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What Is an Implicit Contract?

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  • Written By: Terry Masters
  • Edited By: Shereen Skola
  • Last Modified Date: 21 November 2016
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    Conjecture Corporation
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An implicit contract, also called an implied-in-fact contract, is an obligation that arises as a result of the actions of involved parties. It is a distinct category from express contracts, which are usually in writing, contain all of the legal contractual elements and specify terms. Implicit contracts are the opposite of express contracts. They are not in writing, do not satisfy the legal requirements and are not made as a result of an agreement regarding terms. These sorts of contracts are found to exist by a court based on the totality of the circumstances and as a result on one party acting with a reasonable expectation of reciprocal action.

Contracts form the basis of business relationships. The law favors contracts that are in writing and meet the legal elements of a valid agreement, detailing an offer, an acceptance and noting the transfer of valuable consideration. These legal requirements prevent one party from claiming an agreement exists that is disputed by another party. A contract that meets these requirements is an express contract.

The law allows a party to recover compensation in certain instances when the form of a contract does not exist, but it would be inequitable to deny the complaining party relief. Courts frown upon unjust enrichment, where one party receives a benefit for which he knew the other party expected compensation. In these instances, the court may find that an implicit contract existed, even though there was no contract entered into in fact.

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For example, if an employer allows a worker to keep working after his shift ends, he cannot later claim that he does not want to pay the worker, because the time worked extended past the agreed-upon shift. A court will likely hold that the employer should have sent the worker home, or informed him he would not be paid. If the employer allowed the worker to continue working past his shift, an implicit contract arises based on the worker's expectation of being paid and the employer's enrichment at the employee's expense.

The court often relies on prior history between parties and whether a benefit was accepted knowing compensation was expected. This prevents parties from being responsible for compensating others for services they did not request; for example, if a person finds that a window washing company accidentally washed the windows of his house, rather than the house next door, a court will likely find no implicit contract. The homeowner had no prior history with the company and did not accept the service knowing that compensation was expected. Many jurisdictions pass laws that require certain types of contracts to be in writing to prevent actions claiming the existence of an implicit contract. These types of laws are called statutes of frauds, and most commonly apply to real estate transactions.

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