TORT 109 Tort and Quasi Contract Compensation for Loss and Restitution of Gain — Law of Torts Notes for Judiciary

Tort and Quasi Contract: Compensation for Loss and Restitution of Gain

Tort and quasi contract are the two great residual categories of civil obligation. Neither rests on agreement, and both are imposed by the law upon a person who never undertook them. They separate on the question each asks. Tort asks what the defendant did to the plaintiff and answers it by making good the plaintiff's loss. Quasi contract asks what the defendant received at the plaintiff's expense and answers it by making him give it back. One measures the hole in the plaintiff's pocket, the other the swelling in the defendant's.

1. What a Quasi Contract Is

It is not a contract at all, and the name is an accident of pleading. In the old forms of action a claim for money had and received had to be brought in assumpsit, which required a promise, so the courts implied one. The implied promise was a fiction, and it has been abandoned.
The obligation rests on unjust enrichment. Three questions are asked: has the defendant been enriched; was the enrichment at the plaintiff's expense; and was it unjust, in the sense that the law recognises a ground for restitution such as mistake, failure of consideration, compulsion or necessity.
The Indian Contract Act, 1872 places it in Chapter V, headed "Of Certain Relations Resembling Those Created by Contract", which states the position exactly: the relation resembles a contract and is not one.
The remedy is restitutionary and not compensatory, and that single fact explains every difference from tort.

2. The Comparison

	Tort	Quasi contract
The source of the obligation	Imposed by the law	Imposed by the law
The basis	A breach of a duty owed to the plaintiff	The unjust retention of a benefit
The question asked	What did the defendant do	What did the defendant receive
What must be shown	Duty, breach, causation, damage	Enrichment, at the plaintiff's expense, unjustly
The measure	The plaintiff's loss	The defendant's gain
Fault	Usually necessary, and always relevant	Wholly irrelevant. An innocent recipient must still restore
Loss to the plaintiff	Essential, except where the tort is actionable per se	Not necessary in the same sense. What matters is that the gain came at his expense
Gain to the defendant	Irrelevant. A defendant who gains nothing is fully liable	Essential. Without it there is nothing to restore
The remedy	Unliquidated damages, injunction	A liquidated sum, or the return of the thing
Limitation	The article governing that tort	Articles 17 to 24 of the Schedule, according to the head

3. The Indian Provisions

Sections 68 to 72, Indian Contract Act, 1872

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.

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.

Section 70: 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 make compensation to the former in respect of, or to restore, the thing so done or delivered.

Section 71: a person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee.

Section 72: a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

Section 70 is the widest, and is the provision under which most claims of this kind are brought in India. It requires that the act be lawful, that it be done not gratuitously, and that the other person have enjoyed the benefit of it. The party who took the benefit must then compensate.
Section 70 is the ordinary route against the State where work has been done or goods supplied under an arrangement that fails for want of compliance with the constitutional formalities of a government contract. The contract being void, the supplier recovers not upon it but under section 70 for the benefit the government has taken.
Section 72 covers a payment made under a mistake of law as well as one made under a mistake of fact, the word "mistake" in the section being unqualified. The point was settled early and has since been worked out in the tax refund cases, where restitution is subject to the defence that the payer has passed the burden on to somebody else.
Section 71 is the nearest of the group to tort, since a finder who deals carelessly with the goods or converts them to his own use is liable in negligence or in conversion as well.

4. Where They Meet: Waiver of Tort

Some wrongs both injure the plaintiff and enrich the defendant. A conversion of goods which the defendant then sells is the standard case: the plaintiff has lost his goods and the defendant has the price.
The plaintiff may waive the tort and sue in quasi contract for the money had and received, recovering the proceeds of the sale instead of the value of the goods.
The waiver is not a forgiveness of the wrong. The expression is misleading. What the plaintiff does is elect between two alternative remedies arising from the same facts, and the election is not final until judgment is satisfied.
He cannot have both. The two measures are alternative and not cumulative, and a plaintiff who recovers the proceeds cannot afterwards recover the value.
The election matters in four situations: where the defendant's gain exceeds the plaintiff's loss, as where goods were sold above their market value; where the loss is difficult to prove but the receipt is documented; where limitation has run on the tort and not on the restitutionary claim; and where the defendant is insolvent, since a proprietary restitutionary claim may take priority over a claim in damages.
Not every tort can be waived. The wrong must have produced a benefit capable of being expressed in money and received by the defendant. There is nothing to restore in a personal injury caused by negligence, and the doctrine has no application there.

5. Why the Measure Differs, and Why It Matters

The tort measure looks backwards to the plaintiff. Restitutio in integrum restores him, so far as money can, to the position he occupied before the wrong. The defendant's position is no part of the enquiry, and a defendant who has profited enormously from a wrong that cost the plaintiff little pays only the little.
The restitutionary measure looks at the defendant. It asks what he has that he ought not to keep, and it takes that from him whether or not the plaintiff is any the worse.
This is why tort is a poor instrument against profitable wrongdoing. A defendant who calculates that the profit exceeds the damages has every incentive to commit the wrong, and the law of torts answers this only through exemplary damages, which are confined to narrow categories and are not awarded as a matter of course.
Restitution answers it directly, by removing the profit. That is why the account of profits is the characteristic remedy in equity and in intellectual property, and why a plaintiff who can frame his claim restitutionarily will often do better than one confined to damages.

6. The Three Obligations Placed Side by Side

	Contract	Tort	Quasi contract
Duty fixed by	The parties	The law	The law
Owed to	The other party alone	Persons generally	The person at whose expense the benefit came
Consent	The foundation	Irrelevant	Irrelevant
The object	To fulfil an expectation	To repair a loss	To reverse a gain
The position restored	As if performed	As before the wrong	As before the transfer

⚠ Why the category is called residual, and what that means in practice

Quasi contract is described as residual because it catches obligations that fit neither of the other two: there was no agreement, so it is not contract, and the defendant did nothing wrong, so it is not tort. A person who pays money twice by mistake has no complaint about the recipient's conduct at all, and yet the recipient plainly cannot keep it. The practical importance of noticing the category is that a claim which looks hopeless in tort may be straightforward in restitution. Where money has been paid under a mistake, under a contract that turns out to be void, under a demand later held unlawful, or for a consideration that has wholly failed, the enquiry into fault that would sink a claim in negligence does not arise at all, because the question is not whether the defendant behaved badly but whether he is entitled to keep what he has. The commonest drafting failure in this area is a plaint that alleges fraud or negligence against a recipient, puts the plaintiff to proof of a dishonest state of mind he cannot establish, and never pleads the simple alternative that the money was paid by mistake and must be repaid.

7. The Position Stated Shortly

1. Tort and quasi contract are both obligations imposed by the law and not undertaken by agreement.

2. Tort asks what the defendant did to the plaintiff; quasi contract asks what he received at the plaintiff's expense.

3. The tort measure is the plaintiff's loss; the restitutionary measure is the defendant's gain.

4. Fault is central to tort and wholly irrelevant to quasi contract, so an entirely innocent recipient must still restore.

5. The implied promise once used to explain quasi contract was a fiction of pleading, and the obligation now rests on unjust enrichment.

6. The Indian provisions are sections 68 to 72 of the Contract Act, 1872, placed in a chapter headed as relations resembling those created by contract.

7. Section 70 is the widest, requiring a lawful act done not gratuitously whose benefit the other person has enjoyed, and is the ordinary route where a government contract fails for want of form.

8. Section 72 covers a payment made under a mistake of law as well as of fact, subject in the tax cases to the defence of passing on.

9. Where a wrong both injures the plaintiff and enriches the defendant, the plaintiff may waive the tort and sue in quasi contract, electing between the two measures but not taking both.

10. The election is worth making where the gain exceeds the loss, where the loss is hard to prove, where limitation has run on one claim, or where the defendant is insolvent.