Quasi Contracts and Claim for Compensation

This Article is written by Prakash Singh  & this article disscuss the concepts of Quasi Contracts and Claim for Compensation

• .Introduction
• What is Contract?
• Understanding Quasi Contracts:- Definition and Characteristics
• Elements of Quasi Contracts:- Consensus ad Idem
• Principles Guiding Quasi Contracts:- Justice, Equity, and Good Conscience
• Claim for Compensation Situations in Quasi Contracts
• Compensation for Supplying Necessities to an Incapable Individual
• Compensation for Payments Made by an Interested Party
• Obligations of the Recipient of Non-gratuitous Benefits
• Duties of the Finder of Goods
• Compensation for Mistaken or Coerced Payments
• Case Law
• Conclusion

Introduction

Contracts are like promises in the world of law, ensuring that agreements between people are followed. A simple example is buying a phone – the seller promises to give you the phone when you pay. In the legal world, a contract, as defined in Section 2(h) of the Indian Contract Act, 1872, is an agreement recognized and enforced by the law. Now, enter quasi-contracts, a bit different from regular contracts. “Quasi” means almost, and these are not exact contracts, but the law treats them similarly to be fair. This unique category prevents one person from gaining too much at the expense of another. Quasi-contracts come into play when there’s no official agreement, but the law steps in to ensure fairness. Picture losing your wallet, someone finding it, and the law stating that person should return it or compensate you. This is quasi-contractual – not a direct agreement but an intervention for justice. This involves seeking payment or something valuable when someone benefits, even without an agreement. Sections like 68 to 72 in the Indian Contract Act, 1872, cover situations like helping someone incapable of making contracts, paying for another’s benefit, or returning found items. These quasi-contracts and claims for compensation aim to maintain fairness, even without formal agreements^[1].

What is Contract?

A contract, as outlined in the Indian Contract Act, is a legally recognized agreement designed to uphold promises made between parties. It acts as a structured understanding where two parties agree on a specific matter. In simple terms, any agreement involving buying or selling falls under the umbrella of a contract, with the Indian Contract Act serving as the guiding framework for such agreements. An offer is made by one party, like selling a bicycle for a specific amount, and the other party accepts, laying the foundation for a contract. Legal validity requires an exchange, often involving money, known as consideration. Both parties must possess the capacity to comprehend the contract, ensuring a fair process. Additionally, the contract’s purpose must align with legal standards, forbidding unlawful agreements. Unanimous agreement on the terms is vital for the contract’s formal validity. The legal provisions from the Indian Contract Act, including Sections 10, 23, and 2(h), play an important role in shaping these contractual agreements. Section 10 outlines the essential elements of a valid contract, emphasizing free consent, lawful consideration, lawful object, and the capacity to contract. Section 23 underscores that the contract’s purpose must be lawful, and Section 2(h) provides the Act’s definition of a contract as an agreement enforceable by law^[2].

Understanding Quasi Contracts: – Definition and Characteristics

A quasi contract, as defined in Section 68 of the Indian Contract Act, 1872, is a legal concept that comes into play in situations where there is no explicit contract between parties. It serves as a remedy to prevent unjust enrichment when someone supplies necessary items to an individual incapable of making contracts, such as a minor or someone mentally unfit. This legal provision allows the party providing assistance to seek reimbursement for their actions, even in the absence of a formal agreement. In essence, quasi contracts ensure fairness and compensation in scenarios where no official contract exists, safeguarding against one party benefiting unfairly at the expense of another.

In the legal domain, the term “quasi contracts” delineates a category distinct from traditional contractual structures. Despite its apparent complexity, the term “quasi” encapsulates a nuanced aspect within legal mechanisms. Quasi contracts essentially function as a legal remedy, intervening when a formal agreement is absent. A noteworthy feature of quasi contracts is their retroactive nature, allowing them to retrospectively address scenarios lacking explicit contractual arrangements. Unlike standard contracts, which become effective upon formation, quasi contracts operate by looking back in time. This retrospective functionality empowers the legal system to recognize and rectify situations that unfolded without a formal contractual understanding and the primary objective of quasi contracts revolves around mitigating unjust enrichment, denoting the inequitable accrual of advantages by one party at the expense of another. The application of quasi contracts serves as a corrective measure, compelling the party that has derived benefits without a formal agreement to either restitute what was gained or compensate the adversely affected party. In simpler terms, envision a scenario where an individual provides valuable assistance to another without a prior agreement. Quasi contracts, as a legal mechanism, aim to prevent any undue advantage gained by one party from the contributions or actions of another. This commitment underscores the overarching goal of maintaining fairness and equity in situations where explicit contracts may be absent.

Quasi contracts lay an emphasis on thwarting instances where one party unfairly benefits to the detriment of another. Whether involving finding a lost item, providing unsolicited assistance, or making contributions without a formal agreement, quasi contracts serve as guardians against the exploitation of situations to the detriment of one party. This emphasis aligns with the broader objective of upholding principles of justice and equity within legal systems. , quasi contracts, despite their nomenclatural intricacy, assume a pivotal role within the legal landscape. They operate as a remedial framework in situations where explicit agreements are absent, providing a retroactive modality to recognize and address actions deserving legal acknowledgment. The prevention of unjust enrichment stands as a fundamental tenet, reflecting a commitment to fairness and averting the inequitable appropriation of advantages^[3].

Elements of Quasi Contracts: – Consensus ad Idem

Within the domain of quasi contracts, a pivotal component is the concept of “consensus ad idem,” a Latin phrase translating to “meeting of the minds.” This underscores the necessity for all involved parties to share a mutual understanding and agreement on the contractual terms. In simpler terms, the validity of a quasi contract hinges on the shared comprehension of details and obligations among all participants. The significance of consensus ad idem in quasi contracts is paramount. It acts as the cohesive force that unites parties in a shared understanding of contractual terms. For instance, envision a scenario where one party believes they are purchasing a show horse, while the other party assumes they are selling a racehorse due to a misunderstanding. In the absence of consensus ad idem, there is no agreement, leading to the absence of a quasi contract. This underscores the critical role of shared understanding in quasi contract formation, emphasizing the need for clarity and agreement among all involved parties.

Principles Guiding Quasi Contracts: – Justice, Equity, and Good Conscience

Quasi contracts operate on foundational principles deeply rooted in justice, equity, and good conscience. These principles serve as guiding pillars within the legal system when addressing situations where one party gains benefits at the expense of another. The essence of these principles is encapsulated in the maxim “Nemo Debet Locupletari Ex Aliena Jactura,” signifying that no one should amass wealth at the cost of another’s loss. In the world of quasi contracts, the application of justice ensures that each party receives fair treatment. Equity functions to guarantee that the legal remedy provided is just and impartial, maintaining a balance between the involved parties. Good conscience acts as a moral compass, directing legal decisions to align with ethical standards and societal values.^[4]

Claim for Compensation Situations in Quasi Contracts

Quasi contracts encompass various situations where parties may seek compensation in the absence of formal agreements. Understanding these scenarios is crucial to grasp the nuances of quasi-contractual claims for compensation.

Section 68 of Indian Contract Act, 1872:- Compensation for Supplying Necessities to an Incapable Individual

Within the legal framework of quasi contracts, Section 68 addresses scenarios where an individual supplies necessities to someone who is incapable of entering into a formal contract. The crux of quasi-contractual claims for compensation in this context revolves around providing essential goods or services to individuals lacking the legal capacity to engage in contractual obligations. This often includes minors or individuals with mental incapacities. The significance of Section 68 lies in the recognition of the quasi-contractual duty to reimburse the supplier for offering vital goods or services to individuals deemed incapable of contractual engagements. Even in the absence of a traditional contract, the supplier is entitled to seek compensation for providing necessities.

To simplify, if an individual, due to incapacity, cannot enter into a formal contract and receives essential items or services, Section 68 ensures that the supplier can still claim compensation in a quasi-contractual manner. The essence here is the acknowledgment that the supplier, despite the lack of a formal agreement, deserves fair reimbursement for fulfilling a fundamental need. This section operates as a protective measure, acknowledging the vulnerability of individuals who cannot legally engage in contracts. By allowing quasi-contractual claims for compensation, Section 68 aligns with principles of fairness and justice, ensuring that those who provide necessities are not left uncompensated due to the incapacity of the recipient to enter into formal contracts.

Section 69 of Indian Contract Act, 1872:- Compensation for Payments Made by an Interested Party

In the matter of quasi contracts, Section 69 is dedicated to situations where an individual makes a payment on behalf of another party. The intricacy lies in the fact that this individual is an interested party, anticipating reimbursement from the party on whose behalf the payment was made. What distinguishes this scenario is that, despite the absence of a formal agreement, the interested person retains the right to claim compensation. Section 69 recognizes and emphasizes the quasi-contractual nature of this claim, acknowledging that financial transactions, even in the absence of a traditional contract, warrant legal consideration. The interested person, having made a payment with an expectation of reimbursement, is quasi-contractually entitled to seek compensation. In simpler terms, if someone pays on behalf of another party, they are considered an interested party seeking reimbursement. Section 69 ensures that the absence of a formal agreement does not undermine the interested person’s claim for compensation. The quasi-contractual framework steps in to rectify this financial involvement, aligning with principles of fairness and justice. This section operates as a safeguard, preventing undue enrichment at the expense of an interested party who has financially intervened on behalf of another. The quasi-contractual nature of the claim is pivotal in ensuring that financial contributions made with an expectation of reimbursement are legally acknowledged and addressed.

Section 70 of Indian Contract Act, 1872:- Obligations of the Recipient of Non-gratuitous Benefits

Within the framework of quasi contracts, Section 70 addresses situations where an individual derives benefits from the actions of another, and these actions are intentional, non-gratuitous, and non-free. The essence of this section revolves around the obligations imposed on the person enjoying these benefits, highlighting the quasi-contractual nature of such obligations. Claims for compensation under Section 70 come to the forefront when one party intentionally provides goods, services, or benefits, and the recipient, in turn, enjoys these without a gratuitous intent. The quasi-contractual dimension of this claim stems from the acknowledgment that deliberate actions deserve fair compensation, even in the absence of a formal, explicit agreement.

The crux of Section 70 lies in emphasizing the obligations of the person benefiting from the non-gratuitous act. While not bound by a traditional contract, the recipient is quasi-contractually obligated to either compensate the provider for the benefits received or restore the goods or services conferred. This legal recognition ensures that fairness and equity prevail, even in situations where the actions leading to benefits were not initially governed by a formal contract. In simpler terms, if someone deliberately provides goods or services to another, and the recipient knowingly accepts and enjoys these without a gratuitous intent, Section 70 allows the provider to seek compensation. The quasi-contractual nature of this claim serves as a corrective mechanism, aligning with the broader principles of quasi contracts. By allowing claims for compensation in these scenarios, Section 70 acts as a safeguard against unjust enrichment. It prevents one party from reaping the benefits of another’s intentional and non-gratuitous actions without offering fair recompense. In the absence of an explicit agreement, the quasi-contractual framework steps in to rectify imbalances and uphold principles of fairness within legal systems.

Section 71 of Indian Contract Act, 1872:- Duties of the Finder of Goods

In the matter of quasi contracts, Section 71 specifically delves into scenarios where an individual stumbles upon goods belonging to another party and voluntarily takes on the responsibility for these items. The crux of this section lies in outlining the obligations imposed on the finder, emphasizing the quasi-contractual nature of these responsibilities. The primary obligation established by Section 71 is the duty of the finder to return the discovered goods to their rightful owner. Simultaneously, the finder is entrusted with the responsibility to exercise reasonable care in safeguarding and preserving the condition of the goods. These duties are not contractual in the traditional sense but are acknowledged under quasi-contractual principles, filling the gap where explicit agreements might be absent. A quasi-contractual claim for compensation may surface if the finder neglects or fails in fulfilling these mandated responsibilities. The legal recognition of this quasi-contractual duty underscores the importance of fairness and justice, even in situations where formal contracts do not explicitly govern the interactions between the parties. The essence of Section 71 lies in its recognition of the quasi-contractual relationship between the finder and the owner of the goods. While no formal agreement exists, the law steps in to impose responsibilities, ensuring that the finder acts responsibly and ethically in handling the discovered items.

In situations where the finder neglects their duties, leading to damage or loss of the goods, Section 71 allows for a quasi-contractual claim for compensation. This corrective measure aligns with the overarching principles of quasi contracts, which seek to rectify imbalances and uphold fairness in the absence of explicit contractual arrangements.

Section 72 of Indian Contract Act, 1872:- Compensation for Mistaken or Coerced Payments

Within the legal framework of quasi contracts, Section 72 addresses a specific scenario, the payment of money made in error or under duress. In instances where an individual receives funds unintentionally or succumbs to pressure, the payer retains the right to claim compensation. This facet of quasi-contractual claims emanates from the recognition that rectifying inadvertent financial transactions align with principles of fairness and justice. The essence of Section 72 lies in its acknowledgment of the inadvertent nature of certain monetary exchanges. When money changes hands mistakenly or under coercion, the legal system intervenes to correct this unintended transfer. This corrective mechanism is embedded within the quasi-contractual realm, where explicit contractual agreements may be absent, yet the need for rectification remains. In situations of mistaken payments, where the payer transfers funds without the intended purpose or recipient, Section 72 enables the rightful claimant to seek compensation. This rectification aligns with the foundational principles of quasi contracts, aiming to restore balance and fairness in financial dealings.

Furthermore, when coercion becomes a catalyst for a financial transaction, the payer may find recourse in Section 72 to reclaim the funds. Coerced payments stand contrary to the voluntary and consensual nature that contractual agreements ideally embody. By recognizing claims for compensation in such instances, the legal system upholds the principles of fairness and justice, ensuring that individuals are not unduly disadvantaged due to external pressures. The quasi-contractual nature of Section 72 distinguishes it from conventional contractual arrangements. While explicit agreements are absent, the legal system steps in to address the unintended consequences of financial transactions. This underscores the adaptability and responsiveness of quasi contracts to diverse situations where justice and fairness demand rectification.^[5]

Case Law

In the case of Hari Ram Sheth Khandsari v. Commissioner of Sales Tax^[6], the applicant deposited tax at a rate of 4 percent instead of the correct rate of 2 percent on the major turnover of Khandsari. This resulted in an excess payment of Rs. 10,198.22. While the term “quasi-contract” may not have been explicitly used, the case delves into the concept. The applicant’s mistake in depositing a higher tax rate highlights an unintentional financial transaction, akin to the principles underlying quasi-contracts. The court, in its deliberation, might not have explicitly labeled the situation as quasi-contractual, but the commitment to rectify unintentional financial discrepancies aligns with quasi-contractual principles. This case serves as an illustrative example of how quasi-contractual notions can be applied in real-world scenarios, emphasizing the legal system’s commitment to fairness and justice in rectifying unintentional financial errors.

Conclusion

In conclusion, the exploration of contracts and quasi-contracts under the Indian Contract Act, 1872, sheds light on the legal frameworks governing agreements and interventions for justice. Contracts, defined in Section 2(h), embody formal promises upheld by law, ensuring clarity and adherence to agreed-upon terms. Guided by Sections 10, 23, and 2(h), contracts involve free consent, lawful consideration, and a lawful object. Quasi-contracts, as delineated in Sections 68 to 72, present a distinctive category. Despite their retroactive nature, these quasi-contracts serve as crucial legal remedies, preventing unjust enrichment in the absence of formal agreements. Noteworthy elements like consensus ad idem, foundational principles of justice, equity, and good conscience, and quasi-contractual claims for compensation under Sections 68 to 72 play pivotal roles in rectifying imbalances. Examining specific sections, we find Section 68 addressing the compensation for supplying necessities to an incapable individual, Section 69 covering payments by an interested party, Section 70 dealing with obligations arising from non-gratuitous benefits, Section 71 emphasizing the duties of the finder of goods, and Section 72 delving into compensation for mistaken or coerced payments. Additionally, the illustrative example of the Hari Ram Sheth Khandsari case underscores the practical application of quasi-contractual notions in rectifying unintentional financial discrepancies. The legal landscapes of contracts and quasi-contracts intertwine to establish fairness, rectify imbalances, and ensure justice even in the absence of formal agreements. The Indian Contract Act, through its nuanced provisions, provides a robust framework for legal recourse and intervention, underscoring the commitment to ethical and equitable practices in contractual relationships.

References

1. Investopedia, ‘Quasi Contract’ <https://www.investopedia.com/terms/q/quasi-contract.asp#:~:text=Quasi%20contract%20is%20another%20name,party%20to%20compensate%20the%20other.> accessed January 11, 2024 ↑

2. Toppr, ‘What is a Contract?’ <https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/what-is-a-contract/#:~:text=The%20Indian%20Contract%20Act%2C%201872%20defines%20the%20term%20%E2%80%9CContract%E2%80%9D,the%20law%20of%20the%20land.> accessed January 12, 2024 ↑

3. Here’s the citation in OSCOLA 4th edition style for the provided link: Study.com, ‘Quasi-Contract: Definition & Examples’ &lt;https://study.com/academy/lesson/quasi-contract-definition examples.html#:~:text=A%20quasi%2Dcontract%20definition%20is,to%20say%20when%20there%20is&gt; accessed January 12, 2024 ↑

4. IPLeaders Blog, ‘All About Quasi-Contracts and Types’ <https://blog.ipleaders.in/all-about-quasi-contracts-and-types/#:~:text=Consensus%20ad%20idem,-Consensus%20ad%20idem&text=In%20other%20words%2C%20the%20parties,therefore%20there%20is%20no%20contract.> accessed January 14, 2024 ↑

5. PandaDoc, ‘Quasi-Contract’ https://www.pandadoc.com/blog/quasi-contract/ accessed January 14, 2024 ↑

6. Hari Ram Sheth Khandsari v. Commissioner of Sales Tax, [2005] 139 STC 358 (ALL) ↑