Implied Contract: Definition, Types, and Examples

Implied Contract: Definition, Types, and Examples

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Apr 12, 2024 13:59 IST

An implied contract is formed by the actions or circumstances of the parties involved rather than written or spoken words, creating a legally binding agreement. It's recognized by courts when the conduct suggests an agreement exists, such as continued employment under certain conditions implied by an employer's statements or actions.

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Imagine you and another person do business together without writing down any agreement. You don’t talk about the terms, but you both understand what needs to be done. That understanding between you two can still be legally binding – it refers to an implied contract.

So, in the business world, when people act in a way that shows they both agree to something, that’s an implied contract. It’s like a silent agreement based on how they act and what they do rather than what they say or write. Remember, even if it’s not written on paper, an implied contract can still be legally important, and both sides should stick to their understanding.

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Check out: What is Law?

What is an Implied Contract?

An implied contract is a legally recognized agreement that emerges from the conduct, actions, or circumstances of involved parties. Unlike explicit contracts, written or verbally agreed upon, an implied contract forms through parties’ behavior and relationship nature.

In simpler terms, it resembles an agreement understood between two parties without explicitly stating all terms. This contract is inferred from the parties’ actions and interactions, demonstrating their intent to be bound by specific obligations.

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Types of Implied Contracts

There are two main types of implied contracts:

Implied-in-Fact Contracts 

Implied-in-fact contracts are agreements inferred from parties’ conduct rather than explicit words. Despite lacking a written or verbal agreement, the consistent behaviours of the parties suggest a shared understanding of obligations. These arise when the actions of both parties imply that they’re agreeing to something, even if they haven’t specifically said it. It’s like a “meeting of the minds” shown through behaviour. 

For example- If you regularly buy coffee from a specific café and they deliver it to your office daily, there’s an implied contract that you’ll pay for the coffee they bring.

Implied-at-Law Contracts (Quasi-Contracts)

A quasi-contract is a legal concept that firms use to ensure fairness. It’s not an actual contract but aims to prevent unjust enrichment. When one party benefits unfairly from another’s actions or mistakes, a court might impose obligations on the beneficiary to compensate the other party, even without a prior agreement.

For example- If a construction company mistakenly builds a larger structure than specified, the client benefits without the extra cost. A quasi-contract could oblige the client to pay for the additional work, preventing unfair gain from the contractor’s mistake, even if not agreed upon beforehand.

Importance of Implied Contracts in Business

An implied contract is a legally binding agreement formed through the parties involved’ behaviour, actions, or circumstances rather than through explicit written or verbal terms. It arises from the parties’ conduct and the expectations they create. It demonstrates an intention to be bound by an agreement. Implied contracts are crucial in business for several reasons:

  1. Clarity in Expectations: Not all agreements are explicitly stated in writing in the business world. Parties often engage in conduct that implies their intention to create a contractual relationship. Implied contracts help clarify the parties' expectations and obligations, reducing misunderstandings and potential disputes.
  2. Enforceability: Implied contracts, like explicit ones, are legally enforceable. Businesses can rely on implied contracts to seek remedies in case of a breach, ensuring that parties fulfil their obligations, even when not formally documented.
  3. Flexibility: Implied contracts allow businesses to adapt to changing circumstances. When situations evolve quickly, parties can still enter into valid agreements without the need for lengthy negotiations and formal contract drafting.
  4. Common Business Transactions: Many routine business transactions, such as purchasing goods from a supplier or hiring an employee, may involve implied contracts. In these cases, the parties’ actions and industry customs establish the terms of the agreement.
  5. Unforeseen Contingencies: Implied contracts can fill gaps in written agreements by addressing issues not specifically outlined. This prevents situations where parties could exploit ambiguities in the contract language.

Pointers for Identifying Implied Contracts

  1. Conduct: Parties’ actions, behaviour, and performance can imply the existence of a contract. For instance, an implied contract is applicable if a vendor consistently delivers goods and the buyer pays for them.
  2. Industry Norms: Certain behaviours are universally understood to imply a contractual relationship in some industries. For example, when a customer enters a restaurant, orders, and consumes a meal, an implied contract to pay for the meal is formed.
  3. Past Dealings: If parties have a history of conducting similar transactions and behaving in a certain manner, a court might infer an implied contract based on their prior dealings.
  4. Intent: Conduct is the basis of an implied contract. The intent to be bound by an agreement is crucial. Parties must exhibit actions that demonstrate an intention to create legal obligations.

Example of Implied Contract

A software development company consistently provides updates and technical support to clients who pay for these services, even though no formal written agreement outlines these terms. The consistent behaviour of both parties implies the existence of a contract where the company provides ongoing services in exchange for payment from the client.

Difference Between Implied and Express Contract

Aspect Implied Contract Express Contract
Formation Arises from parties’ conduct/actions Stated in clear, written or spoken terms
Communication Terms inferred from behaviour Terms explicitly communicated
Clarity Less explicit, based on actions Clearly defined terms and conditions
Mutual Understanding Implied by parties’ ongoing dealings Agreed upon by both parties
Enforcement Legally binding like express contracts Legally binding like implied contracts

Conclusion

Implied contracts play a pivotal role in business, offering legal protection, clarity, and flexibility in various transactions. Businesses should know their implications and take steps to establish, interpret, and fulfil these implicit agreements.

FAQs

What is an implied contract?

An implied contract is a legally recognized agreement that arises from the conduct, actions, or circumstances of parties involved. Unlike explicit contracts, it is not expressly stated in writing or verbally agreed upon, but inferred from parties' behavior.

How is an implied contract formed?

An implied contract is formed when parties' actions and interactions suggest an intention to be bound by certain obligations. It can also stem from industry norms, past dealings, and the parties' intent to create legal obligations.

Are implied contracts legally enforceable?

Yes, implied contracts are legally enforceable, just like explicit contracts. Courts recognize and uphold these agreements based on parties' conduct and the implied intention to create a binding relationship.

What are the advantages of implied contracts?

Implied contracts provide clarity in situations where agreements aren't explicitly stated. They offer flexibility, adaptability, and a mechanism for parties to fulfill obligations even without formal documentation.

What's an example of an implied contract?

A common example is a customer entering a restaurant and ordering a meal. Although there's no written agreement, the act of ordering and consuming implies an obligation to pay for the meal.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio