Section 65: obligations of person who has received advantage under void agreement or contract that becomes void

When an agreement is discovered to be void or when a contract becomes void, any person who has received an advantage under such agreement or contract is bound to restore it or to make compensation for it to the person from whom he received it.

The provisions of section 65 apply only when an agreement at a subsequent stage is discovered to be void or when a contract became void later on by one person or the other.

Scope of Section 65 of the Contract Act makes a distinction between the agreement and the contract; according to section 2 of the Contract Act, an agreement which is enforceable by law is a contract and an agreement which is not enforceable by law is said to be void. Therefore, when the earlier part of the section appeals of an agreement being discovered to be void it means that the agreement is not enforceable and is therefore not a contract. it means that it was void. It may be that the parties or one of the parties to the agreement may not have when they entered into the agreement known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the section refers to the contract becoming void. That refers to a case where an agreement which was originally enforceable and was, therefore, a contract becomes void due to subsequent happenings.

This section has no application, when the parties entered into a contract which they knew to be void to start wit. This section deals with 2 matters (i) an agreement which is discovered to be void and (ii) a contract which becomes void. Further, in order to attract the provision of this section, the advantage must have been received under the contract if the advantage is received after the agreement ceases to be enforceable at law it cannot be said that it is an advantage received under the contract. Therefore, the section applies only if the advantage is received before the contract ceases to be a contract by becoming void.

Applicability of section 65 to contract entered into by guardian:

It has been held by the privy council in Mohori Bisbee v. Dhurmodas Ghose that section 65 has reference only to agreements which have in infact come into existence but are void. If no agreement actually comes into existence there is no question of considering whether it is subsequently discovered to be void. The case before the privy council was one of the minor entering into a contract and the questions was whether such a contract was to be deemed to have existed at all. If such a contract does not exist there is no question of invoking section 65. This cannot be extended to a case where a guardian of a minor or a person who purports to act as a guardian of a minor enter into contract. So far as that person is concerned, he being sui juris is entitled to enter into contract, but the contract is the one to do an act which is impossible, and it is for that reason the contract becomes void.it cannot be said that in such a case there is no agreement at all and therefore there cannot be any question of the agreement being discovered to be void later.

The agreement executed by the defendant is one which comes under section 65 of the Indian Contract Act 1872 and if the agreement was discovered to be void later by parties coming to know that it was impossible of performance then defendant may be liable to disgorge the advantage obtained by him.

Where the instrument provided for liquidated damages or the mode of recovery or indicated the source from which the loss could be reimbursed those stipulations notwithstanding the failure of the conveyance for want of title would be valid and would be actionable apart from the basis of section 65 of the Contract Act