Quasi-Contracts | Law Optional Notes for UPSC PDF Download

What is a contract?

A contract is a legally binding agreement between two or more parties. According to Section 2(h) of the Indian Contract Act, 1872, "An agreement enforceable by law is a contract." This definition is in line with the one provided by Frederick Pollock, an English jurist, who stated that "Every agreement and promise enforceable by law is a contract."

Sir William Anson, a British jurist, described a contract as "a legally binding agreement between 2 or more persons by which rights are acquired by one or more to acts or forbearance (abstaining from doing something) on the part of others."

Salmond, a Scottish politician, defined a contract as "an agreement creating and defining obligations between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others."

Two fundamental elements required to create a contract are:

• Agreement: An agreement involves promises or a set of promises that provide consideration to all parties involved. This concept is outlined in Section 2(e) of the Indian Contract Act, 1872.
• Enforceability by law: For an agreement to be considered a contract in the eyes of the courts, it must be legally valid.

To form an agreement, there must be a proposal or offer from one party and its acceptance by the other. In simpler terms, an agreement can be represented as "Agreement = Offer + Acceptance."

For instance, if Amrita offers to sell her cow to Manish for 20,000 rupees, and Manish accepts this offer, there is an agreement between them. This agreement forms a contract between the two parties.

Consensus ad idem

Consensus ad idem is a crucial concept that forms the foundation of an agreement and, consequently, the creation of a contract. This Latin term essentially means that all parties involved in the contract are in complete agreement regarding all the contract's details, including the respective obligations of each party, and they have all accepted these obligations.

In simpler terms, consensus ad idem requires that all parties to the agreement have a mutual understanding of every aspect of the agreement at the same time. Without consensus ad idem, there is no agreement, and therefore, there can be no contract. For instance, let's consider a hypothetical scenario: Karan owns two horses, one is a racehorse, and the other is a show breed horse. Karan intends to sell the show breed horse and makes an offer to Lata. However, due to a misunderstanding, Lata believes she is purchasing the racehorse. In this case, there is no consensus ad idem, and as a result, there is no valid contract.

Essential elements of a valid contract

To comprehend and remember the essential elements of a valid contract, think of it like a pizza. Picture a pizza with all its toppings. In this analogy, just as the ingredients of a pizza are crucial for making it delicious, the elements listed below are essential for making a contract legally valid and acceptable in a court of law. Without these elements, an agreement cannot be considered a contract. According to Section 10 of the Indian Contract Act, 1872, all agreements can be considered contracts if they meet certain criteria. These criteria include that the agreements are made with the free consent of competent parties, while also ensuring that lawful consideration and lawful objects are involved in the contract.
To become a contract, an agreement must include the following essential elements:

• Offer and Acceptance: A contract must involve two or more parties. The terms of the offer should be specific and clear, and the acceptance must be unconditional.
• Intention to Create a Legally Valid Offer: When the involved parties decide to enter into an agreement, their intention to create a legally binding contract should be evident. Agreements of a purely social or domestic nature, which do not establish a legal relationship, do not qualify as contracts.
• Lawful Consideration: According to Section 2(d) of the Indian Contract Act, 1872, "consideration" is defined as an act or abstinence done at the desire of the promisor, promisee, or another party. This act, abstinence, or promise serves as the consideration for the promise. In simpler terms, any legally enforceable agreement must be supported by consideration from both parties.
• Competency of the Parties: Parties involved in the contract must have the legal capacity to enter into a binding agreement. This means that they should not be minors, mentally incapacitated, or subject to any legal restrictions that would prevent them from entering into a contract. Legal incapacity may result from conditions such as idiocy, drunkenness, or lunacy. If any party experiences such forms of incapacity, the agreement will not be enforceable.
• Free Consent: The term "free consent" means that all parties involved should willingly enter into the agreement without being under the control or influence of another party. The absence of free consent due to coercion, undue influence, misrepresentation, or other factors can render a contract void.
• Lawful Object: Section 23 of the Indian Contract Act, 1872, stipulates that the object of an agreement must be lawful. This means that the object should not be illegal, immoral, or contrary to public policy. If an agreement involves any of these flaws, it would be deemed unenforceable. Examples of such flaws include agreements related to illegal activities like drug trafficking, murder, or immoral activities like plotting to break up a third party's marriage.

Types of contracts 

There are various types of contracts recognized in the eyes of the law, and while we are already familiar with terms like valid and void contracts, here are a few other types of contracts:

• Valid Contracts: A valid contract is a legally binding and enforceable agreement. It qualifies as a valid contract when all the essential elements of a contract, as discussed earlier, are present.
  Illustration: Aditya agrees to sell his car to Nayan for 5,00,000 rupees. Nayan sends a cheque to Aditya, and in return, Aditya delivers the car to Nayan. This is an example of a valid contract.
• Void Contracts: A void contract is one that ceases to be enforceable by law.
  Illustration: Aditya agrees to pay 20,000 rupees to Nayan after 5 years for a loan of 18,000 rupees lent to Aditya by Nayan. Unfortunately, during the third year of this timeline, Aditya tragically passes away in an accident. As a result, this contract shall be considered void due to its non-enforceable nature under the law, as per the agreed terms of the contract.
• Voidable Contracts: Voidable contracts are those agreements that are enforceable for one party or parties but not enforceable by law for the other party or parties.
  Illustration: Aditya agrees to sell his laptop to Nayan, a 16-year-old teenager, for 8,000 rupees. What makes this a voidable contract is that even though Aditya has made a valid deal, the fact that Nayan is a minor renders the entire agreement a voidable contract. Nayan is not bound to pay and is allowed to repudiate and/or accept the terms of the contract. If they choose to repudiate the contract, it will become a void contract, but since Nayan decides not to, it remains a voidable contract. Other than this, a voidable contract is a valid contract.
• Illegal Contracts: As the term implies, an illegal contract is an agreement that involves breaking the law or performing an action that is considered illegal under the law. Contracts that oppose public policies are also counted as illegal contracts.
  Illustration: Aditya is a drug dealer and agrees to sell weed to Nayan. Even though this contract contains all the essential elements required for a contract, the unlawful object (drug dealing) makes the entire contract illegal.
  All illegal contracts are void, but it's important to note that not all void contracts are illegal. Illegal contracts are considered void ab initio, meaning they are void from the beginning, unlike the latter. Furthermore, the criminal aspect of illegal contracts means that those involved can be prosecuted under the law.
• Unenforceable Contracts: Unenforceable contracts are rendered unenforceable by law due to technicalities or certain conditions. Such contracts cannot be enforced against any of the parties involved.
  Illustration: Aditya agrees to sing at a concert scheduled for July 21, 2021, but he fractures his legs and sustains a spinal cord injury in an accident. This contract becomes unenforceable and cannot be used against Aditya.
• Contingent Contracts: Contingent contracts are those where the promisor is obligated to fulfill the contractual obligations only when a specific situation or condition occurs. For example, insurance contracts fall under this category.
  Illustration: Aditya, the owner of an insurance firm, is obligated to provide a certain amount of money to Nayan, whose car was completely destroyed in an accident, contingent upon the occurrence of this specific event.

Quasi-contracts

• Another type of contract not previously mentioned is the quasi-contract. To understand what a quasi-contract is and to explore its types, let's begin by defining the term.
• The term "quasi" implies something partial or resembling a contract. A quasi-contract, sometimes referred to as a pseudo contract, is essentially a retroactive agreement. It involves parties who did not have prior contractual commitments or any intention to enter into a contract. Quasi-contracts are established by judges to rectify situations where one party unfairly benefits at the expense of another. In simple terms, these contracts prevent one party from gaining a financial advantage while causing a financial loss to the other party. While these agreements can be enforced with the consent of the party providing goods or services, it's not a prerequisite for enforcing a quasi-contract.
• The defining characteristic of a quasi-contract is the absence of prior understanding between the parties. Quasi-contracts impose an obligation on one party to benefit the other, especially when the second party has control or possession of the first party's property. It is the court's role to enforce such an agreement by law. For instance, consider this hypothetical scenario: Party A discovers Party B's lost wallet on the road. In this example, Party A is now indirectly in possession of Party B's property. The contract becomes enforceable when Party A decides to retain Party B's wallet without making an effort to return it to its rightful owner.
• Another term for quasi-contracts is implied contracts. This term is quite literal, as it involves defendants being instructed to compensate for damages, and the quantum meruit or restitution is determined based on the extent of the wrongdoing. Importantly, none of the parties involved need to provide consent, as these agreements are established by the court, making them legally enforceable without consent. The primary goal of such contracts is to arrive at a just decision that provides redress to the wronged party.

Elements of a quasi-contract

Listed below are the components required for a judge to issue a quasi-contract:

• An individual or as the law recognizes, one claimant. There must also be a defendant who will be responsible and asked to pay the restitution.
• The defendant must be willing to recognize or even acknowledge the value of the product/ service in question but has not made any efforts to return it/ pay for it or even made an effort to do something about it.
• The complainant needs to prove that the defendant earned wrongful enrichment.

Principle on which quasi-contracts are based

• Quasi-contracts are primarily grounded in the principles of justice, equity, and good conscience. These principles stem from the legal maxim "Nemo Debet Locupletari Ex Aliena Jactura," which translates to "no one should enrich themselves at another person's expense."
• To illustrate this principle, consider a scenario where Pari and Isha enter into a contract for the purchase of a bouquet of flowers. Pari agrees to pay 900 rupees for the bouquet, to be delivered by Isha to her house. However, due to a mistake, Pari delivers the bouquet to Anisha's house, and Anisha, thinking it's a birthday gift, keeps it for herself. While there's no formal contract between Anisha and Pari, the court treats this situation as a quasi-contract. It may order Anisha to either pay for the flower bouquet or return it in the same condition. In such cases, the law imposes contractual obligations to address unique circumstances, even in the absence of a formal contract.
• There are five different situations in which a quasi-contract can be established, and these situations are extensively detailed in Sections 68 to 72 of the Indian Contract Act, 1872.

Types of quasi-contracts

Listed below are the 5 types of quasi-contracts that are recognized by law :

Section 68

“Necessaries supplied to a person incapable of contracting”
Necessities supplied to the person who is incapable of contracting is the first example of the situation under which a quasi-contract can be formulated and this situation is explained under Section 68 of the Indian Contract Act, 1872.
To understand this easily, any person who is incapable of entering into a contract i.e. is a lunatic, minor, mentally incapable of understanding their surroundings, etc. If someone even supplies necessary supplies to such a person even is entitled to get a reimbursement from the property of the person who is incapable in this situation. This rule is applicable whether or not the person does help the incapable person because of an ulterior motive or purely out of humanity.

Illustration: Every month, Pari supplies necessary items to Lata as per her requirement as Lata is a lunatic and is not capable of helping herself out. Even though Lata is broke and does not have money to pay Pari, Pari is entitled to reimbursement from the property of Lata and this is termed as a quasi-contract. To make sure that Pari is reimbursed, she needs to prove that Lata is a lunatic and that the goods she supplied to Lata were necessary items only and that they were given to Lata on time as per her requirements.

Section 69

“Payment by an interested person”
Payment by an interested person is the second situation under which a quasi-contract can be formulated and this situation is explained under Section 69 of the Indian Contract Act, 1872. To understand this type of quasi-contract, the main thing to keep in mind is that if a person pays the money on someone else’s behalf, the other person is bound to pay back the money and reimburse the person by law.

Illustration: Pari is the owner of the land and has leased the land to Lata for a period of three years. Within two months of leasing the land, it was revealed that Pari couldn’t pay the tax revenue to the government and even after sending in notices, she wasn’t able to pay her dues. Thus, the government put out an ad to sell the land. As per the revenue laws, once the land is sold, Lata’s lease shall be annulled. Lata is not interested in letting go of the land therefore she decides to pay the amount due to the government for Pari. in this situation, Pari is obligated to reimburse Lata.

Section 70

“Obligation of the person enjoying the benefits of a non-gratuitous act”
When a person enjoys the benefits of a non-gratuitous act, that person is obligated to repay the person wronged. As per Section 70 of the Indian Contract Act, 1872 it is stated that if a person is legally giving out goods/ products/ services with no intentions behind it of performing a non-gratuitous act for anyone and the person in the wrong graciously uses the goods/ products or services is liable to pay the compensation to the former for the benefits they have been getting from the latter. They may be liable to give back monetary compensation or maybe simply asked to restore the goods used. To get reimbursed, the plaintiff must prove that the services/ goods they delivered were lawful, there was no intention to provide those products/ services graciously, and that the latter did enjoy the benefits of the products/ services.

Illustration: Pari is the owner of a fruit shop. She placed baskets of her fruits on a rack outside her store to keep them fresh. Lata, who was around the store, picked up an apple from the rack and bit into it. This is a situation where Lata is liable to pay monetary compensation to Pari as Pari did not put out her fruits as a gratuitous favor for people. 

Section 71

“Responsibility of finder of goods”
As per Section 71 of the Indian Contract Act, 1872, if a person finds an item that belongs to someone else and decides to take them into their custody, the former person has to adhere to the responsibilities that include taking good care of the goods, not appropriating the goods and returning it back to the owner in the same condition they found it in.

Illustration: Pari is Lata’s neighbor. One day since Lata wasn’t home, she already paid and delivered the package lying on her doorsteps which was later on found by Pari. She knew that Lata was not going to be home for another 3 days so she picked it up and took it with her. In this situation, Pari is supposed to inform Lata why she picked her parcel and she is obligated as well as liable to return the parcel to Lata in the same condition and if she fails to do so, Pari is supposed to compensate late with either monetary compensation or a replacement of the goods/products that were in the parcel that belonged to Lata.

Section 72

“Money paid by mistake or under coercion”
As per Section 72 of the Indian Contract Act, 1872, if a person finds that they received money from someone by mistake or because of the fact that they were under coercion then the former is liable to repay or return the money they received in the due course.

Illustrations: Pari received a payment of 5,000/- in her bank account via her UPI ID through Gpay by Lata. In reality, Lata intended to pay that money to Paresh, her brother. After Pari realized that she received the money by mistake, she is liable for the money back to Lata. In similar terms, if money is paid via coercion, oppression, or extortion it is recoverable under this Section of the Indian Contract Act, 1872.

Case laws

Certainly, here's a paraphrase of the case laws involving the concept of quasi-contracts:

1. Hari Ram Sheth Khandsari v. Commissioner of Sales Tax (1958): In this case, the applicant mistakenly paid tax on Khandsari at a higher rate, resulting in an excess payment of Rs. 10,198.22. While the term "quasi-contract" wasn't explicitly used, the concept was discussed.
2. Moses v. MacFarlane (2004): In this English case, the concept of quasi-contracts was introduced. Lord Mansfield explained that the obligations in quasi-contracts were rooted in both law and justice to prevent undue advantage to one party at the expense of another.
3. Spolka Anonyme v. Fairbairn Lawson Combe Barbour Ltd. (1942): This case emphasized that obligations arising when one person benefits at the cost of another do not fall under torts or contract law. Instead, they are categorized under restitution or quasi-contracts, also known as pseudo contracts.
4. State of Madhya Pradesh v. Bhailal bhai (1964): This case involved Section 74 of the Indian Contract Act, 1872, which covers payments made under mistake, specifically in the context of sales tax. The Supreme Court ruled that if a payment is made to the government by mistake, the government is legally bound to repay it. This decision was based on a tax payment made under a mistake of law.

Similarities and differences 

Conclusion

To wrap everything up, we can say that, even though there are various types of contracts and some may say that quasi-contract is a type of contract, it is not as there are various differences highlighted in the article above.
A quasi-contract is not a contract in its natural context and therefore it is also named an inverted contract. This is the reason why the term quasi-contract is not stated out there expressively. The most simple principle it follows is that a quasi-contract is a simple and basic contract that will not and cannot supersede the requirement of justice.