QUASI CONTRACT AND QUANTUM MERUIT CLAIM: THE EXTENT OF DIFFERENCE

THIS ARTICLE WAS WRITTEN BY TOSHALI PATTNAIK A STUDENT OF NATIONAL LAW UNIVERSITY, ASSAM

INTRODUCTION

Many circumstances spring up in which law as well as justice demand a certain person to conform to an obligation, in spite of the fact that he might not have committed any tort nor breached any contract. For example: a person in whose home certain goods have been left by mistake is bound to restore them[1]. Such obligations are described as quasi-contractual obligations. Quasi contracts derive its rationale from the theory of unjust enrichment, implied-in-fact contracts and restoration of theory of unjust enrichment. In early common law, courts were bound by a rigid set or writs called ‘forms of action.[2]’ If the plaintiff wanted relief, he had to befit his case in one of the pigeon holes. However, there was no provision for unjust enrichment and for that reason the court had to fit the doctrine of unjust enrichment in some other existing and recognized writs. Such a writ was the contact writ of assumpsit and thus squeezed enrichment in to a contractual form by pretending that the benefit was conferred on the recipient pursuant to a contract with the grantor[3]. Claims for unjust enrichment based on this fictional contract were said to arise quasi ex contractu, and the restitutionary remedy based on this fiction has come to be called quasi-contract, or contract implied in law.[4]

Chapter V of the Indian Contract Act, 1872 deals with circumstances under the title, ‘Of certain relations resembling those created by contracts.’ Though the Act avoids the word quasi contract, the courts are not hindered in providing relief under different sections concerning quasi-contracts.

On the other hand, the principle of quantum meruit finds expression in section 70 of the Indian Contract Act, 1872. As defined by Anson, “A quantum meruit claim arises where work is done or services performed by one person  for another in circumstances which entitle the person doing the work or performing the services to receive a reasonable remuneration therefor.[5]” The further elaboration on these two concepts will be explicitly provided in the following chapters.

UNDERSTANDING QUASI CONTRACTS

Quasi contract is not actually a contract but a contract implied in law. It came into existence to prevent the enrichment of one person at the cost of other (theory of unjust enrichment). If A has conferred certain benefits on B, then B has to pay something to A, otherwise he cannot be permitted to retain the benefit. If B retains it without making any payment to A, then it will be termed as unjust enrichment. In such circumstances, in order to provide relief to the conferrer, the court, even in the absence of an actual contract, may imply a contract in law and restore the benefit or its value to the conferrer.

1.1 Legislative Evolution: For better understanding of the quasi contracts, it is very important to have a clear picture of the rationale behind the same. They are:

• The Principle of Unjust Enrichment: When a benefit has been accorded to a recipient under circumstances in which it would be unfair to permit him to retain such benefits without payment, the cause of action of unjust enrichment is available to the person who conferred the benefit. Using this cause of action, the conferrer can claim the remedy of restitution, under which the court will restore the benefit or its value to him. In order to fit this newly recognized cause of action into existing legal forms, earlier common law courts used various fictions. The fiction we are concerned with is the benefit that had been contracted for i.e. the court implied a contract in law even though in reality no such contract existed between the conferrer and the benefiter. The alternative title for this form of relief was called quasi contract.

In the case Moses v. Macferlan,[6] Lord Mansfield, the founder of quasi-contractual obligations, explained: “But it lies for money got through imposition; or extortion; or oppression; or for an undue advantage taken of the plaintiff’s situation contrary to laws made for the protection of persons under those circumstances. In one word, the gist of this kind of action is, that the defendant, upon the circumstances of the case is obliged by the ties of natural justice and equity to refund the money.[7]”

Thus, from the above lines it can clearly be deduced that if a person has obtained something taking undue advantage of the other person, then he will be liable to refund the benefit to the conferrer under quasi contractual obligations.

The liability that arises in such obligations can be considered to be a part of law of tort as it arises independently of any contract as well as a part resembling contracts as it is owed only to one party and not to the people in general. Thus it can be accounted for either under an implied contract or under natural justice and equity for the prevention of unjust enrichment.

• Theory of ‘Implied-in-fact’ Contract: Lord Mansfield’s formulation was discarded by the House of Lords in Sinclair v. Brougham[8] and reliance was placed over implied-in-fact contract. In this case, the House of lords allowed pari passu distribution of the mixed fund among the claimants, but did not allow any remedy under quasi-contract. Lord Haldane held that common law recognizes only two actions: those arising from contract and those arising from tort. As quasi-contractual obligations do not form a part of both, it would be wiser to place reliance over implied-in-fact contract.

This approach dominated decisions for a long time. Where the circumstances of a case did not lead to an inference of that kind or where such inference would be against the law, no liability would arise.

• Restoration of Theory of unjust enrichment: Undoubtedly, the House of Lord had discarded the principle of unjust enrichment, however the suffocation faced by them in Fibrosa Spolka Akeyjna v. Fairbairn Lawson Combe Barbour Ltd.[9] made Lord Wright opined that the observations of the Lordships in Sinclair v. Brougham relating to the foundation of quasi-contract were merely obiter dicta.

1.2 Essentials of a quasi-contract:- The essentials of quasi-contract include:

• The defendant has been enriched by receiving a benefit.
• The enrichment is at the expense of the plaintiff.
• The retention of the enrichment is unjust.

1.3 Types of Quasi-contracts:-

1. Claim for necessaries supplied to a person incompetent to contract[10]: A person is incompetent to contract if he is a minor or is of unsound mind or is disqualified under any law to which he is subject.[11] A married or unmarried woman cannot be said incompetent to contract only on the basis of sex or coverture.[12] The necessaries for a person is a relative term to the condition of life of a person in which he lives.[13] The term ‘necessaries’ mean the urgent needs of the person incompetent to contract , which is not limited to his preliminary requirements.
2. Reimbursement for payment of money by a person interested in its payment: In English law, the plaintiff can be compensated if he pays the money to the defendant’s use. Money can be paid to the defendant’s use in three manners:
3. Discharge of a legal obligation.
4. Discharge of defendant’s liability to a third party under compulsion.
5. Payment to a third party at defendant’s request.
6. Obligation of a person enjoying benefits of another person’s non-gratuitous act: If A, lawfully, does something for B not intending to do so gratuitously and because of this action of A, B enjoys a benefit, then B is bound to make compensation to A in respect of, or to restore, the things so done or delivered. This has been expressed in a provision[14] of Indian Contract Act, 1872. In Damodar Mudaliar v. Secretary of State for India[15], a tank provided water to eleven villages for irrigation. Some of the villages were Zamindari villages and others were under the Government. In order to preserve the tank, certain improvements were effected in it by the Government. The Government did not intend to do it gratuitously and the Zamindars enjoyed the benefits thereof. They were held liable to contribute to the expenses meted out by the Government.

4. Responsibility of finder of goods: Responsibility on the finder of goods, under section 71 of the Indian Contract Act 1872, is the same as the responsibility of a bailee. However section 70 does not explain the rights of finder of goods. His rights are specifically explained under sections 168 and 169.

Liability of a person to whom money is paid or anything is delivered by mistake or under coercion: If money has been paid or anything delivered to a person by mistake or under coercion he is liable under section 72 to repay or return it. For example: A and B jointly owe ₹ 100 to C. A alone pays the amount to C, and B not knowing the fact paid ₹ 100 to C over again. C is then bound to repay the amount to B.  In Sales Tax Officer, Banaras v. K.L.M.L. Saraf,[16] the payment of sales tax on forward transactions was declared by the Allahabad High Court as illegal. The respondent who had paid the sales tax sought to recover back the money so paid after the declaration of the Court that such sales tax was not lawful. It was held by the Supreme Court that the payment made in the form of sales tax was recoverable although it has been done under a mistake of law since the word ‘mistake’ was not limited to mistake of fact only under the section.

PRINCIPLE OF QUANTUM MERUIT

Quantum meruit is the reasonable price for the services performed. If A enters into a contract with B for construction of a building for ₹ 20,000 on completion and starts work accordingly, then A will be entitled to quantum meruit claim if B repudiates the contract before A has completed the work. Even if the terms of the contract reads ‘payment on completion’, A will be entitled to payment as per the work done by him under quantum meruit claim.

• Legislative History: After the evolution of the concept of quasi-contracts, by 1780’s the judges of the common law system were becoming increasingly hostile towards cases where the contracts remained open. By 1790s the debate broadened using any form of non-contractual assumpsit when the contract remained open and the contractual remedies were not exhausted. Lord Kenyon in the case of Pepper v. Burland[17], remarked that in situations where the work sufficiently deviated from the terms of the contract such that tracing the contract becomes impossible, the plaintiff could recover the value of his labor through quantum meruit claim. However, the full implication of quantum meruit claim became prominent in the path breaking case of Cutter v. Powell[18]. In this case, the defendant had entered in to a contract with a sailor that if he proceeded, continued and did his duty as the second mate, then he would be paid thirty guineas. In a voyage, the sailor died. The sailor’s wife sued for quantum meruit damages. There was a clash between the King’s Bench and the Admiralty Courts. The final decision was that the plaintiff was unable to recover on the express contract because it was a condition precedent of the contract that the whole of the voyage be completed.[19] Three years later, in Chandler v. Grieves[20] it was held that if a sailor is injured during a voyage and was unable to complete his work, even then he will be entitled to the reasonable payment for the services he has committed. Thus, the court in this case recognized the principle of quantum meruit claim. Further, quantum meruit breached the rule in Martin v. Webb[21]. The rule read that when the plaintiff agreed upon a certain sum of money on completion of the contract, he could not claim for a reasonable sum for the services provided in case of repudiation of the contract.

• Provisions and cases on quantum meruit claim:

Section 70 of the Indian Contract Act, 1872 is based on the ‘principle of quantum meruit.’ As defined by Anson, “A quantum meruit claim arises where work is done or services performed by one person for another in circumstances which entitle the person doing the work or performing the services to receive a reasonable remuneration therefor[22].” The Supreme Court in Food Corporation of India and Others v. Vikas Majdoor Kandar Sahkari Mandli Ltd.,[23] held that under section 70 of the Indian Contract Act, 1872 payment can be claimed for work done beyond the terms of contract, when the benefit of the work has been availed of by the defendant. Hence extra payment has to be made.

The term ‘quantum meruit’ is a Latin phrase meaning “what one has earned.” In the context of contract law, it means ‘reasonable value of services.’[24]Quantum meruit is the measure of damages where an express contract is mutually modified by the implied agreements of the parties, or not completed. While there is often confusion on the concept of quantum meruit, and that of unjust enrichment of one party at the expense of the other, the two concepts are distinct.

In the case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,[25]it was provided that a claim for quantum meruit is a claim for damages for breach of contract, and the value of the materials is a factor relevant only as furnishing a basis for assessing the amount of compensation, that is to say, the claim is not for price of goods sold and delivered but for damages. This is even the position under section 65 of the Indian Contract Act, 1872.

In the case of Puran Lal Shah v. State of U.P.,[26] the Supreme Court held that in order to avail the remedy under quantum meruit, the original contract must be discharged by the defendant. The remedy is not available to the part who breaks the contract even though he may have partially performed part of his obligation. Remedy by way of quantum meruit is restitutory i.e. it is recompense for the value of the work done by the plaintiff in order to restore him to the position which he would have been in if the contract had never been entered into.

In the case of New Marine Coal Co. v. Union of India[27], it has been held that if in pursuance of a void contract, the appellant has performed his part and the respondent has received the benefit of the performance of the contract by the appellant, then the provision[28] of the Contract Act would justify the claim made by the appellant against the respondent.

THE EXTENT OF DIFFERENCE

There exists a certain extent of difference between the quasi contract and the quantum meruit claim. Though some part quantum meruit comes within the purview of quasi contract, it does not entirely fall within its ambit. These differences are listed as follows:

• Implied-in-law and Implied-in-fact contract: Quasi contract is a contract implied in law whereas quantum meruit is a contract implied in fact.
• A legal fiction and an actual contract: Quasi contract is not a contract at all but merely a legal fiction, whereas quantum meruit is an actual contract.
• Circumstancial difference: A quasi contract came into existence to prevent the enrichment of one person at the cost of other (theory of unjust enrichment). If A has conferred certain benefits on B, then B has to pay something to A, otherwise he cannot be permitted to retain the benefit. If B retains it without making any payment to A, then it will be termed as unjust enrichment. In such circumstances, in order to provide relief to the conferrer, the court, even in the absence of an actual contract, may imply a contract in law and restore the benefit or its value to the conferrer. On the other hand, quantum meruit is the contract where the parties do not express their agreement in words, but it is apparent from a reasonable interpretation of their conduct that they intended to make a contract.[29]
• Difference on the basis of elements of a quasi-contract:-

• Quasi contract: Even if the parties do not have an enforceable contract, the defendant is obliged to pay restitution to the plaintiff in the light of the remedies received by him. In order to establish a valid claim for unjust enrichment, the plaintiff must show that the defendant knowingly received something of value to which he was not entitled to, and that the circumstances are such that it would be injustice for the defendant to return the benefit. Thus, a claim for unjust imprisonment must fulfill all the essential elements of a quasi-contract.[30]
• Quantum Meruit: However in a claim for quantum meruit, an action arises simply because one party benefits from the action of others. Unlawfully benefiting something through illegal means is an essential ingredient that has to be proved in the claims for quasi contract. But it need not be proved for claims for quantum meruit.[31]
  • Judicial interpretation: An implied-in-law contract is one that at least one of the parties did not intend to create but it has been created by the court in the interest of justice, equity and good science. On the other hand an implied-in-fact contract is an unwritten, nonexplicit contract that is expressed or implied by the words and actions done that reflect a consensual transaction.
  • Jurisdiction of the courts: Another important point of difference between the two is that the courts have no jurisdiction over claims for quasi-contracts against the federal government as they have immunity.[32] However if a claim for quantum meruit arises where one of the parties to the contract is an agent of the government, the courts will have jurisdiction over the matter.
  • Amount recovered: A quasi-contract claim may afford less recovery as compared to an implied in fact contract.
  • Distinction provided in cases: In the landmark case of Pauffhausen v. Balano[33], the difference between quantum meruit claim and claim for damages under quasi-contract has explicitly been discussed. Quantum meruit or contract implied-in-fact involves recovery for services or materials provided under an implied contract. Whereas claims for quantum meruit was describes as recovery for the value of the benefit retained when there is no contractual relationship , but when on the grounds of fairness and justice, the law compels performance of a legal and moral duty to pay.
  • Basis of analyzing damages: The damage analysis is based on principles of equity, not contract, in quantum meruit claims. However in claims of quasi-contracts, the damages are calculated by the value of what was inequitably retained.[34]

CONCLUSION

The concept of quasi-contract evolved during the early common law period when there was no suit for unjust enrichment of one party at the cost of the other. For solving this problem, the courts came up with the concept of quasi-contract or contract implied-in-law. These types of contracts could arise when a person has accrued benefit at the cost of another person and for that reason the latter has suffered. Then the courts would imply the existence of a contract and restore the benefit or an equivalent value to the plaintiff. Though this concept of quasi-contract was repealed by the House of Lords, later it was again recognized and restored. The contract implied-in-fact or quantum meruit though a part of quasi-contract, yet there exists differences. A claim for quantum meruit can be called for when one party gains benefit for the actions of the other party. The element of unjust enrichment is not gratuitous for such a claim. On the basis of the cases studied, it can be concluded that the recovery under claim for quantum meruit is more than that under quasi-contract. Moreover quantum meruit does not satisfy the elements of quasi-contract. Quasi-contract is not an actual contract. It is a contract implied to be in existence as interpreted by the courts in order to restore justice and equity. However, quantum meruit is an expressed or implied contract where the parties have not entered into any written agreement but their actions imply that they are bound in a contractual relationship.

Thus, it can be concluded that though quantum meruit is a part of quasi-contract, it provides broader area of claim to the people by eliminating the criteria of unjust enrichment. This claim arises for any kind of enrichment of one party due to the actions of the other party. Another reason supporting the merits of quantum meruit is that in these types of claims, damages are calculated on the basis of equity. Whereas in claims for quasi-contracts, damages are analyzed on the basis of inequitable gain of one party at the expense of the other party.

[1] Avtar Singh, Contract and Specific Relief, Eastern Book Company, 540(11 ed.  2013).

[2] Brian A. Blum, Contracts: Examples and Explanations, Aspen Publishers, 240 (2007).

[3] Id. at 241.

[4] Id. at 242

[5] Anson’s Law of Contract, 635 (24 ed).

[6]Moses v. Macferlan  2 Burr 1005 (1760)

[7]Avtar Singh, Contract and Specific Relief, Eastern Book Company, 541(11 ed.  2013)

[8]Sinclair v. Brougham,  AC 392 (1914).

[9]Fibrosa Spolka Akeyjna v. Fairbairn Lawson Combe Barbour Ltd. 32 AC 1943.

[10]§ 68 of the Indian Contract Act, 1872.

[11]§ 11 of the Indian Contract Act, 1872.

[12]Kanhayalal v. Inderchand 84 AIR Nag 1947.

[13]Chappel  v. Cooper 13 LJ 286.

[14]§ 70 of the Indian Contract Act, 1872.

[15]Damodar Mudaliar v. Secretary of State for India 18 Mad 88 (1894).

[16] Sales Tax Officer, Banaras v. K.L.M.L. Saraf  AIR 135 SC 1959.

[17]Pepper v. Burland Peake 139 (1791).

[18]Cutter v. Powell 6 TR 320 (1795).

[19]Warren Swain, The Law of Contract 1670-1870, Cambridge University Press, 137(2015).

[20]Chandler v. Grieves 2 H Bla 606 (1792).

[21]Martin v. Webb LI MS 129 (1763).

[22]Anson’s Law of Contract, 635 (24 ed.).

[23]Food Corporation of India and Others v. Vikas Majdoor Kandar Sahkari Mandli Ltd.2 MLJ 857 (SC) 2008.

[24]Brian A. Blum, Contracts: Examples and Explanations, Aspen Publishers, 240 (2007).

[25]State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd SCR 379 1959.

[26]Puran Lal Shah v. State of U.P1 SCC 424 (1971).

[27]New Marine Coal Co. v.Union of India 2 SCR 859 (1964).

[28]§ 70 of the Indian Contract Act, 1872.

[29]Yarde Metals, Inc. v. New England Patriots L.P., 2d NE 834 (2005).

[30]Acton Constr. Co. v. State 383 N.W 2d 416,417 (Minn. App. 1986).

[31]First National Bank of St. Paul v. Ramier 311 N.W. 2d  502,504(Minn. 1981).

[32]Doctrine of Sovereign Immunity.

[33]Pauffhausen v. Balano decided on 6^th March 1998. See also Aladdin Elec. Assoc. v. Old OrchardBeach, 645 A.2d 1142, 1145 (Me. 1994; United States ex rel. Modern Elec., Inc. v. Ideal Elec. Sec Co., 81 F.3d 240, 246 (D.C. Cir. 1996).

[34]Pauffhausen v. Balano decided on 6^th March 1998.