What is an implied contract?
What are some examples of implied contracts?
What are the legal consequences of a contract implied-in-fact?
In this article, we will break down the notion of an implied contract so you know all there is to know about it.
We will look at its legal definition, how they are formed, the different types of implied contracts, their legality, enforceability and compare them with other contracts like oral contracts, implied-in-law contracts and more.
Are you ready to find out!
Let’s get started…
Table of Contents
Implied Contract
What is an implied contract?
An implied contract is a contract that is inferred or literally “implied” based on the behaviour and actions of the parties.
In other words, implied contracts are not written down or expressly agreed by the parties but rather it is formed by actions and conduct manifested by the parties.
For example, when you walk into a restaurant, order a meal and eat it, you are legally bound to pay the price of the meal even though you did not expressly exchange words of agreement.
In fact, through your actions of ordering and eating the meal, you legally commit yourself to pay for the meal.
You do not have a written contract with the restaurant but the law imposes an obligation on you to pay considering you received the intended service from the restaurant and there was an exchange of consideration for both parties.
Implied contract definition
According to Cornell Law School’s Legal Information Institute, an implied contract is defined as:
“A contract that is found to exist even when its terms are not explicitly stated because (…) the parties assumed a contract existed (implied-in-fact contract)”
They define contract implied in fact as follows:
“Consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words. Such contracts are implied from facts and circumstances showing a mutual intent to contract, and may arise by the conduct of the parties.”
What’s notable with this definition is that the terms of an implied contract are not explicitly stated between the parties.
Formation
Implied contracts are formed based on the same principles of contract formation in contract law.
You need to have the meeting of the minds.
Typically, for written or oral contracts, the parties clearly exchange words of agreement whereas implied contracts are formed through the action of the parties.
Implied contracts are formed when the following requirements are met:
- Actions of the parties or circumstances
- Object
- Consideration
- Capacity
Express contracts are formed when there is an offer and acceptance whereas for implied contracts the “offer and acceptance” is replaced by the actions and behaviour of the parties.
Types of implied contracts
Contracts can be implied in two ways:
- implied in fact
- Implied in law
In this post, we will go over contracts implied in fact.
Be sure to read our article on an implied-in-law contract or quasi-contract for more information on the other type of implied contract.
Implied-in-law contracts are formed by a court or a judge as an equitable relief to cure an injustice even though the parties did not intend to form a contract between themselves.
Typically, a contract can be implied in law to remedy an instance of unjustified enrichment.
Is an implied contract legally binding?
Implied contracts are both legal and legally binding.
In other words, from a legal perspective, they are they produce the equivalent legal effects as an express or written contract.
For example, if your neighbour mows your lawn every week and you pay $25 every time without any contract between you guys or explicit terms, there is an implied contract.
If one day, if your neighbour mows your lawn and you don’t pay, your neighbour will have a valid claim against you to receive payment as the implied contract is legally binding.
The law will consider there is an implied contract due to the repetitive behaviour of the parties and tolerance of the circumstances.
How to avoid an implied contract?
To avoid getting into an implied contract, the best practice is to ensure that you express your intentions clearly.
For example, if your neighbour mowed your lawn for two consecutive weeks and you paid $25, instead of letting your neighbour continue mowing your lawn indefinitely and expecting a payment of $25 every time, you may want to discuss your intentions with him.
You should either inform your neighbour that you no longer want him to mow your lawn, tell him that you will only want it for another two weeks for instance or agree for the entire season.
Ideally, you should even put your agreement in writing.
What’s important is that you express your intentions to be bound or not to the other party and clarify the terms of the contract.
Is an implied contract enforceable?
An implied in-fact contract creates legal obligations between the parties and is as enforceable as an express contract.
For example, if you order pizza for delivery at your home, you may just call the pizzeria, give the specifications of the type of pizza you are looking for.
They take your address and deliver the pizza to you 45 minutes later.
Although you may never have discussed the cost of the pizza or exchange words of agreement to enter into a contract, the law recognizes that you must pay the price of the pizza once delivered.
If you fail to pay, the pizzeria will have a legally valid claim to enforce the contract due to your breach of implied contract.
Implied in fact vs implied in law contract
An implied-in-law contract or quasi contract is an obligation imposed by law to prevent a person from taking advantage of another or unjust enrichment.
Generally, a contract may be implied in law to cure an injustice caused by someone’s unjustified enrichment.
A contract implied in law is an obligation created by a judge or by the operation of the law on a person in favour of another even though the parties did not enter into a contractual relationship.
The creation of the implied-in-law contract is irrespective of the intention of the parties to enter into a contract or not.
On the other hand, an implied in fact contract is not formed in a courtroom or by a judge but rather is implied by the actions of the parties towards one another.
Implied in fact vs oral contract
An implied in fact contract is not written but rather deduced by law by analyzing how the parties behaved themselves and the overall circumstances.
This means that the behaviour, action, conduct and circumstances allow the courts to deduce whether or not a legally binding contract was formed between two parties.
The parties to an implied contract do not actually exchange words of agreement or express themselves that they agree to be bound by a contract.
This is not exactly the same thing as an oral contract.
Even though oral contracts may have similar characteristics as implied contracts, they are not exactly the same.
An oral contract is when the parties orally enter into a contract by expressing their intention to enter into a contract.
Let’s look at the nuance using a couple of examples.
For example, a patient walks into a doctor’s office and receives treatment.
The patient’s actions show that he or she intends to get treatment by the doctor and the doctor welcoming the patient and performing of the services shows that he agreed to render the services.
In this example, we have an implied contract even though the patient and the doctor did not formally exchange words of agreement.
To distinguish a contract implied in fact with an oral contract, let’s look at a second example.
John offers his used bike to Suzy for sale at a price of $100.
After a bit of negotiation, Suzy offers to purchase the bike for $75 and John says that he agrees.
In this scenario, we have an oral contract as the parties clearly discussed the terms of their contract and exchanged their words of agreement.
The oral contract and implied contract both share similarly that they are not written.
However, with an oral contract, the parties do exchange words of agreement whereas with implied contracts the parties behave in a certain way leading to legally binding obligations.
Implied contract example
There are many examples of implied contracts in our every day lives.
Let’s look at a few examples to demonstrate the concept.
Transport contract
An example of an implied contract can be when you call a taxi cab, enter into the vehicle and instruct the driver to take you to a specific address.
The cab driver takes you to the designed address and in return expects to receive the payment showing on the meter.
You have an implied contract by assessing the conduct of the parties.
At the end of the trip, the cab driver has the legal right to demand the payment of the transportation fees.
Employment contract
You may have implied contracts creating an implied employer-employee relationship.
Imagine a company asks a person to help with a specific project for one week in exchange for $1,000.
Once the project is over, the person continues working on other projects and the company continues paying $1,000.
This goes on for a year.
With the passing of time, you will have an implied employment contract in place due to the repetitive nature of the conduct of the parties.
The person kept on rendering services under the instructions of the company and the company kept paying $1,000 per week.
Professional services
You contact a web developer and ask them to maintain your help design a website for you.
Not only they design your website but they give you web hosting services even though you had not asked for it.
With regards to the web hosting services, they send you an invoice for $100 per month and you pay it.
This goes on for a year.
After a year, you refuse to pay for the services they rendered claiming there was no contract between you.
In this example, you have an implied contract for web hosting services as they’ve offered you the service for over a year and you kept paying the monthly fees.
A non-payment of the web hosting fees can be considered as a breach of contract.
Frequently asked questions
Can a contract be implied?
Yes, a contract can be implied.
There are two types of contracts that can be implied: implied in fact contracts and implied in law contracts.
Implied in fact contracts are those that are inferred by the behaviour of the parties without necessarily exchanging express words of agreement or written acknowledgments.
Implied in law contracts are contracts formed by a judge as an equitable relief even though the parties did not intend to enter into a contract with one another.
What are implied contract terms?
The terms of an implied contract are not going to be easy to prove in court in the same way that the content of some oral contracts may be difficult to prove.
If the obligations underlying the implied contract is simple, the terms may be clear.
If the obligations of the underlying implied contract are complex, the terms of the contract may be difficult to prove.
Let’s look at an example.
If your website is hosted by a friend of yours and you paid him or her $25 per month for the past two years, you are legally bound to pay $25 when receiving hosting services.
This is fairly simple because the nature of the relationship is simple.
Imagine another example where a person is asked to work for a company for one week in exchange for $1,000.
When the week is over, the person continues offering services to the company and the company continues to pay $1,000 per week.
We have an implied contract of employment.
Now, imagine the employee leaves after two years and claims certain employee benefits against the company.
This can become problematic for the employee and the company.
Imagine the company internally advertises to all its employees that all employees are entitled to benefits.
Would an implied employment contract also count?
The employee must factually prove that he or she is entitled to receive benefits in addition to the $1,000 weekly salary the company was paying.
The court may agree with the employee or may not.
Without an express employment contract, the evidence of the terms of the contract can be difficult to establish.
What are the two different kinds of implied contracts?
There are two types of implied contracts:
- Implied in fact contracts or quasi-contracts
- Implied in law contracts
An implied in fact contract is inferred from the actions, conduct and behaviour of the parties whereas an implied in law contract is created by the court to remedy an injustice.
