what is the meaning of an Implied Contract?

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Author: Sarthak Bhalerao

Table of Contents

  1. What is an Implied Contract?
  2. Characteristics of Implied Contract
  3. Example (Implied in Law)
  4. Example (Implied in fact)

What is an Implied Contract?

An implied Contract is a non-verbal and unwritten contract that exists based on the behaviour of the parties involved or on a set of circumstances. Implied contracts are rare as compared to express contracts. Express contracts are formal written agreements that may also be in the form of an oral agreement. Most contracts are for some exchange benefits, with one party receiving goods or services and the other party receiving payment for the goods and services. Implied contracts are often based on prior contracts between the parties involved. 

Characteristics of Implied Contracts

In implied contracts, there is no exchange of words – either orally or written – that specify 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. For example, when one party accepts some benefit from another party, knowing that the providing party expects to be paid for the provided benefit. Implied contracts are just as legally binding and enforceable as express contracts. However, enforcement of implied contracts is sometimes difficult since the contract’s specific terms have not been expressed.

Example (Implied in Law)

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 implied 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. The court recognizes an implied contract in situations where one party might otherwise be unjustly enriched at the expense of the other party. 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 contract. 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.

Example ( Implied in Fact)

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 that 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.

 

Implied-in-fact contracts are often based on previous agreements. 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 market 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.

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