An implied contract is a legally binding agreement created by the actions, behavior, or circumstances of the parties involved, rather than through written or spoken words. In India, implied contracts are governed by the Indian Contract Act, 1872, just like express contracts. The law recognizes implied contracts based on the principle that even without explicit agreement, certain actions and conduct can indicate the existence of a contractual relationship.
Nature of Implied Contracts:
Implied contracts are formed when the conduct of the parties demonstrates their intent to enter into a contract, even though they have not explicitly stated their agreement. Such contracts arise from:
- Circumstances: The situation and context in which the parties are involved can imply a contractual relationship.
- Conduct: The behavior and actions of the parties suggest that they have a mutual understanding and intention to contract.
- Custom and Usage: Established practices and norms within a particular trade or community can imply certain terms and conditions.
Types of Implied Contracts:
- Implied-in-Fact Contracts
- Implied-in-Law Contracts (Quasi-Contracts)
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Implied-in-Fact Contracts
Implied-in-fact contracts are agreements formed through the conduct of the parties that suggest their mutual intention to contract. These contracts require the same elements as express contracts: offer, acceptance, consideration, and mutual intent. The difference lies in how these elements are demonstrated—through actions rather than words.
Example: A visits a doctor for treatment. Though A and the doctor do not explicitly agree on payment terms, A’s actions (seeking treatment) and the doctor’s actions (providing treatment) imply a contract for payment.
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Implied-in-Law Contracts (Quasi–Contracts)
Implied-in-law contracts, also known as quasi-contracts, are not actual contracts but legal constructs imposed by the court to prevent unjust enrichment. These arise when one party is unjustly benefited at the expense of another, and the law imposes a contractual obligation to rectify the situation.
Example: If A mistakenly pays B’s debt thinking it was his own, B is legally obligated to reimburse A, even though there was no explicit contract between them.
Enforceability of Implied Contracts:
Implied contracts are enforceable under the Indian Contract Act, 1872, just like express contracts. The key elements of a contract—offer, acceptance, consideration, and mutual intent—must be present, even if they are implied through conduct or circumstances.
- Section 9: Promises, express and implied
Section 9 of the Indian Contract Act states that “In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.”
Examples of Implied Contracts:
- Example 1: Implied Contract in Employment
An implied contract can arise in an employment context when an employee performs work based on the employer’s request, even if there is no formal agreement.
Example: A person starts working at a company after being told by the employer to begin work, without a formal contract. The employer’s request and the employee’s performance of work imply a contractual relationship, entitling the employee to compensation.
- Example 2: Implied Contract in Sales
An implied contract can arise in a sales context when a customer picks up goods from a store and takes them to the cashier to pay.
Example: A customer selects groceries and proceeds to the checkout counter. The act of selecting and bringing the items to the cashier implies a contract to purchase those goods at the stated price.
- Case Law 1: Indian Contract Act, 1872:
In various judgments, Indian courts have recognized the validity and enforceability of implied contracts. For instance, in the case of Brogden v. Metropolitan Railway Company (1877), it was held that conduct could be sufficient to establish an implied contract. Although this is a UK case, its principles are applicable in Indian contract law through precedents and legal interpretations.
- Case Law 2: Bangladesh Export Import Co. Ltd. v. Santi Sagar Textile Mills (1995)
In this case, the court recognized an implied contract based on the conduct of the parties. The conduct and the circumstances surrounding the transaction were such that they indicated the existence of a contract, even though there was no written or verbal agreement.
Key Considerations in Implied Contracts
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Intention to Create Legal Relations
The parties’ actions must clearly indicate their intention to enter into a contractual relationship. Mere casual or social arrangements are insufficient to form an implied contract.
Example: Friends discussing a potential business idea over dinner does not form an implied contract unless their actions clearly show an intention to be legally bound.
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Reasonable Expectation of Payment
For implied-in-fact contracts, there must be a reasonable expectation of payment or consideration for the services or goods provided.
Example: If a person mows their neighbor’s lawn without being asked, there is no implied contract as there was no reasonable expectation of payment.
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Unjust Enrichment
In quasi-contracts, the key factor is preventing unjust enrichment. The law imposes an obligation to ensure fairness and prevent one party from being unjustly benefited at the expense of another.
Example: If a person receives a shipment of goods they did not order and uses them, they are obligated to pay for the goods to prevent unjust enrichment.
Advantages:
- Flexibility:
Implied contracts allow for flexibility in situations where formal agreements are impractical.
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Justice and Fairness:
They ensure justice and fairness by preventing unjust enrichment and ensuring that parties fulfill their reasonable expectations.
Challenges:
- Ambiguity:
The lack of explicit terms can lead to ambiguity and disputes over the scope and obligations of the contract.
- Proof:
Demonstrating the existence of an implied contract can be challenging, as it relies on interpreting actions and circumstances.
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