Quasi-Contract and Claim for Compensation

By | July 28, 2019

I. Introduction

The article talks about Quasi-Contract and Claim for Compensation. A contractual obligation includes offer, acceptance, considerations and performance of the contract. Contractual obligations are the sole of commercial transactions and without which no trade & commerce would be possible.

But there is a certain contract which binds the party for performance even when some of the elements of contracts are missing, like even if the contracts lack consideration, or offer, then also it shall be treated as contracts. These types of contracts are called Quasi-Contracts.

The term “Quasi-Contracts” means pseudo-contracts, these contracts dint follow the technical format of regular contracts, but because these are based on social responsibility, so these are regarded as quasi-contracts. These are the contracts where the law imposes obligations on one party and right on the other even if all the requirements of the contracts haven’t been fulfilled.

The concept behind this is the Latin maxim, “Nemo Debet Locupletari Ex Aliena Jactura” which essentially means that no one should get undue benefit/enriched of other person’s loss.

The easiest way of understanding the concept is to analyse the most common example which has been used to grasp the topic: – let say there are 2 people “A” & “B”. “A” delivers a basket of sweets to “B” which was meant for “C”. Now “B” has consumed the entire basket of sweets thinking it was for him. Later when “A” informs “B” that it was for “C”, then “B” just can’t say sorry for the misunderstanding.

He has to pay “A” for the undue benefit which “B” has received in the form of sweets, or else “A” would be at loss. So though there isn’t any contractual relationship between “A” & “B” still “B” owns “A” the number of sweets he has consumed or else “A” can file suit in the court.

The feature of quasi-contract which helps it to distinguish itself from the normal form of contracts is as follows:-

  1. The right of the person who is at loss, in not against the right in rem, but it’s the right in personam.
  2. The right arisen within the parties is not the result of an agreement, but these rights are imposed by law.
  3. This right is usually connected with the liquidated sum of money.

These of contracts are very common, ad seeing the need to regulate these kinds of contracts and to ensure that no one derives undue benefit from other people’s loss, Indian Contract Act have especially dealt with this from section 68-72.

II. Rationale and theory

There are two theories which justify the existence of these types of contracts:-

  • Theory of unjust enrichment

The existence if this was justified by Lord Mansfield in the case of Moses v Macferlan[1], where he said that main aim of law & justice is to prevent “unjust enrichment” that is an enrichment of one person at the cost of another. That means no person should gain anything unjustly, when his gaining such a thing may mean a loss for another person.

He further stated in that case, ‘[I]n one word, the gist of this kind of action is that dependant upon the circumstances of the case is obliged by the ties of the natural justice and equity to refund the money.’

  • Theory of implied-in-fact contract

This theory states that the juridical basis of quasi-contract was the implied, notional, or fictional contract. Where the circumstances of a case do not lead to an inference of this kind, or where such an inference would be against the law no liability would arise.

This principle was used in the case of Sinclair v Brougham[2], where Lord Summer has stated that an action for money had received rests not on the contractual bargain between the parties but ‘upon a notional or imputed promise to repay.

Lord Parker stated that if a promise to pay back an ultra vires loan could be imputed to the company as quasi-contractual obligations the result would validate transactions which have been declared void on the ground of public policy and the law would be enforcing a notional contract where an express contract would have been void.

III. Indian contract act provisions

Indian Contract Act, 1872 deals with the quasi-contract in 5 kinds, as stated from section 68-72 of the Act. The following sections shall explain in detail regarding each kind of quasi-contracts.

  • Supply for necessity [Sec 68]

The supply for necessity has been stated in section 68 of the Act, which states that ‘If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person’

This section is specifically catered to need of people who are unable to fulfil their need on their own. This section states that a person who is legally bound to supply necessities to minor is bound to get reimbursed, but in this case, the minor is not liable to reimburse and no demand against him for the reimbursement shall be entertained by law, but the property of the minor shall be used to reimburse the cost of necessity.

The section is also applicable to unsound person as well. The supplier is only entitled to the reimbursement of the price of the product nit the payment of the agreed price.

The tricky part of this section is to define the term “necessity”. The term necessity includes anything that is required to maintain any incompetent person in the states, a degree in which he is and what is necessary shall be determined as per the circumstances and condition of the infant or the unsound person.

They will not be necessary if he is already sufficiently supplied with, things of that kind and it is immaterial whether the other party knows this or not. To determine whether the goods supplied was a necessity or not, the court should take into consideration the character of the goods supplied, the circumstances of the minor, the amount of the goods which has already been supplied to the minor.

The caveat in this regard is that goods relating to luxury or the objects which are costly in nature should be considered as necessary.[3]

  • Payment by an interested person [ Sec 69]

The concept has been stated in section 69, which states that “A person, who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other. A person, who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.”

The conditions of liability under these sections can be divided into certain categories:-

  • The payer must be interested in making payment

The plaintiff should be interested in making the payment. The interest which the plaintiff seeks to protect must be legally recognisable. Is honest belief that he has the interest to protect will be enough.[4] The general purport of the section is reasonably clear to afford to a person who pays money in furtherance of some existing interest an indemnity in respect of the payment against any other person who rather than he, could have been liable at law to make the payment.

  • But he shouldn’t be bound to make payment

It’s necessary that the plaintiff himself shouldn’t be bound to pay. He should only be interested to pay to protect his interest, but no compulsion should be there that he has to pay a certain amount.

  • The defendant must be under legal compulsion to pay

The defendant should have been “bound by law” to pay the money. “Bound by law” have been understood as to mean bound by contract, as it’s not necessary that liability should be only statutory. Where a party is only morally bound to pay and is not legally compellable to pay he will not be bound to pay the party discharging his moral obligations. [5]

  • Payment should be by one to another

The plaintiff should have made the payment to another person, not to himself. Thus where a government was a tenant of a land to itself out of the rent due to the landlord the arrears of the land revenue due to itself the government couldn’t recover from the landlord it was a transfer of money from one head to another within the government and not ‘payment to another’ and though it was done to save the land from being sold in execution, it didn’t come within the principle of the section.[6]

  • Liability to pay for non-gratuitous acts [Sec 70]

The following concept is dealt in section 70, which states that “Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.”

This section is based on the concept of unjust enrichment and restitution. This section states that if any person has enjoyed any non-gratuitous act of another where the other person has delivered the goods without intending to do so gratuitously, then that person is bound to make compensation to that other person.

This claim is based on the quasi-contractual claim for compensation by one against the other where there is an absence of contact still one party is liable to another.

The condition needed to be fulfilled to invoke section 70 of the Act is as follows:-

  1. The person to whom goods have been delivered has enjoyed the benefit of the product
  2. The goods delivered have been done without the intention to do so.
  3. The goods are to be delivered lawfully to another person.

The whole idea behind the section 70 is that at the time of delivery, there is no proposal and so there is no acceptance of the offer so there is no contractual obligation between the parties. The contractual obligations arise when the other party enjoys the benefit of the product which was not intended for that person in the first place.

So keeping in mind the equity principle, that person now becomes liable for restoring the product who has unduly benefited by the product.[7]

  • Finder of lost goods [Sec 71]

This concept has been dealt in section 71 of the Act which states that “A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee.”

This section states that if any person finds any goods belonging to other person and then takes into the custody of tat goods, that person has the right & responsibility similar to that of the bailee.

It basically means is that is a person finds a good in a public place then he is not bound to take charge of it, but if he finds the goods in his private property, then he has to take the custody for the good an search for the owner of the product.

Once taking the custody of the good, the finder has to take reasonable steps to locate the owner and in the meanwhile, he should take care of the good as if the good belongs to the finder. He should take reasonable care of the good and return it to the owner.

He also has the right to claim compensation for all the efforts the finder took to find the owner of the property and even can refuse to return the property if the compensation is not paid. In a certain scenario, the person can also sell the product.[8]

  • Mistake or Coercion [Sec 72]

This concept has been dealt in section 72 of the Act, which states that “A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.”

The last section dealing with quasi-contract deals with the consideration which has been paid under the influence of mistake or coercion by the other party. This is also the vase of unjust enrichment where the other party unduly gets the benefit of the contract on the expense of other parties by using the means of coercion or if the other party is in some kind of mistake.

This statutory right of repayment cannot be rejected on the ground that once the whole contract is complete, it’s not equitable[9] that money should be repaid. As per this section, if one party has paid the consideration in the assumption of some mistaken fact, then he has the right to claim his compensation back.

Now the word “mistake” is divided into two aspects- mistake of fact and mistake of law. The section doesn’t make any distinction regarding the mistake of fact or law and allows the restitution in both the case. This includes the case in which money has been paid and received both under the mistaken fact. In that case, money received has to be returned and money paid shall be received by both the parties.

IV. Conclusion

After thoroughly going through all the sections it can be said that Quasi-Contract is nothing but the pseudo contract which exists even when there are no apparent contractual obligations between the parties, but exists because of the existence of the equitable principle.

Moreover, Quasi – Contract is very much prevalent in India as like any other contract and through various judicial pronouncements, it has been developed so that it can meet the demand of the present situations.

[1] Moses v Macfarlan (1760) 2 Burr 1005

[2] Sinclair v Brougham 1914 AC 392 (HL)

[3] Jagon Ram Marwari v Mahadeo Prosad Sahu (1909) ILR 36 Cal 768

[4] Munni Bibi v Triloki Nath LIR (1932) 54 All 140

[5] Raghavan v Alamelu Ammal (1907) 31 Mad 35.

[6] Secretary of State for India v Fernandes ILR (1906-08) 30 Mad 375.

[7] Dinshaw and Dirishaw v Indoswe Engineers Pvt Ltd AIR 1995 Bom 180

[8] Union of India v Amar Singh AIR 1960 SC 233.

[9] S. Kotrabasappa  v Indian Bank AIR 1987 Kant 236

  1. Formation of Contract by Click-Wrap, Shrink-Wrap & via Exchange of Emails(Opens in a new browser tab)

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