Quasi Contract

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

Noun

1. A contract created by the court in the absence of an official agreement between the parties.

Origin

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.

Unjust Enrichment

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:

1. The defendant must have received an enrichment.
2. The claimant must have suffered a disadvantage as a result of the enrichment.
3. The enrichment must be established as unjust.
4. There must be an absence of explanation for the enrichment and related disadvantage.
5. 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.