By Ritu Rathi, Jindal Global Law School.
Quasi Contracts or Constructive Contracts are a binding obligation, implied by law, by which a party is obligated to another party in a situation where no legal contract actually exists. The creation of such a contract can be ordered by courts in order to avoid unjust enrichment and ensure equitable justice.[1] Under Indian law, unjust enrichment is remedied by imposing an obligation on the person who has unjustly benefited, to return the same to the person who suffered the ensuing unjust loss. This is affected by presuming the relation between the person who has unjustly benefited and the one who has unjustly suffered loss, as one resembling that created by contract. Even though, actually, there is no contract between them in the parlance of law, the relation between them is treated as if one created by a contract by implication. Quasi contracts are based on principles of equity, justice and good conscience. Consent to be bound is a prerequisite for the formation of a legally binding contract between two parties, however, under a quasi contract, the obligation to be bound does not arise out of consent but instead it arises from laws of the land. Illustrating a quasi contract is the case of a gardener who mows the grass of the wrong house. The owner of such a house had knowledge of the fact that the gardener was actually supposed to mow the neighboring house’s grass, decides to keep quiet. Later, he refuses to pay the gardener his dues. In such a case, a quasi contract arises.
The rationale behind constructive contracts is based on the theory of Unjust Enrichment. This is derived from the old maxim of Roman Law: ‘Nemodebetlocupletavi ex alienajactura’ which means that no man should gain from the other person’s loss.
There are four elements that are required for creation of a Quasi Contract. The elements of a cause of action for a quasi contract are, that:
(1) A party, say A, has furnished a benefit upon another party, say B, with the reasonable expectation of being given a consideration for such a benefit, and compensation in case of breach or failure to meet expectations;
(2) B has the knowledge of the fact that A is conferring upon him some benefit;
(3) B gained or kept the benefit conferred; and
(4) It would lead to injustice and unjust enrichment if the fair value of the goods or services rendered is not given to A by B.[2]
In the case of Mahabir Kishore v. State Of Madhya Pradesh[3], the Apex Court held that, the requirements of the principle of unjust enrichment were that the defendant has been ‘enriched’ by the receipt of a benefit and that such an enrichment is at the expense of the plaintiff and the retention of the enrichment without compensating for it would be unjust.
The law governing Quasi Contracts has been provided under Chapter V of the Indian Contract Act, 1872 as “OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACTS”. Section 68 to 72 enumerate the kinds of Quasi Contracts, namely:
Section 68 – Supply of necessities
Section 69 – Payment by interested persons
Section 70 – Liability to pay for non-gratuitous acts
Section 71 – Finder of goods
Section 72 – Mistake or coercion
Supply of necessities – Where a person is not capable of contracting, or any other person that he is legally required to provide for is supplied with necessities by another person, provided that such necessities were the suitable to the incapable persons need and requirement at the time of sale and delivery, the individual who has outfitted such supplies is qualified for repayment from the property of such an incapable person. Such incapable persons maybe minors, person of unsound mind, or persons disqualified to contract under law as provided by Section 11 of the Indian Contract Act, 1872.
Payment by interested persons – Where a person repays the debts of another person, provided that he has some interest in the payment of money that the person is bound by law to pay, he is entitled to be reimbursed for making such payment. In the case MusammatMunniBibi@Ambika v. TirlokiNath And Ors.[4], it was held that, by the words “a person who is interested” do not mean that the person who makes the payment must prove that he had such an interest as would stand the test of a judicial trial. The decisions point to the conclusion that all that is necessary for a person making a payment to recover it is that he should really believe and honestly believe that he must make the payment in his own interest.
Liability to pay for non-gratuitous acts – Where a person, acting or living according to the law, does anything for another person, or conveys upon him a benefit, not meaning to do as such without need, and such other person enjoys the benefit conferred upon him, the latter is required to compensate the former for the good or service or to restore status quo.
Finder of goods – Where a person finds the goods belonging to another person, and decides to take such goods in his custody, such a person has to observe the same responsibility as that of a bailee. He should take proper care of the goods and not appropriate it for its own use. Once the owner of the goods is traced, he should return it to the owner.
Mistake or coercion – Where a person receives money or where anything else is delivered to him, under mistake or coercion, is required to reimburse or return it. The mistake maybe of a mistake of law or a mistake of fact (Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi[5])
Section 73 para 3 of the Indian Contract Act, 1872 provides that when the obligation created by a quasi contract has not been discharged, a person who has suffered from the non-fulfillment of obligation is entitled to receive the same compensation from the party who has failed to pay, as if such person had contracted to discharge it and had breached the contract.
[1] Joseph L. Lewinsohn, Contract Distinguished from Quasi Contract, California Law Review, Vol. No. 3 (Mar., 1914), pp. 173
[2]What If We Don’t Have A Contract? Accessed at http://thekuhnlawfirm.com/business-and-corporate-litigation/unjust-enrichment-quasi-contract-andor-quantum-meruit/ on 12th August 2015 at 12:35 p.m.
[3] AIR 1990 S.C.313
[4]A.I.R. 1931 P.C. 114
[5] (1949) 76 IA 44 PC