Does the Enforcement of Quasi Contracts Infringe on the Liberties of a Citizen?

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Coase theorem blends efficiency with social fairness by first understanding that market forces are never perfect because of negative externalities, and that some other method must be applied in finding equity. In his Nobel lecture, Coase explains his theory regarding government influence upon negotiating parties:

“Some land of government action (usually the imposition of taxes) was required to restrain those whose actions had harmful effects on others (often termed negative externalities). What I showed . . . was that in a regime of zero transaction costs, an assumption of standard economic theory, negotiations between the parties would lead to those arrangements being made which would maximize wealth and this is irrespective of the initial assignment of rights. This is the infamous Coase theorem… Of course, it does not imply, when transaction costs are positive, that government actions (such as government operation, regulation, or taxation, including subsidies) could not produce a better result than relying on negotiations between individuals in the market (Fox, 9).

In the case of quasi contracts, as the outcome of third-party decisions become more unpredictable, uncertainty and incentive problems increase. In addition, as the negative externalities of imposed, non-compensated transfers become more important, uncertainty and incentive increase. Again, this is an argument for parties to settle their own disputes, but not an argument against quasi-contract.

On the one hand, citizens have a right to contract with others, and should be held to that contract. Being held to fulfill a different contract, or found in breach of one they did not agree to, seems very unfair. Why would society want to encourage this kind of law? It is important to note that in these cases, no legally enforceable contract exists. Who is most qualified to determine the terms of this fictitious contract? A judge is equipped to interpret the law, but can a judge truly determine what is meant by the parties? If we remove the right of an individual to be held to his own intended contractual duties, and ask him to impose fabricated ones, then we should be able to trust the judge to make a perfect decision.

As we know, humans are not perfect, nor are their understanding of others, and this leaves space in the system for error and bias. We are dealing with two grey areas. First, in determining the terms or duties of the constructive contract, a judge must decide the duty or obligation. There is an argument that since these were not expressly written, or even implied, there is room for error here. Even though quantum meruit can be argued as quantifiable, and terms are based in fact, they are still not determined and agreed to by the parties involved. The other grey area is in the enforcement of another individual’s interpretation of quantum meruit. Often we understand that contracts are based on a meeting of the minds involved in the contract. By adding a judge, and lawyers to the mix, there is room for error. What is the good argument for imposing fictitious contracts such as these, with room for error?

If a judge can impose a remedy, then the remedy must be based on a duty. There was a duty, which is imposed by the judge, which implies that there is a contract. This is not true. It is a mere remedy, not an enforcement of an extended obligation. The remedy is not based on a duty; the remedy is based on the measurable fact that one party has been enriched by the circumstance unjustly, not on any other point. The only fact the judge must determine is whether there is unjust enrichment. Then he must determine the value of that unjust enrichment, and impose a new duty – only in respect to that unjust enrichment, and nothing else.

In fact, one economic theory seems to support the idea of human negotiation as a better alternative. The economic idea was introduced by Kaldor-Hicks, named the Kaldor Hicks efficiency. According to this theory, the ideal outcome of a supply and demand inefficiency would be when the party who is better off voluntarily compensates those who are worse off. This efficiency does not require that the lesser party be paid, rather that it is better that the possibility for compensation exists. For a quasi-contract to exist, the plaintiff would have forgone this alternative. From this concept, we can conclude two things: first, that the most efficient way to reduce quasi-contract enforcement is to avoid the need altogether; and two, it is better that quasi-concept exists as an option, rather than no alternatives for the plaintiff without a contract.

It is my belief that if there is no contract, and since the party who has been supposedly harmed or wronged by the defendant’s action has approached the court to deliver a verdict, than there is no more perfect means of a solution than to first identify the wrong, and then quantify the damage, and finally determine the verdict based on the evidence presented in the realm of the courtroom. I would argue one step further than the current method of designing a quasi-contract, to appease those proponents of anti-quasi-contract nature, that in quantifying the damage, using proven models of economic efficiency, we can discover a more perfect model for the no-contract scenario.

Another argument against quasi-contracts is in the public-private debate. Dalton states that “to the extent contract doctrine is ‘private’ or controlled by the parties, it guarantees individual autonomy or freedom; to the extent it is ‘public’ or controlled by the state, it infringes individual autonomy” (Dalton 6). However, this rationale is flawed, and can be ruled out through economic principles. According to basic economic principles, an externality occurs when the actions of one party affect another with whom there is no direct relationship, but a direct effect.

The reality of the scenario of a quasi-contract is that one party has been unjustly enriched at the expense of the other party. This is an inequity which should be proven and remedied. As a society, we should want to balance inequities as fairly as possible. For situations of unjust enrichment, where no contract exists, how can society balance this inequity?

Interestingly enough, a correlation may be drawn between the concept of unjust enrichment, and the economic principle of negative externalities. Whereas in the course of behavior, defendant has caused an imbalance to the plaintiff; in the course of doing business, sometimes companies create negative externalities that damage society, but are not taken into account. This causes an imbalance in understanding the total cost of these decisions. Unjust enrichment works the same way. The defendant’s action has caused some damage to the plaintiff, which was not