Contracts and Quasi Contracts

Vikesh Kumar, Dr. Ram Manohar Lohiya National Law University, Lucknow

Editor’s note: Contracts are promises that the law will enforce. In case of contract, both the parties are legally bound by the promise made by him. Quasi contracts are certain relations resembling those created by contracts. In a transaction in which there is no contract between the parties; the law creates certain rights and obligation between them which are similar to those created by a contract. This paper discusses their connection with natural justice, liability, origins and distinctions extensively.

Contracts

An agreement between two or more parties creating obligations that is enforceable or otherwise recognizable at law.[1] A contract is an agreement enforceable by law.[i] Contracts are promises that the law will enforce. The law provides remedies if a promise is breached or recognizes the performance of a promise as a duty. Contracts arise when a duty does or may come into existence, because of a promise made by one of the parties. To be legally binding as a contract, a promise must be exchanged for adequate consideration. Adequate consideration is a benefit or detriment which a party receives which reasonably and fairly induces them to make the promise/contract. For example, promises that are purely gifts are not considered enforceable because the personal satisfaction the grantor of the promise may receive from the act of giving is normally not considered adequate consideration. Certain promises that are not considered contracts may, in limited circumstances, be enforced if one party has relied to his detriment on the assurances of the other party. A contract means an agreement which is enforceable by law. An agreement consists of reciprocal promises between the two parties. In case of contract, both the parties are legally bound by the promise made by him. A contract to perform a promise could arise in these ways: by agreement and contract, standard form contracts, and promissory estoppel.

Quasi Contracts

English Law identified quasi-contractual obligations first, the framers of the Indian Contract Act modified it and placed it in the Act as- “certain relations resembling those created by contracts”. Therefore the elements that are present in the English Quasi-contract are also found in that of the Indian Contract Act.

Though the Indian contract Act, 1872 does not define quasi contract, it calls them relation resembling those of contracts. However, a quasi-contract may be defined as, “a transaction in which there is no contract between the parties; the law creates certain rights and obligation between them which are similar to those created by a contract. “An obligation created by law for the sake of justice; specif., an obligation imposed by law on parties because of relationship between parties or because one of them would otherwise be unjustly enriched. It’s not a contract, but instead is a remedy that allows plaintiff to recover a benefit conferred on the defendant.[iii] These types of contracts are quasi contract or restitution that fall in the third category of quasi contracts or restitution.[iv] The procedural term ‘quantum meruit’ has persisted and is sometimes used inexactly as a synonym for the more general term ‘quasi contract’ which refers to any money claim for the redress of unjust enrichment.[v]  Basically in other words, a contract made by law for reasons of equity with no statement of consent is a quasi-contract. Quasi contracts bring a situation which imposes obligations or duties upon the parties by law rather than the assent given by them to the contract terms.[vi]

There are many situations in which law as well as justice requires that a certain person be required to confirm an obligation, although he has not broken any contract nor committed any tort. For example for Quasi Contract would be worthy of Quoting for the better understanding of Quasi Contract, if a person in whose home certain goods have been left by mistake is bound to restore them. This shows that a person cannot entertain unjust benefits at the cost of some other person. Such kind of obligations are generally described, for the want of better or more  appropriate name, as Quasi Contractual Obligations. This would be better to explain it up that Quasi contract consists of the Contractual Obligation which is entered upon not because the parties has consented to it but because law does not allow a person to have unjustified benefit at the cost of other party.  These are not contracts but these fictional agreements arise to ensure equity as it would be unfair if a party gets undue advantage at the cost of other. The liability exists in quasi contracts on the basis of the doctrine of unjust enrichment. Take for an example a person in whose house certain goods have been left incidentally, so that person is bound to restore them. There will be an obligation on the house owner to restore the goods safely that is imposed by law rather than any agreement between the parties. Such type of contractual obligations are termed as quasi contractual obligations. Basic elements of quasi contracts are:

Liability

In general, the quasi contract doctrine is applied in disputes regarding payment of goods delivered or services rendered. If there is no valid contract between the parties, the main question that arises in such situations is the liability of the defendant. As the aim of this doctrine is to prevent unjust enrichment of one party, at the expense of the other, the damages are usually restricted to the value of the services rendered or the cost of the materials delivered. In short, the liability of the party who has enjoyed unjust benefits is limited to the value of that benefit only.

Quasi Contract and Implied-in-fact Contract

The characteristic feature of a quasi-contract is the absence of a contract or a mutual consent between the parties. Quasi contracts are often confused with implied-in-fact contracts. Implied-in-fact contracts are also not contracts in the true sense, as they lack a written agreement. In case of the latter, even though there is no contract between the parties as per the facts, the actions and words of the parties amount to mutual consent over the disputed matter. The difference between the two can be illustrated with an example. A approaches a doctor for treatment. Here, there is a mutual consent between A and the doctor. As A expects treatment from the doctor, the doctor expects payment from A for his services. This is an example of implied-in-fact contract, wherein the conduct of the parties suggested a mutual consent. But, in a quasi-contract (as per the example given above), the parties to the dispute did not even know each other. So, there is no question of consent between them.

Theories behind Quasi Contracts

So far as there was not an established rule of Quasi Contractual obligation the English Lawyers were content to enumerate the cases of the Quasi Contract for which they are provided a remedy as to many species of “Indebitatus Assumpsit (A form of action in which the plaintiff alleges that the defendant has undertaken a debt and has failed to satisfy it.), but they evaded the odious task of rationalization. But as soon as the urge was felt to explore their juristic basis, controversy was born. The quasi contract are covered in chapter V of the Indian Contract Act, 1872 under the heading of ‘Of certain relations and resembling those created by contract’. I feel that the Indian contract act, 1872 favors the term ‘quasi contract’ but partially as it is not a real contract because if they would have been in support of this term, then they would have included this term in Chapter V of the act rather than giving the heading ‘Certain Relations resembling those created by Contract’ but they mean by this title that they are referring to quasi contracts[vii]. The term ‘quasi-contract’ is avoided in the chapter but this chapter is about the doctrine of quasi contracts.[viii]Nothing is precisely clear about the quasi contracts. The founder of quasi contract based on the theory of unjust enrichment was Lord MANSFIELD who explained such obligations based upon the law as well as justice to prevent undue advantage to one person at the cost of another. The concept was first taken up in the case Moses v. Macferlan[ix].  The facts of the case are as such: Jacob issued four promissory notes to Moses and Moses indorsed them to Macferlan, excluding by a written agreement, his personal liability on the endorsement. Even so Macferlan sued Moses on the endorsement and he was held liable despite which he had excluded and, therefore, sued to recover back his money from Macferlan.

He was allowed to do so. After stating that such money cannot be recovered where the person to whom it is given can “retain it with a safe conscience”, LORD MANSFIELD continued:

A liability of this kind is hard to classify. Since it partly resembles liabilities under the law of tort and partly it resembles contract since it owed to only a party and not a person or individual generally. Therefore, it comes within the ambit of an implied contract or even natural justice and equity for the prevention of unjust enrichment.

Then came the theory of implied contracts which became very popular among the courts and the theory of Lord MANSFIELD were discarded quite often. In the case of Sinclair v. brougham[x] liabilities under the name of quasi contract were taken which were against the law and not within its ambit. So later on, it was decided that the doctrine was going against the law and hence the doctrine of unjust enrichment prevailed over this theory after the case of Fibrosa Spolka Akeyjna v. Fairbairn Lawson combe Barbour Ltd.[xi] In this case remedies arising from such obligations neither constitute contract nor torts. They fall into category different form these two and that is ‘quasi contract or restitution’. It was also observed that the precious theory was against public policy and ultra vires to the law. The principle of unjust enrichment requires: first, that the defendant has been ‘enriched’ by the receipt of a “benefit”; secondly, that this enrichment is “at the expense of the plaintiff”; and thirdly, that the retention of the enrichment be unjust.[xii]

Position in Indian law

Chapter V of the Indian contract Act, 1872 deals with the “certain relations resembling to those created by contract”. It incorporates those obligations which are known as “Quasi Contracts” under English law. A person is obliged to compensate another although the basis of this obligation is neither a contract between the parties, nor any tort on the part of the person who is bound to compensate. The basis of the obligation is that no one should have unjust benefit at the cost of the other. If A gets unjust enrichment at the cost of B, A has an obligation to compensate B for the same. For instance, 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.

In an action for unjust enrichment, the following essentials have to be proved:

  • The defendant has been “enriched” by the receipt of a “benefit”.
  • The enrichment is “at the expense of the plaintiff”.
  • The retention of the enrichment is “unjust”.

Similarities between Quasi Contracts and Contracts

The result of contract and quasi contract are similar to that of contracts. So far as the claim for damages are concerned they are very similar to that of contracts because section 73 of the Indian Contract Act, 1872 provides remedies for the breach of quasi contracts as provided for the breach of express contracts in various sections of the Indian Contract Act, 1872. Remedies are available under quasi contract under Indian contract act, 1872.[xiii]

Distinction between Quasi Contracts and Contracts

A “quasi” or constructive contract is an implication of law. An “implied” contract is an implication of fact. In the former the contract is a mere fiction, imposed in order to adapt the case to a given remedy. In the latter, the contract is a fact legitimately inferred. In one the intention is disregarded; in the other, it is ascertained and enforced. In one, the duty defines the contract; in the other, the contract defines the duty[xiv]. Any contract has two essential features i.e. agreement and obligation. Agreement arises when a party puts forwards a proposal and when that proposal is accepted by the other party. Obligation comes into picture as law imposes it over the parties but is linked to the agreement between the parties. Therefore, a contract is a legally enforceable agreement. Basically contracts are express or implied by law. The former comes into picture by the conduct or words or negotiations between the parties. The contract that implied by law is not a real contract. It would be unfair to term it a contract. It arises when law irrespective of agreement aims at meeting the ends of justice. A distinction is set forth in Keener on these types of contracts. The learned author says that:-[xv]

He says that the quasi contracts basically contracts implied by law denote the nature of evidence established through which the plaintiff can claim but the obligation arises out by the law. Though the defendant would not intend to assume any obligation but the law will impose an obligation because to avoid undue advantage to him at the cost of the plaintiff.

It has been observed that these contracts and quasi contracts are the matter of practical importance. The concept revolves around the agreement and obligations between parties. The quasi contracts differ from contracts that are generally express as they contains each terms in words while in the latter, the terms come into existence by the conduct of the parties. In one case it appears to be a fiction and in the other appears to be a fact that is legitimately inferred. In one intention is discarded and in the other intention is ascertained and enforced. In one duty defines the contract while on the other hand contract defines the duty. Quasi contracts are not entered by implied words but are operated on the basis of the conduct of the parties. It seems to be unfair that the law implying a promise on someone whose declarations disprove any intention but still this practice is in functioning. The express contracts are approved by parties as a matter of law both sharing equal interests with equal consequences though the conditions are stated expressly while in the case of quasi contracts the law imposes obligations taking into view the conduct of the parties in order to prevent undue advantage to one party at the cost of another. These types of contracts are those which are referred to distinguish in practice form obligation quasi ex contractu and to pay for benefits conferred. If the situation arises where a mistake is not to the doer when the benefit is incurred, the obligation is quasi contractual. The concept of such types of contracts has been in existence upon the principles of honesty, justice and fairness. Basically the most fundamental principle to make quasi contract come in existence is upon the principle of justice to ensure no one ought to have unjustly enrich himself at the expense of another.[xvi] In Mahabir Kishore v. State Of Madhya Pradesh.[xvii], the requirements of the principle of unjust enrichment were laid down by the Hon’ble Supreme Court as follows:

  • The defendant has been ‘enriched’ by the receipt of a benefit.
  • This enrichment is at the expense of the plaintiff
  • And the retention of unjust of the enrichment is unjust.
CONTRACTS QUASI CONTRACTS
  • A contract is a contract between two parties. In contract, always there is an agreement between the parties.

 

  • In contract, always there is an agreement between the parties.

 

  • In contract, the parties must give their consent to it.[xviii]

 

  • In contract, the liability exists between the parties by the terms of the parties.

 

  • It is created by the operation of the contract.

 

  • It is right in rem, and also right in personam.

 

  • 2(h) of the Indian contract act, 1872, defines contract: “an agreement enforceable by law is a contract”.[xix]

 

  • The word “contract” is divided from the Latin “contractum” which gives meaning “drawn together” or “consensus ad idem (identity of minds). Thus the meaning of “contract” is a drawing together of two or more minds to form a common intention giving rise to an agreement”.

 

Essentials[xx]:

  • Free consent;
  • The parties must be competent;
  • There must be lawful consideration and lawful object;
  • The agreement must not expressly be declared to be void; and
  • If the law in force requires, it must be registered.

 

 

 

 

 

 

  • A quasi-contract is not a real contract. Quasi contracts are also known as “constructive contracts” or “certain relations resembling those created by contracts”.

 

  • Where as in quasi-contract, there is no agreement between the parties.
  • In quasi-contract, the parties do not consent.
  • In quasi-contract, the liability exists independent of the agreement and rests upon equity, justice and good conscience.

 

  • It is imposed by law. It is not created by the operation of the contract.

 

  • It is right in personam. I.e. strictly available against a person and is not available against the entire world.

 

  • Salmond defines quasi contracts: “there are certain obligations which are not in truth contractual in the sense of resting on agreement, but which the law treats as if they were”.[xxi]

 

  • Lord Mansfield explained that law as well as justice should try to prevent “unjust enrichment”. I.e. enrichment of one person at the cost of another. He explains: “it is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, i.e. to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in contract or tort, and are now recognized to fall within a third category of the common law which has been termed as quasi-contract or restitution”.[xxii]

 

  • Essentials:
    • It is imposed by law. It is not created by contract;
    • It is a right in personam;
    • The person who incurs expenses is entitled to receive money (unjust enrichment); and
    • It is raised by a legal fiction.

 

 

Conclusion

It is proved by the research that contracts and quasi contracts are far different. They are not contracts but are obligations that the law imposes upon someone to prevent undue advantage to one person at the cost of another. The Indian Contract Act, 1872 covers these types of obligations under the Chapter V under the title ‘OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT’ but the act does not include the term ‘quasi contract’. It could be because of the reasons that the act also wants to tell that these type of obligations are far different from real contracts and they must not be called quasi contracts. It is the law that compels parties who get unduly advantaged to compensate the other party on the principle of equitable justice. The foundation of quasi contracts is based on the principles of Equity, Justice and Good Conscience, which requires that nobody shall benefit himself unjustly, at the cost of others. This is known as the Principle of Unjust Enrichment. The basis of quasi contract is that technicality of contract cannot override the requirements of justice. When something has been done for the benefit of another person without the waiting for his formal assent as also for the completion of other formalities, it is expected that the person receiving the benefit must compensate the other party for the trouble and expenses incurred. The contract and quasi contract can be distinguished by focusing on the concept of agreements and obligations by and on the parties respectively. The unjust principle came from the old maxim of Roman law ‘Nemo debet locupletari ex aliena jactura’ that means no man must grow rich because of one’s personal loss.[xxiii] The doctrine of quasi contracts has been an essential part and aspect of the Indian Contract Act, 1872 in dealing with such obligations which causes loss to one party over undue benefit to the other party.

Edited by Neerja Gurnani

[1] Black’s Law Dictionary,9th Edition, p.365

[i] Section 2(h) of Indian Contract Act, 1872

[ii] Kozlowski v. Kozlowski, 395 A.2d 913, 918

[iii] Black’s Law dictionary, 9th Edition, p. 370

[iv] Nallapati Pandruanga Rao v. Vempati Venkateshwara Rao, MANU/AP/1901/2014

[v] E. Allan Farnsworth, Contracts $2.20, at 103 (2d ed. 1990)

[vi] State of Punjab v. Hindustan Development Board, AIR 1960 P H 585

[vii] K.K Cooperative Group Housing Society Ltd. v. Goel Associates, 2012 SCC Online Del 1053

[viii] Hari Ram Seth Khandsari v. Commissioner of Sales Tax, MANU/UP/1273/2003

[ix] (1760) 2 Burr 1005at p. 1012 as in cited in Pollock and Mulla, Indian Contract Act, 1872

[x] Sinclair v. Brougham, 1914 AC 398 as cited in ‘The Modern Law of Unjust Enrichment and Restitution’ by Gerard McMeel on Page 25

[xi] Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd ,1943 AC 32 as cited in ‘The Modern Law of Unjust Enrichment and Restitution’ by Gerard McMeel on Page 26

[xii] Mahabir Kishore & others v. State of Madhya Pradesh, AIR 1990 SC 313

[xiii] Mulam Chand v. State of Madhya Pradesh, (1968) A.SC.1218 as cited in Pollock & Mulla on Indian Contract and Special Relief Acts, P.593

[xiv] T & S Inv. Co. v. Coury, 593 P.2d 503 (Okla. 1979)

[xv] A Treatise on the Law of Quasi-Contracts. By William A. Keener, Kent Professor of Law and Dean of the Faculty of Law in Columbia College. New York: Baker, Voorhis and Company. 1893. 8vo, pp. xxxii, 470. As in cited in E. Allan Farnsworth, Contracts

[xvi] Union of India v. Solar Pesticides (P) Ltd, AIR 2000 SC 862

[xvii] AIR 1990 SC 313

[xviii] Section 14, Indian contract Act,1872

[xix]Section 2(h), Indian Contract Act,1872

[xx] Section 10, Indian Contract Act, 1872

[xxi] The Modern Law Review,Vol. 9, No. 2 (Jul., 1946), pp. 198-202

[xxii] Moses v. Macfalren  (1760) 2 Burr 1005at p. 1012 as cited in Contract and Special Relief Act by Avtar Singh

[xxiii]  13th Report, Law Commission of India, P.13

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