Quasi Contracts under Indian Contract Act, 1872

By Chanchal Kumawat

Introduction

A contract is a legal agreement between two parties where the parties involved, terms of the agreements, and penalty upon disagreement are known. And, when a contract is formed due to the legal obligation without having a formal contract to obtain justice between the parties, it is known as Quasi Contract. In simple words, quasi-contracts can be said as a type of remedy for the party that the enriched party took at its own expense. It is based upon the principles of natural justice, equity, good conscience, and justice to the parties. For example, Ajay ordered some putrescible item online and the delivery boy delivered that items to the wrong person, Bhushan. Bhushan consumed that item, depriving Ajay of the same. In this case, the court ordered a quasi-contract according to which Bhushan is liable to pay Ajay the expenses of those perishable goods which were purchased by Ajay and not Bhushan.

Features & Elements of Quasi Contracts

The origin of quasi-contract does not lie in offer and acceptance which is an agreement between two or more parties like that of a contract. It is enforced by law but it is not formed by a contract. Quasi-contracts are Right in Personam which means it gives a person rights against one person or party only who is a party to the contract. As per the concept of quasi-contract the person who incurs all the expenses is entitled to receive the money or unjust enrichment. Quasi-contracts are raised through legal fiction. For a quasi-contract to be formed there are three requirements,

1. The plaintiff party of the case has to produce any evidence of those goods and services that they should be compensated for by the defendant,
2. The defendant in the case is required to have accepted those goods and services and must have received some sort of benefit from them,
3. And lastly, under those unfair circumstances, the defendant must have accepted those goods and services and the plaintiff should be deprived of those goods and services because of the defendant.

Origin of Quasi-Contract

Quasi-contracts are based on a principle known as “Nemo Debit Locupleteri ex aliena jactura” which means “no man should grow rich out of losses faced by some another person”. In common law, the formation of quasi-contracts can be traced back to the medieval form of action which is known as indebitatus assumpsit, the type of assumpsit action in which the plaintiff first asserts a debt in his declaration and then, in consideration of the debt, claims that the defendant committed to pay the plaintiff after becoming indebted. the courts order one party to make payment to another as though a contract had been made between the two. The law inferred the defendant’s consent to be bound by a contract requiring payment. Early on in the history of quasi-contracts, restoration-related responsibilities were enforced through these contracts.

Types of Quasi-Contracts

 The types of quasi-contracts are listed under sections 68-72 of the Indian Contract Act, 1872.

 Section 68 talks about the contract or legal obligation between two persons among which one is capable of supplying all the necessaries while the other one is incapable of forming a contract. In such a case, the person who is the provider of all the supplies is entitled to receive his share from the property of the party who is incompetent to form a contract. 

Illustration Ajay and Bhushan are friends since their childhood and because of some accident, Bhushan is now declared a lunatic by his doctors. Ajay steps up and decides to take care of his friend Bhushan and his family too. So, Ajay is entitled to get reimbursement from Bhushan’s property. 

It was held in Nash v. Inman, that when it comes to taking care of an infant and providing with all the necessaries that seem requisite, in such cases the plaintiff is required to prove that those goods play an important role in framing the life of that infant and also that he was deprived of those goods at the time of sales and delivery. In another case Chappel v. Cooper, it was held that the funeral expenses of the defendant’s husband were necessary for the infant widow.

Section 69 says if a person has interests in making the payment of another person who is bound by law to make that payment then that another person is entitled to reimburse all the amount that he was bound to pay by law.

Illustration Ajay gave his land on lease to Bhushan and Bhushan is using that land for farming and its reason for his sole income. Due to the arrears unpaid by Ajay, the Government put that land on sale which will eventually result in the cancellation of Bhushan’s rights on that land so Bhushan decided to pay that money and prevented that land from resaling by the government. Now, Ajay is entitled to pay the reimbursement pain by Bhushan back to him. 

Section 70 talks about the obligation under the law when a non-gratuitous act is done by someone. When a person delivers something not gratuitously, maybe by mistake or expressed desire to get his property back but the person to whom it is delivered uses that property for himself is now entitled to return that property or money or whatever compensation his action may have caused.

Illustration Ajay gives his tailor a suit for fitting and his tailor by mistake hands  over Ajay’s suit to another customer then the tailor is entitled to give the exact suit to Ajay or the money spent by Ajay to purchase that suit or if possible the suit itself, Ajay should not get deprived and the tailor should get unjustly rich. 

It was observed in the case of Mulamchand v. State of M.P (1968), that it becomes necessary to take the point that there is no contract between parties who fall under the scenario of section 70 per se. Hence, the party cannot sue for breach of contract or specific performance of the contract nor can they ask for any kind of damages. This proclaims that whenever a case comes that demands compensation and falls under section 70, the compensation is not dependent on any pre-existing contract because there was none but on another kind of obligation. The polemical basis of the obligation in such a case is not founded upon any contract but upon a separate category of law, named quasi-contract.

Section 71 talks about another obligation for the person who was the finder of the goods in the picture. The person who finds the goods of some other person has some responsibilities and duties which are similar to that of a Bailee in the case of Bailment, it is stated under section 151-152 of the Indian Contract Act,1872. Section 151 says that the finder should take care of the goods to the extent an ordinarily prudent man will foresee for example a person found a bag of money on road and he tries to keep itself but a thief attacked him and took the bag out of his possession then the finder is not liable to compensate and the finder of goods should also treat the goods as if they are it’s own. Section 152 states that if the finder has taken all the prudent care that seems necessary then he will be not liable to pay for the loss or deterioration or destruction of the goods then caused.

Section 72 says that if some amount of money is delivered to a person by mistake or by coercion then he is entitled to return that money completely at his discretion. 

Illustration  Ajay and Bhushan jointly had to pay Shekhar rupees 10,000 for the reconstruction of the wall between their houses. After reconstruction Ajay paid all the amount himself and so did Bhushan. So now Shekhar is entitled to pay the extra part of Ajay’s share that he paid to him back. 

In Sales Tax Officer v. Kanhaiya Lai Sara, it was seen that it does not matter if the money paid under mistake is a mistake of fact or a mistake of law, it will be recoverable. There is no limitation upon the word ‘mistake’ that has been used under section 72. In this case, a certain amount of sales tax was paid by a firm under the U.R Sales Tax laws on its forward transactions. Subsequently, to the payment, the Allahabad High Court ruled the levy of sales tax on such transactions to be ultra vires. The firm sought to recover back the tax money. The Supreme Court allowed it.

Difference between Contract & Quasi-Contract

The contract is a legal agreement under which two or more parties come into a picture with a common intention and make an agreement that is bound by law whereas quasi-contract is a pseudo contract. A contract can only take place if both the parties have consented to the terms and conditions of the contract whereas in quasi-contract the consent is not required it is moreover an order to prevent a party from getting unjust enrichment. The competency of the parties to form a contract is well explained in the Indian Contract Act while for Quasi Contracts obligation can even arise if one of the parties isn’t competent and the entitled personwill rightfully receive his reimbursement. Liability in the case of a contract is pre-decided or is dependent upon the agreement and terms of the contract while this is not the case when it comes to quasi-contract, that is, the liability is not written in the agreement. 

Conclusion

The whole concept of quasi-contract revolves around the idea that no one should be wrongfully lost or no one should wrongfully gain something out of anything. Contracts have certain elements which are offer, acceptance, and withdrawal these elements are responsible for forming an agreement and eventually, a contract whereas a quasi-contract is a contractual obligation upon a party and not simply a contract. It arises due to the lack of duty of a party or not doing anything at all. These obligations are listed in the Contract Act and have been discussed in this article. We will often come across some terms while talking about quasi-contract which is quantum meruit and unjust enrichment. The former term means the reasonable amount of money that should be paid to get the work done and the latter term simply means the expenses that the party is entitled to receive. Since there is no contract or agreement that is followed to discuss the liability and compensation it becomes necessary to have the information about the goods and amount of money in question.