Quasi Contract: Prevention of Unjust Enrichment

A Quasi Contract is a retroactive agreement between two parties who made no earlier contractual obligations. The court creates it to correct a situation in which one party gains something at the expense of the other.

The name got derived from the Latin term “Nemo debet locupletari ex aliena jactura”, which states that no one should gain an unjust benefit from another’s loss.

So, Quasi Contracts are formed by rights and obligations comparable to those created by a contract but do not result from ordinary transactions. The theories of unjust enrichment and quantum meruit establish fictional courts’ contracts primarily for equitable purposes.

The Quasi Contract’s goal is to prevent one party from gaining financially from the circumstance at the expense of the other. Although it is not needed, such agreements can get enforced if approved by the party delivering the products or services.

Evolution of Quasi Contract

The Quasi Contract history may get traced back to the Middle Ages when it was known as indebitatus assumpsit. At the time, the law obliged a plaintiff to get a certain amount of money from a defendant in a court-determined sum, as if the defendant always had decided to pay the plaintiff for its goods or services.

Indebitatus assumpsit was a procedure employed by the courts to force one party to pay another as though the two parties had entered into a contract. The law implied the defendant’s acceptance to get bound by an agreement that demanded reparation. Such arrangements were first employed to enforce reparation commitments in the early days of the Quasi Contract.

Essentials of Quasi Contracts

• Legislation governs it. A contract does not form it.
• It is a personal right.
• The person who incurs expenditures is entitled to compensation (unjust enrichment).
• The use of legal fiction raises it.

Sections 68 to 72 deal with relationships similar to those formed by contract.

It includes obligations recognised in English law as Quasi Contracts or Constructive Contracts. It applies to situations in which the obligation to pay does not come from a contract or a tort but because one person got an unfair advantage at the expense of another. Thus, in such responsibilities, the concept of natural justice and equity is the decisive element.

The Quasi Contractual obligations were found on the premise that law and justice should endeavour to avoid unjust enrichment, i.e. enrichment of one person at the expense of another [Lord Mansfield in Moses v. Macferlan (1760) 2 Burr 1005] or to prohibit a man from retaining the money of, or any advantage gained from, another which it is against conscience for him to maintain. Quasi Contractual duties are the name given to these kinds of relationships. In India, it sometimes gets referred to as a relationship similar to those made through contracts.

Types of Quasi Contracts

The different kinds of Quasi Contracts are:-

Supply of Necessities

Suppose a person who is legally unable to enter into a contract or anyone he is legally obligated to assist is supplied with necessities appropriate to his position in life by another. In that case, the person who has furnished such supplies gets compensation from an incapable person’s property.

For example, A provides B, a madman, with necessities appropriate to his state of mind. A is entitled to compensation from B’s property.

Payment by an Interested Person

A person interested in paying money that another person is legally obligated to pay and does so has the right to be compensated by the other.

Example: B has land in Bengal under lease from A, the Zamindar. The revenue due by A to the government is in arrears. So, the government advertises his land for sale under the revenue legislation, with the implications of cancelling B’s lease. To avoid the sale, B pays the cash owed from A to the government. A is obligated to reimburse B for the amount paid.

The following are the conditions for responsibility under Section 69:-

• The plaintiff should be eager to make the payment. He does not need a formal ownership stake in the property for which the payment gets paid. However, it frequently gets used to assess whether the plaintiff was interested.
• Section 69 does not allow for a judicial restriction that a person who has no interest in the property can be interested in the payment of that property.
• The plaintiff should not be obligated to pay. He should only be concerned with paying the payment to safeguard his interests.
• The defendant should be legally obligated to pay.
• The plaintiff should have paid another person rather than himself.

Obligations to Pay for Non-Graduating Acts

When a person lawfully performs something for another person or provides something to him without intending to do so gratuitously, and that other person benefits from it, the latter is obligated to compensate or return the items done or provided to the former.

Example: A, a tradesman, makes a mistake and accidentally leaves items at B’s residence. B treats the products as though they were his own, and he is obligated to pay A for them.

Explanation: A protects B’s property from a fire. If the circumstances suggest that A meant to behave gratuitously, A is not entitled to compensation from B.

Before any right of action under section 70 can get asserted, it’s essential to meet the three requirements:

(1) the conduct must have been done legitimately.

(2) The individual doing the act should not have done it on purpose.

(3) The person for whom the act gets performed must have benefited from it [Union of India vs Sita Ram, AIR 1977, S.C. 329].

The government made repairs to a tank used to irrigate a settlement. The zamindars reaped the rewards. Damodar Mudaliar vs Secretary of State for India, 1894, 18 Mad. 88, held that they were obliged to contribute.

Responsibilities of Finder of Goods

A person who discovers items belonging to another and takes them into his custody bears the same responsibility as a bailee. He is obligated to treat the things with the same care as a man of ordinary wisdom would treat his goods of comparable quantity, quality, and worth under identical conditions. He will be charged with improper conversion of the property if he does not comply. Until the owner gets discovered, the property in the items will vest in the finder, and he will be able to keep the commodities as his own against the whole world.

For example, F picks up a diamond off the floor of K’s shop, and he gives it to K to hold until the rightful owner gets discovered. Despite widespread publicity in the media, no one appears to have claimed it for several weeks. K refuses to return the diamond, so F claims it. K is obligated to return the diamond to F, having the right to keep the diamond against the entire world except for the genuine owner.

A person who receives money or anything supplied by mistake or coercion shall reimburse or return it to the person who received it by mistake or compulsion.

Examples:

1. Assume A inadvertently pays some money to B. It is entirely owing to C. B must reimburse A for the money. On the other hand, C cannot collect the sum from B since there is no privity of contract between B and C.
2. A railway company refuses to deliver certain items to the consignee unless paid an unlawful carrying fee. To acquire the products, the consignee must pay the amount charged, and he is entitled to a refund of the portion of the cost that is illegally exorbitant.

Section 72 makes no distinction between an error of fact and a mistake of law (D. cawasji & co. vs state, AIR. 1969 mys.23).

Examples:

1. K paid sales tax on his bullion forward trades. As a result, this tax had pronounced extra vires. K might recover the amount of sales tax because Section 72 is broad enough to include not just errors of fact but also errors of law. Benares vs. Kanhaiya Lal Mukand Lal Safaf, 1959 S.C.J. 53.
2. An insurance company paid the policy amount based on the mistaken belief that the products were destroyed by a risk insured against. In reality, the things had been sold. The insurance company may retrieve the money if it is held.
3. An insurance company paid the sum on a policy that had lapsed due to the insured’s failure to pay premiums. The firm was aware of this fact. However, it got disregarded throughout the payment process. The corporation may recover the cash “however irresponsible the party (paid money) may have been in failing to apply diligence to check into the reality,” the court said.

Salient features of Quasi Contract

• First and foremost, such a right is always a right to the landed money and, more often than not, a liquidated sum of money.
• Second, it gets enforced by the law rather than arising from any agreement between the persons involved.
• Third, it is a right accessible not against the entire world but just against a specific person or individuals. Therefore it is similar to a contractual right in this regard.

Quasi Contract And Implied-In-Fact Contract

The absence of a contract or mutual consent between the parties is the distinguishing feature of a Quasi Contract. Quasi Contracts frequently get mixed up with implied-in-fact contracts. Implied-in-fact contracts lack a formal agreement, are likewise not contracts in the proper sense. In the latter scenario, even if the parties did not enter into a contract based on the facts, the parties’ conduct and words amounted to mutual consent on the disputed topic.

An example might demonstrate the distinction between the two.

A seeks therapy from a doctor. A and the doctor have mutual consent in this case. A expects treatment from the doctor, and the doctor expects payment for A’s services. It is an example of an implied-in-fact contract, in which the parties’ actions suggested mutual assent. However, in the case of a Quasi Contract (as in the preceding example), the parties to the dispute did not even know one other. As a result, there is no issue of consent between them.

Difference between a Contract and a Quasi Contract

• A contract is a binding agreement between two or more parties, but a Quasi Contract is not a binding agreement but resembles one.
• Both parties freely provide their consents under a contract. However, neither party freely consents under a Quasi Contract because it is not formed willingly.
• Responsibility occurs under a contract based on both parties’ stated and agreed-upon conditions. In contrast, liability exists under a Quasi Contract based on the parties’ behaviour and gets based on morality, natural justice, equity, and a good conscience.
• Interest parties engage in general contracts willingly and without coercion, whereas legislation enforces Quasi Contracts.
• General Contracts might be rights in rem (against the entire world) or rights in personam (against a specific person) (against any one person or entity). However, Quasi Contracts are just rights in Personam, which may only get used against a single person.

Notions behind Quasi Contracts

Chapter V of the Indian Contract Act, 1872 defines Quasi Contracts as “Of certainties approximating those generated by contract.” Although the term “quasi-contacts” isn’t mentioned in the statute, it’s safe to assume that the authors referred to the concept of a Quasi Contract and the law of unjust enrichment.

Despite the absence of the phrase in this chapter, the Court concluded in Hari Ram Seth Khandsari v. Commissioner of Sales Tax that this chapter is about the doctrine of Quasi Contracts.

The concept of a Quasi Contract first got considered in Moses v. MacFarlane (an English case). In this case, Lord Mansfield argued that such a responsibility was based on both the law and justice to prevent undue benefit to one person at the expense of another.

To summarise, according to the Court’s judgement in Mahabir Kishore & others v. the State of MP], three factors must be present to apply the idea of Quasi Contracts. –

• As a result of getting a benefit, there must be unequal enrichment.
• Someone else should suffer as a result of the enrichment.
• Keeping such wealth is unethical.

Conclusion

Although the notion of a Quasi Contract dates back to the 18th century, it is still relevant today.

Although this principle has been questioned on several occasions, it remains significant since it’s on the principles of fairness and equality. The principles of unjust enrichment and quantum meruit are at the heart of the Quasi Contract notion. The primary tenet of this principle is that no one should prosper at the expense of others. Although Quasi Contracts got incorporated in the Indian Contract Act under a different term, the core and basics remain the same. As a result, Quasi Contracts are an essential component of the contract act.