The Basics of Implied Contract in Law: A Quick Read

Have you ever wondered, when you paid someone for a service but there was no actual written document to prove that it exists. Now, that is called as an implied contract, irrespective of the written legal document, which is legally binding.

In this article, we shall discuss in detail, about implied contracts and how to safeguard yourself in the event of such a dispute

implied contract in law

What is an Implied Contract?

An implied Contract is a non-verbal and unwritten contract also called as quasi contract that exists based on the behaviour of the parties involved or on a set of circumstances. Implied contracts are more dominant than as compared to express contracts. In contrast to a written contract, where all the terms and conditions are written.

So, Express contracts are formal written agreements that may also be in the form of a written agreement. Now, the basic principle of contracts is, for some exchange benefits, with one party receiving goods or services and the other party receiving payment for the goods and services.

 Implied contracts on the other hand, still hold the same principle as a normal contract but usually, there is no written document.

Characteristics of Implied Contracts

In implied contracts, there is no exchange a written document  – that specifies the agreement.

  • It can be reasonably inferred from the parties’ behaviour or surrounding circumstances that the parties have a tacit understanding of having formed an agreement.

Secondly, it can be enforceable by law. Thirdly, implied contracts are usually for small sums of money and services. Fourthly, implied terms and conditions are based on the theory of equity.

 Implied in Law

Now, the basic reasoning that supports the legal enforcement of implied contracts stems from the fundamental principle of fairness – the belief that no party should receive benefits from another party without the providing party being justly compensated.

There are two specific types of contracts. The first is termed a known implied-in-law. Such contracts are based primarily on a set of circumstances rather than on the behaviour of all the involved parties.

 Also, the court recognizes an implied contract in situations where one party might otherwise be unjustly enriched at the expense of the other party. So, a key characteristic of such contracts is that a contract may be recognized to exist even though neither party had the intention to enter into an agreement. 

The following scenario is an example of an implied-in-law .

 Ben, who is a doctor, happens to be walking by a neighbour’s house and sees the neighbour suddenly collapse on his front porch. Ben rushes to his neighbour’s aid, determines that he has suffered a stroke, and provides medical treatment to the neighbour until emergency services personnel arrive. Later on, Ben submits a bill for his medical services to the neighbour.

A court will typically recognize an implied-in-law contract to exist between Ben and his neighbour simply because the basic principle of fairness decrees that Ben should receive just compensation for the professional services he provided, even though the neighbour did not request the services nor, at the time, possess any intention of paying Ben.

 Implied Contract in Fact

Also, the other type of implied contract is a contract implied in fact. This type of implied contract is usually inferred from the respective parties’ behaviour which suggests that they each have a tacit understanding of having made an agreement that involves obligations on both sides. 

Implied-in-fact contracts have the same characteristics as express contracts. There is an offer by one party and acceptance by the other party, some form of consideration exists, and both parties intend to enter into an agreement. The difference is that the terms of an implied-in-fact contract are inferred from the parties’ actions rather than being spelt out orally or in writing.

 For example, Company A has, several times in the past, ordered supplies from Company B, expressly agreeing to pay the current market price for the supplies. Then, one day, Company A’s owner orders the same supplies, but there is no specific inquiry about or discussion of price.

An implied-in-fact contract to pay the current markete price in return for the supplies will be recognized to exist based on the prior agreements between the two parties. An implied-in-fact contract exists based on the behaviour of the respective parties when, for example, one party enters a hair salon, sits down in a chair, and asks for a haircut, which the other party then provides. By asking for the haircut, the first party has implicitly agreed to pay for the haircut. By beginning to cut the hair, the second party has implicitly agreed to provide that service in exchange for monetary compensation.

Implied with Function of the contract

Bailee & Bailor Contracts- Car Mechanic

So, you may not realise this but for eg, even if let’s say you took your car and gave to the workshop to repair it. Now while repairing the car the mechanic’s assistant took the car out and crashed it.

So, although the initial contract was for repairing the car, here there is also a bailee and bailor contract terms. Which, means that although the initial contract did not cover, such events and who will pay for such losses?

However, as a bailee, it was the responsibility of the mechanic to ensure that the car is protected at any cost.

Riding on Public Transportation:

Here, let’s say I hop into the bus to avail of the transportation service and the driver recklessly drives the bus. It leads the bus to an accident. So, of course, accidents can happen and there was no written agreement or contract to cover such situations. In this case, the theory of equity will kick in and ensure that the driver has the duty to care when driving and thus the implied contract terms are created.

Neighbours House Keys

So, many times out of gesture you might take the neighbours house keys when they go out of station. So, do you think that you are not responsible for any losses that might happen?

Now, that’s where an implied contract is automatically created, even if there is no benefit that you may or may not get. So, in the event that you carelessly gave the keys to a person claiming to be a maid, and it causes a robbery. Then technically you would be held liable for the losses because of the implied contract.

Expired Employment Contracts- Does it Matter?

Again, one more example is that many times employees might say that the contract has expired and hence you are not bound by the terms of notice period?

However, since you are receiving payments irrespective of the written document, which has lost its validity. Still, according to this theory the same rules of the previous contract would be considered. Hence, an implied contract.

Important Judgements

Haji Mohammed Ishaq Wd. S.K Mohammed And Others v. Mohamad Iqbal And Mohamed Ali And Co. 

That Rahim acted as the agent of the defendants. It held that the defendants had originally placed their orders for supply of tobacco with Rahim but a new implied contract came into existence by conduct…in saying that the plaint averments do not show how the contract between the plaintiff and the defendants was formed; whether there was any express contract or an implied contract to be inferred from…the conduct of the parties. It is also not quite accurate to say that what was required to be found was whether an implied contract to pay for the goods supplied could be inferred from the facts…

Narandas Sunderlal Rathi v. Ghanshyamdas B. Dalal 

The question then remains whether there was an implied contract. On that point the learned Judge did not hold that there was no implied contract, but he took the view that an implied contract wo…I see no reason why an implied contract should not suffice. The question is whether there was any such implied contract. It seems to me that we must presume that when parties enter into a business…words “in writing” were inserted, and presumably they were omitted advisedly from the new bye-law. If a verbal contract is all that is necessary, I see no reason why there should not be an implied…