Quasi Contracts under the Indian Contract Act

Quasi Contracts under the Indian Contract Act written by Mohammad Shuja Uzair student of NMIMS Kirit P. Mehta School of Law, Mumbai

ABSTRACT

Contracts are promises enforceable by law. Whereas, a quasi-contract can be defined as a contract that resembles relations created by a contract. This assignment will look into how the quasi-contracts evolved over time, its history and closely looking into its aspect in the Indian Contract Act, 1872 in detail. Various sections that are dealt with regarding Quasi contract in this assignment are as follows:
● Section 68
● Section 69
● Section 70
● Section 71

Several case laws are also discussed for a better understanding of all the sections. The similarity between a quasi-contract and a contract is also provided for better clarity on the subject matter. Quasi-contract with respect to the English Law is also discussed in between the sections for a better distinction between the applicability in the Indian laws and the English law. The keywords provided below will also help in understanding certain concepts much better.

INTRODUCTION

The history of quasi-contract can be dated back to the Middle Ages, where there was a practice known as indebitatus assumpsit. Under this, the law imposed that the defendant would give a sum of money to the complainant, in an amount directed by the courts of justice, as if the accused always agreed to pay the complainant for the goods or the services.
The courts used the method called indebitatus assumpsit whereby one party pays another as if the contract had already been created between the parties. It is already implied by the law that the defendant is bound by the agreement
Quasi Contract is not defined in the Indian Contract Act, it refers to them as a relation resembling those created by a contract. However, a quasi-contract can be defined as a contract that is initiated by the court when there is no such formal contract that exists between the parties. Quasi-contracts created by the court help to prevent “unjust enrichment” of one party at the cost of the other party.
For example, Altaf gets unjust enrichment at Bairam’s cost, Altaf is bound to compensate Bairam for the same. If for instance, Altaf and Bairam together owe some amount of money to Anand. Altaf pays the amount of money to Anand and Bairam, not knowing about this fact, pays the money again to Anand. Here Anand is bound to repay the money back to Bairam.

ESSENTIALS AND JUDICIAL ANALYSIS UNDER VARIOUS SECTIONS 4&5

The following essentials are to be proved, in an action for any kind of unjust enrichment:

1. The defendant has been enriched by the receipt of some kind of benefit.
2. The enrichment of the defendant is at the complete expense of the plaintiff.
3. The holding on of the enrichment is completely unjust.

Various sections that deal with quasi-contractual obligations under the Indian Contract Act are as follows-

SECTION 68 – Necessities supplied to a person who is incapable of contracting

If the “necessities” for a person who is incompetent of contracting (for example a mentally disabled person or a minor) or anyone who is a dependent of such a person is taken care of by someone, such a person has the right to be compensated back from the property of such incompetent person. The term “necessities” has not been defined in the Act, but it implies necessities to sustain life, fundamental things like food, education, clothing, etc.
For example, if a person X supplies another person Y (a lunatic) or anyone who is dependent on him, with necessities for life, such a person is entitled to be compensated from the property of person Y.

SECTION 69 – Reimbursement of a person paying money due by someone, in the payment of which he is interested

Following are the two essentials-

1. The individual paying the dues of another individual is interested in the payment.
2. The individual whose payment was due was in fact obligated by the law to pay.

For example, X is a landlord. Y holds one of X’s land on a lease in Mumbai. The revenue of X’s land is in arrears, payable to the government. The land ends up being advertised for sale by the government. Under the revenue law, if the land is sold, it will result in the annulment of Y’s lease. To stop the sale, Y pays X’s dues. In such a situation X is bound to pay back Y.
A similar action is permitted under English Law, as an action for money reimbursed by the plaintiff to the defendant.

Making of payment where one party(defendant) has an interest in it
When one person makes a payment and then claims for compensation or reimbursement, must show that he/she has an interest in making such a payment. The payment made by the defendant should be bona fide or genuine protection of the interest by the plaintiff. According to English law, the person making the payment should have been compelled by the law to discharge off the debt in favor of the other person.
In one of the popular English cases Brook’s Wharf v. Goodman Brothers, the defendants had imported certain goods from Russia and warehoused them with the plaintiff. According to the customary laws, the customs duty on the goods could be recovered from the owners or the warehouseman. Unfortunately, the goods were stolen and the warehouseman (plaintiff) was called upon to make the payment of the customs duty, which the owners (defendant) were bound to pay. The plaintiff claimed the amount paid from the defendant. It was held that the plaintiff was entitled to recover the money paid.

Another person bound by the law to pay
For this section to be applicable, the plaintiff should have some interest in the payment and the defendant be bound by the law to pay the same. If the plaintiff is not interested but is bound by the law to pay, such a person cannot have an action against the defendant. In the case of Port Trust, Madras v. Bombay Company, an employee of the Port Trust was injured when on duty. The employers (plaintiff) paid him the compensation amount, under the Workmen Compensation Act, 1923. After the payment was made to the workman, the plaintiff brought a suit against the defendant, due to whose negligence the accident happened. The claim was dismissed under Section 69 for the following reasons:
i. The plaintiff was not merely interested in the payment but was rather bound by the law to make the payment (an inescapable liability) under the Workmen Compensation Act, 1923.
ii. The liability of the defendant under the law of torts was not yet determined when the plaintiff made the payment.

SECTION 70 – Obligation to pay for non-gratuitous acts.

When any person does anything lawfully for another person or delivers something to him not intending to do it gratuitously and the other person enjoys the benefit of it, the latter is bound to restore, the things done or delivered to the former.
For example, if X saves Y’s property from fire. If the circumstances show that if X intended to do the act gratuitously, then he is not entitled to compensation.
Following are the conditions that need to be satisfied with the application of this section:

1. The act must have been done lawfully.
2. The act done by the person should not have been done gratuitously by the person.
3. The other person for whom the act was done should have enjoyed the benefit of the act.

Doing an act of delivering something to another person
When any person does an act non-gratuitously for another, he is entitled to claim compensation. In the case of Indu Mehta v. the State of U.P., Miss Indu Mehta was a practicing advocate at the District Court of Kanpur. She was appointed as an Asst. District Government Council, whereof she provided her services. After some time it was found out that her appointment violated Section 24(2) of the Criminal Procedure Code, 1973. Her appointment was held to be void but since the State had enjoyed the benefit of her services, the government could not recover back the fees already paid for the services.

The act done must be positive
If the plaintiff has done nothing positive but abstains from doing something, it is not sufficient for him to claim anything under Section 70. In the case Kirorilal v. the State of M.P., an incompetent mining engineer executed a lease in favor of the plaintiff, which was invalid because of non-compliance with a section of the constitution. A huge quantity of sand was required for a joint project between the states of Rajasthan and M.P. The plaintiff was refused to remove the sand and brought a suit against both the states to recover compensation as he was deprived of the sand. The plaintiff’s claim was unsuccessful as he had not done anything positive to confer any benefit.

Unjust benefit of the defendant at the cost of another.
It is a necessary condition for the application of Section 70. In the case C.I. Abraham v. K.A. Cheriyan, X collected rent on behalf of Y, who resided abroad and deposited in Y’s account but often delayed in making the deposits. Thereafter X demanded remuneration for the services provided. It was held that the services so provided was could not be proved that they were provided non-gratuitously.

Application of Section 70 against the Government
If the services provided and result in unjust enrichment of the government or some organization, the government can still be made liable to compensate. In the case State of West Bengal v. B.K. Mondal and Sons, the plaintiff constructed certain structures at the request of government officers i.e. State of West Bengal. The plaintiff demanded payment for the same which was refused by the government on the ground that the contract was invalid. It was held that since the government did receive a benefit at the expense of the plaintiff, therefore they were liable to pay for the same.

SECTION 71 – Responsibility of the finder of goods

If a person finds goods belonging to another and takes them in his custody, in such a situation the person is subject to the same responsibility as a bailee. The person is bound to take care of the goods any prudent man would take. If the person does not do so, he/she would be liable for the conversion of the goods.
For example, if X finds a gold ring on the floor of Y’s shop. X hands it over to Y until the true owner is found. No one claims it even after newspaper advertisements. X claims the ring back from Y, who refuses to return. It was held that Y was entitled to retain the ring against everyone but the true owner.

SECTION 72 – Unjust benefit under mistake or coercion

Unjust benefit under a mistake
If a person receives anything by mistake or under coercion, it must be returned to the person who paid by mistake or under coercion. In the case Sales Tax Officer, Banaras v. Kanhaiya Lal, X paid sales tax on the transaction of bullion. The court declared this tax as ultra vires and therefore X could retrieve back this amount. There is no distinction drawn between mistake of law and mistake of fact under Section 72.
In another case Municipal Corporation of Greater Bombay v. Bombay Tyres International Limited, the municipal corporation collected water taxes which were declared to be invalid under the regulations. It was held that that payment made could be recovered back.

Unjust benefit under coercion
Anything paid or delivered either under coercion or mistake can be recovered back. The term “coercion” is used in a general sense and not according to the definition. It simply means any kind of compulsion.
In the case of T.G.M. Asadi v. Coffee Board, the plaintiff’s firm purchased coffee from the coffee board and made all the necessary payments and taxes. The coffee board demanded payment of extra payment of taxes or said that they will not return the deposit money. The plaintiff complied and filed a suit. It was held that that the plaintiff was made to make the payment under coercion and was therefore entitled to recover back the amount.

SIMILARITIES BETWEEN CONTRACTS AND QUASI CONTRACTS

The most basic similarity between a contract and quasi-contract is that the final outcome is the same as that of a contract. As far as damages are concerned, it is very similar to that of a contract because Section 73 of the Indian Contract Act, 1872 extends remedies for the breach of the quasi-contract as it provided for the breach of an express contract in different sections of the Indian Contract Act, 1872

CONCLUSION

There is a significant difference between a contract and a quasi-contract. Quasi-contracts are not contracts but are obligations imposed by law to prevent or stop any undue advantage of a person at the cost of another. Hence it can be said that the very foundation of quasi-contracts is based on justice, a good conscience, and equity. Nobody shall benefit unjustly at someone else’s cost. This is also known as the Principle of Unjust Enrichment.