What Is an Implied Contract? A Breakdown for Business Professionals

An implied contract is an agreement between two parties that is not explicitly stated, but is inferred from the conduct of the parties involved. In other words, the parties come to an understanding through behaviors that suggest an expectation of contract performance.

When a situation involves an implied contract, it’s important to examine the actions of the parties to determine if a contract is being formed. For example, if a person pays for a service without any discussion of the terms, a court may infer that the parties meant for a contract to be formed.

Modern Uses of Implied Contracts

Implied contracts are found in many modern business transactions. In the digital age, parties may form contracts through emails and other online communications without verbally discussing the details of the agreement. The price of goods or services paid might indicate an implication of agreement.

In retail situations, a customer may buy a product and the seller might begin to perform services related to the product, such as offering warranties or repairs. This could suggest to a court that an implied contract exists.

Advantages and Disadvantages of Implied Contracts

Implied contracts can be beneficial in that the parties involved do not have to go through all the details of formalizing the agreement. However, it can also be difficult to prove the existence of an implied contract if the parties do not have any proof of their understanding. The burden of proof is on the claiming party in such cases.

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There is also always a risk of misinterpretation in an implied contract situation. Both parties must be sure that they understand what the other is expecting before they take any action. If there is a misunderstanding, then the potential exists for a breach of contract situation.

Related Legal Concepts

Understanding implied contracts often goes hand in hand with express contract principles, as these represent the two primary ways agreements can be formed. When disputes arise, parties may face breach of contract claims, and courts will examine whether an implied warranty or implied covenant of good faith and fair dealing applies. In situations where no valid contract exists, courts might consider quasi contract remedies to prevent unjust enrichment.

The Bottom Line

Implied contracts demonstrate that legally binding agreements can exist even without written documents or explicit verbal terms, as long as the parties’ conduct clearly indicates mutual understanding and intent to be bound. While this flexibility facilitates many everyday transactions, the lack of clear terms can create uncertainty and make disputes more challenging to resolve. For guidance specific to your situation, always consult a qualified, licensed attorney.