Law and You > Business Laws > Indian Contract Act, 1872 > Quasi-Contracts under Indian Contract Act (Ss. 68 to 72)
‘Quasi Contracts’ are so-called because the obligations associated with such transactions could neither be referred as tortious nor contractual, but are still recognised as enforceable like contracts, in courts. According to Dr Jenks, quasi contract is “a situation in which law imposes upon one person, on grounds of natural justice, an obligation similar to that which arises from a true contract, although no contract, express or implied, has in fact been entered into by them”. In this article we shall discuss the concept of quantum meruit.
The principle underlying a quasi-contract is that no one shall be allowed unjustly to enrich himself at the expense of another, and the claim based on a quasi-contract is generally for money.
For example, X supplies goods to his customer Y who receives and consumes them. Y is bound to pay the price. Y’s acceptance of the goods constitutes an implied promise to pay. This kind of contract is called a tacit contract. In this very illustration, if the goods are delivered by a servant of X to Z, mistaking Z for Y, then Z will be bound to pay compensation to X for their value. This is a quasi-contract.
Supply of Necessaries:
Claim for Necessaries Supplied to Person Incapable of Contracting, or in His Account (S. 68 ICA)
If a person, incapable of entering into a contract, or any one 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.
Illustrations
(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.
(b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.
Section 68 ICA covers the case of necessaries supplied to a person incapable of contracting (say, a minor, lunatic, etc.) and to persons whom the incapable person is bound to support (e.g., his wife and minor children). However, following points should be carefully noted:
(a) The goods supplied must be necessaries. What will constitute necessaries shall vary from person to person depending upon the social status he enjoys.
(b) It is only the property of the incapable person that shall be liable. He cannot be held liable personally. Thus, where he doesn’t own any property, nothing shall be payable.
Payment of Money due by Another:
Reimbursement of Person Paying Money due by another, in Payment of which He is Interested (S. 69 ICA)
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.
Illustration
B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable by A to the Government being in arrear, his land is advertised for sale by the Government. Under the revenue law, the consequence of such sale will be the annulment of B’s lease. B, to prevent the sale and the consequent annulment of his own lease, pays to the Government the sum due from A. A is bound to make good to B the amount so paid.
In order that the Section may apply, it is necessary to prove that:
- The person making the payment is interested in the payment of money, i.e. the payment was made bona fide, for the protection of his own interest.
- The payment should not be a voluntary payment. It should be such that there is some legal or other coercive process compelling the payment.
- The payment must be to another person.
- The payment must be one which the other party was bound by law to pay.
Obligations to Pay for Non-gratuitous Acts:
Obligation of Person Enjoying Benefit of Non-Gratuitous Act (S. 70 ICA)
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.
Illustrations
(a) A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own. He is bound to pay A for them.
(b) A saves B’s property from fire. A is not entitled to compensation from B, if the circumstances show that he intended to act gratuitously.
In order that s.70 may apply, the following conditions must be satisfied:
(a) the thing must be done lawfully;
(b) the intention must be to do it non-gratuitously; and
(c) the person for whom the act is done must enjoy the benefit of it.
Quantum Meruit:
Quantum meruit is a legal principle that allows a person to recover reasonable payment for services or goods provided in situations where there was no pre-existing contract or where a contract existed but did not specify compensation. This Latin term means “as much as he has earned” or “as much as deserved.” The idea is that one should be compensated fairly for the value of their work, even if a formal agreement was not in place. For example, A contractor is hired to renovate a house, but the project is halted halfway through due to an external event (e.g., a natural disaster). If the client refuses further work, the contractor can claim quantum meruit for the work already done, based on its fair value, even though the project was not completed.
Quantum meruit can apply in several situations:
- Implied Contracts: When parties have an informal agreement or a situation where one party provides goods or services with an expectation of payment, but no specific amount is agreed upon. For example, a builder who completes extra work beyond the original contract scope can claim quantum meruit for the added value.
- Unenforceable Contracts: If a contract becomes unenforceable, but one party has already performed services or delivered goods, they can claim payment based on the value of those services or goods under quantum meruit. For example, if a contract is void due to lack of formality but work has been done, the party can be compensated for that work.
- Termination of Contract Before Completion: If one party terminates a contract before it is fully performed, the other party may recover for the work already completed based on quantum meruit. This often applies when a contract is canceled without fault on either side.
- Preventing Unjust Enrichment: Quantum meruit is also used to prevent one party from benefiting unfairly at the expense of another. If someone receives a benefit (like services or goods) without a formal contract, they may still be required to pay for the value they received.
Key Elements of Quantum Meruit:
- Services or Goods Provided: There must be actual goods or services rendered.
- Expectation of Payment: The person providing the goods or services should reasonably expect payment, even if the specific amount isn’t defined.
- Acceptance of Benefit: The recipient of the goods or services must accept or benefit from them.
- Reasonable Value: Payment is determined based on what is reasonable, which might differ from typical contract terms.
Remedy under Quantum Meruit
The remedy usually involves the court assessing the reasonable value of the services or goods provided and ordering the recipient to pay that amount. It’s often calculated based on standard rates, fair market value, or other industry benchmarks.
Quantum meruit serves as an equitable remedy that protects individuals or businesses from providing free services or goods without fair compensation, promoting fairness in situations where formal contracts don’t exist or fail.
Responsibility of Finder of Goods (S. 71 ICA)
A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee.
Ordinarily speaking, a person is not bound to take care of goods belonging to another, left on a road or other public place by accident or inadvertence, but if he takes them into his custody, an agreement is implied by law. Although, there is in fact no agreement between the owner and the finder of the goods, the finder is, for certain purposes, deemed in law to be a bailee and must take as much care of the goods as a man of ordinary prudence would take of similar goods of his own. This obligation is imposed on the basis of a quasi-contract.
Rights of the Finder of Goods:
- The finder is entitled to retain the goods against the whole world, except the true owner.
- The finder has lien in respect of any sum which may be due to him on account of expenditure incurred by him in respect of the goods (section 168).
- Where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives it (section 168). This right was re-endorsed in the case of Harbhajan v. Harcharan.
- The finder may sell the goods in the following circumstances:
- Where the thing found is in danger of perishing.
- Where the owner cannot, with reasonable diligence, be found out.
- Where the owner has been found but he refuses to pay the lawful charges of the finder.
- Where the lawful charges of the finder, in respect of the thing found amount to 2/3rd or more of the value of the thing found.
In Hollins v. Fowler case, A tendered to B the lawful expenses incurred by him for finding the true owner and asked him to return the diamond to him (A). B refused to do so. The Court held B must return the diamond to A as A was entitled to retain it against the whole world, except the true owner.
Liability of Person to Whom Money is Paid, or Thing Delivered, by Mistake or under Coercion (S.72 ICA)
A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.
Illustrations
(a)A and B jointly owe 100 rupees to C, A alone pays the amount to C, and B, not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B.
(b) A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.
The term mistake as used in Section 72 includes not only a mistake of fact but also a mistake of law. There is no conflict between the provisions of Section 72 on the one hand and Sections.21 and 22 on the other. If one party under mistake, whether of fact or law, pays to another party money which is not due by contract or otherwise, that money must be repaid.
In Sales Tax Officer v. Kanhaiya Lal case, the Supreme Court held that section 72 of the Indian Contract Act is wide enough to cover not only a mistake of fact but also a mistake of law. In this case, the levy of sales tax on forward transactions was held to be ultra vires by the Allahabad High Court. The respondent, therefore, claimed a refund of the tax paid under mistake of law under section 72. It was held that the respondent was entitled to the refund.
Conclusion:
Quasi-contracts, as outlined in the Indian Contract Act, 1872, play a vital role in ensuring fairness and justice in situations where formal agreements are absent. These legal constructs arise to prevent unjust enrichment, imposing obligations on parties to rectify situations where one party benefits at the expense of another, even without a formal contract. The concept of quasi-contract emphasizes the principles of equity, recognizing that obligations can exist based on circumstances rather than mutual consent. For instance, when a person provides services or goods in an emergency, the law ensures that they can seek compensation to prevent the unjust retention of benefits by the recipient. This mechanism promotes ethical conduct and accountability in transactions, encouraging individuals to act fairly and responsibly.
Furthermore, quasi-contracts provide a remedy in scenarios where traditional contractual frameworks may fall short, thus facilitating smoother interactions in various contexts—whether personal or commercial. By allowing for the imposition of obligations where none were formally agreed upon, the Indian Contract Act reinforces the notion that justice must prevail in all transactions.
In conclusion, quasi-contracts serve as an essential tool for promoting equity and preventing unjust enrichment within the legal framework of India. They underscore the importance of fairness and accountability, ensuring that individuals are held responsible for the benefits they receive, thereby fostering trust and integrity in both personal and business relationships. Understanding quasi-contracts is crucial for navigating legal obligations and maintaining ethical standards in all dealings.