ICAI Notes- Unit 6: Contingent and Quasi Contracts- 2 - CA Foundation PDF Download

Quasi Contracts

• A valid contract must contain certain essential elements, such as offer and acceptance, capacity to contract, consideration and free consent. But sometimes the law implies a promise imposing obligations on one party and conferring right in favour of the other even when there is no offer, no acceptance, no genuine consent, lawful consideration, etc. and in fact neither agreement nor promise. 
• Such cases are not contracts in the strict sense, but the Court recognises them as relations resembling those of contracts and enforces them as if they were contracts. Hence the term Quasi –contracts (i.e. resembling a contract). 
• Even in the absence of a contract, certain social relationships give rise to certain specific obligations to be performed by certain persons. These are known as quasi contracts as they create same obligations as in the case of regular contract.
• Quasi contracts are based on principles of equity, justice and good conscience.
• A quasi or constructive contract rests upon the maxims, “No man must grow rich out of another person's loss”.

Examples

Example 1: T, a tradesman, leaves goods at C’s house by mistake. C treats the goods as his own. C is bound to pay for the goods.

Example 2: A pays some money to B by mistake. It is really due to C. B must refund the money to A.

Example 3: A fruit parcel is delivered under a mistake to R who consumes the fruits thinking them as birthday present. R must return the parcel or pay for the fruits. Although there is no agreement between R and the true owner, yet he is bound to pay as the law regards it a Quasi-contract.

These relations are called as quasi-contractual obligations. In India it is also called as ‘certain relation resembling those created by contracts’.

Salient features of quasi-contracts

• In the first place, such a right is always a right to money and generally, though not always, to a liquidated sum of money.
• Secondly, it does not arise from any agreement of the parties concerned, but is imposed by the law; and
• Thirdly, it is a right which is available not against all the world, but against a particular person or persons only, so that in this respect it resembles a contractual right.

Under the provisions of the Indian Contract Act, the relationship of quasi-contract is deemed to have come to exist in five different circumstances which we shall presently dilate upon. But it may be noted that in none of these cases there comes into existence any contract between the parties in the real sense. Due to peculiar circumstances in which they are placed, the law imposes in each of these cases the contractual liability.

• Claim for necessaries supplied to persons incapable of contracting (Section 68): If a person, incapable of entering into a contract, or anyone 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.
  Example: A supplies B, a lunatic, or a minor, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.
  To establish his claim, the supplier must prove not only that the goods were supplied to the person who was minor or a lunatic but also that they were suitable to his actual requirements at the time of the sale and delivery.
• Payment by an 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.
  Example: 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 the 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 amount so paid.
• Obligation of person enjoying benefits of non-gratuitous act (Section 70): In term of section 70 of the 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 pay compensation to the former in respect of, or to restore, the thing so done or delivered”.
  It thus follows that for a suit to succeed, the plaintiff must prove:
  (i) that he had done the act or had delivered the thing lawfully;
  (ii) that he did not do so gratuitously; and
  (iii) that the other person enjoyed the benefit.
  The above can be illustrated by a case law where ‘K’ a government servant was compulsorily retired by the government. He filed a writ petition and obtained an injunction against the order. He was reinstated and was paid salary but was given no work and in the mean time government went on appeal. The appeal was decided in favour of the government and ‘K’ was directed to return the salary paid to him during the period of reinstatement. [ShyamLal vs. State of U.P. A.I.R (1968) 130]
  Example: 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.
• Responsibility of finder of goods (Section 71): ‘A person who nds goods belonging to another and takes them into his custody is subject to same responsibility as if he were a bailee’.
  Thus a finder of lost goods has:
  (i) to take proper care of the property as man of ordinary prudence would take.
  (ii) no right to appropriate the goods and
  (iii) to restore the goods if the owner is found.
  In Hollins vs. Howler L. R. & H. L., ‘H’ picked up a diamond on the floor of ‘F’s shop and handed over the same to ‘F’ to keep till the owner was found. In spite of the best efforts, the true owner could not be traced. After the lapse of some weeks, ‘H’ tendered to ‘F’ the lawful expenses incurred by him and requested to return the diamond to him. ‘F’ refused to do so. Held, ‘F’ must return the diamond to ‘H’ as he was entitled to retain the goods found against everybody except the true owner.
  Example: ‘P’ a customer in ‘D’s shop puts down a brooch worn on her coat and forgets to pick it up and one of ‘D’s assistants nds it and puts it in a drawer over the weekend. On Monday, it was discovered to be missing. ‘D’ was held to be liable in the absence of ordinary care which a prudent man would have taken.
• Money paid by mistake or under coercion (Section 72): “A person to whom money has been paid or anything delivered by mistake or under coercion, must repay or return it”. Every kind of payment of money or delivery of goods for every type of ‘mistake’ is recoverable. [Shivprasadvs Sirish Chandra A.I.R. 1949 P.C. 297]
  Example: A payment of municipal tax made under mistaken belief or because of mis-understanding of the terms of lease can be recovered from municipal authorities. The above law was affirmed by Supreme Court in cases of Sales tax officer vs. Kanhaiyalal A. I. R. 1959 S. C. 835
  Similarly, any money paid by coercion is also recoverable. The word coercion is not necessarily governed by section 15 of the Act. The word is interpreted to mean and include oppression, extortion, or such other means [Seth Khanjelekvs National Bank of India]. In a case where ‘T’ was traveling without ticket in a tram car and on checking he was asked to pay `5/- as penalty to compound transaction. T led a suit against the corporation for recovery on the ground that it was extorted from him. The suit was decreed in his favour. [Trikamdas vs. Bombay Municipal Corporation A. I. R.1954] In all the above cases the contractual liability arose without any agreement between the parties.

Difference between quasi-contracts and contracts

Summary

• Contingent Contracts are the contracts, which are conditional on some future event happening or not happening and are enforceable when the future event or loss occurs. (Section 31)
• Rules for Enforcement

  
  

  (a) If it is contingent on the happening of a future event, it is enforceable when the event happens. The contract becomes void if the event becomes impossible, or the event does not happen till the expiry of time fixed for happening of the event.
  (b) If it is contingent on a future event not happening. It can be enforced when happening of that event becomes impossible or it does not happen at the expiry of time fixed for non-happening of the event.
  (c) If the future event is the act of a living person, any conduct of that person which prevents the event happening within a definite time renders the event impossible.
  (d) If the future event is impossible at the time of the contract is made, the contract is void ab initio.
• Wagering Contracts are void.
• Quasi Contracts arise where obligations are created without a contract. The obligations which they give rise to are expressly enacted:
  (a) If necessaries are supplied to a person who is incapable of contracting, the supplier is entitled to claim their price from the property of such a person.
  (b) A person who is interested in the payment of money which another is bound to pay, and who therefore pays it, is entitled to be reimbursed by the other.
  (c) A person who enjoys the benefit of a non-gratuitous act is bound to make compensation.
  (d) A person who finds lost property may retain it subject to the responsibility of a bailee. (e) If money is paid or goods delivered by mistake or under coercion, the recipient must repay or make restoration.