A contract is an agreement that is enforceable by law. The law provides remedies if a promise in a contract is breached. Law recognises the performance of a promise as a duty. There are certain promises that are not considered as contracts but may be and enforced if one party has relied to his detriment on the assurances of the other party.
In Indian Contract Act quasi contract is not defined anywhere but the Act calls them “certain relations resembling those of contracts.” A quasi contract may be defined as a transaction in which there is no contract between the parties and the law creates certain rights and obligations between them which are similar to those created by a contract.
According to Black’s Law Dictionary, “it is an obligation created by law for the sake of justice; specifically an obligation imposed by law on parties because of a 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 the plaintiff to recover a benefit conferred on the defendant.”
Nature of Quasi Contractual Relationships
The English law identified the quasi contractual obligations first and the Indian law modified it and placed in the Indian Contract Act as “certain relations resembling those created by contracts”. Therefore the elements that are present in the English quasi-contracts are also found in the Indian Contract Act.
- Payments to the defendant’s use
In such a case payment should have been made under pressure and not voluntarily. It was the defendant who was bound to pay and he got rid of his liability by the payment made by the plaintiff.
- Voluntary payments
Payments made when a person is under a mistake of fact can be recovered, but only when the person paying would have been liable to pay had the mistake of fact turned out to be true.
- Quantum Meriut
There are certain situations under which a party performs his duty laid down in a contract and further performance is made useless by the other party. In such cases the party which performed its part of the contract can recover reasonable compensation from the other party.
The Principle of Unjust Enrichment
Quasi contracts are based on the principle of “nemo debet locupletari ex aliena jactura” which means no man should grow rich out of another person’s loss. Liability in case of quasi contractual relationship is based on the principle of unjust enrichment. It simply means that no man should be unjustly enriched out of another person’s loss. No person should gain anything unjustly which causes a loss to another person.
For example, a person receives a package from Amazon which belongs to someone else and the payment is already done. If the person would keep the package for his own benefit he would be unjustly enriching himself and causing loss to the real owner of the package. In this case he is under a quasi contractual obligation to return the package to the delivery boy or track the actual owner of the package.
In case of Mahabir Kishore v. State of Madhya Pradesh, 1990, the Supreme Court laid down the requirements of the principle of unjust enrichment which are as follows:
- The defendant has been enriched by receiving a benefit.
- Such enrichment is at the expense of the plaintiff.
- The retention of such enrichment is unjust.
Quasi Contracts in Indian Contract Act (SECTION 68 – 72)
Chapter V the Indian Contract Act 1872, deals with the quasi contractual obligations. It is the obligation of a person to compensate another and the basis of this obligation is not a contract between the parties and also not any tort on the part of the person who is bound to compensate. The basis of this obligation is that no one should get the unjust enrichment at the cost of another person’s loss.
Claim for necessaries supplied to person incapable of contracting, or on his account- 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.
(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.
If a person is incapable of entering into a contract, for example he is a lunatic or a minor then in such a case when a person supplies necessaries suited to the condition in life of such incapable person then the person supplying the necessaries can get the reimbursement from the property of such incapable person. He can also be reimbursed if he is taking care of the dependents of such incapable person. The word “necessaries” have not been specifically defined in the Act, but the implied meaning is that the necessaries are the necessary goods and services to sustain life, basic things like food, clothing, education etc. So if any person supplies another person (who is incapable of entering into a contract by way of lunacy or for being a minor) or his family or anybody else dependent upon such person with necessaries of life, he is entitled to get reimbursed from the property of such person. He is entitled only to the reasonable amount as to the value of goods and services he may have supplied.
Reimbursement of person paying money due by another, in payment of which he is interested.—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.”
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 the Government the sum due from A. A is bound to make good to B the amount so paid.
If a person pays something in someone’s place, that which the other person was himself bound by law to pay, such person who is paying on behalf of another will be reimbursed from the property of the other person. The person paying on another’s behalf should be interested in this payment. This is a case of implied indemnity.
Thus, the important conditions of the section are:
- The party paying the other party’s debt is interested in the payment. Such interest must be recognised by the law.
- The party whose payment is due was bound by law to pay, the party paying the other person’s debt is not bound by the law to do so.
Obligation of person enjoying benefit of non-gratuitous act.—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.
(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.”
When a person in a lawful manner does something for another person like delivering a good or a service, and he does not intend to do so gratuitously, and the other person who is receiving such good or service is enjoying the benefit is bound to reimburse the person providing such service.
A gratuitous act is one that is done without consideration. Gift is an example of a gratuitous act. For example, if a shoe shiner comes to you at a traffic signal and starts polishing your shoes without even asking you and you do not stop him in such a case you are bound to pay him for his services. There is an implied contract between the shoe shiner and his customer. Though the customer didn’t approach the shoe shiner himself, he didn’t stop the shoe shiner from polishing his shoes either.
Responsibility of finder of goods.—A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee.
If a person finds goods belonging to another person he shall be treated as a bailee to those goods. A bailee is a person who keeps the goods safely with himself and is supposed to return the goods to the actual owner or dispose them in the manner in which the actual owner may want them to. A person who finds the goods belonging to another person is under an obligation to keep it safely and to track its real owner and hand it over to the real owner. The real owner is under an obligation to reimburse the bailee for the loss suffered in finding him.
Following are the duties of the finder of goods:
- He has to take reasonable care of the goods.
- He should not use the goods for his personal benefits.
- He should not mix the found goods with his own goods.
- He has a duty to make reasonable efforts to find the actual owner of the goods.
The following are the rights of the finder of goods:
- Right to retain the goods found until he receives reimbursement for all the expenses incurred in finding the real owner.
- In case the real owner of the goods has announced a reward for the finder of the goods, the finder has the right to retain the goods until he is compensated and sue the owner for such reward if he refuses to reward the finder of goods.
- The finder of goods also possesses the right to sell the goods in certain circumstances. Those circumstances are:
- If he could not find the real owner even after making reasonable efforts.
- If he finds the owner but the owner denies to pay reimbursement for the expenses incurred in finding the owner.
- If the goods are perishable within a short span of time if left unused.
- If the lawful charges or expenses incurred in finding the real owner equals to two- thirds of the value of the goods.
Liability of person to whom money is paid, or thing delivered, by mistake or under coercion.—A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.
- 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.”
If a person receives money or goods by mistake or under coercion then he is liable to repay the amount of money or return the goods.
The section has also included the term “coercion”. For example, a railway company refuses to deliver goods to a certain consignee and agrees to deliver the goods only upon the payment of bribe. The consignee pays the bribe amount to receive his goods. In this case the railway company is liable to return the sum of money which was illegally charged as a bribe.
In case of Shri Shiba Prasad Singh v. Maharaj Srish Chandra Nandi, the court clarified that the money paid, whether under the mistake of law or of fact, is recoverable.
In case of Tilokchand Motichand v. Commissioner of Sales Tax, the Apex Court clarified the scope of the word “mistake.”
Recovery proceedings in such a case is instituted by way of writ petition. The writ petitions have no limitation period. But there should be no unreasonable delay which may lead to laches. In case of Chrisine Hoaden India Ltd. v. N. D. Godag, the claim was brought in the court of law within one month of knowledge of mistake of law. It was held that the period of limitation would commence only when the petitioner has discovered the mistake or could have naturally discovered it had he exercised his reasonable diligence. It was thus, held by the court that the claim could not be defeated on the ground of limitation.
The obligations under quasi contracts are very much different from real contracts. Section 73 of the Indian Contract Act provides remedies for the breach of quasi contracts in the same manner as provided for the breach of express contracts in various sections of the act. It states that “when an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.”
There are no expressly laid down terms and conditions between the parties. It is the law which enforces such obligation upon the parties which get the undue benefit to compensate the other parties on the principle of equity, natural justice and good conscience. The doctrine of quasi contracts is an essential part of the Indian Contract Act 1872 which provides relief to the parties that have incurred losses and someone else has gained from it.