Compliance

An Implied Contract: Everything You Need To Know

Rachel Lee
October 20, 2021

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Not all contracts need to be written down. Some arrangements are simply agreed implicitly - sometimes verbally, or sometimes without ever speaking about an agreement at all. Yet, they still have legal standing. Here, we look at implied contracts and what the contract meaning behind such agreements really are. 

What is an implied contract?

There are two types of implied contracts. An implied-in-fact contract and an implied in law contract. They both have a similar implied contract definition, but it is how the contracts themselves come about that is different. 

Implied-in-fact contract

An implied-in-fact contract is when two parties come to an obligation that transpires through the situation and actions of the parties involved. It may also occur through past actions that therefore create an implicit agreement about an arrangement in the future.  

Implied in law contract

An implied in law contract varies from a implied-in-fact contract as it means that neither party involved ever intended to enter into an arrangement. Still, due to circumstances that occurred, they did anyway. It can also sometimes be known as a quasi-contract. 

Both contracts can be legally binding in many States in the US

Implied contract example and use

Understanding the terminology and concept behind implied contracts is key to grasping them, but reading through a few examples of what they are can really help in mastering them. 

Implied-in-fact contract

An implied-in-fact contract, the one where an agreement is reached through actions and conduct of the parties involved, could be when one party (A) carries out a task for the other (B), like lawn mowing. The remuneration for that task is never written down, but instead, the party who has the lawn mown gives the other a minimum wage in return. That is an implied-in-fact contract. And, if that transaction and agreement are not abided by - for instance, if B does not pay A - party A will have some grounds that the contract is not being followed. 

Implied in law contract

In comparison, an implied in law contract - where an agreement transpires without previous intention - could be when one party (C)  provides a service for the other party (D) without party D asking for that service to be performed. A typical example of this would be if party C were a doctor who saw that party D is choking when out at a restaurant. Should the doctor, party C, then perform the Heimlich maneuver on party D, party C is entitled to send party D a bill for his services. Party D is required to pay it. 

Express vs implied contract

Given the grey areas that can arise when using an implied contract, at Contractbook, we recommend using an express contract instead. An express contract is a document that details the terms and conditions of an agreement. As opposed to being implicitly agreed to, the nuts and bolts of an agreement are explicitly stated so that there is little room for confusion or misunderstanding between two parties. Any one of our templates in our contract library will be an excellent basis for an express contract. Plus they can help you from the outset with the legal design of an agreement.

The pros and cons of an implied contract

The most obvious pros of an implied contract are that you do not have to write a contract down to have some legal standing if you feel aggrieved by another party. In the instance of the lawn mowing, if you were the party who was not paid for a time that you mowed the lawn, you would want (in theory) for that wrong to be righted, and legally speaking, you could seek compensation.

The problem, however, is with enforcing implied contracts. Express contracts are far easier to prove that a party has not kept up their side of the agreement. Signing a written contract can be a far more reliable basis for a deal than resorting to an implied contract. There are several reasons for this. 

Firstly, should a party not keep their side of the agreement, the contract can be legally enforced. There are, therefore, legal ramifications that can be sizable if they breach the contract. Secondly, a written contract means that both parties know what is required of them from the start. Targets are therefore met far more consistently than without the written document. The results detailed in the contract are therefore more likely to be created and to a better standard. For example, in the case of the lawn, party B will be paid on time instead of not all. Party A will have their lawns mowed every week, as opposed to irregularly. 

Ultimately, implied contracts are good in that if two parties do not sign a formal agreement, one party can still seek legal remedy should they feel that the other party has done wrong by them - concerning their implicit agreement. However, given how difficult they can be to enforce due to hard to measure metrics, signing a written contract is by far the better route to go down. In doing so, you will not have to rely on a ‘he said she said’ argument to prove your case should you need to in the future. Resolving a dispute with a written contract is far more straightforward - plus, they minimize the chances of a conflict in the first place.

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