REVOCATION OF PROPOSAL
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This article is written by Akash Kumar, pursuing a Certificate Course in Advanced Commercial Contract Drafting, Negotiation & Dispute Resolution from Lawsikho.

Introduction

Quantum meruit is a remedy which is available under Indian contract law. The entire idea behind this remedy is that a deserving party should be paid for the work they have done and another party shouldn’t be unjustly benefitted by the act of the former party.

‘Quantum meruit’ is a latin expression which means “what one has earned”. So, what this basically means is that a person who deserves to be paid for his services should be compensated for the amount of work which is performed.

In this article, the author has attempted to explain the aforesaid concept in layman’s language as far as possible so that even an absolute beginner in contract law can understand the concept easily.

The concept of Quantum meruit in a Contract

The doctrine of Quantum meruit has its origins in English Common Law. Since, the Indian Contract Act, 1872 itself is based on the principles of English common law, this principle has found its place in Indian law. Moreover, the judgements of the English courts have been used to describe this doctrine in various Indian cases. In this section, we will discuss this doctrine in detail by taking the help of judgements from English as well as Indian courts.

Defining the term ‘Quantum meruit’

Quantum meruit can be defined as a remedy in contract law that compensates a party for a work that they have done or services they have provided to another party. (This is a very rudimentary definition solely for the purpose of explanation)

Let’s take a very basic example, say ‘A’ is a person who agrees to repair ‘B’s car. Halfway through, ‘B’ refuses to take A’s services. But the car was already 50% repaired. So, ‘A’ can file a suit upon quantum meruit against ‘B’ to recover the fees for the work ‘A’ has performed. (This was just one example, there are other scenarios where quantum meruit is applicable)

Having understood the gist of quantum meruit in the most basic sense. Let’s have a look at some formal definitions:

  • The Black law dictionary defines quantum meruit as “as much as one deserves”.
  • Jain (2020) defines Quantum meruit as “a legal action based on equitable compensation”.
  • Google defines this term as “a reasonable sum of money to be paid for services rendered or work done when the amount due is not stipulated in a legally enforceable contract”. (this definition is not entirely correct because there are instances where quantum meruit claim can be filed in presence of a contract)
  • Munkman (1950) adds that in quantum meruit claims usually no price is agreed upon. (again this is not always the case. Price may be agreed upon sometimes and still a suit upon quantum meruit may be applicable)

So we see that different sources define the concept differently and hence there is much confusion as to what this remedy is about precisely. The rest of the article will hopefully clear much of these confusions.

Is Quantum meruit a contractual claim or can it be exercised in the absence of a contract?

Quantum meruit is a peculiar restitutionary remedy. The main idea behind this principle is that a person who has done certain work deserves to be paid for that work. So, it doesn’t matter whether there is a legally enforceable contract or not. If a court of law feels that you should be compensated for the services you provided, you will receive benefits under quantum meruit.

Quantum meruit as a Quasi Contract (when there is no legally enforceable contract)

A quasi contract is nothing but an instance where although there isn’t a legal contract but the circumstances implies the presence of a contract. Thus, quasi contracts make a party obligated to fulfill the needs of another party. Therefore, quasi contracts are also known as implied contracts.

A claim of quantum meruit hence is a form of quasi contract. So, even if there is no legal written contract between two parties, the aggrieved party may file a suit upon quantum meruit on the basis of an implication in the agreement. We have a case law to further explain this point.

William Lacey (Hounslow) Ltd v. Davis: In this case the plaintiff filed a suit upon quantum meruit in absence of a written contract. The defendant argued that quantum meruit is necessarily a contractual claim and as such the suit was baseless. But, the court held that there was an implied contract between the parties i.e., quantum meruit was applicable under a quasi contract.

Quantum meruit and Unjust enrichment

There are some pointers to be kept in mind regarding these two terms:

  • When a party unjustly benefits from an act of another party then the former party is said to be unjustly enriched. And such an act of unjust enrichment is prevented by measures such as quasi contracts.
  • The remedy which is exercised for such unjust enrichment is the doctrine of quantum meruit. So, quantum meruit is the measure for seeking relief for unjust enrichment.
  • Quantum meruit has wider applications in the sense that even if there was an express contract, which is not a case of unjust enrichment, a quantum meruit claim can be applicable.
  • Lastly, on various occasions these two terms – quantum meruit and unjust enrichment, are used interchangeably to the confusion of the public. So, a certain degree of care has to be exercised.

Quantum meruit as a contractual claim (i.e., in the presence of a legally enforceable contract)

As per the definition given by Munkman, we saw that quantum meruit claims are applicable in only contracts which have no fixed price. This is not entirely true. Let us understand this with the help of an example.

Say X agrees to build a house for Y under a legally enforceable agreement for a price of 1 lakh rupees. But X does the job badly. So, Y gets the repair work done by Z for 10 thousand rupees. In this situation, X can claim money for the work done by him which was worth 90 thousand rupees. So, we see that although there was a fixed price, a quantum meruit suit can still be filed.

But, we must understand that when there are specifically defined amounts present in a contract, it makes a quantum meruit claim difficult. There is a case law which explains this.

Burns Fry Ltd. v. Khurana: In this case the plaintiffs got a certain work done for the defendant but the defendant later changed his mind and refused the services offered. So, the plaintiffs filed a suit under quantum meruit from both contractual and quasi contractual angles. But the court rejected the claims because the contract had specific clauses under which the plaintiffs had agreed not to be paid in case the defendant refused to complete the transaction.

Cases of Quantum meruit claims

If you as the reader have reached upto this point in the article then you might be wondering, “Okay, just tell me the specific instances where I can file a suit under quantum meruit already!”

So, let’s delve right into it. The following are the specific instances where a quantum meruit suit is usually filed (both contractual and quasi contractual instances):

Case I: Void agreements or contract that becomes void

In this case, we are faced with situations in which an agreement is void ab initio (i.e., from the very beginning) or the contract becomes void at a later time. In such a case, the benefit received by either party shall have to be returned to the other party.

For example, if A sells his car to B not knowing that his car has been stolen, then A will have to return the money to B because the contract becomes void. If the money is not returned then B can file a suit upon quantum meruit against A.

Craven-Ellis v. Cannons Ltd: In this case, the plaintiff was appointed as the managing director of a company. But in reality his appointment was void because of certain formalities which weren’t completed. The plaintiff didn’t know that and provided services to the company for a duration. The court held that the plaintiff is entitled to remuneration by the defendant under the doctrine of quantum meruit.

Case II: When there is a non-gratuitous act

The term ‘non-gratuitous’ means something which is not done for free, at least not intentionally. Let’s take a classic example, ‘A’ is a person who delivers goods to the house of ‘B’ instead of ‘C’, accidentally. ‘B’ misappropriated the goods knowing perfectly well that the goods do not belong to him. In such a case, B needs to compensate A for misusing the goods. Otherwise, A can file a suit upon quantum meruit against B.

Case III: When there is an act which prevents the completion of the contract

In this case, one party is prevented from completing his responsibilities under the contract due to some act or fault of the other party. So, the latter party needs to compensate the former party for the work done till now.

For instance, A asked B to write 10 articles for his blog and promised to pay him a certain amount per article (after all of the articles had been published on the blog). But, after 3 of the articles had been published, A’s blog had to shut down. In this case A will have to pay B for the 3 published articles or he can be dragged to court in a suit upon quantum meruit.

Another point worth mentioning is that in the above example, let’s say B had started working on the 4th article and had spent his valuable time and research on the article. In such a case, he can claim money for the 4th article as well if he can prove it in court.

Planche vs Colburn: In this case, the plaintiff agreed to write a book for the defendant for £100. He had completed a large portion of the book when the defendant retracted his offer and refused to pay him anything. The court held that the plaintiff should be compensated for the work he has done.

Case IV: When there is a divisible contract

A divisible contract is a type of contract where the responsibilities of the parties are divided into matching pairs of duties so that if one duty is not performed then that does not lead to breach of contract. If we take the help of an analogy, divisible contracts are similar to the concept of installments.

In case of a divisible contract, a quantum meruit claim is possible for the parts of the contract which have been performed. For example, let’s say A agrees to supply tiffin to B for Rs. 100 per day. But, after 10 days A does not want B’s services anymore. Here B can ask money ( Rs. 1000 i.e., 10 days X Rs. 100) for the 10 days he supplied A with tiffin.

Case V: When there is an indivisible contract which is performed completely but badly

An indivisible contract is one which cannot be executed in parts. Either it is performed completely or remains incomplete. An indivisible contract is one where compensation is given for a work which is performed completely and not otherwise.

Let’s say the party receiving the services realizes that the work has been done badly and as such refuses to pay the other party. In such a case, a quantum meruit suit can be filed by the party which has done the work seeking compensation for the work they performed.

For example, A agrees to paint B’s house for Rs. 10,000. But the work was done badly and B had to spend an extra Rs. 2000 to get the work done properly. In this case, A can still seek Rs. 8000 for the work that he did albeit shabbily.

Another point should be brought to light. Let’s say if A does only 75% of the work and leaves the job for some reason. Can he still file a quantum meruit case to claim 75% of the consideration mentioned in the contract? No! This is because the contract is indivisible and payment is only acceptable when the contract is completely performed.

There are two English judgements which will hopefully clear the point. They are as follows:

  • Sumpter v. Hedges: In this case, the plaintiff was a builder who agreed to build two houses and a stable for the defendant for £560. But he only did the work partly which was valued at £333. He asked for money from the defendant for the work done till then but was refused payment. Moreover, the defendant completed the abandoned work and didn’t pay anything to the plaintiff. The plaintiff filed a suit claiming compensation for the work he had done. The court held that since the contract talks about payment in a lump sum amount, which is paid only after completion of work (i.e., the contract was indivisible), Sumpter cannot be compensated because he did only part of the job.

 

  • Hoenig v. Isaacs: In this case, the defendant had done some furnishing and decoration work for the plaintiff for £750. But the plaintiff saw that there was minor repair work which needed to be done which cost him around £55 to fix and as such he refused to pay the outstanding balance of £350 (cost of defendant’s labour). The court held that the contractor should not be deprived of payment entirely for minor defects or omissions in the construction. The amount can be paid subtracting the cost of repair work which was £55 in this case.

 

NOTE:  One last thing before we move on. A quantum meruit claim only makes sure that the right amount of money (as much as is deserved) is provided to the aggrieved party. It is not a measure from which an unreasonable amount of money can be extracted (such as in penalty). The idea is to put the parties in a condition as if the contract never took place at all.

Quantum meruit claims over claim for damages

One might wonder what is the difference between a quantum meruit claim and a claim for damages. Is there a benefit to a quantum meruit claim? Well, in a case where the price of contract was wrongly calculated and the cost of labour has turned out to be a lot more, in such a case a quantum meruit claim can provide a higher relief in amount as compared to a claim for damages. This is because damages are usually stipulated in the contract (fixed) whereas quantum meruit is a restitutionary measure (reasonable compensation). And obviously there will be instances when an amount deserved by the aggrieved party can be more in comparison to that mentioned in a contract.

Hold your horses before coming to any conclusions! In India, such a claim cannot be made unfortunately. This is because in India, a quantum meruit claim is at a disadvantage if a price for damages is stipulated in the contract. The reader is requested to go through the judgements discussed towards the end of this article. That will clear things up.

The law relating to Quantum meruit under Indian Contract Act, 1872

Now we finally get to discuss the laws present in the Indian Contract Act, 1872 under which the principle of quantum meruit is enforceable. Two sections are of prime importance because they are usually the ones through which this principle is enforced. They are sections 65 and 70 of the Indian Contract Act. They are discussed below.

Section 65

Section 65 of the Indian Contract Act talks about obligations of people who have received advantages under a void agreement or contracts that have eventually become void. Furthermore, there are 4 illustrations given underneath the section. (Read the full section here)

This section has covered the cases I, III, IV & V listed earlier in the article. Although the name of the section may give the implication that it is specific to Case-I but actually when the section is read along with the illustrations then we get the complete picture regarding the width of quantum meruit suits which can be filed under this section.

Section 70

Section 70 talks about the obligations of a person who enjoys benefits under a non-gratuitous act. This section has covered the remaining Case-II listed earlier in the article. (Read the full section here)

Judgments which have defined Quantum meruit

Until now, we’ve been discussing mostly English judgements which have laid down the basic principles behind Quantum meruit. Now, we shall discuss judgements of Indian courts as well and this will help us in understanding how the principle has evolved in India (particularly in relation to section 65 and 70 of the Indian Contract Act). The crux of these judgements are briefly explained as follows:

  • Moselle Solomon v. Martin & Co.: Two judges, Lord William J. and Jack J. held the following respectively: (i) Section 70 has nothing to do with the law which relates to the liabilities of principal and agent. This section provides an independent remedy which compensates an individual for a non-gratuitous act done by him from which another person benefits. (ii) It was held that this section does not apply in presence of an express contract as suggested by the name of the chapter in which the section is present.
  • The State Of Madras vs Gannon Dunkerley & Co.: Speaking on section 65 the court clarified that a claim for damages is synonymous to the claim of quantum meruit. The material supplied serves as a factor in order to calculate the compensation. So, we see that in the Indian context, the courts have not made any distinction between damages and the quantum meruit remedy.
  • M/s. Alopi Parshad & Sons Ltd. v. The Union of India: The court held that quantum meruit claims are applicable only when the price is not fixed in a contract. If a certain price is stipulated in a contract as damages for the breach of the contract then only that amount is payable as compensation.
  • Mulamchand v. State of M.P.:The court held that under article 70, claims cannot be made on the basis of an enforceable contract. The court explained that the concept of compensation behind section 70 is that of quasi contracts or restitution.
  • Puran Lal Sah vs State Of U.P: In this judgement the court clarified a couple of things regarding quantum meruit. Firstly, quantum meruit claims cannot be availed by the party who breaks the contract even if they partially performed part of their obligation. Secondly, the court made the distinction between quantum meruit and claim for damages: a quantum meruit claim puts the plaintiff in the position as if the contract never took place whereas, a claim for damages puts the party in the position as if the contract was successfully executed.
  • State Of Rajasthan vs Associated Stone Industries: While discussing section 65 of the Indian Contract Act, the court held that the payment of compensation and restoration of advantage has to be mutual in a quantum meruit claim. If one party is asked to restore the advantage received by them then the other party may also ask the former party to restore the advantage received by them.

Latest Judgments and Case Laws on Quantum Meruit

  • Mahanagar Telephone Nigam Limited v. Tata Communications (the MTNL case): This is a relatively newer case from 2019. In this case the Hon’ble Supreme Court held that a quantum meruit claim cannot be raised in the presence of a contract. If there is a stipulated amount in a contract for liquidated damages, only that amount is to be levied on breach as specified by section 74 of the Indian Contract Act. Any amount levied above such a stipulated sum has to be refunded.
  • Mann v Paterson Constructions Pty Ltd: This is a case from the Australian jurisdiction. In this case, the High Court of Australia held that the maximum compensation which can be claimed by an aggrieved party is limited by the sum stipulated in the contract. This judgement was a controversial one in the legal world because in most jurisdictions (excluding India and Australia), a quantum meruit claim can be in excess of the price stipulated in the contract. So, in a way we observe that Indian and Australian courts are in agreement when it comes to limiting a quantum meruit claim based on the contract (although in different ways).
  • Kamlesh Ahuja vs State Of Hry. And Ors: In this case, the Punjab-Haryana High Court relied upon its own judgement, Pritam Singh Dhaliwal vs. State of Punjab and Anr. (2004), and held that as per the principle of quantum meruit, an employee under a higher pay-grade has to receive the emoluments as per that pay grade. As such, if an employer is not paying his/her employee then a suit upon quantum meruit is applicable to recover the full salary. So, we see that the principle of quantum meruit can be used to provide relief in multiple ways.

Conclusion

Quantum meruit is a useful remedy, provided one knows how to use it correctly. In India, the doctrine has not been exercised by the courts in the “pure sense” as we observed in the MTNL vs. Tata Communications case. And maybe this idiosyncrasy of the Indian courts is for the good because this creates an obligation on the people to draft well thought-out contracts. However, legal scholars in India want the Hon’ble court to change its position to finally allow compensation beyond the price fixed in a contract.

People should draft their contracts in such a way so that the stipulated sum for liquidated damages is always equal or higher than a corresponding quantum meruit claim. Think it this way, in India, penalties for breach of contract are often set aside and only reasonable damages are provided as relief. So, a carefully planned out contract can save the executors time and money.

References


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