Quasi Contracts – A Retroactive Arrangement Between Two Parties Essay Example

party.

RATIONALE

So far as there was not an established rule of Quasi Contractual obligation the English Lawyers were content to enumerate the cases of the Quasi Contract for which they are provided a remedy as to many species of “indebitatus assumpsit”, but they evaded the odious task of rationalization.

But as soon as the urge was felt to explore their juristic basis, controversy was born. The first and the most ambitious attempt to provide such a basis was made by Lord Mansfield in Moses v. Macferlan in year 1760 Thus it was Lord MANSFIELD, who is considered to be the real founder of such obligations, explained them on the principle that Law as well as Justice should try to prevent “Unjust Enrichment”, that is enrichment of one person at the cost of another. His Lordship offered this explanation in Moses v. Macferlan:

Facts of the case:

One Jacob issued four promissory notes to Moses and the latter indorsed them to Macferlan, excluding, by a written agreement, his personal liability on the endorsement. Even so Macferlan sued Moses on the endorsement and he was held liable despite the agreement. Moses was thus compelled to discharge a liability which he had excluded and, therefore, sued to recover back his money from Macferlan. He was allowed to do so.

After making the defendant liable to restore the money Lord MANSFIELD continued as follows: After stating that such money cannot be recovered where the person to whom it is given can “retain it with a safe conscience”, he stated that “here it lies for the money paid by mistake; or upon a consideration which happens to be fail; or for money got through imposition;

or extortion; or oppression; or for an undue advantage taken off the plaintiff’s situation, contrary to laws made for the protection of the 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 ties of the natural justice and equity to refund the money. ”

POSITION AFTER THE CASE

(Moses v. Macferlan in year 1760) A liability of this kind is hard to classify as: Partly it resembles liability under the law of tort in as much as it arises independently of any contract. Partly it resembles to contract in as much as it is owed only to one party and not to the “persons generally”.

Thus it can be accounted for either under an implied contract or under natural justice and equity for the prevention of unjust enrichment. But Lord MANSFIELD preferred the latter theory that the bases for quasi contracts are for the purpose of prevention of unjust enrichment.

THEORY OF IMPLIED-IN-FACT CONTRACT

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. But apart from this it should be observed that did not use the word equity to denote the jurisdiction of chancery but the synonym for “jus naturale”. Nor, while he based the obligations of quasi contract upon the duty of restoring benefits unjustly obtained, did he assert that in every such case an action would lie. As he declared in Weston v. Downes, ‘I am a great friend to the action for money had and received, and therefore

I am not stretching, lest I should endanger it’ thus the principle of unjust benefit explained the cases falling within the scope of quasi contracts: it did not automatically invoke the remedy.

Subject to these qualifications the rationalization of the quasi contract upon the basis of unjust benefit was accepted for over a hundred years. But when, in the course of the nineteenth century, the form of the action was replaced by the dichotomy of tort and contract, Lord Mansfield’s views were challenged. According to Lord SUMNER in Sinclair v. Brougham in 1914 “the various actions grouped under the title of quasi contract were clearly not tortious; if the new antithesis of the common law were inevitable they must perforce be contractual.

And as they were equally clearly not based on any genuine consent, they must rest upon an implied and hypothetical agreement”. Such at least was the conclusion of Lord Sumner. After this decision it becomes fashionable to discard Lord MANSFIELD’S formulation and to rely upon an implied-in-fact contract. After that it was Lord HALDANE who maintained that common law knows personal actions of only two classes, namely those who founded on contract and those who founded on tort. When it speaks of action arising quasi ex contractu it refers to only a class of action in theory which is imputed to the defendant by fiction of law. Lord PARKER expressly pointed out that if a promise to pay back an ultra virus loan could be imputed to the company as quasi contractual obligation, the result would be to validate a transaction which has been declared to be void on the ground of public policy and

the law would be enforcing a notional contract where a express contract would have been void.

This approach dominated the decisions for a long time and the decision was taken to have settled that the juridical basis for the quasi contract was the implied, notional or the fictional contract. Where the circumstances of the case do not lead to an inference of this kind or where such inference would be against the law, no liability will arise.

RESTORATION OF THEORY OF UNJUST ENRICHMENT

The identification of quasi contracts with the implied contracts restricted the scope of relief which would have been possible without any such indrance under the principle of “natural justice and equity”. The suffocation was felt by House of Lords itself in Fibrosa Spolka Akeyjna v. Fairbain Lawson Combe Barbour Ltd. The facts of the case are as follows:- A sum of money was paid in advance under a contract for the supply of a machine Or ‘for the supply of machinery’, and the performance was obstructed by the outbreak of war. Their Lordship allowed the advance to be recovered back as having paid for a consideration which had wholly failed. Lord WRIGHT lent a support to Lord MANSFIELD’S theory of unjust enrichment.

He observed: “It is clear that any civilized system of law is bound to provide remedies for the cases of what has been called unjust enrichment or unjust benefit that is to prevent a man from retaining the money of or some benefit derived from, another which is against the conscience that he should keep. Such remedies in English law are generally different from remedies in contract or tort, and are now recognized to

fall within a third category of the common law which has been called quasi-contract or restitution” Support for this approach is also to be found in Lord ATKIN’S speech in United Australia Ltd.

Barclays Bank Ltd. Thus Academic, as well as judicial, opinion has been divided upon the merits of Lord Mansfield’s Doctrine. But in the leading modern discussion, Goff and Jones have accepted as its rationale the principle of unjust benefit or unjust enrichment. This principle presupposes three things: First, that the defendant has been enriched by the receipt of a benefit; Secondly, that he has been so enriched at the plantiff’s expense; Thirdly, that it would be unjust to allow him to retain the benefit.

POSITION OF QUASI CONTRACT IN INDIAN LAW

Chapter V of the Indian contract Act 1872 deals with the situations qualifying the quasi contractual obligations under the heading “Of certain relations resembling to those created by contract”. The chapter avoids the words “quasi contract”, and in view of the clear statutory authorization of the courts in India is not hindered in allowing relief under the different sections of the Act by the theoretical considerations concerning quasi contracts. But the English cases do provide valuable guidance: Not only as to the scope of the relief

But also as to the way the provisions should be interpreted to keep hem in tune with the changing notions of justice. Provisions under Indian contract law:- Section 68 to 72 of the Indian Contract Act 1872 provides for five kinds of quasi-contractual obligations they are as follows:- supply of necessaries [sec. 68] payment by interested person [sec. 69] Liability to pay for non-gratuitous acts [sec. 70] finder of

goods [sec. 71] Mistake or coercion [sec. 72] SUPPLY OF NECESSARIES [SECTION 68]

Where necessaries are supplied to a person who is incompetent to contract or to someone who is legally bound to support, the supplier is entitled to recover the price from the property of the incompetent person.

CLAIM FOR THE NECESSARIES SUPPLIED TO PERSON INCAPABLE OF CONTRACTING, OR ON HIS ACCOUNT: “If a person, incapable of entering into a contract or anyone whom he is legally bound to support, is supplied by the 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”.

PAYMENT BY INTERESTED PERSON 

Reimbursement by a person paying money due by another, in payment of which he is interested: 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. Illustration:- B holds a land in Bengal, on a lease granted by A, the Zamindar.

The Revenue payable by A to the Government being in arrears, his land is advertised for the sale by the government. Under the Revenue Law, the consequences of such sale will be the annulment of B’s Lease. B, to prevent the sale and 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.

PAYER MUST BE INTERESTED IN MAKING PAYMENT

The first condition for establishing the liability is that the Plantiff should be interested in making payment. The interest which the plantiff seeks to protect must

be of course legally recognizable. Allahabad High Court in Munni Bibi v. Triloki Nath, and accordingly Madhya Pradesh High Court in Transworld Shipping Services v. Owners etc. has held that the plantiff’s honest belief that he has an interest to protect is enough for provide him reimbursement under this section.

BUT SHOULD NOT BE BOUND TO PAY

The second essential condition is that it is necessary that the plantiff himself should not be bound to pay. He should only be interested in making the payment only for the purpose of protecting his own interest. Where a person is jointly liable with others to pay, a payment by him of the others’ share would not give him a right of recovery under this section.

DEFENDANT SHOULD BE UNDER A LEGAL COMPULSION TO PAY

Thirdly the defendant should have been “Bound by Law” to pay the money. The words “bound by law” have been held after some hesitation, to mean bound by law or by contract. It is not necessary that the liability should only be statutory. In a judgment of Privy Council it was held that it is enough that “the defendant at the suit of any person might be compelled to pay” Thus it has to be kept in mind as held by Madras High Court in Raghavan v. Alameru Ammal, that where a person is morally bound and not legally compellable to pay, he will not be bound to pay the party discharging his moral obligation.

PAYMENT SHOULD BE MADE BY ONE PARTY TO SOME OTHER PERSON

Lastly the Plantiff should have made payment to some other person and not to himself. As for example in Secretary of State for

India v. Fernandes, a certain government was a tenent of a land and paid to itself out of the rent due to the Landlord the arrears of the Land Revenue due to itself, the government could not recover from the Landlord. This did not come within the principle of this section as this is not a “payment to another”.

LIABILITY TO PAY FOR NON GRATUITOUS ACTS

Obligation of a person enjoying benefit of a non-gratuitous 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 make compensation to the former in this respect of, to restore, the thing so done or delivered.

Illustrations

A, a tradesman leaves his good at B’s place/home by mistake. B treats the goods as his own. He is bound to pay A for them. b)      A saves B’s property from fire. A is not entitled to compensation from B, if the circumstances shows that he intended to act gratuitously. Conditions of Liability under the section:- According to GAJENDRAGADEKAR J (afterwards CJ) stated in State of West Bengal v. B. K. Mondal and sons “The condition on which the liability under this section arises would be:- A person should lawfully do something for another person or deliver something to him; In doing the said thing or delivering the said thing he must not intend to act gratuitously; and The other person for something is done or to whom something is delivered must enjoy the benefit thereof. ”

He should have contemplated being paid from the very beginning. in Municipal council, Rajgarh v.

MPSRTC it was held that the Municipal Council which constructed and maintained a bus –stand was allowed to recover some charges from bus operators who used the stand though there was no agreement to that effect.

SECTION WOULD NOT ENCOURAGE OFFICIOUS INTERFERENCE IN AFFAIRS OF OTHERS

Secondly the person to whom the act is done is not bound to pay unless he had the choice to reject the services. If a person delivers something to another, it would be open to the latter to refuse to accept the thing and return it/: in that case section 70 would not come into operation. “In other words, the person said to be liable under section 70 always has the option not to accept the thing. It is only where he voluntarily accepts the thing or enjoys the work done that the liability under section 70 arises”. In the application to this principle, the courts have had to strike a balance between two factors. Firstly, the rule cannot be used by anybody to make officious interference in the affairs of another. Secondly the court will not compel a person to pay for the services which have been thrust upon him against his will.

REQUEST FOR SERVICES CREATES IMPLIED PROMISE TO PAY

Yet the third necessity is that services should have been rendered without any request. Reasonable compensation may, however, be recovered for the services rendered at request. This has been so held by the Supreme Court in State of West Bengal v. B. K. Mondal & Sons: Facts of the Case In this case the plantiff, on the request of an officer of the State of West Bengal, constructed a kutcha road,

guard room.

Office and etc. for the use of the Civil Supplies Department of the government. The State accepted the work but tried to escape the liability under the pretence that no contract has been concluded in accordance in accordance with the requirements of section 175(3) of the Government of India Act 1935 (now Article 299 of the Constitution of India). the Contractor finally was forced to use his luck with the state under Section 70 of this Contract Act, 1872 and finally supreme court held that the State is liable to reimburse the contractor.

The principle of this case has been reaffirmed by the Supreme Court in Pillo Dhunjishaw Sidhwa v. Municipal Corporation of the City of Ponna LAWFUULY DOES”:- Fourthly, services should have been rendered lawfully. It has been a point of emphasis that between the person claiming compensation and the person, against whom it is claimed, some lawful relationship must exist and it should arise by reason of the fact that has been done for the former which has been accepted and enjoyed by the latter.

NON-GRATUITOUS ACTS

In the fifth place, the person rendering services should not have intended to act gratuitously. The decision of the Madras High court in Damodara Mudalair v. Secretary of State for India is the leading authority. in this case a number of villages were drawing irrigation waters from the tank. Some of the villages were under the direct state tenancy, other Zamindar. The government carried out repairs to the tank for its preservation. The Zamindar has also enjoyed the benefit of the repairs. so it was accordingly held that Zamindar is liable to make proportional contribution towards the expense

of the repairs.

ENJOYS THE BENEFIT

Lastly the defendant must have enjoyed or derived a direct benefit from the payment or services. As for where no services have been rendered at all, for example where the government cancelled a lease granted to the plantiff by an officer who was not so authorized, no relief can be allowed under the section.

FINDER OF GOODS

Responsibility of finder of goods: A person, who finds goods belonging to some another and takes them into his custody, is subject to the same responsibility as a bailee. Thus in respect of duties and liabilities, a finder is treated at par with bailee. The finder’s position is therefore considered along with bailment.

MISTAKE OR COERCION

Section 72 deals with the payments made or things delivered under mistake or coercion. Liability of a person to whom money is paid, or things delivered, by mistake or under coercion: - A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

Illustration: A and B jointly owe 100 rupees to C. A” alone pays the amount to C and B, not knowing the fact pays another 100 rupees to C. C is bound to repay the amount to B. A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge of carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.

Mistake of Fact or Mistake of Law:- Money paid under mistake is recoverable irrespective of the fact that whether the mistake is of fact or

of law. The controversy between the High Court Decisions as to whether money paid under mistake of law could be recovered was set at rest by the Privy Council in Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nanadi, “The Payment by Mistake” in section 72 must refer to a payment which was not legally due and which could not have been enforced: the “Mistake” is on thinking that the money paid was due when in fact, it was not due. There is nothing in section 72 to relate with that whether the mistake is of law or of a fact.

REFUND OF TAX MONEY PAID WITHOUT BEING DUE

The Supreme Court in its decision in Sales tax Officer, Banaras v Kanhaiya Lal Mukund Lal Saraf has accepted this interpretation of section 72. “A certain amount of the Sales Tax was paid by a firm under the U. P. Sales Tax Law on its forward transactions and subsequently to the payment; the Allahabad High Court ruled the levy of the sales tax on such transaction to be ultra virus. The firm sought to recover back the tax money. And as far as English, American and Australian Laws and their contentions are concerned they do not allow the payments made under mistake of law to be recovered.

COERCION

The word “coercion” used in this section is used in the general sense and not as defined in section 15. Thus the money paid under pressure of circumstances, such as prevention of the execution of a decree on a property in which the party paying is interested, may be recovered even though “coercion” as defined in sections 15 is not established.