India: Quantum Meruit

Last Updated: 14 January 2020
Article by Pratik Jain

INTRODUCTION

Quantum meruit is a legal action based on equitable compensation. It is an alternate remedy to an action on a contract which can be brought for partial performance. A claim in quantum meruit can at best be described as residual equity. Procedurally, quantum meruit is the name of a legal action brought to recover compensation for work done and labour performed "where no price has been agreed."1 The term literally means "as much as is deserved"2 and often can be seen as the legal form of equitable compensation or restitution.

In a claim of quantum meruit, the plaintiff does not seek a precise sum of money, nor a sum representing the general damages incurred by the plaintiff as a consequence of some unjust act on the part of the defendant, but a sum which will provide the plaintiff, the value of what the plaintiff has done for the defendant, usually calculated in terms of the market price or value of those services.3

THE CONCEPT

Quantum meruit claim may be either contractual4 or restitutionary5. Quantum meruit has two distinct connotations and it is necessary to differentiate between them. The difference between contractual and restitutionary quantum meruit can be seen from the below mentioned cases.

In William Lacey (Hounslow) Ltd v. Davis6, the plaintiffs rendered services to the defendant at the latter's request in anticipation of a building contract that failed to materialize. When the plaintiffs sued for payment for the services, the defendant argued that it was the common expectation of the parties that a contract would be entered into between them and that the plaintiffs' services would be rewarded by the profits of the contract. The defendant denied that in the circumstances there was any implied promise to pay for the services in issue. The defendant's argument was that any quantum meruit claim was necessarily contractual, and any such claim was negated by the fact that the parties had an express contract in mind thereby making it impossible to imply any other, contradictory contract. This argument was rejected. Instead the court explained that quantum meruit, though contractual in origin, had given rise to another form of action founded upon what was known, in 1957 when the case was being determined, as quasicontract. In such quasi-contractual instances of the application of quantum meruit the court looked at the facts and ascertained from them whether or not a promise to pay should be implied, irrespective of the actual views or intentions of the parties at the time when the work was done and the services rendered.7

The case of Burns Fry Ltd. v. Khurana8 involved both contractual and restitutionary claims by the plaintiffs based upon their acts as agents for the defendant in the sale of a business. An agreed fee was payable upon the closing of the transaction. After the plaintiffs had found a purchaser willing to pay approximately the price asked for the business by the defendant, the latter changed his mind and decided not to sell. Krever J. rejected both claims. The defendant had acted in good faith and was not in breach of any implied term of the contract.9 Nor was the alternative of restitution, i.e. quasi-contract, applicable. The nature of the contract was such that the plaintiffs had taken the risk of not being paid if there was no sale and no substantial benefit had been acquired by the plaintiff.10 It is evident from the above cases that the basis upon which a quantum meruit claim can be advanced and be successful is different where such a claim is contractual from where it is quasi-contractual or restitutionary.

QUANTUM MERUIT AS DISCUSSED BY INDIAN COURTS

The action of Quantum Meruit is allowed in Indian Courts under Section 70 of the Indian Contract Act 1872, which states:

"Obligation of person enjoying benefit of nongratuitous act—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."

Recently, the Supreme Court of India in the case of Mahanagar Telephone Nigam Limited v. Tata Communications11differentiated between the claims in quantum meruit and the damages in breach of contract. The question before the Hon'ble Court was whether, when parties are governed by contract, a claim in quantum meruit under Section 70 of the Indian Contract Act, 1872, would be permissible. While deciding the aforesaid question, the Hon'ble Court referred to a number of judgments:

First, it referred to the split verdict of two judges in the case of Moselle Solomon v. Martin & Co.12where Lord William. J held that the remedy provided by Section 70 is not dependent upon the law relating to the liabilities of principal and agent. It is an independent remedy, which is based upon a different cause of action, namely, upon whether a person has lawfully done anything for another or has delivered anything to him not intending to do so gratuitously, and such other person has enjoyed the benefit thereof. If so, he must either make compensation in respect of, or restore the thing so done or delivered.13On the contrary Jack. J held that where there is an express contract, Section 70 has no application, as shown by the heading of Chapter V of the Act, in which the section finds a place.14

In the case of Alopi Parshad and Sons Ltd. v. Union of India15, Hon'ble Supreme Court dealt with an arbitration award which awarded certain amount on the basis of quantum meruit. However, the same was set aside and it was held that,

"Compensation under quantum meruit is awarded for work done or services rendered, when the price thereof is not fixed by a contract. For work done or services rendered pursuant to the terms of a contract, compensation quantum meruit cannot be awarded where the contract provides for the consideration payable in that behalf. Quantum meruit is but reasonable compensation awarded on implication of a contract to remunerate, and an express stipulation governing the relations between the parties under a contract, cannot be displaced by assuming that the stipulation is not reasonable."16

In the case of Mulamchand v. State of M.P.17, the court inter-alia held that, if a claim for compensation is made by one person against another under Section 70, it is cannot be on the basis of any subsisting contract between the parties but on a different kind of obligation. This position was followed in the case of Orissa Industrial Infrastructure Development Corporation v. Mesco Kalinga Steel Ltd.18which explained that in estimating the loss or damage arising from a breach of contract, the means which existed for remedying the inconvenience caused by the non-performance of the contract must be taken into account.

In the light of Section 70 of the Indian Contract Act, 1872, and the referred judgments, the Supreme Court held that MTNL could claim only the sum stipulated in the contract and anything claimed above this sum should be refunded accordingly.

CONCLUSION

The Indian position regarding the evolution of Section 70 has not been at par with the common law. Holding a claim under quantum meruit as only a restitutionary claim and not a contractual one is a deviation from the evolved contractual laws across the globe and the hon'ble Supreme Court here has missed the opportunity to bring the claims in quantum meruit where there is already a stipulation of liquidated damages in a contract.

Footnotes

1 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 at: https://via.library.depaul.edu/law-review/vol42/iss1/31

2 Black's Law Dictionary 1243 (6th ed. 1990), cited in cited in Judy B. Sloan, Quantum Meruit: Residual Equity in Law, 42 DePaul L. Rev. 399 (1992).

3 J.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 at: https://www.albertalawreview.com/index.php/ALR/article/view/1472/1461

4 J & J Penner Construction ltd v. Cringan (1994), 93 Man. R. (2d) 252 (Q.B.)

5 Capital Construction & Foundation ltd. v. Cote (1993), 124 N.B.R. (2d) 204 (T.D.)

6 [1957) I W.L.R. 932.

7 Ibid, p.936.

8 (1985), 20 D.L.R. (4th) 245 (Ont. H.C.J.).

9 Unlike the party which decided not to go through with the contract arranged by the agent in Alpha Trading ltd v. Dunnshaw-Patten ltd., [1981] Q.B. 290, on which see G.H.L. Fridman, The law of Agency, 7th ed. (London: Butterworths, 1996) at 197-98. 10 As it would have been in Capital Construction & Foundation ltd. v. Cote (1993), 124 N.B.R. (2d) 204 (T.D.) [hereinafter Capital Construction], if the defendant had obtained anything of value from the work done by the plaintiffs, which was not the case.

11 (2019) 5 SCC 341.

12 ( 1935 )ILR 62 Cal 612.

13 Ibid, p.619.

14 Ibid, p.623.

15 AIR 1960 SC 588

16 Ibid, p.809.

17 AIR 1968 SC 1218

18 ( 2017 ) 5 SCC 86

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