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What Is an Implied Contract?

Someone who accepts the benefit of work, such as roof repair, without objecting to it can be found to have entered into an implied contract with the worker.
In the American legal system, implied contracts are based on the principle of equity.
People make implied contracts verbally.
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  • Originally Written By: John Kinsellagh
  • Revised By: C. Mitchell
  • Edited By: Michelle Arevalo
  • Last Modified Date: 20 September 2014
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An implied contract is a legally enforceable agreement that is formed by the conduct or behavior of the parties rather than through specific words. Most legal contracts are written down, but those that are implied typically aren’t, and not only that they often don’t even involve direct communication between the parties. Judges infer them based on the specifics of the circumstances, the relationship of the parties, and any other factual surroundings. As such, there isn’t really a formula for creating this sort of contract. Not all judges agree as to when one has been created or should be enforced, either. In most cases they exist only when a court determines that enforcement is required for promoting “equity,” which is basically a general sense of fairness. When equity demands that an informal agreement be upheld it is often done so under this doctrine, though people are still usually safer to put their agreements in writing — particularly if there’s a lot of time or money involved.

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Why They Exist

Implied contracts are judicial constructs inferred by courts to avoid injustice or unjust enrichment. The doctrine is most common in the English law system, which is used not only in the UK but also, in varying degrees, in the US, Canada, and India, to name a few. It is almost always rooted in theories of equity. Judges will usually rule that it applies in circumstances when one party voluntarily accepts benefits from someone else but then doesn’t want to pay for them since there was never a formalized contract for services.

The main idea is that a party who knowingly accepts a benefit that he or she knows isn’t a gift has an obligation to pay for the goods or services, even if there wasn’t ever a formal contract. The doctrine basically prohibits one party from acting in ways that lead others to understand that there has been an agreement, even if, from a technical standpoint, there never was. In this sense it works somewhat like consumer protection. The law is looking to protect the rights of the party who relied on the actions or inactions of the other.

Contract Basics

A standard contract under English law typically has three key parts: an offer by one party, an acceptance of that offer by another party, and consideration or payment for services rendered or goods delivered. In an express or written contract, the offer will contain all the essential terms of the contract, which usually will include the price for services rendered or goods delivered and some indication of when the agreement will take place.

When courts find that an implied contract has been formed, the essential elements of an unequivocal offer and a binding acceptance are missing. The offer and acceptance are found from the conduct of the parties. This is usually true even though no terms or conditions of the agreement were explicitly communicated.

Equity in Action

Illustrations often make the concept easier to understand. Suppose that A knows that his neighbor, B, has contracted with a worker to have his roof repaired, but the contractor — by mistake — works on A’s house instead. If A does not object while the work is being performed, most courts will find that there was a contract created by implication.

What this means is that, through his silence, A has assented to or accepted the benefit of the work performed, and as a result he must pay the contractor. Under an implied contract theory of recovery A will not be able to deny the worker compensation just because they didn’t actually draw up a formal contract. Even though there was no agreement for the price of the services rendered, courts will usually find that the worker who conferred the benefit upon A is entitled to receive the fair value of his services since A both knew about the work and did nothing to stop it from being performed. The mistake was the contractor’s to be sure, but he still went to great expense to get the job done and A still benefited.

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Discuss this Article

SZapper
Post 6

@KaBoom - Written contracts definitely are better, I agree. I think that while in a perfect world every kind of contract should be enforceable, it's certainly easier to prove something if it's in writing!

However, I think that implied contracts are a bigger part of our lives then we think. For example, a doctors visit could be considered an implied contract. When the doctor walks into the room he doesn't say "You know you have to pay for this visit, right?" It's implied you're going to pay for the services when you accept them.

KaBoom
Post 5

I do think written contracts are generally better, but I'm glad to know that implied contracts are enforceable too. In my mind, a contract is a contract, implied, verbal, or written.

As in the example of the roofer, the person with the house knew he was at the wrong house and didn't stop him. He should definitely have to pay! He accepted the work, knowing good and well it wasn't free. I'm glad if something like this ever happened, the person who did the work has some type of legal recourse.

hamje32
Post 4

@MrMoody - I would tread very carefully with implied contract arrangements. Basically the thing that courts look for (judging from the article) is the conduct of both parties.

Sometimes it’s hard to quantify that. For example, I sometimes do some software development work on the side. In these situations there is no contractor laying down brick or concrete, no workers hauling trucks to a construction site.

In other words there is very little obvious conduct. I do get paid, but sometimes I do part of the work first before my first installment. Some programmers insist on a deposit, but I don’t work that way.

If I did part of the work and the client didn’t pay – and it was all verbal, which was the case with one client since they were a friend of a friend – I don’t think I’d have much recourse.

As a result, I always go with written contracts, even if I have to get a template off the Internet.

MrMoody
Post 3

@nony - What you describe is a verbal contract but not an implied contract. I don’t think that the courts would rule in favor of you in that case.

The employer is only committed to what’s written on paper, and even that is tentative. It’s considered an at will employment arrangement. They could hire you one week and let you go the next week; that’s in all the fine print as well.

Of course, you could file for wrongful termination, but courts rarely find in favor of the employee in wrongful termination cases.

The employer knew, however, that the verbal promises he made to you were not legally binding in any sense of the term. While I hate to say this, he probably knew you could quit and he might not have cared either way. That’s just how the job market works.

nony
Post 2

@Mammmood - One area where I’d avoid even the faintest notion of an implied contract is in employment promotion.

I once worked for a company under the agreement that after six months of working there my salary would be hiked ten percent. It was a specialized industry, and they wanted to see if I was really up to snuff.

The problem is that the employment contract didn’t spell out anything about a six month increase after the initial salary agreement. It only had the initial starting salary.

The increase part was verbal, but was it an implied contract? I don’t think so. Six months came and went, and I never got my increase.

I approached my boss and he talked about the bad economy and how buyers were tightening their belts, but at some future point they could revisit my pay. I didn’t even bother any further.

Mammmood
Post 1

I’ve always heard that a verbal contract isn’t worth the paper it’s written on. It appears that an implied contract, though unsigned, might indeed carry some weight in some circumstances.

While the article gives a good example of a contractor who worked on the wrong house, I personally believe that a good lawyer can argue well in favor of the wronged party in this case.

Any number of reasons could be given why that party didn’t speak up when the work was done, although I can’t say that he will necessarily win the case for his client.

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