This article has been written by Meera Patel, a B.A. L.L.B student from the Maharaja Sayajirao University, Faculty of Law, Vadodara. This is an exhaustive article that covers quasi-contracts, its types, and other important details in the light of relevant case laws.

This article has been published by Sneha Mahawar.

What is a contract 

A contract is an agreement made between two or more parties that is enforceable by law. Section 2(h) of the Indian Contract Act, 1872 states that “An agreement enforceable by law is a contract”. This definition is based on the definition of contracts stated by Frederick Pollock who was an English jurist. His definition states that “Every agreement and promise enforceable by law is a contract”. 

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Sir William Anson who was a British Jurist and a unionist stated that a contract is “a legally binding agreement between 2 or more persons by which rights are acquired by one or more to acts or forbearance (abstaining from doing something) on the part of others” 

Salmond who was a Scottish politician stated, “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others” 

Two of the most basic requirements or elements that are needed to create a contract are: 

  • Agreement: An agreement is a promise or a set of promises which is used to form consideration for all the parties involved as mentioned in Section 2(e) of the Indian Contract Act, 1872.
  • Enforceability by law: All types of agreements are required to be legally sound to be passed as contracts in the eyes of the Courts.

To form an agreement, there must be a proposal or an offer by one of the parties and its acceptance by the other and that is why it is necessary for an agreement in a contract for it to be accepted as a proposal. In simpler terms : 

 Agreement = Offer + Acceptance. 

For example: In a hypothetical situation, Amrita who owns a cow makes an offer to sell the cow to Manish in exchange for 20,000 rupees. Manish gives his consent (acceptance) to buy the cow from Amrita and due to the fact that there exists an offer and an acceptance, an agreement is formulated which in return formulates a contract between the two parties.

Consensus ad idem

Consensus ad idem is an important element that constitutes an agreement and therefore it is an important element for the formulation of the contract. This is a Latin phrase that in literal terms states that all the parties involved in making a contract are on the same page about all the details of the contract and everyone has accepted the offered contractual obligations of each party.

In other words, the parties involved in the agreement must agree on all the subject matters of the agreement in the same sense and time. If there is no consensus ad idem, there is no agreement and therefore there is no contract. For example: In a hypothetical situation, Karan, is the owner of 2 horses one of which is a racehorse and the other one is a show breed horse. Karan intends on selling the show-breed horse. He made an offer to sell the show breed to Lata but Lata thinks that she is purchasing the racehorse from him due to a misunderstanding. There is no consensus ad idem and thus, no contract. 

Essential elements of a valid contract

To understand and remember the elements of a valid contract, try to imagine a pizza. Try to visualize a pizza with all its toppings. In this context, just like how the ingredients of a pizza are important to make it edible, the elements that are listed below are required to make a contract legally sound and acceptable in the courts of law. Without the elements listed below, the agreement won’t be a contract. According to Section 10 of the Indian Contract Act, 1872, all agreements are contracts if they are made by the free consent of the parties involved who are competent to form a contract while keeping in mind that there is a lawful consideration and lawful objects involved in the contract. To become a contract, an agreement must have the following essential elements:

  • Offer and acceptance: There must be two or more parties to form an agreement. The terms of the offer need to be definite and the acceptance must be absolute.
  • Intention to create a legally valid offer: When the involved parties decide to enter into an agreement, their intention to create an agreement should have legal validity. If the legal validity factor is missing, then there will be no contract. Agreement of a social or domestic nature does not constitute a legal relationship as there are no such contracts. 
  • Lawful consideration: Section 2(d) of the Indian Contract Act, 1872 states that “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. In layman’s language, any agreement enforceable by law must be supported by consideration of both parties.
  • Competency of a party: Parties who are incompetent to enter into a valid and legally binding contract include minors, mentally unsound minds, and anyone who is not qualified to enter into a contract by law to which they are subject. A flaw incapacity to enter into a contract may arise from idiocy, drunkenness, lunacy, etc too. If a party experiences any such form of flaws, the agreement will not be enforceable. 
  • Free consent: The term ‘free’ means ‘able to act or be done as one wishes and not under the control of another. It means that all the parties should have free consent to enter into an agreement. The absence of free consent due to coercion, undue influence, misrepresentation, etc results in forming a void contract. 
  • Lawful object: Section 23 of the Indian Contract Act, 1872 states that the object of an agreement must be lawful. That means the object must not be illegal in nature which includes drugs, murder, etc, the contracts should not be immoral in nature which includes agreement to break a third party’s marriage, signing contracts to murder an individual, etc and lastly, it should not be opposed to public policy. If any agreement encounters such flaws, then that agreement would be considered unenforceable. 

Types of contracts 

As mentioned above, we are already familiar with terms such as valid contracts and void contracts, listed below are a few other types of contracts that are acceptable in the eyes of law: 

Valid contracts

A valid contract is a legally binding and enforceable agreement. The main factor that qualifies an agreement to be a valid contract is the existence of all the above-mentioned elements.

Illustration: Aditya agrees to sell his car to Nayan for 5,00,000/-. Nayan sends a cheque to Aditya and in return, Aditya sends over the car to Nayan. This is an example of a valid contract.

Void contracts

A contract that ceases to be enforceable by law makes it void. 

Illustration: Aditya agrees to pay 20,000/- to Nayan after 5 years for a loan of 18,000/- which is made out to Aditya by Nayan. During the 3rd year of this timeline, Aditya died in an accident and that is why this contract shall be considered void due to its non-enforceable nature under law as per the agreed terms of the contract.

Voidable contract

Voidable contracts are the type of contracts that are basically an agreement that is enforceable for a party/parties and which is not enforceable by law for the other party/parties.

Illustration: Aditya agrees to sell his laptop to Nayan, a 16-year-old teenager for 8,000/-. What makes this a voidable contract is that even though Aditya has made a valid deal, the fact that Nayan is a minor makes the entire agreement a voidable contract. Nayan is not bound to pay and is allowed to repudiate and/ or accept the terms of the contracts as if they choose to repudiate the contract, it will become a void contract but since Nayan decides not to, it becomes a voidable contract. Other than this, a voidable contract is a valid contract.

Illegal contract

As the word states, an agreement that leads to breaking the law or performing something that is deemed to be illegal in the eyes of law is known as an illegal contract. A Contract that opposes public policies is also counted as an illegal contract

Illustration: Aditya is a drug dealer and he agrees to sell weed to Nayan. Even though this contract has all the essential elements required to constitute a contract, the unlawful object still makes the entire contract illegal.

All illegal contracts are void but not all void contracts are illegal as illegal contracts are void ab initio which in literal terms means void from the beginning, unlike the latter one. One more factor to support this statement is the criminal aspect of illegal contracts is that these acts are punishable under law. All the involved parties are prosecuted under the law.

Unenforceable contract

Unenforceable contracts are simply rendered unenforceable by law due to some technicalities. This kind of contract cannot be enforced against any of the parties involved.

Illustrations: Aditya agrees to sing at a concert on the 21st July 2021 but he fractured his legs and broke his spinal cord in an accident, this contract is unenforceable and cannot be used against Aditya.

Contingent contract

Contingent contracts are a simple example of when a  promisor needs to meet the contractual obligations only when a certain situation happens. For example: insurance contracts.

Illustrations: Aditya, the owner of an insurance firm is obligated to give a certain amount of money to Nayan, whose car was completely destroyed in an accident.

Quasi-contracts

One more contract that has not been mentioned above is quasi-contracts. Since the main agenda of this article is to understand what a quasi-contract is and to analyze the types of quasi-contracts, let us start by understanding what a quasi-contract means.

The word ‘quasi’ means pseudo or partly or almost and that is why it can also be called a pseudo contract. A quasi-contract is an agreement that is retroactive in nature. These kinds of agreements take place between parties who have no prior contractual commitments or intention of getting into a contract. The judge simply develops the concept of a quasi-contract to rectify situations where one side acquires something at the detriment of the other side. In layman’s language, this type of contract aims to prevent one party from benefiting financially in a situation while financially draining the other party. Such agreements may be enforced by the approval of the party which is responsible for providing the goods or services but it is not necessary to keep this factor in mind before enforcing a quasi-contract. 

The only factor that constitutes a quasi-contract is that there lacks an understanding between parties beforehand. Quasi-contracts exaggerate one party’s duties to the other party where the second party is in control of the first party’s personal property. As a remedy, it is the judge’s duty to impose the agreement by the law. To support this statement, the author would like to give an example: in a hypothetical situation, Party A found a wallet on the road which belongs to Party B. By this example shows that Party A owes something to Party B as they now possess Party B’s property indirectly or by mistake. The contract becomes enforceable only if Party A decided to keep Party B’s wallet without trying to return it to the original owner.

A second word for quasi-contracts is implied contracts. A literal meaning is attached to the term implied contract as the defendants are ordered to pay for the damages and the quantum meruit or restitution is measured as per the intensity of the wrong done. Lastly, none of the parties involved are supposed to give consent as the agreement is being established in the court, therefore, making it legally enforceable without consent. The main aim of such contracts is to make a fair decision that will, later on, turn into an outcome that is acceptable to the party that has been wronged. 

Elements of a quasi-contract

Listed below are the components required for a judge to issue a quasi-contract:

  • An individual or as the law recognizes, one claimant. There must also be a defendant who will be responsible and asked to pay the restitution.
  • The defendant must be willing to recognize or even acknowledge the value of the product/ service in question but has not made any efforts to return it/ pay for it or even made an effort to do something about it.
  • The complainant needs to prove that the defendant earned wrongful enrichment.

Principle on which quasi-contracts are based

The main principles on which these types of contracts work are justice, equity, and good conscience. This principle is based on a legal maxim ‘Nemo Debet Locupletari Ex Aliena Jactura’ which in literal terms means no man must grow rich out of another persons’ loss. 

To support this statement, here is an illustration of this principle: In a situation, Pari and Isha enter into a contract where Pari agrees to pay 900 rupees for a bouquet of flowers when it would be delivered to her house by Isha herself. However, Pari mistakenly delivers the bouquet to Anisha’s house and she issues it as a birthday gift and she keeps it for herself. Even though there is no contract between Anisha and Pari, the court shall treat this situation as a quasi-contract and order Anisha to either pay for the flower bouquet or return it in the same condition. Law sees no contract between the parties, it is just that the law imposes contractual liabilities in order to not oversee certain peculiar situations.

There are 5 different types of situations where a quasi-contract can be formulated. All these situations are elaborately discussed under Section 68 to Section 72 of the Indian Contract Act, 1872.

Types of quasi-contracts

Listed below are the 5 types of quasi-contracts that are recognized by law :

Section 68

“Necessaries supplied to a person incapable of contracting”

Necessities supplied to the person who is incapable of contracting is the first example of the situation under which a quasi-contract can be formulated and this situation is explained under Section 68 of the Indian Contract Act, 1872.

To understand this easily, any person who is incapable of entering into a contract i.e. is a lunatic, minor, mentally incapable of understanding their surroundings, etc. If someone even supplies necessary supplies to such a person even is entitled to get a reimbursement from the property of the person who is incapable in this situation. This rule is applicable whether or not the person does help the incapable person because of an ulterior motive or purely out of humanity.

Illustration: Every month, Pari supplies necessary items to Lata as per her requirement as Lata is a lunatic and is not capable of helping herself out. Even though Lata is broke and does not have money to pay Pari, Pari is entitled to reimbursement from the property of Lata and this is termed as a quasi-contract. To make sure that Pari is reimbursed, she needs to prove that Lata is a lunatic and that the goods she supplied to Lata were necessary items only and that they were given to Lata on time as per her requirements.

Section 69

“Payment by an interested person”

Payment by an interested person is the second situation under which a quasi-contract can be formulated and this situation is explained under Section 69 of the Indian Contract Act, 1872. To understand this type of quasi-contract, the main thing to keep in mind is that if a person pays the money on someone else’s behalf, the other person is bound to pay back the money and reimburse the person by law.

Illustration: Pari is the owner of the land and has leased the land to Lata for a period of three years. Within two months of leasing the land, it was revealed that Pari couldn’t pay the tax revenue to the government and even after sending in notices, she wasn’t able to pay her dues. Thus, the government put out an ad to sell the land. As per the revenue laws, once the land is sold, Lata’s lease shall be annulled. Lata is not interested in letting go of the land therefore she decides to pay the amount due to the government for Pari. in this situation, Pari is obligated to reimburse Lata.

Section 70

“Obligation of the person enjoying the benefits of a non-gratuitous act”

When a person enjoys the benefits of a non-gratuitous act, that person is obligated to repay the person wronged. As per Section 70 of the Indian Contract Act, 1872 it is stated that if a person is legally giving out goods/ products/ services with no intentions behind it of performing a non-gratuitous act for anyone and the person in the wrong graciously uses the goods/ products or services is liable to pay the compensation to the former for the benefits they have been getting from the latter. They may be liable to give back monetary compensation or maybe simply asked to restore the goods used. To get reimbursed, the plaintiff must prove that the services/ goods they delivered were lawful, there was no intention to provide those products/ services graciously, and that the latter did enjoy the benefits of the products/ services.

Illustration: Pari is the owner of a fruit shop. She placed baskets of her fruits on a rack outside her store to keep them fresh. Lata, who was around the store, picked up an apple from the rack and bit into it. This is a situation where Lata is liable to pay monetary compensation to Pari as Pari did not put out her fruits as a gratuitous favor for people. 

Section 71

“Responsibility of finder of goods”

As per Section 71 of the Indian Contract Act, 1872, if a person finds an item that belongs to someone else and decides to take them into their custody, the former person has to adhere to the responsibilities that include taking good care of the goods, not appropriating the goods and returning it back to the owner in the same condition they found it in.

Illustration: Pari is Lata’s neighbor. One day since Lata wasn’t home, she already paid and delivered the package lying on her doorsteps which was later on found by Pari. She knew that Lata was not going to be home for another 3 days so she picked it up and took it with her. In this situation, Pari is supposed to inform Lata why she picked her parcel and she is obligated as well as liable to return the parcel to Lata in the same condition and if she fails to do so, Pari is supposed to compensate late with either monetary compensation or a replacement of the goods/products that were in the parcel that belonged to Lata.

Section 72

“Money paid by mistake or under coercion”

As per Section 72 of the Indian Contract Act, 1872, if a person finds that they received money from someone by mistake or because of the fact that they were under coercion then the former is liable to repay or return the money they received in the due course.

Illustrations: Pari received a payment of 5,000/- in her bank account via her UPI ID through Gpay by Lata. In reality, Lata intended to pay that money to Paresh, her brother. After Pari realized that she received the money by mistake, she is liable for the money back to Lata. In similar terms, if money is paid via coercion, oppression, or extortion it is recoverable under this Section of the Indian Contract Act, 1872.

Case laws

In the case of Hari Ram Sheth Khandsari v. Commissioner of Sales Tax (1958), the applicant of this case deposited the tax as a major turnover of Khandsari and it was initially taxable at the rate of 2 percent. Because of a mistake, in the fourth quarter, the applicant deposited the tax at the rate of 4 percent which means a total of Rs. 10,198.22 of excess money was deposited. The concept of quasi-contract has been discussed even though the definite term was not used in this case law.

For the very first time, the concept of quasi-contracts was introduced and discussed in the case of Moses v. MacFarlane (2004). This was an English case and in this case, the ruler of Mansfield stated that the commitment of such sorts or in simpler words the obligation underlying quasi contracts was based on the law as well as the justice with anticipation of not giving out undue advantage to one person that might cost another person. 

In the case of Spolka Anonyme v. Fairbairn Lawson Combe Barbour Ltd. (1942), The courts stated that the obligations which arose in this case and which shall arise in the future where an individual receives the benefits at the cost of another person, then that type of commitment cannot be categorized underneath the law of torts or contracts. They should be categorized under the concept of restitution or quasi-contracts which are also called pseudo contracts. 

In the case of the State of Madhya Pradesh v. Bhailal bhai(1964), as per Section 74 of the Indian Contract Act, 1872 which covers sales tax under mistake, the Supreme Court held that, “the government to whom the payment has been made by mistake must in law repay it” as the respondent paid the tax under a mistake of law. 

Similarities and differences 

Similarities between contracts and quasi-contractsDifferences between contracts and quasi-contracts
All the results of contracts and quasi-contracts are similar in nature.In the context of claiming the compensation of the damages caused to the wronged party, the quasi-contracts are very similar to the contracts. To support this statement, we can look at Section 73 of the Indian Contract Act, 1872 which states the remedies if any type of quasi-contract is breached in different areas of the Indian Contract Act, 1872. A quasi-contract is a fictitious contract that has been pointed out by law. It is considered a valuable suggestion by law as it is a cure for the distress of the wronged party which isn’t the case in express contracts.While talking about quasi-contracts, the purpose of the parties is not taken under consideration but it is totally opposite when we talk about express contracts as discussing the purpose here is a vital process. Without understanding the intention of the parties, there would be no contract at all.In the case of a quasi-contract, the entire concept of the contract revolves around the obligation of the parties as they are used to identify and shape the terms and conditions of the contract. On the other hand, the obligations formed are characterized because of the formation of the contract.

Conclusion

To wrap everything up, we can say that, even though there are various types of contracts and some may say that quasi-contract is a type of contract, it is not as there are various differences highlighted in the article above.

A quasi-contract is not a contract in its natural context and therefore it is also named an inverted contract. This is the reason why the term quasi-contract is not stated out there expressively. The most simple principle it follows is that a quasi-contract is a simple and basic contract that will not and cannot supersede the requirement of justice. 

References

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