Certain relations resembling to those created by Contract (Quasi Contract) | Indian Contract Act, 1872

There are certain situations in which the law imposes an obligation upon a person even though there is no contract between the parties. For example, A mistakenly leaves certain goods at B’s house. B treats the goods as his own. Although there is no agreement between A and B, B is legally bound to pay A for the goods. Such obligations are known as quasi-contractual obligations.

The term “quasi-contract” means a relationship which resembles a contract, but does not actually arise from a contract. There is no offer, acceptance or consent between the parties. The obligation is imposed by law. Thus, quasi-contracts are not true contracts. They are called quasi-contracts because the legal relationship created between the parties is similar to that created by a contract.

The Indian Contract Act, 1872 does not use the expression “quasi-contract”. Chapter V is appropriately titled “Of Certain Relations Resembling Those Created by Contract” and Sections 68 to 72 deal with such obligations. 

Basis of Quasi-Contractual Obligations

The principal basis of quasi-contractual liability is the prevention of unjust enrichment. The law does not permit one person to retain a benefit which he has received at the expense of another, where it would be unjust or inequitable for him to retain that benefit. Thus, the underlying principle is, ‘No person should be allowed to unjustly enrich himself at the expense of another.’

In an action based upon unjust enrichment, the following three elements are generally considered:

1. The defendant has been enriched by receiving a benefit.
2. Such enrichment is at the expense of the plaintiff.
3. The retention of such benefit by the defendant is unjust.

This principle was recognised by the Supreme Court in Mahabir Kishore v State of M.P. (AIR 1990 SC 313). Quasi-contractual obligations therefore arise not because the parties intended to enter into a contract, but because justice and law require the benefit to be compensated or restored.

Quasi-Contracts under the Indian Contract Act

Sections 68 to 72 deal with five kinds of obligations resembling those created by contract.

1. Supply of Necessaries [Section 68]

Section 68 deals with the claim for necessaries supplied to a person incapable of contracting, or on his account. Where a person who is incapable of entering into a contract, or a person whom he is legally bound to support, is supplied with necessaries suited to his condition in life, the person supplying them is entitled to be reimbursed from the property of the incapable person.

Example

A supplies B, a person of unsound mind, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property. Similarly, if A supplies necessaries to the wife and children of B, who is a person incapable of contracting and is legally bound to support them, A can claim reimbursement from B’s property.

Essentials of Section 68

The following conditions must be satisfied:

1. The person supplied must be incapable of entering into a contract. For example, he may be a minor or a person of unsound mind.
2. The goods or services supplied must be necessaries.
3. The necessaries must be suited to the condition in life of the person concerned.
4. The supply must be made either to the incapable person himself or to a person whom he is legally bound to support.
5. The supplier is entitled to reimbursement only from the property of the incapable person.

Nature of Liability

The liability under Section 68 is not a personal liability of the incapable person. The supplier cannot claim repayment from the person personally merely because the necessaries were supplied. The claim is against the property of that person.

Thus, Section 68 protects the person incapable of contracting while at the same time ensuring that the supplier is not left without reimbursement for necessary supplies.

2. Payment by an Interested Person [Section 69]

Section 69 provides for reimbursement of a person who pays money which another person is legally bound to pay, where the person making the payment is interested in doing so.

The rule is that, 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 under a lease granted by A, the zamindar. The revenue payable by A to the Government is in arrears. The Government advertises the land for sale. If the sale takes place, B’s lease will be annulled. B therefore pays the amount of revenue due from A to prevent the sale and protect his lease. A is bound to reimburse B.

Conditions of Liability under Section 69

The following conditions must be satisfied:

1. The plaintiff must be interested in making the payment - The person making the payment must have an interest which he wants to protect. It is not necessary that he must have a proprietary interest in the property concerned. His interest may arise from the fact that failure to make the payment would adversely affect his own rights. His honest belief that he has an interest to protect may be sufficient.
2. The plaintiff must not himself be legally bound to make the payment - The person making the payment must not be the person primarily liable. He makes the payment because it is necessary to protect his own interest.
3. The defendant must be legally bound to make the payment - The person from whom reimbursement is claimed must be under a legal obligation to make the payment.
4. The plaintiff must have actually made the payment - The payment must have been made to the person to whom the money was legally payable.

Case: Govindram Gordhandas Seksaria v. State of Gondal (1949)

Where a person who had agreed to purchase certain mills paid overdue municipal taxes in order to prevent the property from being sold in execution, he was allowed to recover the amount from the person who was legally liable to pay the taxes.

3. Liability to Pay for Non-Gratuitous Acts [Section 70]

Section 70 deals with the obligation of a person who enjoys the benefit of a non-gratuitous act. Where a person:

• lawfully does something for another person, or delivers something to him;
• does not intend to act gratuitously; and
• the other person enjoys the benefit of the act or thing,

the latter is bound to make compensation or restore the thing.

Essentials of Section 70

Three essential conditions must be satisfied:

1. The act must be done or the thing must be delivered lawfully - The act or delivery must not be unlawful.
2. There must be no intention to act gratuitously - The person doing the act or delivering the thing must not intend to do it free of charge. He must have contemplated that he would receive compensation.
3. The other person must enjoy the benefit - The person for whom the act was done or to whom the thing was delivered must have accepted or enjoyed the benefit.

Illustration

A, a tradesman, mistakenly leaves certain goods at B’s house. B treats the goods as his own. B is bound to pay A for the goods. On the other hand, A saves B’s property from fire. If the circumstances show that A intended to act gratuitously, A cannot claim compensation from B.

Voluntary Acceptance of Benefit

Section 70 does not permit a person to force unwanted services upon another and then demand payment. The person receiving the benefit must have had an opportunity to reject the benefit and must have voluntarily accepted or enjoyed it.

For example, where a coolie takes a passenger’s luggage without being asked and the passenger allows him to carry it without objection, reasonable payment may arise where the service was not intended to be gratuitous.

Similarly, where a shoe-shiner starts shining a passenger’s shoes without being requested and the passenger knowingly allows the service to continue, reasonable compensation may arise depending upon the circumstances.

No Contractual Remedy

Section 70 does not create an ordinary contract between the parties. Therefore, a person claiming under Section 70 cannot sue for:

• specific performance of a contract; or
• damages for breach of contract.

The right is to obtain reasonable compensation for the benefit received, or restoration of the thing delivered.

Direct Benefit

The defendant must have obtained a direct benefit from the act or service. A merely indirect or remote benefit is not sufficient. For example, where works undertaken by a railway company improved adjoining land and consequently resulted in increased municipal taxes, the indirect benefit received by the municipality was not sufficient to create liability under Section 70.

Services Must Be Lawful

The services or acts must have been rendered lawfully. The section may also apply where additional lawful work has been carried out and the other party has accepted and enjoyed its benefit, even though there was no separate agreement regarding payment.

Case: State of West Bengal v. B.K. Mondal & Sons (AIR 1962 SC 779)

In this case, certain construction work was carried out at the request of an officer of the State Government. The State accepted and enjoyed the benefit of the work but refused to pay on the ground that there was no valid contract.

The Supreme Court held that Section 70 could apply even though the constitutional requirements for a valid government contract had not been fulfilled.

Since the State had accepted and enjoyed the benefit, it was liable to make compensation.

Case: Indu Mehta v. State of U.P. AIR 1987 All 309

Where a practising advocate was appointed as Assistant Government Counsel and rendered services, she was held entitled to claim fees even though the appointment was legally defective.

Case: P.C. Wadhwa v. State of Punjab AIR 1987 P & H 117

Where a selected candidate in the Forest Department received training at Government expense but later refused to join the service, the Government was allowed to recover the cost of training.

4. Responsibility of Finder of Goods [Section 71]

Section 71 provides that, a person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee.  Thus, although the finder does not become the owner of the goods, the law imposes certain responsibilities upon him.

Duties of a Finder of Goods

A finder of goods must:

1. Take reasonable care of the goods.
2. Preserve the goods properly.
3. Make reasonable efforts to find the true owner.
4. Return the goods to the true owner when the owner is found.
5. Not appropriate the goods for his own unauthorised use.

The finder is treated as a bailee, and therefore must take reasonable care of the goods.

For example, A finds a valuable article belonging to B and takes it into his custody. A cannot simply treat the article as his own. He must take reasonable care of it and make reasonable efforts to return it to B.

Thus, Section 71 imposes responsibility upon the finder even though there is no contract between the finder and the owner.

5. Money Paid or Thing Delivered by Mistake or Coercion [Section 72]

Section 72 provides that where money has been paid, or anything has been delivered, to a person:

• by mistake, or
• under coercion,

the person receiving it must repay or return it.

Illustration (Payment by Mistake)

A and B jointly owe Rs. 100 to C. A alone pays the amount to C. B, not knowing that A has already paid it, again pays Rs. 100 to C. C is bound to repay Rs. 100 to B.

Illustration (Payment under Coercion)

A railway company refuses to deliver certain goods to the consignee unless the consignee pays an illegal charge for carriage. The consignee pays the amount in order to obtain the goods. The consignee is entitled to recover the illegally excessive amount.

Payment under Mistake

The term “mistake” under Section 72 is not restricted to mistake of fact. It may also include mistake of law.

Case: Sales Tax Officer v. Kanhaiya Lal Saraf (AIR 1959 SC 135)

A firm paid sales tax on certain transactions. Subsequently, the levy of the tax was held to be invalid. The firm sought recovery of the amount paid.

The Supreme Court held that money paid under mistake is recoverable under Section 72 and that the word “mistake” is not limited to a mistake of fact.

The important principle is that the payment must have been of money which was not legally due, although the person making the payment believed that it was due. Section 72 may therefore apply even where the mistake relates to the legal liability to make the payment.

Payment under Coercion

The word “coercion” in Section 72 may be understood in its ordinary sense of payment made under pressure. It is not necessarily confined to the technical definition of coercion under Section 15. Where a person is compelled to make a payment in order to obtain something to which he is otherwise entitled, the payment may be treated as one made under coercion.

Case: Trilok Chand Moti Chand v. Commissioner of Sales Tax (AIR 1970 SC 898)

The Supreme Court distinguished between payment made under mistake of law and payment made under coercion.

Where a person is fully aware of his legal position and makes payment because of pressure arising from an order of recovery, the payment may not amount to payment under mistake. However, it may be recoverable as a payment under coercion, subject to the law of limitation.

Section 72 and the Principle of Unjust Enrichment

Section 72 is closely connected with the principle of unjust enrichment. A person who has received money or a benefit without legal justification should ordinarily not be allowed to retain it. However, the principle of unjust enrichment also prevents a person from obtaining a double benefit through a claim for refund.

Case: Mafatlal Industries Ltd. v Union of India (1997) 5 SCC 536

The Supreme Court considered the principle of unjust enrichment in relation to refund of excise and customs duties. Where the burden of the duty had already been passed on by the assessee to third persons, the assessee could not ordinarily claim the refund for himself merely because the duty had been wrongly collected.

The Court explained that the law of restitution is founded upon the principle of unjust enrichment. Therefore, a person seeking restitution must establish that he has actually suffered the relevant loss and has not already passed the burden on to another person.

Difference between Contract and Quasi-Contract

A quasi-contract must not be confused with an ordinary contract.

Thus, a quasi-contract is not a contract in the true sense. It is a legal obligation which resembles a contractual obligation.

Conclusion

Quasi-contractual obligations are obligations created by law rather than by agreement. They are recognised to prevent one person from obtaining or retaining an unjust benefit at the expense of another. Sections 68 to 72 of the Indian Contract Act, 1872 cover five important situations, viz., necessaries supplied to an incapable person, payment by an interested person, non-gratuitous acts, finder of goods, and money or goods received by mistake or coercion. Thus, the basic foundation of quasi-contract is justice and prevention of unjust enrichment, rather than consent between the parties.