Paper-I: LAW OF CONTRACT-I Unit-IV

Paper-I: LAW OF CONTRACT-I Unit-IV

✅ Q.1. Explain the concept of Quasi Contracts under the Indian Contract Act. How are they different from regular contracts? Discuss with relevant examples and case laws.

🔷 Introduction to Quasi Contracts

The term “Quasi Contract” refers to certain relations resembling those created by contracts, even though there is no actual contract between the parties. These are not real contracts in the strict legal sense, because they lack the essential elements of a contract such as offer, acceptance, free consent, etc. However, law imposes an obligation on one party to prevent unjust enrichment at the expense of another.

🔷 Definition under Indian Law

Under the Indian Contract Act, 1872, Sections 68 to 72 deal with quasi-contractual obligations under the heading:
👉 “Of certain relations resembling those created by contract.”

A quasi contract is also called a constructive contract or implied-in-law contract.

🔷 Essential Characteristics of Quasi Contracts

Not Based on Agreement – There is no prior agreement between the parties.
Imposed by Law – Obligation is imposed by operation of law.
Prevention of Unjust Enrichment – Based on the principle that no one should be unjustly enriched at the cost of another.
Right to Compensation – The aggrieved party is entitled to reasonable compensation.
Legal Obligation Similar to Contract – Though not a contract, the remedy is similar to one in breach of contract.

🔷 Types of Quasi Contracts under Indian Contract Act

Let us now examine the five categories recognized under Sections 68 to 72:

🔹 1. Supply of Necessaries (Sec. 68)

If necessaries are supplied to a person who is incapable of contracting (e.g., minor, lunatic), or to someone whom such incapable person is legally bound to support, then the supplier is entitled to reimbursement from the property of such incapable person.

✅ Example: A supplies food and clothes to B, a minor. A can recover the cost from B’s property.

✅ Case Law: Nash v. Inman (1908)
A minor was supplied with clothes. It was held that the supplier could not recover the amount because the clothes were not necessaries as the minor already had enough.

🔹 2. Payment by Interested Person (Sec. 69)

When a person makes a payment which another is legally bound to pay, and the payer is interested in such payment, he is entitled to recover the same.

✅ Example: A, a tenant, pays the property tax on behalf of B, the landlord, to prevent the sale of the property. A can recover it from B.

✅ Case Law: Gurdayal Singh v. Raja of Faridkot (1909)
Held that if a person makes a payment for protecting his own interest and another was legally liable to pay it, he can recover the amount.

🔹 3. Non-Gratuitous Acts (Sec. 70)

If a person lawfully does something for another, not intending it to be gratuitous, and the other person enjoys the benefit, then the first person is entitled to be compensated.

✅ Example: A leaves his luggage at B’s house by mistake. B uses it. A can claim compensation.

✅ Case Law: State of West Bengal v. B.K. Mondal & Sons (1962)
Contractor built structures at the request of a government officer, though there was no formal contract. The court held that the contractor was entitled to payment under Section 70.

🔹 4. Finder of Lost Goods (Sec. 71)

A person who finds goods belonging to another and takes them into his custody is treated like a bailee and must take reasonable care. He is also entitled to reimbursement of expenses.

✅ Example: A finds B’s lost watch and incurs expenses to preserve it. A can recover the cost from B.

✅ Case Law: Hollins v. Fowler (1875)
Though not directly under Indian law, this English case supports the principle that a finder of goods must act as a bailee and may have certain rights.

🔹 5. Money Paid or Goods Delivered by Mistake or Under Coercion (Sec. 72)

A person to whom money has been paid or goods delivered by mistake or coercion must repay or return the same.

✅ Example: A pays B by mistake, believing he owes money. B must return the amount.

✅ Case Law: Sales Tax Officer v. Kanhaiya Lal (1959)
The Supreme Court held that the State is bound to refund the tax collected without authority under Section 72.

🔷 Difference between Quasi Contracts and Regular Contracts

Basis	Regular Contracts	Quasi Contracts
Formation	Created by mutual agreement	Imposed by law
Consent	Free consent of both parties is required	No consent or agreement involved
Essentials	Must fulfill conditions of contract (Sec. 10)	No such requirement
Legal Obligation	Arises out of contract	Arises out of duty to prevent unjust enrichment
Example	A agrees to sell a car to B	A supplies food to B’s minor child

🔷 Doctrine of Unjust Enrichment

The foundation of quasi-contracts is the doctrine of “Unjust Enrichment”, which states:

“A person shall not be allowed to enrich himself unjustly at the expense of another.”

This principle aims to prevent exploitation and promote fairness.

✅ Case Law: Mahabir Kishore v. State of Madhya Pradesh (1989)
The Supreme Court held that a person who has been unjustly enriched is legally bound to make restitution.

🔷 Conclusion

Quasi contracts form an important part of Indian Contract Law by ensuring that justice and fairness are upheld even in situations where no formal contract exists. They impose equitable obligations and are based on the principle that no person should be allowed to unjustly benefit at the expense of another. While they do not arise from mutual consent, their legal implications and remedies are as strong as actual contracts.

📘 Important Sections to Remember:

Section 68: Necessaries to persons incapable of contracting
Section 69: Payment by interested person
Section 70: Non-gratuitous acts
Section 71: Finder of goods
Section 72: Money paid or goods delivered by mistake or coercion

✅ Q.2. What are the legal provisions regarding the supply of necessaries to a person incapable of contracting under Section 68? Discuss the liability and rights of the supplier.

🔷 Introduction

Under the Indian Contract Act, 1872, Section 68 deals with quasi-contractual obligations in the case of supply of necessaries to persons incapable of entering into a contract, such as minors or persons of unsound mind. Though these persons cannot enter into a valid contract, the law recognizes the fairness in allowing the supplier of necessaries to recover the value of what has been supplied.

🔷 Text of Section 68 – Indian Contract Act, 1872

“If a person incapable of entering into a contract, or anyone 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.”

🔷 Key Elements of Section 68

Let us analyze the key ingredients of this provision:

🔹 1. Incapable Person

This includes:
- Minors (Section 11 of the Act)
- Persons of unsound mind
- Persons disqualified by law from contracting (e.g., alien enemy, insolvents, etc.)
These individuals cannot enter into a legally binding contract, but if they are supplied with necessaries, the supplier may be reimbursed.

🔹 2. Necessaries

The term “necessaries” is not strictly defined in the Act, but generally includes:
- Food, clothing, shelter
- Medical aid, education, and other basic requirements
- Goods or services suitable to the person’s condition in life

✅ Note: What is considered “necessary” is relative, depending on the status, lifestyle, and requirements of the person.

🔹 3. Supplied to Whom Legally Bound to Support

If necessaries are supplied not directly to the incapable person, but to someone whom the incapable person is legally bound to support, e.g., minor’s dependent child, the rule still applies.

🔹 4. Right to Reimbursement

The supplier is entitled to recover the price of the necessaries only from the property of the incapable person.
Personal liability cannot be imposed on the minor or insane person.

🔷 Nature of Liability

The liability under Section 68 is:

Not contractual, but quasi-contractual (imposed by law)
The incapable person is not personally liable
The supplier can recover only from the minor’s/insane person’s property
The court ensures the supply was bona fide, necessary, and not excessive

🔷 Rights of the Supplier

A person who supplies necessaries:

Can file a suit for recovery of reasonable compensation.
Must prove that:
- The person was incapable of contracting
- The goods or services were necessaries
- The supply was made bona fide
Can claim reimbursement from property (assets, estate, trust, etc.)
Cannot claim from minor’s future income or personally sue him

🔷 Illustrations of Section 68

✅ Illustration 1:
A supplies a minor boy, the son of a rich landlord, with schoolbooks, clothes, and food. The minor is incapable of contracting. A is entitled to be reimbursed from the property of the minor.

✅ Illustration 2:
A, a doctor, treats a mentally ill person and provides medicines and care. Since medical aid is necessary, A can claim reimbursement from that person’s estate.

🔷 Leading Case Laws

🔹 Nash v. Inman (1908)

A tailor sued a minor for the price of clothes supplied.
Held: The minor already had enough clothes; hence, not necessaries.
➤ The plaintiff failed to prove necessity and thus could not recover.

🔹 Chappel v. Cooper (1844)

Coffin supplied for the minor’s deceased husband.
Held: Such an item was necessary, and the supplier could be reimbursed.

🔹 Govind v. Inayatullah (1885)

It was held that a person supplying necessaries is not a creditor in the normal sense and has no lien over the property, but can recover value to the extent of property value.

🔹 Srikakulam Subrahmanyam v. Kurra Subba Rao (1948)

Minor borrowed money to pay for his marriage expenses.
Held: Not all marriage expenses are “necessaries”. Each item must be justified.

🔷 Important Principles Emerging

Necessaries must be suited to the condition of life of the person.
No personal liability arises.
Reimbursement is only from existing property, not future earnings.
Burden of proof lies on the person claiming reimbursement.

🔷 Difference: Minor’s Contract vs Supply of Necessaries

Basis	Minor’s Contract	Supply of Necessaries
Validity	Void ab initio	Not a contract – quasi-contract
Consent	Lacks capacity	Consent not required
Liability	No liability	Liability to the extent of property
Enforceability	Cannot be enforced	Can be enforced against property
Nature	General transactions	Limited to necessaries only

🔷 Conclusion

Section 68 of the Indian Contract Act embodies a just and equitable principle. Even though a person is incapable of contracting, law ensures that suppliers of genuine necessities are not left uncompensated. However, this compensation is limited to the extent of the incapable person’s property, and the law avoids imposing any personal burden on such individuals. Thus, Section 68 upholds both the welfare of the incapable person and the rights of the supplier in a balanced and fair manner.

📘 Keywords: Section 68, Quasi-contract, Necessaries, Minor, Unsound Mind, Reimbursement, Unjust Enrichment, Indian Contract Act, 1872.

✅ Q.3. Discuss the liability to pay for a non-gratuitous act under Section 70 of the Indian Contract Act. What are the essential conditions? Illustrate with examples.

🔷 Introduction

Section 70 of the Indian Contract Act, 1872, deals with quasi-contractual liability arising out of non-gratuitous acts. This section is based on the equitable principle of “unjust enrichment”, which implies that no person should be allowed to enrich themselves at the cost of another.

Section 70 creates an obligation similar to that of a contract, though no formal agreement exists between the parties. It ensures that a person who lawfully does something for another and the other person accepts or enjoys the benefit, must compensate the doer.

🔷 Text of Section 70 – Indian Contract Act, 1872

“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.”

🔷 Essentials Conditions under Section 70

For liability under Section 70 to arise, the following three essential conditions must be satisfied:

🔹 1. Lawful Act or Delivery

The act must be lawful, i.e., not illegal or prohibited by law.
The person must lawfully do something or deliver something to another.

✅ Example: Constructing a road or supplying goods with proper authority or permission.

🔹 2. Non-Gratuitous Intention

The person doing the act must not intend to do it gratuitously, i.e., not as a gift or charity.
There must be an expectation of payment or compensation.

✅ Example: A person delivering goods to another in the ordinary course of business and not as a free gift.

🔹 3. Benefit is Enjoyed

The person for whom the act is done or goods are delivered must actually enjoy or derive benefit from it.
Mere receipt without benefit may not be enough.

✅ Example: If a person stays in a house maintained by another, he derives a benefit.

🔷 Nature of Liability under Section 70

It is not contractual, but quasi-contractual – imposed by law.
Liability arises even without consent, as long as the benefit is voluntarily enjoyed.
Compensation is limited to the value of the benefit received.
It aims to prevent unjust enrichment at the expense of another.

🔷 Illustrative Examples of Section 70

✅ Example 1:
A, a contractor, mistakenly constructs a shed on B’s land believing it to be government land. B uses the shed. A did not intend it to be gratuitous. B must compensate A for the benefit derived.

✅ Example 2:
X supplies rice to Y’s family by mistake. Y knows about it but consumes the rice. Y must compensate X.

✅ Example 3:
A mistakenly delivers a parcel to B. B opens it and uses the goods. B is liable to pay for them.

🔷 Important Case Laws

🔹 State of West Bengal v. B.K. Mondal & Sons (1962)

Facts: A contractor constructed a warehouse at the request of a government officer. No formal contract was signed, but the government used the warehouse.
Held: The Supreme Court held that since the act was lawful, not gratuitous, and the government enjoyed the benefit, compensation was payable under Section 70.

🔹 Krishna v. Divan Singh (1916)

A constructed a house on B’s land thinking it was his own. B accepted and used the house.
Held: B was liable to pay for the benefit received under Section 70.

🔹 Mulamchand v. State of Madhya Pradesh (1968)

Supply of goods to the government without a formal contract. Government accepted the goods.
Held: Government must compensate the supplier, even though there was no formal contract.

🔷 Scope and Application of Section 70

Section 70 applies in various scenarios:

Mistaken delivery or performance of service
Government contracts performed without completion of formalities
Services rendered with expectation of compensation
Construction or maintenance done for another’s benefit

However, it does not apply where:

The act is done gratuitously
The act is illegal
The benefit is not accepted or enjoyed

🔷 Difference Between Section 70 and Contractual Obligation

Basis	Regular Contract	Section 70 Quasi-Contract
Consent	Based on mutual consent	No consent is necessary
Intention	Both parties intend to be bound	Only one party intends compensation
Agreement	Formal agreement exists	No formal agreement
Enforceability	Arises from agreement	Arises from law
Remedy	For breach of contract	For unjust enrichment

🔷 Conclusion

Section 70 plays a crucial role in promoting equity and fairness by ensuring that no one benefits at another’s expense without compensation. It protects persons who lawfully and honestly provide services or goods without any contract, yet with an expectation of return. The law, through this provision, bridges the gap where contractual remedies are unavailable, but justice demands compensation.

✅ Q.4. What are the rights and responsibilities of a finder of lost goods under Section 71? How does law treat such situations as quasi-contractual obligations?

🔷 Introduction

Under the Indian Contract Act, 1872, Section 71 deals with the position of a finder of lost goods, and imposes certain quasi-contractual obligations on such a person. A finder of goods is not the owner, yet the law imposes upon him the duties of a bailee, and at the same time grants him certain rights, to ensure protection of both the actual owner’s interests and finder’s efforts.

Section 71 treats such situations not as contracts (since there’s no agreement between the owner and the finder), but as constructive or quasi-contracts where obligations arise by operation of law.

🔷 Text of Section 71 – Indian Contract Act, 1872

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

This provision means that the finder of goods is legally bound to act like a bailee, and is also entitled to similar rights.

🔷 Legal Nature of Finder’s Role – Quasi Contract

There is no agreement between the finder and the true owner.
The obligation is imposed by law to prevent wrongful retention or unjust enrichment.
The finder is placed in the position of a bailee — a person who holds goods for another with a duty of care.
Hence, the relationship between the finder and the owner is a quasi-contractual obligation under the principles of justice, equity, and good conscience.

🔷 Responsibilities of the Finder (Duties as Bailee)

A finder of lost goods has the following legal duties:

🔹 1. Duty of Reasonable Care

The finder must take the same level of care of the goods as a prudent person would take of his own goods.
He should not be negligent.

🔹 2. Duty Not to Use the Goods

The finder must not use the goods for personal benefit.
He has no ownership rights, only custody.

🔹 3. Duty Not to Mix Goods

The finder should not mix the goods with his own.
If mixed and separable, cost of separation may be imposed.

🔹 4. Duty to Find the Owner

The finder must make reasonable efforts to trace the real owner.
If the owner is found, he must return the goods.

🔹 5. Duty Not to Sell (Except in Certain Cases)

The finder cannot sell the goods, unless:
- The owner cannot be found with reasonable efforts
- The owner refuses to pay lawful charges
- The goods are perishable
- Lawful charges incurred amount to 2/3rd of the value of the goods

✅ Example: If a person finds a perishable item like fruit or medicine and the owner is not traceable, the finder may sell it to prevent loss.

🔷 Rights of the Finder of Lost Goods

The finder is granted certain rights similar to those of a bailee, in recognition of his efforts and to ensure fairness:

🔹 1. Right of Possession

The finder has a right to retain possession of the goods against everyone except the true owner.

🔹 2. Right to Retain Goods Until Paid Compensation (Lien)

The finder can retain the goods until he is paid:
- Expenses incurred in preserving the goods
- Reward if offered by the owner

This is called the right of particular lien under Section 170 of the Indian Contract Act.

🔹 3. Right to Claim Reward

If the owner has announced a reward, the finder is entitled to it.
He can also sue for such a reward if the owner refuses to pay after recovery.

✅ Example: A loses a dog and announces a ₹1,000 reward. B finds the dog and returns it. B can claim the reward.

🔹 4. Right to Sell the Goods (in certain conditions)

As discussed, the finder has limited right to sell the goods if:

Owner cannot be found with reasonable effort
Owner refuses to pay lawful charges
Goods are in danger of perishing, or
Lawful charges incurred amount to two-thirds of the value of the goods

🔷 Illustrations under Section 71

✅ Example 1: A finds a purse in a park and takes it into his custody. He makes announcements in newspapers but fails to find the owner. He incurs expenses in preserving the purse and traveling. A has the right to retain the purse until compensated.

✅ Example 2: B finds a ring on the street and sells it immediately. This is a breach of duty under Section 71, unless the ring was perishable or the conditions for sale are met.

🔷 Case Laws on Finder’s Rights and Duties

🔹 Hollins v. Fowler (1875)

Though not an Indian case, this English case established the principle that a finder of goods has certain responsibilities and liabilities as a bailee.

🔹 Kanhaiya Lal v. Dhanraj (1905)

It was held that a finder cannot become the owner of lost goods simply by finding them. Ownership lies with the true owner.

🔹 Armory v. Delamirie (1722)

A boy found a jewel and gave it to a goldsmith who refused to return it. Court held that the finder has better title than anyone except the true owner.
This case forms the foundation of the finder’s possessory rights.

🔷 Distinction Between Finder and Bailee

Aspect	Finder of Goods	Bailee (by Contract)
Agreement	No agreement with owner	Express or implied contract
Creation	By act of finding	By delivery of goods
Title	Limited possessory right	Possessory right with duty
Compensation	Entitled only to expenses, not profit	As per agreement
Can sell goods?	Only in specific conditions	Generally no, unless contract permits

🔷 Conclusion

Section 71 of the Indian Contract Act creates a fair and balanced legal framework for the finder of lost goods. Even in the absence of any formal contract, the law imposes duties of care and honesty, and at the same time protects the interests of the finder through rights like possession, reimbursement, lien, and in some cases, sale.

Thus, this provision reflects the true spirit of quasi-contractual obligations, ensuring that neither party is unjustly enriched or wronged, and promoting principles of justice, equity, and good conscience.

✅ Q.5. Explain the legal consequences of receiving goods or money by mistake or under coercion under Section 72. Support your answer with leading case laws.

🔷 Introduction

Section 72 of the Indian Contract Act, 1872, deals with quasi-contractual liability that arises when a person receives money or goods by mistake or under coercion. This provision embodies the principle of restitution, which ensures that no one is unjustly enriched at the expense of another.

This liability arises not from a formal agreement, but is imposed by law to ensure fairness and equity. The recipient must return or repay the money or goods wrongly received.

🔷 Text of Section 72 – Indian Contract Act, 1872

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

This simple yet powerful provision makes it compulsory for a person to restore unjust benefits, even in the absence of a formal contract.

🔷 Key Elements of Section 72

To attract liability under Section 72, the following conditions must be satisfied:

🔹 1. Money Paid or Goods Delivered

There must be payment of money or delivery of goods.
The transfer must have occurred to the person who is not entitled to receive it.

🔹 2. Mistake or Coercion

The payment or delivery must have been made either:

(a) By Mistake

Includes mistake of fact or mistake of law.
Even if the person making the payment was negligent, they are entitled to a refund.

✅ Example: A pays B ₹10,000 by mistake, believing he owes it. B must return it.

(b) Under Coercion

Includes payments made under duress, threat, or undue pressure.
The payer may not have a choice, but is entitled to restitution.

✅ Example: A person pays an illegal fee under threat by a government official. He can recover it.

🔷 Legal Nature: Quasi-Contract

Section 72 is not based on mutual consent, but on implied duty imposed by law.
The courts treat this obligation as a quasi-contract, based on equity and unjust enrichment.
It is a statutory recognition of the doctrine of restitution.

🔷 Scope of “Mistake” under Section 72

Earlier, Indian law followed English common law and did not allow refund if payment was made under mistake of law.

✅ However, in Sales Tax Officer v. Kanhaiya Lal (1959), the Supreme Court held that even a payment made under a mistake of law is refundable under Section 72.

Thus, both:

Mistake of Fact, and
Mistake of Law
are included under Section 72.

🔷 Leading Case Laws

🔹 1. Sales Tax Officer, Banaras v. Kanhaiya Lal Mukund Lal Saraf (1959)

Facts: The plaintiff paid sales tax to the government, which later turned out to be not payable under law.
Issue: Could a payment made under mistake of law be recovered?
Held: Yes. Supreme Court ruled that Section 72 applies to both mistake of fact and mistake of law. The tax authorities were bound to refund the amount.

🔹 2. Shiba Prasad Singh v. Srish Chandra Nandi (1949)

The plaintiff paid money due to mistake in interpretation of a legal clause.
Held: Money paid under a mistake of law is recoverable under Section 72.

🔹 3. David Devasahayam v. State of Madras (1962)

A person paid stamp duty more than required due to misunderstanding.
Held: Excess amount was refundable as it was paid under mistake.

🔹 4. Dunlop v. Woollahra Municipal Council (1982)

Though not an Indian case, it emphasized that restitution is due even when beneficiary was not at fault — unjust enrichment is the focus.

🔹 5. Kamala Mills Ltd. v. State of Bombay (1965)

The state levied tax without legal authority, and the petitioner paid it.
Held: The petitioner was entitled to refund under Section 72.

🔷 Illustrative Examples

✅ Example 1: A mistakenly transfers ₹5,000 to B’s bank account thinking he is paying C. B is legally bound to return the amount.

✅ Example 2: A pays customs duty demanded under threat of seizure, though the demand was illegal. A can recover the money under Section 72.

✅ Example 3: B pays tax under a repealed Act due to ignorance. Later he realizes the Act was no longer in force. B can claim a refund.

🔷 Doctrine of Restitution and Unjust Enrichment

Section 72 is founded on the principle of restitution and unjust enrichment, which states:

“No person should unjustly enrich himself at the cost of another.”

It ensures that:

Wrongful benefit is not retained.
The aggrieved person is placed in the original position.

🔷 Limitation and Defenses

The claim under Section 72 is subject to the Limitation Act, 1963.
- Usually, 3 years from the date of payment.
Recipient may defend if:
- Payment was voluntary with full knowledge.
- The amount was paid with intention of gift.
- Benefit was passed on, making restitution impossible (rare).

🔷 Comparison with Other Quasi-Contractual Provisions

Aspect	Section 70	Section 71	Section 72
Nature of Act	Lawful, non-gratuitous act	Finder of goods	Mistake or coercion
Relationship	Implied duty	Bailee-like role	Duty to restore
Enrichment	Recipient gains benefit	Retains lost property	Receives money/goods wrongly
Remedy	Compensation	Return or compensation	Refund or return

🔷 Conclusion

Section 72 of the Indian Contract Act serves as a vital tool to prevent unjust enrichment and ensure fairness in commercial and civil transactions. Whether money is paid by mistake or under coercion, the law imposes a legal obligation to restore it, even though there is no contract.

This provision empowers individuals to claim refunds from wrongful recipients, including the government, and ensures that law is not blind to equity and justice.

Q.6. What is the doctrine of Quantum Meruit? When can a claim for Quantum Meruit arise under Indian Contract Law? Discuss with suitable illustrations.

🔷 Meaning of Quantum Meruit:

The term “Quantum Meruit” is a Latin phrase that means “as much as earned” or “as much as is deserved.”
It refers to the reasonable compensation a person can claim for services or goods provided when there is no express contract, or when a contract is discharged or becomes void, but the benefit has already been received by the other party.

It is not based on a contract, but on equity, justice, and good conscience, i.e., quasi-contractual obligation.

🔷 Legal Basis in India:

Though not directly codified under a specific section, claims under quantum meruit are recognized through judicial decisions and under Sections 70 and 65 of the Indian Contract Act, 1872:

Section 70: Obligation of person enjoying benefit of non-gratuitous act.
Section 65: Obligation to restore benefit when contract is discovered to be void.

🔷 When Can a Claim for Quantum Meruit Arise?

A claim for quantum meruit arises in the following situations:

✅ 1. When a Contract is Discovered to be Void or Becomes Void:

If a person has received a benefit before the contract becomes void, the provider of goods/services can claim reasonable compensation.

Example:
A contracts with B to deliver a machine for ₹50,000. A delivers the machine, but the contract turns out to be void due to legal incapacity of B. A can claim reasonable compensation under quantum meruit.

✅ 2. When One Party Prevents the Other from Completing the Contract:

If one party is ready to perform but is prevented by the other, he can claim for the work already done.

Example (Case law):
➡ Planche v. Colburn (1831)
A writer was hired to write a book, but the publisher later cancelled the series. The court held that the writer could recover reasonable remuneration for the part already completed.

✅ 3. When Work is Done Without Intention of Gratitude (Non-Gratuitous):

Where a person does work or delivers goods without a contract but with the expectation of payment, and the other party accepts it, compensation can be claimed.

Example:
X mistakenly delivers 100 bags of rice to Y. Y consumes them. X can recover the reasonable value from Y under Section 70.

✅ 4. When There is a Breach of Contract:

If one party breaches the contract, the non-breaching party can claim quantum meruit for what has been performed.

Example (Case law):
➡ Cutter v. Powell (1795)
A sailor contracted to work for a full voyage, but he died midway. His widow claimed compensation for partial work done. The claim was denied, but the case laid the groundwork for recognizing quantum meruit in subsequent similar cases.

✅ 5. Divisible Contracts Where Partial Performance is Accepted:

If the contract is divisible, and part performance is accepted, the party may recover for the part completed.

Example:
A contracts to construct 3 buildings for B. After constructing one building, B cancels the contract. A can claim compensation for the one building already completed.

🔷 Nature and Scope:

It is not a claim for damages but compensation for services/goods already provided.
The compensation must be reasonable and proportionate to the benefit received.
The doctrine ensures that no person is unjustly enriched at the expense of another.

🔷 Important Case Laws:

Planche v. Colburn (1831) – Partial performance, publisher cancelled, reasonable remuneration allowed.
Craven-Ellis v. Canons Ltd. (1936) – A director whose appointment was invalid was allowed compensation under quantum meruit.
State of Madras v. Gannon Dunkerley & Co. (1958) – The court discussed quantum meruit in relation to works contracts and part performance.

🔷 Conclusion:

The doctrine of Quantum Meruit under Indian Contract Law plays a vital role in protecting parties who have performed work or delivered goods in good faith, especially when a contract is unenforceable or terminated midway. It is a just and equitable remedy that ensures no unjust enrichment, and that a party receives fair compensation for the services rendered or benefits conferred.

Thus, in the absence of a valid contract or upon its premature termination, quantum meruit provides a legal means to secure reasonable remuneration for work already done.

Q.7. Explain the different kinds of damages available for breach of contract. Distinguish between liquidated and unliquidated damages with examples.

🔷 Introduction

When a contract is breached, the aggrieved party is entitled to be compensated by the party in default. The Indian Contract Act, 1872, under Sections 73 to 75, provides for remedies in the form of damages to the injured party.

Damages aim to put the injured party in the same position as they would have been if the contract had been performed.

🔷 Types of Damages for Breach of Contract

Ordinary Damages (General Damages)

These are damages which naturally arise in the usual course of things from such breach.
- ❖ Based on the direct loss suffered.
- ❖ These are compensatory, not punitive.
Example:
If A agrees to deliver 100 bags of rice to B for ₹10,000 and fails to do so, and the market price rises to ₹12,000, B can claim ₹2,000 as ordinary damages.

Leading Case: Hadley v. Baxendale (1854)
- This case laid down the principle that only those losses that arise naturally or were in the contemplation of the parties can be claimed.
Special Damages

These are damages that are not natural or direct consequences of the breach but arise due to special circumstances.
- ❖ Must be specifically communicated to the defaulting party at the time of contract.
Example:
If A agrees to supply a machine to B for use in an exhibition, and A delays delivery causing B to lose a major business opportunity, damages can be claimed only if A was aware of the exhibition and potential loss.
Exemplary or Punitive Damages

These are awarded not to compensate the aggrieved party, but to punish the defaulting party.
- ❖ Generally not allowed in contract law.
- ❖ Exception: In cases of breach of promise to marry or wrongful dishonour of cheque by a banker.
Case Law:
Gibbons v. Westminster Bank – Bank wrongly dishonoured customer’s cheque; punitive damages were awarded.
Nominal Damages
- ❖ These are token damages awarded when legal right is violated, but no actual loss is suffered.
Example:
A breaks a contract with B, but B suffers no real loss. The court may award ₹1 as nominal damages.
Liquidated Damages
- These are pre-agreed sums specified in the contract itself, to be paid in case of breach.
- Covered under Section 74 of the Indian Contract Act.
Example:
A contract states that if a party fails to perform on time, ₹50,000 shall be paid as compensation. Upon breach, that amount may be awarded if it is a genuine pre-estimate and not a penalty.
Unliquidated Damages
- These are not pre-determined and are assessed by the court based on actual loss.
Example:
If no amount is fixed in the contract, and a party defaults, the court will determine the compensation based on facts and evidence.
Damages for Mental Distress
- Generally, not awarded in contract law.
- Exception: In contracts involving emotional elements, e.g., honeymoon packages or promise to marry.
Case Law: Jarvis v. Swan Tours Ltd (1973) – Compensation awarded for mental distress due to unsatisfactory honeymoon arrangements.

🔷 Liquidated vs. Unliquidated Damages

Basis	Liquidated Damages	Unliquidated Damages
Meaning	Pre-determined amount fixed in the contract	Amount not fixed; decided by court
Fixation	Decided at time of making contract	Decided after breach, based on actual loss
Section	Governed by Section 74	Governed by Section 73
Role of Court	May reduce if it is unreasonable or penal	Entirely fixed by the court
Example	₹1 lakh penalty clause in case of delay in performance	No clause; court decides the actual loss suffered

🔷 Important Case Laws

Fateh Chand v. Balkishan Das (1963 SC)
- Supreme Court held that Section 74 applies even if actual loss is not proved.
- However, the amount must be reasonable compensation, not penalty.
ONGC v. Saw Pipes Ltd. (2003)
- Supreme Court awarded full liquidated damages as compensation since the amount was reasonable and not arbitrary.
Dunlop Pneumatic Tyre Co. v. New Garage (1915)
- Laid down the distinction between penalty and genuine pre-estimate of damages.

🔷 Duty to Mitigate Damages

The injured party has a duty to minimize the loss caused by the breach and cannot claim compensation for avoidable losses.

Example:
If B is aware that A will not supply goods, B must try to get substitute goods from another seller. He cannot just sit idle and claim huge damages later.

🔷 Conclusion

Damages are the most common remedy for breach of contract. Indian courts focus on compensating the injured party, not punishing the defaulter. The distinction between liquidated and unliquidated damages helps courts determine fair compensation in light of Section 73 and 74. The principle of reasonableness, duty to mitigate, and foreseeability of loss are key considerations in awarding damages.

Q.8. What is meant by ‘Penalty’ in the context of breach of contract? How is it distinguished from liquidated damages under Indian Law?

🟠 Introduction

In the context of contract law, when a party breaches the terms of a contract, the other party becomes entitled to compensation for the loss suffered. Parties often include specific clauses in their contracts to predetermine the amount payable in case of such a breach. These pre-estimated amounts are categorized as either liquidated damages or penalties. Though both serve the purpose of pre-determining liability for breach, they differ significantly in law and effect.

The Indian Contract Act, 1872 addresses this under Section 74.

🟡 Definition of Penalty

A penalty is an amount stipulated in a contract, not as a genuine pre-estimate of damages, but to coerce performance by imposing a punitive sum for non-performance or breach. Its primary purpose is deterrence rather than compensation.

⚖️ Example: A contract states that if a party is late by even one day in delivering goods, they must pay ₹1,00,000 as compensation, even though actual loss may only be ₹1,000. This excessive amount acts as a penalty.

🟢 Definition of Liquidated Damages

Liquidated damages are a genuine pre-estimate of the probable loss which may result from a breach. They are not punitive but compensatory in nature and are agreed upon by both parties at the time of contract formation.

⚖️ Example: A contractor agrees to complete construction by 31st December. The contract includes ₹5,000 per day of delay as liquidated damages, representing anticipated rental losses. This is a reasonable pre-estimate of damage.

🔵 Legal Provision – Section 74 of the Indian Contract Act, 1872

Section 74: When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled to receive reasonable compensation, not exceeding the amount so named.

✅ Key Features of Section 74:

Covers both liquidated damages and penalties.
The aggrieved party is entitled to reasonable compensation, irrespective of actual loss being proved.
The court decides what is reasonable.
Upper cap: compensation cannot exceed the amount mentioned in the contract.

🟣 Distinction between Liquidated Damages and Penalty

Basis	Liquidated Damages	Penalty
Nature	Genuine pre-estimate of loss	Punitive in nature
Purpose	Compensatory	Deterrent / coercive
Court’s Role	Court may enforce the amount if reasonable	Court will generally reduce the amount to reasonable compensation
Actual Loss	Not necessary to prove actual loss	Still requires judicial scrutiny
Enforceability	Enforceable up to reasonable limit	Enforceable only to the extent of reasonable compensation
Example	₹10,000 per day delay in performance where actual loss is close to that amount	₹1,00,000 for delay of one day with no actual loss

🧷 Leading Case Laws

📌 Fateh Chand v. Balkishan Das (AIR 1963 SC 1405)

Facts: The plaintiff sold property and received advance payment. On breach, the seller forfeited the advance.
Held: SC ruled that only reasonable compensation is allowed, and actual loss need not be proved, but excessive penalty cannot be awarded.

📌 ONGC v. Saw Pipes Ltd. (AIR 2003 SC 2629)

Supreme Court clarified that even without proof of actual loss, reasonable compensation can be awarded if the contract stipulates liquidated damages.
Court will examine if amount is genuine estimate of loss.

📌 Maula Bux v. Union of India (AIR 1970 SC 1955)

Held: If it is impossible to prove actual loss, courts can rely on contractual terms to award damages. However, the sum must be reasonable.

🔶 Judicial Approach in India

Unlike English Law, which differentiates strictly between penalty and liquidated damages, Indian courts follow a broader interpretation under Section 74. Even if the amount is termed as “penalty”, the court may award reasonable compensation out of it.

📝 Note: The name given in the contract (penalty or liquidated damages) is not conclusive. The court examines the intention and reasonableness.

🔺 Conclusion

While the terms “penalty” and “liquidated damages” are often used interchangeably in contracts, Indian law recognizes the difference in their purpose and enforceability. Section 74 of the Indian Contract Act ensures that the aggrieved party is compensated fairly, while also preventing excessive and oppressive recovery under the guise of contractual terms.

✅ Final Point: The key takeaway is that only reasonable compensation, subject to the maximum stipulated amount, is enforceable—whether termed as penalty or liquidated damages.

✅ Q9. Discuss the rule of Duty to Mitigate the loss in case of breach of contract. What are its implications for the aggrieved party?

Introduction

The principle of duty to mitigate is an important aspect of the law relating to remedies for breach of contract. Under this rule, when a contract is broken, the aggrieved party cannot claim compensation for losses which could have been reasonably avoided. This principle aims to ensure fairness and prevent the non-breaching party from claiming unreasonable or exaggerated damages.

Legal Basis in Indian Law

Section 73 of the Indian Contract Act, 1872 deals with compensation for loss or damage caused by breach of contract. Though the section does not expressly use the phrase “duty to mitigate”, Indian courts have consistently read this principle into it.

Meaning of Duty to Mitigate

The duty to mitigate means that the injured or aggrieved party must take all reasonable steps to reduce the loss arising from the breach. If the party fails to do so, he cannot claim those avoidable losses from the party at fault.

⚖️ Illustration:
A contracts to supply B with 1,000 bags of wheat at ₹500 each. A fails to deliver. If the market price at the time is ₹520, B can buy the same from the market and recover ₹20 per bag from A.
However, if B waits too long and later the price goes up to ₹600, he can’t recover ₹100 per bag. He should have mitigated the loss by buying immediately.

Key Elements of Duty to Mitigate

Reasonable Effort: The aggrieved party is expected to take reasonable and practical steps to reduce losses.
Not Excessive: The duty does not force the aggrieved party to take excessive or risky steps.
Burden of Proof: The burden is on the breaching party to prove that the aggrieved party failed to mitigate.
No Bar on Damages: The aggrieved party can still claim damages, but not for avoidable losses.

Important Case Laws

🔹 M. Lachia Setty & Sons Ltd. v. Coffee Board (AIR 1981 SC 162)

The Supreme Court observed that a party suffering from breach must act reasonably to mitigate the loss. If the party could have resold goods or used them in another way and failed to do so, compensation would be limited.

🔹 Jamal v. Moolla Dawood Sons & Co. (1916 PC)

It was held that the plaintiff must take reasonable steps to reduce the loss. He cannot speculate or wait indefinitely for a better deal and then claim damages.

🔹 Maula Bux v. Union of India (AIR 1970 SC 1955)

While dealing with breach and compensation, the Court reiterated the principle that compensation must only cover actual loss suffered and not speculative loss, reinforcing mitigation.

Implications for the Aggrieved Party

❗ Limits Compensation: The damages recoverable may be reduced if the aggrieved party fails to act prudently.
✔️ Encourages Reasonableness: Ensures the injured party remains practical and avoids adding to the breach loss unnecessarily.
🧑‍⚖️ Judicial Scrutiny: Courts analyze the conduct of the aggrieved party to ensure fairness in awarding compensation.

Conclusion

The duty to mitigate is an implied obligation of the injured party in case of a contractual breach. It ensures that compensation is awarded only for genuine losses, not for those that could have been avoided. This principle strikes a balance between justice and responsibility—the wrongdoer must pay, but the injured party must also act reasonably.