CA Foundation Exam June 2023 » CA Foundation Study Material » Business Laws » Quasi Contracts

Quasi Contracts

The scope and meaning of quasi-contract will be looked into. What is a quasi-contract exactly will be explained thoroughly using an example of a quasi-contract? Various types of quasi-contracts can be understood from the Indian Contract Act, 1872. Quasi-contract creates a relationship between parties that did not exist earlier.

The word ‘quasi’ means almost. Quasi-contracts are those contracts (agreements enforceable by law) that are imposed by court orders to prevent a party from wrongfully benefitting from the other. Quasi-contract arises without having a formal contract but out of rights and liabilities of individuals. The focus is to uphold justice and fairness. The contract intends to correct a wrong that has happened. The set of rights and responsibilities arises out of the principles of justice, equity, and good conscience. Quasi-contract can be seen as a remedy to some wrong that has happened to a party. Although every contract requires consent, this contract is enforced by court orders, without formal consent of the parties, to prevent unjust enrichment. Therefore, the contract is formed by the assent of law and not by the assent of the parties. Quasi-contract enforces that when a party has reaped certain benefits from another, it has an obligation to pay for the same. 

Understanding Quasi Contract through Example and Case Law 

Example of quasi-contract – Suppose X delivers a parcel to the address of Y, instead of Z, by mistake. Y takes the parcel and engages it in personal use. Even after Z’s claims, Y denied paying for it. Y decided to take the matter to Court. Z becomes the plaintiff and Y becomes the defendant. The court passed an order to issue a quasi-contract. According to the quasi-contract, Y has to pay Z the amount unjustly enriched using the parcel. This is a measure of compensation in the form of a quasi-contract. 

The court, therefore, did not allow Y to benefit unfairly from the situation. These contracts are also known as ‘implied contracts’. The principle of restitution is applied to the situation where the party pays for what they receive. 

The three conditions put forward by Court in the case of ‘Mahabir Kishore & Ors. Vs. the State of MP’ are- improvement in the condition of the defendant due to the benefit received, the enhancement or improvement has happened at the cost of the plaintiff, the maintenance of such enhancement or improvement is rendered unjust. Although the word quasi-contract is not directly used in Indian law, the concept is in much practice. 

Essentials of Quasi-contract

  • A good or service of the plaintiff had been delivered to the defendant and the plaintiff expected that he/she will be compensated
  • Plaintiff demanded compensation but the defendant denied to provide it
  • The plaintiff has to prove that if the compensation is not paid, the defendant will unjustly enrich the plaintiff

Provisions of Indian Contract Act, 1872 relating to the Quasi-contract

  1. Section 68 of the act states that when a person who is not capable to form a contract (due to unsoundness of mind, minority, etc.) is delivered with a supply then the owner of the supply can demand compensation from the person legally supporting such a person.
  2. Section 69 states that when a person pays on behalf of someone, the other party is bound to pay back the person who initially did the payment.
  3. Section 70 states that when delivery is done by mistake and the receiving party enjoys the benefit of such a delivery, the latter is bound to compensate the rightful owner of the good. 
  4. Section 71 states that when a person finds the good of another party and takes it in his/her custody, then they have the duties of a bailee.
  5. Section 72 when a delivery or payment is done under coercion or by mistake, the same must be repaid to the rightful owner. 

Conclusion

The concept of quasi-contract is based on the foundations of fairness, which highlights the principle of unjust enrichment and brings a solution to the table regarding the prevention of such wrongful gains of one at the cost of the other. Moreover, one has seen the scope and meaning of the quasi-contract. The understanding of the concept has been substantiated better with the use of examples and case law. The essentials of quasi-contract along with the provisions relating to quasi-contract in Indian law has been highlighted. This puts forward an explanation of the practical use of the concept in Indian business law. Moreover, the FAQs at the end will aid the process of understanding the concept in further detail.