Quasi-Contracts under Sections 68 to 72 of the Indian Contract Act, 1872: Meaning, Juristic Basis, the Nature of Quasi-Contractual Liability, and How It Differs from Contract

Chapter V of the Act is headed certain relations resembling those created by contract, and the heading was chosen with care. The five obligations it contains arise by operation of law, not from agreement, and they exist to prevent one person from being unjustly enriched at another's expense. This topic deals with what is common to all five: what a quasi-contract is, the competing theories of its juristic basis, the character of the liability it creates, and the points at which it differs from contract. Each of the five sections is developed in its own topic, and the map at the end shows where.

1. Meaning

A quasi-contract is an obligation imposed by law on a person to make restitution or compensation to another, in circumstances where he has obtained a benefit which it would be unjust for him to retain, and where there is no contract between them. The name is unfortunate and has caused a great deal of confusion, because the obligation is neither a contract nor founded on one. The Indian draftsmen avoided the expression altogether and described the obligations by what they resemble.

1.1 The five obligations

The five obligations, what each requires, and what each yields

2. The Juristic Basis

Two theories have competed to explain why the law imposes these obligations, and the difference is not merely academic: it determines how far the courts may extend the principle beyond the decided categories.

2.1 The implied contract theory

The older explanation, associated with Lord Mansfield's judgment in Moses v. Macferlan, (1760) 2 Burr 1005, was that the law implies a promise to repay where justice requires it. The device allowed restitutionary claims to be brought within the existing forms of action, but it was a fiction, and it produced two difficulties. A promise cannot sensibly be implied against a person who has expressly refused to pay, or against a person incapable of contracting at all, yet Section 68 operates precisely against such a person. And treating the obligation as contractual invites the conclusion that it must satisfy the requirements of a contract, which it plainly does not.

2.2 The unjust enrichment theory

The modern explanation is that the obligation arises independently, to prevent unjust enrichment, and requires no promise real or fictitious. Lord Wright put it in the form now generally accepted in a case on the recovery of a prepayment under a frustrated contract.

Indian law has taken the same view. The Supreme Court has repeatedly held that the liability under Section 70 is statutory and independent of contract, most clearly in State of West Bengal v. B. K. Mondal & Sons, AIR 1962 SC 779, and has stated the three requisites of unjust enrichment in Mahabir Kishore v. State of Madhya Pradesh, (1989) 4 SCC 1: enrichment of the defendant, at the expense of the plaintiff, the retention of which is unjust.

3. The Nature of the Liability

1. It is imposed by law, and arises whether or not the defendant agreed, knew or consented. It may arise against a person who expressly refused.
2. It requires no capacity. Section 68 operates against a person who is by definition incapable of contracting, which is impossible to reconcile with any contractual explanation.
3. It requires no consideration, no offer, no acceptance and no intention to create legal relations.
4. It is measured by the defendant's gain, not by the plaintiff's loss. This is the most important practical difference from both contract and tort.
5. It is a right in personam, available against the particular person enriched and not against the world.
6. It is residual. Where a valid contract governs the matter, the contract determines the parties' rights and quasi-contract has no application. A claimant cannot use Chapter V to obtain a better bargain than the one he made.

4. Quasi-Contract Compared with Contract

5. Quasi-Contract Compared with Tort

• Basis. Tort rests on the breach of a duty imposed by law and owed to persons generally; quasi-contract rests on the receipt of a benefit.
• Fault. Tort ordinarily requires fault; quasi-contractual liability may attach to a defendant who has done nothing wrong at all, as where goods are delivered to him by mistake.
• Measure. Tort restores the plaintiff to the position before the wrong; quasi-contract strips the defendant of his gain. The two can produce very different figures on the same facts.
• Overlap. The same facts may give rise to both, as where property is wrongfully taken and sold. The claimant may waive the tort and sue in restitution for the proceeds, which is often more advantageous where the wrongdoer profited by more than the claimant lost.

6. Why the Category Exists

1. It prevents unjust enrichment, which no system of law can leave unaddressed without producing plainly unjust results.
2. It fills the gaps left by the law of contract. A minor cannot contract, a government contract may be void for want of form, and a payment may be made under a mistake; in each case there is a benefit and no contract.
3. It protects people who act reasonably under compulsion, such as the person who pays another's liability to save his own property under Section 69.
4. It supplies a remedy that survives the contract, as Section 65 does on frustration and Section 72 does for money paid under a transaction that turns out not to be due.
5. It does so without forcing benefits on people, because the sections require either a benefit the defendant took, or a liability of his that was discharged, or a duty he assumed by taking custody.

7. A Map of the Chapter

8. The Position Stated Shortly

1. A quasi-contract is an obligation imposed by law to prevent unjust enrichment where there is no contract between the parties.
2. The Act calls them relations resembling those created by contract, and does not describe them as contracts.
3. The implied contract theory of Moses v. Macferlan has been abandoned as a fiction.
4. Fibrosa: restitutionary obligations rest on the prevention of unjust enrichment and not on contract.
5. Indian law treats the liability as statutory and independent of contract, per B. K. Mondal, and states the three requisites in Mahabir Kishore.
6. The liability requires no consent, capacity or consideration, and is measured by the defendant's gain.
7. It is residual: a subsisting contract excludes it, and Kuju Collieries shows it will not be used to give effect to an unlawful transaction.
8. It differs from contract in source, consent, capacity, consideration and measure, and from tort in fault and in measure.
9. The five sections cover necessaries, payment of another's liability, non-gratuitous acts, finders of goods, and money paid by mistake or coercion.

9. Related Topics and Provisions