Quasi contracts play a crucial role in the legal landscape, especially in business transactions. They represent a unique category of legal obligations that arise without the explicit agreement of the parties involved. As a law graduate, it is essential to grasp the concept of quasi contracts and how they operate in different contexts.
In this comprehensive guide, we will explore the definition of quasi contracts, their application in business law, types of quasi contracts, and relevant provisions in the Indian Contract Act. We will also discuss unjust enrichment, case law, and real-life examples to better understand the principles of quasi contracts.
I. Quasi Contract: Definition
Quasi contracts, also known as implied-in-law contracts, are legal obligations imposed by courts to prevent unjust enrichment. Unlike express or implied contracts, quasi contracts do not arise from the mutual consent of the parties involved. Instead, they are based on the principle of equity, where the court seeks to ensure that one party does not benefit unfairly at the expense of another.
According to the renowned jurist Sir Frederick Pollock, a quasi contract is "an obligation which the law creates, in the absence of any agreement, when and because the acts of the parties or others have placed in the possession of one person money, or its equivalent in goods, under such circumstances that, in equity and good conscience, he ought not to retain it, and which ex aequo et bono he ought to refund."
In India, the concept of quasi contracts is governed by the Indian Contract Act, 1872. A quasi contract is not a contract in the conventional sense, as it is not formed by the mutual agreement of parties. Instead, it is a legal obligation imposed by law to prevent unjust enrichment or to ensure fairness.
In case of State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779. , the Supreme Court quoted Salmond's definition of quasi-contractual obligations, which states:
"A quasi-contractual obligation is a legal obligation arising from a lawful, voluntary, and unilateral act, and not from any agreement or promise, by which the author of the act becomes bound to the person for whose benefit it was done to make compensation in respect of the benefit conferred by the act."
II. Quasi Contract in Business Law
In the realm of business law, quasi contracts play an important role in addressing situations where parties have not explicitly entered into a contract, but one party has received a benefit from the other.
These situations may arise due to a mistake, miscommunication, or incomplete contractual agreements. Quasi contracts help ensure that the party that conferred the benefit is not left without compensation, even in the absence of an express agreement.
For example, a supplier may accidentally deliver goods to the wrong business, and the recipient may accept and use the goods without notifying the supplier. In such a situation, the recipient may be obligated to pay the supplier under a quasi contract theory, as it would be unjust for them to retain the goods without compensation.
III. Types of Quasi Contracts
There are several types of quasi contracts, each addressing different circumstances where a party has conferred a benefit without an express agreement. Some common types include:
Unjust enrichment: This occurs when one party benefits unfairly at the expense of another. The court may impose a quasi contract to ensure that the benefiting party compensates the other for the value of the benefit received.
Quantum meruit: This term, meaning "as much as he deserves," refers to a quasi contract where a party is entitled to compensation for the reasonable value of services rendered or goods provided.
Quantum valebant: Similar to quantum meruit, this quasi contract principle applies when one party has received goods, but there is no express agreement on the price. The court may require the recipient to pay the reasonable value of the goods received.
Quasi contract for restitution: In this type of quasi contract, the court orders the return of property or money to the rightful owner, ensuring that the recipient does not unjustly benefit from possession.
IV. Quasi Contract Under Contract Act
Quasi contracts can arise in various situations where there is no express or implied contract between the parties. These situations are outlined in Sections 68 to 72 of the Indian Contract Act, 1872:
Section 68: Necessaries supplied to a person who is incapable of entering into a contract:
If a person who is unable to enter into a contract (e.g., a minor or a mentally incapacitated person) is supplied with necessaries suitable to their condition in life, the person who has furnished the necessaries is entitled to be reimbursed from the property of the incapable person.
Relevant case: Chapple v. Cooper (1844): In this case, the defendant supplied the plaintiff's wife, who was a minor, with coal during her husband's absence. The court held that the defendant could recover the price of the coal because it was a necessary item.
Section 69: Payment by an interested person:
If someone makes a payment on behalf of another person who is bound by law to make that payment, the person making the payment is entitled to be reimbursed by the person for whom the payment was made.
Relevant case: Damodar Modi v. Lakshmichand (1957): The plaintiff paid the government land revenue on behalf of the defendant to prevent the latter's land from being auctioned. The court held that the plaintiff could recover the money paid, as he was an interested person and had made the payment to protect his own interest in the land.
Section 70: Obligation to pay for non-gratuitous acts:
If someone lawfully does something for another person, or delivers something to them, without the intention of doing it gratuitously, and the other person enjoys the benefit of the act or thing, the latter is bound to compensate the former for the act or thing, provided that the person performing the act was not legally bound to do so.
Relevant case: State of West Bengal v. B.K. Mondal and Sons (1961): The plaintiff, a government entity, constructed a temporary bridge for public use without being legally bound to do so. The defendant used the bridge to transport materials for their business. The court held that the defendant was obliged to pay a reasonable sum for the use of the bridge.
Section 71: Responsibility of a finder of goods:
If someone finds goods belonging to another person and takes them into their custody, they are subject to the same responsibility as a bailee (i.e., a person who receives and holds property for another). The finder must take reasonable care of the goods and make efforts to return them to the rightful owner.
Relevant case: Kalyan Sundaram Pillai v. Karuppa Moopanar (1919): The plaintiff found a purse containing money and made reasonable efforts to find the owner. The defendant, the owner, later claimed the purse but refused to pay the plaintiff's expenses. The court held that the defendant was liable to compensate the plaintiff for the expenses incurred in preserving the purse and finding the owner.
Section 72: Liability for money paid or things delivered by mistake or under coercion:
If someone receives money or anything else that they are not entitled to due to a mistake or coercion, they are obligated to repay or return it.
Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf (1958): The defendant paid sales tax under protest, claiming that the tax was unconstitutional. The Supreme Court later declared the tax unconstitutional. The court held that the defendant could recover the amount paid as it was paid under a mistake of law.
VI. Unjust Enrichment Quasi Contract
Unjust enrichment is a key concept in quasi contract law, as it forms the basis for courts to impose legal obligations on parties who have unfairly benefited at the expense of others.
The principle of unjust enrichment can be traced back to Roman law, where it was known as the "condictio indebiti" or "action for money had and received."
The principle aims to prevent such unfair situations by imposing legal obligations on the enriched party to compensate the other party. In India, the principle of unjust enrichment is governed by the Indian Contract Act, 1872, particularly in Sections 68 to 72, which deal with quasi contracts.
In order to establish unjust enrichment, three elements must typically be satisfied:
The defendant has received a benefit.
The defendant's retention of the benefit is unjust.
The plaintiff has suffered a corresponding loss.
If these elements are met, the court may impose a quasi contract, requiring the defendant to compensate the plaintiff for the value of the benefit received.
Some relevant cases that illustrate the application of this principle in Indian law are:
State of West Bengal v. B.K. Mondal and Sons (1961): This case pertains to Section 70 of the Indian Contract Act. The plaintiff, a government entity, constructed a temporary bridge for public use without being legally bound to do so. The defendant used the bridge to transport materials for their business. The court held that the defendant was obliged to pay a reasonable sum for the use of the bridge, as they had been unjustly enriched at the expense of the plaintiff.
Ram Coomar Coondoo v. Chunder Canto Mookerjee (1876): In this case, the plaintiff mistakenly believed that they were legally bound to pay a tax and subsequently paid the tax to the defendant, who was not entitled to receive it. The court held that the plaintiff was entitled to recover the amount paid, as the defendant was unjustly enriched at the plaintiff's expense.
Kalyan Sundaram Pillai v. Karuppa Moopanar (1919): This case involves Section 71 of the Indian Contract Act. The plaintiff found a purse containing money and made reasonable efforts to find the owner. The defendant, the owner, later claimed the purse but refused to pay the plaintiff's expenses. The court held that the defendant was liable to compensate the plaintiff for the expenses incurred in preserving the purse and finding the owner, as the defendant was unjustly enriched by the plaintiff's efforts.
V. Quasi Contract Example
Here are some examples of quasi-contract situations:
Necessaries supplied to an incapable person: A store owner provides food and clothing to a minor or a mentally incapacitated person, knowing that the person is unable to enter into a legally binding contract. The store owner is entitled to be reimbursed from the property of the incapable person for the cost of the necessaries supplied.
Payment by an interested person: A tenant pays the property tax on behalf of the landlord to prevent the property from being auctioned by the government due to unpaid taxes. The tenant is entitled to be reimbursed by the landlord for the payment made.
Obligation to pay for non-gratuitous acts: A person accidentally damages their neighbor's fence. Another neighbor, without any obligation, repairs the fence to prevent further damage to the property. The person who caused the damage is liable to compensate the neighbor who made the repairs, as they benefited from the repair work.
Responsibility of a finder of goods: A person finds a lost wallet containing cash and identification. The finder takes reasonable care of the wallet and makes efforts to locate and return it to the rightful owner. The owner of the wallet is obligated to reimburse the finder for any reasonable expenses incurred in preserving the wallet and finding the owner.
Money paid or things delivered by mistake or under coercion: A person accidentally pays double the amount due on a utility bill. The utility company is obligated to return the excess amount paid, as retaining it would result in unjust enrichment.
These examples illustrate various situations where a quasi contract may arise to prevent unjust enrichment or to ensure fairness between the parties. In each case, the law imposes an obligation on one party to compensate the other, even though there is no express or implied contract between them.
Reference:
Indian Contract Act, 1872
Pollock & Mulla, The Indian Contract and Specific Relief Acts (15th ed., 2018)
Avtar Singh, Law of Contract (12th ed., 2016)