What Is an Implied Contract?

Most people usually associate contracts with written documents signed by both parties, agreeing to carry out specific obligations. However, for an agreement to be legally binding, it does not have to be written or spoken aloud. Such contracts are called implied contracts, which can be enforceable, just as the written ones. In California, implied contracts are specifically supported by California Civil Code §1621, such that the court can hold people accountable based on their conduct. Understanding implied contracts is essential to every business to ensure that one party doesn’t unfairly benefit from fulfilling their end of the bargain. Read on to learn more.

Understanding Implied Contracts

An implied contract is an agreement formed by conduct rather than words. If two parties act in a way that makes it seem like they have a deal, even if they never say it loudly or write it down, the law might still consider it a contract. California law clearly states that an implied contract is one whose existence and terms are manifested by conduct. So, if the way two parties interact demonstrates a mutual understanding, this can be sufficient to prove a binding agreement.

Types of Implied Contracts

There are two main types of implied contracts, as discussed below:

1. Implied-In-Fact Contracts

An implied-in-fact contract occurs when both parties behave in a way that shows they expect something in return. This is often the case in employer-employee situations or recurring business transactions. For instance, if you are a business owner who hires the same software developer to fix bugs and update your apps. However, you never sign a contract, but the developer completes the work and shares the invoice with your company, and you always pay. This ongoing behaviour shows a mutual understanding, making it an implied-in-fact contract. This is because of the following elements:

• A mutual understanding, even if unspoken
• An exchange of value, like services or payment
• Clear conduct that shows an ongoing agreement

2. Implied-In-Law Contracts

Also called quasi-contracts, these are not actual contracts that both parties agreed to. Instead, they’re something the court imposes to avoid unjust enrichment. For example, if someone receives a benefit, whether a product or a service, and refuses to pay, the court may step in and require them to pay if it deems it unfair to keep the benefit without payment.

Some common examples of implied contracts include the following:

• A handshake deal between two business partners who always split profits the same way
• A mechanic who helps a stranded driver on the side of the road then sends an invoice later
• A supplier who continues to deliver products to a store based on a long-standing working relationship.

How Do You Prove Implied Contracts in Court?

For the court to consider an implied contract, the judge will generally look for the following:

• Conduct that shows mutual understanding
• Exchange of goods, services, or money
• A pattern or history of consistent behavior

What if a Dispute Arises?

Disputes over implied contracts can be challenging and complex, mainly because there is no document to support the existence of the agreement. However, if there is a dispute over an implied contract, here’s what you can do:

• Gather evidence such as payment records, emails, texts, or any documentation showing how you worked together. Witness statements can also strengthen your case.
• Consult a business litigation lawyer who can evaluate your evidence and guide you on your legal options.

Contact Us for Legal Help

Contact our experienced business attorneys at SAC Attorneys LLP to understand your rights and explore legal options.