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What Is a Quasi Contract?
- How It Works
Quasi Contract vs. Contract
Types of quasi contract.
- Advantages and Disadvantages
- Quasi Contract FAQs
The Bottom Line
- Business Essentials
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
Investopedia / Mira Norian
Quasi contract is another name for a contract implied in law, which acts as a remedy for a dispute between two parties that don't have a contract. A quasi contract is a legal obligation—not a traditional contract—which is decided by a judge for one party to compensate the other. Thus, a quasi contract is a retroactive judgment to correct a circumstance in which one party acquires something at the expense of the other.
These arrangements may be imposed when goods or services are accepted by a party even though they migt not have been requested. The acceptance then creates an expectation of payment for the providing party.
- A quasi contract is a retroactive remedy between two parties who have no contract with one another.
- It is created by a judge to correct a circumstance in which one party acquires something at the expense of the other.
- The plaintiff must have furnished an asset, item, benefit, or service to another party such that the defendant should have known to pay for it.
- The defendant must have accepted, or acknowledged receipt of, the item but made no effort or offer to pay for it even when they know they should.
Understanding Quasi Contracts
Under common-law jurisdictions, quasi contracts originated in the Middle Ages under a form of action known in Latin as indebitatus assumpsit, which translates to being indebted or to have undertaken a debt.
This legal principle was the courts' way of making one party pay the other as if a contract or agreement already existed between them. So the defendant’s obligation to be bound by the an exchange is viewed to be implied by law. From its earliest uses, the quasi contract was typically imposed to enforce restitution obligations.
It would be handed down ordering the defendant to pay restitution to the plaintiff. The restitution, known in Latin as quantum meruit, or the amount deserved, is calculated according to the amount or extent to which the defendant was unjustly enriched.
This remedy is also referred to as a constructive contract as it is constructed by a judge when there is no existing contract between two parties. If there is an agreement or contract already in place, a judge will not create a quasi contract because there is no need to do so.
Implied-in-law contract is an alternate name for a quasi contract.
Quasi contracts outline the obligation of one party to a second when the first receives a benefit or property from the second. A person might knowingly or unknowingly give something of value to another without an agreement being made. It is assumed that a reasonable person would pay for it, give it back, or otherwise compensate the giver upon receiving the item or service.
Quasi contracts are awarded as a remedy to a giver to keep them from being taken advantage of and keep others from being unjustly enriched.
Because the agreement is constructed in a court of law, it is legally enforceable, so neither party has to agree to it. The purpose of the quasi contract is to render a fair outcome in a situation where one party has an advantage over another. The defendant—the party who acquired the property—must pay restitution to the plaintiff—the wronged party—to cover the value of the item.
Certain aspects must be in place for a judge to issue a quasi contract:
- One party, the plaintiff , must have experienced a loss as a result of a transfer.
- The defendant must have or acknowledged receipt of and retained the item of value, but made no effort or offer to pay for it.
- The plaintiff must then demonstrate through burden of proof why the defendant receive an unjust enrichment.
- The item or service cannot have been given as a gift.
- The defendant must have been given a choice to accept or deny the benefit.
- Only Implied in Law : Implied in law means that a payment obligation is created by law, in this case, a judge who renders a remedy.
- Ordered by a Judge : Quasi contracts are ordered by a judge because contracts implied in law are not covered under contract law.
- No Contract Exists : Quasi contracts are not contracts, they are remedies for disputes between parties that are the result of one party receiving an unjust enrichment.
- Can Be Express or Implied : There are generally two types of contracts, express and implied. An express contract is one where terms are laid out and both parties agree to abide by the terms. An implied contract is one where mutual assent is given for an exchange, but there are no explicit terms.
- Initiated by Party Agreement : The parties involved in an exchange agree to the exchange.
- A Legal Contract Exists : Express and implied contracts are legally recognizable and enforceable.
The types of quasi contract are outlined in sections 68 thru 72 of the Contract Act of 1872, as follows:
- Section 68: A person who is incapable of making contracts is provided with the supplies by a third party on behalf of the incapable person or anyone he is legally obligated to support. Third parties can recover the price of the supplier from the property of the unable person.
- Section 69: A person who makes a payment on behalf of another party is obligated to pay the money according to law. Therefore, the person who made the payment is entitled to reimbursement from the other party.
- Section 70: When a person does something lawfully for another person, or delivers something without intending to do the same gratuitously, the receiving party is obliged to compensate the former party.
- Section 71: A person who finds goods that belong to another party and takes ownership of them has the same responsibility as a bailee.
- Section 72: Someone who has been paid or delivered under coercion or mistakenly must repay or return the money.
Unjust enrichment is what happens when an individual benefits from a situation inappropriately, either because of luck or because of another person's bad fortune.
Advantages and Disadvantages of Quasi Contracts
Advantages of using a quasi contract include the fact that these legal instruments are typically based on the unjust enrichment principle. This prevents one party from gaining an undue advantage over another. Thus, it is a safeguard for innocent victims of wrongful acts and a legal alternative to compensation for damages, ensuring that the one who provides services or goods gets compensated for the same. In order to comply with quasi contracts, all parties involved are obliged to follow them, as they are created by court order.
There are also some drawbacks or limitations. Those who received benefits negligently, unnecessarily, and by miscount will not be held liable. Although a person can be liable under a quasi contract, he cannot be charged more than the amount he has received under the contract. Thus, there is no provision available for the recovery of more amount than that which has been received by the plaintiff - if the plaintiff obtains only part of the services/goods that he contracted for originally, he cannot claim a compensation as the whole amount is not recovered.
If there's an express agreement between the parties, plaintiffs have to give up all profits. Though a quasi contract is a legal remedy that provides protection from unjust enrichment of the beneficiaries of the services or goods, a plaintiff can get relief only if he can prove that he has suffered losses due to the breach of the contractual obligations of the defendant.
Quasi Contract Pros and Cons
Prevents one party from unfairly benefitting at the expense of another
Court order is legally binding
Not suitable in all cases
Amount cannot include additional damages
What Are Quasi Contracts?
A quasi contract is also known as an "implied contract," in which a defendant is ordered to pay restitution to the plaintiff, or a constructive contract, meaning a contract that is put into existence when no such contract between the parties exists.
What Is a Quasi Contract in Simple Words?
A quasi contract is an obligation between two parties created by a court order rather than an agreement between the parties to prevent enrichment.
What Is a Quasi Contract Example?
An example might be if Person A offers to pay Person B to help them move to a new apartment, and agrees to pay the $100 for the help. The agreement is verbal and not a formal contract. Person B commits to the job, turns down a different job, and shows up on the required day to help with the move. But when Person B shows up, Person A tells them that they are not needed after all and that the job is canceled. Person B files a civil suit to have the missing money paid and a quasi contract might be instituted, if the judge agrees that money is owed.
With a quasi contract, a defendant is required to behave as if there was a legal contract with the plaintiff. It is designed so that one party is not unjustly enriched at the expense of the other. Unjust enrichment is when someone benefits unfairly, either due to circumstance or the other party's misfortune. A quasi contract is rendered by a judge, as a settlement, after the fact, when a formal contract otherwise did not exist.
College of William & Mary Law School, William & Mary Law School Scholarship Repository. " The Concept of Benefit in the Law of Quasi-Contract ," Page 3.
Cornell Law School, Legal Information Institute. " Quantum Meruit ."
Cornell Law School, Legal Information Institute. " Quasi Contract (or Quasi-Contract) ."
Cornell Law School, Legal Information Institute. " Unjust Enrichment ."
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quasi contract (or quasi-contract)
A quasi contract is a legal obligation imposed by law to prevent unjust enrichment . This is also called a contract implied in law or a constructive contract . A quasi contract may be presumed by a court in the absence of a true contract , but not where a contract—either express or implied in fact —covering the same subject matter already exists.
Because a quasi contract is not a true contract, mutual assent is not necessary, and a court may impose an obligation without regard to the intent of the parties. When a party sues for damages under a quasi-contract, the remedy is typically restitution or recovery under a theory of quantum meruit . Liability is determined on a case-by-case basis.
The concept of a quasi contract in Bailey v. West, 249 A.2d 414 . While recognizing the doctrine of quasi contract, the Court held that “the essential elements of a quasi-contract are a benefit conferred upon defendant by plaintiff , appreciation by defendant of such benefit, and acceptance and retention by defendant of such benefit under such circumstances that it would be inequitable to retain the benefit without payment of the value thereof”.
[Last updated in March of 2022 by the Wex Definitions Team ]
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The Law Dictionary for Everyone
A quasi contract is a contract that is created by a court order, not by an agreement made by the parties to the contract. For example, quasi contracts are created by the court when no official agreement exists between the parties, in disputes over payments for goods or services. The goal in the court’s creation of these contracts is to prevent unjust enrichment to any party. To explore this concept, consider the following quasi contract definition.
Definition of Quasi Contract
- A contract created by the court in the absence of an official agreement between the parties.
1632 Latin quasi (“resembling”)
What is a Quasi Contract
A quasi contract is a contract that is created by the court when no such official contract exists between the parties, and there is a dispute with regard to payment for goods or services provided. Courts create quasi contracts to prevent a party from being unjustly enriched, or from benefitting from the situation when he does not deserve to do so.
Consider the following example of a quasi contract:
Teresa’s brother, Eric, tries to talk her into building a greenhouse in her large back yard. She declines, but Eric is convinced that, if she were surprised by a lovely greenhouse, she would love it. Knowing that Teresa makes good money, and could easily afford the greenhouse, Eric contacts greenhouse builder John, and arranges to have him erect the structure while his sister is at work one day.
Teresa is not happy by her brother’s initiative, but the deed is done. Eric has directed John to bill his sister for the greenhouse, and that turns out to be the biggest surprise for her. She declines to pay, and Eric tells John he cannot afford it. John is now out, not only payment for his many hours of hard work, but cash for the materials he used.
John has no choice but to file a civil lawsuit against Teresa, seeking payment. No contract exists between Teresa and John, however the court might allow John to recover the costs involved with building the greenhouse from Teresa, in order to prevent Teresa from being unjustly enriched. This is because, whether Teresa planned on it or not, she now has a brand new greenhouse.
The court is likely to create a quasi contract, essentially contriving an agreement between John and Teresa, and holding Teresa responsible for the cost of John’s materials. It is also possible the court might order her to pay for John’s labor as well. Quasi contracts are always made to fit their specific situations.
A quasi contract, or an “implied-in-law” contract, may offer less recovery than an implied-in-fact contract. This is because an implied-in-fact contract lays out the terms of an agreement in its entirety, as the parties initially intended, even if only in a verbal agreement. As a result of an implied-in-fact contract, a party may be entitled to recover any and all expected profits, as well as the cost of any labor and materials he may have laid out to complete the project.
A quasi contract will only afford as much recovery as necessary to prevent one party from being unjustly enriched. In the example above, it would be unfair for Teresa to benefit from the new greenhouse at John’s expense, even though she never intended to enter into a contract with him.
History of Quasi Contract
The history of quasi contract can be followed back to the Middle Ages, under a practice that was referred to back then as indebitatus assumpsit . In that period, the law dictated that a plaintiff would receive a sum of money from the defendant , in an amount dictated by the courts, as if the defendant had always agreed to pay the plaintiff for his goods or services.
Indebitatus assumpsit was a method used by the courts to make one party pay another as if a contract had been created between the two parties. The defendant’s agreement to be bound by a contract that required compensation was implied by the law. The early days in the history of quasi contract saw such contracts being used to enforce obligations related to restitution .
The term “unjust enrichment” refers to an individual receiving a benefit unfairly, whether it be by chance, or as the result of another person’s misfortune. When one is unjustly enriched, he has not paid or worked for the benefit he has received, and it is therefore morally and ethically appropriate for him to return it. Five elements must be shown in order to prove unjust enrichment:
- The defendant must have received an enrichment.
- The claimant must have suffered a disadvantage as a result of the enrichment.
- The enrichment must be established as unjust.
- There must be an absence of explanation for the enrichment and related disadvantage.
- There must be an absence of a remedy provided to the claimant by law.
The remedy available to a claimant in a case involving unjust enrichment is restitution. Restitution is payment to compensate him for what the claimant was originally promised so as to correct an injustice. Restitution can either come in the form of an order for the defendant to pay the cash value of the benefit he received, or he might be ordered to return an item that is the subject of the enrichment.
Requirements for Quasi Contract
In order for a judge to make a ruling in this type of case, there are certain requirements for quasi contract. The first of the requirements for quasi contract is that the plaintiff must have provided a tangible good or service to the defendant, with the impression that the plaintiff would receive payment for that good or service. The second of the requirements for quasi contract is that the plaintiff must be able to express why it would be unjust for the defendant to receive the good or service without paying for it, and would therefore be unjustly enriched.
Consider the above example of the greenhouse. John would have every right to demand payment from Teresa, who unexpectedly received a new greenhouse on her property. A quasi contract would be handed down by the court, requiring Teresa to pay restitution, or “ quantum meruit ,” to John. Quantum meruit is only awarded to the extent that the defendant was unjustly enriched, and no more.
Quasi Contract Example Involving the Construction of Houses on Two Properties
An early example of a quasi contract can be found in a case involving the construction of two homes on two lots that ultimately could not be completed. In February of 1981, Walter Salamon , a homebuilder, and Alfred E. Terra, Jr., a landowner, entered into two written agreements wherein Terra agreed to sell two properties to Salamon for $9,000 each. From this $9,000 amount, $8,500 was to be paid on delivery of the deeds, which was to take place in August of that same year. The parties agreed that Salamon would take over ownership of the lots by April 15.
The parties also agreed that Salamon would, upon taking ownership of the lots, be responsible for paying the expenses related to the construction of houses on these properties, and that he would then sell the properties to third parties and pay Terra from the proceeds. Salamon was able to partially complete the construction of both houses, but he was unable to find the financing and purchasers necessary to complete the construction, due to the state of the economy at that time. The sales agreement was extended by several months, but Salamon was ultimately unable to pay for the lots.
Not only was Salamon unable to pay for the properties in full, he wanted Terra to reimburse him for the money he spent partially building the homes. Salamon sued Terra in district court, asking the court to create a quasi contract so that he could recover for the costs associated with the two partially completed houses.
The court found that no promise had existed on Terra’s part to pay Salamon for the value of the partially completed houses. However, the court found that Terra had been unjustly enriched, as he then had partially-built structures on his properties. The court imposed a quasi contract, awarding Salamon $15,000 – the value of the benefits Terra had received – to compensate Salamon for his labor and materials.
Terra appealed the decision, and the Appellate Division reversed the lower court, holding that the lower court’s finding of a quasi contract was erroneous. According to the court, even if Terra was enriched and Salamon had suffered, there was no evidence to prove that either of these results was unjust.
The Appellate Division also stated that there was no basis for finding that Salamon had reasonably expected Terra to pay for partially completed houses if Salamon was unable to perform the contract. Therefore, the Appellate Division concluded that Salamon bore the risks involved with not completing or selling the houses, and must therefore also bear the losses suffered for not anticipating the effect of the economic downswing.
Salamon then appealed to the Commonwealth of Massachusetts, which affirmed the Appellate Court’s decision. The court held that the evidence did not support the conclusion that either party should have expected Terra to pay for the value of the partially completed houses, or the expenses that Salamon had incurred. The court went on to say that the fact that Salamon built two houses on property Terra owned was merely part of the financing arrangement, and that Terra did not request, or even want the houses to be built. Terra, per the court, was only interested in receiving the balance of the purchase price of the lots.
Said the Court, in its decision:
“Where services are rendered by one party and voluntarily accepted by another, the presumption that there is an expectation of payment therefor, as well as an implied promise of payment for the reasonable worth of those services, may be rebutted by a showing of strong self-interest in the outcome of the transaction by the party furnishing those services. Compensation on a quasi contract theory is not mandated where the services were rendered simply to gain a business advantage or where the plaintiff did not contemplate a personal fee.”
Related Legal Terms and Issues
- Appellate Court – A court having jurisdiction to review decisions of a trial -level or other lower court.
- Contract – An agreement between two or more parties in which a promise is made to do or provide something in return for a valuable benefit.
- Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
- Plaintiff – A person who brings a legal action against another person or entity, such as in a civil lawsuit, or criminal proceedings.
- Remedy – The enforcement of a right, or imposition of a penalty by a court of law.
- Unjust Enrichment – A legal principle that prohibits one person from profiting, or being enriched, at the expense of another person. In such a case, the unjustly enriched party may be ordered to make restitution for the reasonable value of the services rendered, property transferred or damaged, or other benefits received.