QUASI – CONTRACTS OBLIGATIONS RESEMBLING THOSE CREATED BY CONTRACT AND CLASSIFICATION OF QUASI-CONTRACTS

This article is written by R Tushar Beeshm of 3^rd Year of REVA University, an intern under Legal Vidhiya

ABSTRACT

Quasi-contracts are a unique facet of Indian contract law, representing obligations that resemble contractual relations but arise without the existence of an actual agreement between parties. Rooted in the principle of preventing unjust enrichment, these quasi-contractual obligations are imposed by law to ensure equity and fairness in situations where one party unjustly benefits at the expense of another.

The Indian Contract Act, 1872 codifies five major categories of quasi-contractual obligations. Firstly, it addresses the supply of necessaries like food, clothing, and shelter to persons incapable of contracting, such as minors or those of unsound mind, entitling the supplier to reimbursement from the recipient’s property. Secondly, it allows for reimbursement when an interested person pays a debt that another is legally bound to pay, protecting their own vested interest.

Thirdly, the Act imposes obligations to compensate when one party lawfully performs a non-gratuitous act benefiting another without intention. Fourthly, it establishes the responsibilities of finders of goods, treating them as bailees with duties towards the true owner. Finally, it mandates the repayment of money paid or things delivered by mistake or under coercion.

While not full-fledged contracts, quasi-contracts serve as an indispensable part of Indian contract law, complementing traditional contractual principles. Their applicability has been further shaped by numerous case laws over time, providing clarity on the scope and interpretation of these provisions. As commercial dealings become more intricate, quasi-contractual obligations will likely play an increasingly pivotal role in upholding equitable practices and preventing injustice resulting from unjust enrichment in the realm of contractual and transactional relationships.

KEYWORDS

Quasi-contracts, unjust enrichment, Indian Contract Act, obligations, equity, fairness, reimbursement, necessaries, finders of goods, mistake, coercion, contractual relationships

INTRODUCTION

In the realm of civil law, contracts are not the sole source of legal obligations. There exists a concept known as quasi-contracts, which encompass obligations that resemble those created by contracts but arise from circumstances other than a mutual agreement between parties. Quasi-contracts are a crucial aspect of the law, as they ensure fairness and prevent unjust enrichment in situations where no explicit contract has been formed.

The origins of quasi-contractual obligations can be traced back to the principle of “nemo debet locupletari ex aliena jactura,” a Latin maxim that translates to “no one should be unjustly enriched at another’s expense.” This fundamental tenet of justice and equity forms the bedrock upon which the concept of quasi-contracts is built. It recognizes that in certain situations, the strict requirements of contract formation may not be met, but equitable considerations demand the imposition of legal obligations to prevent one party from unduly benefiting at the cost of another.

The legal basis for quasi-contractual obligations in India is found in the Indian Contract Act, 1872. Chapter V of the Act, titled “Of Certain Relations Resembling Those Created by Contract,” provides a comprehensive framework for addressing various scenarios where quasi-contractual obligations may arise. This chapter avoids the term “quasi-contract” itself but lays down specific provisions that cover different types of situations.

Historically, the development of quasi-contractual obligations can be attributed to the work of Lord Mansfield, regarded as the founder of this concept. Lord Mansfield offered an explanation of quasi-contracts based on the principle of preventing unjust enrichment, stating that “the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by ties of natural justice and equity to refund the money.”

Over time, legal scholars have proposed alternative theories to justify the existence of quasi-contractual obligations. One such theory is the notion of an “implied-in-fact” contract, where the law treats the obligations as arising from a notional or imputed contract between the parties based on the circumstances, even though no actual contract exists. This approach gained prominence following the decision of the House of Lords in the case of Sinclair v Brougham.[1] “An action for money had and received rests, not on a contractual bargain between the parties, but upon a notional or imputed promise to repay.”

THEORY OF UNJUST ENRICHMENT

The foundation of quasi-contractual obligations lies in the principle of unjust enrichment, which is derived from the Latin maxim “nemo debet locupletari ex aliena jactura,” meaning “no one should be unjustly enriched at another’s loss or injury.”This principle recognizes that in certain circumstances, it would be unjust for one party to retain a benefit or advantage that rightfully belongs to another party.

The theory of unjust enrichment is based on the idea that the law should intervene to prevent the unjust retention of benefits by one party at the expense of another. It operates as a corrective measure, allowing the aggrieved party to recover the value of the unjust benefit conferred upon the other party.

The Indian courts have consistently upheld the principle of unjust enrichment as the underlying rationale behind quasi-contractual obligations. In the case of Mafatlal Industries Ltd. v. Union of India,[2] the Supreme Court observed, “The doctrine of unjust enrichment is a well-recognized doctrine in equity. It is based on the maxim ‘Nemo debet locupletari ex aliena jactura’ which means that no one shall be allowed to enrich himself at the cost of another.”

THEORY OF “IMPLIED-IN-FACT” CONTRACT

While the theory of unjust enrichment has been widely accepted as the basis for quasi-contractual obligations, there was a period when the English courts, and subsequently the Indian courts, adopted the theory of “implied-in-fact” contract as an alternative explanation.

According to this theory, quasi-contractual obligations arise from an implied or fictional contract between the parties, which is imputed by the law. This approach was endorsed by the House of Lords in the landmark case of Sinclair v. Brougham. In this case, Lord Sumner stated, “An action for money had and received rests, not on a contractual bargain between the parties, but upon a notional or imputed promise to repay.”

However, the theory of “implied-in-fact” contract faced criticism for its potential to validate transactions that were otherwise void or against public policy. In the case of Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd.[3], Lord Wright lent support to the theory of unjust enrichment, stating that “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, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep.”

Ultimately, the Indian courts have largely embraced the theory of unjust enrichment as the guiding principle behind quasi-contractual obligations, recognizing that the “implied-in-fact” contract theory may unnecessarily restrict the scope of relief available in cases of unjust enrichment.

TYPES OF QUASI-CONTRACTUAL OBLIGATIONS

The Indian Contract Act recognizes five specific situations where quasi-contractual obligations may arise. These situations are outlined in Sections 68-72 of the Act.

A. Supply of necessaries (Section 68)

“If a person, incapable of entering into a contract, or anyone 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.”[4]

Section 68 of the Indian Contract Act deals with the supply of necessaries to a person who is incapable of contracting or to someone whom the supplier is legally bound to support. In such cases, the supplier is entitled to be reimbursed from the property of the incapable person.

The term “necessaries” is not explicitly defined in the Act but is generally understood to include essential items required for sustenance, such as food, clothing, shelter, and basic education. The rationale behind this provision is to ensure that those who are unable to contract for their own necessities are not left destitute, and those who provide such necessities are compensated accordingly.

In Jagon Ram Marwari v Mahadeo Prosad Sahu.[5] The Calcutta High Court found the following observation by Baron Parke helpful in determining the scope of the concept of necessaries: “The word necessaries was not confined, in its strict sense, to such articles as were necessary to the support of life, but extended to articles fit to maintain the particular person in the state, station, and degree in life in which he is.”

The court held that, depending on the particular context, the term “necessaries” in the context of Section 68 of the Indian Contract Act can include essential education expenses, house repairs, payment of revenue arrears, debt repayment, and legal expenses.

This broad interpretation of “necessaries” beyond just the basic necessities of life, taking into account the person’s status, age, and other relevant circumstances, has been consistently followed by Indian courts in determining what qualifies as “necessaries” under Section 68 of the Indian Contract Act

B. Payment by an interested person (Section 69)[6]

“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.”

Section 69 of the Act deals with situations where a person pays money that another is legally bound to pay and has an interest in making such payment. In such cases, the person who made the payment is entitled to be reimbursed by the other party.

The key requirements for this provision to apply are:

1. The person making the payment must have an interest in making the payment.
2. The person for whom the payment is made must be legally bound to make the payment.
3. The payment must be made to another person and not to oneself.

In the landmark case of Govindram Gordhandas Seksaria v. State of Gondal[7], the Privy Council clarified the scope of Section 69. In this case, the appellant had agreed to purchase certain mills from the Maharaja of Gondal but found that municipal taxes were overdue on the property. To prevent the property from being sold in execution, the appellant paid the outstanding taxes. The Privy Council held that the appellant was “interested” in making the payment and was entitled to reimbursement from the Maharaja, as the Maharaja was legally bound to pay the taxes under the terms of the contract.

C. Non-gratuitous acts (Section 70)[8]

“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.”

Section 70 of the Indian Contract Act addresses situations where a person lawfully does something for another person or delivers something to another person, not intending to act gratuitously, and the other person enjoys the benefit of the act or delivery. In such cases, the person who enjoyed the benefit is bound to compensate the other person or restore the thing delivered.

The key elements of this provision are:

1. The act or delivery must be lawful.
2. The person performing the act or making the delivery must not intend to do so gratuitously.
3. The other person must enjoy the benefit of the act or delivery.

In the case of State of West Bengal v. B.K. Mondal & Sons,[9] the Supreme Court clarified the conditions for invoking Section 70. The court held that three conditions must be satisfied: (1) a person should lawfully do something for another person or deliver something to him, (2) in doing so, he must not intend to act gratuitously, and (3) the other person must enjoy the benefit of the act or delivery.

D. Finder of goods (Section 71)[10]

“A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.”

Section 71 of the Indian Contract Act deals with situations where a person finds goods belonging to another and takes them into their custody. In such cases, the finder is subject to the same responsibilities as a bailee under a contract of bailment.

The responsibilities of a finder of goods include:

1. Taking reasonable care of the goods.
2. Not using the goods for personal purposes.
3. Not mixing the found goods with their own goods.
4. Making reasonable efforts to find the actual owner of the goods.

The finder of goods also has certain rights, such as:

1. The right to a lien over the goods until they receive compensation for their expenses in finding the owner.
2. The right to sue for any reward offered by the owner for the recovery of the goods.
3. The right to sell the goods in certain circumstances, such as when the owner cannot be found or refuses to pay compensation.

Duties of finder of goods

1. Duty to take reasonable care of the goods
2. Duty not to use the goods for personal purposes
3. Duty to make reasonable efforts to find and return the goods to the true owner
4. Duty not to mix the found goods with their own property

In the case of Union of India v. Amar Singh,[11] the Supreme Court ruled that the statutory fiction of a contract of bailment between a finder of goods and the real owner should not be enlarged by analogy. The court held that a railway authority that took custody of wagons containing the plaintiff’s goods left across the border in Pakistan became contractual bailees of the goods, and it was not necessary to regard them as finders within the meaning of Section 71.

E. Mistake or coercion (Section 72)[12]

“A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.”

Section 72 of the Indian Contract Act deals with situations where money has been paid or something has been delivered by mistake or under coercion. In such cases, the person to whom the money or thing has been paid or delivered is obligated to repay or return it.

1. Payment by mistake

The term “mistake” in Section 72 encompasses both mistakes of fact and mistakes of law. The Privy Council, in the case of Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi,[13] held that money paid under a mistake of law is recoverable under this section.

2. Payment under coercion

The term “coercion” in Section 72 is not limited to the definition provided in Section 15 of the Indian Contract Act (which defines coercion as committing or threatening to commit an act forbidden by the Indian Penal Code). Instead, it is interpreted in a broader sense to include any form of compulsion or pressure exerted on a person to make a payment.

In the case W.B. SEE v Sidharta Ferro Alloys Ltd,[14] the Calcutta High Court held that money paid under pressure of circumstances, such as to prevent the execution of a decree on a property in which the payer has an interest, can be recovered as payment made under coercion under Section 72, even if the strict definition of coercion under Section 15 is not met.

3. Obligation to repay or return

Once it is established that a payment or delivery was made by mistake or under coercion, the recipient is obligated to repay or return the money or thing received. The Allahabad, in the case of Dy. Commissioner, Rae Bareli And Anr. vs Har Narain Lal.,[15] The court emphasized that the principle, as outlined in Section 72, applies regardless of whether the payment or delivery was made under a mistake of law or fact. As long as the payment or delivery was made by mistake or under coercion, the recipient is legally obligated to repay or return it, and no equitable considerations can be used to deny the recovery

COMPARISON WITH CONTRACTS

While quasi-contractual obligations resemble those created by contract, there are several key differences between the two:

A. Differences from regular contracts

• No offer and acceptance

Quasi-contractual obligations do not arise from an offer and its acceptance, which is a fundamental requirement for the formation of a contract.

• No consideration

Unlike contracts, quasi-contractual obligations do not require consideration, which is the exchange of something of value between the parties.

• Remedies limited

The remedies available under quasi-contractual obligations are limited to the prevention of unjust enrichment. In contrast, contracts offer a wider range of remedies, such as specific performance, damages, and injunctions.

B. Similarities to contractual obligations

Despite the differences, quasi-contractual obligations bear certain similarities to contractual obligations:

• Legal enforceability

Like contracts, quasi-contractual obligations are legally enforceable, and parties can seek remedies through the courts.

• Obligations and duties

Just as contracts create obligations and duties for the parties involved, quasi-contractual obligations impose certain responsibilities on the parties, such as the duty to repay or return money or goods received by mistake or under coercion.

CONCLUSION

Quasi-contracts hold significant importance in upholding the principles of equity, fairness, and preventing unjust enrichment within the Indian contract law regime. While not full-fledged contracts in the traditional sense, they serve as a vital mechanism to address situations where parties may not have intended to create legal obligations through an agreement, yet specific circumstances warrant the imposition of such obligations to prevent injustice.

The provisions related to quasi-contracts, codified in the Indian Contract Act, 1872, have proven instrumental in providing legal remedies across a wide range of scenarios. From ensuring the supply of necessaries to those incapables of contracting to establishing the responsibilities of finders of goods, these provisions cover a diverse set of situations that fall outside the purview of conventional contractual relationships.

Over time, the application and interpretation of quasi-contractual obligations have been further refined and clarified through numerous court decisions and case laws. These judicial precedents have played a crucial role in providing guidance on the scope, conditions, and applicability of these provisions, ensuring their alignment with evolving notions of justice and equity.

As economic activities and transactions become increasingly complex, the role of quasi-contractual obligations is likely to grow in significance. These obligations offer a legal framework to address situations that may not neatly fit within the confines of traditional contract law, thereby expanding the reach of legal remedies and upholding equitable principles in novel contexts.

Moreover, quasi-contracts serve as a testament to the law’s commitment to preventing unjust enrichment and promoting fairness in civil society. By recognizing and enforcing obligations that arise from specific circumstances, the law ensures that no party can benefit unduly from another’s loss or detriment, even in the absence of a binding contract.

In essence, quasi-contractual obligations represent a vital component of the Indian contract law regime, complementing and extending the scope of contractual principles. They ensure that the law remains responsive to the diverse and evolving needs of society, commerce, and interpersonal interactions, safeguarding against potential injustices that may arise from the strict adherence to formalities in the formation of contracts.

REFERENCES

1. 12 Avtar Singh, Contract & Specific Relief 558-583 (EBC Publishing 2020)
2. Wardah Beg, Quasi-Contractual Obligations under Indian Contract Act, iPleaders (Apr. 25, 2024, 10:36 AM), https://blog.ipleaders.in/quasi-contractual-obligations/
3. Meera Patel, All about quasi-contracts and its types, iPleaders (Apr. 25, 2024, 08:27 PM), https://blog.ipleaders.in/all-about-quasi-contracts-and-types/

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[1] Sinclair v. Brougham., 1914 A0392 (HL).

[2] Mafatlal Industries Ltd. v. Union of India., (1997) 5 SCC 536

[3] Fibrosa Spolka Akeyjna v. Fairbairn Lawson Combe Barbour Ltd., 1943 AC 32 (HL)

[4] Indian Contract Act 1872, § 68, No. 9, Acts of Parliament, 1872 (India).

[5] Jagon Ram Marwari v. Mahadeo Prosad Sahu., (1909) ILR 36 Cal 768

[6] Indian Contract Act 1872, § 69, No. 9, Acts of Parliament, 1872 (India).

[7] Govindram Gordhandas Seksaria v. State of Gondal., AIR 1950 PC 99.

[8] Indian Contract Act 1872, § 70, No. 9, Acts of Parliament, 1872 (India).

[9] State of West Bengal v. B.K. Mondal & Sons., AIR 1962 SC 779

[10] Indian Contract Act 1872, § 71, No. 9, Acts of Parliament, 1872 (India).

[11] Union of India v. Amar Singh., AIR 1960 SC 233

[12] Indian Contract Act 1872, § 72, No. 9, Acts of Parliament, 1872 (India).

[13] Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi., AIR I960 SC 233

[14] W.B. SEE v. Sidharta Ferro Alloys Ltd, AIR 1997 Cal 221.

[15] Dy. Commissioner, Rae Bareli and Anr. v. Har Narain Lal., AIR 1956 All 205

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