Quasi Contracts vs. Regular Contracts: What’s The Difference?

Content

• What is a Quasi-contract?
• When do you need a Quasi-contract?
• Unjust Enrichment
• Are Quasi-contracts legally enforceable?
• How does Restitution work in a Quasi-contract?
• What is the difference between Quasi- and regular contracts?
• What are the benefits and drawbacks of Quasi-contracts?
• Conclusion

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.

What is a Quasi-contract?

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.

When do you need a Quasi-contract?

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. 

Unjust Enrichment

In simpler terms, unjust enrichment refers to a situation where one person gains something of value without legal justification, while the other party suffers a loss or is disadvantaged as a result. The implications of unjust enrichment can be far-reaching and have significant consequences for both parties involved. If a court determines that unjust enrichment has occurred, the party that benefited unfairly may be required to compensate the other party for the value they received without legal justification.

In the legal realm, the party that was unjustly enriched is required to return the benefit or compensate the other party for the value received. It aims at restoring fairness and preventing one party from profiting at the expense of another.

Are Quasi-contracts legally enforceable?

Quasi-contracts typically arise in situations where one party confers a benefit on another party with the expectation of being compensated, but no actual contract exists. For example, if a company hires an IT consultant but there is no written contract outlining the terms of payment, a quasi-contract may be implied to ensure the consultant is compensated fairly for their services.

Now, the big question is: are quasi-contracts legally enforceable? The answer is yes, quasi-contracts are generally considered legally enforceable. Courts will enforce quasi-contracts to prevent unjust enrichment and ensure fairness between parties. However, certain requirements must be met for a quasi-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. 

How does Restitution work in a Quasi-contract?

Restitution in a quasi-contract refers to the act of restoring or returning something to its rightful owner or providing compensation for any benefits received unjustly. In simpler terms, it is a way to ensure that if someone has unfairly gained from a situation, they are required to give back what they have gained or provide compensation for it.

Restitution in a quasi-contract typically occurs when there is no formal contract in place between two parties, but one party has received a benefit at the expense of the other. In these cases, the court may step in and order restitution to ensure that the unjustly enriched party does not keep the benefit without compensating the other party.

For example, imagine a scenario where a contractor mistakenly performs renovations on the wrong house, and the homeowner benefits from the improvements without paying for them. In this case, the court may order the homeowner to pay restitution to the contractor for the work performed, even though there was no formal contract between them.

What is the difference between quasi- and regular contracts?

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 are typically imposed in situations where one party has received a benefit from another party without providing anything of value in return. For example, if you accidentally pay someone else's bill, the court may impose a quasi-contract to require that person to reimburse you. 

What are the benefits and drawbacks of Quasi-contracts?

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.  

Pros of Quasi-contracts:

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.

Cons of Quasi-contract

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.

Conclusion

Quasi-contracts, also known as implied-in-law contracts, are legal agreements that are imposed by the court to prevent one party from unjustly benefiting at the expense of another. While these contracts serve the purpose of ensuring fairness and preventing unjust enrichment, they also come with their own set of drawbacks. 
Therefore, to do away with the necessity for quasi-contracts, the best course of action is to draft appropriate written agreements for every business transaction. They can collaborate with counterparties to negotiate terms and conditions that suit everyone's needs. There are digital solutions available these days to automate the entire contract lifecycle. Dock 365 is one such platform. Our contract management software offers an array of tools to streamline drafting, negotiating, signing, and monitoring.