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CONTRACT LAW – FRIENDLY LOAN AND RESTITUTION/UNJUST ENRICHMENT

A advanced a sum of RM350,000.00 to B as a loan. The monies were banked into B’s wife’s bank account. The friendly loan agreement was signed between A and B. Can A recover back the monies loaned from both B and B’s wife?

  • A is entitled to recover the monies paid as a friendly loan to B if the loan was in fact proven.
  • A is also entitled to recover the monies paid into the account of B’s wife by relying on the principle of money had and received or restitution under Section 71 of the Contracts Act 1950.

What is unjust enrichment and restitution in Section 71 of the Contracts Act 1950?

  • The elements of unjust enrichment are as follows:
  • The other party must have been enriched;
  • The enrichment is at the expense of the claimant;
  • Retention of the benefit is unjust;
  • Whether there is any special defences

Section 71 Contracts Act 1950 provides:

“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.”

  • Section 71 is the statutory embodiment of the common law principle of quantum meruit, which provides for a just compensation as the measure as opposed to contractual damages. Liability in Section 71 is not based on any existing contract. It is based on the equitable principle of conscionable conduct and restitution to prevent unjust enrichment by one party at the expense of another party.

Can B’s wife claim that she has no access to her bank account. Her husband was the one who was using her account and had benefitted from it.

  • No. If one person gives authority or consent to another to use his/her bank account, he/she is still responsible for loss in that bank account (See Yap Khay Cheong Sdn Bhd v Susan George [2019] 1 MLJ 410 and Teh Poh Wah v Seremban Securities Sdn Bhd [1996] 1 MLJ 701). She cannot use that as a defence.

Can B’s wife say that she has not signed any loan agreement and is not privy to the loan agreement signed between A and her husband.

  • A does not have to rely on any contract to claim for unjust enrichment and restitution under Section 71. These are quasi contractual or an equitable remedy. In layman terms, you took the monies which belonged to another. The monies are not for payment of any goods or services. You are bound to return the monies.

(Case in Point: Munisamy a/l Rajagopal v Subashini a/p Karuppiah [2023] 8 MLJ 406)

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