Quantum Meruit – Right to Restitution under Section 70 of the Indian Contract Act, 1872

Quantum Meruit is Latin for “as much as he has deserved”, as per the Black’s Law Dictionary. It has developed as legal principle to ensure that a non-gratuitous act of delivery of goods or execution of work when voluntarily accepted or utilized by the recipient thereof a beneficiary of the non-gratuitous act is legally liable […]

Quantum Meruit is Latin for “as much as he has deserved”, as per the Black’s Law Dictionary. It has developed as legal principle to ensure that a non-gratuitous act of delivery of goods or execution of work when voluntarily accepted or utilized by the recipient thereof a beneficiary of the non-gratuitous act is legally liable to restitute the value of such goods or works executed.

Herein, it would be useful to list some of the modes of entering into a binding contract by large entities like Governments or Corporations etc. In the case of the Union or State Government, the mode for entering into a contract is prescribed under the authority of Article 299 of the Constitution. Similarly, a Statutory body is required to act in compliance with the mandate of the Statute for entering into binding contracts as provided therefor. In the case of a Corporate body, it may expressly authorize an individual either by a Board resolution, or a Power of Attorney to enter into a contract on its behalf to bind the said Corporate entity.

The issue of applicability of Section 70 arises in a situation when there is no binding contract between the parties. The said section reads as follows:

S. 70 Obligation of person enjoying the benefit of non-gratuitous 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.”

In order to invoke the principle of restitution under Section 70, the foremost pre-requisite is that the subject should be outside the realm of a contract between the parties. In other words, the provision is only available when the subject of the claim is not covered by the contractual scope of work where the parties have a subsisting contract. However, if some work is executed or goods or services are supplied non-gratuitously and accepted but payment is denied on account of the absence of a binding contract in respect thereof, section 70 is available qua such claims. The test for the same is that no suit for specific performance is maintainable nor any claim for damages can be made by the person who has done the non-gratuitous act against the person who has benefited from such an act.
The key ingredients that have to be established by a claimant for invoking Section 70 before the Arbitral Tribunal or Court of Law can be summarized as follows:

i. firstly, the claimant shall have done something lawfully for the respondent or delivered something;
ii. secondly, the claimant shall not have done it gratuitously; and
iii. thirdly, the respondent should have voluntarily enjoyed the same.

A 5 Judge Bench of the Hon’ble Supreme Court in B.K. Mondal’s case authoritatively clarified the legal nuances in this regard by reference to a contention of breach of the mandate of Section 175(3) of the Government of India Act, 1935, which is akin to Article 299 of Constitution of India in the following words,

“… even if the respondent built the warehouse he could not have forced the appellant to accept and the appellant may well have asked it to demolish the warehouse and take away the materials. Therefore, the mere act of constructing the warehouse on the part of the respondent cannot be said to contravene the provisions of Section 175 (3). In this connection, it may be relevant to consider illustration (a) to Section 70. The said illustration shows that if a tradesman leaves goods at B’s house by mistake, and B treats the goods as his own he is bound to pay A for them. Now, if we assume that B stands for the State Government, can it be said that A was contravening the provisions of Section 175(3) when by mistake he left the goods at the house of B? The answer to this question is obviously in the negative. Therefore, if goods are delivered by A to the State Government by mistake and the State Government accepts the goods and enjoys them a claim for compensation can be made by A against the State Government, and in entertaining the said claim the Court could not be upholding the contravention of Section 175(3) at all either directly or indirectly. Once it is realized that the cause of action for a claim for compensation under section 70 is based not upon the delivery of the goods or the doing any work as such but upon the acceptance and enjoyment of the sad goods or the said work it would not be difficult to hold that Section 70 does not treat as valid the Contravention of Section 175(3) of the Act.”

Lawfully in the context of Section 70 has been interpreted in the said judgment as follows
“….in our opinion, all that the word “lawfully” in the context indicates is that after something is delivered or something is done by one person for another and that thing is accepted and enjoyed by the latter, a lawful relationship is born between the two which under the provisions of Section 70 gives rise to a claim for compensation.”

The Supreme Court has further held that the thing delivered or done must not be delivered or done fraudulently or dishonestly nor must it be delivered or done gratuitously. Section 70 was held to be not available for persons who impose on others services not desired by them. Once it is delivered the recipient ought to have the freedom to reject it including directing to demolish and remove any construction built without any binding contract. But if the goods delivered are consumed or appropriated or the construction is utilized then section 70 is attracted and the person making the claim is entitled to be restituted for the same.

The Supreme Court as early as 1961 had taken judicial notice of the fact that large organizations have to act in certain situations without adhering to the requisite procedures prescribed for entering into a binding contract,
“It is well-known that in the functioning of the vast organization represented by a modern State government officers have invariably to enter into a variety of contracts which are often of a petty nature. Sometimes they may have to act in emergency, and on many occasions, in the pursuit of the welfare policy of the State government officers may have to enter into contract orally or through correspondence without strictly complying with the provisions of Section 175(3) of the Act.”

The above-mentioned judgment in B. K. Mondal’s case has stood the test of time and has laid a very strong jurisprudential basis on which the Governments, Public Sector Enterprises, or Large Corporations can be made to pay on a principle of law based on equity even in the absence of a binding contract.

Modern day commercial contracts provide for scope of work and also contemplate work orders to be issued in writing by the Engineer in Charge at site. However, it is common knowledge that many a times oral instructions are given to the contractor to undertake certain works or supply certain goods which is neither part of the original scope of work nor any work order is placed as contemplated under the General Conditions of Contract. In such a scenario, the remedy lies under Section 70 of the Contract Act which can be enforced even before a Arbitral Tribunal. In fact in a recent judgment the Hon’ble Delhi High Court in Bharat Sanchar Nigal Ltd. Vs. Vihaan Networks Ltd. has upheld an Arbitral Award which granted compensation under section 70 for certain works done in anticipation of a Purchase order pursuant to a Advance Purchase Order issued by the employer, who later withdrew the Advance Purchase Order.

Section 70 falls in Chapter V of the Contract Act deals with ’Certain Relations Resembling those created by Contract’. Absence of a Contract is when Section 70 provides a equitable remedy for the goods supplied or works done bonafide non gratuitously and the same are voluntarily accpeted by the other party.

Sridhar Potaraju is a Senior Advocate, Supreme Court of India