Everyone’s idea of a contractual agreement is a long and complex document stating the rights, responsibilities, and accountabilities. That’s how you formalize purchase, sale, employment, or partnership arrangements. However, contracts are a lot more flexible than you thought. You can legally bind yourself to a promise without an oral or written contractual agreement. Actions can sometimes do the job for you.
If you buy something, there is no need for a written contract to establish that the seller owes you a functional and high-quality product. That’s where the implied arrangements come into play. Despite being less common than standard express contracts, implied agreements do hold value in today's business environment. Here's everything you need to know about them, including their different types, applications, and differences.
An implied contract is a type of contract that is not explicitly stated in words, either orally or in writing. Rather, the behavior of the individuals involved shapes it. In other words, the terms and conditions of the contract are inferred from the actions, circumstances, or behavior rather than being explicitly outlined in a formal agreement.
Implied contracts come into force when parties agree to an arrangement without writing down the terms. Implied contracts need an offer, acceptance, consideration, capacity, and lawful purpose, just like explicit ones. Other than that, to enter into a contract, all parties must intend to do so and conduct behavior to prove it.
Implied contracts are legally enforceable, just like express contracts. While they do not explicitly state it in writing or verbally, they are still considered valid based on the conduct and actions of the parties involved. The legal system recognizes and upholds implied contracts. Individuals can seek remedies in court if one party fails to fulfill its obligations under them.
The enforceability of an implied contract depends on the specific circumstances and the jurisdictional law where the dispute arises. Courts typically consider the conduct, actions, and intentions to determine the terms of the implied contract. If the court finds a mutual understanding and agreement between the parties, even if not expressly stated, it may enforce the terms of the implied contractual agreement. However, imposing them is far more difficult than with express contracts.
The general principle underlying implied contracts is that when one party benefits from the actions of another, they must pay a price. Depending on how the agreement came to be, implied contracts fall into the following two categories:
Parties’ actions, behavior, or conduct form the basis for implied-in-fact contracts. The parties may not express their agreement, but their actions imply mutual consent. For example, if you visit a restaurant, order food, and consume it, an implied contract is formed where you agree to pay for the services provided.
In some cases, contracts are implied based on industry customs or trade practices. Parties must follow these customs, and their actions imply an agreement. For instance, if it's customary for businesses in a particular industry to pay invoices within 30 days, then there might be an assumption of payment within that timeframe.
When parties have a history of transactions or dealings with each other, a contract may be implied based on the established course of dealing between them. For example, if a supplier consistently delivers goods on credit to a retailer who consistently pays within 60 days, there may be an implied contract regarding the payment terms.
These contracts are enforced by a court to keep one party from unfairly benefiting at the expense of another (unjust enrichment). If one party receives a benefit that would be unfair to retain without compensating the other party, a quasi-contract may be imposed. For example, if someone mistakenly pays your utility bill, you may be required to reimburse them.
In some jurisdictions, there are implied contracts for necessaries, which are goods or services deemed essential for a person's well-being. For instance, if a minor agrees to an arrangement for necessary goods (like food or shelter), the law may imply a contract, even if the minor cannot enter into a binding contractual agreement. Implied-in-law contracts derive their enforceability from circumstances rather than behavior.
An express contract is a type of contract in which the terms and conditions are explicitly stated, either in writing or verbally, by the parties involved. Unlike implied agreements, where the circumstances or conduct of the parties form the basis, express contracts leave no room for ambiguity regarding the terms and conditions. Express agreements provide a high degree of certainty and transparency. This clarity is beneficial when a dispute arises, as the parties can refer to the written or verbal agreement to determine their rights and obligations.
Essential elements of express contracts include:
Clear Terms: The terms and conditions of the contract are clearly defined and agreed upon by the parties. This clarity helps to minimize misunderstandings and disputes.
Mutual Assent: The parties must express their mutual desire to be bound by the contract. It can be through a written document, an oral agreement, or a combination.
Offer and Acceptance: Like any contract, an express agreement involves an offer by one party and an acceptance of that offer by the other party. These need to be made clear.
Intention to Create Legal Relations: The parties must aim to create a legally binding relationship. In many jurisdictions, agreements that lack this intention may not be considered valid contracts.
Examples of express contracts include:
Written Contracts: Formal written agreements, such as employment contracts, lease agreements, purchase agreements, and service contracts, fall under this category.
Oral Contracts: In some situations, parties may enter into an express contract through verbal communication. However, oral agreements can be more challenging to enforce due to potential misunderstandings or disputes about the terms.
Combination of Written and Oral Agreements: Some contracts may involve written and oral elements. A written contract might include room for verbal discussions and changes.
Express and implied contracts are two distinct legal agreements with unique characteristics and implications. Here are the primary differences between express and implied contracts:
Express Contracts: The main distinction is in the language used to convey the contract terms. In express contracts, the rights and responsibilities are explicitly stated, either in writing or verbally, leaving no room for ambiguity. Parties involved in an express contractual agreement make their intentions clear through an offer, acceptance, and articulation of specific terms and conditions. These formal agreements serve as an unambiguous record of the parties' understanding.
Implied Contracts: In contrast, implied contracts arise from the conduct, actions, or circumstances of the parties. The terms are not explicitly stated but are inferred from the behavior or dealings of the parties involved. Implied contracts can be implied-in-fact, based on the conduct of the parties, or implied-at-law (quasi-contracts), where the law imposes an obligation to prevent unjust enrichment.
Express Contracts: These are known for their clarity and certainty. The terms are explicitly laid out, reducing the likelihood of misunderstandings or disputes. Because everything is clearly defined, the parties have a solid basis for understanding their respective rights and obligations. This explicitness is particularly advantageous when disputes arise, as the terms of the agreement are readily available for reference.
Implied Contracts: They may lack the same level of clarity. Since the terms are not expressly stated, there is a higher risk of misunderstanding or disagreement about the nature and extent of the implied agreement. Implied contracts often depend on subjective interpretations of the parties' actions, which can lead to legal challenges.
Express Contracts: They are generally easier to enforce because the terms are well-defined and agreed upon by the parties. Written contracts, in particular, serve as strong evidence in legal proceedings. The clarity of express contracts contributes to their enforceability, as courts can readily interpret and apply the agreed-upon terms.
Implied Contracts: Those implied by conduct or circumstances, may face challenges in terms of enforceability. Since the terms are not explicitly stated, determining the precise nature of the agreement can be more complex. Implied contracts may be subject to interpretation, and their enforcement may depend on specific facts and circumstances.
Express Contracts: They are often formal and documented. They may involve written agreements that outline the terms and conditions in detail. The formality provides a clear record of the parties' intentions, making it easier to prove the existence and terms of the contract in legal proceedings.
Implied Contracts: They can be less formal and may not involve written documentation. In many cases, implied contracts arise from informal or everyday interactions between parties. The lack of formality can make it challenging to establish the existence and terms of the implied agreement, especially if there is no clear record of the parties' interactions.
Whether implied or express agreement suits your purpose depends on the specific situation. You cannot expect a contract to set the terms when dining out. In such cases, implied contractual agreements best serve the purpose. On the other hand, you must specify the terms and conditions precisely when you enter into a business agreement with a party. Express contracts help avoid misunderstandings, violations, and disputes in these situations.
For organizations mainly dealing with explicitly written documents, Dock 365 contract management software can offer an array of tools and features. From pre-approved templates to automated workflows to e-signature solutions, businesses can streamline the entire contract lifecycle from within a single platform.
Schedule a live demo of Dock 365's Contract Management Software instantly.