Quasi Contracts and Claim for Compensation

Contracts are promises that can be enforced by law. In the case of a contract, the parties are also legally bound by the promise made. Any partnership resembling those formed by contracts are quasi-contracts. The law creates such rights and responsibilities between the parties that are identical to those provided by a contract in a transaction in which there is no contract between the parties. In this article, Vatsala Sood delineates quasi-contracts in details.

I. Introduction

A quasi-contract deals with the rights or responsibilities resulting from agreements identical to those established by the contract. It is not a real contract and is therefore pointed to as a non-consensual contract dependent on a party’s consent.

The quasi-contract is based on the concept of equality and justice and forbids one person from being enriched at the detriment of another, i.e., a contract where either party has no intention of making a bond, but the statute enforces the contract. The contract provided for in the statute is simply a remedy given by the court to impose equal or moral duties, despite the absence of the party’s consent to be charged.

The application of the Quantum Meruit doctrine, which is what one has earned or deserved on implicit assumpsit, makes a quasi-contract viable.

II. What are Quasi-Contracts?

English Law defined quasi-contractual obligations first. The framers of the Indian Contract Act altered it and inserted it in the Act as- “certain relations resembling those created by contracts”. The elements that are present in the quasi-contract in English Law are therefore also contained in that of the Indian Contract Act.

While the Indian Contract Act of 1872 does not describe a quasi-contract, it terms it a contract-like partnership. A quasi-contract can, however, be characterised as a transaction in which there is no contract between the parties; certain rights and obligations between the parties are created by law that are similar to those created by the contract.”

A duty established by law for the sake of justice; precisely, an obligation imposed by law on parties because of or because one of the parties would otherwise be unjustly compensated by a relationship between parties.’ It is not a contract, but instead a remedy that helps the complainant to reclaim the defendant’s benefit. These kinds of contracts fall under the third group of quasi-contracts or compensation which are quasi-contracts or restitution.

The procedural term “quantum meruit” has continued and is also used as a synonym for the more common term “quasi-contract” relating to any money claim for unlawful enrichment compensation. Basically, in other words, a contract made by statute with no declaration of agreement for purposes of equity is a quasi-contract. Quasi-contracts require a situation that by statute imposes commitments or responsibilities on the parties rather than the consent granted to the contract terms by them [1].

There are several cases in which both law and justice demand that a person is required to affirm an obligation, even if he has not violated any arrangement or done any misconduct. For example, for quasi-contract, if a person in whose house such things were left by accident is obliged to recover them.

This indicates that at the detriment of any other person, a person should not entertain unjust gains. Such types of obligations are usually described as quasi-contractual obligations in the absence of a different or more fitting term. This can be best clarified by the fact that the quasi-contract consists of the contractual obligation entered into not because the parties have consented to it, but that the statute does not authorise a person to have an unjustified benefit at the detriment of another party [2].

III. Illustration

These are not contracts, but rather fictitious agreements emerge to guarantee fairness, that if an individual gains an undue gain at the expense of another, it will be unjust. In the grounds of the theory of unjust enrichment, accountability resides in quasi-contracts.

Taking an example of an individual in whose house some goods were left incidentally so that individual is obliged to recover them. There would be a duty on the owner of the house to securely recover the goods levied by statute irrespective of any arrangement between the parties. These types of contractual commitments are referred to as quasi-contractual obligations.

The theory of equality and justice is the foundation of Quasi-contracts. It clearly states that no one at the detriment of another can unjustly enrich himself. It is a duty which the statute imposes in the absence of any arrangement when in certain conditions, the actions of the party or of others put in the hands of one person, money or its equal, that he shall not keep it in equity and good faith, and which belongs to another in justice and right. He is then put under a responsibility to reinstate or compensate for such a benefit [3].

IV. Difference between Quasi-Contracts and Contracts

It is the agreement of the individual that imposes the obligations in the case of contracts but the agreement is not a matter of quasi-contracts, it is the statute itself or natural equity that creates commitments. As noted earlier, a quasi-contract is based on the reason that a person is not permitted to privilege himself unjustly at the detriment of another person. However, in the case of lawsuits for compensation, there is a resemblance between quasi-contracts and contracts.

Section 73 of the Indian Contract Act allows for the same recourse (claim for damages) in the event of a violation of a contract as provided for in the case of a breach of a contract. It reads: If a duty similar to that created by the contract has been incurred and has not been discharged, any person harmed by the failure to discharge the contract shall be entitled by law to claim the same benefit from the party as if that person had contracted to discharge the contract and not breached the contract.[4].

V. Legislative Development

It is really important to get a good understanding of the purpose behind it to truly comprehend quasi-contracts. They are:

• The Principle of Unjust Enrichment

If in cases where it would be unjust to allow the beneficiary to continue those advantages without compensation, a privilege has been given to the recipient, the right of action of unjust enrichment is open to the individual who conferred the benefit. The conferrer will demand the relief of restitution using this cause of action, in which the court will return the profit or its worth to him. Earlier common-law courts used multiple fictions in order to incorporate this recently recognised cause of action into current legal forms.

The fiction that we are dealing with is the advantage that was negotiated for, i.e., the court inferred a contract in law even if there was no such contract between the conferrer and the beneficiary in fact. Quasi-contract was named the alternate title for this type of relief.

Lord Mansfield, the founder of quasi-contractual commitments, explained in the case of Moses v. Macferlan:

“But it lies for money obtained through imposition, or extortion; or oppression; or for the undue benefit of the situation of the plaintiff contrary to laws made under those circumstances for the protection of persons.” In one word, the nature of this form of proceeding is that the claimant is bound by the ties of natural justice and equity to repay the money in the conditions of the case.” [5]

Thus, it can be easily deduced from the above lines that whenever a person has received anything that takes undue advantage of the other person, he would be liable under quasi-contractual duties to repay the benefit to the conferrer.

It should be considered that the responsibility arising from such obligations is part of the law of tort as it exists irrespective of any contract as well as part of related contracts as it is owed solely to one person and not to the public in general. Therefore, the avoidance of unjust enrichment should be compensated for in either an implicit arrangement or under natural justice and equity [6].

• Theory of ‘Implied-in-fact’ Contract

In Sinclair v. Brougham, the House of Lords dismissed the wording of Lord Mansfield and emphasis was put on an implied-in-fact contract. In this case, the House of Lords permitted the allocation of the mixed fund pari passu among the plaintiffs but did not accept quasi-contract remedies. Lord Haldane held that only two acts are recognised by common law: those that arise from the contract and those that arise from tort. Because quasi-contractual obligations are not a portion of both, it would be better to focus on implied contractual obligations.[7].

For a long time, this approach governed decisions. No fault would occur if the facts of a case did not lead to a conclusion of that sort or where such an inference would be against the statute.

• Restoration of Theory of Unjust Enrichment

The House of Lord had undeniably dismissed the principle of unfair enrichment, but the strangulation they experienced in Fibrosa Spolka Akeyjna v. Fairbairn Lawson Combe Barbour Ltd. prompted Lord Wright to conclude that the observations of the Lordships in Sinclair v. Brougham on the grounds of quasi-contract were simply obiter dicta [8].

VI. Elements of Quasi-Contracts

There are three inherent elements to a quasi-contract:

• The plaintiff must show evidence of the goods or services they should have been compensated for.
• The defendant must have accepted those goods or services and receive some type of benefit from them.
• Finally, the defendant must have accepted said goods or services under unfair circumstances where the plaintiff didn’t receive any compensation.

Finally, in unjust conditions where the complainant did not obtain any benefit, the defendant would have accepted said goods or services.

Before the services were provided, or the goods received, a traditional, valid contract would usually carry out provisions negotiated on by both parties. However, a quasi-contract comes into effect where one side never wanted to enter into a binding contract. This is where the court comes in to build a bond and to create a degree of balance between the parties concerned.

VII. Types of Quasi-Contracts

• Claim for Necessaries Supplied to a Person Incompetent to Contract [9]

If a person is a minor or is of unsound mind or ineligible by any statute under which he is subject, a person is incapable of contracting. [10] It cannot be claimed a married or single woman is incompetent to contract purely on the grounds of sex or coverture. For an individual, the necessaries are a subjective concept to the state of life of a person he lives in. The word ‘necessaries’ indicate the immediate needs of the individual incompetent to contract and is not restricted to his preliminary specifications [11].

• Reimbursement for Payment of Money by a Person Interested in its Payment

In English law, if the money is paid for the use of the defendant, the claimant will be compensated. Payment can be paid for the use of the defendant in three ways[12]:

• Discharge of a legal obligation.
• Discharge of the defendant’s responsibility under compulsion against a third party.
• Payment to a third party at the behest of a claimant.

• Responsibility of a Person Relishing Benefits of Another Person’s Non-gratuitous Act [13]

If A, lawfully, does something for B not planning to do so voluntarily and B receives a profit because of this action of A, then B is obliged to pay A for the items done or delivered, or to recover them. This was embodied in a clause of the 1872 Indian Contract Act. A tank provided water for irrigation to eleven villages in Damodar Mudaliar v. Secretary of State for India.

Some of the villages were zamindari villages, and the government was responsible for others. Some changes were made by the government in order to protect the tank. The government did not wish to do so free of charge and the zamindars loved the advantages of it. They were held accountable to contribute to the government’s expenditures [14].

• Responsibility of the Finder of Goods [15]

According to section 71 of the Indian Contract Act 1872, liability for the finder of goods is the same as that of a bailee. The rights of the finder of goods are not clarified in section 70, however. Under sections 168 and 169, his rights are clearly clarified.

Liability of an individual to whom money is charged or whatever is given by mistake or coercion, whether money has been paid or whatever has been delivered by mistake or coercion to a person, he is liable to refund or return it under section 72.

A and B jointly owe ~ 100 to C, for example. A alone pays the sum to C and B is oblivious of the fact that C has charged 100 again. So, C is bound to pay back the balance to B. In Sales Tax Officer, Banaras v. K.L.M.L. Saraf, the paying of sales tax on forward purchases was ruled by the Allahabad High Court as unlawful. After the Court’s decision that such a sales tax was not lawful, the respondent who had paid the sales tax tried to reclaim the money back[16].

VIII. Principle of Quantum Meruit

The reasonable price for the services rendered is Quantum Meruit. If A enters into a contract with B for the construction of a building for rupees 20,000 on completion and begins work accordingly, if B repudiates the contract before A has finished the work, A will be entitled to quantum meruit claim. And if the terms of the arrangement read “pay on completion”, A would be entitled to payment under quantum meruit claim as per the work completed by him.

• Legislative History

By the 1780s, with the introduction of the idea of quasi-contracts, the judges of the common law system grew increasingly averse to situations where the contracts stayed open [17]. By the 1790s, when the conflict stayed open and the contractual solutions were not resolved, the debate expanded using some form of non-contractual assumption. In the case of Pepper v. Burland, Lord Kenyon observed that in cases where the work deviated sufficiently from the terms of the contract such that it was difficult to track the contract, the complainant may reclaim the worth of his labour by the quantum meruit claim [18].

In the groundbreaking case of Cutter v. Powell, however, the complete implication of quantum meruit assertion became prevalent. The defendant had signed into a deal with a sailor in this case that if he progressed, continued and performed his duties as the second mate, thirty guineas would be paid. The sailor perished on the voyage. The wife of the sailor sued Quantum Meruit for damage. The King’s Bench and the Admiralty Courts had a fight. The final decision was that the claimant was unlikely to recover the express agreement and it was a condition of the contract to finish the whole journey[19].

Three years later, it was decided in Chandler v. Grieves that if a sailor was wounded on a journey and was unable to finish his task, he would also be entitled to a satisfactory reward for the services he had rendered. In this case, however, the court accepted the theory of quantum meruit claim [20]. Moreover, in Martin v. Webb, quantum meruit breached the rule. The rule read that when the plaintiff settled upon a certain amount of money on the conclusion of the contract, he could not sue for a fair sum for the services rendered in event of repudiation of the contract [21].

IX. Indian Legislative and Precedential Analysis

Section 70 of the Indian Contract Act, 1872 is based on the “quantum meruit principle”. As Anson defines it:

“A quantum meruit claim occurs when work is done or services performed by one person for another in conditions that entitle the person doing the work or providing the services to obtain a reasonable remuneration as a result.”

In Food Corporation of India and Others v. Vikas Majdoor Kandar Sahkari Mandli Ltd., the Supreme Court held that under section 70 of the Indian Contract Act, payment of 1872 may be sought for work performed within the terms of the contract if the defendant has taken advantage of the work. Additional payment also needs to be made. [22]

The phrase “quantum meruit” is a Latin term meaning “what one has earned”. It means “reasonable value of services” in the sense of contract law. Quantum meruit is the calculation of damages when an express contract is mutually adjusted or not finalised by the parties’ implicit agreements. While the principle of quantum meruit and that of undue enrichment of one group at the detriment of the other are frequently misunderstood, the two concepts are distinct.

The case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. provided that a claim for quantum meruit is a claim for damages for breach of contract and that the value of the materials is a valid consideration only in providing a basis for the determination of the amount of compensation, i.e., the claim is not for the price of the goods sold and supplied, but for damages. This is also the status of the Indian Contract Act, 1872 under Section 65 [23].

The Supreme Court held that the initial contract must be discharged by the claimant in order to take advantage of the relief under quantum meruit in the case of Puran Lal Shah v. the State of U.P. The recourse is not open to a person who violates the deal even though part of his responsibility may have been partly fulfilled. The remedy is restitutory by means of quantum meruit, i.e., it is a compensation for the benefit of the work performed by the claimant to return him to the role he would have been in if the deal had never been entered into [24].

In the case of New Marine Coal Co. v. Union of India, it was held that if the appellant had done his role in pursuance of a void contract and the respondent had gained from the execution of the contract by the appellant, then Section 70 of the Contract Act would validate the appellant’s allegation against the respondent.[25].

X. Conclusion

In the early era of common law, the principle of quasi-contract arose because there was no suit for unjust enrichment of one side at the expense of the other. The courts came up with the idea of quasi-contract or contract implied-in-law to address this problem. When an individual has accrued profit at the detriment of another person and the latter has suffered for that cause, these types of contracts could occur. Then the courts must imply that a contract existed and return the profit to the complainant or an equal amount. While the House of Lords revoked this principle of quasi-contract, it was again acknowledged and revived later.

In a component of quasi-contract, the contract implied-in-fact or quantum meruit, but discrepancies remain. When one party receives an advantage by the other party’s actions, a claim for quantum meruit may be applied for. For such an assertion, the aspect of unjust enrichment is not gratuitous. It may be inferred, on the basis of the cases examined, that the recovery under the quantum meruit argument is stronger than that under quasi-contract.

Furthermore, the components of quasi-contract are not satisfied by quantum meruit. A quasi-contract is not a contract in fact. When interpreted by the courts in order to restore right and equity, it is a contract implied to be in fact. Quantum meruit, however, is an expressed or implicit contract where no signed arrangement has been entered into by the parties but their acts indicate that they are bound in a contractual association.

Thus, it can be inferred that while quantum meruit is part of a quasi-contract, by excluding the conditions of unjust enrichment, it provides the citizens with a wider field of argument. Due to the actions of the other side, this argument emerges for some form of enrichment of one party. Another argument justifying the merits of quantum merits is that damages are determined on the basis of equity in these types of claims. Whereas in lawsuits for quasi-contracts, damages are analysed at the expense of the other party on the grounds of the inequitable benefit of one party.

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References

[1] Uchgaonkar, V. V. (2015). Quasi-Contracts or areas where Promissory Liability is Suprimposed for reasons for Social Policy.

[2] Saini, S. (2016). Analysis of Damages for Breach of Contracts in India. International Journal of Research in Social Sciences, 6(5), 406-418.

[3] Subhan, J. (2010). Contractual Liability of Government of India. Available at SSRN 2145139.

[4] Avtar Singh, Contract and Specific Relief, Eastern Book Company, 540(11 ed. 2013).

[5] Moses v. Macferlan, 2 Burr 1005 (1760).

[6] Afaq Haider, N. (2015). A Study of Certain Relations Resembling those Created by Contract.

[7] Sinclair v. Brougham, AC 392 (1914).

[8] Fibrosa Spolka Akeyjna v. Fairbairn Lawson Combe Barbour Ltd. 32 AC 1943.

[9] § 68 of the Indian Contract Act, 1872.

[10] § 11 of the Indian Contract Act, 1872.

[11] Kanhayalal v. Inderchand 84 AIR Nag 1947

[12] Chappel v. Cooper 13 LJ 286.

[13] § 70 of the Indian Contract Act, 1872.

[14] Damodar Mudaliar v. Secretary of State for India 18 Mad 88 (1894).

[15] § 71 of the Indian Contract Act, 1872.

[16] Sales Tax Officer, Banaras v. K.L.M.L. Saraf AIR 135 SC 1959.

[17] Warren Swain, The Law of Contract 1670-1870, Cambridge University Press, 137(2015).

[18] Pepper v. Burland Peake 139 (1791).

[19] Cutter v. Powell 6 TR 320 (1795).

[20] Chandler v. Grieves 2 H Bla 606 (1792).

[21] Martin v. Webb LI MS 129 (1763).

[22] Food Corporation of India and Others v. Vikas Majdoor Kandar Sahkari Mandli Ltd.2 MLJ 857 (SC) 2008.

[23] State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd SCR 379 1959.

[24] Puran Lal Shah v. State of U.P1 SCC 424 (1971).

[25] New Marine Coal Co. v.Union of India 2 SCR 859 (1964).

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