BUSINESS LAW ASSIGNMENT Topic: - Quasi Contract

Submitted By: Syama Sundhar.K(93)

Table of Contents

Quasi-Contracts
Quasi contract definition says that it is an arrangement created and enforced by a court to prevent one party from being unjustly enriched by another, in the absence of a valid contract between the parties. In short, when there is an absence of a contract, the court implies that there is a contract, according to which the parties are binding. The meaning of quasi contract can be explained with the following example. A is knocked down by a vehicle. B, a stranger, who found A on the road in an unconscious state, takes A to a doctor. C, the doctor, provides treatment to A, who is in an unconscious state. In such a situation, there is no contract between A and C and A can claim that he is not liable to pay for the services offered by the doctor, as he was unconscious at the time of treatment and there is no agreement between the two. It is in such situations, the theory of a quasi contract applies. In this case, the doctor (C) has spent his valuable time to treat the accident victim (A) and so, the doctor is liable to be paid by A for the services rendered by the former. If A fails to do so, the court can apply the doctrine of quasi contract and order A to pay C. This is to prevent the unjust enrichment of A at the expense of C. There are certain situations wherein certain persons are required to perform an obligation despite the fact that he hasnt broken any contract nor committed any tort. For instance, a person is obligated to restore the goods left at his home, by mistake, and keep it in good condition. Such obligations are called quasi-contracts. Rationale The rationale behind quasi-contract is based on the theory of Unjust Enrichment. Lord Mansfield is considered to be the founder of this theory. Principle that law as well as justice should try to prevent unjust enrichment, i.e., enrichment at the cost of others. [3] A liability of this kind is hard to classify. Since it partly resembles liabilities under the law of tort and partly it resembles contract since it owed to only a party and not a person or individual generally. Therefore, it comes within the ambit of an implied contract or even natural justice and equity for the prevention of unjust enrichment. The theory of implied-in-fact was adopted. Facts: a building society undertook banking business which was outside its object, and therefore, ultra vires . the society came to wound up. After paying up all outside creditors, a mixed sum of money was left which represented partly the shareholders money and partly that of the ultra vires depositors, but the money wasnt sufficient to pay all of them. The depositors tried to get priority by resorting to the quasi-contractual action for recovery of money had and received for the depositors benefit, else the shareholders would have been unjustly enriched. The House of Lords allowed pari passu distribution of the mixed funds among the claimants, but did not allow any remedy under quasi-contract. It was maintained that the common law knows personal actions of only two classes, viz., [4]

a) those founded on contract; b) those founded on tort. when it speaks of action arising quasi ex contractu it refers only to a class of action in theory which is imputed to the defendant by a friction of law. This approach dominated the scene for quite some time and quasi contracts were taken to be fictional contracts. Since this approach was restricting the scope of relief and was leading to unjust enrichment, the theory of unjust enrichment was again restored [5]. While referring the ratio decidendi of the decision in Sinclair v. Borogham, he stated that it was against public policy to allow the recovery of an ultra vires deposit, whether the claim is based on contract or quasi-contract. The observations in this particular case were merely the obiter dicta of the Sinclair Case.

Provisions under Indian contract law:Section 68 to 72 of the Indian Contract Act 1872 provides for five kinds of quasi-contractual obligations they are as follows:1. supply of necessaries [sec. 68] 2. payment by interested person [sec. 69] 3. Liability to pay for non-gratuitous acts [sec. 70] 4. finder of goods [sec. 71] 5. Mistake or coercion [sec. 72]

1.SUPPLY OF NECESSARIES [SECTION 68]

Where necessaries are supplied to a person who is incompetent to contract or to someone who is legally bound to support, the supplier is entitled to recover the price from the property of the incompetent person. Section 68 reads as under: CLAIM FOR THE NECESSARIES SUPPLIED TO PERSON INCAPABLE OF CONTRACTING, OR ON HIS ACCOUNT: - If a person, incapable of entering into a contract or anyone whom he is legally bound to support, is supplied by the 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. Ingredients of the section:According to the language drawn upon by section 68 we got to know the following essentials to apply this section. 1) Necessaries are being supplied, 2) Necessaries so supplied must be suited to the condition of life of that person to whom they are supplied, 3) Necessaries are supplied to a person who is incapable of entering into a contract or anyone whom he is legally bound to support, 4) The reimbursement is to be claimed from the property of that incapable person.
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Examples:a) A, Supplies to B, a lunatic, with the necessaries suitable to his condition in life. A is entitled to be reimbursed from Bs property. b) A, supplies the wife and children of B, a lunatic, with the necessaries suitable to their conditions in life. A is entitled to be reimbursed from Bs property.

2.PAYMENT BY INTERESTED PERSON [SECTION 69]

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. Reimbursement by a 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. This section subject to certain conditions: y y y y The plaintiff must be interested in making the payment. The interest which the plaintiff seeks to protect must be legally recognizable; It is necessary that the plaintiff himself should not be bound to pay. He should be interested in making the payment in order to protect his own interest; The defendant should have been bound by law to pay the money; The plaintiff should have made the payment to another person and not to himself.

Illustration:B holds a land in Bengal, on a lease granted by A, the Zamindar. The Revenue payable by A to the Government being in arrears, his land is advertised for the sale by the government. Under the Revenue Law, the consequences of such sale will be the annulment of Bs Lease. B, to prevent the sale and annulment of his own lease, pays to the government the sum due from A. A is bound to make good to B the amount so paid. CONDITIONS FOR LIABILITY:The conditions for liability under this section may now be stated: a) PAYER MUST BE INTERESTED IN MAKING PAYMENT:The first condition for establishing the liability is that the Plantiff should be interested in making payment. The interest which the plantiff seeks to protect must be of course legally recognizable. Allahabad High Court in Munni Bibi v. Triloki Nath,[10] and accordingly Madhya Pradesh High Court in Transworld Shipping Services v. Owners etc.[11] has held that the plantiffs honest belief that he has an interest to protect is enough for provide him reimbursement under this section. b) BUT SHOULD NOT BE BOUND TO PAY:The second essential condition is that it is necessary that the plantiff himself should not be bound to pay. He should only be interested in making the payment only for the purpose of protecting his

own interest. Where a person is jointly liable with others to pay, a payment by him of the others share would not give him a right of recovery under this section.[12] c) DEFENDANT SHOULD BE UNDER A LEGAL COMPULSION TO PAY:Thirdly the defendant should have been Bound by Law to pay the money. The words bound by law have been held after some hesitation, to mean bound by law or by contract. It is not necessary that the liability should only be statutory. In a judgment of Privy Council it was held that it is enough that the defendant at the suit of any person might be compelled to pay[13] Thus it has to be kept in mind as held by Madras High Court in Raghavan v. Alameru Ammal,[14]that where a person is morally bound and not legally compellable to pay, he will not be bound to pay the party discharging his moral obligation. d) PAYMENT SHOULD BE MADE BY ONE PARTY TO SOME OTHER PERSON Lastly the Plantiff should have made payment to some other person and not to himself. As for example inSecretary of State for India v. Fernandes,[15] a certain government was a tenent of a land and paid to itself out of the rent due to the Landlord the arrears of the Land Revenue due to itself, the government could not recover from the Landlord. This did not come within the principle of this section as this is not a payment to another.

3. LIABILITY TO PAY FOR NON GRATUITOUS ACTS: [SECTION 70]

S.70 creates liability to pay for the benefit of an act which the doer did not intend to do gratuitously. Where a person does something for another person not intending to do so gratuitously and such person is entitled to enjoy benefits from it. And then such a person who has used the thing has to compensate the other or restore or deliver the thing. For example, A, a tradesman, leaves goods at Bs house by mistake. B, treats the goods as his own. He is bound to pay A for them. Conditions of liability under this section are as follows: Obligation of a person enjoying benefit of a 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 this respect of, to restore, the thing so done or delivered. Illustrations:a) A, a tradesman leaves his good at Bs place/home by mistake. B treats the goods as his own. He is bound to pay A for them. b) A saves Bs property from fire. A is not entitled to compensation from B, if the circumstances shows that he intended to act gratuitously.

Conditions of Liability under the section:According to GAJENDRAGADEKAR J (afterwards CJ) stated in State of West Bengal v. B.K. Mondal and sons[16] The condition on which the liability under this section arises would be:a) A person should lawfully do something for another person or deliver something to him; b) In doing the said thing or delivering the said thing he must not intend to act gratuitously; and c) The other person for something is done or to whom something is delivered must enjoy the benefit thereof. d) One of the purposes of the section is to assure payment to a person who has done something for another voluntarily and yet with the thought of being paid. e) The person for whom the act is being done is not bound to pay unless he had the choice to reject the services f) It is necessary that the services should have been rendered without any request g) Services should have been rendered lawfully h) The person rendering services should not have intended to act gratuitously

a) NOT INTENDING TO DO SO GRATUITOUSLY Thus one of the purposes of this section is to assure payment to a person who has done something for another voluntarily and yet with the thought of being paid. He should have contemplated being paid from the very beginning. in Municipal council, Rajgarh v. MPSRTC[17] it was held that the Municipal Council which constructed and maintained a bus stand was allowed to recover some charges from bus operators who used the stand though there was no agreement to that effect. b) SECTION WOULD NOT ENCOURAGE OFFICIOUS INTERFERENCE IN AFFAIRS OF OTHERS:Secondly the person to whom the act is done is not bound to pay unless he had the choice to reject the services. If a person delivers something to another, it would be open to the latter to refuse to accept the thing and return it/: in that case section 70 would not come into operation. In other words, the person said to be liable under section 70 always has the option not to accept the thing. It is only where he voluntarily accepts the thing or enjoys the work done that the liability under section 70 arises. In the application to this principle, the courts have had to strike a balance between two factors. Firstly, the rule cannot be used by anybody to make officious interference in the affairs of another.[18] Secondly the court will not compel a person to pay for the services which have been thrust upon him against his will. c) REQUEST FOR SERVICES CREATES IMPLIED PROMISE TO PAY:Yet the third necessity is that services should have been rendered without any request. Reasonable compensation may, however, be recovered for the services rendered at request. This has been so held by the Supreme Court in State of West Bengal v. B.K. Mondal & Sons:[19] Facts of the Case
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In this case the plantiff, on the request of an officer of the State of West Bengal, constructed a kutcha road, guard room. Office and etc. for the use of the Civil Supplies Department of the government. The State accepted the work but tried to escape the liability under the pretence that no contract has been concluded in accordance in accordance with the requirements of section 175(3) of the Government of India Act 1935 (now Article 299 of the Constitution of India). the Contractor finally was forced to use his luck with the state under Section 70 of this Contract Act, 1872 and finally supreme court held that the State is liable to reimburse the contractor. The principle of this case has been reaffirmed by the Supreme Court in Pillo Dhunjishaw Sidhwa v. Municipal Corporation of the City of Ponna[20] d) LAWFUULY DOES:Fourthly, services should have been rendered lawfully. It has been a point of emphasis that between the person claiming compensation and the person, against whom it is claimed, some lawful relationship must exist and it should arise by reason of the fact that has been done for the former which has been accepted and enjoyed by the latter. e) NON-GRATUITOUS ACTS:In the fifth place, the person rendering services should not have intended to act gratuitously. The decision of the Madras High court in Damodara Mudalair v. Secretary of State for India[21] is the leading authority. in this case a number of villages were drawing irrigation waters from the tank. Some of the villages were under the direct state tenancy, other Zamindar. The government carried out repairs to the tank for its preservation. The Zamindar has also enjoyed the benefit of the repairs. so it was accordingly held that Zamindar is liable to make proportional contribution towards the expense of the repairs. f) ENJOYS THE BENEFIT:Lastly the defendant must have enjoyed or derived a direct benefit from the payment or services. As for where no services have been rendered at all, for example where the government cancelled a lease granted to the plantiff by an officer who was not so authorized, no relief can be allowed under the section. 4. FINDER OF GOODS:- [SECTION 71] Responsibility of finder of goods: A person, who finds goods belonging to some another and takes them into his custody, is subject to the same responsibility as a bailee. Thus in respect of duties and liabilities, a finder is treated at par with bailee. The finders position is therefore considered along with bailment.

5. MISTAKE OR COERCION: [SECTION 72] Section 72 states that payments or delivery made under mistake or coercion must be made good or be returned. In Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi[5]it was made clear that money paid under mistake is recoverable whether the mistake is of fact or of law. If a mistake either of law or of fact is established, the assessee is entiled to recover the money and
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the party receiving it is bound to return it irrespective of any other consideration. The scope of the word mistake has been clarified by the Supreme Court in Tilokchand Motichand v.Commissioner of Sales Tax[6]. Recovery proceedings generally are instituted by way of writ petition. There is no period of limitation in writs. The only requirement is that there should not be unreasonable delay amounting to laches. In Chrisine Hoaden India Ltd. v. N.D. Godag[7], it was held that the period of limitation would not begin to run until the applicant has discovered the mistake or could have discovered it with reasonable diligence. The claim was laid within one month of the mistake of law becoming known. It was held that the claim could not b e defeated on the ground of limitation. The term coercion is used in this section in its general sense and not as defined in Sec.15. . Liability of a person to whom money is paid, or things 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. Illustration:y A and B jointly owe 100 rupees to C. A alone pays the amount to C and B, not knowing the fact pays another 100 rupees to C. C is bound to repay the amount to B. y A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge of 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.

Mistake of Fact or Mistake of Law:Money paid under mistake is recoverable irrespective of the fact that whether the mistake is of fact or of law. The controversy between the High Court Decisions as to whether money paid under mistake of law could be recovered was set at rest by the Privy Council in Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nanadi,[22] The Payment by Mistake in section 72 must refer to a payment which was not legally due and which could not have been enforced: the Mistake is on thinking that the money paid was due when in fact, it was not due. There is nothing in section 72 to relate with that whether the mistake is of law or of a fact. Refund Of Tax Money Paid Without Being Due:The Supreme Court in its decision in Sales tax Officer, Banaras v Kanhaiya Lal Mukund Lal Saraf[23] has accepted this interpretation of section 72. A certain amount of the Sales Tax was paid by a firm under the U.P. Sales Tax Law on its forward transactions and subsequently to the payment; the Allahabad High Court ruled the levy of the sales tax on such transaction to be ultra virus. The firm sought to recover back the tax money.
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And as far as English, American and Australian Laws and their contentions are concerned they do not allow the payments made under mistake of law to be recovered. Coercion:The word coercion used in this section is used in the general sense and not as defined in section 15. Thus the money paid under pressure of circumstances, such as prevention of the execution of a decree on a property in which the party paying is interested, may be recovered even though coercion as defined in sections 15 is not established.

Nature of quasi-contractual obligations

The English Law identified quasi-contractual obligations first, the framers of the Indian Contract Act modified it and placed it in the Act as- certain relations resembling those created by contracts. Therefore the elements that are present in the English Quasi-contract are also found in that of the Indian Contract Act. 1] Payments to the defendants use Two principles govern this liability they are: payment should have been made under pressure and not voluntarily; The defendant should have been bound to pay and has been relieved of his liability by the payment made by the plaintiff. The kind of pressure that the law recognizes for the purposes of this remedy is clearly understood [7], where, the plaintiff had left his carriage upon the premises which the defendant was leaving as a tenant. The landlord lawfully seized all the goods on the premises including the carriage for non-payment of rent and would have sold them in execution of his claim. The plaintiff paid the outstanding rent to get back his carriage and then sued the defendant for the amount. He was held entitled to it. 2] Voluntary payments Ve been liable to pay Payments made under the mistake of fact can be recovered provided that the party paying would have been liable to pay if the mistake of fact were true. Where the money was paid under a life insurance policy which to the knowledge of the company had lapsed. But, the fact of lapse having been forgotten at the moment, the company was held entitled to recover back the money. One of the essential conditions of this action is that the mistake must be of fact and must make the person liable to pay the money. [8] 3] Quantum Meriut There are situations wherein a party does the performance of a contract and further performance is made useless by the other party. In such cases the former can recover reasonable compensation from latter. An authority over the principle of quantum meruit[9], FACT: the plaintiff was the author of several dramatic entertainments. He was engaged by the defendants, who were the publishers of a work called The Juvenile Library that used to
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illustrate the history of armour and costumes from the earlier times. For this he was to be paid 100 guineas. The plaintiff made several drawings and completed a considerable part of the manuscript when the defendants discontinued his services. The plaintiff claimed an amount of 50 guineas for his work. Due to the principle of quantum meruit the plaintiff was held to be entitled to the claim.

Conclusion
The principle of quasi-contract is often ignored but still it holds a very important place, since the principle is grounded on the principles of justice and equity. Despite the fact that quasi contract are moulded in the Indian Contract Act under a new name. However, the basic nature and essence of the principle remains same without any drastic change. Thus, quasi-contracts form an integral part of the contracts act and it definitely comes to an aid of the victim when a person is enriched unjustly over the former.

BIBILIOGRAPHY:[1] Dr. Justice Barukha G.C., Mulla on The Indian contract Act, Twelfth Edition, Lexis Nexis Butterworths, Wadhwa Nagpur. [2] Cheshire, Fifoot & Furmstone, Law of Contract, 15th Edition, Oxford University Press. Saharay, H.K. Dutt on Contract, Tenth Edition, Eastern Law House, Allahabad. [3] In article by Moses v. Macferlanhe
[4] In Sinclair v. Brougham[4], [5] Fibrosa Spolka Akeyjna v. Fairbain Lawson Combe Barbour Ltd. [6] www.legal-explanations.com

[7] Case of Exall v. Partridge [8] Case of Kelly v. Solary [9] Case of Plinche v. Colburn [10] (1931) 54 All 140 [11] (1986) 11 Mad L J 32 [12] Gopinath v. Raghuvansh kumar, AIR 1949 Pat 522. [13] Govindram Goverdhan Das Seksaria v. State of Gondal, AIR 1950 PC 99: 77 IA 156. [14] (1907) 31 Mad 35. [15] (1907) 30 Mad 375 [16] AIR 1962 Sc 779: (1962) 1 SCR 876 [17] 1991 MPLJ 910 [18] Muthu Raman v. Chinna Vellayan, (1916) 39 Mad 965. [19] AIR 1962 SC 779 [20] (1970) 1 SCC 213 [21] (1894) 18 Mad 88. [22] (1949) 76 IA 44 PC. [23] 1959 SCR 1350: AIR 1959 SC 135: [24] Kelly v. solari (1814) 9 M & W 54 at 58 [25] Aiken v. Short (1856) 1 H & N 210 at 215 [26] (1813) 5 C & P 58: 1 Moo & S 51 [27] Halsbury Law of England (4th edn.) 699.

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