QUASI-Contracts

SECTION-I : Quasi Contracts

Introduction:

A contract is an agreement that is enforceable by law. Based on formulation methods; a contract can be express, implied or quasi contract. Among these contracts, a quasi contract is a contract that arises in case of certain dealings, which are not, contracts strictly, although the parties act as if there was a contract.

Quasi Contracts:

When one party obtains a benefit at the expense of others, and the circumstances are such that, he ought, equitably, pay for it, the law will compel payment, even though there is no contract between the parties by which payment is promised. Such cases are called quasi contracts because the relationship between parties in such cases resembles those created by contract.

Features:

There are two or more parties.

  • One party benefits at the cost of others.
  • There are no contracts between the parties.
  • The circumstances are such that the benefit receiver should pay the others.
  • So, by law, the parties will be put in a position they would have been if there was a contract between them.

For example, A supplies B, a lunatic person with necessaries suitable to his condition in life. Now, as a lunatic is incapable of entering into a contract, there cannot be any contract between A and B. But B benefits here at the cost of A, and so A should be paid for the supplies. Here the relationship between A and B resembles those created by a contract. Therefore, the court will held that there is a quasi contract and so A should receive payment for his goods from B’s property.

Types of Quasi Contracts:

According to sections 68-72 of the contract act, the following cases are to be deemed as quasi contracts:

  1. Necessaries for incapable persons
  2. Reimbursement of interested persons
  3. Benefit of non-gratuitous act
  4. Finder of goods
  5. Delivery by mistake or by coercion

The cases are described below:

Necessaries for incapable persons:

If a person supplies a person incapable of entering into a contract, with necessaries suitable to his condition in life, then the supplier is entitled to be reimbursed from the property of the incapable person

Section 68 of contract act states that—

“If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by 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.”

This section covers the case of necessaries supplied to a minor, other incapable persons (i.e. lunatic, idiot) and to persons whom the incapable person is bound by law to maintain (i.e. his wife and minor children). It also puts the following regulations in such cases:

  • The supply should be for necessaries.
  • Necessities supplied should meet the incapable person’s condition in life.
  • The price to be paid is reasonable price, not the price the incapable person agrees to.
  • Only the property of the incapable person is liable, not the person.

Examples:

  • A supplies the wife and children of B, an idiot with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.

Reimbursement of interested persons:

If any person becomes bound by law to pay money, and someone other becomes interested to the payment of money and therefore pays it, then he or she is entitled to be reimbursed by the first party.

In section 69 of contract law, it is described as-

“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.”

Requirements: the requirements regarding reimbursement of interested persons are:

  • The payment is to be given to a person interested;
  • The payment is for the protection of his own interest;
  • The person is entitled to repayment;
  • The party must be bound by law to pay.

Examples:

  • B holds land in Bengal on a lease granted by A, the zamindar. The revenue payable by A to the govt. being in arrear, his land is advertised for sale by the govt. Under the revenue law, the consequence of this sale will be annulment of B’s lease. B to prevent the sale and the consequent annulment of his own lease pays to the govt. The sum due from A. A is bound to make good to b the amount so paid.

Benefit of non-gratuitous act:

If a person, legally, does anything for another person, without any intention to do it gratuitously, and the second person enjoys the benefit, then the second party is bound to pay the first.

According to section 70:

“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.” Here, the three requirements that must be fulfilled are-

  • Lawful act
  • Without any intention to do the act gratuitously
  • The second party must enjoy the benefit

Examples:

  • Arif, a tradesman, leaves goods at Barun’s house by mistake. Barun treats the goods as his own. He is bound to pay for them.
  • Azim saves Rafi’s property from fire. Azim is not entitled to compensation from Rafi if the circumstances show that he intended to act gratuitously.

Finder of goods:

If a person finds goods that belongs to someone else, and takes them into his custody, then he is subject to the same responsibility as a bailee.

As we see, in section 71 of contract law-

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

Delivery by mistake or by coercion:

A person to whom money has been paid or anything delivered by mistake or under coercion must return it.

That is, according to section 72:

“A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it.”

Examples:

  • A and B jointly owe 1000 taka to C. A alone pays the amount to C. And B, not knowing the fact, pays tk.1000 over again 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 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 illegally excessive.

Compensation in case of quasi contract:

If an obligation arises that resembles those created by contracts, and has not been discharged, then any party injured by the failure is entitled to receive compensation from the party in default, as if the person had contract to discharge the obligation and had broken the contract.

Section-II: Indemnity

Contract of indemnity:

A contract of indemnity is a contract by which one party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. Here, the first party is called the indemnifier and the second party the indemnity holder.

For example, P contracts to indemnify Q against the consequences of any proceedings, which R may take against Q in respect of a certain sum of Tk. 2000. This is a contract of indemnity, where P is the indemnifier and Q is the indemnity holder.

Characteristics of indemnity:

  • A contract of indemnity must satisfy all the essential elements of a contract
  • It may be expressed or implied
  • It must imply a promise to indemnify

Rules regarding contracts of indemnity:

The Indian contract act does not give an exhaustive definition of contracts of indemnity. It includes-

  • Express promises to indemnify only
  • Only those contracts where the loss arises from the conduct of the promisor or any other person

However, it does not include-

  • Implied promises to indemnify.
  • Cases where the loss arises from accidents and events not depending on the conduct of any person.

When a duty to indemnify rises:

  • From express contracts
  • By operation of law even in the absence of express agreements.

Promise of indemnity:

A promise to indemnify may be express or implied from the circumstances of the case.

Rights of the Indemnity Holder:

SECTION 125 OF THE INDIAN CONTRACT ACT LAYS DOWN THAT THE INDEMNITY HOLDER IS ENTITLED TO GET FROM THE INDEMNIFIER:

  • ALL DAMAGES WHICH HE MAY BE COMPELLED TO PAY IN ANY SUIT IN RESPECT OF ANY MATTER TO WHICH THE PROMISE TO INDEMNIFY APPLIES
  • ALL COSTS WHICH HE MAY BE COMPELLED TO PAY IN SUCH SUITS (PROVIDED THAT HE ACTED PRUDENTLY OR WITH THE AUTHORITY OF THE INDEMNIFIER)
  • ALL SUMS WHICH HE MAY HAVE PAID UPON COMPROMISE OF SUCH SUIT (PROVIDED THE COMPROMISE WAS PRUDENT OR WAS AUTHORIZED BY THE INDEMNIFIER)

BESIDES THE INDEMNITY HOLDER IS ENTITLED TO OTHER EQUITABLE RELIEFS, TOO.

SECTION-III: GUARANTEE

Contract of Guarantee:

A CONTRACT OF GUARANTEE IS A CONTRACT TO PERFORM THE PROMISE OR DISCHARGE THE LIABILITY, OF A THIRD PARTY IN CASE OF HIS DEFAULT.

FOR EXAMPLE, IF P LENDS TK 5000 TO Q AND R PROMISES TO P THAT IF Q DOESN’T PAY THE MONEY R WILL DO SO. THIS IS A CONTRACT OF GUARANTEE. Q IS CALLED THE PRINCIPAL DEBTOR, P THE CREDITOR, AND R THE GUARANTOR OR THE SURETY.

Classification:

CONTRACTS OF GUARANTEE MAY BE OF THREE TYPES:

  1. FOR PAYMENT TO THE CREDITOR TO THE PRINCIPAL DEBTOR BY THE GUARANTEE.
  2. PAYMENT OF PRICE FOR GOODS SOLD
  3. FIDELITY GUARANTEE: TO DISCHARGE THE LIABILITY OF A PERSON FOR GOOD CONDUCT OF A SERVICE HOLDER.

A CONTRACT OF GUARANTEE MAY BE FOR-

  1. A FUTURE DEBT OR OBLIGATION
  2. AN EXISTING DEBT

A GUARANTEE CAN ALSO BE-

  1. A SIMPLE GUARANTEE
  2. A CONTINUING GUARANTEE

Essentials of a valid Guarantee:

  • A contract of guarantee must satisfy all the essential elements of a contract.
  • A contract of guarantee may be oral or written.
  • In a contract of guarantee there are three parties; the creditor, the principal debtor and the surety. All the parties must join the contract.
  • In a contract of guarantee, the primary liability is that of the principal debtor. And the liability of the surety is secondary as it rises only when there is a default of the principal debtor.
  • In a contract of guarantee the principal debtor may be a minor. In  this case, the surety is liable to pay even though the minor may not be. The contract will be enforced as between the surety and the creditor. But in the English law, no liability should be incurred by the surety. The court of king’s bench in case of coutts& co. V. Brown lecky says that, a loan, by way of overdraft made by a bank to an infant being void under sec. -1, of the infant relief act,1874, the guarantors of the loan, where the fact of infancy is known to all parties, cannot be made liable in an action on the guarantee.
  • Consideration: in a contract of guarantee, the consideration received by the principal debtor is taken to be sufficient consideration for the surety. This is because-

“Anything done, or any promise made, for the benefit of the principal debtor may be sufficient consideration for the surety for giving guarantee.”

For example, Sheema requests Laboni to sell and deliver to him goods on credit. Laboni agrees to do so, provided Mollika will guarantee the payment for the price of goods. Mollika promises to guarantee the payment in consideration of Laboni’s promise to delivery the goods. This is a sufficient consideration for Mollika’s promise.

Again, For example, Shaon sells and delivers goods to Saiful. Huda afterwards, without consideration agrees to pay for them in default of Saiful. The agreement is void.

Invalid Contracts of Guarantee:

A contract of guarantee is invalid in the following cases:

1)    Misrepresentation: any guarantee obtained by the misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.

2)    Concealment: any guarantee which the creditor has obtained by means of keeping silence as to material circumstances is invalid.

3)    When co-surety does not join: where a person gives a guarantee upon a contact that the creditor shall not act upon it until another person  has joined in it as co-surety, the guarantee is not valid if that other person does not join.

4)    Lack of essential elements: a contract of guarantee is invalid if it lacks one or more of the essential elements of contract.

 

SECTION-IV:

Difference between Indemnity and Guarantee:

  1. Number of parties: in a contract of indemnity, there are two parties, the indemnifier and the indemnity holder. But in a contract of guarantee, there are three parties: the creditor, the principal debtor and the surety.
  2. Number of contracts among the parties: in a contract of indemnity, it is necessary to have only one contract between the parties. And in a contract of guarantee, it is necessary to have three contracts between the parties.
  3. Type of liability: in a contract of indemnity, the liability of the indemnifier is primary, but in contracts of guarantee, the liability of the surety is secondary.
  4. Rise of liability: in a contract of guarantee, there is an existing debt or duty, the performance of which is guaranteed by the surety. In a contract of indemnity, the liability of the indemnifier arises only on the happening of a contingency.
  5. Legal proceedings: in a contract of indemnity the indemnifier can sue only the indemnity-holder for his loss, because there is no contract between the indemnified and other parties unless there is an assignment on his favor. And in a contract of guarantee the surety can proceed against principal debtor.
  6. Burden of loss: in a contract of indemnity, the loss falls on the indemnifier except in certain special cases. While in contracts of guarantee, the surety, after he discharges the debt owing to the creditor, can proceed against the principal debtor.

Bibliography

  1. Commercial law and industrial law- sen & mitra
  2.  Mercantile law- mc kuchhal
  3.  Law of contract- avtar singh

 

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