Mastering Quasi Contracts: A Complete Guide

A quasi contract is a legal obligation created by courts to prevent one party from unfairly benefiting at another's expense, even when no formal contract exists. 

Consider this: A landscaper accidentally mows your neighbor's lawn instead of yours. While there was no agreement between them, your neighbor benefited from the service. A court might create a Quasi contract requiring your neighbor to pay a reasonable fee for that service. Despite having no written agreement, a legal obligation is created.

While the legal principle of quasi contracts dates back centuries, it has found new relevance in our modern business landscape.  Today, businesses deal with highly complex transactions, remote services, subcontracting, and interconnected operations, making these unwritten obligations more common than we might expect.

Modern organizations struggle to systematically track and handle these unofficial yet legally binding relationships.

They need to address questions like: 

• How do we systematically track benefits received without formal agreements? 
• How can we ensure fair compensation while maintaining proper documentation?

Because no matter what, you need to record all the details and ensure contract compliance.

In the case of normal contracts, legal teams and modern businesses rely on document automation software to create templates and manage them effectively. 

Can the same be done in the case of Quasi Contracts? Let’s find out through our blog — what they are when they apply, and how organizations can proactively manage them.

What is a Quasi Contract?

A Quasi Contract, also known as an implied-in-law contract, is a legal obligation imposed by law in the absence of a formal contract. Its primary purpose is to prevent unjust enrichment — ensuring that one party doesn't unfairly benefit at another's expense.

Quasi-contracts are applied when:

• One party provides necessary goods or services without a formal agreement
• Payment or property is delivered by mistake
• Services are rendered in emergency situations

Courts create quasi-contracts to ensure fair compensation, depending on the situation. These invisible contracts are generally applied in cases where one party is unjustly enriched at the expense of another, regardless of whether they are the provider or receiver.

Quasi Contract Examples

Let's explore common business contract scenarios where quasi contracts come into play:

Emergency services

Quasi-contracts ensure fair compensation when emergency services are provided without a prior agreement, typically because the recipient is unable to consent. This principle prevents providers from suffering a loss for offering critical help.

For example, In Cotnam v. Wisdom (2006), a doctor treated an unconscious accident victim. Although no agreement was in place, the court ruled that the doctor deserved payment from the victim’s estate, highlighting how quasi-contracts ensure fairness in urgent, life-saving scenarios.

Mistaken payments

When payments are made by mistake, quasi-contracts allow the payer to recover funds to prevent unjust enrichment of the recipient, ensuring fairness and correcting errors. 

In Lumbermens Mutual Casualty Co. v. United States (2011),  the government mistakenly issued payments. The court upheld the recovery of these funds under quasi-contract principles, emphasizing the importance of restitution in preventing financial imbalance.

Necessities for incapacitated individuals

Quasi-contracts apply when someone provides essential goods or services to individuals unable to agree to terms, such as those unconscious or incapacitated. This ensures providers are fairly compensated.

In Hughes v. Oberholtzer (2000), a party benefited from services provided without a formal agreement. While not specific to incapacitation, the court's emphasis on preventing unjust enrichment mirrors scenarios where incapacitated individuals receive necessities.

Property Usage Without Permission

If someone uses another’s property without consent and benefits from it, quasi-contracts can enforce restitution to address the imbalance and prevent unjust enrichment. 

In Jordan v. Wonderful Citrus Packing LLC (2018), the court addressed quasi-contract claims related to unauthorized property use. Restitution was ordered, ensuring fairness and accountability in cases of unpermitted usage.

What are the Elements of a Quasi Contract?

Quasi-contracts, often simpler than traditional contracts, have three essential elements - providing evidence of a wrongful act, advantage experienced through those goods/services, and compensation being denied. 

Here’s a breakdown of these key elements:

1. Provision of goods or services that merit compensation: The party wronged (allegedly) must be able to demonstrate that they provided valuable goods or services, such as through documentation, witness statements, or other tangible proof. This shows the goods/services deserve compensation.

2. Acceptance and benefit by the Receiver: A quasi contract is a valid contract only if one party benefits from the other’s services or actions. The receiver must have accepted and derived a benefit from the goods or services, even without an initial agreement.

3. Unfair circumstances without compensation: The key concept here is ‘unjust enrichment’ – one party receives benefits at the expense of another without providing compensation. Quasi contracts come into play only when both parties have no intention of entering into a contract.

When this is taken to court, the judge can rule for compensation after reviewing the evidence provided. Quasi contracts have fewer elements than regular contracts. They focus on straightforward principles of fairness, which is why contract automation software generally centers around more complex agreements that require detailed terms, conditions, and mutual consent.

Types of Quasi Contracts

Unlike traditional contracts, quasi-contracts are court-imposed and not based on the intent of the parties involved.

Below, we explore two primary types of quasi-contracts: Restitution for Direct Transfers and Disgorgement for Wrongful Gain. Each addresses different scenarios where fairness is enforced outside of a typical contractual framework.

1. Restitution-based Quasi Contracts (Restitution for Money had and received)

This type of quasi-contract, often referred to as ‘Restitution for Money Had and Received,’ addresses situations where one party mistakenly provides a benefit—such as money, goods, or services—to another. The recipient may not have requested or even know they received the benefit, yet it would be unfair for them to retain it without compensating the provider.

How it works: The court imposes a duty on the recipient to return or compensate for the benefit to prevent unjust enrichment. This is especially relevant in cases where a mistake has been made, such as accidental overpayments, unintended transfers, or goods delivered to the wrong address.

Example: Let’s say you run an agency and your retainer is $10,000. But for the last month, the client mistakenly sent you a payment of $ 12,000. You are obligated to return the excess of $2,000. 

2.  Constructive Contracts (Disgorgement for Wrongful Gain)

The second type comes into play when one party profits from wrongful actions, such as breaching a fiduciary duty or exploiting confidential information. 

How it works: Courts would impose a constructive contract to prevent the person from receiving the benefit from their misconduct. The goal is here not only to remedy the loss experienced by the provider but to also strip the benefiter of any gains received. 

Constructive contracts are often used to address complex situations where traditional contract principles don’t apply, but fairness demands that any profit made through wrongful acts be relinquished.

Example: If an employee breaches confidentiality and profits by selling company secrets, the court can enforce a constructive obligation requiring the employee to give up the profits earned from the breach of contract.

Quasi Contract Pros and Cons

Quasi-contracts are flexible, equitable legal doctrines that courts can use to ensure fairness, even in the absence of a formal written agreement. While they provide valuable remedies in certain situations, quasi-contracts also introduce complexities and challenges.

Let’s take a quick look at both sides:

Advantages of Quasi Contract

Imagine you're a plumber who rushes to fix a burst pipe in an emergency, even without a formal agreement. Quasi-contracts protect professionals like you by ensuring fair payment for your services. 

These contracts are particularly valuable because they:

• Ensure fairness when formal agreements don't exist
• Protect service providers who step in during emergencies
• Give courts flexibility to address unique situations that regular contract law can't handle

Disadvantages of Quasi Contracts

Despite their benefits, quasi-contracts aren't always straightforward. They introduce a layer of legal complexity that can make it difficult to resolve them. Quasi-contracts can be thought of as trying to referee a game where the rulebook is still being written.

The main challenges include:

• Different courts might interpret similar situations differently leading to unpredictable outcomes
• The responsibility falls on the wronged party to prove unfair treatment occurred
• Courts often set strict limits on how much compensation can be awarded
• Without proper documentation, it can be difficult to establish a claim, even when you know who wronged you

Quasi Contracts and Promissory Estoppel: What's the Difference?

Though both legal concepts step in when traditional contracts fall short, they serve different purposes and operate under different principles.

Let's break down these key differences.

Understanding Promissory Estoppel

Think of promissory estoppel as a legal safety net when someone makes a clear promise that others rely on to their detriment.

For example, John, a subcontractor, tells Robert, the owner of the project, that the general contractor has not paid him and that he will stop working because of this. Robert promises full payment if the job gets done. Once done, John asks for payment and Robert refuses.

John then brings a promissory estoppel claim against Robert for the payment. (A contract claim would not be valid here because his state's statute of frauds requires that service contracts over $500 need to be made in writing.)

Key Differences at a Glance:

The Role of Document Automation in Managing Quasi Contracts

Quasi-contracts provide valuable legal remedies, but they are complex to navigate and come with inherent risks and uncertainties. From unpredictable outcomes and high litigation costs to uncertain compensation limits, the potential drawbacks can outweigh their benefits.

In our opinion, it is always safer and better to rely on proactive contract generation. Businesses can use document automation software like Docupilot to create clear, standardized agreements, track obligations, and reduce the need for informal or implied agreements. 

Docupilot provides read-to-use contract templates that can be used to save time or you can create them from scratch using an intuitive template builder.

 By investing in document automation:

• Reduce legal exposure significantly
• Save on potential litigation costs
• Protect business relationships
• Create a clear audit trail
• Ensure compliance and accountability

Are you looking to streamline your contract process? Discover how Docupilot can be your first line of defense in effective contract management.

Frequently Asked Questions (FAQs)

1.What happens if a business refuses to pay under a Quasi contract?

If a party or business refuses to pay, the service provider or the party that provided the goods can take the matter to court and seek restitution or compensation. The court will then impose an obligation for payment to prevent unjust enrichment, though the claimant will need to demonstrate that the benefit was provided and retained under circumstances that require fairness.

2.How do courts calculate fair compensation in quasi contract cases?

In quasi-contract cases, courts calculate fair compensation based on the principle of "quantum meruit," which means "as much as one deserves," by calculating the price of the goods and services provided by the defendant to prevent unjust enrichment. The court usually considers the market rate to do this or the price of the services provided in the area. Also, a thing to keep in mind is the calculation method can vary by jurisdiction, case specifics, and the judge’s discretion.

3.How does a quasi contract differ from an implied contract?

While both quasi and implied contracts are created without a formal written agreement, an implied contract arises from the conduct of the parties that suggests mutual agreement, such as routine business dealings. In contrast, a Quasi contract is imposed by a court solely to prevent unfair enrichment, even if there’s no prior conduct suggesting an agreement.