Everything You Need to Know About Quasi Contracts under Indian Contract Act

by admin February 28, 2021

written by admin February 28, 2021

Quasi Contracts under Indian Contract Act Kanooniyat

Contents

Relations resembling those created by a Contract (Quasi Contracts)

If Contracts were to be simply defined, they would be called valid promises which can be enforced in a Court of law. It is the promise(s) between the parties which gives rise to rights and obligations of the parties that need to be performed in order to fulfil the contractual obligation. However, there are a few cases where these contractual obligations and rights, characteristic of a contract, arise without any prior promise or agreement between the parties. These obligations, which bind the parties in relations resembling those created by contracts, without prior agreement, are what make Quasi Contracts.

Principle of the Quasi Contract

The concept of quasi-contractual obligations for Indian Law is derived from the English Law which recognises the principle of providing remedies in cases of unjust enrichment or unjust benefit. This principle finds basis in the Roman maxim, “nemo debet locule tari ex aliena jactura”. This maxim means that no man should grow rich because of another person’s loss. According to the Black’s Law Dictionary, under a quasi contract, “an obligation is imposed by law on parties because of a relationship between parties or because one of them would otherwise be unjustly enriched.”

Quasi contacts are based on the equity of reimbursement. In the English case of Fibrosa v. Fairbairn^[1] Lord Wright had stated that civilised legal systems are bound to provide remedies for cases of unjust enrichment. This remedy could be to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such a remedy is different from remedies in contract or in tort, and fall within a third category of the common law which has been called restitution or quasi contract. The Supreme Court of India upheld this principle in the case of Mulamchand v. State of Madhya Pradesh[2] where it held that the juristic basis of the obligation in such a case is not founded upon any contract or tort but upon a third category of law called the quasi contract.

Difference between Quasi Contracts and Implied-In-Fact Contracts

There is a possibility of confusing quasi contracts with implied-in-fact contracts due to lack of a written agreement in both the cases, however, they both are different. The characteristic feature of a quasi contract is the absence of mutual consent between the parties before the obligations arise. On the other hand, in the case of implied-in-fact contracts, although there is no written contract between the parties, there exists mutual consent between the parties over the said matter which is implied by their actions.

For instance, if X goes to the market to buy some groceries from Y, there exists an expectation of X from Y to supply him with groceries and Y expects money as payment in return of the groceries that he will supply to X. This expectation of both the parties from each other indicates at implied consent from their sides to enter into a contractual relationship. This is how an implied-in-fact contract is made. However, if in the same situation, the parties to the dispute (customer and seller) did not know of each other but there arose legal obligations towards each other, it would have qualified as a quasi contract because in such a case, the question of consent doesn’t arise.

Quasi Contracts under Indian Contract Act, 1872

Although the words ‘quasi contracts’ aren’t explicitly mentioned anywhere in the Indian Contracts Act, 1872, the provisions concerning them are laid down under Chapter V (Sections 68 to 72) of the Act which is titled “Of certain relations resembling those created by contract”.

The concept of quasi contract sprang up for the first time in the English case of Moses v MacFarlane^[3]. In this case, such obligation arose to do justice by preventing undue advantage to one person at the cost of the other.

In the case of Mahabir Kishore & others v. State of Madhya Pradesh,^[4] the Supreme Court held that the principle of unjust enrichment requires three conditions to be fulfilled:

The defendant should have been ‘enriched’ by the receipt of a “benefit”;
This enrichment should have been “at the expense of the plaintiff”; and
The retention of the enrichment must be unjust.

Sections 68-72 lay down five circumstances which give rise to the existence of a Quasi contract. There are as follows:

Section 68 (Claim for necessaries supplied to person incapable of contracting, or on his account)

If a person supplies necessaries to anyone who is incapable of contracting, or to anyone whom the person incapable of contracting is legally bound to support, the person furnishing the supplies is entitled to be compensated from the property of such incapable person.

What constitutes necessaries hasn’t been given in the Act. However, it is implied and observed from the judicial interpretation that necessaries are goods and services necessary to live. These necessaries should be suited according to the living-standards of the person to whom such goods or services are supplied.

To get clarity on who exactly qualifies as incapable of entering into a contract, we need to refer to Section 11 of the Act. Section 11 states the three conditions which are required from somebody to be capable of contracting. This provision eliminates minors, unsound persons and people legally eliminated from contracting for other reasons such as crimes, from entering into a contract.

If A supplies C, the wife of a lunatic B, with necessaries suited to her life, A then has the right to get reimbursed from B’s property. Without there being an actual contract, there arises A’s right and this constitutes a quasi contract in this case.

Section 69 (Payment by an Interested Person)

If a person interested in the payment of money who someone else is bound by law to pay, pays this money on their behalf, then such an interested person is entitled to be reimbursed by the other.

A suit for contribution is totally different from a suit for reimbursement under section 69.[5] A contribution is based not solely on interest to pay their own dues but there is also a legal liability to do so. On the other hand, a claim for reimbursement under section 69 is based on the payment of the liability of one or more persons by another who is interested in making the payment but is not bound by law to pay.

For instance, A, a zamindar, leased out his land to B, a farmer. A fails to pay the revenue to the Government on time and consequently, his land is advertised for sale by the Government. Under the state revenue law, if A’s land is sold, B’s lease will be annulled. Fearing this, B pays the amount to the Government on behalf of A. Now, according to section 69, A is bound to reimburse B for the amount so paid by him.

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Section 70 (Obligation of Person enjoying Benefit of Non-Gratuitous Acts)

When a person receives and enjoys the benefit of a lawful service or delivery by another who did not intend to do so gratuitously, then such a person is bound to compensate the latter for such an act done or thing delivered.

In the case of State of W.B. v. B.K. Mondal and Sons,[6] it was clearly laid down that three conditions must be satisfied before this section can be invoked:

A person should lawfully do something for another person or deliver something to them;
In doing the said act or delivering the said thing, he must not intend to act gratuitously; and
The other person for whom such thing is done or to whom such thing is delivered must enjoy the benefit thereof.

The thing done or delivered must not be done or delivered fraudulently or dishonestly. Section 70 is not intended to entertain claims for compensation made by persons who impose on others the services not wanted by them. When a thing is done or delivered by one person, it must be open to the other person to accept or reject it. It is only where the latter voluntarily receives the thing or enjoys the work done that the liability under Section 70 arises.

If delivery-person leaves at your doorstep a prepaid Amazon package meant for your neighbours by mistake and you kept it, then, you become liable to deliver this package to your neighbours.

For liability to arise under this section, the act enjoyed or thing received must be intended to be non-gratuitous. If A gratuitously saves B’s property, B will not be liable to compensate A for his service.

The minor is excluded from the operation of Section 70 because his case has been specifically provided for under Section 68 where the person incapable of contracting is liable to reimburse from their property the person who provides them necessaries.

Section 71 (Responsibility of Finder of Goods)

According to section 71, the person who finds another person’s goods and takes them into his own custody is subject to the same responsibility as that of a bailee given under Sections 151 and 152 of the Act.

A bailee is essentially an individual who gains temporary possession of a good and is supposed to keep the goods safely and return the goods to the actual owner or dispose them in the manner in which the actual owner may want them to. Besides Sections 151 and 152, there are other provisions in the Act that lay down the duties and rights of the finder of goods. These duties and rights of the finder of goods can be found here.

Section 72 ( Liability of Person to whom Money is paid or Thing delivered by Mistake or under Coercion)

When a person pays money or delivers a thing to another by mistake or under coercion, the latter must repay the money or return the thing delivered to them.

For instance, A and B live together in a house on rent and collectively pay Rs. 20,000 monthly. A, not knowing that B has already paid Rs. 20,000 on the part of both of them, transfers his share of Rs. 10,000 to the bank account of their landlord, C. C, on receiving the extra money, is bound to repay the amount to C.

The Supreme Court in Sales Tax Officer v. Kanhaiya Lal held that the word mistake under Section 72 of the Act has been used without any qualification and refers to both “mistake of law” and “mistake of fact”.[7]

Damages for a Quasi contract

The outcome of a quasi contract is similar to that of a quasi contract and consequently, the claim for damages under both is also similar and covered under the same section of the Indian Contract Act, 1872. Section 73 of Act that states that “any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract”. Hence, the damages for quasi contracts are the same as the damages that can be claimed on the breach of an express contract. The other remedies obtainable for a breach are also alike.

[1] [1942] UKHL 4.

[2] AIR 1968 SC 1218.

[3] (1760) 2 Burr 1005.

[4] AIR 1990 SC 313

[5] Shankerlal vs Motilal And Anr., AIR 1957 Raj 267.

[6] AIR 1962 SC 779.

[7] Sales Tax Officer v. Kanhaiya Lal, AIR 1959 SC 135 (141).

This article has been written by:

Khushi Singh - Content Writer at Kanooniyat

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#1. What is the maxim on which Quasi-contracts are based?

#2. Which part of the Indian Contract Act lay down the concept of Quasi-contracts?

#3. Under section 68, how can a person supplying necessaries to a minor get reimbursed?

#4. The liability of a finder of good is similar to that of a _________

#5. Which provision of the Indian Contract Act provides for damages in case of a breach of Quasi-contract?