Implied contracts: Understanding agreements that are invisible, yet enforceable

What is an implied contract?  

Implied contracts are silent agreements formed between parties through actions, conduct, or circumstances. Despite the absence of clearly stated terms, either spoken or written, implied contracts are legally valid and enforceable.  

In contrast, express contracts explicitly outline all terms and conditions, either in writing or verbally, and are agreed upon by all parties involved.

Example of an implied contract 

A freelance designer starts working for a client following informal discussions. The client receives the designs but refuses to pay because no signed contract exists. In such cases, if the emails (requesting revisions) or behavior clearly indicates the client's intent to engage the designer, a court may recognize the existence of an implied contract and hold the client liable for payment.

Types of implied contracts 

Implied-in-fact contract: An implied-in-fact contract arises when both parties, through their actions, demonstrate mutual agreement even without explicitly stating it. Courts recognize these contracts based on a "meeting of minds," meaning both parties understand and accept the terms through conduct rather than words.

Example: Ordering a meal at a restaurant implies an agreement to pay for it.

Implied-in-law contract (quasi-contract): An implied-in-law contract is imposed by a court to prevent unjust enrichment. These contracts don't rely on mutual intent or behavior but on fairness and equity. This type of contract is used when one party unfairly benefits at another's expense, even if no formal agreement exists.

Example 1: A company accidentally receives a double refund from a vendor. Legally, the company is obligated to return the extra amount, even if there was no explicit agreement to do so.

Example 2: A vendor mistakenly delivers office supplies to a company, and the company uses them. Even though there was no formal agreement, the company may be required to pay for the supplies to prevent unfair gain.

What are the pros and cons of implied contracts?

The pros 

By their inherent nature, implied contracts offer businesses greater flexibility by enabling faster decision-making and better change management. In uncertain scenarios, businesses can act based on mutual understanding or initiate new engagements without the need to pause and draft a new contract.

These contracts offer enforceability even when there is no written agreement. This ensures that mutual understanding through actions or conversations holds legal value. They’re beneficial when quick decisions are made without formal paperwork.

Implied contracts help maintain trust and continuity. Businesses can operate smoothly without creating a new contract for every small expectation or rule. They support daily operations by making common expectations legally understood, allowing people to focus on work instead of paperwork.

The cons

Without clear terms and consent, implied contracts often create ambiguity, leading to disagreements and legal disputes.

When terms and mutual consent aren’t clearly defined, implied contracts are highly likely to lead to misunderstandings, disagreements, and legal disputes.

Implied contracts come with the burden of proof. It can be challenging to prove that a contract exists in case of a dispute. Businesses may rely on past emails, discussions, or behaviors to show intent. This can be time-consuming and may not always provide clear evidence.

Why understanding implied contracts is important   

A clear understanding of implied contracts leads to:

• Maintaining clear records of all communications, bills, and supporting documents related to an arrangement.

• Setting up simple systems to track ad hoc tasks and avoid confusion or unexpected risks.

• Applying a structured approach to all informal engagements.

• Staying aware of situations and seeking legal support when needed.

• Building standard processes early on to support smoother scaling.

Are implied contracts valid? How can you prove them in court if needed? 

Yes, implied contracts are legally binding. Most legal systems enforce a contract if the actions or conduct of the parties involved show a mutual understanding. Supporting your case with evidence like past emails, messages, actions, or behavior can strengthen your argument, giving you a fair chance to win.

Wrapping up   

Implied contracts may seem convenient in the moment, but their lack of structure can lead to confusion, disagreements, and legal risks. On the other hand, express contracts offer clarity, accountability, and better protect all involved parties.

Read our blog on express contracts to understand why they’re better suited for most business arrangements.

Zoho Contracts makes it easy to create and manage express contracts with templates, review workflows, and e-signatures that bring structure to every step of the contract lifecycle management (CLM) process.

Try Zoho Contracts for free!