ACROBAT FOR BUSINESS | 6-MINUTE READ
Implied contract: What is it and how does it work?
Learn how implied contracts can affect your life and your business.
Implied contracts are unique. They are neither verbal nor written. They exist on the basis of mutual agreement, almost like an invisible handshake. In business, this means you can expect to be paid for services or goods you deliver.
You live in a world of contracts. Contracts offer protection, security, and clarity on how you interact with others, how you get an education, where you live, how you do business, and more. As you navigate a legal agreement, you may wonder how to write a contract that answers every question and anticipates every circumstance. The good news is that you don’t have to think of everything. An implied contract may give you the coverage you need.
What is an implied contract?
When you draft a contract, you try to be as thorough as possible. After all, your business depends on successfully carrying out the terms of your contracts. That’s why you set yourself up for success. You use quality tools like Adobe Acrobat for business to digitize document workflows and collect e-signatures. You take advantage of generative AI to help you understand complex terms, review lengthy documents, and get answers to your questions. And even then, you wonder if you’ve included everything necessary in your contract. That’s where an implied contract can come into play.
The implied contract definition may seem confusing at first, but this form of contract is much more common in everyday life than you think. You have most likely used an implied contract many times in your life without realizing it.
The average contract is written or verbal. An implied contract is non-verbal and unwritten. It exists based on the behavior of the individuals or businesses involved or on the particular set of circumstances in which a situation is taking place.
An implied contract is a binding contract. When you are analyzing a binding vs non-binding contract, you are determining whether or not the contract is enforceable. A binding contract means that if either party doesn’t keep their end of the agreement, the other party may take them to court.
How does an implied contract work?
The principle behind an implied contract is simple: No one should unjustly benefit at the expense of another person, and an explicitly written or verbally stated agreement isn’t necessary to ensure fair play.
For example, when you purchase a new product off the shelf, the product implies it will do what it is supposed to do. If the product doesn’t function, the company selling it or the company that made it has failed to meet the terms of the implied contract. A freezer that doesn’t keep food cold doesn’t fulfill the implied contract. Neither does a dryer that doesn’t dry clothes.
Although these contracts are binding, they can sometimes be difficult to enforce because a written document isn’t included to prove the claim. Instead, the wronged party must make an argument and show that their claim is just.
In the case of implied contracts, the courts have to take into account the relationship between the parties, if any previous agreements or contracts exist, and the facts of the exchange of goods, services, or property. For implied agreements to work, context is key.
Because implied contracts are enforceable contracts, it’s important to stay aware of your actions. Understand that how you behave can create contractual obligations. To avoid being pulled into an implied contract, document everything you can. Clear communication can prevent misunderstandings. Put all business interactions and conversations into writing and share them with the other parties involved. Be explicit about your intentions and takeaways.
Types of implied contracts.
There are two main categories of implied contracts. Both are binding agreements reached without explicit written or verbal agreement. The difference lies in mutual agreement. One category centers on actions that show a mutual agreement, while the other focuses on fairness and justice when a mutual agreement is absent.
Implied in fact contracts.
An implied in fact contract focuses on the actions of the people or businesses involved. Think of this type of contract as an invisible handshake. Both parties mutually agree on how things should be conducted.
For example, you go to a nail salon. You sit in a chair. You get a pedicure. Even though you didn’t agree to pay for your pedicure verbally or in writing, by walking into the business and receiving the service, you and the business have an understanding that you will pay the owners at the end of your visit.
Implied-in-law contracts.
An implied-in-law contract is imposed by law to ensure fair treatment for individuals and businesses. It focuses on the circumstances rather than the behavior of the parties. Unlike an implied-in-fact contract, the parties involved in an implied-in-law contract did not mutually agree through their actions to receive and pay for the service.
For example, when an individual is taken to a hospital in critical condition, the doctors treat the patient. Even though the patient didn’t agree to the services, they are still responsible for paying the doctors. The implied-in-law contract protects the doctors from providing services for free.
Implied contract FAQs.
An implied contract has three main requirements:
- Received benefit. The first party provides a service, goods, or property to the second party.
- Expectation of payment. The first party expects to be paid by the second party for the service, goods, or property. The second party knows or should have known, based on past contracts or experiences, that payment is expected.
- Opportunity to reject. The second party had a chance to reject the service, goods, or property and did not.
An implied term of a contract is a term that isn’t explicitly stated in a written agreement, but based on the nature of the contract or the circumstances around it, the term is understood. Here are a few common examples of an implied term:
- Implied warranty of merchantability. This term implies that when someone purchases something else, the item is fit for purpose. For example, when you buy a new car from a dealership, the dealership implies that the car is ready to drive and of reasonable quality.
- Implied duty of good faith. This term is common in business contracts and implies that when two businesses engage with each other, both parties plan to deal with each other fairly and honestly.
- Implied term for a reasonable time. This term is implied if a contract doesn’t specify exactly when a task will be completed. The contract implies that the signers expect the task to be completed in a reasonable amount of time. For example, if part of a project is reaching out to someone for a quote, a reasonable time frame is within a few weeks, not months.
- Implied term for quiet enjoyment. This term is common in rental agreements and implies that when tenants sign a lease, their landlord won’t interfere with the quiet, day-to-day way they live their lives and enjoy the property.
While an implied contract is neither oral nor written, an express contract is. Express contracts are more common than implied contracts. They are typically formal, written agreements, but they can also be made orally. Express contracts are intentionally entered into by both parties. The parties agree to undertake certain obligations, usually involving the exchange of payment for goods and services. Implied contracts are often based on previous express contracts between the same parties.
Common types of express contracts include:
- Fixed price contract
- Construction contract
- Real estate agreement
- Sales contract
- Service agreement
- Lease agreement
To understand whether a unilateral contract is an implied contract, you must first answer the question: What is a unilateral contract? A unilateral contract is an agreement where a single party makes an offer to a person, organization, or the general public. If someone wants to accept the offer, they have to follow the terms laid out in the contract.
A unilateral contract isn’t always an implied contract. While a unilateral contract may be implied, it can also be explicit.
For example, when a pet goes missing, owners often offer a reward as an explicit unilateral contract. The reward is offered to the general public in a written flyer or social media post. When someone finds and returns the pet, they accept the terms of the contract and are paid the reward.
On the other hand, when someone enters a restaurant and orders a meal, they agree to pay for the meal, even if no one at the restaurant explicitly tells them that they must pay for it. This is an example of a unilateral implied contract.
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Implied contract: What is it and how does it work?
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Two hands clasp together in a handshake to create an implied contract.
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