Implied Contracts Explained

Implied contracts are typically not explained or considered until there is an issue with the agreement that the implied contract is responsible for upholding.  Implied contracts are actions or behaviors on the part of the parties that demonstrate an agreement between the parties, even if it is not spoken.  These contracts are compared to express contracts, which are contracts that are bargaining for and agreed to expressly, typically in writing.  While implied contracts are not as common, there are specific instances where the presence of an implied contract may cause legal liability or other issues between the parties.  These contracts can bind people without their full understanding of the implications and agreement, which can be harmful to their business or reputation.  Conversely, understanding that an implied contract is in place can be helpful for parties involved to receive compensation or other damages for a breach in the formal agreement.  This article will explore the idea of an implied contract and discuss some of the implications that it entails by providing examples to further demonstrate the existence of an implied contract.  

Implied Contract Defined: 

When the parties’ actions, conduct, or circumstances create a legally-binding obligation, an implied contract is present.  The existence of an implied contract is assumed without written or verbal confirmation.  When an implied contract is found, it had the same legal effects as an express contract, which the parties actively bargained for and agreed to either verbally or in writing.  Implied contracts exist because the law believes that one party should not benefit at the expense of the other and that fairness should be legally enforceable.  These contracts may be difficult to enforce because the parties involved cannot produce a paper that has the terms written on it and they will not have a conversation discussing the terms to rely on.  In some situations, jurisdictions will limit what types of contracts may be implied.  For example, if a person orders a coffee mug from an online shop, they expect to receive that mug and that it will work as it is supposed to.  There is an implied contract in this case that the mug will function as a coffee mug.  

Types of Implied Contracts: 

To further define implied contracts, it is important to distinguish between the two types of implied contracts—implied-in-fact contracts and implied-in-law contracts.  The difference between these two contracts is how the contract will be implied.  For implied-in-fact contracts, the contract will be implied because the parties involved are acting like there is a contract.  Implied-in-law contract will be implied based on the interests of justice, which means that one of the parties would unjustly benefit if the contract was not enforced.  

Implied-in-Fact Contract:

An implied-in-fact contract is a contract that is assumed based on the conduct of the parties.  The parties will conduct themselves as they would if an agreement were in place.  It includes several elements—offer, acceptance, mutual intent, and consideration.  These elements will be discussed in greater detail below.  Here, it is important to distinguish that the contract is implied by the conduct of the parties.  For example, say one neighbor notices that another neighbor hasn’t been able to shovel their sidewalk yet.  They shovel the sidewalk for them, and their neighbor comes out and gives them $25 for shoveling.  After this, the neighbor shovels the sidewalk every time it snows, and the neighbor pays them $25, even though they never discussed or agreed on it. This would be an implied-in-fact contract.  

Implied-in-Law Contract:

An implied-in-law contract is a contract that was not intended to be created by the parties but the interests of justice create a contract because one of the parties would benefit unjustly from the contract if there is not a contract. It can also be considered a quasi-contract.  This type of contract is often the last resort of a judge who feels that a party will benefit too greatly without having to pay for services.  Suppose that a summer camp camper is playing in a lake.  He starts to drown, and the lifeguard does not see him.  However, a man driving his boat sees the kid struggling, so he dives in and helps the kid to the shore.  A judge may find that the camp needs to pay the man for the rescue because they benefited from the camper being saved and not having to save him.  This would be a situation where a judge may find an implied in fact contract. 

The Elements of an Implied-in-Fact Contract: 

As mentioned above, implied contracts must meet the elements of an explicit contract, meaning there must be an offer, acceptance, mutual intent, and consideration.  Each of these elements has a distinct legal meaning, and these meanings are: 

  • Offer: An offer is when one party promises something in exchange for something else provided by the other party.  In an implied contract, this will usually be the initial action taken by one of the parties with the understanding that something will be given in return.  In the example above with the shoveling, the offer, in that case, would be the neighbor shoveling the sidewalk of the neighbor.  
  • Acceptance: Acceptance is the assent to the offer. It will be judged objectively, meaning that a reasonable person without knowledge of the accepter’s personality would understand that they accepted the offer.  It can be an express acceptance or implied action.  In implied contracts, this will be the action on the part of the acceptor that indicates they believe a contract has been formed.  In our example above, this would be the act of giving the neighbor $25 every time he shoveled the sidewalk.  
  • Mutual Intent: A written contract must also be made with both parties wanting to form a contract.  This can be difficult to see in some implied-in-fact contracts, but it generally is indicated by the actions of the parties to participate in and agree to the contract.  In our example, this would be the continued action of both parties to shovel and pay.  
  • Consideration: Consideration means that the person making the promise must receive something in return for the legal agreement to be a binding contract.  An action without consideration does not create a binding contract.  In our example, the consideration for the shoveling is $25.  If the neighbor had not paid him, it would have been a gift, not a contract.  

These elements can be somewhat easy to spot in some implied-in-fact contracts, but they will usually be much easier to find in an express contract, as the parties will write down the terms, or talk about them at the very least. 

Enforcing Implied Contracts: 

Many people may think that they are not entitled to the same legal recourse if an implied contract was broken rather than an express contract.  While a contract will have a little more evidence as to the terms and such, an implied contract may be enforced in the same way that an express contract is.  If an implied contract has been breached, the party that was harmed can bring an action to recover for the loss.  There will be more effort on the part of the party bringing the suit, as they will need to prove the terms of the contract by providing the behavior that caused them or how one party will be unequally benefited by the written contract.  Once proven, however, the parties can prove that the contract was broken and that damages are necessary.  This means that an implied contract has the same legal implications as an express contract.  Knowing this, it is important to define and understand the terms of an agreement to not find yourself bound up in a contract without intending to be bound.  

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