Law Optional (?Quasi-Contracts) by Rajnish Jindal

Model Answer

Question #1. “In a quasi-contract, the promise to pay is always an implication of law and not of fact”.  10 marks (150 words)

Quasi-contracts are a concept under the Indian Contract Act, of 1872, that governs situations where there is no express or implied contract between parties but still imposes an obligation on one party to pay the other party. It is also known as a “constructive contract” or “implied-in-law contract.” This type of contract arises to prevent unjust enrichment of one party at the expense of the other party. Quasi-contracts are based on the principle of equity and justice, rather than a mutual agreement between the parties.

Anson has written that the term "quasi-contract" is not a happy term. Sir Frederick Pollock has preferred the term 'constructive contract Pollock &Mulla has also remarked, the expression 'quasi-contract' is a misnomer.

Lord Mansfield who is considered to be the real founder of such obligation explained them on the principle that law as well as justice should try to prevent unjust enrichment i.e., enrichment of one person at the cost of another.

Rationale: Theory of Unjust Enrichment: The theory that underpins quasi-contractual responsibilities is still being worked out. Lord Mansfield, widely regarded as the real founder of such obligations, justified them based on the premise that law and justice should strive to prevent "unjust enrichment," or the enrichment of one person at the expense of another. An explanation was given by his lordship in Moses v. Macferlan. In Moses v. MacFerlan, (1760) case, Jacob issued four promissory notes to Moses and Moses 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 stating that such money cannot be recovered where the person to whom it is given can 'retain it with safe conscience'.

Theory of Implied in-fact Contracts: After the decision by the House of Lords in Sinclair v. Brougham case, Lord Mansfield’s theory was not considered and the Implied In-fact Contract theory gained a lot of attention. It was declared in that case that liabilities were taken under the premise of a quasi-contract that were against and not within the ambit of the law. It was mentioned that common law recognises just two types of personal actions: those based on contract and tort and that quasi ex-contractu only refers to a hypothetical class of action that is attributed to the defendant by a legal fiction.

In Sinclair v. Brougham, (1914) case, a building society undertook banking business which was outside its objects and therefore, ultra-vires. The society came to be wound-up. After paying-off all the outside creditors, a mixed sum of money was left which represented partly the shareholder's money and partly that of the ultra-vires depositors, but was not sufficient to pay both of them.

The House of Lords allowed ratable (paripassu) distribution of the mixed fund among the claimants, but did not allow any remedy under quasi-contract.

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 national contract where an express contract would have been void.

Restoration of theory of Unjust Enrichment: After a long time, it was observed that the implied in-fact contract theory was going against the law and justice and there was a restoration of theory of unjust enrichment. This was due to the decision taken in the case FibrosaSpolkaAkeyjna v. Fairbairn Lawson combe Barbour Ltd. It was observed that the remedies resulting from such obligations are neither contracts nor torts. They belong to a separate category than these two: 'quasi contract or restitution.' The precious notion was also found to be against public policy and in violation of the law. Unjust enrichment demands that the defendant be "enriched" by receiving a "benefit," that this enrichment be "at the expense of the plaintiff," and "that the retention of the enrichment be unjust".

The Indian Contract Act deals with the following quasi-contractual obligations:

1. Claim for necessaries supplied to a person incompetent to contract.
2. Reimbursement of money paid, due by another.
3. Obligation of person enjoying benefit of non-gratuitous act.
4. Responsibility of finder of goods.
5. Liability of a person getting benefit under mistake or coercion.

Conclusion: The Quasi contracts are the legal fiction created by the common law courts to protect people from the unjust enrichment. This concept has been helpful to maintain the justice and equity prevalent in many cases and works as a helping hand for the courts. Though it doesn’t belong to the two main branches of the common law i.e., contracts and torts, there can be seen characteristics of both in some circumstances. However, the result of both the quasi contracts and contracts are similar. As Section 73 of the Indian Contract Act, 1872 offers remedies for the breach of quasi-contracts in the same way as the Indian Contract Act, 1872 enables remedies for the breach of express contracts in other sections, the claim for damages is quite similar to that of contracts.

Question #2. Who is a finder of goods? Briefly state his rights and obligations. What is the nature of the lien which he has over the goods? 15 marks (250 words)

Section 71 of the Indian Contract Act, 1872 deals with the finder of goods. A finder of goods means a person who finds goods that belongs to another and place them into his custody. The finder of the goods holds the same position as that of bailee and he is required to take care of the goods in the same manner as is expected out of bailee under Section 151 of the Indian Contract Act, 1872. He is also responsible for all the duties of bailee such as duty to return the goods after the true owner is found. If he refuses to return such goods then he would be made liable for the same.

Rights and Liabilities of a Finder of Goods (SS. 71 & 168-169)

Rights (Ss. 168-169): A finder of goods has the following three rights:

1. He has a right to retain the goods against the When can a Under of owner, until he receives compensation for the trouble and expenses voluntarily incurred by him (a) to preserve the goods and (b) to find out the owner — though he cannot sue for such amount. (S. 168)
2. Where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives (S. 168)
3. When a thing which is commonly the subject of sale is lost, (a) if the owner cannot with reasonable diligence be found, or (b) if he refuses, upon demand, to pay the lawful charges of the finder, the finder may sell it:
   • When the thing is in danger of perishing or of losing the greater part of its value; or
   • When the lawful charges of the finder in respect of it amount to two-thirds of its value. (S. 169)

Under Common Law, a sale by the finder is unlawful. However, the section, which is taken from American law, allows such a sale.

Liabilities (S. 71): A finder of goods is subject to the same responsibility as that of a bailee. (S.71) given in Ss. 151-152, 154, 160-163, 166-167.

The following are the five liabilities (or duties) of a bailee :

1. Care to be taken by the bailee (Ss. 151 & 152): The bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quantity and value as the goods bailed: S. 151. He is not responsible for the loss, destruction or deterioration of the thing bailed if he has taken such care: S. 152.
2. Liability of a bailee who makes unauthorised use of the goods (S. 154): If the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them. (S. 154)
3. Duty of bailee to return the bailed goods (Ss. 160 & 161): It is the duty of the bailee to return, or deliver according to the bailor’s directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished. (S. 160) If due to the default of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time. (S. 161)
4. Bailee’s duty to deliver increase or profit from the bailed goods to the bailor (S. 163): In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed. (S.163)
5. Bailee not responsible for re-delivery to a bailor having no title to the goods (Ss. 166 & 167): If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to the directions of the bailor, the bailee is not responsible to the owner in respect of such delivery. (S. 166)

If a person, other than the bailor, claims goods bailed, he may apply to the Court to stop the delivery of the goods to the bailor, and to decide the title to the goods. (S. 167)