What Is an Implied Contract?
Implied Contract Example
Contracts are usually verbal agreements or written documents, expressly and affirmatively agreed to by all parties, that set forth the exact terms governing an agreement, understanding or business relationship. This does not always have to be the case though. Instead of being expressly stated, contracts can be implied. An implied contract is one that exists automatically, with no agreement needed, simply because of how a person acted. It aims to prevent someone manipulating another by acting in a way that could lead one to believe a contract exists where none does.
Implied-in-Fact vs Implied-in-Law
Implied contracts can be:
- Implied-in-Fact: Where the facts show that both of the parties reasonably assumed a contract existed, although it was not expressly stated.To prove an implied-in-fact contract exists, a person must show that the circumstances indicated that both parties intended for there to be an agreement. For example, if you take your car to a mechanic and he fixes it; he would have a strong argument that an implied-in-fact contract exists. Your taking the car to his business and letting him work on it is shows that you intended to pay him for that work and his working on the car is evidence of his acceptance of the agreement.
- Implied-in-Law: But what if you never had any intention of paying the mechanic? Then an implied-in-law contract may be his best bet for collection. An implied-in-law contract does not need for there to be evidence of an agreement to exist. It exists automatically if one party will be unjustly enriched; they’ll receive a benefit they did not earn, deserve or were otherwise entitled to, if it is found that a contract does not exist. In our mechanic example, you would be unjustly enriched if your car was fixed for free when that was not the intent of the mechanic.
Implied Contract FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.