Law and You > Business Laws > Indian Contract Act, 1872 > Quasi-Contract: Meaning, Benefits, and Drawbacks
‘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”.
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.
Essentials of a Quasi Contract
There are certain features of quasi-contract.
- There is no actual contract that exists between the parties.
- Here, one party has received a benefit from the other party.
- The benefit received was not intended as a gift.
- The benefit was not provided under duress or coercion of any kind.
- The benefit was not obtained through fraud or misrepresentation of any kind.
- Here, the court may create a fictional contract to prevent the unjust enrichment of one party at the expense of the other party.
- The remedy in a quasi-contract is typically restricted to restitution or compensation for the value of the benefit received.
Benefits of Quasi-Contracts:
- Prevents Unjust Enrichment: Quasi-contracts protect against situations where one party unfairly benefits at the expense of another, enforcing fairness and equity.
- No Need for Consent: Since quasi-contracts don’t require mutual agreement, the law can impose these obligations even if one party is unwilling. This can be especially helpful in cases where explicit agreements aren’t possible or practical.
- Legal Remedy in Absence of Contract: Quasi-contracts provide a legal basis for recovering expenses or benefits conferred in cases where a formal contract may not exist, offering recourse for restitution and compensation.
- Equity and Fairness: By imposing a quasi-contract, courts ensure that fairness is upheld, especially in cases where a party might otherwise exploit a situation to their advantage.
- Simple Resolution: Quasi-contracts simplify dispute resolution in cases where proving a formal contract may be challenging. They allow courts to apply an equitable solution based on the value of benefit conferred.
Drawbacks of Quasi-Contracts:
- Lack of Mutual Consent: Since quasi-contracts are imposed by law, they don’t involve mutual agreement, which may lead to outcomes that one party finds unfair or unwelcome.
- Potential for Disputes: Without the clear terms and conditions of a formal contract, there can be disputes over the value or nature of the obligation, leading to uncertainties and possible litigation.
- Limited Applicability: Quasi-contracts only apply in specific situations, typically involving unjust enrichment. They can’t be used to enforce promises or agreements and may not provide a remedy in cases requiring detailed contract terms.
- Not a True Contract: Quasi-contracts don’t provide the benefits of a standard contract, such as defined terms, conditions, or future obligations. This limits their usefulness in ongoing business relationships or complex transactions.
- Judicial Discretion: Since quasi-contracts rely heavily on the court’s discretion, outcomes can be unpredictable, depending on how the court interprets the obligation and fairness in each case.
Quasi Contracts under the Indian Contract Act:
Sections 68 through 72 of the Contract Act of 1872 provide the following descriptions of the various forms of quasi contracts:
- Section 68: A third party provides the goods to a person who is unable to sign contracts on behalf of the incapable person or anyone he is legally required to support. The property of the disabled person may be used by other parties to recoup the supplier’s cost.
- Section 69: Anyone who makes a payment on another party’s behalf is required to do it in accordance with the law. As a result, the party who made the payment has a claim to compensation from the other.
- Section 70: The recipient is required to pay the first party when they perform a legal act for another person or deliver something without intending to do so gratuitously.
- Section 71: A person who discovers goods that belong to another party and claims possession of them is subject to the same obligations as a bailee.
- Section 72: A person who has been forced into accepting a payment or delivery or who received money in error is required to pay it back.
Difference between Contract and Quasi-Contract:
| Contract | Quasi-Contract |
| A contract is a legally binding agreement between two or more parties who agree to perform or refrain from performing certain actions. It arises from the mutual consent of the parties involved, with terms defined explicitly or impliedly. | A quasi-contract is not a contract in the true sense; it is an obligation imposed by law to prevent unjust enrichment. This legal remedy is applied when one party unfairly benefits at the expense of another, even though there was no formal agreement between them. |
| Contract is formed based on mutual agreement or “meeting of minds” between parties, which includes an offer, acceptance, consideration, and the intent to be legally bound. | Quasi-contract Imposed by law without the parties’ explicit consent. The law creates this obligation in the interest of fairness when one party has received a benefit unfairly. |
| Contract requires free consent of the parties involved. | Quasi-contract does not require consent, as it’s an obligation created by law rather than by the intention of the parties. |
| Contract is enforceable in court based on the terms mutually agreed upon by the parties. | Quasi-contract is enforceable in court as an equitable remedy to prevent unjust enrichment, regardless of any prior agreement. |
| Examples: A lease agreement, a sale agreement, or employment contract where both parties explicitly agree on specific terms. | Examples: If someone accidentally pays another’s debt or a person is mistakenly provided with goods not ordered, the law may require that they compensate the provider to prevent unjust enrichment. |
Difference between Tort and Quasi-Contract:
| Tort | Quasi-Contract |
| A tort is a civil wrong that causes harm or injury to another person, leading to legal liability for the responsible party. Tort law aims to compensate the injured party for losses resulting from wrongful acts, such as negligence, defamation, or trespassing. | A quasi-contract is not a true contract but an obligation imposed by law to prevent one party from being unjustly enriched at another’s expense. It doesn’t involve wrongdoing but rather situations where one party has unfairly benefited. |
| The obligation arises from a wrongful act that violates a person’s rights or causes harm. Liability is typically based on fault or negligence. | The obligation arises not from a wrongful act but from the principle of fairness. The law imposes this duty when one party benefits unfairly, even if there was no wrongdoing or intent. |
| The primary goal is to compensate the injured party and deter wrongful behaviour. Tort law aims to restore the injured party to the position they would have been in if the wrong had not occurred. | The purpose is to prevent unjust enrichment and ensure that one party doesn’t unfairly profit at another’s expense. It seeks to return any benefit gained unjustly. |
| If a person’s negligence causes a car accident that injures another person, the injured person can sue for damages based on tort law. | If someone mistakenly pays another person’s debt, the law may require the recipient to reimburse the payer to prevent unjust enrichment, even though no harm was done. |
| The remedy usually involves monetary compensation for damages, including medical expenses, loss of earnings, and emotional distress. In some cases, it may also involve punitive damages to punish the defendant. | The remedy generally involves restitution, where the court orders the party who was unjustly enriched to repay or compensate the other party to restore fairness. |
| Tort often requires proof of fault, negligence, or intent to commit a wrongful act. | Quasi-contract does not require any fault, negligence, or intent; it is based purely on the principle of preventing unjust enrichment. |
Conclusion:
A quasi-contract, as defined under the Indian Contract Act, 1872, represents a legal concept wherein an obligation is imposed by law on a party to prevent unjust enrichment, even in the absence of a formal agreement between the parties. Quasi-contracts arise from situations where one party benefits at the expense of another, and the law intervenes to ensure fairness and justice. The key characteristics of quasi-contracts include the absence of mutual consent and the legal obligation to fulfill certain duties based on the principles of equity. For instance, if a person receives a benefit under circumstances that would make it unjust for them to retain that benefit without compensating the other party, a quasi-contract can be imposed. This is particularly evident in cases of necessity, where one party may provide goods or services to another in emergency situations, expecting reimbursement. The implications of quasi-contracts are significant in maintaining social order and promoting ethical conduct in commercial transactions. They serve to protect parties from exploitation and ensure that individuals cannot unfairly benefit from the efforts or resources of others. Moreover, the provisions regarding quasi-contracts facilitate smoother interactions in scenarios where formal contracts are impractical or absent.
In conclusion, quasi-contracts under the Indian Contract Act embody the legal system’s commitment to preventing unjust enrichment and ensuring equitable outcomes in transactions. By imposing obligations where no formal contract exists, the Act promotes fairness and accountability, reinforcing the fundamental principles of justice and integrity in both personal and commercial dealings. Understanding quasi-contracts is essential for navigating legal obligations and fostering equitable relationships in various contexts.