This article is written by Supriya Gill, a lawyer pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho and edited by Shashwat Kaushik.
It has been published by Rachit Garg.
Table of Contents
Contracts govern various transactions and relationships daily and are a fundamental aspect of our legal system. The concept of Quasi obligations is often overlooked in contract law. Such relations that resemble contracts are called contracts implied in law or quasi-contracts. This is not, in actuality, a contract based on an agreement between the parties. Such obligations come into existence through a fiction of law. Quasi obligations are obligations that are created without a contract.
Although there is no agreement between the parties, it may become necessary to establish a person’s obligation to another on the ground that otherwise he would be retaining money or some other benefit that has come into his hands to which the law regards the other person as better entitled, or another person may suffer unfair loss. The law of quasi-contracts addresses such situations.
Being aware of quasi-contractual obligations is not only necessary for legal scholars and practitioners but also for every individual and business owner. If you have mistakenly received funds or provided any goods or services without a clear agreement or beneficiary of someone else’s generosity, quasi-contracts determine rights and responsibilities.
Chapter 5 of the Indian Contract Act, 1872 deals with quasi-contracts and lays down five various obligations and remedies.
What are quasi-contractual obligations
Quasi-contractual obligations, or implied-in-law contracts, are legal obligations imposed by law to prevent unjust enrichment or unfairness; they do not arise out of actual contracts. These obligations arise when one party is the beneficiary at the expense of another party without any formal agreement or contract.
Quasi-contracts are not actual contracts. In the case of quasi-contracts, mutual consent is not required, and the parties may not even know each other. The concept is a legal fiction to create fairness and equity in certain situations.
Quasi-contracts ensure that the receiving party makes restitution or compensation to the party who conferred the benefit.
Examples of quasi-contracts:
- Money paid by mistake: If a person has mistakenly paid some money to another person, he can recover the money paid. Or if a person pays for a product that is never delivered, he can recover the money paid.
- If someone supplies necessary supplies to a person unable to make the necessary arrangements: the value of such goods and services can be recovered if they are provided to the disabled person.
Elements of a quasi-contract
Quasi-contracts are legal tools to ensure fairness and prevent a person from getting any benefit at the expense of another party. There are certain elements to establish such obligations to impose an obligation on the person who gets benefit at the expense of another to make restitution to another party. Restitution means restoring the party to the position it would have been in had the unjust enrichment not occurred.
There need to be several key elements to establish a quasi-contract. Some of these are discussed below:
- Unjust enrichment: This is the fundamental principle behind a quasi-contract. It means that one party has gotten some value at the expense of the other party, and the other party has suffered a loss as a result.
- Enrichment of defendant: To establish a quasi-contract obligation, it is necessary that the defendant has received some benefit and has indeed been enriched. It means that he has received some benefit or obtained some advantage as a result of the situation.
- The expense to the plaintiff: To establish a quasi-contractual obligation, it is necessary that the plaintiff has suffered a loss and must have incurred some form of expense.
- No mutual intention to contract: One of the key differences between an expressed contract and a quasi-contract is the lack of a mutual intent to contract. In a quasi-contract, there is no intent to enter into a contract; the court imposes legal obligations to prevent unjust enrichment.
Types of quasi-contractual obligations under the Indian Contract Act, 1872
Chapter 5 of the Indian Contract Act, 1872 (Section 68-72) deals explicitly with the provisions of quasi-contractual obligations and provides legal remedies in such situations where there is no actual contract but one party is the beneficiary at the expense of another party.
Types of quasi-contractual obligations covered by the Indian Contract Act, 1872 are:
- Section 68: Necessaries supplied to a person incapable of contracting.
As per the provisions of Section 68 of the Indian Contract Act, 1872 the person who has supplied some type of necessary to a person unable to enter into a contract due to any disability, such as a minority or unsoundness of mind, is entitled to be reimbursed from the property of the incapable person.
Necessaries include defending a suit on behalf of a minor in which his property was in jeopardy, lending a loan to a minor to save his property from sale in the execution of a decree, and advancing to a minor for marriage.
- Section 69: Payment by interested person.
As per the provisions of Section 69 of the Indian Contract Act, 1872, if a person pays money that another person is legally obligated to pay to another due to mistake or coercion and the person who paid the money is in his interest, the person who was obliged to pay is entitled to compensation. The payment is considered to have been made under a quasi-contractual obligation.
The provisions of this section apply only to payments made bona fide for the protection of one’s interest. It is enough for a person claiming under this section to show that he had an interest in paying the money at the time of payment.
For example, if A’s goods are wrongfully attached to realise arrears of government revenue due by B and A pays the amount to save the goods from the sale, he is entitled to recover the amounts from B.
- Section 70: Obligation to restore benefits.
As per Section 70 of the Indian Contract Act, 1872, if a person does any awful act from another person or delivers something, not intending to do it free of cost, and another person has enjoyed such benefit, the person who receives the benefit is required to compensate or restore the benefit to the person who has done or delivered something.
There are three essential conditions to be fulfilled:
- There must be a lawful thing done by the person.
- The person must do it, not intending to do it gratuitously
- The person has enjoyed the benefit of it, for whom the thing is done.
- Section 71: Responsibility of finder of goods.
As per Section 71 of the Indian Contract Act, 1872 whenever there is a situation where a person finds lost goods and takes them into his custody. Such a finder is under an obligation to take reasonable care of the goods and try to find out the real owner. The finder is subject to the same responsibility as a bailee.
If the finder fails to find the owner of the goods and incurs expenses in preserving the goods, he is entitled to reasonable compensation from the value of the goods.
- Section 72: Liability of a person to whom money is paid or anything delivered by mistake or under coercion.
Section 72 of the Indian Contract Act, 1872, deals with cases when a person has paid money or delivered anything to another person under a mistake or coercion, and that person has received the benefit. The person who has received the benefit is obliged to repay or restore it to the person who made the payment or delivered anything under mistake or coercion.
It has been laid down by the Judicial Committee that the word ‘coercion’ used in this section is to be used in its general and ordinary sense, and its meaning is not to be construed as in Section 15 of the Indian Contract Act, 1872.
These sections in the Indian Contract Act of 1872 aim to ensure fairness and prevent unjust enrichment in various circumstances where there is no formal contract but a benefit has been conferred or necessaries have been supplied. They provide legal remedies to parties who have been unjustly deprived of their property or money.
Landmark cases in quasi-contractual obligations
The Indian Contract Act 1872 has been interpreted through various landmark cases in the Indian legal system. Although the Act specifically deals with a contractual obligation, several judgements have set important precedents related to quasi-contractual obligations under Sections 68 to 72 of the Act.
Some of the landmark judgements on the quasi-contractual obligations that have helped shape the understanding are discussed below:
Govindram Gordhandas Seksaria vs. the State of Gondal (1949)
In this case, the Maharaja of Gondal was bound to pay a certain sum to a third party to prevent the sale of certain mills because of unpaid municipal taxes. The Maharaja contended that he held no liability to pay the money as there was no contract between him and the third party.
However, the Privy Council held that the Maharaja is obliged to pay the money under the doctrine of quasi-contract. It was held that the Maharaja has received a benefit from the third party, and it would be unjust to allow him to keep the benefit without paying for it.
State of West Bengal vs. M/S B.K. Mondal & Sons (1961)
In this case, a contractor had constructed some works for the State of West Bengal at the request of an officer of the state. The state accepted the work, but when it came to payment, it refused to pay the contractors and contended that the contract was not valid as it had not been made as per the provisions under the Bombay Municipal Corporation Act.
The Hon’ble Supreme Court held that the state was obliged to pay for the works under the doctrine of quasi-contract. It was held that the state has received a benefit from the contractor, and it would be unjust to keep the benefit without paying for it.
Hari Ram Khandsari vs. Commissioner of Sales Tax (2003)
In this case, a taxpayer had overpaid the sales tax. The taxpayer contended that he was entitled to a refund of the overpaid tax. The government contended that the taxpayer was not entitled to a refund as there were no statutory provisions for refunds of overpaid sales tax.
The High Court held that the taxpayer was entitled to a refund under the doctrine of quasi-contract. It was held that the government had received a benefit from the taxpayer, and it would be unjust to allow the government to keep the benefit without making a refund to the taxpayer.
Differences between quasi-contracts and express contracts
The key difference between express contracts and quasi-contracts is that quasi-contracts are not created by the agreement between the parties but by the operation of law. On the other hand, express contacts are created by the agreement between the parties.
|Formation||Quasi-contracts are created by operation of the law to prevent unjust enrichment.||Express contracts are created when both parties mutually agree to enter into a contract.|
|Consent||In quasi-contracts, no consent is required.||In express contracts, the consent of the parties is a key factor.|
|Consideration||There is no consideration in quasi-contracts.||There is no consideration in quasi-contracts.|
|Enforceability||Not enforceable; instead, instead court imposes quasi-contractual obligations.||Express contracts are enforceable.|
|Negotiability||Quasi-contracts are not negotiated before entering into.||Parties negotiate before entering into a contract.|
Examples of quasi contracts:
- A person who has provided necessary supplies to a minor can recover the value of those supplies from the property of the minor.
- A person who has mistakenly paid money for goods or services can recover the value paid.
Examples of express contracts:
- A contract to sell goods
- A lease deed
- An employment contract
Both express contracts and quasi-contracts play an important role in contract law. Quasi-contracts ensure that no one is unjustly enriched at the expense of others, and express contracts make it possible for people to freely agree to exchange goods or services.
Remedies and damages provided by quasi-contracts
Quasi-contractual obligations exist to provide remedies in circumstances where one party gets the benefit at the expense of another party without any compensation or legal justification, even though there is no formal contract between the parties. The law imposes quasi-contracts to prevent unjust enrichment.
The primary remedies and damages available for quasi-contractual obligations are:
- Restitution: If a person gets unjustly enriched at the expense of another, he must return the benefit to the party who conferred it. For example, if a person has received money or property by mistake, he has to return the money or property to its rightful owner.
- Damages: The party who is at a loss from the quasi-contracts is entitled to recover damages from the party who gets the benefit. For example, if necessary goods are provided to a minor who is unable to pay for them, the person who supplied the necessities can recover the damages from the property of the minor. The amount of damage varies from case to case. As per general principle, the damage must be sufficient to compensate the injured party for the losses it has suffered.
What are the benefits of quasi-contracts
Quasi-contracts are necessary to establish obligations even though there is no actual contract between the parties, to avoid unjust enrichment or unfairness. If a person gets a benefit at the expense of another person, the law of quasi-contracts provides remedies in such circumstances. There are several benefits to quasi-contracts which are discussed below:
- Quasi-contracts prevent unjust enrichment: Quasi-contracts help in preventing unjust enrichment. Unjust enrichment means when a party gets benefits at the expense of another party without any legal justification. For instance, if a person receives money by mistake on another person’s behalf, it would be unjust if he kept the money. Quasi-contracts provide the remedies for recovering such money.
- Quasi-contracts promote fairness and justice: Quasi-contracts promote fairness and justice by ensuring that people are compensated for providing benefits to others. For instance, if necessary goods or services are supplied to a minor by a person, the person who provided the necessities must be compensated from the property of the minor.
- Quasi-contracts are available even in the absence of contracts: It does not matter if there is an actual contract or not; quasi-contracts ensure that the person who conferred benefit on another person must be compensated for it.
Quasi-contractual obligations are legal obligations that are not created by formal contracts but are imposed by law to prevent unjust enrichment or unfairness when a party gets the benefit at the expense of another party. The concept of a quasi-contract is based on the principles of equity and fairness.
The quasi-contractual obligations are governed under Chapter 5 (Section 68-72) of the Indian Contract Act, 1872. There are some common situations where quasi-contracts may apply when a benefit is conferred without any express contract or any payment made by mistake or under coercion.
Understanding quasi-contractual obligations is necessary for legal compliance, fairness and risk management in both personal and business matters.
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