Implied contract

What Is Implied Contract?

An implied contract is a legally binding agreement that arises from the actions, conduct, or circumstances of the parties involved, rather than from explicit verbal or written communication. It is a fundamental concept within Contract Law, recognized to ensure fairness and prevent unjust situations where one party benefits at another's expense without compensation²⁴, ²⁵. Unlike an Express Contract, where terms are clearly stated and agreed upon, an implied contract is inferred from the surrounding facts and the behavior of the parties, indicating a Mutual Assent to enter into an agreement. This type of agreement carries the same legal weight as a written or spoken contract, making it enforceable in a court of law.

Implied contracts are broadly categorized into two types: implied-in-fact and implied-in-law. An implied-in-fact contract is a true contract where the parties' intentions are inferred from their conduct, past dealings, or the customs of a particular trade or business²², ²³. Conversely, an implied-in-law contract, often referred to as a Quasi-Contract, is not a true contract based on mutual intent. Instead, it is a legal Remedy imposed by courts to prevent Unjust Enrichment, ensuring that fairness and equity are maintained even in the absence of an explicit agreement²⁰, ²¹.

History and Origin

The concept of implied contracts has deep roots in the evolution of common law. Early legal systems recognized that agreements could be formed not just through explicit promises but also through the actions and conduct of individuals. The distinction between contracts implied "in fact" and those implied "in law" developed to address different circumstances where a legal obligation arose without formal declarations. Implied-in-fact contracts were understood to reflect a genuine, albeit unstated, meeting of the minds, inferred from the parties' behavior, such as a course of dealing or customary business practice¹⁹.

Conversely, implied-in-law contracts emerged from the courts' equitable powers to prevent unfair outcomes. These "quasi-contracts" are not predicated on the parties' intent but rather on the principle that one party should not be unjustly enriched at the expense of another¹⁷, ¹⁸. For example, the legal action of quantum meruit (meaning "as much as deserved") allowed a plaintiff to recover the reasonable value of services rendered, even if no explicit contract for payment existed, provided the services were performed with an expectation of compensation and accepted by the other party. The Supreme Court has also weighed in on the interpretation of implied contract provisions, particularly in collective bargaining agreements, emphasizing that courts should interpret such agreements "according to ordinary principles of contract law."¹⁶

Key Takeaways

• An implied contract is a legally enforceable agreement inferred from the conduct, actions, or circumstances of the parties, rather than from explicit verbal or written terms.
• There are two main types: implied-in-fact contracts, based on inferred mutual intent, and implied-in-law contracts (quasi-contracts), imposed by courts to prevent unjust enrichment.
• Despite lacking formal documentation, implied contracts hold the same legal force as express contracts, though proving their existence can be more challenging.
• They often arise in everyday transactions and business dealings where an expectation of exchange for goods or services is clear through behavior.
• The principles behind implied contracts aim to ensure fairness and prevent one party from unfairly benefiting without providing commensurate Consideration.

Formula and Calculation

The concept of an implied contract does not involve a mathematical formula or calculation. Instead, its existence and terms are determined through an assessment of the parties' conduct, the surrounding circumstances, and established legal principles. When an implied contract is enforced, the recovery typically involves the "reasonable value" of the goods or services provided, which a court would determine based on prevailing market rates or industry standards, rather than a pre-agreed contract price¹⁵.

Interpreting the Implied Contract

Interpreting an implied contract involves discerning the unstated intentions of the parties or, in the case of a quasi-contract, determining what fairness dictates. For an implied-in-fact contract, courts examine factors such as the history of dealings between the parties, industry customs, and whether one party accepted a benefit knowing the other expected payment. The standard of proof often revolves around whether a reasonable person would conclude that an agreement existed based on the observed conduct.

In scenarios involving an implied-in-law contract, the interpretation shifts from mutual intent to preventing Unjust Enrichment. The court's role is to impose a Legal Obligation to pay for a benefit received, even if no actual agreement was formed¹⁴. This often occurs where one party has conferred a benefit upon another without gratuitous intent, and the recipient would be unfairly enriched by keeping the benefit without compensation¹³.

Hypothetical Example

Consider Sarah, a freelance graphic designer, and Tom, a small business owner. Tom frequently needs design work for his marketing materials. For the past six months, Tom has emailed Sarah design requests, and Sarah has completed the work, sending an invoice which Tom promptly pays. They've never signed a formal service agreement.

One month, Tom emails Sarah a request for a new logo and social media graphics. Sarah completes the work as usual and sends an invoice for her standard fee. However, this time, Tom refuses to pay, claiming there was no written contract. In this scenario, an implied-in-fact contract likely exists. Their consistent past behavior—Tom's requests, Sarah's performance, and Tom's consistent payments—demonstrates a clear pattern of Offer and Acceptance and an understanding that Sarah's services would be compensated. A court would likely rule that Tom is obligated to pay Sarah the reasonable value for the design work, based on their established course of dealing.

Practical Applications

Implied contracts are prevalent in various aspects of finance, business, and daily life. They ensure that reasonable expectations are met and that individuals or entities are compensated for value provided, even without explicit written agreements.

• Consumer Transactions: When a customer orders food at a restaurant, an implied contract is formed that the customer will pay for the meal. Si¹²milarly, when a person takes a product from a vending machine, there is an implied contract to pay the price displayed.
• ¹¹ Employment Law: In some instances, an employer's consistent practices, such as habitually providing year-end bonuses or specific disciplinary procedures, can create an implied contract with employees, even if not explicitly stated in an Employment Contract.
• ¹⁰ Business Dealings: Companies that engage in recurring transactions without formal purchase orders for every instance may operate under an implied contract based on their established course of conduct. Th⁹e Uniform Commercial Code (UCC), adopted in various forms across U.S. states, includes provisions for implied warranties, such as the implied warranty of merchantability, which dictates that goods sold are fit for their ordinary purposes, even if not explicitly stated by the seller. This is an example of a Statutory Law implying terms into contracts. (See Uniform Commercial Code, § 1-201).
• ⁸ Emergency Services: If an unconscious person receives emergency medical treatment, an implied-in-law contract arises, obligating them to pay for the necessary services, as it would be unjust for them to receive the benefit without compensation.

##⁷ Limitations and Criticisms

Despite their legal enforceability, implied contracts come with certain limitations and criticisms. The primary challenge lies in proving their existence and specific terms, as they lack explicit documentation. This can lead to disputes and complex legal battles where parties may have differing interpretations of past conduct or expectations. The absence of clearly defined terms can result in uncertainty regarding scope, price, and duration of the agreement.

For implied-in-fact contracts, establishing the "mutual understanding" and "intent" can be difficult. Courts must rely on circumstantial evidence, which can be open to interpretation. In the case of Slick v. Reinecker, a Maryland court case, the challenge of distinguishing between implied-in-fact and implied-in-law contracts was highlighted, as the court found no implied-in-fact contract but did find an implied-in-law obligation for legal services rendered based on fairness and preventing unjust enrichment.

Fu⁶rthermore, implied contracts cannot override certain legal requirements. For example, the Statute of Frauds mandates that specific types of contracts, such as those involving real estate or agreements that cannot be performed within one year, must be in writing to be enforceable. Att⁵empting to enforce an implied contract in such circumstances would generally not succeed. Critics also point out that while implied contracts serve to achieve Justice and prevent Unjust Enrichment, their application can sometimes create obligations that parties did not consciously agree to, potentially leading to unforeseen liabilities. Therefore, while beneficial for flexibility and fairness in various situations, parties are generally encouraged to formalize agreements through Written Contracts to minimize ambiguity and potential disputes, especially in high-value or complex transactions.

Implied Contract vs. Express Contract

The key distinction between an implied contract and an Express Contract lies in how the agreement is formed and communicated.

While an express contract clearly outlines the terms and conditions, an implied contract fills the gaps where direct communication is absent but an agreement is reasonably presumed from the parties' conduct. Both types are legally binding, but the lack of explicit terms in an implied contract can introduce complexity when disputes arise, potentially increasing Transaction Costs if legal action is required.

FAQs

Can an implied contract be enforced in court?

Yes, an implied contract can be legally enforced in court. Courts will examine the parties' actions, the surrounding circumstances, and any relevant past dealings or industry customs to determine if an agreement existed and if one party received a benefit that would be unfair to keep without payment.

What is the difference between an implied-in-fact contract and an implied-in-law contract?

An implied-in-fact contract is a true contract based on the parties' inferred mutual intent, often evidenced by their conduct (e.g., regularly paying a service provider without a formal agreement). An implied-in-law contract, or Quasi-Contract, is not a true contract but a legal construct imposed by courts to prevent Unjust Enrichment, regardless of the parties' intent (e.g., paying for emergency medical services rendered while unconscious).

##³, ⁴# Are all types of agreements without writing considered implied contracts?
No. While many agreements without writing can be implied contracts, some contracts are legally required to be in writing under the Statute of Frauds, such as those for the sale of real estate or agreements that cannot be performed within one year. Add²itionally, a casual understanding without clear actions indicating an agreement may not rise to the level of an implied contract.

How can one avoid implied contracts?

To avoid unintended implied contracts, especially in business, it is advisable to clearly document all agreements in writing. Explicitly stating the terms and conditions, including whether an agreement exists or not for certain actions, can prevent future disputes. For instance, clearly communicating that preliminary discussions do not constitute a binding agreement unless a formal contract is signed can help manage expectations.

What happens if an implied contract is breached?

If a court determines that an implied contract existed and one party fails to fulfill their obligations, it constitutes a Breach of Contract. The non-breaching party may be entitled to damages, typically measured by the reasonable value of the goods or services provided, or the benefits conferred, in order to achieve Restitution and prevent unjust enrichment.¹