Robbins: Quasi contract, quantum meruit, unjust enrichment, and promissory estoppel

They’re sorta like contracts, but not quite.

So what, exactly are they?

Before we get there, a little legal music instead. First, what is a contract? And second, how can something be like a contract but not be one?

First things first.

In its simplest terms, a contract is an agreement between parties, creating mutual obligations that are enforceable by law. The basic elements required for the agreement to be a legally enforceable contract are: mutual assent, expressed by a valid offer and acceptance; adequate consideration; capacity; and legality.

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“Consideration” in turn, means that one thing of value is exchanged for another thing of value. I give you money and you give me your car. 

“Capacity” means the ability, capability or fitness to do something — competency to act and understand the nature and the consequences of one’s acts. A minor or a person with a mental defect is presumed to lack the legal capacity to act. Lastly, “legality” — one may contract for almost anything, presuming that the thing contracted for is legal. One cannot, for example, be bound by the terms of a contract to traffic drugs.

Now, the second part. There is a well-accepted schism in the law. There is the law of law and the law of equity. The first of these is easy; the “law of law” is the law that is laid down, ordained, or established. It is the sum of the rules established by controlling authority, or precedent (the “common law”), and having binding legal effect.

The “law of equity,” on the other hand, is what’s fair. It is law administered according to what is “equitable” under the circumstances, as contrasted with the strictly formulated rules of law. 

Modernly, equity and law are collateral, and both equitable and legal relief may be simultaneously pled where the conduct complained of merits both.

OK then. Enforcement of a contract is a legal matter. But what if you don’t quite have a contract? What if, say, an element necessary to form a contract is missing? Well, then, equity to the rescue.

A quasi contract is a contract that exists by a fiction of the court rather than by agreement of the parties. Courts create quasi contracts to avoid unjust enrichment of a party in a dispute over payment for a good or service. At times, a party who has suffered a loss in a business relationship may not be able to recover for the loss without evidence of a contract or some legally recognized agreement. To avoid what would be this unjust result, the court invents a fictitious agreement where no legally enforceable agreement actually exists.

An example here might help. 

Say a builder built a house on your seldom-visited property near Toponas.  But, oops, the builder signed a contract with someone else who claimed to be your agent but, in fact, was not. Now, there is a brand-spanking new house on your lot and you claim, “Hey, I never asked for it. Now, don’t I get to keep it?” Ah … no. Although there is not a binding contract between you and Mr. Builder, most courts will allow the builder to recover the cost of materials and services from you in order to avoid an unjust windfall … an unjust result. More than likely, the court would create the fiction of a quasi contract and hold you responsible for what you swore was manna from heaven.

Unjust enrichment, then is a kissin’ cousin. What the equitable principle maintains is that no person should be allowed to profit at another’s expense without making restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.

Next up on the legal hit parade is quantum meruit. Yeah, yeah, it’s Latin. What the concept provides is that the law will infer a promise to pay a reasonable amount for labor and materials furnished even in the absence of a specific legally enforceable agreement between the parties. Say a roofer roofs without a written contract and roofee — the person enjoying the shiny new roof — maintains, “Contract, what contract? I don’t owe you zip.” Well, whoa Nellie, not so fast. Through invocation of the doctrine of quantum meruit, the court will find a way to level that particular uneven playing field.

This brings us to the concept of promissory estoppel. Say what?

In the law of contracts, this doctrine provides that if a party substantially changes his or her position either by acting or forbearing from acting in reliance upon another’s promise, then that party can enforce the promise even though the essential elements of a formal contract are not present. To be enforceable under the doctrine, reliance on the promise must be reasonable and the promisor should have reasonably expected that it would induce a certain action (or inaction). By relaying on the promise that is ultimately not delivered, the promised party then is injured and injustice will only be avoided by enforcing the promise.

Let’s suppose that you tell a high school kid that if he spends his summer painting your million-dollar home, at the end of the summer, you will pay him a handsome sum. Instead of taking a job with his local Burger King, the kid instead spends his summer industriously painting. But when the job is done, you thank him but don’t pay him. As you made a promise, the kid altered his position, his reliance on you was reasonable, you knew or should have known that he had relied on you, and, at the end of the summer, the kid was left with empty pockets, were the court to step in, well … time to pay up.

The law — and equity — work in sometimes mysterious ways, the goal of which is, however, to render justice. Even when sometimes there is what may at first blush seem to be a fatal glitch.

Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices Of Counsel in the Vail Valley with the Law Firm of Caplan & Earnest, LLC. His practice areas include business and commercial transactions; real estate and development; family law, custody, and divorce; and civil litigation. Robbins may be reached at 970-926-4461 or at Rrobbins@CELaw.com. His novels, “How to Raise a Shark (an apocryphal tale),” “The Stone Minder’s Daughter,” and “Why I Walk so Slow” are currently available at fine booksellers everywhere; coming soon, “He Said They Came From Mars.”