The term “quasi contract” seems to contradict itself — surely something either is or is not a contract, right?
The answer is a little more complex than that.
In some cases, legally binding agreements can be reached in retrospect and then applied to situations that have already passed.
This makes them distinct from regular contracts, which is where the term quasi contract comes from.
But what exactly is a quasi contract, when is it used, and what elements is it made up of? We’ll be answering these questions and more in this article.
Key takeaways:
- Quasi contracts are imposed by a court to make sure a situation involving multiple parties with conflicting interests is resolved as fairly as possible.
- They’re applied retroactively, which can only happen if there was no official contract to begin with.
- They’re used when one party obtained something from the other without compensating them for it in some way, so the contract outlines the new terms of repayment or compensation
- A quasi contract is a legally binding substitute for an initial contract.
What is a quasi contract?
The easiest quasi contract definition is “a legally binding substitute for an initial contract, which outlines exactly how one party is going to pay the other back for obtaining unjust enrichment”.
(Don’t worry, we’ll define “unjust enrichment” shortly).
Not every situation calls for or requires one of these contracts.
In fact, they rely on someone getting something from someone else without paying them back for it in any way, whether using money or via trade.
Only a court may create a quasi contract, meaning they’re official and can’t be ignored without breaking the law.
Understanding unjust enrichment
When two parties are not able to execute an agreement, it sometimes still happens that one takes something from the other.
For example, an employee might bring a stapler home from the office by accident or simply because there are no official rules prohibiting them from doing so.
In the above example, the employee became one stapler richer, while their employer had a stapler that belonged to them taken away without gaining anything in return.
The employee’s enrichment was, therefore, unjust.
Of course, unjust enrichment usually describes situations on a much bigger scale than this.
The general rule, though, is that it involves one party gaining something at the expense of another.
The party that lost something is also, crucially, not compensated for the items, services, or other property that they lost.
That’s what makes it unjust.
What are the elements of a quasi contract?
Where a standard contract can be as simple or complicated as you need it to be, a quasi contract tends to be simpler.
That’s why most contract management software and similar solutions are designed with traditional contracts in mind since they can have many more components and elements.
On the other hand, there are only three main elements of quasi contracts.
First, the person who’s been wronged has to provide evidence of the things they should’ve been paid for.
This evidence should be substantial and can’t only consist of circumstantial evidence.
It should be clear and unambiguous about the exact nature and value of what was taken.
Second, the person who took the items needs to have gotten some kind of advantage from having done so.
They can’t just take a single paperclip from an office, for example, because that’s highly unlikely to have given them any benefits — or to have harmed the office.
Third, and perhaps most importantly, the person who took the items has to have done so in a situation that did not involve them compensating the one(s) they took those things from.
So, the person who was wronged can’t have been compensated at all.
It’s also important to note that quasi contracts can only come into being when it’s clear and evident that the defendant had no intentions of entering into a legal contract.
That’s when a court’s intervention becomes necessary.
The different types of quasi contracts explained
As complicated as it can get, contract terminology doesn’t have to be inaccessible, particularly when it comes to quasi contracts.
These are classed as per their sections in the 1872 Contract Act — more details on each one below.
Section 68
This applies to people who can’t enter into any kind of contract, and results in the goods in question being given to the incapable person by a third party.
That third-party supplier may then recover the price of the goods from the incapable party’s property, i.e. through repossession.
Section 69
If someone’s made a payment on someone else’s behalf, the person paying is responsible for the complete payment.
This means that the person paying is then also entitled to compensation from the one on whose behalf they’re paying.
Section 70
Someone who receives a delivery, good, or service from another person has to compensate the person they’re receiving things from.
This section only applies to deliveries that happen legally.
Section 71
When someone finds a lost item that belongs to someone else and assumes ownership of it, the finder then carries the same responsibilities as a bailee.
Section 72
Money or deliveries that were handed over via the use of force, coercion, or accident have to be repaid.
Quasi contract examples
To better illustrate what quasi contracts look like in practice, we’ll share some hypothetical quasi contract examples.
An easy everyday example of a quasi contract might involve someone’s online orders being delivered to the wrong address.
If the person to whom they were mistakenly delivered chose to accept and use the items in the order, they might be brought to court to compensate the person who paid for those items.
Not all examples of quasi contracts are quite so cut and dry, however.
That’s especially true when businesses are involved.
Let’s say, for example, that you’re a freelance artist.
A company commissions you to create a piece for them and tells you (in words, not on paper) that you can use whatever items you need from their personal supply.
You deplete several of their supplies — and they then change their mind about commissioning you.
You could demand that a quasi contract be created for the time they took away that you could have spent on more profitable ventures… or they could demand a quasi contract for the supplies you used, since they never put that down on paper.
Quasi contracts: The pros and cons
Although they rarely come with the kinds of contract disputes that tend to crop up when two parties are drafting their own brand-new contract, quasi contracts do also carry their own inherent advantages and drawbacks.
Here’s a quick breakdown of the main ones.
Advantages
First, we’ll look at the things that quasi contracts do well.
The principle of unjust enrichment specifically makes for an excellent legal basis because it relies on creating a fair solution that undoes an injustice.
This makes quasi contracts, by their nature, a legal step towards fixing something that went wrong.
Quasi contracts are also great for protecting vulnerable and especially innocent parties.
If a small business owner has their products taken without compensation, they can rely on quasi contracts to get back the money they need and deserve for those products.
Also, quasi contracts being created by a court order makes them both legally binding and less subjective.
This creates a fairer outcome, in principle, which is always a benefit.
Disadvantages
Like all things, quasi contracts are not without their disadvantages.
For one, they put the onus of proving that something unfair happened on the person to whom it happened.
If you know you’ve had your things taken, and you know who did it, but you don’t have proof, it can be very difficult to have a quasi contract made to fix the damages.
Quasi contracts also come with a hard limit on how much the person who was wronged can be compensated.
They can only recover the value of the goods that were taken from them — they can’t add costs like legal fees or long-term damages.
Additionally, a quasi contract can’t be negotiated or amended in the way that a traditional one can.
That means that neither party gets the chance to edit or adjust parts of it to better suit them once the court has finalized the terms.
For the plaintiff, a quasi contract also represents a complete nullification of any benefits, including financial ones, they earned using the obtained goods.
So, they won’t be able to use what they took to continue making money, even if they were doing so by combining the things they took with their own hard work.
Quasi contract vs. promissory estoppel
In order to properly explain the difference between these two terms, we’ll look at three things in turn.
We’ll begin with a definition of promissory estoppel, followed by considering the similarities between the two terms.
After that, we’ll cover the differences that separate them.
Definition of promissory estoppel
This term applies when there was a promise made by one party to recompense another for services rendered or products provided.
The promise doesn’t need to have been written down or signed, but it should be more than a one-off mention.
The key here is that the promise should be solid enough for a court to recognize that it should be upheld.
Similarities
Both quasi contracts and promissory estoppel are used when there was no formal or official contract in the first instance.
This also means they’re both applied to situations that involve deals or agreements between two parties with different interests.
They’re also both designed to help resolve these types of situations fairly for the party that suffered an injustice because of, or in part thanks to, the lack of a contract.
Differences
While both rely on a type of agreement between two parties, only in the case of promissory estoppel was there a promise made by one party to compensate the other.
This promise wasn’t legally binding but counts as a reasonable expectation.
Quasi contracts can be applied when this is not the case.
That means that quasi contracts tend to be the weapon of choice for parties that know they can’t prove there was a reasonable expectation of a promise being upheld.
Eliminate the need for quasi contracts with effective contract templates
One thing to note about quasi contracts is that you can completely eliminate the need for creating them when you always use robust and legally binding contracts in the first place.
These set up the terms of your interactions with other parties and create a clear legal basis for everything you do.
It’s much easier to create these if you’re using great contract templates.
Aside from helping you format your contracts just right, these templates help you finish crafting contracts far more quickly every time.
That means more contracts with less effort, which ensures you’re completely protected more easily.
That’s why contract templates are so useful — and why it’s well worth using contract management software like PandaDoc, which comes with built-in templates.
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