Chapter V of the Indian Contract Act, 1872 deals with "certain relations resembling those created by contract". It incorporates those obligations which are known as "quasi-contract" under English law. The basis of the obligation is that no one should have unjust enrichment benefit at the cost of the other. If A gets unjust enrichment at the cost of B, A has an obligation to compensate B for the same For instance. A and B jointly owe 100 rupees to C, A alone pays the amount of C and B, not knowing this fact pays 100 rupees over again to C. C is bound to repay the amount of B.
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 that is, enrichment of one person at the cost of another".
Moses v. MacFerlan, (1760) 2 Burr 1005: 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'.
Sinclair v. Brougham, (1914) AC 398: A building society undertook banking business which was outside its objects and therefore, ultra virus. 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 virus depositors, but was not sufficient to pay both of them.
The House of Lords allowed ratable (pari passu) 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.
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.
Illustrations
(a) A supplies B, lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B's property.
(b) A, supplies the wife and children of B a lunatic with necessaries suitable to their condition in life. A is entitled to be reimbursed from B's property.
Essentials
(i) if a person supplies necessaries to a person who is incapable of contracting or to anyone whom he is legally bound to support.
(ii) the necessaries must be suited to his condition in life,
(iii) the person supplying the necessaries is entitled to be reimbursed,
(iv) the liability of such person incapable of contracting is limited to his property or in other words he incurs no personal liability for the obvious reason that he is incompetent to contract
Chappel v. Cooper, (1844) 13 M&W 252: Things necessaries are those without an individual cannot reasonable exist. It includes food, clothes lodging etc.
Nash v. Inman, 1908 KB: To held liable a person following two things must be proved,-
(a) the goods supplied were suitable to the condition in life.
(b) the person was not sufficiently supplied with the goods of that class.
Illustration
B holds land in Bengal, on a lease granted by A, the Zamindar. The revenue payable by A to the Government being in arrear, his land is advertised for sale by the Government. Under the revenue law, the consequence of such sale will be the annulment of B's lease. B to prevent the sale and the consequent annulment of his own lease, pays the Government the sum due from A. A is bound to make good to B the amount so paid.
Secy of State for India v. Fernandes, (1907) 30 Mad 375: Where a certain Government was the tenant of a land and paid to himself act of the rent due to the landlord the arrears of land revenue due to itself, the Government could not recover from the landlord. It was a transfer of money from one head to another within the Government and not payment to another and though it was done to save the land from being sold in execution, it did not come within the principle of the section.
Illustrations
(a) A, a tradesman, leaves goods at B's house 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 show that he intended to act gratuitously.
V.R. Subramanyam v. B. Thayappa, (1961) 3 SCR 663: where a contractor whose work has been accepted by the other party claims compensation under an oral agreement, which he is not able to prove he would still be entitled to compensation under section 70.
State of West Bengal v. S.K. Mondal, MANU/SC/0114/1961 : AIR 1962 SC 779: Where a claim for compensation is made under section 70, by one person against another, it is not on the basis of any subsisting contract between the parties, it is on the basis of the fact that something was done by the party for another and the said work has been voluntarily accepted by the other party.
Secretary of State v. G.T. Sarin & Co., ILR 11 Lah 375: A person without an enforceable contract in his favour supplying goods to a government department is entitled to a money equivalent of the goods delivered, assessed at the market rate prevailing on the date on which supplies were made.
There are following duties of a bailee under the Indian Contract Act, 1872-
(a) Duty of reasonable care (section 151);
(b) Duty not to make unauthorised use (section 154);
(c) Duty to return (section 160);
(d) Liability for any loss, destruction or deterioration (section 161).
Union of India v. Amar Singh, (1960) 2 SCR 75: The Apex Court ruled that the statutory fiction by which a contract of bailment is inferred between a finder of goods and the real owner should not be enlarged by analogy or otherwise and, therefore, a railway authority which took into its custody wagons containing the plaintiff's goods and which were left across the border in Pakistan became the contractual bailee of goods, and it was not necessary to regard them as finders within the meaning of this section.
Illustrations
(a) A and B jointly owe 100 rupees to C. A alone pays the amount to C, and B not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B.
(b) A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for 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 illegal and excessive.
Somaiya Organics (India) Ltd. v. State of Uttar Pradesh, MANU/SC/0268/2001 : AIR 2001 SC 1723: The principle of unjust enrichment cannot be extended to give a right to the state to recover or realise vend fee after the concerned statute for realisation or recovery of vend fee has been struck down.
Mulamchand v. State of Madhya Pradesh, MANU/SC/0009/1968 : AIR 1968 SC 1218: The Supreme Court held that a person who seeks restitution has a duty to account to the defendant which he received in the transaction in which his right to restitution arise.
Mafatlal Industries Ltd. v. Union of India, MANU/SC/1203/1997 : (1997) 5 SCC 536: No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end also collect the same duty from the state on the ground that it has been collected from him contrary to law.
HUDA v. Babeswar Kahhar, AIR 2005 SC 1491: Where there was delay in communication of non-acceptance of plot allotted by Development Authority and the delay was caused due to postal holiday and closure of office of Development Authority, the respondent could not be put to loss therefor. The principle of "lax non cogit ad impossibilia" and "actus curiae nominem gravabit" would apply.
Seth Kanhaiyalal v. The National Bank of India, MANU/PR/0004/1923 : AIR 1923 PC 114: The word 'coercion' is used in the section in its general sense and not in the sense as defined in section 15.
Union of India v. SAIL, MANU/OR/0021/1997 : AIR 1997 Ori 77: Money paid under mistake is recoverable whether the mistake of fact or law.
Union of India v. Raj Industries, AIR 2000 SC 3500: The Supreme Court held that where there is a claim for refund of any duty or tax paid it is not enough to look into the merits of the case but the principle of unjust benefit has also to be kept in mind.
Thus if it is found that the duty recovered is not lawful, but if the burden of duty has already been passed on to the third parties, then on the principle of unjust enrichment the refund application will be dismissed.
When one of the parties makes a breach of contract, the following remedies are available to the other party,-
(a) Damages,
(b) Quantum Meruit,
(c) Specific performance and injunction.
A right without remedy is of no avail, therefore, must provide for the remedies available to persons if their rights are violated. According to Anson, the remedies for breach of contract may be classified into the above heads,-
Remedy by way of damages is the most common remedy available to the injured party. This entitles the injured party to recover compensation for the loss suffered by him due to the breach of contract.
When the injured party has performed a part of his obligation under the contract before the breach of the contract has occurred. According to Anson-if the injured party, when the breach occurs, has already done, part, though not all of what he was bound to do under the contract, he may be entitle to claim the value of what he has done.
The law relating to specific performance and injunctions has been dealt in the Specific Relief Act, 1963 and is mainly discretionary in valuer.
Such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach.
When an obligation resembling those created by contract has been incurred and has not been discharged, and person injured by the failure to discharge it is entitled to receive the same compensation from the party in default as if such person had contracted to discharge it and had broken his contract.
Explanation.-In estimating the loss or damage arising from a breach of contract, the means which existed or remedying the inconvenience caused by the non-performance of the contract must be taken into account.
Illustrations
(a) A, contracts to sell and deliver 50 maunds of saltpetre to B at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered.
(b) A hires B ship to go to Bombay, and there takes on board, on the first of January, a cargo, which A is to provide, and to bring it to Calcutta, the freight to be paid when earned. B's ship does not go to Bombay, but A has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the ship A avails himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expenses.
(c) A contracts to buy of B at a stated price, 50 maunds of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to receive from A, by way of compensation, the amount, if tendered to him B is entitled to receive from A, by way of compensation, the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it.
(d) A contracts to buy B's ship for 60,000 rupees, but breaks his promise. A must pay to B, by way of compensation, the excess, if any of the contract price over the price which B can obtain for the ship at the time of the breach of promise.
(e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that place, starting on a specified day. The boat, owing to some avoidable course does not start at the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After that date, and before the arrival of the cargo, the price of jute falls. The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded is due course, and its market price at the time when it actually arrived.
(f) A contracts to sell and deliver to B on the first of January certain cloth which B intends to manufacturer into caps of a particular kind, for which there is no demand except at that season. The cloth is not delivered till after the appointment time, and too late to be used that you in making caps. B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth and its market price at the time of the delivery, but not the profits which he expected to obtain by making caps, nor the expenses which he has been put to in making proportion for the manufacturer.
(g) A, a ship owner contracts with B to convey him from Calcutta to Sydney in A's ship sailing on the first of January, and B pays to A by way of deposits, one-half of his passage money. The ship does not sail on the first of January, and B, after being, in consequence, detained in Calcutta for some time, and thereby put to some expense proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money A is liable to repay to B his deposits, with interest, and the expense to which he is put by his detention in Calcutta, and the excess, if any of the passage-money paid for the second trip over that agreed upon for the first, but not the sum of money which B lost by arriving in Sydney too late.
The consequence of breach may be endless but there must be an end to the liability. The defendant cannot be held liable for all that follows from his breach. There must be a limit to the liability and beyond that limit the damage is said to be remote and not recoverable.
Hadley v. Baxendale, (1854) 9 Exch 341: The plaintiff's mill had been stopped due to the breakage of a crankshaft. The broken shaft had to be sent to the makers at Greenwich as a pattern for preparing the new one. The defendants, who were common carriers, agreed to carry the broken shaft to Greenwich. The only information given to the carriers was that the article to be carried was the broken shaft of a mill and the plaintiffs were the millers of that mill. Owing to the defendant negligence, the delivery of the shaft was delayed. Due to this delay, the mill remained stopped for a longer time than it would have been, had the shaft been delivered at Greenwich without any delay. The plaintiff brought an action to recover damages for the loss of profits arising out of the delay.
It was held that it could not be contemplated that the mill would be stopped in the usual course of things, by sending the shaft, as the millers might have another shaft in reserve. Moreover the special circumstances were not communicated by the plaintiffs to the defendants. The plaintiff were not entitled to recover the less.
Pannalal Jankidas v. Mohanlal, MANU/SC/0014/1950 : AIR 1951 SC 144: The Patanjali Sastri Justice observed that the party in breach must make compensation in respect of the direct consequences flowing from the breach and not in respect of loss or damage indirectly or remotely caused.
Kas Jamal v. Moolla Dawood Sons & Co., 1916 AC 175: The plaintiff contracted to sell to the defendant 23,500 shares to be delivered and paid for on 30 December, 1911. The shares were tendered on this date but the defendant declined to take delivery or pay for them. At the market price for sales upon that day, there would have been a loss of Rs. 1,09,21,800.
The plaintiff sold the shares only after the February when the loss was of Rs. 79,862,00. The defendant contended that they should be held liable to pay only Rs. 79,86,200.
The defendant were held liable for 1,09,218,00 rupees.
Explanation.-A stipulation for increased interest from the date of default may be a stipulation by way of penalty.
Exception.-When any person enters into any bail-bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or of any State Government gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
Explanation.-A person who enters into a contract with Government does not necessarily thereby undertakes any public duty or promise to do an act in which the public are interested.
Illustrations
(a) A contracts with B to pay B Rs. 1000 if he fails to pay B Rs. 500 on a given day A fails to pay B Rs. 500 on that day. B is entitled to recover from A such compensation, not exceeding Rs. 1000, as the court considers reasonable.
(b) A gives a recognizance binding him in a penalty of Rs. 500 to appear in court on a certain day. He forfeits his recognizance. He is liable to pay the whole penalty.
(c) A, owes money to B, a money-lender, undertakes to repay him by delivering to him 10 maunds of grain on a certain date, and stipulates that, in the event of his not delivering the stipulated amount by the stipulated date, he shall be liable to deliver 20 maunds. This is a stipulation by way of penalty, and B is only entitled to reasonable consideration in case of breach.
(d) A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by five yearly instalments of Rs. 40, with a stipulation that, in default of payment of any instalment, the whole shall become due. This is a stipulation by way of penalty.
Prithvichand Ramchand Sablok v. S.Y. Shinde, MANU/SC/0301/1993 : AIR 1993 SC 1929: A clause in a contract can be described as penal if the party who has to pay a certain amount of money fails to pay the amount within the time stipulated. In such a situation the other party will be at liberty to recover the entire sum with interest and costs. Such a clause would be penal in character. But if half amount is made within the time stipulated, the other party waves his right to the balance amount.
Illustration
A, a singer, contracts with B the manager of a theatre to sing at his theatre for two nights every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contracts. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.
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