P. Nityananda Mudaliar vs AR.M.M. Arunachalam Chettiar

Ramaswami, J.—This is a second appeal directed against the decree and judgment of the learned Subordinate Judge of Devakottai in A.S.

No 153 of 1953 confirming the decree and judgment of the learned District Munsif of Devakottai in O.S. No. 130 of 1952. Both the Courts

below have found the following facts as established and they are binding on me in second appeal as nothing was placed before me to show that

these concurrent findings of fact do not flow from the evidence adduced in this case.

P.N. Ratnasabapathi the second defendant in the suit is the son of the first defendant Nityananda Mudaliar. Both the Courts have found that the

father apparently for in come tax purposes and probably for training up the son in businesses of their own was running a business under the name

and style of Chamundi Stores in his own name but in reality for the benefit of the second defendant The lower Courts have come to this conclusion

notwithstanding the assertion of the father that he was the sole proprietor of the business and that his son by the time the matter came to Court was

only a dismissed employee for the following reasons The father does not say what was the capital invested by him in the business and where from

he got this capital. He has not produced his account books maintained by him at the time of the commencement of the business. He is found

running a business called Ramakrishna Coffee Works in the name of his youngest son. The lower Courts found a sharp distinction between the

business run by the father with a body of employees in Madurai who were sending copies of accounts every month etc. and this business where the

son, the second defendant, never sent copies of accounts etc Finally, though the father alleged that the second deferent had misappropriated Rs.

11,000 belonging to him and that he has dismissed his son from the Stores, this allegation has been found incredible because one of the account

books of the business is with him which would not be the case if his version were true; and secondly, whereas the first defendant filed a criminal

complaint against the clerk called Lakshmanan Chettiar no such step has been taken by him against the second defendant. It is the admitted case of

the first defendant that the second defendant in management of the Chamundi Stores opened a current account in his own name in the United

Commercial Bank at Karaikudi and that he gave a letter Ex. A.6 dated 7th August 1946 to the bank authorising and permitting the second

defendant to operate on that current account and that the second defendant was so operating. Therefore, it may be taken as established that the

father, the first defendant, and his son were joint proprietors of this business or that the son as the agent of the father was managing the business

and in any event he was not a paid employee and the so-called misappropriation of Rs. 1,000/- is not the entire truth and is at best an unproved

self-serving assertion.

In these circumstances there is no dispute that the son, the second defendant, borrowed on a promissory note Rs. 2000/- from the plaintiff, a

banker, on 28th June 1951, marked as Exs. A. 2. The money was paid by the plaintiff to the second defendant in the shape of a cheque on the

United Commercial Bank, Karaikudi, marked As Ex.A1. What the son did with this cheque amount was as follows: It is seen from Ex.A.9 that as

on the date of Ex.A.9 viz., 28th June 1951 Rs. 902-15-0 had been overdrawn from the said current account. By defendant 2 crediting the cheque

Ex.A.1 received from the plaintiff, this amount overdrawn from the current account was paid off or adjusted and there was a credit of Rs. 1097-1-

0 in the account. On 28th June 1951 and 29th June 1951 the sums of Rs. 500 and Rs. 600 respectively have been drawn by two cheques page 22

of Ex.B.3 which is the day-book of Chamundi Stores and which has been produced by defendant 2 at the instance of defendant 1 and on which

defendant I relies, shows that these two sums of Rs. 500 and Rs. 600 have been brought into the account of the Chamundi Stores. Ex.A.9 shows

that but for the amount covered by the cheque Ex.A.1 having been credited in the current account of defendant 1 there would not have been

sufficient money for drawing the sumo of Rs. 500 and Rs. 600 on 28th June 1951 and 30th June 1951.

It is therefore abundantly clear that out of the sum of Rs. 2000 borrowed from plaintiff by defendant 2 a sum of Rs. 902-15-0 went in discharge

of the amount overdrawn from the current account with the United Commercial Bank in the name of the first defendant and that the balance has

gone for purposes of the business of Chamundi Stores.

Therefore both the lower Courts came to the conclusion that not only the second defendant but also the first defendant was liable to reimburse

the suit amount to the plaintiff on one of three alternatives either (a) as a joint proprietor; or (b) the second defendant as the agent of the first

defendant in management of the Chamundi Stores; or (c) on the doctrine of unjust enrichment.

In the absence of accounts and the suppressions of evidence on the side of the defendants and the impossibility of the plaintiff to prove as to

who contributed the funds for the starting of the business and what ware the secret understandings between the father and the son, there is no

adequate material to hold that the second defendant was a joint proprietor along with his father, the first defendant. I his first alternative may be

ruled out and in fact it does not affect the merits of the plaintiff''s claim.

There is no doubt that there is adequate evidence for our holding that the second defendant was managing the business as the agent of his father.

It is unnecessary to repeat that evidence set out above. In those circumstances the father as the proprietor would certainly be liable for this

borrowing by his agent for the business I may usefully refer here to the observations made by parties on Agency at pages 646 and 647 under the

subheading ""Positions involved"" under the main heading ""When the Agent acts as Principal: Citing Bedstead Art. 90; Browning v. Provincial Ins.

Co. L. R. 5 P. C. 263.: Bell v. Plum by 16 T. L. R. 393, :Evans v. Collins 64 R. R. 647,; Indian Contract Act Ss. 231 to 233 ; See also Cheshire

and Fifoot Law of Contract 4th Edn ""Part VI. S. IV unauthorised Acts of the Agent"". Therefore on the short ground that the second defendant

occupying the position of an agent and managing the business and carrying with it the impression on innocent third parties of powers to borrow and

utilise moneys for the business, the act of borrowing by the second defendant, would certainly be binding on the first defendant The instant liability

however, need not be rested on this narrow ground.

The plaintiff is entitled to fasten the liability on the first defendant on the theory of unjust enrichment which I shall now examine

When can a person who has been unjustifiably enriched at the expense of another be compelled to make restitution ? That is a problem which all

legal systems must endeavour to solve. They have generally solved it by meant of a set of principles and rules which are placed under the rubric

''quasi-contract.'' The word '' quasi '' has in this connection a negative meaning. It denotes the absence of that consent without which there can be

no contract. On the other hand, the word ''contract'' appended to the word '' quasi '' denotes that the obligation which the law imposes has some

resemblance to contractual obligation. That resemblance consists, as Professor Winfield has pointed out in the fact that, like contract, and unlike

fort, the relation created by a quasi-contract is to a particular person. The conditions under which English law will impose a quasi-contractual

obligation to restore an unjustifiable enrichment depend, as in other branches of English law, partly upon the rules of the common law and partly

upon the rules of equity.

(See The Law Quarterly Review No. CCXVII Volume LV, 1939 at page 37).

""It is apparent"" says Cheshire on the Law of Contracts, Fourth Edition (1956) at page 548 :

From the heterogeneous collection of cases summarized above and from the very title conferred upon this branch of the law that the problem of

ration aviation presents exceptional difficulties. The attempts made from time to time to tame the refractory material have provoked acute

controversy, and it certainly cannot be said that they have as yet achieved success,"" ""Two views have been strongly urged at different period of our

legal history. The first view : The defendant liable because unjustly benefited and which prevailed in the 19th century. The second view: Liability

based upon implied agreement which was first expounded in 1914.

The first is derived from the genius of Lord Mansfield and was set forth by him without equivocation in the case of Moses v. Macferlan (1760)

2 Burr. 1005. Lord Mansfield said in Moses v. Maeferlan (1760) 2 Burr. 1005:

This kind of equitable action to recover back money which ought not in justice to be kept is very beneficial, and therefore much encouraged, It lies

for money which ex aqua at bono, the defendant ought to refund; it does not lie for money paid by the plaintiff, which is claimed of him as payable

in point of honors and honesty, although it could not have been recovered from him in any course of law; as in payment of a debt barred by the

Statute of Limitations; or contracted during his infancy, or to the extent of principal and legal interest upon a usurious contract, or for money fairly

lost at play : because in all these cases the defendant may retain it with a safe conscience, though by positive law he was debarred from recovering.

But it lies for money paid by mistake; or upon a consideration which happens to fail; or for money got through imposition (express or implied), or

extortion, or oppression, or an undue advantage taken of the plaintiff''s situation, contrary to the laws made for the protection of persons under

those circumstances. In one word, 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:

And in 1786 in Towers v. Barrel 1 T. R. 133 at 134, Lord Mansfield said :

I am a great friend to the action for money had and received; it is a very beneficial action and founded on principles of eternal justice.

(See Chitty on Contracts. Twenty first Edition (1955). Vol I at pages 78 and 79).

The rationalization of quasi-contract upon the basis of unjust benefit was accepted by Lord Mans field''s contemporaries and was sub tactilely

unchallenged until the present century. It was reiterated by Chief justice Tidal in 1844 and by Chief Baron Kelly in 1869.

The ground and principle upon which this form of action is maintainable"", said the former, ""is that the defendant has received money which, ex

aequo et bono, belongs to the plaintiff. The action was brought in to general use in the time of Lord Mansfield, and it has always rested upon that

ground. Edwards v. Bates (1844) 7 Man.&G. 590.

The principle "" said the latter. ""is clear and simple and in the extreme. No man should by law be deprived of his money, which he has parted with

under a mistake and where it is against justice and conscience that the receiver should retain it"". Freeman v. Jeffries (1869) L.R. 4 Ex. 189.But,

despite this formidable measure of unanimity, the abolition of the forms of action in the middle of the nineteenth century and the temptations of a

new analytical jurisprudence gradually undermined Lord Mansfield''s position. So long as the common lawyers thought in terms of procedure and

associated quasi-contract with the writ of Inebriates Assumpsit''s, they were content to accept the implications of unjust benefit But when they

abandoned their traditional forms and substituted a dichotomy of tort and contract, the old explanation seemed no longer to suffice. The various

actions grouped under the insidious title of quasi-contract were clearly not, tortuous: if the new antithesis of the common law was inevitable, they

must perforce be contractual And, as they were equally clearly not based upon any genuine consent, they must rest upon an implied or hypothetical

agreement: see Cheshire on the law of Contract (Ibid) pages 550-551.

12 ""The new revelation "" says Cheshire at page 551 ""was vouchsafe to Lord Sumner, who found the opportunity of exposition in 1914 in the case

of Sinclair v. Brougham (1914) A. O. 398, Lord Summer repudiating the basis of Lord Mansfield in the aforesaid case, stated his view as follows:

Historically the action for money had and received was not devised by the Court of Chancery nor was it applied there either in form or in

substance. It was a form of assumpsit''s already old in Lord Mansfield''s time, and his own orations of earlier actions of this sort should be enough

to show, if it were necessary, that he never thought otherwise. It is said to be a ''liberal'' action. It is therefore a common law action, grounded as

upon an implied contract on the part of the defendant and by no means unlimited in its scope. The plaintiff cannot use it to recover money, merely

because it would be fair and right that it should be paid to him, in a case in which no such contract could be implied.

''''Divergent alike in temperament and in historical method"" says Cheshire, ''''reconciliation would seem impossible."" A via media, however has

been offered by Sir C. K. Allen. ''''Fraud, Quasi-contract and False Pretences. L. Q. R. Vol. LIV. P. 201"" The Chief difference of opinion

between lawyers, he says, turns on this question :

To what extent is the action for money had and received still governed, on the one hand, by the requirements of a constructive contract, or, on the

other hand, simplicities by considerations of acetum et bonus A final pronouncement does not seem possible in the present state of the law. What

appears, however, chiefly to emerge from the discussion is that both the controverter elements are equally essential to quasi-contract and the issue

between the disputants is mainly one of the emphasis which is laid on the one or the other ingredient.

........ Though we cannot now say, in view of Sinclair v. Brougham 1914 A.C. 398; that the law will import an inebriates assumpsit''s whenever it is

or might be thought to be'' equitable'' that the defendant should repay we still have to ask when will the law import an inebriates assumpsit''s This

much we can say that in all the circumstances to which the remedy has up to the present time, been applied, the element of aqua et bonus is not

only present but essential. Conversely, when the remedy has been refused, usually though, of course, not invariably since there may be many

subsidiary issues in a claim of this kind the reason has been that restitution was not in con testable in accordance with aurum et bonus. Similarly, we

would submit that although it is impossible to say that in every case where there has been a real or supposed unjust enrichment an action lies in

quasi-contract (negotiorum gesso is the most obvious exception in English law); yet in all the recognized forms or ''heads'' where quasi-contract

does lie, a principle which may be fairly described as unjust enrichment is clearly discernible.

Sir C. K Allen''s solution, in fact is to pay deference to the propriety, so strongly urged in the dicta in Sinclair v. Brougham 1914 A.C. 398, of

expressing the English quasi contract in contractual language, but to find its substantial criterion in the idea of unjust benefit. The Judges may feel

constrained if they wish to give judgment for the plaintiff, to ""imply"" or ""construe"" a contract in his favour; they will do so only if the defendant has

been improperly enriched at his expense The compromise is consistent with the national genius, and nothing in the many and varied judicial

pronouncements upon the basis of quasi-contract goes so far as to forbid its adoption. Encouragement to this compromise view is given in Morgan

v. Ashcroft (1938) 1 K.B. 49. Berg v. Sadler (1937) 1 K.B. 158. Fibrosa case 1943 A.C. 32 at 61.Transvaal and Delagoa Bay Investment Co.

Ltd., v. Atkinson (1944) 1 All E.R. 579, United Australia Ltd. v. Barclay''s Bank 1941 A.C. 1 at 54. Nelson v. Larholt (1947) 2 All E. R. 751 at

752, Beading v. R (1948) 2 All E.R. 27, in Court of Appeal (1949) 2 All E. R. 68, in House of Lords (1951) A.C. 507= (1951) 1 All E.R. 617,

A final word may be permitted upon this vexed and delicate subject. A contributory factor in the difficulties which have surrounded its

development is that it transcends the traditional demarcation between law and equity. It has perhaps the unconscious appreciation of this fact which

led Lord Mansfield to his ambiguous use of the word ""equity"" and which caused so much unease"" nets to his successors. It is at least significant that

the Judges in Sinclair v. Brougham and in Re Diplock were driven to test their problem in the light of both common law and equitable principles

The modern tendency in England (See decisions cited above) Nelson v. Larholt (1947) 2 All E. R. 751 at 752. and Beading v. R. (1948) 2 All

E.R. 27, in Court of Appeal (1949) 2 All E. R. 68, in House of Lords (1951) A.C. 507= (1951) 1 All E.R. 617,] and more markedly in America

is to include quasi-contract together with the kindred phenomenon of ""constructive trust"" under the comprehensive head of ""Restitution"" In the

words of Lord Wright in his article on Sinclair v. Brougham (Legal Essays and Addresses, p 1)

The importance of the case is that it demonstrates a category of claims distinct from contract or tort or trust, the essential principle of which is that

the defendant should not be unjustly enriched at that expense of that plaintiff.

It may be that the ultimate solution will be to free quasi-contract alike from its historical associations with assumpsit''s, from its meretricious flavour

of contract and from its flirtation with ""equity'''' and to merge it in a unique and generic Doctrine of Restitution (See Cheshire, pages 554 and 555:

Anson''s law of Contract Twentieth Edn. (1952) Ch XXI p. 422 and foil. "" Quasi-contract"", Venkatesa Iyer The Law of Contract Third Edn. Ch.

XVIII p. 330 and foll. Quasi-contracts)

In the Low Quarterly Review (ibid) at page 50 the doctrine of unjust enrichment under the French Law has been expounded. It is as follows

(1) The defendant must have been enriched, and the plaintiff must have been impoverished. (2) The enrichment of the defendant must be ''sine

cause'' i.e. it must not have arisen from any circumstances which the law will recognize as giving rise to a right to retain the benefit. (3) There must

be no other remedy available to the plaintiff. It must be admitted that some difficulty is created by the fact that some of the decisions of the French

Courts go beyond the limits imposed by these conditions; in fact, the very existence of the third condition must be regarded as doubtful.

The Canadian Bar Review, Vol. 16 (1938) points out at p-254 that the pre second great world war German law of enrichment was codified in

Arts. 812 to 822 of the Civil Code and the substance of which is:

''The action for unjust enrichment is an important and indispensable part of German civil actions. It serves as a corrective in innumerable

transactions, in a two-fold way (a) as a corrective to the ''abstract'' transfer of title in property (whether in money, specific chattels or land); (b) to

re-just pecuniary advantages obtained by one person at the expense of another in some other way. This side of the principle lovers all those cases

where the benefit has been obtained, otherwise than by transfer of property direct from A to B. It covers benefits obtained by such acts as

specification or conversion or erroneous registration as an owner of land (in certain cases where the property right has been acquired) or any

Other way by which B has obtained benefits which he ought to refund to A. All these various groups are held together by the element of cause.

Lack or failure of cause gives rise to an obligation for refund-

Then it is pointed out at p. 256 "" (a) For money there are some special rules, according to which, by means of a number of fictions, the original

owner may follow the property through various metamorphoses as long as it is identifiable, and in equity he may even follow his money ''beyond

the verge of identification''. This remedy is stronger than any corresponding remedy in German law. It is founded on property and can be proved

against the assignee in bankruptcy. The equitable remedy, however, presupposes some sort of fiduciary relation between the parties, although such

relation will be implied in a wide range of cases.

The American law of Unjust Enrichment has been set out in Keener on "" Quasicontracts"" (1893) at pages 19 and 20 as follows :

By far the most important and most numerous illustrations of the scope of quasi-contract are found in those cases where the plaintiff''s right to

recover rests upon the doctrine that a man shall not be allowed to enrich himself unjustly at the expense of another As the question to be

determined is not the defendant''s intention, but what in equity an d good conscience the defendant ought to do, the liability, while enforced in the

action of assumpsit''s, is plainly of a quasi-contractual and not contractual nature. It is on the theory of quasi-contract, founded on the doctrine of

unjust enrichment, that an insane man, known to be insane by the party furnishing necessaries, is held liable therefore. That such is the nature of the

liability is evident, not only from the fact that he has no contracting mind, but also from the fact that he is equally liable for necessaries furnished at a

time when there was no attempt on his part to contract...

As the question to be determined is not the defendant''s intention, but what in equity and good conscience the defendant ought to do, the liability,

while enforced in the action of assumpsit''s, is plainly of quasi-contractual and act contractual nature.

This American Law as already pointed out by Cheshire in the passage above, has undergone changes. Subsequent to Keeper''s treatise

published as far back as 1893. we have got Professor Woodward''s Law of Quasi-contracts (1913). In 1937 the American Law Institute

Washington, D. C published the Restatement of the Law of Restitution (Quasi-contracts and Constructive Trusts). Restatement of the Law of

Restitution deals with situations in which one person is accountable to another person on the ground that if he were not thus accountable, he would

unjustly benefit, or the other person would unjustly suffer loss. To cite the Restatement (Ch. 1 S I P. 12): A person who has been unjustly enriched

at the expense of another is required to make restitution to the other, A person is enriched if has received a benefit. A person is unjustly enriched if

the retention of the benefit would be unjust. A person confers a benefit upon another if he gives to the other possession of or some other interest in

money, land, chattels or chooses in action performs services beneficial to or at the request of the other or satisfies a debt or a duty of the other or

in any way adds to the other''s security or advantage or saves even the other from expense or loss. But even where a person has received a benefit

from another he is liable to pay therefore only if the circumstances of its receipt or retention are such that as between the two persons it is unjust for

him to retain it. A person who officiously confers however a benefit is not entitled to restitution therefore. As to the American authors, Woodward

makes it an essential of quasi-contract that the oblige shall be compensated not for any loss or damage suffered by him but for the benefit which he

has conferred on the obligor. Mr. Woodward adds that the obligation is "" to pay the equivalent or the reasonable warty of the benefit received

(See Win-field on the Law of Quasi-contracts Chapter 10. American Law pages 135 and 136. Ordinarily the benefit to the one and the loss to the

other are co-extensive. Where it is so the rules stated in the Restatement of the Law of Restitution is to compel the one to surrender the benefit

which he has received and thereby make restitution to the other for the loss which he has suffered. But where benefit and loss do not coincide the

amount of recovery is usually limited to the amount by which one has benefited. A person who officiously confers a benefit upon another is not

entitled to restitution therefore (ibid), Ch. 1 S. 1 and 2 pages 12 and foll.)

The Indian Law on this subject is to be found in the following decisions : In Heramba Chandra Pal Chowdhury v. Kasi. Nath Sukul 1 C.L.J.

a Bench of the Calcutta High Court held fallowing Rend v. Righy (1894) 2 Q.B. 40, that if the implied authority of an agent to raise a loan is

not established, but it is proved that the sum borrowed or a portion thereof has been applied for the benefit of the business the creditor is entitled

to be reimbursed by the principal to the extent he has been benefited In Ghasiram v. Raja Mohan Bikram Sha 6 C.L.J. 39, a Bench of the Calcutta

High Court held similarly following the previous decision cited above, and the English decision in Bannatyne v. Measlier (1906) 1 K.B. 103. In

Paboodan Goolabchand Vs. M.J. Miller and Another, a Bench of this Court consisting of Varadachariar and Pandrang Row JJ. observed as

follows at pages 694 695:

It is only when the contract as such cannot be enforced against the principal, that the lender has to fall back on the equitable rule founded on the

theory of ''unjust enrichment''. Though the authorities have not been uniform as to the precise basis of the rule, the rule itself is now well established

that, where by any wrongful or unauthorized act of an agent the money or property of a third person comes to the hands of the principal or is

applied for his benefit, the principal is liable jointly and severally with the agent to restore the amount or the value of such money or property (see

Bedstead, Art. 103). In some cases, the plaintiff''s right was based on the count for money had and received or the theory of failure of

consideration, and sometimes on the analogy of the count for money paid to the use of the defendant. Again, the theory of subrogation was at one

time suggested as the analogy bat it was later on pointed out that the analogy was not true. In re Wareham Mold and Connor''s Quay Railway Co.,

(1899) 1 Oh. 440. It was also suggested that in such cases, there was really no borrowing at all, because there was no addition to the principal''s

total liability, but merely a substitution of liability to one person (the Lender) in place of the pre-existing liability to another (the person paid off).

Other cases hare supported the claim only on grounds of equity; and in re Wrexham Mold and Connah''s Quay Railway Co. (supra), two of the

Lords Justices observed that the effect of the rule was to make the borrowing valid to the extent to which the principal has received the money or

the benefit of its application.

In Mahalingam Chettiar v. Ramanathan Chettiar and others Appeal No. 665 of 1948. Rajamannar, C.J. and Viswanaths Sastri J. held:

It was first contended that the case fell within she doctrine of unjust enrichment. The basis of the doctrine is that if a person has received any

property or benefit from another it is just that he should make restitution as otherwise he would be unjustly enriched at the expense of the other.

This doctrine so far as we are concerned is embodied in Ss. 69 and 70 of the Indian Contract Act and it is generally recognized that these sections

are much wider in scope than the doctrine as applied in England and go far beyond it. Mr. Rajah Ayyar referred to the following passage in

Leaked on Contracts (8th Edition) which may be taken as an accurate statement of the English law. A debt for money paid arises where a person

has paid money for another under circumstances and upon occasions which make it just and equitable that it should be repaid; a debt or promise

to pay is then implied in law, without any actual agreement to that effect''.

To sum up: Bonus Judex secundum aequum et bonum Judicat aequitatem strict Juri praefert-(Coke on Littleton 24)-a good Judge decides

according to Justice and right and prefers equity to strict low. ""I commend the Judge"" observed Lord Horary,

that seems fine and ingenious, so it tend to right and equity; and I condemn them that either out of pleasure to show a subtle wit will destroy, or out

of in dubiousness or negligence will not labour to support, the act of the party by the art or act of the law. (Hob 125).

Bearing these principles in mind if we examine the facts of this case, we find that the lower Courts were fully justified in upholding the claim of

the plaintiff on the doctrine of unjust enrichment. The second appeal has got to be dismissed and is hereby dismissed with costs. No leave.