Quasi Contracts: Obligations Resembling Those Created by Contract

The Act's illustrations: A supplies B, a lunatic, with necessaries suited to his condition in life, and is entitled to be reimbursed from B's property; the same where A supplies the wife and children of B, a lunatic.

Four points carry the marks.

1. Who is incapable. A minor under section 11, or a person of unsound mind under section 12. See [A Minor's Agreement Is Void Ab Initio].
2. Necessaries, and suited to his condition in life. Not luxuries. The standard is relative to the person's station, so what is a necessary for one person may not be for another. Food, clothing, shelter, medical care, and in a proper case education and legal advice.
3. The supply may be to a dependant. Anyone the incapable person is legally bound to support is covered, which is what the second illustration makes explicit.
4. Recovery is against the PROPERTY, not the person. This is the crucial limitation, and it is what makes the section consistent with the rest of the Act. The minor is not personally liable, and no decree runs against him. If he has no property, the supplier recovers nothing.

Section 68 is the section that rescues the supplier where [The Minor's Position: Necessaries, Restitution and Ratification] would otherwise leave him with nothing.

Section 69: payment by an interested person

"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."

The Act's illustration is worth learning because it contains every element. B holds land in Bengal on a lease from A, the zamindar. A's revenue to the Government falls into arrear and the land is advertised for sale, the consequence of which under the revenue law would be the annulment of B's lease. B pays A's dues to prevent the sale. A is bound to make good to B the amount so paid.

Three requirements:

1. The plaintiff must be interested in the payment. He need not be legally bound to pay; he must have something to protect. In the illustration, B's interest is his lease.
2. The defendant must be bound BY LAW to pay. A moral obligation is not enough; the liability must be a legal one.
3. The plaintiff must actually have paid. An offer to pay is not enough.

Note the contrast with section 70: under section 69 the plaintiff pays money another is legally bound to pay; under section 70 he does something or delivers something and the other enjoys the benefit.

Section 70: 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 respect of, or to restore, the thing so done or delivered."

The Act's illustrations: A, a tradesman, leaves goods at B's house by mistake, and B treats the goods as his own; B is bound to pay for them. But A saves B's property from fire and is not entitled to compensation if the circumstances show that he intended to act gratuitously.

Three conditions, and all three must be present:

1. The act must be done or the thing delivered lawfully.
2. It must be done not intending to do so gratuitously. Somebody who intends a gift or a favour cannot afterwards charge for it.
3. The other person must enjoy the benefit of it. He must have had the option to accept or reject, and must have accepted. A benefit forced on someone does not attract section 70.

The leading case

State of West Bengal v. M/s B.K. Mondal and Sons, AIR 1962 SC 779.

Facts. The respondent, a firm of building contractors already doing construction work for the Provincial Government, did certain additional construction at the request of the Government's officers. Its bills for that additional work were not paid. It sued, basing its claim on contract and, in the alternative, on section 70. The Government's defence was that there was no valid and binding contract, because section 175(3) of the Government of India Act 1935 required contracts made in the exercise of the executive authority of a province to be expressed to be made by the Governor and executed on his behalf, and that section 70 therefore had no application.

Held. Per curiam, the courts below were right that section 70 applied and the appeal failed. The absence of a valid contract does not exonerate the party who has enjoyed the benefit of work lawfully done for it and not intended to be done gratuitously. Section 70 creates a liability that does not rest on contract at all, and it is therefore not defeated by the very defect that made the contract unenforceable.

Why it matters here. This is the standard problem: a government body or a company takes the benefit of work done under an arrangement that turns out to be void for want of form, and then says there was no contract. Section 70 answers it, and B.K. Mondal is the authority.

Section 71: finder of goods

"A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee."

Short, and it works by cross reference. The finder is not an owner and not a trustee; he is placed in the position of a bailee, which imports the duties of a bailee: to take reasonable care of the goods, not to use them for his own purpose, and to return them to the true owner when found.

The rights that go with it, principally the finder's right to retain the goods against everyone but the true owner, and his lien for expenses, are in sections 168 and 169, which belong to Contract II in Semester 4. For this paper the point is section 71 itself: taking custody of found goods creates a legal obligation, without any agreement.

Section 72: money paid 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."

The Act's illustrations: A and B jointly owe 100 rupees to C; A pays it, and B, not knowing, pays 100 rupees again; C is bound to repay B. And: a railway company refuses to deliver goods except on payment of an illegal charge; the consignee pays to get his goods and is entitled to recover so much of the charge as was illegally excessive.

The leading case

Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf, AIR 1959 SC 135.

Facts. The respondent firm paid sales tax on its forward transactions under assessment orders for the years 1949 to 1951. In 1952 the Allahabad High Court held that the levy of sales tax on forward transactions was ultra vires. The firm applied for a refund. The authorities resisted on three grounds: that the money had been paid under a mistake of law and so was irrecoverable, that the payments were voluntary and made without protest, and that the Government had already spent the money.

Held. The word "mistake" in section 72 comprises within its scope a mistake of law as well as a mistake of fact. A party is entitled to recover money paid by mistake or under coercion, and if the payment, even of a tax, was made under a mistake of law, the receiver is bound to repay it although it was paid voluntarily, subject to questions of estoppel, waiver, limitation and the like. Where a clear provision of law entitles a party to relief, equitable considerations cannot be imported, so the fact that the State had spent the money made no difference.

Why it matters here. English law drew a sharp line and refused recovery for mistake of law. Section 72 in India covers both, and this is the case that says so. It is one of the standard "distinguish Indian and English law" points in this paper.

The five compared

A worked example

A contractor is asked orally by a municipal engineer to construct an additional drain beside the sanctioned work. The corporation uses the drain. It then refuses payment, saying its own regulations required a written work order and none was issued.

• Is there a contract? Probably not, if the required form was mandatory.
• Section 70? Take the three conditions. The work was done lawfully; it was plainly not gratuitous, since a contractor does not build drains as a gift; and the corporation enjoyed the benefit by using it. All three are satisfied.
• Does the absence of a valid contract defeat the claim? No. That is precisely what B.K. Mondal decides: section 70 does not rest on contract, so the defect that destroyed the contract does not destroy the section 70 claim.
• What does the contractor get? Compensation for the work, not the contract price as such. Section 70 gives compensation in respect of the thing done, which is a restitutionary measure.

Change the facts: the contractor built the drain without being asked and against the corporation's stated wishes, and the corporation fenced it off and never used it. Section 70 fails, because the corporation did not enjoy the benefit and had no opportunity to reject it before it was built.

What it does NOT mean

"A quasi contract is an implied contract." It is not. In an implied contract under section 9 there is a real agreement made by conduct. In a quasi contract there is no agreement at all and the law imposes the obligation.

"Section 68 makes a minor liable." It does not. Recovery is out of the minor's property, and there is no personal liability.

"Section 70 lets you charge for any benefit you confer." It does not. The act must be lawful, must not be intended gratuitously, and the other party must actually have enjoyed the benefit, which imports an opportunity to reject.

"Money paid under a mistake of law cannot be recovered." That is the English rule. Section 72 covers mistake of law as well, and Kanhaiya Lal so holds.

"A finder becomes the owner." He does not. He is placed in the position of a bailee under section 71.

Quick revision

• Heading: "Of certain relations resembling those created by contract". No offer, no acceptance, no consideration. Basis: unjust enrichment.
• s.68 necessaries to an incapable person or his dependants: reimbursement from his property, never personally.
• s.69 payment of money another is bound by law to pay, by a person interested in the payment: reimbursement.
• s.70 lawful, non-gratuitous act or delivery, benefit enjoyed: compensation. B.K. Mondal, AIR 1962 SC 779: the section does not rest on contract, so an invalid contract is no defence.
• s.71 finder of goods: responsibility of a bailee.
• s.72 money paid or thing delivered by mistake or under coercion: must be repaid. Kanhaiya Lal, AIR 1959 SC 135: mistake includes mistake of law, unlike England.

Test yourself

1. Why are sections 68 to 72 not really contracts? Because there is no proposal, acceptance or consideration. The obligation is imposed by law on the principle of unjust enrichment, and the Act's own heading says these relations merely resemble those created by contract.

2. State the three conditions for a claim under section 70. The act must be done or the thing delivered lawfully; it must not be intended to be done gratuitously; and the other person must have enjoyed the benefit of it.

3. A government body takes the benefit of work done under an agreement void for want of statutory form. Can the contractor recover? Yes, under section 70. In B.K. Mondal the Supreme Court held that section 70 creates a liability which does not rest on contract, so the absence of a valid contract is no answer.

4. Can money paid to a tax authority under a mistake of law be recovered? Yes. In Kanhaiya Lal the Supreme Court held that "mistake" in section 72 includes a mistake of law as well as of fact, and that the payment being voluntary and the money having been spent made no difference, subject to estoppel, waiver and limitation.

5. A supplies necessaries to a minor who owns a house but has no cash. What is A's remedy? Reimbursement from the minor's property under section 68. There is no personal liability, so if the minor had no property A would recover nothing.