What is an implied contract?

Explainer
September 17, 2022
min

When you imagine a contract what do you see? Most people imagine pages and pages of text outlining every little detail of the transaction.

Yet, not all contracts look like this. Some contracts are implied. 

But what actually is an implied contract, and how are they created and enforced? Stay tuned to find out. 

What is an implied contract?

An implied contract is a contract that is inferred by behavior and actions, rather than being expressed verbally or in writing. In other words, an implied contract can be created when we act in a certain way, or we say things that suggest we’d like to enter into a contract.

This can be confusing at first, as when we think of contracts we think of carefully drafted agreements with wet ink signatures. That’s the traditional image, anyway. 

But fear not, we’re going to explore what an implied contract is and how one can be created in more detail now. 

How are implied contracts created? 

Implied contracts often come about by default when two parties have dealings without explicitly stating their terms. 

For example, if one party accepts something of value that isn’t meant as a gift, an implied contract could be created. This is because their decision to accept the item can still be a form of contract acceptance, even if it’s not an explicit one. 

There are two main types of implied contracts, and they are both created in different ways. Let’s explore them now.

What are the two types of implied contracts?

There are two types of implied contracts – implied-in-fact and implied-in-law. The easiest way to understand the difference is to look at some examples. 

What’s an implied-in-fact contract?

An implied-in-fact contract can exist based on the facts of a particular situation. In other words, courts may look at the facts in a specific scenario and decide that, based on the actions and behavior of both parties, it’s fair to assume that a contract has been created.

Imagine you go into a café and order a full English breakfast and a coffee. The person who owns the café is obligated to serve you your bacon, eggs, and hash browns, and you’re obligated to pay the price shown on the menu for it. This is an implied-in-fact contract.

Implied-in-fact contracts can also be created based on the previous behavior of the people involved. Let’s say you mow your neighbor’s lawn, and she gives you a bottle of wine to say thanks. You then mow it again for her several more times, and get a bottle of wine each time (and a headache in the morning, presumably). 

But then you go round, do the mowing, and she doesn’t give you anything. You’d potentially have a case for breach of contract here, because by regularly giving you something of value in return for your services (called “consideration” in contract law) you and your neighbor have created an implied-in-fact contract.

What’s an implied-in-law contract?

Implied-in-law contracts are legally binding contracts that neither party entered into intentionally, but occur due to a mistake, or an accident. However, the courts have imposed a contract instead. 

The only reason the court would say that a contract was implied here, is if it would be unfair not to create one, and to prevent one party from taking advantage of the other. This is also known as ‘unjust enrichment’. But let’s put the legal jargon to the side for a moment and look at an example of this in practice. 

Imagine you’re back in that café having your full English and a piece of hash brown goes down the wrong way. A doctor sitting at the next table runs over to help and ends up giving you the Heimlich manoeuver. Technically you’ve entered into a contract with the doctor who can now bill you for this since he provided you with a service. 

Of course, it’s possible that the doctor could have done this out of the kindness of his own heart, and he wouldn’t charge. But if he did, the court may find that there was an implied-in-law contract, since the service was provided and should still be compensated for, regardless of whether you asked for it or not.

Is an implied contract a valid contract? 

An implied contract will be valid so long as it meets the usual requirements of a contract. In fact, implied contracts have the same legal force as written ones. 

Having said that, the fact that they aren’t written down does mean they can be more difficult to enforce if something goes wrong though. It might sound obvious, but suing someone for breach of contract is always going to be tougher when you don’t have a physical contract to prove it existed. But that doesn’t mean it’s impossible. 

Example of a valid implied contract

Let’s go back to the classroom for a moment and look at a famous case where an implied contract was upheld by the courts. 

In Montz v. Pilgrim Films Television Inc NBC, a writer called Larry Montz sent several ideas for TV shows to the broadcast television and radio network NBC, all of which they rejected. However, a few years later they produced a show called Ghost Hunters, which Montz said was very similar to one of the ideas he’d sent them. 

He then sued them for copyright infringement, claiming that an implied contract existed between them and that because of that, he deserved compensation. 

Montz initially lost the case. But the decision was later reversed by another court. 

This court ruled that even without a written contract, an implied contract exists after a writer submits work. This means that the other party can’t use this work without compensating them fairly for it. 

This case actually had quite far-reaching consequences, as it increased the protection given to individuals for their intellectual property, and it changed how studios handle screenwriters’ submissions.

How to avoid an implied contract

It’s obviously quite hard to avoid a doctor helping you if you’re in dire straits in a restaurant. But you can try to avoid other actions which could create a contract – like not accepting that regular bottle of wine we mentioned above. 

Of course, the other answer is to always have a written express contract in place. That way everyone’s protected if something does go wrong. Plus it helps to eliminate any contractual risks by providing clarity within a relationship. 

If you’re looking for a quick and easy way to create express contracts and reduce contract risk, Juro’s all-in-one contract automation software could be exactly what you need. 

Juro is the all-in-one contract automation platform that enables all teams to streamline the creation, execution and management of routine contracts at scale. Fill in the form below to find out more. 

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