Obligation of Person Enjoying the Benefit of a Non-gratuitous Act

A gratuitous act is one that is performed by someone without the anticipation of a return and a non-gratuitous act implies the opposite meaning. If a person lawfully does something for another person without wanting to do it “gratuitously” (for example, delivers a good or a service) and the other person receives the profit of delivering the good or service, the latter is obliged to pay back the former person.

Giving someone a present, for instance, is a gratuitous gesture. Your package sent to the incorrect address arrives. You eat a bag of chocolate chip cookies as soon as they arrive. You are responsible to pay the package’s true owner.

The examples of an unsolicited shoe-shiner polishing one’s shoes or that of the coolie picking up one’s products will lie under the purview of Section 70 of the Indian Contract Act, 1872. These actions and services are not carried out free of charge and thus, on the receiving end, a duty to pay back exists on the part of the individual. This article takes a look at several such legal precedents.

I. Introduction

Quantum meruit is an equitable compensation-based legal action. Quantum meruit is a legal action related lawsuit. It is an alternate recourse to an action that may be brought over partial performance on a contract [1]. A contention may at best be represented as residual equity in quantum meruit. Legislatively, quantum meruit is the name of a legal action brought to obtain money for work done and work performed “where no price has been decided”. The word simply means “as much as is deserved” and can also be used as the legal method of equitable compensation or restitution. [2]

In a claim of quantum meruit, the plaintiff does not demand a particular sum of money or an amount reflecting the general damages suffered by the plaintiff as a result of an unjust act on the part of the defendant, but an amount which provides the plaintiff with the value of what the plaintiff has done to the defendant, usually measured in terms of the market price or the value of such services. [3]

II. Tracing a Legislative and Precedential History

The Delhi High Court’s Justice V.K. Jain analysed the law relating to the responsibility of an individual receiving the profit of a non-gratuitous act, as envisaged in S. 70 of the Contract Act of India, in M/S. S.N.Nandy & Co. v. M/S. Ltd. of Nicco Corporation. The Court, though enunciating the law on the subject, held as analysed below [4].

Considering, however, that the additional works alleged by the claimant were not approved by the defendant and thus that the defendant is under no contractual duty to pay for those works, the complainant is entitled, in the light of the requirements found in Section 70 of the Contract Act, 1872, to receive a fair payment for those works, which reads as follows:

Obligation to an individual who profits from a non-free act. If a person lawfully does something for another person or delivers anything to him that he does not wish to do so willingly, and the other person receives the profit of it the latter is obliged to pay the prior for the item thus performed or given, or to recover it.

Mere analysis of the section referred to above will illustrate that three conditions must be met before an individual can invoke the advantage of this clause. The first prerequisite is that the applicant should either do something for another person legitimately or deliver something to him. The second condition is that the complainant does not act gratuitously when doing or delivering things, and thirdly, the person by whom something is done or to whom something is delivered must enjoy the thing done for or delivered to him as the situation may be [5].

Invocation of section 70 of the Contract Act was challenged by the defendant’s learned counsel on the basis that the appellant did not plead the section’s necessary provision. The learned lawyer for the appellant referred to Kotah v. State of Rajasthan [6], Hansraj Gupta & Co. v. Union of India [7], Union of India v. Sita Ram Jaiswal [8] and Devi Sahai Palliwal v. Union of India and another [9] in favour of his argument that pleading ingredients of Section 70 is a pre-condition for its invocation.

The Rajasthan High Court observed in Kotah Match Factory that the appellant did not raise the petition for compensation under Section 70 of the Contract Act, nor did any question emerge, nor did the parties have the opportunity to present any facts on that point. It was found that the appellant’s case in the Court of Justice was based on an agreement. It was held that as the parties had not been brought to trial on the matter of compensation pursuant to Section 70 of the Contract Act if at this point the advantage of the above clause is allowable, it would be taken by surprise by the opposing side [10].

In Hansraj Gupta & Co, the Supreme Court was of the opinion that at least the criteria for the applicability of Section 70 had to be laid out and illustrated in the pleadings. The Supreme Court, in Sita Ram Jaiswal, noted, among other things, as under [11]:

“These are the three elements to justify the cause of action under Section 70 of the Indian Contract Act: first the goods to be delivered legally or anything to be done lawfully for another person. Third, the person to whom the goods are delivered “not intending to do so gratuitously.” It is only where the three ingredients are pleaded in the complaint that a right of action is created under Section 70 of the Indian Contract Act. Second, the thing done or the goods delivered are done or delivered “enjoys the benefit thereof.” Whether any claimant pleads the three components and shows the three traits, the defendant is then obliged to make restitution for or repair the things so done or produced.”

The Supreme Court found, in Devi Sahai Palliwal, that there was no claim in the case supporting any petition in proceedings pursuant to Section 70 of the Indian Contract Act. Based on its earlier Sitaram Jaiswal decision, it was held that the case could not be pursued in the absence of appropriate pleadings under Section 70 of the Indian Contract Act.

On the other side, the learned lawyer for the complainant referred to State of West Bengal v. M/s B.K. Mondal and Sons[12], V.R. Subramanyam v. B. Thayappa and others[13] and Food Corporation of India & Others v. Vikas Majdoor Kamdas Sahkari Mandli Ltd. [14]

In the instance of B.K. Mondal and Sons, after reiterating the three requirements to be satisfied before applying to Section 70 of the Contract Act, the Supreme Court found that Section 70 imposes on the person for whom something is done or to whom something is delivered the duty to pay or restore the thing done or delivered to the person for whom something is done or to whom something is delivered. During the process of the judgement, the Court, inter alia, noted as follows [15]:

“It will be open to the latter party to refuse to consider the item or return it if a person delivers things to another in that case, S. 70 was not going to come into force. Similarly, if an individual does something for another, it will be up to the latter individual not to acknowledge what the former has done; again, in that case, S. 70 will not be applicable. In other terms, under S, the person claimed he was made liable. S. 70 still has the option of not accepting or returning the object. It is just where he accepts the item willingly or enjoys the job done that the responsibility under S. 70 surfaces.

Since the respondent built the warehouse, for example taking the evidence in the case before us, it was open to the appellant to refuse to acknowledge the said warehouse and to profit from it. It may have called on the respondent to decimate the said warehouse and take away the supplies it used to build it but if the appellant agreed and used the said warehouse and appreciated its advantage, then multiple aspects come into play and S. 70 could be invoked. Section 70 takes place in Chapter V, which deals with those relationships that are similar to contractual relationships.

In other terms, the rights or obligations arising by the contract are not discussed in this chapter. It deals with the rights and responsibilities resulting from relationships that mimic those formed by contract. In cases coming under S., then, 70 For the basic explanation that there is no contract between him and the other party for whom he does something or to whom he delivers something a person doing something for another or delivering something to another does not sue for the particular execution of the contract or apply for damages for the infringement of the contract.

All that Section 70 entails is that the obligation to pay money for the enjoyment of the said goods or the recognition of the said work occurs if the goods delivered are acknowledged or the work performed is willingly enjoyed. Therefore, where a claim for damages is made by one party against another under S. 70, it is not on the basis of any subsisting arrangement between the parties, it is on the basis of the assumption that something was done by another by the side, and the other party willingly acknowledged the work so done. The effect of the conditions prescribed by S. 70 is broadly specified.”

In V.R. Subramanyam, the Court reiterated the established proposition of law that if a party to a contract offered a service to another person and did not wish to do so free of charge and had earned a profit from another person, the latter would be entitled to compensation for the sum of the services rendered by him. Furthermore, it was held that even if a person fails to show an explicit arrangement in this respect, the Court could still grant him compensation under Section 70 of the Contract Act, and such a compensation decree will be in compliance with the law and not with the contract [16].

In the Supreme Court Case of Food Corporation of India (supra), the court noted as under:

If no price is set, a person who does work or who provides goods under a contract shall be entitled to pay a fair amount for his work and the goods supplied. Where the job is beyond the contract, no application can be made to the terms of the contract; and the contractor shall be entitled to pay a fair amount for the work as he has completed.

The former shall be entitled to credit for the extra work not protected by the contract where a party to a contract has made additional construction for another party not wishing to do so free of charge and the other party has received a benefit. If an oral understanding which is not proven is pleaded for, he shall be entitled to reward in compliance with Section 70. Payment under this clause can also be asserted for work performed within the terms of the contract if the defendant has used the advantage of the work [17].”

III. MTNL and Tata Communication Case

A contractual conflict between Mahanagar Telecom Nigam Limited (MTNL) and Tata Communication has been dealt with by the Supreme Court. The former had, because of a sales order, adjusted the amount owed to the latter and charged that the latter had committed a breach of contract. The company claimed that the Tata Connectivity bills were identified as dark fibre rent rates.

In the instant case, the Hon’ble Bench of the Supreme Court comprising Justice R F Nariman and Vineet Saran stated that the Quantum meruit was not valid under section 70 of the Indian Contract Act, 1872. The following is Section 70 of the Indian Contract Act, 1872:

“Person’s duty to benefit from non-free act-Where a person lawfully does or delivers something to another person, not planning to do so free of charge and the other person receives the benefit of it the latter is obliged to pay the former for the thing done or given, or to recover it.”

This section was relied on by the MTNL largely because it defines a relationship the same as a contractual relationship. Nevertheless, in the event of failure, the Purchase Order or the contract between the parties to the litigation allowed for liquidated damages at a cost of 12% of the purchase value. The Telecom Dispute Settlement Appellate Tribunal (TDSAT) ordered the MTNL to pay more than 12 per cent of the amount held by it.

Contrary to the aforementioned decision, the MTNL entered the doors of the Supreme Court. By relying on a variety of precedents, the supreme court concluded that it was not possible to invoke section 70 during the subsistence of the contract so that quantum meruit could not be given taking into account the clause laid down in the contractual arrangement between the parties concerned for liquidated damages.

In the case of Moselle Solomon v. Martin & Co., where Lord William, it applied to the fragmented decision of two judges. J holds that the remedies provided for in Section 70 did not draw on the legislation relating to principal and agent liability which was referred to in the aforementioned case.

It is an independent recourse, based on a particular cause of action, including if a person has done anything for another legitimately or has delivered anything to him that he does not wish to do so free of charge, and that other person has gained from it. If so, he must either pay compensation for the item done or delivered or repair it. Quite the contrary, Jack. J held that Section 70 has no application where an express contract occurs, as seen by the heading of Chapter V of the Act, in which the section occupies a place [18].

In Mulamchand v. Madhya Pradesh State, the Court referred to a dictum. In that case, the court held that the party who performs or provides something to another entity could not sue the latter for a particular execution of the contract, nor claim restitution for violation of the contract. This was because the substantive arrangement between the two parties did not exist; thus the compensation obtained under section 70 was focused on a separate responsibility and not on contracts. In other terms, quasi-contract or restitution depends on it [19].

The Supreme Court affirmed the order of the TDSAT and claimed that under section 70 of the Act, the TDSAT should not have levied a unilateral amount during the duration of a separate contract [20].

IV. Conclusion

A valuable remedy is quantum meruit if one knows how to use it correctly. In India, as we found in the MTNL vs. Tata Communications case, the theory has not been exercised by the courts in the “pure sense” and maybe this Indian court idiosyncrasy is for the positive because it provides an obligation for persons to write well-thought-out contracts. Legal scholars in India, however, want the Hon’ble Court to amend its stance in order to eventually encourage payments above the price set out in a contract.

People should draw up their contracts in such a manner that the amount stipulated is always equal to or greater than the resulting quantum meruit argument for liquidated damages. Think this way, in India, fines are always set aside for any violation of the contract and only fair damages are given as relief. So a properly planned contract will save time and expense for the executors.

The Indian stance on the establishment of Section 70 was not compatible with common law. Holding a lawsuit under quantum meruit as just a restitutionary claim and not a statutory one, is a departure from the worldwide evolved contractual rules, and the truthful Supreme Court here has skipped the chance to put the cases in quantum meruit where liquidated damages are already stipulated in a contract.

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References

[1] .W. Carter, “Ineffective Transactions,” in P.D. Finn, ed., Essays on Restitution (North Ryde, N.S.W.: Law Books Co., 1990) 206 at 235-40, cited in G.H.L. Fridman, Quantum Meruit, Alberta Law Review Vol. 37(1) 1999, Available Here

[2] Minattur, J. (1972). The Indian Contract Act: Its Wanderlust And Warmer Climes. Journal Of The Indian Law Institute, 107-115.

[3] John H. Munkman, The Law of Quasi-Contracts 87 (1950), cited in Judy B. Sloan, Quantum Meruit: Residual Equity in Law, 42 DePaul L. Rev. 399 (1992), Available Here

[4] M/S. S.N.Nandy & Co. v. M/S. Nicco Corporation Ltd, CS(OS) No. 2448/2000.

[5] Raghavan, K. (2016). Failure of consideration as a basis for quantum meruit following a repudiatory breach of contract. Monash UL Rev., 42, 179.

[6] Kotah Match Factory Kotah v. State of Rajasthan, AIR 1970 Rajasthan 118

[7] Hansraj Gupta & Co. v. Union of India, AIR 1973 SC 2724

[8] Union of India v. Sita Ram Jaiswal, AIR 1977 SC 329

[9] Devi Sahai Palliwal v. Union of India and another, AIR 1977 SC 2082.

[10] Supra^ 6

[11] Supra^8

[12] State of West Bengal v. M/s B.K. Mondal and Sons, AIR 1962 SC 779

[13] V.R. Subramanyam v. B. Thayappa and others, 3 SCR 663

[14] Food Corporation of India & Others v. Vikas Majdoor Kamdas Sahkari Mandli Ltd., 2007 (13) Scale 126

[15] Supra^12

[16] Supra^13

[17] Supra^14

[18] Moselle Solomon v. Martin & Co (1935) ILR 62 Cal 612

[19] Mulamchand v. State of Madhya Pradesh (1963) 3 SCR 214

[20] MTNL v. Tata Communications Ltd., (2019) 5 SCC 341

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