Quasi Contracts in India

A quasi-contract is a legal concept that plays a significant role in bridging gaps where no actual contract exists, but there is a presence of an obligation. It serves as a remedy to prevent unjust enrichment and ensure equitable outcomes in situations where one party has received a benefit at the expense of another.

Unlike traditional contracts, quasi-contracts are not based on mutual consent or express agreement between the parties involved. Instead, they are imposed by law to prevent one party from unjustly benefiting or profiting at the expense of another.

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This article delves into the concept of quasi-contracts, exploring their nature, principles, and the legal framework surrounding them. It examines the different types of quasi-contracts recognised under the Indian Contract Act and landmark judgments that have shaped the understanding and application of this legal doctrine.

What Are Quasi Contracts?

A quasi-contract, also known as an implied contract or contract implied in law, is a legal concept that allows a court to create an obligation between parties without an actual contract. It is a fictional contract imposed by law to prevent unjust enrichment or to provide a remedy in situations where one party has obtained a benefit at the expense of another party.

Quasi-contracts are not actual agreements between the parties, but they are imposed by the court to prevent unfairness or unjust enrichment. They are based on the principle that it is unjust for a person to retain a benefit received from another without compensating the other party. Therefore, quasi-contracts are considered an equitable remedy to prevent one party from gaining an unfair advantage or profiting at the expense of another.

The obligations in quasi-contracts arise by operation of law, typically when one party has conferred a benefit upon another party, and it would be inequitable for the benefiting party to retain that benefit without compensating the other party. Accordingly, the court may obligate the benefiting party to make restitution or pay a reasonable amount for the benefit received.

Examples of Quasi Contracts

Examples of situations where quasi-contracts may arise include:

1. Payment of Debts

If someone mistakenly pays another person’s debt, the law may create a quasi-contractual obligation on the debtor to repay the amount to the person who made the payment.

For example: Let’s say Party A owes a debt of Rs. 1,000 to Party B. However, due to a mix-up in their records, Party C mistakenly believes they owe Party B the same amount. Thinking it is their obligation, Party C pays Rs. 1,000 to Party B on behalf of Party A.

In this scenario, a quasi-contract may arise between Party C and Party A. Despite Party C’s mistaken belief, the law recognizes that they made the payment under the impression of a valid obligation. As a result, Party A becomes obligated under a quasi-contract to repay Party C the Rs. 1,000 they mistakenly paid on their behalf. This quasi-contractual obligation ensures that Party A does not receive an unjust enrichment and prevents Party C from suffering a loss for a debt that wasn’t theirs.

2. Goods or Services Provided Without a Valid Contract

If goods or services are provided to someone without an actual contract in place, but it is reasonable to expect a payment, a quasi-contractual obligation may be imposed to ensure compensation for the value of the goods or services.

For example: Suppose Party A owns a small restaurant and runs out of essential ingredients needed to prepare their signature dish. Party B, who operates a nearby grocery store, notices Party A’s predicament and delivers the required ingredients to Party A’s restaurant without any prior agreement or contract in place. It is reasonable for Party B to expect compensation for the goods they provided.

In this scenario, a quasi-contract may arise between Party A and Party B. Although there was no explicit agreement, Party B’s act of providing the necessary ingredients created an implied contract-like obligation on Party A to compensate Party B for the value of the goods delivered.

3. Emergencies

In emergencies, where immediate action is required to protect someone’s property or well-being, and there is no opportunity to negotiate a contract, a quasi-contractual obligation may arise to compensate the person who acted to prevent harm or damage.

For example: Let’s say Party A is the owner of a residential property that catches fire due to faulty electrical wiring. Party B, a neighbour who notices the fire, immediately rushes to the scene, breaks into Party A’s house, and uses their own fire extinguisher to put out the flames, thereby preventing further damage and potential harm to Party A’s property.

As a result, a quasi-contractual obligation may arise between Party A and Party B. Party A becomes obligated due to the presence of a quasi-contract to compensate Party B for their efforts in extinguishing the fire and preventing additional harm to the property. The quasi-contract ensures that Party B is not left uncompensated for their actions taken in an emergency where immediate action was required.

Note: It is important to note that quasi-contracts are distinct from actual contracts and not based on the parties’ mutual consent or agreement. Instead, they are created by law to prevent unjust enrichment or provide a remedy in certain circumstances. Quasi-contracts serve as a legal mechanism to ensure fairness and prevent one party from benefiting unjustly at the expense of another, even without a formal contractual relationship.

Principles of Quasi-Contract

The principles of quasi-contracts revolve around fairness, restitution, prevention of unjust enrichment, and promoting equity in contractual relationships. These principles guide the imposition and enforcement of quasi-contractual obligations in situations without a contract between the parties.

Here are the key principles of quasi-contracts:

1. Fairness and Equity

Quasi-contracts are founded on the principle of fairness and equity. They aim to prevent one party from unjustly benefiting at the expense of another. When one party receives a benefit or advantage from another, it would be unfair for them to retain that benefit without compensating the other party. Quasi-contracts ensure that parties are treated fairly and that no party is unjustly enriched.

2. Restitution

The principle of restitution is central to quasi-contracts. It entails (involves/requires) restoring the aggrieved party to their original position before the benefit was conferred. The party who received the benefit must make restitution or provide compensation to the party who conferred the benefit. This principle seeks to restore the balance and rectify any unjust gain obtained by one party at the expense of another.

3. Prevention of Unjust Enrichment

Quasi-contracts are designed to prevent unjust enrichment, which occurs when one party gains a benefit or advantage at the expense of another party without proper justification. The principle of preventing unjust enrichment ensures that parties do not profit unfairly from their actions or receive benefits for which they have not provided consideration. Quasi-contracts aim to restore the rightful position and prevent individuals from retaining benefits that they are not entitled to retain.

4. Remedial in Nature

Quasi-contracts serve as remedial measures to provide a legal remedy when a contract is lacking or insufficient to address the underlying fairness concerns. They ensure justice and equitable outcomes by imposing obligations on parties to prevent unjust enrichment and restore the affected party to their rightful position.

Overall, the principles of fairness, restitution, prevention of unjust enrichment, and the promotion of equity underpin quasi-contracts.
These principles guide the imposition and enforcement of quasi-contractual obligations, ensuring that parties are treated fairly and that one party does not profit unjustly at the expense of another.

Types of Quasi Contracts

Quasi-contracts are addressed in section 68 to section 72 of the Indian Contract Act, 1872.

These sections outline different types of quasi-contracts recognized by Indian law. Here are the types of quasi-contracts as per the Indian Contract Act:

1. Section 68: Claim for Necessaries Supplied to a Person Incapable of Contracting

Section 68 of the Indian Contract Act deals with situations where necessaries (essential goods or services) are supplied to a person incapable of entering into a valid contract. It states that a person who supplies necessaries to someone incapable of contracting or to a person legally bound to support that incapable person is entitled to be reimbursed from the property of the incapable person. The supplier can claim payment for the necessaries provided as if they had a contract.

For example: Let’s consider a scenario involving Party A, Party B, and Party C. Party A is an elderly individual suffering from a mental disability and is incapable of entering into a valid contract. Party B, who is Party A’s legally appointed guardian, is responsible for taking care of Party A’s needs and providing for their well-being.

Party C, a local pharmacist, supplies Party A with essential medications and medical supplies required for their health and sustenance, knowing that Party A is incapable of contracting on its own.

In this situation, Party C, the supplier of necessaries, is entitled to claim reimbursement from Party A’s property or estate for the cost of the medications and medical supplies provided. This entitlement arises because Party A, being incapable of contracting, relies on Party B, who is legally bound to support them, to fulfil their needs.

2. Section 69: Reimbursement of Person Paying Money Due by Another, in Payment of Which He is Interested

Section 69 of the Indian Contract Act addresses scenarios where a person makes a payment to discharge a debt owed by another person, and the payment is made out of an interest or necessity to protect their rights. This section allows the person making the payment to be reimbursed by the person on whose behalf the payment was made. The person making the payment can claim reimbursement as the creditor themselves.

For example: Party A owes a substantial debt to Party B. However, Party C, who has a legal interest in the matter, makes a payment on behalf of Party A to settle the debt and protect its own rights.

In this situation, Party C, the person making the payment, is entitled to be reimbursed by Party A for the amount paid. Section 69 allows Party C to claim reimbursement from Party A as if they were the creditor themselves.

3. Section 70: Obligation of Person Enjoying Benefit of Non-Gratuitous Act

Section 70 of the Indian Contract Act deals with situations where a person benefits from another’s non-gratuitous act. Suppose a person enjoys the benefits of someone else’s actions or services, even though there was no intention to create a contract. In that case, the law obligates the person to compensate the one who performed the act or provided the services. The person receiving the benefit is bound to pay a reasonable amount for it.

For example: Party A, a homeowner, is out of town when a severe storm damages their property, causing a tree to fall on their roof. Party B, a neighbour who witnesses the incident, takes immediate action and arranges for the tree to be removed from Party A’s property to prevent further damage.

In this situation, Party A enjoys the benefit of Party B’s non-gratuitous act, as Party B acted without any expectation of payment or formal agreement. However, Party A still benefits from Party B’s timely intervention in mitigating the damage to their property.

Under section 70, Party A is obligated to compensate Party B for the services rendered. Even though there was no intention to create a contract, the law recognizes the principle of unjust enrichment. Party A is bound to pay a reasonable amount to Party B for their efforts in removing the fallen tree and protecting Party A’s property.

4. Section 71: Responsibility of Finder of Goods

Section 71 of the Indian Contract Act applies to cases where a person finds and takes custody of someone else’s lost goods. If the owner of the goods is not known or easily identifiable, the finder has a duty to take reasonable care of them. The finder is subject to a quasi-contractual obligation to return the goods to the rightful owner or compensate the owner for any loss or damage caused.

For example: Party B finds a valuable necklace in a public park, but the owner is unknown. Party B has a duty to take care of the necklace and make reasonable efforts to return it. If unable to locate the owner, Party B may be required to compensate the owner for any loss or damage. Section 71 ensures responsible handling of lost goods.

5. Section 72: Liability of Person to Whom Money is Paid or Thing Delivered by Mistake or Under Coercion

Section 72 of the Indian Contract Act pertains to situations where money is paid or a thing is delivered to a person by mistake or coercion. If someone receives money or goods mistakenly or due to coercion, the law obligates them to repay or return what they have received. The person who made the payment or delivered the goods can claim restitution or seek compensation for the mistake or coercion.

For example: Party A, intending to pay a debt to Party C, mistakenly transfers the payment to Party B’s bank account due to an error in the account details provided.

Upon realizing the mistake, Party A promptly notifies Party B about the erroneous payment and requests its return. However, Party B, aware of the mistake, refuses to return the funds, claiming entitlement to the money.

In this situation, Party A made a payment to Party B by mistake. Under section 72, Party B is liable to repay the money received to Party A. The law recognizes that Party B has received the funds without any legal right or entitlement, as the payment was made in error.

The above-explained sections of the Indian Contract Act 1872 provide the legal framework for different types of quasi-contracts, addressing various situations where one party is entitled to claim reimbursement, compensation, or restitution based on principles of fairness and equity.

On the Same Note: 5 Circumstances of Quasi Contracts as Per the Indian Contract Act

Judicial Pronouncements Regarding Quasi Contracts

Below are the judicial pronouncements that guided the interpretation and application of quasi-contract principles in India. They emphasise the importance of fairness, restitution, and prevention of unjust enrichment in imposing quasi-contractual obligations. In addition, the decisions establish precedents that shape the understanding and enforcement of quasi-contracts within the Indian legal system.

Mohd. Ishaq vs State of Jammu and Kashmir (2014)

The Supreme Court of India held that a quasi-contract could arise without a formal agreement between the parties. The court emphasized that the principle of restitution and preventing unjust enrichment is the basis for imposing quasi-contractual obligations.

Kailash Nath Associates vs DDA (2015)

The Delhi High Court ruled that a quasi-contract can be formed when one party, in the absence of an actual contract, performs work or provides services for another party, and the other party receives the benefit of such work or services. The court held that the party providing the services is entitled to fair and reasonable compensation under quasi-contractual principles.

State of Haryana vs Raja Ram (2017)

According to the Supreme Court of India, the existence of a legal contract is not necessary for the creation of quasi-contracts. In this instance, the court emphasised the importance of the unjust enrichment principle and the avoidance of unfair benefits in figuring out the obligation resulting from a quasi-contractual connection.

State of Rajasthan vs Basant Nahata (2019)

The Rajasthan High Court ruled that a quasi-contract can arise when a party makes payments on behalf of another party, and such payments were not voluntary or without any obligation. The court held that the party making the payments is entitled to reimbursement or compensation based on quasi-contractual principles.

State of Madhya Pradesh vs Sahi Infracon India Pvt. Ltd. (2021)

The Madhya Pradesh High Court held that the principle of unjust enrichment is a crucial factor in determining the liability arising from a quasi-contractual relationship. The court ruled that if one party has received a benefit or advantage at the expense of another, the principle of restitution should be applied to restore the aggrieved party to their original position.

What Have We Learned?

Quasi-contracts serve as an important legal concept that fills gaps in contractual relationships and ensures fairness and equity. These contracts are based on principles of restitution, prevention of unjust enrichment, and the promotion of equitable outcomes. While not formed by mutual consent or express agreement, quasi-contracts are imposed by law to prevent one party from unjustly benefiting at the expense of another.

Individuals, businesses, and legal practitioners can navigate contractual relationships more effectively and ensure equitable outcomes by comprehending the principles and legal framework surrounding quasi-contracts. Quasi-contracts are crucial in promoting fairness, upholding restitution, and preventing unjust enrichment within the legal landscape. Understanding and applying these principles contribute to a more just and equitable society in the realm of contractual obligations.

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Suhani Dhariwal
WritingLaw » Law Notes » What Are Quasi Contracts With Examples, Principles, Types, and Cases? Law Study Material
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