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Quasi contracts

The Indian Contract Act, 1872 does not define a quasi-contract, it calls them relation resembling those of contracts.Quasi contract also called constructive contracts, refer to agreements that are implied in law. It means a contract which lacks one or more of the essentials of a contract. These are not contracts but these fictional agreements arise to ensure equity as it would be unfair if a party gets an undue advantage at the cost of others.

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. Quasi contract are declared by law as valid contracts on the basis of principles of equity i.e. no person shall be allowed to enrich himself at the expense of another the legal obligations of parties remains same.

Nature of Quasi contracts

  1. A quasi contract does not arise from any formal agreement but is imposed by law.
  2. Every quasi contract based upon the principle of equity and good conscience.
  3. A quasi contract is always a right to money and generally though not always to a liquidated sum of money.
  4. A suit for its breach may be filed in the same way as in case of a complete contract.
  5. The right grouted to a party under a quasi contract is not available to him against the whole world but against particular person(s) only.
  6. A suit for breach of a quasi contract may be filed in the same way as in case of an ordinary contract
  7. Although there is no contract between the parties under a quasi contracts, yet they are put in the same position as if he were a contract between them .

A contract implied at law, also called a quasi-contract, is an obligation imposed by a court to do justice between the parties even though they never exchanged, or intended to exchange, promises. In this instance, a court implies a contract to prevent one party’s unjust enrichment at the other’s expense.

What is Quasi Contract?

A quasi contract is an agreement between two parties without previous obligations to one another that has been created and legally recognized by the court system.

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. 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 kinds 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.

The liability exists in quasi contracts on the basis of the doctrine of unjust enrichment. There are cases where the law implies a promise and imposes obligations on one party while conferring rights to the other even when the basic elements of a contract are not present. These promises are not legal contracts, but the Court recognizes them as relations resembling a contract and enforces them like a contract.

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

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

Difference between Quasi Contract and Contract

Quasi – contract Contract
It is not intentionally formed but law imposes upon the parties. It is intentionally formed by parties.
A quasi – contract does not possess all the essential of a valid contract. A contract possesses all the essentials of a valid contract.
Obligations are implied upon by the law. Obligations are mutually created by the parties.
It is founded upon the principle of equity. It is founded upon general principal of law of contracts.

Types of Quasi contracts

  1. Supply of necessities (Sec.68)
  2. Payment by an interested person (Sec.69)
  3. Obligation to pay for non gratuitous act (Sec.70)
  4. Responsibility of finder of goods (Sec.71)
  5. Mistake or Coercion (Sec.72)

Claim for necessaries supplied to person incapable of contracting, or on his account (Section 68)

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.

Illustrations A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.

It has already been noted in the earlier article i.e. “capacity to contract” that an agreement by a minor, or any person incompetent to contract is void ab initio. No action under a contract can be brought against a person for the claim for necessaries supplied to such incompetent person or his dependants. The claim cannot be enforced against such incompetent person, but reimbursement can be claimed only from the property of such a person.

A claim cannot be made where the payment is voluntary, unless the party for whom the payment is made is bound to pay it, or if it is made by a stranger who has no interest whatsoever.Similarly, a claim will not lie where a payment

  1. is made by people in wrongful possession of property.
  2. is made fraudulently to make evidence of title.
  3. is by a collusive and nominee transferee.
  4. is by a person claiming under a sham transaction.
  5. is made by a person claiming to be a mortgagee against the wishes of a mortgagor who contended that the mortgage was a forgery.
  6. is made by an heir when there is no need.
  7. is made by a consignee paying freight when it is the obligation of the consignor to pay.
  8. is in the form of rent paid by a person not party to a lease.
  9. is by a person who had earlier gifted a temple, and was thus under no obligation to pay the salary of the pujari.
  10. is of rent paid after the sale of a property.
  11. is of the decretal amount though the decree was not against him.

Reimbursement of person paying money due by another, in payment of which he is interested (Section 69)

  • One party is legally bound to make a payment
  • Some other persons make such payment
  • The person making such payment is not legally bound to make such payment
  • The person making such payment is interested in paying such amount

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.

Illustration 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 to the Government the sum due from A. A is bound to make good to B.

The essential requirements of section 69 are as follows:

  1. The payment made should be bonafide for the protection of one’s interest.
  2. The payment should be a voluntary one.
  3. The payment must be such as the other party was bound by law to pay.

Essentials of Section 69

One should have interest in making payment

The person, who makes the payment and then claims its reimbursement, must have an interest in making the payment. The purpose of making the payment should be bona fide protection of his interest by the plaintiff. This provision in India is wider than that in English law. In England, the person making the payment must have been compelled by law to pay the debt or discharge the liability of the other person. In India, it is enough that there is an interest of the plaintiff in making the payment.

Another person should be bound by law to pay

It has been noted above that for this section to be applicable, the plaintiff should have an interest in the payment, and the defendant should be bounds by the law to pay the same. The provision is based on the principle that the plaintiff, having discharged the defendant’s debt, is entitled to be reimbursed by him. If the plaintiff is not merely interested but he himself is bound to pay an also pays, he cannot have an action against the defendant.

S.70 Obligation of person enjoying benefit of non- gratuitous act

When a person lawfully does anything for another person or delivers anything to him non-gratuitously, the latter is bound to make compensation or restore the thing so done or delivered. But the thing must be done lawfully and the person for whom the act is done must enjoy the benefit of it. 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.

Examples of instances of lawful acts giving rise to a claim are

  1. acts done pursuant to contracts with the government not made as prescribed by law, or where no contract is made between the contractor and government
  2. acts done under contracts with local authorities which are not in compliance with the prescribed formalities.
  3. acts done under contracts which could not be proved
  4. acts done under a contract not duly stamped or registered and hence is not admissible in evidence, if oral evidence of the antecedent transaction is admissible.
  5. where the claim relates to some act not covered by the contract
  6. where supplies are made after the expiry of a contract
  7. where work is done by a person working without a contract of employment
  8. or where the appointment did not receive approval of authorities
  9. where an agent borrowed without the authority of the principal, and the principal enjoyed the use of the money
  10. where goods were supplied to the government upon order by an officer without authority, and were used
  11. extra work beyond the terms of the contract

The following conditions must be satisfied for the recovery of the compensation for non gratuitous acts

  1. The person must lawfully do something for another person or deliver something to him.
  2. The person doing some act or delivering something must not intend to act gratuitously.
  3. The other person must voluntarily accept the acts or goods and he must have enjoyed the benefits.
Doing of something or delivering anything to another person

When a person does something for another person or delivers anything to him not intending to do so gratuitously, he is entitled to claim compensation for the same from such other person. The point may be explained by referring to the decision of the Allahabad High Court in Indu Mehta V. State of U.P. In this case, Miss Indu Mehta, an Advocate practicing at the district court, Kanpur, was appointed as Asst. District Government Council (Criminal), in pursuance whereof she rendered her service. The Appointment was, however found to be void. It was held that even though the said appointment was void, the state had enjoyed the benefits of the service rendered by Miss Indu Mehta, the Govt was not entitled to recover back the fees already paid to her for the services.

No intention to do the act gratuitously

When the person doing the act does not intent to do it gratuitously but expects payment for the same on doing such act, he can ask for compensation under section 70. If a tenant of a property makes improvements and additions in the property and the landlord accepts the same, the presumption is that the tenant did not intend to do so gratuitously and he can recover compensation for the same from the landlord. Similarly, when a person gives some advance in respect of an agreement which is subsequently discovered to be void, he can recover back the amount not only under section 65, which specifically deals with such a situation, but he can also claim back the advance under section 70, because the advance payment was not intended to be gratuitously

Enjoyment of benefits by the defendant is necessary

For an action under section 70, one of the essentials which has got to be proved is that the defendant enjoyed the benefits of the work done or the thing delivered to him by the plaintiff. The voluntary acceptance of the benefit of the work done or the thing delivered is the foundation of the claim under section 70. If a person accepts the benefit of the work done, it can raise a presumption that the work was not intended to be done gratuitously.

Unjust benefit to the defendant necessary

Section 70 is founded on the principle that one should not gain unjust enrichment at the cost of the other. If there is no unjust gain obtained in any transaction, section 70 has no application.

In C.I. Abraham v. K.A. Cheriyan, A purchased some property for B, who was residing abroad, and collected the rents on behalf of B to be deposited in B’s account but made a delay in the deposit of the rent amount in B’s account. Thereafter, A claimed remuneration from B for this service in the form of purchasing property for B and collecting the rents on his behalf. It was held that there was nothing to prove that A rendered the service not intended to do gratuitously. Moreover, the fact that in this case B had gained no advantage at the cost of A, rather A had gained advantage by utilising the amount of the rent collected until the same had deposited in B’s account, A was not entitled to claim any amount under section 70.

Application of Section 70 against the government

Section 70 prevents unjust enrichment and it applies as much to individuals are to corporations and government. If the services rendered or goods supplied to the government are under a purported contract, which does not materialize because of non fulfilment of the formalities prescribed in Article 299 of the constitution, the government can still be made liable to compensate for the same under section 70 of the contract Act, if it has enjoyed the benefits of what has been done under the purported contact.

In State of west Bengal v B.K. Mondal and sons, the respondents constructed certain structure including a kutcha road, guardroom, office, kitchen and storage sheds at the request of some officers of the appellant, i.e., the state of west Bengal for the use of the civil supplies department of the government. The respondent claimed a sum of Rs.19325 for these works. The appellant, trying to escape the liability, alleged that the request in pursuance of which construction were made were invalid and unauthorized and did not constitute valid contract binding the appellant, under section 175(3) of the government of India Act, 1935. It was held that the appellant having accepted the benefit of the structure constructed for it, was liable under section 70 to pay for the same.

Section 70 cannot be invoked against a minor

It has already been noted that a minor’s agreement is void because he is incompetent to contract. It has also been observed that a minor’s agreement being void ab initio, he cannot be made liable under sections 64 and 5 of the contract Act. But if necessaries are supplied to a minor, his estate can be made liable under section 68. It has been held that no action can be brought against a minor to recover compensation from him under section 70.

Write a short note on “Finder of lost goods or “Responsibility of finder of goods”

Finder of goods (Section 71)

The finder of the lost goods is a person who finds the goods of another person presumably not knowing the true owner at that time. A person who finds the lost goods does not acquire absolute ownership of the goods. Similarly, the goods when is in someone’s possession, he cannot be considered as finder of the goods. The individual who acquires possession of lost goods is the best owner and has superior rights on the goods over anyone except the true owner. In this circumstance, the finder is only the apparent owner. A “finder of goods” is “a person who finds goods belonging to another and takes the goods into his custody”. Although as between the finder and the owner of the goods, there is no contract, yet there are certain responsibilities fixed by S.71.A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee.

Responsibility of Finder of Goods

A finder of the goods is subject to the same responsibilities and liabilities as those of the bailee’s of goods. He has goods found as the bailee has in respect of the goods bailed to him. The person who finds goods belonging to another is entitled to retain the goods against the owner until he gets compensation from him. He has the right of lien against the goods for the expenses which he incurred in preserving the goods in the safe custody, but this does not give him the right to sue the finder for the trouble and expenses incurred by him. He can sue the owner for the reward where a specific reward has been offered. The finder of the goods is entitled to its possession as against everyone except the real owner. If a finder dishonestly appropriates to his own use when he knows the owner or has the means of discovering the true owner, he is guilty of criminal misappropriation of property. But when he takes the property for the purpose of protecting it, or restoring it to the owner, he is not guilty of any offence. The finder is under an obligation, to take care of the goods as a man of ordinary prudence would take, under similar circumstances, of his own goods. Secondly, he is bound to return the goods to the true owner. These are the quasi contractual obligations of a finder of goods.

Duties of Finder of goods

The duties and obligation of a finder of the goods is treated at par with the bailee. So, the finder’s position has been considered along with bailment. Since he is considered as the bailee, the duties of the bailee, under the contract of bailment, are the duties of the finder of goods as follows:

Duty to take reasonable care of goods (section 151 & 152)

According to Section 151, the finder of goods should take such care of the goods as a man of ordinary prudence would take of his own goods. If he fails to act like an ordinary prudent man, he cannot be excused by pleading that he had taken similar care of his own goods also, and his goods have also been lost and damaged along with those of the ordinary prudent man. The foremost duty of a bailee is to take as much care of the goods bailed as a reasonable and prudent man will take of his own goods.

Duty not to make unauthorized use of goods (section 153 & 154)

According to section 154, liability of finder of goods making unauthorized use of goods bailed: – If the finder of goods makes any use of the goods found, which is not according to the conditions of the bailment, he is liable to make compensation to the owner of goods for any damage arising to the goods from or during such use of them. It lays down a bailee’s liability who makes unauthorized use of the goods bailed.

Duty not to mix goods (section 155 – 157)

According to Section 155, effect of mixture with owner’s consent, of this goods with finder of good’s: – if the finder of goods, with consent of the owner, mixes the goods of the owner with his own goods, the owner and the finder of goods must shall have an interest in proportion to their respective shares, in the mixture thus produced.

According to section 156, effect of mixture without owner’s consent when the goods can be separated: – when the goods mixed can be separated, the finder and the owner will remain the possessor of their respective shares. But the finder of goods is bound to bear the expense of separation, and any damage arising from the mixture. According to section 157, effect of mixture, without owner’s consent when the goods cannot be separated: – In case, the nature of the goods is such that the owner’s cannot be separated from those of the finder’s good, it is deemed to be loss of goods and the owner cannot recover compensation for the same from the finder of goods. It is the duty of the bailee that he should not mix up bailor’s good with his own goods.

Duty to return goods (section 160 & 161)

According to section 160, return of goods found on expiration of time period: – it is the duty of the finder of the goods to return or deliver the goods found to the true owner as per his directions before the expiration of the time period specified by him.

According to section 161, finder of goods responsibility when the goods are not duly returned: – if by the default of the finder of goods, the goods are not returned or delivered at the proper time, he is responsible to the loss or destruction of goods from that time.

Duty to return increase (Section 163)

Section 163 of the Act enacts that, “In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor or according to his directions, any increase or Profit which may have accrued from the Goods bailed.” According to S.163, accretions in respect of the goods bailed are part of the balied goods and hence such accretions do not belong to the baliee and, therefore, they have to been handed over to the bailor when the goods bailed are returned.

Example: A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to return the calf as well as the cow to A.

Duty not to set up Jus Tertii

It is the duty of the bailee that he should not set up an adverse title to the goods when demanded by the bailor. Finder of goods is not responsible on re-delivery to owner without title.

Right of the Finder of the Lost Goods

The following are his right as envisaged by the sections 168 and 169 of the Indian Contract Act.

  1. He has right to retain possession of the goods so long as not claimed by the true owner, since finder of lost goods is the best owner as against rest of the world except the true owner.
  2. He is entitled to be compensated for the trouble and expenses voluntarily incurred by him in preserving the goods and finding out the owner, but for such expenses he has no right to sue the owner for compensation (Sec. 168). He has a particular lien upon those goods for payment of these expenses, i. e.; he can refuse to return the goods until he is paid for the expenses and trouble.
  3. He can sue for any rewards if offered by the owner for the return of the lost goods. The finder of goods may retain the goods against the owner where the owner has offered a specific reward for the return of goods lost, but it must within his contemplation of offering the reward by the owner. The finder may sue for such reward, and may retain the goods until he receives it.
  4. If the goods found are commonly a subject-matter of sale, and if the owner cannot with reasonable diligence be found, or if he refuses, on demand, pay the lawful charges of the finder, he may sell them when;
    1. they are in danger of perishing or of losing the greater part of their value, or
    2. when the lawful charges of the finder amount to two-thirds of their value (Sec. 169).

Liability of a person getting benefit under mistake or coercion(Section 72)

Unjust benefit under mistake: Section 72 covers a situation where money has been paid, or anything delivered, by one person to another either by mistake or under coercion.

Illustration A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.

Money paid or anything delivered under mistake

New India Industries Ltd v. Union of India, According to Article 265 of the Constitution, no tax shall be levied or collected except by the authority of law. Law here means only valid law. Payment towards tax or duty, which is without the authority of law, is a payment under mistake within the meaning of section 72 and the same ought to be refunded by the government, because the government cannot be allowed to unjustly enrich itself by retaining the tax so received.

Section 72 does not only apply to a mistake of fact, it equally applies to mistake of law.

Sales Tax officer, Banaras V. Kanhaiya lal, The respondent had paid sales-tax on the respondent’s forward transactions in silver bullion under the U.P. Sales Tax Act. The levy of sales tax on such transactions was held to be ultra virus by the HC of Allahabad. Respondent claimed the refund of the tax already paid. SC.72 did not make any distinction between mistake of law and mistake of fact and the refund of payment made under mistake of law in this case was allowed.

No refund if the plaintiff did not pay from his own pocket

Roplas (India) Ltd. v. Union of India, The petitioners paid excise duty by mistake, but the petitioners had already recovered the whole of the duty paid by them from their customers. It was held that the petitioners were not entitled to refund of the amount paid by mistake, as the money had not gone out of their pocket. Refund in such a case would amount to unjust enrichment of the petitioners.

The plaintiff at fault

In order to invoke S.72, the plaintiff cannot be permitted to make a profit out of his own wrong.

Radha Flour Mills Pvt. Ltd. v. Bihar State Financial Corporation ,In recovery of loan and interest from the appellant, there was an accounting error on part of the corporation, and as a result Rs. 29000 could not be recovered from the appellant- debtor. On discovery the accounting error after a decade and a half, the corporation claimed the amount along with interest. Patna HC held the demand of interest as improper as it would premium on default being committed by the corporation and hence amounted to unjust enrichment.

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