Implied Contracts: A Guide to the Unspoken Agreements in Business

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    CobbleStone Software examines implied contracts.

    Welcome to our comprehensive guide on implied contracts! Whether you're a business professional, a law student, or just curious about the fascinating world of contracts, this blog is designed to offer you a fun yet professional insight into the realm of implied agreements. Let’s dive into the world where words are few, but intentions speak volumes.

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    Section 1: What is an Implied Contract?


    An implied contract, unlike its express counterpart, doesn’t require written or spoken words to come into existence. It’s like a silent agreement, where actions and circumstances do the talking. So, what exactly is this silent communicator in the business world? Let's break it down.


    Implied-in-Fact vs. Implied-in-Law Contracts: The Invisible Handshake


    Implied-in-Fact Contracts

    Imagine you go to a barber, sit on the chair, and get a haircut. You didn’t verbally agree to pay, yet there’s an understanding that you will. This is an example of an “implied in fact contract” - a contract formed by the actions and circumstances of the parties involved. It's like an invisible handshake, where mutual agreement is understood from the conduct of the parties.


    Implied-in-Law Contracts (Quasi-Contracts)

    Now, let's take a different scenario. Suppose a person is unconscious and brought to a hospital. The medical team provides treatment even though the patient can’t agree to it. Here, an “implied in law contract” or a quasi-contract comes into play. It's designed by law to prevent unjust enrichment - a concept where one benefits at the expense of another.

    We will delve deeper into the differences between ‘implied-in-fact” and “implied-in-law” later.


    Implied Contracts in Daily Life

    Every day, we engage in activities that potentially form implied contracts. Whether it’s getting a coffee at your favorite café or dropping your clothes off at the dry cleaners, these regular interactions are teeming with unspoken agreements.


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    Section 2: Formation of Implied Contracts and Their Legal Standing


    Crafting an Implied Agreement: The Art of Unspoken Words

    To form an implied contract, certain elements must be present:

    1. Benefit Received: One party must receive a benefit from the other.

    2. Expectation of Payment: The party providing the benefit does so with the expectation of payment or compensation.

    3. Opportunity to Reject: The receiving party had the opportunity to reject the benefit but chose not to.

    These elements combine to create a contract as binding as any written agreement, even though it’s not expressed in words.


    Real-Life Implied Contract Example

    Imagine you're dining at a restaurant. You order, eat, and at the end of the meal, you’re presented with the bill. You never explicitly agreed to pay when you ordered, but by dining, you entered into an implied contract to pay for the meal.


    Legal Standing: When Silence Speaks in Court

    Implied contracts hold significant weight in legal disputes. Courts often look at the conduct of the parties involved to determine if an implied contract exists. They consider actions, circumstances, and in some cases, past dealings to understand the mutual understanding between the parties.


    Breach of Implied Contract

    Just like express contracts, breaching an implied contract can lead to legal repercussions. For instance, if a customer refuses to pay for a service they implicitly agreed to, they can be held legally accountable.


    Implied vs. Express Contracts: The Silent vs. The Spoken

    The key difference between express and implied contracts lies in how the agreement is communicated. While express contracts are clearly stated (either written or verbally), implied contracts are inferred from actions, facts, or circumstances.

    - Express Contract: "I'll pay you $100 to mow my lawn."

    - Implied Contract: You regularly mow your neighbor's lawn, and they regularly pay you without a verbal agreement.

    Understanding this distinction is crucial, especially in business dealings where misinterpretations can lead to disputes. We will delve into the differences between these two in a later section, so stay tuned!


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    Section 3: Delving Deeper into Implied-in-Fact and Implied-in-Law Contracts

    This section is dedicated to exploring the finer distinctions between implied-in-fact and implied-in-law contracts. Understanding these nuances is like deciphering the unspoken language of the legal world.


    The Essence of Implied-in-Fact Contracts

    An implied-in-fact contract is formed through the conduct of the parties that suggest a mutual intention to contract. It’s like an invisible contract, where actions and circumstances speak louder than words.


    Key Characteristics

    1. Mutual Assent: Both parties act in a way that indicates they agree to the contract terms.

    2. Benefit and Compensation: One party receives a benefit, and the other expects to be compensated.

    3. Recognizable by a Reasonable Person: The contract's existence and terms would be apparent to any reasonable person in the same situation.


    Example in Practice

    A classic example is the relationship between a customer and a hairdresser. The customer sitting in the chair implies consent to pay for the haircut, and the hairdresser, by providing the service, implies agreement to accept payment.


    Implied-in-Law Contracts: The Law's Fair Play

    Implied-in-law contracts, also known as quasi-contracts, are not actual contracts. Instead, they are obligations imposed by law to prevent unjust enrichment and ensure fairness.


    Key Elements


    1. No Actual Agreement: Unlike implied-in-fact, there’s no mutual agreement between parties.

    2. Prevention of Unjust Enrichment: The law intervenes to prevent one party from benefiting unfairly at the other's expense.

    3. Compensation: The party who received the benefit is legally obligated to compensate the other party.


    A Real-World Scenario

    Consider a scenario where a person receives emergency medical services while unconscious. The patient didn’t agree to the services but is legally obligated to pay, preventing the unjust enrichment of receiving free medical care.


    The Difference

    While both types of contracts arise without explicit agreement, the key difference lies in mutual assent. Implied-in-fact contracts involve actions that suggest a mutual agreement, whereas implied-in-law contracts are imposed by law, absent any mutual agreement, to enforce fairness and justice.


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    Section 4: Express vs. Implied Contracts: Understanding the Differences

    In this penultimate section, we're going to illuminate the contrasts between express and implied contracts. Understanding these differences is essential for anyone navigating the legal and business world, where agreements are the bedrock of interactions.


    Express Contracts: Clarity in Communication

    Express contracts are based on clear, explicit communication, either written or spoken. These agreements leave little to interpretation, as all terms are clearly stated.


    Characteristics of Express Contracts

    1. Clear Terms: The terms and conditions are explicitly stated and agreed upon.

    2. Written or Verbal Form: These contracts can be either written documents or verbal agreements.

    3. Easier to Enforce: Due to their clarity, express contracts are generally easier to enforce in legal disputes.

    A classic example is a lease agreement for an apartment. The landlord and tenant agree on rent, duration, and other conditions, all laid out in a written contract. Express contracts often require contract lifecycle management - which can be optimized with contract management software.


    Implied Contracts: The Power of Conduct and Circumstance

    Implied contracts, as we’ve explored, arise from actions, conduct, or circumstances, suggesting a mutual agreement.


    Characteristics of Implied Contracts

    1. Non-Verbal Agreements: Terms are inferred from behavior or the situation.

    2. Based on Assumptions: These contracts rely on the reasonable expectations of the parties involved.

    3. Can Be Challenging to Prove: Without explicit terms, these contracts can be harder to prove in court.

    Returning to the restaurant scenario, when you order a meal, there's an implied contract that you'll pay for it, even though you didn't explicitly state this.


    The Key Distinctions

    1. Communication: Express contracts are clearly communicated, while implied contracts are deduced from actions or circumstances.

    2. Formalities: Express contracts often involve formalities like signatures, whereas implied contracts do not.

    3. Enforcement: Express contracts are generally more straightforward to enforce legally due to their clarity.


    Why the Distinction Matters

    In the business world, understanding the type of contract you are entering can significantly affect how you handle agreements and resolve disputes. For instance, a handshake deal (implied) might feel informal, but it can carry as much weight as a signed contract (express) under the right circumstances.


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    Section 5: Implied Contracts - Practical Tips and Implications


    Practical Tips for Dealing with Implied Contracts


    Stay Aware of Your Actions

    Understand that your actions can create contractual obligations. Whether it's a nod, a handshake, or simply accepting a service, these actions might be interpreted as agreeing to a contract.


    Document When Possible

    Even in situations where an implied contract is formed, try to document the terms as soon as possible. This could be a follow-up email summarizing the agreed points or a written note. Documentation can provide clarity and protection for all parties involved.


    Communicate Clearly

    Clear communication can prevent misunderstandings that might lead to implied agreements you didn’t intend to make. Be explicit about your intentions and understandings in any business interaction.


    Legal Implications of Implied Contracts


    Enforceability in Court

    While more challenging to prove than express contracts, implied contracts are enforceable in court. The key is demonstrating the mutual understanding and the actions of the parties involved.


    Breach and Remedies

    Just like express contracts, breaches of implied contracts can lead to legal remedies. These might include compensation for services rendered or damages for losses incurred due to the breach.


    Broader Business Implications

    Implied contracts play a crucial role in maintaining trust and fairness in business dealings. They ensure that even in the absence of formal agreements, parties can expect a basic level of fairness and reciprocity.


    Building Relationships

    Understanding and respecting the concept of implied contracts can help build strong business relationships. It fosters an environment where trust and mutual understanding are valued, even in the absence of explicit agreements.


    CobbleStone Software has been named a Leader in the SPARK Matrix for Contract Lifecycle Management (CLM) 2023, per Quadrant Knowledge Solutions.


    Final Thoughts: The Unspoken Bond

    As we wrap up, it’s clear that implied contracts, though less formal and often silent, are integral to the smooth functioning of both legal and business interactions. They represent the unspoken bond that often holds our transactions and interactions together, filling in the gaps where words and written agreements don’t reach.

    In a world where explicit contracts dominate, appreciating the subtlety and power of implied contracts is essential. They remind us that beyond the written word, our actions and circumstances speak volumes about our intentions and agreements

    And that concludes our comprehensive exploration of implied contracts. Whether it's in business, law, or daily life, understanding the nuances of these unspoken agreements is invaluable. Remember, sometimes what’s not said is just as important as what is.

    To better manage express contracts and other agreements your organization might be managing, book a free demo of CobbleStone Contract Insight® contract management software today!

    CobbleStone Software offers a complimentary demo.

    Legal Disclaimer: This article is not legal advice. The content of this article is for general information and educational purposes only. The information on this website may not present the most up-to-date legal information. Readers should contact their attorneys for legal advice regarding any particular legal matter.

    Published: 12/12/23
    Sean Heck

    Written by Sean Heck

    Sean Heck is Content Marketing Manager at CobbleStone Software

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