The quasi-contract is also known as the implied-in-law contract. This form of contractual arrangement is not really a contract; it is rather an equitable remedy that is awarded by the courts to prevent one of the parties from obtaining undue benefits from another without a contract existing between them. A quasi-contract does not need all the elements of a valid contract, which include offer, acceptance, and mutual consent. Quasi-contractual obligations are enforced when three elements exist: (1) one party has given a benefit to another party, (2) the second party has accepted or was aware of such benefit, and (3) it would be unfair for the second party to keep the benefit without paying for it.
Individuals and businesses don't always have a contract to fall back on or protect their interests. In a commercial setting, how can one ensure fair treatment and uphold their rights without a formal written agreement?
What would happen, for example, if Party A delivered the goods to Party C rather than Party B? Party C enjoys an unfair advantage despite not having a contractual obligation to pay for the product. How can party A get past their setback? In these situations, courts can impose retrospective agreements and even the field. In today’s blog post, we’ll discuss quasi-contracts, their purpose, benefits, and limitations.
A quasi-contract or implied-in-law contract is a legally binding arrangement a court creates between two parties without a true contract. It prevents one party from benefiting at the expense of another party unfairly.
A quasi-contract is not a real contractual agreement agreed upon by both parties but rather a legal remedy to ensure fairness and equity. There’s no need for usual essential elements, such as offer, acceptance, and mutual assent. Courts have the authority to impose obligations against the parties' will or intent. The goal is to establish justice when there is no formal contract or when the contract is not enforceable.
Quasi-contract is not an agreement made voluntarily; rather, it is a judicial imposition of an obligation to avoid injustice arising from an absence of a legal agreement. When no agreement exists but one party benefits the other, quasi-contracts are imposed if allowing the recipient to keep such benefit without compensating him would be unjust. As defined by Cornell Law LII, a quasi-contract is "a legal substitute for a contract imposed by courts to prevent unjust enrichment of one party at the expense of another".
The Latin phrase used for quasi-contract is "quasi ex contractu," meaning "as if from a contract," showing the creation of the fiction that the law deems parties to have created the agreement, despite them not doing so. There are three main cases in which the gap in law is filled by quasi-contracts: parties who started working prior to signing a formal agreement, parties whose agreement was ruled to be invalid after signing it, and parties who have acted on the basis of misunderstanding. Quasi-contracts are important in contract law due to the ability of plaintiffs to recover in cases where there is no valid contract existing between the parties.
Quasi-contracts come in handy in situations where one party receives a benefit from another party without a formal agreement in place. For example, if you hire a contractor to paint your house but never sign a contract, the court may enforce a quasi-contract to ensure that the contractor receives compensation for their services.
The primary purpose of a quasi-contract is to ensure no one unfairly benefits from the goods or services of another without compensation. This is known as unjust enrichment. It is a legal concept that arises when one party benefits at the expense of another in a way that is deemed unfair or unjust.
Quasi-contracts can occur in any of the following four circumstances in practice.
First, performance of services prior to signing of a contract: where a contractor starts performing services based on oral promises during the process of signing of a written contract, if the negotiation of the contract breaks down, then the contractor can sue in quasi-contract for services rendered.
Second, breach of contract: where a contract turns out to be void (because of illegality, incapacity of the contracting party, or fraudulent nature of the contract) the performing party can seek recovery through quasi-contracts.
Third, performance of emergency services: where a doctor performs emergency treatment on a patient in an unconscious state without any consent, law assumes an obligation to pay for services provided.
Fourth, mistaken benefits: Where the contractor makes improvements to the wrong property by mistake, thereby enriching the other party unjustly, payment might be necessary to the contractor in such a case. As Cornell Law LII observes, quasi-contracts are "a remedy for filling gaps left by formal contract law."
In simple terms, unjust enrichment is an instance whereby one party unjustifiably obtains some gain, while the other loses or suffers from it in the process. Unjust enrichment may have wide-ranging ramifications for both parties, including some serious repercussions if the court decides that there has been unjust enrichment. The party that has gained something unjustifiably may be ordered by the court to compensate the other party for the gain received.
Legally, the party that has been enriched unjustly has to pay the value of the benefit received to the other party. It seeks to restore balance by ensuring that one party does not gain at the expense of the other.
Unjust enrichment is an important concept of quasi contracts. An individual is said to be unjustly enriched when he receives some benefit from another individual in such a way that it would be unfair for him to retain the benefit without compensating the other party for it.
In accordance with the Wikipedia definitions of restitution and unjust enrichment, for there to be an unjust enrichment claim, it has to satisfy the following five conditions: (1) enrichment of the defendant, (2) deprivation of the plaintiff, (3) relation between the two, (4) lack of legal justification for the enrichment, and (5) lack of legal remedy for compensation of the enrichment.
The important thing about this definition is the "unjust" aspect. Not all enrichments made without a contract give rise to quasi-contractual obligations. For example, one instance when enrichment does not create quasi-contractual obligations is when it takes place through giving a gift, since in that case, the giver does not expect anything in exchange for the gift. The point is that enrichment should be "unjust," meaning that it must be so against the plaintiff that legally he or she is entitled to be compensated.
Cases of quasi-contracts occur in cases where a person provides benefits to another person in exchange for compensation, although there is no real contract between them. For instance, when a firm employs an IT consultant without having a written contract detailing how much he should be paid for his services.
The next point that arises is whether quasi-contracts can be enforced by law. Well, the answer is yes, as the law recognizes quasi-contracts as enforceable contracts. Nevertheless, the following are some of the conditions that should be fulfilled for the contract to be enforceable:
Benefit Awarded: There must be a benefit conferred from one party to another.
Knowledge of Benefit: The party receiving the benefit must know the benefit.
Unjust Enrichment: The party receiving the benefit must be unjustly enriched if they do not compensate the other party.
If these requirements are met, a court may enforce a quasi-contract to ensure the plaintiff receives fair compensation or restitution for their loss.
In fact, quasi-contracts are legal obligations and in all states in the US quasi-contracts are legally recognized under the quasi-contracts doctrine (which is also referred to as the doctrine of unjust enrichment or quantum meruit based on the circumstances).
Because quasi-contracts exist under the law and not because of the agreement between two people like a contract, there is no need for an offer, acceptance, consideration, among other essential elements of a contract. In cases where the court finds that there is quasi-contractual obligation because of the existence of the elements of quasi-contracts, the court will render a judgment requiring payment for the fair market value of the benefit conferred to the benefited person. The enforcement process of quasi-contracts is basically the same as the enforcement of judgment issued by the court. This is done through wage garnishments, account levies, placing a lien on the property, and others. However, quasi-contracts have unique considerations; they cannot be pursued in case an enforceable contract exists, are subject to statutes of limitation, and they cannot include expectancy damages.
Restitution in a quasi-contract means the process of restoring property to the right owner or giving compensation for all the benefits obtained improperly. To put it simply, restitution is the procedure that makes sure that all the people who have benefited improperly should give up the benefits obtained or pay for them.
The main characteristic of restitution in a quasi-contract is the absence of the contract itself. This kind of restitution appears in case if one person receives a benefit improperly and there is no contract that would regulate the rights and responsibilities of these parties.
In other words, the court takes the decision and gives an order to return the property or pay for the benefit. For example, a contractor can do renovation work on the wrong house. Thus, the court can make the homeowner pay for this work and order the process of restitution.
Restitution is the predominant form of relief in cases of quasi-contracts – it is the avenue through which the law seeks to return the parties back to their state prior to enrichment. While in case of contracts, the damages sought are aimed at returning the plaintiff to his/her pre-breaching state, restitution in cases of quasi-contracts aims at ensuring that there is no unjust enrichment through forcing the enriched person to return the value of the enrichment.
The measure of restitution in such situations is normally the fair market value of the benefit conferred – that is the price which the enriched person could have paid for receiving the same benefit from another independent third party under normal business terms. At times, it is lower than the total cost incurred by the plaintiff (if the plaintiff is inefficient) while at other times it is higher (if the market value is higher than the plaintiff’s expenditure). Essentially, if a construction contractor provides $150,000 worth of services on a void agreement, then restitution means that the property owner reimburses him with the fair market value of the services provided.
The majority of legally binding contracts that people come across daily do not fall under the quasi category. These traditional contracts result from two or more parties mutually agreeing to enter into a legally binding arrangement. The terms of a regular contract are negotiated and agreed upon by all parties involved, and they are typically outlined in a written document signed by each party.
They can cover a wide range of agreements, including employment contracts, rental agreements, sales contracts, and more. These contracts are based on the principle of offer, acceptance, and consideration, meaning that one party makes an offer, the other party accepts the offer, and both parties exchange something of value (consideration) to solidify the agreement.
On the other hand, quasi-contracts are not based on the mutual agreement of the parties involved. Instead, quasi-contracts are created by the court to prevent one party from unjustly benefiting at the expense of another party. In other words, a quasi-contract is a legal fiction created by the court to ensure fairness and equity in situations where no formal contract exists.
Quasi-contracts usually come about in cases where one party has benefitted from another party but has not offered anything in exchange for such benefits. For instance, when you pay a bill belonging to another person by mistake, then the court will impose a quasi-contract whereby the person receiving the benefit will be required to repay you.
It is important to differentiate a quasi-contract from a true contract since there is a distinction in the type of legal relationship created. In a true contract, the parties have entered into a voluntary agreement. The offer is made, accepted, and there is exchange of considerations and the parties have intentions of creating legal relationship.
Quasi-contract is the imposition of the courts where there was no true contract entered into; however, due to fairness reasons the courts will impose the quasi-contract on the parties involved. Implied-in-fact contract is another type of contractual relationship but unlike quasi-contract, the implied-in-fact contract is a true contract since the terms of the contract are implied from the actions of the parties.
In a quasi-contract neither of the parties can demonstrate any such intention; even sometimes they do not realize that a legal obligation is being created for them. It is important to note that in a quasi-contract case the amount of remedy will be lower than in a regular contract case since the latter provides for expectation damages while the former provides for restitution.
Lack of formal agreements or disputes is quite common in commercial transactions. In these situations, quasi-contracts can provide a remedy where there is no explicit contract. They can protect the interests of parties and provide them fair compensation. However, they also come with their own set of pros and cons.
Remedying unjust enrichment: One of the primary benefits of quasi-contracts is that they provide a mechanism to remedy situations where one party has been unjustly enriched at the expense of another party. This ensures fairness and prevents one party from taking advantage of the other.
Enforceability: They are enforceable in court, allowing parties to seek legal remedies in situations where there is no formal contract in place. This provides a level of protection for parties who may not have a written agreement but have still incurred losses.
Compensation: It can be applied to a wide range of situations where there is a need to prevent unjust enrichment. This flexibility allows the courts to adapt the principles of quasi-contracts to various scenarios, ensuring compensation for the parties.
Quasi-contracts provide a number of important benefits for the legal framework and businesses alike. The first benefit that can be highlighted is that quasi-contracts will deal with all possible enforcement loopholes since without quasi-contracts it would not have been possible to solve the problem when someone did some work or provided something and the other side has benefited from this action but there was no signed contract. Thus, without quasi-contracts it would have been possible for someone to walk away from the deal since there were no provisions on that matter especially in business when actions precede paperwork. The second advantage of quasi-contracts is that they provide the incentive to treat others justly as the fear of being sued for unjust enrichment would not let anyone avoid signing a contract to obtain free benefits. The final advantage of quasi-contracts is that they can be seen as the alternative of illegal and defective contracts as people could seek their rights in case they found out that the contract was illegal.
Lack of mutual agreement: One of the main drawbacks is the absence of a mutual agreement between the parties involved. Unlike traditional contracts, where both parties willingly agree, quasi-contracts are imposed by the court based on the principle of unjust enrichment. This lack of mutual consent can lead to contract disputes and resentment between the parties, as one party may feel unfairly obligated to fulfill the terms of the contract.
Uncertainty and ambiguity: Quasi-contracts are often created in situations where there is no explicit contract in place to govern the relationship between the parties. This can lead to uncertainty and ambiguity regarding the terms and obligations of the contract. Without clear guidelines and boundaries, disputes can easily arise, leading to costly legal battles and prolonged conflicts.
Limited flexibility: These contracts are often limited in scope and may not account for all possible scenarios or contingencies. This lack of flexibility can make it challenging to adapt the contract to changing circumstances, potentially leaving one party at a disadvantage.
There are a number of drawbacks of quasi-contracts, which make quasi-contracts legally recoverable less desirable than the enforcement of a valid contract. Firstly, there is no quasi-contracts recovery where there is a valid contract concerning the similar case between the two parties. This means that it will not be possible to file for quasi-contracts while having an existing valid contract on the same case. It will never be possible for a party to seek for quasi-contracts recovery and obtain more than what is provided by the contract despite its market value being higher than that in the contract. Secondly, the recovery under quasi-contracts is always limited to restitution.
The third drawback of quasi-contracts is that the statutes of limitations applicable in quasi-contracts suit may be shorter compared to that in contracts. Fourthly, it takes much effort to prove the elements of unjust enrichment, especially the "unjust" element. Lastly, it is not possible for a party expecting $200,000 worth of profit from a contract to seek for recovery of the lost profits under quasi-contracts because such a party is eligible to fair market value of the services rendered.
Quasi-contracts, which are also called implied-in-law contracts, are legally binding agreements made by the court in order to make sure that one party does not take advantage of another by unjustly profiting from it. Even though quasi-contracts play the role of making sure that both parties are treated fairly and there is no issue of unjust enrichment, they have their downsides as well.
Hence, to eliminate the need for quasi-contracts, the only way out is to have a written agreement for each of the business transactions. They could work with the counterparties to discuss all the terms and conditions. There are various online options these days to automate the whole process. Dock 365 is one of them. We provide our contract management software for your convenience.
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