising under the contract of insurance16.
Section 65 cannot apply to a minor as he is incompetent to contract17 or to a case where there
could be no contract nor can it apply to a person who deliberately enters ‘into a contract
which he knows is not valid18. But the section was held to apply to a case where the factor
minority was unknown to the parties at the time of the contract and this was discovered only
later19.

When the object of the agreement is illegal and the same is to the knowledge of both
the contracting parties, it cannot be said that it was an agreement discovered to be void.
Consequently 97 the section cannot apply to such a case20.

13 Sunderlal Ramdayal v. Laxman Prasad, A.I.R. 1949 Nag. 292, 294.

14 A.I.R. 1922 PC 403 at 405: 45 A11. 50 1A 69
15 The Indian Contract Act, 1872.
16 Oriental Government Security Life Assurance Co. Ltd. v. Narasimhachari, (1901), 25 Mad 183 (214).
17 Moharie Bibi v. Dharmodas Ghose, (1 903) 30 Cal. 539; 45 Bom. 2-25; 53 Bora 309.
18 Gopalaswamy v. Vaithilinga, A.I.R. 1 940 Mad. 719.'
19 Gokuldas v. Gulab Rao, A.I.R. 1926 Nag. 108.
20 Dayabhai Tribhavan Dass v. Lakshmi Chand Puran Chand, (1 885) , KB 281 .

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 Restitution in Agreements by Persons Incompetent to Contract

The parties to the contract should be competent to contract21. Every person, who is of
the age of majority according to the 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, is competent to
contract22 A minor23, a person of unsound, mind24 or a person who is disqualified from
contracting are not competent to contract. The position of all such persons is similar. The
question of the nature of minor s liability came in for consideration in a large number of cases
and the same is being discussed in some detail hereunder.

Nature of a Minor's Agreement

Since the decision of the Privy Council in 1903 in Mohari Bibee v. Dharmadas
25
Ghose , it has been established that an agreement by a minor is void. In that case the plaintiff
a minor mortgaged his property in favour of the defendant, a money lender to secure a loan.
The minor subsequently brought an action for getting the mortgage cancelled on the ground
that since at thetime of agreement the plaintiff was a minor the mortgage was void and
inoperative. It was established that at the time of granting the loan the attorney of the money
lender had the knowledge that the plaintiff was a minor. The defendant contended that the
minor having misrepresented his age and fraudulently obtained the loan the law of estopple
should be applied against him and he should not be allowed to plead minority. Moreover, if
the mortgage is cancelled on the request of the minor he should be asked to repay the loan
taken by him against the mortgage. The minor's agreement was stated void, and the
contentions of the defendant were discarded. As regards the application of the law of estoppel
it was held that as the fact of the minority was known to the attorney of the money lender and
the money lender was not misled by the false statements of the minor, the law of estoppel was
not applicable to the case. So far as the return of the borrowed money is concerned, it was
held that the same could not be- allowed either under Sections 64 or 65 of the Indian Contract
Act as they were not applicable to a void agreement as that of a minor, or under the
provisions of the Specific Relief Act as in this case the court did not consider it just, to allow
the refund. Such an agreement has been considered to be void ab initio, incapable of being

21 Section 10, The Indian Contract Act, 1872.

22 Section 11, Ibid.
23 A person, who has not attained the age of majority, is a minor. According to section 3, The Indian Majority
Act, a . person is deemed to have attained the age of majority, when he completes the age of 18 years, except in
case of a person of whose person or property a guardian has been appointed by the court,- in that case the age of
majority is 21 years. At Common Law the age ‘of majority was 21 years, but by Section 1, of the Family Law
Reform Act, 1969, the same has been lowered to 18 years.
24 According to Section 12, The Indian Contract Act: A person is said to be of sound mind for the purpose of
making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational
judgement as to its effect upon his interest. A person who is usually of unsound mind, but occasionally of sound
mind, may make a contract when he is of sound mind. Aperson usually of sound mind, but occasionally of
unsound mind, may not make a contract when he is of unsound mind.
25 (1 903) 30 1 .A. 1 14 (PC) .

pg. 7
subsequently validated through ratification. The reason for the rule is that the consideration
given during minority is no consideration.

Liability to Pay Restitution by a Minor

The question of the liability of the minor to compensate the other party may be
considered under the following heads:

(a) Restitution under Law of Torts;

(b) Restitution under Indian Contact Act; and

(c) Restitution under Specific Relief Act, 1963.

Restitution under The Indian Contract Act

The question of restitution by a minor under the Indian Contract Act may be considered
under the following heads:

(1) Restitution under Sections 64 and 65;

(2) Restitution for necessaries under Section 68.

Restitution under Sections 64 and 65

As regards the question of application of Sections 6426 and 6527 to the case of a person
lacking ability to contract and payment of restitution by such incompetent persons there
under, it has been settled by the Privy Council in Mohari Bibie v. Dharmadas Ghose28 that
these sections are not appropriate to the case of a i minor. It has been noted above that in that
case a minor, who had mortgaged his property in favour of a money lender brought an action
for the cancellation of the mortgage deed on the ground that at the time of the effecting of the
deed he was a minor, and therefore, the agreement entered into by him was void. The money
lender inter-alia argued that if the relief applied for was granted to the minor he should be
26 Section 64 of The Indian Contract Act lays down: When a person at whose option a contract is voidable
rescinds it, the other party thereto need not perform any promise therein contained in which he is promiser. The
party residing a voidable contract shall if he has received any benefit there under from another party to such a
contract, restore such benefit, so far as may be, to the person from whom it was received.
27 Section 65 of the Indian Contract Act read as under: When an agreement is discovered to be void, or' when
an agreement is discovered to be void, or when a contract becomes void, any person who has received any
advantage under such agreement or contracts bound to restore it, or to make restitution for it, to the person from
whom he received it.
28 (1 903) 30 1 A11 4 (PC)

pg. 8
asked to return the money borrowed by him under Sections 64 and 65 of The Indian Contract
Act and the provisions of the Specific Relief Act. As regard Section 64, the Privy Council
held that section was applicable only to voidable contracts, and since the minor's agreement
was void the minor could not be asked under that provision to return the amount. As regard
Section 65, it was observed that this section is also based on the assumption that there is an
agreement between competent parties and that provision has no application to a case in which
there never could have been any contract29.

The Law Commission well thought-out this aspect of the question30. It did not make
any comment on the understanding put by the Privy Council on Section 64, but disagreed
with the interpretation of Section 65. In its view an agreement by a minor is "void" or
"discovered to be void" and thus covered by Section.

It recommended an addition of explanation to Section 65 declaring that the section is

applicable to minors. Its opinion is as follows31:

“ We feel that the judicial committee had not correctly interpreted Section 65 and we
are of opinion that an agreement is void or is discovered to be void even though the invalidity
arises by reason of the incompetency of a party to a contract. We recommend that an
Explanation be added to Section 65 to indicate that section should be applicable where a
minor enters into an agreement on the false representation that he is major...... At the same
time we want to make it clear that Section 65 should not have any application to cases of
agreements entered into with full knowledge of their competency. “

As regards the recommendations of the Law Commission to take undue advantage by

wrongly representing his age, it is submitted that Section 65 should be amended as
recommended by the Law Commission. It is further submitted that such an alteration should
cover cases not merely of minors, but of all persons lacking ability to contract. It is
unfortunate that even more than quarter of a century after the recommendation of the Law
Commission the same has not been given effect to.

Section 68: Contracts by Infants

The contracts entered by an infant are voidable at the option of the infant, but he may enforce
the contract in opposition to the adult. However an infant may be held liable in quasi-contract
for the logical value of necessaries furnished to him; and he will be liable on such contracts
as he entered into under influence or direction of law, and also on contracts to do what he was
legally bound to do and so could have been legally obliged to perform.

29 Ibid, at 124.
30 Law Commission of India, 13th Report (Contract Act, 1872) 1958.
31 Ibid, paras 37 and 86.

pg. 9
 Section 56…

Of the Indian Contract Act, 1872 deals with the question of initial and successively
impossibility of contract which renders the contract void32, whereas Section 65 deals with the
respective position of the parties in such a situation. Section 65 is as follows:

“ When an agreement is discovered to be void, or when a contract becomes void, any

person, who has received any advantage under such agreement or contract is bound to
restore it, or to make restitution for it, to the person from whom he received it. “

If the Act, which renders the contract void, is known by the promisor be impossible or
unlawful, then such promisor has a responsibility to compensate the promisee, according to
Section 56 (para3), which is as follows:

“ Where one person has promised to do something which he knew, or, with reasonable
diligence, might have known, and which the promisee did not know, to be impossible or
unlawful, such promisor must make restitution to such promisee for any loss which such
promisee sustains through the non-performance of the contract. “

When an agreement is exposed to be void or a contract becomes void any person who
has received any advantage under such agreement or contract has a duty to restore back the
same or to pay restitution in respect hereof. It may be seen that such liability is of any person,
whether the promisor or the promisee, and more-over such liability is not limited to
restoration of the benefit but also extends to the payment of restitution also, if so necessary
under the circumstances of the case.

In Rajedndra Bahadur v. Roshan Singh33, the Allahabad High Court has held that in a
Hindu family a betrothal is in the nature of a contract to which the contract Act is enforceable
and therefore, if a contract of marriage becomes void on the death of the bride, the parties to
the contract will be entitled to the return of the gifts made in consideration of the proposed
marriage, and also the expenses legitimately incurred in relation with ceremonies preceding
marriage. The decision of the Nagpur High Court, in Sharwan v. Sheoratan34 is also to the
similar effect. In this case the tenant had taken lease of a shop for a certain terms and paid the
lease money for the whole period in advance. Subsequently, before the expiry of the said
period the shop was destroyed by fire. The lessee thereupon avoided the lease as to future. It
was held that on the termination of the lease the lessee was entitled to the refund of lease
money for the unexpired period. Man Singh v. Khazan Singh35 is another design where a
contract was frustrated after the promisee had already taken some advantage under the
contract. In this case the plaintiff entered into a contract for cutting babool trees on the

32 According to Section 56 of the Indian Contract Act (1 872): An agreement to do an act impossible in itself is
void. A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event
which the promiser could not prevent, unlawful, such promiser must make a restitution to such promisee
sustains through the non-performance of the promise..
33 A.I.R. 1950 All. 592.
34 A.I.R. 1935 Nag. 208.
35 A.I.R. 191 Raj. 277.

pg. 10
defendants' land for a period of three years. Before the expiry of this period Rajasthan
Removal of Trees (Regulations) Ordinance, 1949 came into force, whereby the cutting of the
trees without a licence was rendered unlawful. The plaintiff could not get licence for cutting
trees from the government. It was held that the contract having become impossible of
performance became void and each party was bound to restore the benefit which it had taken
under the contract. In the same way if freight has been paid in advance can be recovered
back36.

Conclusion

Damages are the amount of money or pecuniary restitution obtained by successfully bringing
action to any wrong which is either an infringement of legal right tort or a breach of contract,
the restitution being in the form of a lump sum awarded without any condition and is
generally, but now not necessarily, expressed in currency.

36 Candha Korliah v . Jannoo Hasan A.I.R. 1926 Mad. 175

pg. 11
Agreement entered into without free consent and through the use of coercion, fraud,
misrepresentation, or undue influence, the agreement is a contract voidable by the part of the
party whose consent was so obtained, When a party intend to cancel a voidable contract
equity requires that if he has obtained gained some benefits under the contract from the other
party which is discussed In section 64 of the Indian Contract Act.

Every person, who is of the age of majority according to the 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, is competent to contract, Section 65 of the Indian Contract Act discusses about
restoration in its regards. Contract entered into minors is Void ab Initio. Also, the contracts
entered by an infant are voidable at the option of the infant, but he may enforce the contract
in opposition to the adult

pg. 12