Quasi-Contracts: Bridging the Gap Between Fairness and Legal Formality

A Closer Look at Quasi-Contracts

Introduction

A Quasi-Contract, also known as a contract implied in law, is a legal construct that allows a court to impose an obligation on a party to compensate another party for a benefit received, even though there was no express agreement to do so.

Quasi-contract means ‘like contract’. It will not be like a formal contract with a promise, acceptance, and reduced to writing. You may read an implied contract in a given set of circumstances and where it is to advance the ends of justice, a legal theory propounds that it is “a relation resembling those created by contract”. Chapter V of the Contract Act thus speaks only of such relations and does not use the term quasi-contract. This is a peculiarly legal and just relationship, where there may be want of assent and where it may even sometimes be against an expression of dissent. 

In the words of Lord Wright: “These statements of the principle do not put the obligation on any ground of implied contract or of constructive or notional contract. The obligation is imposed by the court simply under the circumstances of the case and on what the court decides is just and reasonable having regard to the relationship of the parties. It is a debt or obligation constituted by the act of the law apart from any consent or intention of the parties or any privity of contract” 

Relevant Provisions: 

Chapter V, Sections 68-72 of the Contract Act, of 1872 enact provisions regarding quasi-contracts. These are the statutory provisions (Sections 68-72) but they do not exhaust the categories of quasi-contracts. The concept is always present whenever there is a special relationship between two persons similar to those created by a contract, with a resultant duty to pay money, emphasizing the underlying basic object of making restitution for benefits that have been unjustly received. In other words, to reimburse for unjust enrichment or a non-gratuitous benefit conferred by a third party is an essential legal obligation to meet the ends of justice verily an equitable liability.

Recognition of quasi-contracts in the World

(1) In the United States, quasi-contracts are recognized by common law and are governed by state law. The Uniform Commercial Code (UCC), which is a set of uniform laws adopted by most states, also recognizes the concept of quasi-contracts in certain situations. For example, the UCC provides that if a person receives goods under a transaction and fails to pay for them, the seller may recover the fair value of the goods as damages.

(2) In India, as well as in Pakistan the concept of Quasi-contract is well defined under sections 68 to 72 of the Indian Contract Act, of 1872. it is defined as a contract that is not actually a contract but which the law treats as a contract for the purpose of enforcing certain rights and liabilities. It is created by the operation of law and not by the agreement of parties.

(3) In the United Kingdom, Quasi-Contract is also recognized by common law. The courts have the power to imply a contract where one party has received a benefit from another party, and it would be unjust for that party to retain the benefit without paying for it.

(4) In Canada, Quasi-contracts are governed by the common law. The courts have the power to imply a contract in order to do justice between the parties where one party has received a benefit from another party and it would be unjust for that party to retain the benefit without paying for it.

Example of a Quasi-contract

One example of a quasi-contract situation is when a person finds a lost item and keeps it for themselves. The court may impose a quasi-contract on that person to return the item to its rightful owner or to pay the item's fair value as compensation. Another example is when a contractor performs work on a property without a contract and the property owner accepts the work and benefits from it. In this case, the court may impose a quasi-contract on the property owner to pay the contractor for the work that was performed.

Definitions of Quasi-Contract:

(1) According to a scholar, Williston:

"A Quasi-contract is a legal fiction created by the courts for the purpose of enforcing an obligation, in the absence of an express contract, where it is just and reasonable that such an obligation should be imposed."

(2) John D. Calamari and Joseph M. Perillo in their book "The Law of Contracts" defines Quasi-contract as "A legal fiction created by the courts in order to prevent unjust enrichment. A quasi-contract is not a contract at all but rather a duty imposed by law to prevent one party from being unjustly enriched at the expense of another."

(3) According to Lord Mansfield:

Attention has already been paid to this subject in the introductory chapter. As Lord Mansfield put it in Towers v. Barrel the quasi-contract in essence connotes “actions for money had and received. It is a very beneficial action on principles of eternal justice”.

The noble Lord expanded the theme in Moses v. Macpherlan thus: “This kind of equitable action to recover back money which ought not, in justice to be kept, is very beneficial It lies for money which ex acquo et bono, the defendant ought to refund.

It does not lie for money paid by the plaintiff which is claimed of him (the defendant) as payable in point of honor and honesty, although it could not have been recovered from him in any court 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 clear conscience, though by positive, law lie was barred from recovering.

But it lies for money paid by mistake; or upon a consideration which happens to fail; or from 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.” [2 Burr 1005]

(4) According to Lord Summer:

In Sinclair v. Brougham Lord Sumner struck a different note:

the action for money had and received is said to be a ‘liberal’ action. It is founded 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. [(1914) AC 378, 454] 

Scope of the Law of Quasi-Contracts: 

The law of quasi-contracts covers a wide range of cases for example: 

(1) Claim for necessaries supplied to a person incapable of contracting, or on his account, as provided in Section 68. This provision applies to persons incapable of entering into contracts. It enables reimbursement from the property of such persons where another person supplies necessaries to them, or to. any other person whom such incapable persons are bound to support, provided the necessaries supplied are suited to their condition in life.

(2) Reimbursement of a person paying money due by another in payment of which he is, interested, as provided in Section 69. This applies to payments under compulsion of law, or in order to protect his own interest by a person who is interested in the payment of money that another is bound by law to pay. 

(3) Obligation of person enjoying the benefit of vided in Section 70. This provision applies, if:

If the above prerequisites are fulfilled, that other person is bound to make compensation to the former in respect of or to restore, the thing so done or delivered. 

(4) Responsibility of the finder of goods, as provided in Section 71. This provision subjects a person, who finds goods belonging to another and takes them into his custody, to the same responsibility as a bailee.

(5) Liability of person to whom money is paid or thing delivered by mistake or under coercion, as provided in Section 72. This provision fastens a liability on a person, to whom money has been paid, or anything delivered, by mistake or under coercion, to repay or return it. 

These five sections do not exhaust the categories of quasi-contract, in which relief may be granted on equitable considerations, But the following elements are essential for the grant of relief, namely:

Public welfare requires that an enforceable duty should exist without regard to assent or dissent. Under the head of the quasi-contract are included numerous odds and ends of obligation, which do not fall within any of the said five sections. 

Principle of Quasi-Contractual Liability:

It is said that the theoretical basis for quasi-contract is the principle of unjust enrichment” or “unjust benefit.” This is derived from the maxim nemo debet locupletari ex aliena jactura.  No man should grow rich out of another person’s loss. This maxim should not be applied literally. In most cases of quasi-contract, if not in all, there is loss or effort on one side, and a corresponding benefit on the other.

Kinds of Quasi-Contracts: 

In the Contract Act following cases are that of quasi-contracts: Section 68:

(1) Claim for necessaries

Claim for necessaries supplied to person incapable of contracting, or on his account. If a person, incapable of entering into a contract, or anyone whom he is legally bound to support is supplied by another person with necessaries suited by the condition in life, the person, who has furnished such supplies is entitled to be reimbursed from live properly of such incapable, person.

Illustrations:

(a) Principle contained in Section 68:

The basic principle is that a minor or a lunatic must be sufficiently protected and be enabled to thrive in life and not suffer for want of necessaries. For this reason, persons who provide them with necessities must be under no disability. The law should encourage such persons to supply the needs of these incapacitated persons, such as minors and lunatics. But the articles must not be luxuries but only those which the minor infant is actually in need of. A thing that may be necessary ceases to be such if the minor is already having it.

(b) What are necessaries? 

Necessaries are not defined in the Contract Act. Reference may be made to Section 2 of the English Sale of Goods Act, 1893 which pertains to capacity to buy and sell: “Capacity to buy and sell i is regulated by the general law concerning capacity to contract, and to transfer and acquire property. Provided that where necessaries are sold and delivered to an infant (or minor) or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price therefore, ‘Necessaries’ in this section means goods suitable to the condition of life of such infant (or minor) or other person, and to his actual requirements at the time of the sale and delivery”. 

Following are some of the instances of necessaries: 

• Loan to a minor to avert the sale of his property in execution of a decree. 
• Costs incurred in defending a suit successfully as to the minor’s estate. 
• Expenses of the marriage of a Muslim minor girl, if the payment was not gratuitous. Expenses of the marriage of a Hindu minor girl.
• The estate of the minor is liable when a Hindu mother spends for her minor daughter. There, is no liability on the part of the father. 
• Where the son sells his lunatic mother’s property for her treatment. 
• Where money is borrowed by the guardian to pay rent to the lambardar. 
• Those religious ceremonies a minor would have had to perform if he had been an adult. 
• Purchases of machinery for necessary agricultural operations on the minor’s estate. Necessary clothes as also necessary repairs to the minor’s house.
• Debt incurred by the natural guardian of the minor to meet the household expenses of the family
• Debt incurred by the mother of the minor for payment of debts of the minor’s father and for the expenses incurred for the funeral of the father. 
• The expenses of a marriage that a Hindu minor has to perform or to pay off a debt binding upon him. 

(c) What are not necessaries? 

The following were held to be not necessaries:

(2) Payment by an interested person

Section 69 states "A person who is interested in the payment of money which another is bound by law to pay and who therefore pays, is entitled to be reimbursed by the other. The conditions of liability under this section are:

(a) Interested in the payment of money

The words "interested in the payment of money" under section 69 of the Contract Act, may include the apprehension of any kind of loss or inconvenience or at any rate any detriment capable of being assessed in money. Jaganath Parashad v. Chunni Lai A I R 1940' Ali. 416 and Govindram Gordhandas Seksaria and another v. State of Gondal AIR 1950 P.C. 99.

(b) A person who is interested

The words "a person who is interested in the payment of money" do not mean that the person who makes payment must prove that he had such an interest as would stand the test of a judicial trial. All that is necessary for a person making the payment to recover is that he should really and honestly believe that he must make the payment in his own interest.

Section 69 has in fact embodied the equitable principle of English Law of unjust enrichment which states that when a person makes payment of money being interested in such payment, which another person is bound to make under the law, the former acquires a right of indemnity for reimbursement against the latter. There need not be any privity of contract in such a case between the person making the payment of money and the person on whose behalf payment is made. A fictional implied request in such a case, by the person on whose behalf the payment is made, to the person who makes the payment, may be imported. Eastern Mortgage & Agency Co. Ltd. v. Muhammad Faza Karim AIR 1926 Cal. 385

Illustration: 

A holds land on a lease granted by B, the zamindar. The revenue payable by B to the Government is in arrears. The land is advertised for sale by the Government under the revenue law, and the consequence of such a sale will be the annulment of A's lease. A to prevent the sale and consequential annulment of his own lease pays to the government the sum due from B is bound to make good to A the amount so paid. 

(3) Payment for Non-gratuitous Act: 

Sec. 70 states, “Where a person lawfully does anything for another person, or delivers any: thing 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." 

(a) Basis of Section 70:

Section 70 and the third paragraph of Sec. 73 of the Act are based on the doctrine of restitution which says that you cannot unjustly enrich yourself by retaining anything delivered to you which does not belong to you and you must return it to the person from whom you have received it. It says that if you cannot return them you must pay him their equivalent in money.

Similarly, if anything is done by one person for the other this doctrine says to the person who has accepted such works that you having enjoyed the benefits of such works must compensate the person who had done that work for you and if you do not want to pay him you will be guilty of enrich yourself unjustly by the labor of the person and so you must pay to the person from whom you have received such work.

The principle of restitution is not primarily based on the loss suffered by the plaintiff but on the benefit which is enjoyed by the defendant at the cost plaintiff which is wholly unjustified for the defendant to retain. The foundation for the claim made under Scc. 70 of the Contract Act is not a contract expressed or implied. The liability is quasi-contractual, it may reasonable as being that of a contract but in reality, it does not rest upon contractual obligation. It is immaterial, therefore, that there is no contract executed in such a case or that the alleged contract is found ab initio or rendered void subsequently for any reason.

(b) Conditions for Applicability of Section 70:

In order that the section may apply, the following conditions must be fulfilled,

Section 70 of the Contract Act does postulate any agreement between the parties. A person who has received the benefit of any work lawfully done but not intended to be done gratuitously by another is not entitled to say that he is not liable to pay compensation under that section in the absence of a request made by him or such request being invalid in law.

(i) Plaintiff must ask for relief under this section:

The plaintiff must, expressly or impliedly, ask for relief under this section. Where he sues for compensation relying on an express agreement and does not ask for any relief under this section, and a case is not made out on the plaint under this section, the Court cannot grant a decree on the law laid clown under this section. 

(ii) A person lawfully does anything for another person or delivers anything to him:

So In order that the section may apply, it is necessary that a person must have: 

Where there is no contract, if a person lawfully does anything for another not intending to do so without payment and the other person enjoys the benefit of the thing done, he is bound to compensate the person who has done the thing for him. 

(iii) Thing done or delivered by the plaintiff at the defendant's request:

Money paid by the plaintiff at the defendant’s request is a common form of quasi-contract in England. An action “for money paid” is maintainable there in every case in Which there has been a payment of money by the plaintiff to a third party at the request, express or implied, of the defendant, if there is an undertaking, express or implied, on his part to repay it; and it is immaterial, whether the defendant is relieved from liability by the payment or not. It is, however, necessary that the money sought to be recovered should have been paid to the use of the defendant.

(iv) “Does anything”:

The expression “does anything” includes service So, where it is agreed that the defendant should give a bonus in addition then the plaintiff can recover the bonus on the principle of quantum meruit.

Where in a work contract the work done by the plaintiff is defective but the benefit of the defective work is enjoyed by the defendant, the latter is bound to make compensation to the plaintiff in respect of the defective work. 

Where the only thing done by the plaintiff was that he refrained from interfering with the agents of the State Government of Madhya Pradesh from carrying sand from the area. It was held that that was not tantamount to the doing of a positive act giving rise to a claim for compensation. 

(v) “For another person”: 

The words “another person” to include both: 

The question of whether an act is done for another depends upon the circumstances of each case. 

(vi) Not intending to do it gratuitously: 

In English law, an act at the request of the other can be compensated for. The phrase used in Section 70 is not intending to do it gratuitously. No request is necessary as in England but there must be a clear intention evidenced by the circumstances and facts of the case that the act was not done gratis or gratuitously, i.e., the person doing the act expected some reasonable recompense. So where the thing has been done or delivered gratuitously, this section does not at all apply.

Illustration:

If electric charges and water charges were due by A, and B pays them, he cannot claim from A. B was not called upon to pay for A who did not approach him for it. The Electricity Department would have realized it from A. No voluntary and gratuitous act can be the basis of action for reimbursement and no personal decree can be passed against the defendant in such a case. 

(vii) Such other person enjoys the benefit thereof:

The person who enjoys a benefit conferred by another’s act is morally bound to pay for it unless the person doing it did it out of charity and with gratuitous intention. This moral liability to pay is rendered legal under Section 70. 

The acceptance of the benefit is indicative of an implied request and an implied acceptance coupled with an acknowledgment of an implied liability to reimburse the other party reasonably for the act done or the thing delivered. That is the law in India by virtue of Section 70, whatever may be the position in England. 

(4) Finder of Goods:

Section 71:

The person who finds lost goods and takes them into his custody becomes in effect a bailee at least as regards the duties incumbent on him. Having assumed custody he must take care of the goods (Sees. 151 and 152); he may become liable for compensation if he uses them (Sec. 54). As regards the delivery of the goods to the owner reference must be made to Sec. 168 and not to the general Sec. 100.

Section 71 requires that to be responsible for the goods, the finder of the goods has to “take them into his custody”. The finder must have animus possession which is required to amount to possession law. 

(5) Payment by mistake or under coercion

Section 72: Liability of person to whom money is paid, or thing delivered, by mistake or under coercion: A person to whom money has been paid or anything delivered by mistake or under coercion must repay or return it.

Money paid under mistake by the plaintiff's agent on the supposition of having been getting genuine shares and transfer forms-Recourse, held, can be taken to S. 72 for recovery of the amount. 1981 CLC 1582 KARACHI

Illustrations: 

(a) Conditions for Applicability of Section 72: 

The provision in Section 72 is simple and yet comprehension enough as to mistake of law and coercion:

(b) Excusable Mistakes: 

The following are cases of bona fide, mistakes that may be excused under this section: 

(c) Inexcusable Mistakes: 

The following are instances where the mistake may not be excused under this section : 

• Where there is a gross carelessness of the plaintiff in not detecting the mistake immediately and also in not intimating the bank of the same within a reasonable time after the discovery. 
• Where on account of unjustifiable carelessness, or forgetful news, the means of knowledge are ignored. 
• If the party paying has a duty to inform the payee what he, the payee, already knew and he neglects to do so he will not be. entitled to recover the money paid. Parke,  rightly stated that the party seeking to recover must not have waived all 
• The rule of estoppel was enunciated in Holt v. Markham where army agents paid money in army officer's account. Owing to this conduct the army officer was tempted to invest that money in some security which failed. It was held the army agents were stopped from claiming their monies from the army officer and when the mistake was discovered the agent could not recover. Scrutton, L. J., described it as a case of estoppel.
• The mistake must be one arising between the person paying and the payee. If money was paid under a mistake of some fact with which the payee had nothing to do, no suit can lie for recovery of that amount 

(d) Coercion:

The term ‘Coercion’ in Section 72 has not to have the same meaning as defined in Section 15. So ‘Coercion’ in Section 72  does not mean ‘Coercion with intention of causing any person to enter into an agreement, In Section 72 the word ‘Coercion’ is used in its general and ordinary sense as an English word uncontrolled by the definition in Section 15.

Case Laws on Quasi-contracts from all over the world

(1) In Australia, in the case of Commonwealth Bank of Australia v. Barker, the High Court of Australia imposed a quasi-contractual obligation on a bank to compensate a borrower for the value of a loan that had been obtained under false pretenses.

(2) In Canada, in the case of Bhasin v. Hrynew, the Supreme Court of Canada imposed a quasi-contractual obligation on a financial services company to compensate a client for the value of an investment that had been made without proper disclosure of the risks involved.

(3) In India, in the case of Kasturchand v. B. & I. Ltd., the Supreme Court of India imposed a quasi-contractual obligation on a company to compensate a supplier for the value of goods that had been delivered but not paid for, under the principle of unjust enrichment.

(4) In South Africa, in the case of Vodacom (Pty) Ltd v. MTN Group Ltd, the Supreme Court of Appeal imposed a quasi-contractual obligation on a company to compensate another company for the value of services that had been provided but not paid for, under the principle of unjust enrichment.

(5) In the United Kingdom, in the case of Lipkin Gorman v. Karpnale Ltd, the House of Lords imposed a quasi-contractual obligation on a company to compensate a client for the value of misappropriated funds, under the principle of unjust enrichment.

(6) In the United States, in the case of Raffles v. Wichelhaus, the court imposed a quasi-contractual obligation on a party to compensate another party for the value of goods that had been delivered but not paid for, under the principle of unjust enrichment.

(7) In Singapore, in the case of Tan Eng Hong v. Attorney-General, the Court of Appeal imposed a quasi-contractual obligation on a party to compensate another party for the value of services that had been provided but not paid for, under the principle of unjust enrichment.

(8) In Hong Kong, in the case of CITIC Pacific Ltd v. Secretary for Justice, the Court of Final Appeal imposed a quasi-contractual obligation on a company to compensate another company for the value of services that had been provided but not paid for, under the principle of unjust enrichment.

(9) In New Zealand, in the case of Fairchild v Glenhaven Funeral Services Ltd, the Court of Appeal imposed a quasi-contractual obligation on a company to compensate an employee for the value of services that had been provided but not paid for, under the principle of unjust enrichment.

Conclusion

In conclusion, Quasi-contract is a legal construct that allows a court to impose an obligation on a party to compensate another party for a benefit received, even though there was no express agreement to do so. This concept is used in situations where one party has unjustly enriched themselves at the expense of another party, and the court must intervene to restore the balance of justice. Quasi-contracts are recognized by common law in the United States, United Kingdom, and Canada, and the Indian Contract Act 1872 in India.