What is an Implied Contract, and Is It Legally Binding?

December 4, 2023 • Business • 6 minutes

In contract law, the distinction between implied and express contracts is essential. Unlike express contracts, which parties clearly articulate, implied contracts arise from the parties’ actions or circumstances. These contracts become legally binding when they meet specific conditions like mutual agreement and legal obligation.

Here, we’ll explore the ins and outs of implied contracts, including their enforceability and how they differ from express contracts. Let’s dive in!

Are implied contracts legally binding?

Yes, implied contracts can be legally binding, but only if certain conditions are present. For an implied contract to hold legal weight, there must be a clear indication of a mutual agreement and a legal obligation inferred from the parties’ actions or circumstances.

Implied contracts gain enforceability when it’s evident that the parties involved had an unspoken understanding that a contract existed between them. This aspect is crucial in situations where one party would face unjust enrichment without legal enforcement of the agreement.

Implied-in-fact vs. implied-in-law contracts

Implied-in-fact and implied-in-law contracts, while both unspoken, differ significantly in how they are formed and recognized legally.

  • Implied-in-fact contracts are created by the actions or conduct of the parties involved, indicating a mutual agreement. For example, when you dine at a restaurant, it’s understood that you will pay for the meal – an agreement implied by your actions.
  • Implied-in-law contracts, also known as quasi contracts, are a legal construct. They are not actual contracts but are treated as such by courts to prevent unjust enrichment. These arise not from an agreement, but from a situation where one party would unfairly benefit at the expense of another if the law did not intervene.

Both types are legally enforceable, but they originate from different circumstances: one from the conduct suggesting an agreement, and the other from a legal principle preventing injustice.

What are the elements of an implied contract?

The elements of an implied contract are crucial in determining its existence and enforceability.

Elements in an implied contract include the following:

  1. Mutual agreement: Even if not expressed, there must be a clear understanding between the parties that a contract exists. This is often inferred from their actions or circumstances.
  2. Legal obligation: The agreement inferred must create a legal obligation for the parties involved. This means that the actions or circumstances suggest that the parties intended to enter into a contract.
  3. Unjust enrichment: To avoid one party unfairly benefiting at the expense of another, the law recognizes an implied contract. This is especially relevant in implied-in-law contracts.
  4. Benefit and detriment: Typically, one party receives a benefit while the other incurs a detriment, which further implies a contractual relationship.

These elements collectively help in identifying and validating an implied contract, making sure that agreements based on actions or circumstances are recognized and can be legally enforced.

Use cases for implied contracts

Implied contracts are commonly used in a variety of situations, often where formal agreements are not established but a mutual understanding and expectation exist.

Some typical use cases for implied contracts include:

  1. Service industry: When a customer receives a service, like dining at a restaurant or getting a haircut, there’s an implied agreement to pay for those services.
  2. Employment relationships: An employer might not have a written contract with an employee, but certain expectations, like being paid for work done, are implied.
  3. Business partnerships: In ongoing business relationships, orders placed based on past behavior imply a contract to pay for the goods or services.
  4. Real estate transactions: Implied contracts often arise in real estate, for instance, when a tenant pays rent without a formal lease, implying an agreement to provide housing in exchange for rent.
  5. Medical care forms: When a patient receives medical care, there’s an implied contract that they will pay for the services, even without a written agreement.

Across all these areas and more, implied contracts facilitate many different transactions and relationships, without the need for written agreements.

Examples of implied contracts

Implied contracts, while not explicitly stated, are evident in many everyday interactions.

Here are some real-world examples of implied contracts:

  1. Restaurant dining: When you order a meal at a restaurant, you enter into an implied contract that you will pay for the food and services provided.
  2. Hiring a taxi: By entering a taxi and stating your destination, you imply an agreement to pay the fare shown on the meter.
  3. Emergency medical services: If you’re unconscious and taken to a hospital, the medical team’s treatment implies a contract that you, or your insurance, will pay for the services.
  4. Freelance work: A freelancer working regularly for a client without a written contract implies an agreement to be paid for their work based on previous payments for similar tasks.
  5. Property maintenance: If a homeowner regularly pays a gardener for lawn maintenance without a formal agreement, it implies a contract for ongoing services and payment.

These scenarios show how implied contracts are formed based on actions, circumstances, and the conduct of the parties involved, creating legally binding agreements without written documentation.

What’s the difference between an express contract and an implied contract?

The difference between an express contract and an implied contract lies in how the agreement is formed and communicated.

  • Express contracts involve clear, direct communication of the terms, either orally or in writing. The parties involved explicitly state their agreement and the conditions, leaving little to no room for interpretation. For example, a written contract for a car purchase, detailing the payment terms and delivery date, is an express contract.
  • Implied contracts, on the other hand, are formed based on the actions, conduct, or circumstances of the parties involved, rather than explicit words. These contracts are inferred from the behavior that suggests a mutual agreement. For instance, regularly paying for a haircut after it’s done implies a contract to pay for the service.

In other words, express contracts are defined by the clear articulation of terms, while implied contracts are understood from actions or situations that suggest an agreement exists. Both are legally binding, but their formation and the evidence required to prove them differ significantly.

Recognizing how implied contracts are formed and enforced will help you navigate all kinds of transactions and relationships. While express contracts offer clarity through explicit terms, implied contracts rely on actions and circumstances to establish agreements. When you know the difference, you’ll be more aware of your legal obligations and rights in many different scenarios.

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