Implied contracts are a key part of everyday life and business. They form based on actions or behaviour rather than written or spoken agreements. These contracts arise when parties act in ways that suggest mutual agreement, even without formal terms. Understanding implied contracts helps clarify how legal obligations can exist in daily transactions, from retail purchases to employment relationships. This blog explores the nature of implied contracts and their legal importance.

A quick guide to implied contracts

Implied contracts are formed based on actions or conduct, not written agreements. These contracts arise when one party provides a service or product, and the other party accepts it, implying an agreement to compensate. Examples include retail transactions, hiring services, or emergency medical care. Implied contracts are enforceable in court, ensuring fairness and preventing unjust enrichment.

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What are implied contracts?

An implied contract forms based on the actions or behaviour of the parties involved, rather than a written or verbal agreement. These contracts are inferred through the conduct of the parties, rather than being explicitly agreed upon.

Implied vs. express contracts

The key difference between an implied contract and an express contract is the way they are created. An express contract is explicitly stated, either in writing or verbally. Both parties openly agree to specific terms and conditions. In contrast, an implied contract arises from the actions, conduct or circumstances that suggest a mutual agreement. There’s no formal statement of terms, but the actions of both parties suggest they understand and accept the agreement.

Legal basis

Implied contracts are recognised by law to prevent unjust enrichment. This means one party cannot benefit unfairly at the expense of another. If one person provides a service or good, and the other accepts it, the law implies that there’s a mutual agreement to compensate for the value received, even if no formal contract exists. The law enforces these agreements to ensure fairness and mutual obligations between the parties. If you need legal support, you can contact our sister company Legal Kitz for a free consultation today. 

Examples of implied contracts

Implied contracts are common in everyday life. For example:

• Receiving services without an explicit agreement: If you hire a plumber who fixes your leaking pipe, the law implies a contract for payment, even if you didn’t sign a formal agreement.

• Retail purchases: When you buy something from a shop, it’s understood that you’ll pay for it. The shop implies an agreement to provide goods in exchange for money.

• Medical treatment: If a person receives emergency medical treatment, an implied contract exists that they must pay for those services, even if no written agreement was made.

In all these situations, the actions of the parties involved imply an agreement, making the contract enforceable under the law.

Types of implied contracts

Implied contracts arise from actions, conduct, or the situation surrounding the parties involved, rather than through a written or verbal agreement. There are two main types of implied contracts: implied-in-fact contracts and implied-in-law contracts (also known as quasi-contracts).

Implied-in-fact contracts

An implied-in-fact contract is created when the conduct of the parties suggests a mutual agreement. These contracts are not written down or spoken but are inferred from actions or circumstances. The agreement is formed based on the reasonable understanding of both parties involved.

Example: If you enter a restaurant, order a meal, and eat it, there is an implied contract for you to pay for the food. No one needs to say anything about payment—your actions imply an agreement.

Enforceability: An implied-in-fact contract is enforceable because both parties have acted in a way that suggests mutual consent. If one party fails to fulfil their side of the implied contract (e.g. not paying for the meal), the other party can seek legal action based on the agreed terms.

Implied-in-law contracts (quasi-contracts)

An implied-in-law contract is imposed by the court. These contracts are not formed by the parties’ actions, but rather by law, to prevent one party from being unfairly enriched at the expense of another. This often happens in situations where no actual agreement exists, but fairness demands that one party compensate the other.

Example: If someone is provided emergency medical treatment without agreeing to it beforehand, an implied-in-law contract exists. The law implies that the person receiving the treatment must pay for it, even if no agreement was made.

Enforceability: Implied-in-law contracts are enforced by the courts to prevent unjust enrichment. They are not based on the intentions of the parties, but instead on the need to avoid inequity or loss.

Comparison

In both types of implied contracts, the key factor is the action or conduct of the parties involved, but the underlying reason for enforcing the contract varies. While implied-in-fact contracts are based on mutual understanding, implied-in-law contracts are created to ensure fairness and prevent unjust outcomes.

How are implied contracts formed?

Detailed explanation of the process through which implied contracts come into existence.

• Actions Implying Terms: How actions, like receiving a product and paying for it, create an implied contract.

• Key Elements for Formation: Mutual benefit, intent, and the reasonable understanding that a contract is implied.

• Implied Terms: Situations where terms are inferred, such as safety standards or compensation in various agreements.

Implied contracts in employment

Implied contracts are common in the workplace. Even without a formal written agreement, certain terms can be inferred based on the conduct of both parties. These contracts create mutual obligations between the employer and employee, even if no explicit agreement has been made.

Implied terms in employment

In employment, several terms may be implied through the conduct of both the employer and the employee. For example:

• Reasonable notice periods: If an employee leaves or is dismissed, there is an implied obligation for both parties to provide reasonable notice before terminating the relationship.

• Salary payments: Employees are generally entitled to receive their wages for the work performed, even if no written contract specifies this.

• Job duties: It is often implied that employees will perform certain tasks related to their job role, even if the exact duties aren't listed in a written contract.

These implied terms exist to ensure fairness and that both parties uphold their responsibilities in the employment relationship.

Legal implications

Courts generally recognise these implied agreements, especially when disputes arise. For example, if an employee claims they were not paid or not given adequate notice of termination, the court may look at the conduct of both parties. They may infer an agreement based on what is reasonable or customary in that situation.

In some cases, implied terms may override express terms if they are deemed necessary to give effect to the contract. This is especially true in situations where fairness and equity are in question.

Employment protections

In employment, several protections are often implied, even without being explicitly stated. For example:

• Safety standards: Employers are generally expected to provide a safe working environment, even if this is not written into the employment contract.

• Ethical treatment: Employees are often entitled to be treated fairly and with respect, even if the written agreement doesn't directly outline these obligations.

These implied protections are part of contract law and are meant to ensure a reasonable, safe, and fair working environment for employees.

In summary, implied contracts play a key role in employment, offering protection to both the employer and employee. These contracts are based on the conduct and expectations of both parties and are enforceable under contract law.

The role of express terms vs implied terms in contracts

Contracts can contain both express and implied terms. These terms work together to ensure the agreement is clear, fair, and legally binding.

Express terms

Express terms are those clearly stated in the contract. They are written or spoken directly by the parties involved. These terms define the specific rights and obligations of each party. For example, in a service contract, the express terms would state the price, delivery dates, and services provided. These terms are often negotiated and agreed upon before the contract is signed.

Implied terms

Implied terms are not directly stated in the contract but are inferred from the circumstances, conduct of the parties, or law. These terms are meant to fill gaps where no express term exists, ensuring the contract is complete. For example, if someone buys a product, it is implied that the product will be of acceptable quality. Implied terms may also override express terms if they are deemed necessary for fairness, such as in employment contracts where reasonable notice periods are often implied.

Balancing both terms

To ensure clarity and fairness, it’s important to balance both express and implied terms. Express terms should clearly outline the parties' obligations, while implied terms should fill in gaps based on the nature of the agreement. Both types of terms should work together to create a fair, enforceable contract.

When drafting a contract, both express and implied terms must be considered carefully. If an implied term contradicts an express term, it could lead to disputes. In these cases, the courts will examine the contract’s intent and the circumstances surrounding it to ensure fairness and avoid unjust enrichment.

In summary, express and implied terms both serve crucial roles in contracts. Express terms state the agreed-upon conditions, while implied terms ensure fairness and completeness in the agreement.

Common examples of implied contracts in business

Implied contracts are often formed in everyday business transactions, even when there’s no formal agreement in writing. These contracts arise from the actions or behaviours of the parties involved.

Retail transactions

When a customer buys goods from a retailer, an implied contract forms. The customer implies an agreement to pay for the goods, and the retailer implies a promise to provide those goods in exchange for the payment. No written or verbal agreement is needed for this type of contract to exist.

Service-based agreements

Many businesses offering services, like consulting or maintenance, form implied contracts with clients. For example, if a business hires a consultant, there is an implied agreement that the consultant will be paid for the service provided. This contract exists even if there is no formal documentation. The actions and expectations of both parties imply that payment will be made for services rendered.

Hospitality industry

In the hospitality industry, such as hotels or restaurants, implied contracts are also common. A customer entering a restaurant implies a contract to pay for the meal. Similarly, when a guest books a hotel room, an implied agreement exists that the guest will pay for their stay. Even without a signed document, the conduct of the parties forms a legally binding implied contract.

Intellectual property

Implied contracts also apply in situations involving intellectual property (IP). For instance, when one party shares IP with another—like a non-disclosure agreement (NDA)—terms can be implied through the actions of the parties involved. If one party shares a confidential idea with another, an implied contract may exist that the idea will be kept confidential, even if no written agreement is in place.

In all these cases, implied contracts are based on the actions, conduct, or circumstances of the parties involved, rather than on explicit written agreements. These contracts help businesses function smoothly by ensuring expectations are met and obligations are understood.

Legal enforceability of implied contracts

Implied contracts can be enforced by the courts when they meet specific criteria. However, there are situations where they may be contested or found unenforceable.

Recognition and enforceability

Implied contracts are enforceable when certain conditions are met. First, there must be mutual intent between the parties involved. Both parties need to understand and agree that a contract exists, even without a written or oral agreement. Next, clear obligations must be present. These obligations may be implied based on the actions, conduct, or circumstances of the parties.

Court rulings

There have been several cases where implied contracts were upheld. Courts typically focus on the actions of the parties involved and the reasonable understanding that an agreement was made. For instance, if one party receives services from another, like medical care, the court may rule that an implied contract exists based on the conduct of the parties. The key reasoning behind such decisions is the presence of mutual benefit and the implied understanding that one party will be compensated for the services rendered.

Dispute resolution

When disputes arise over implied contracts, courts examine the evidence provided by the parties. This may include the actions or communications between the parties, which can demonstrate the terms of the implied agreement. Courts will assess whether the actions suggest an intention to form a contract and whether obligations were clear. In some cases, the court may also rely on standard practices within a particular industry to determine the likely terms of the agreement.

Limitations

Implied contracts are not always enforceable. They may be contested if they contradict statutory laws or public policy. For example, an implied contract that violates consumer protection laws or mandates regarding fair wages may not be enforceable. Similarly, if the terms of the contract cannot be clearly inferred from the actions of the parties, the court may find the contract unenforceable. Thus, it is important to ensure that implied agreements do not conflict with legal requirements.

Implied contracts in everyday life

Implied contracts often shape our daily interactions, even when no written agreement exists. These contracts are formed based on mutual understanding and the expectations of the parties involved.

Everyday transactions

Everyday situations commonly involve implied contracts. For example, when you buy groceries, there is an implied agreement between you and the store. By taking the items to the counter, you imply that you will pay for them. Similarly, hiring a plumber implies a contract for them to provide services, and you, in turn, agree to pay them for their work. These contracts are based on the understanding that both parties will fulfil their obligations.

Social expectations

Implied contracts are also driven by social expectations. When you hire someone to perform a service, it is understood that you will pay for their work once the job is completed. This expectation is not always stated outright, but it is a shared understanding that underpins many daily activities. People expect that transactions, whether for goods or services, will involve a fair exchange.

Regulation of social norms

Implied contracts help regulate behaviour in society. They create a framework for understanding the rights and obligations of each party in a transaction. These informal agreements are guided by norms and expectations rather than formal laws. For example, when you pay for a taxi ride, there is an implied understanding that the driver will take you to your destination in a reasonable amount of time. These social norms promote trust and cooperation, ensuring that both parties understand their roles and responsibilities without needing detailed contracts.

FAQ about implied contracts

What are implied terms of a contract?

Implied terms are conditions not directly stated but inferred from the parties' actions or circumstances. These terms ensure fairness and reasonable expectations in the agreement.

How are terms implied by fact in a contract?

Terms implied by fact are inferred from the parties' conduct and the context of the contract. Courts imply these terms to ensure the agreement makes sense and serves its purpose.

What are terms implied by law?

Terms implied by law are introduced by courts to prevent unfairness or unjust enrichment. These terms are imposed to reflect what is reasonable and equitable, even if not expressly agreed upon.

What is the duty of good faith in implied contracts?

The duty of good faith requires that both parties act honestly and fairly. This ensures the contract is not used to exploit one party, and both honour their commitments in good faith.

Can a contract be implied in law?

Yes, a contract can be implied by law, often referred to as a quasi-contract. This happens when the law enforces obligations to prevent unfair advantage, even without a formal agreement.

How do implied terms apply to commercial contracts?

In commercial contracts, implied terms are used to ensure fairness and business efficacy. Courts infer terms to make the contract work as intended, even if they are not explicitly stated.

Are implied contracts legally binding?

Yes, implied contracts are legally binding. If terms are implied into a contract, they carry the same weight as express terms, and the parties are required to meet their obligations.

What happens if I breach an implied contract?

If you breach an implied contract, the other party can seek remedies, including damages or enforcement of obligations. Courts assess if the breach undermines the fairness of the agreement.

What are the essential terms in an implied contract?

Essential terms in an implied contract include mutual benefit, compensation or duties, and the intention to create a binding agreement. Courts infer these terms based on the conduct of the parties.

Can a term be implied if it’s not necessary?

No, for a term to be implied, it must be necessary to give business efficacy to the contract. A term is only implied if it is crucial for the contract to function as intended.

How do courts enforce implied terms in contracts?

Courts enforce implied terms by examining the parties' conduct and determining if the term is necessary to ensure fairness and prevent unjust enrichment. The implied term must fill gaps where express terms are lacking.

What if a contract doesn’t include certain obligations?

If a contract lacks certain obligations, courts may imply terms based on the parties' conduct or legal principles. This ensures the contract remains equitable and functions as intended.

Wrapping up

Implied contracts play a crucial role in everyday life and business. They fill the gaps when no formal agreement is made but the actions of the parties involved suggest one exists. From retail transactions to employment relationships, implied contracts ensure fairness and prevent unjust outcomes. Understanding the differences between implied-in-fact and implied-in-law contracts helps clarify how they operate in different scenarios. Whether in business or personal interactions, implied contracts help set expectations and protect rights.

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