DOCTRINE OF IMPLIED CONTRACT

This article is written by Jeevana H Reddy of BBA LLB (Hons.) of Alliance University, Bangalore, Karnataka, an intern under Legal Vidhiya

ABSTRACT

The doctrine of implied contract is a fundamental principle in Contract Law which encompasses the notion that contractual obligations may arise from the actions, conduct, or circumstances of the parties involved, rather than solely from explicit written or verbal agreements. Implied contracts are legally binding and enforceable in court. Understanding the doctrine of implied contract is paramount for legal practitioners, scholars, and individuals navigating through contractual relationships, as it underscores the complexities and nuances inherent in contract law and serves as a cornerstone for upholding fairness and justice in contractual dealings. This article elucidates the significance of the doctrine of implied contract in legal practice and its implications for contractual relationships. This article further, delves into the two primary types of implied contracts i.e., implied-in-fact contracts and implied-at-law contracts which is also known as quasi-contracts. Further, the article also discusses about the advantages and disadvantages and explains the concept with the help of case laws and relevant examples.

Keywords

Contract Law, Doctrine of Implied contract, implied in fact contracts, implied at law contracts, contractual obligations.

INTRODUCTION

The Contract Law, as the bedrock of commercial and interpersonal relationships, traditionally revolves around explicit agreements meticulously crafted through written or verbal communication. However, there is a space within this traditional interpretation where contractual duties emerge subtly, driven not by clear language but by the behaviour, circumstances, or acts of the parties. This nuanced facet of contract law is encapsulated within the doctrine of implied contracts.

Implied contracts, though lacking the formalities of their explicit counterparts, wield significant influence in legal discourse. The doctrine of implied contract suggests that contractual obligations may materialize implicitly, propelled by the inherent fairness of interactions or the conduct of the parties involved. This variation from the rigidity of explicit agreements underscores the dynamic nature of contractual relationships and the fluidity with which they evolve.

The doctrine of implied contract refers to the legal principle that allows courts to infer the existence of a contract between parties based on their actions, conduct, or circumstances, rather than relying on an explicit agreement. This doctrine recognizes that parties may form a contractual relationship through their behaviour, even if they haven’t formally outlined the terms of the contract.

Furthermore, Under this doctrine, courts may imply the existence of a contract when it is necessary to uphold fairness and justice between the parties involved. Implied contracts can arise in various situations, such as when one party performs services for another without a written agreement or when parties engage in conduct that suggests mutual assent to contractual terms.

Therefore, it is important to note that the specific requirements for finding an implied contract may vary depending on the jurisdiction and the context of the case. Courts typically consider factors such as the intentions of the parties, their conduct, the nature of the relationship, and any relevant industry customs or practices.

The doctrine of implied contract provides a legal framework for enforcing agreements that may not be explicitly stated but are nonetheless implied from the conduct or circumstances of the parties involved.

WHAT IS THE DOCTRINE OF IMPLIED CONTRACT?

Under the Indian Contract Act, 1872 it does not specifically define the term “implied contracts” however, the essence can be drawn expressly under Section 9 of the said Act[1]. Further, the doctrine of implied contracts pervades various aspects of legal practice, from commercial transactions to consumer disputes. Through meticulous examination of case law and legal precedent, courts interpret the nuances of implied contracts, striving to uphold the underlying principles of fairness and justice. Understanding the intricacies of implied contracts is indispensable for legal practitioners and individuals alike, offering insights into the complexities of contract law and the multifaceted nature of contractual relationships.

TYPES OF IMPLIED CONTRACT

Within the realm of implied contracts, two principal manifestations emerge: implied-in-fact contracts and implied-at-law contracts, often referred to as quasi-contracts. Implied-in-fact contracts, arising from the conduct and actions of the parties, embody an unspoken consensus on the terms of the agreement. Further, implied-at-law contracts is grounded on principles of equity, are judicially imposed to rectify situations of unjust enrichment, irrespective of the parties’ express intentions.

There are two main types of implied contracts, namely:

1. Implied in Fact Contract:

This type of contract is inferred from the conduct, actions, or circumstances of the parties involved. Although not explicitly stated, the parties’ behaviour implies an agreement and mutual assent to the terms of the contract. Further, this type of contract arises or forms when the parties’ behaviour implies an agreement, typically through their actions, conduct, or course of dealing. It’s crucial to note that there must be mutual assent or meeting of the minds between the parties for an implied-in-fact contract to exist. The implied in fact contracts are enforceable by law, just like explicit contracts. Courts will examine the conduct and actions of the parties to infer the terms of the agreement and determine the parties’ intentions.

 Example: Suppose you take your car to a mechanic for repairs, and they begin working on it without discussing specific terms or signing a written contract. In this scenario, an implied in fact contract may be formed, where you agree to pay for the repair services provided by the mechanic, and the mechanic agrees to perform the repairs.

Example: If you hire a contractor to renovate your kitchen and they begin work without signing a written contract, an implied-in-fact contract may be formed based on their actions and your agreement to pay for the services.

2. Implied at Law Contract (Quasi-Contract):

An implied at law contract, also known as a quasi-contract, is not based on the actual intentions or agreement of the parties but rather imposed by the law to prevent unjust enrichment or unfairness. Further, quasi-contracts are created by courts to remedy situations where one party receives a benefit at the expense of another party without a valid contractual agreement. These contracts are not voluntary agreements but are imposed to prevent one party from being unjustly enriched. The Courts enforces quasi-contracts to ensure fairness and equity between the parties involved. The aim is to restore the injured party to the position they would have been in had no unjust enrichment occurred.

Example: If you mistakenly overpay someone for a service or goods they didn’t provide, the law may imply a contract (quasi-contract) requiring them to return the overpayment. This is to prevent them from benefiting unfairly at your expense.

Therefore, understanding these two types of implied contracts can help clarify how contractual obligations can arise even in the absence of explicit agreements, based on either the conduct of the parties or legal principles of fairness and equity.

PRINCIPLE OF UNJUST ENRICHMENT AND QUANTUM MERUIT

The principle of unjust enrichment and quantum meruit are legal principles that aim to address situations where one party unfairly benefits at the expense of another.

Unjust Enrichment

The unjust enrichment occurs when one party receives a benefit or advantage at the expense of another party without a valid legal justification or without providing fair compensation. In essence, it prevents someone from profiting or gaining an advantage unfairly or unjustly. Further, in order to establish unjust enrichment, three elements must typically be present, namely:

• Enrichment: One party must have received a benefit or gained something of value.
• Deprivation: The other party must have suffered a loss, incurred an expense, or otherwise been deprived of something of value.
• Absence of Justification: There must be no valid legal reason or justification for the enrichment of one party at the expense of the other.

Furthermore, the Courts may order restitution or compensation as remedy to restore the deprived party to their original position before the unjust enrichment occurred. The aim is to prevent the unjustly enriched party from retaining benefits obtained unfairly.

Quantum Meruit

The quantum meruit is a Latin term meaning “as much as deserved” or “as much as earned.” It is a legal doctrine that allows for the recovery of the reasonable value of services rendered or goods provided under an implied contract, even when no express contract exists. The quantum meruit applies when one party performs services or provides goods for another party with the reasonable expectation of being paid, but no formal agreement regarding compensation is in place. The party who rendered the services or provided the goods can seek payment based on the fair and reasonable value of their contribution. Further, Courts typically consider various factors when determining the value of services or goods under quantum meruit, including:

• The nature and extent of the services rendered or goods provided.
• The prevailing market rates or customary charges for similar services or goods.
• Any special circumstances or agreements between the parties that may affect compensation.

The remedy under quantum meruit is typically an award of monetary damages equivalent to the reasonable value of the services rendered or goods provided. This remedy aims to prevent unjust enrichment by ensuring that the party who received the benefit compensates the provider fairly.

The principle of unjust enrichment and quantum meruit are legal principles aimed at preventing unfair advantage and ensuring fair compensation in situations where there is no valid contractual agreement or where one party has been unjustly enriched at the expense of another. They provide remedies to restore equity and prevent one party from benefiting unfairly at the expense of another.

ADVANTAGES AND DISADVANTAGES OF THE DOCTRINE OF IMPLIED CONTRACT

The doctrine of implied contract offers both advantages and disadvantages, depending on the context in which it is applied.

ADVANTAGES

• Filling Gaps

 Implied contracts help fill gaps in agreements where terms may not have been explicitly discussed or written down. This allows parties to establish contractual relationships even when formal documentation is lacking.

• Flexibility

Implied contracts provide flexibility in contractual arrangements, allowing parties to infer terms based on their conduct, course of dealing, or industry customs. This flexibility can be beneficial in situations where parties have not fully negotiated all terms but still intend to be bound by an agreement.

• Efficiency

Implied contracts can promote efficiency by avoiding the need for extensive negotiations or formal documentation. Parties can enter into contractual relationships more quickly and with less administrative burden.

• Fairness

Implied contracts help ensure fairness and prevent unjust enrichment by requiring parties to fulfill their obligations even in the absence of an explicit agreement. This promotes equity and prevents one party from taking advantage of the other.

DISADVANTAGES

• Ambiguity

Implied contracts can be ambiguous, as the terms and obligations of the agreement may be inferred from the parties’ conduct or circumstances. This ambiguity can lead to disputes and uncertainty about the parties’ rights and responsibilities.

• Subjectivity

Determining the existence and terms of an implied contract often requires subjective interpretation of the parties’ actions and intentions. This subjectivity can lead to disagreements and differing interpretations, complicating the enforcement of implied contracts.

• Proof Requirement

Proving the existence of an implied contract can be challenging, particularly when there is limited or ambiguous evidence of the parties’ intentions. Courts may require clear and convincing evidence to establish the existence of an implied contract, which can pose challenges in litigation.

• Risk of Unintended Obligations

Implied contracts may impose obligations on parties that they did not anticipate or intend to assume. Parties may inadvertently create contractual relationships through their conduct, leading to unexpected legal consequences.

Therefore, while the doctrine of implied contract offers advantages such as flexibility and efficiency, it also poses challenges related to ambiguity, subjectivity, and proof requirements. Parties should carefully consider these factors when entering into agreements and seek legal advice to mitigate risks associated with implied contracts.

CHALLENGES UNDER THE DOCTRINE OF IMPLIED CONTRACT

While the doctrine of implied contract serves to fill gaps in agreements and ensure fairness between parties, however several challenges can arise in its application.

• Subjectivity

Determining the existence and terms of an implied contract often requires subjective interpretation of the parties’ actions, conduct, and intentions. This subjectivity can lead to disagreements and uncertainty about the existence or scope of the implied contract.

• Proof Requirement

Proving the existence of an implied contract can be challenging, particularly when there is limited or ambiguous evidence of the parties’ intentions. Courts may require clear and convincing evidence to establish the existence of an implied contract, which can pose challenges in litigation.

• Ambiguity

The circumstances surrounding implied contracts can be ambiguous, making it difficult to ascertain the precise terms and obligations of the agreement. Ambiguity in implied contracts can lead to disputes and litigation over the parties’ respective rights and responsibilities.

• Intentional Conduct

Distinguishing between conduct that implies mutual assent to a contract and conduct that is merely incidental or unintentional can be challenging. Parties may dispute whether their actions were intended to create a contractual relationship, leading to uncertainty and legal complexity.

• Variability in Jurisdiction

The principles governing implied contracts may vary across jurisdictions, leading to inconsistency in their application. Differences in case law, statutory provisions, and judicial interpretation can create challenges for parties seeking to enforce or defend against implied contracts.

• Remedies

Remedies for breaches of implied contracts may be limited or unclear, especially in cases where the terms of the agreement are not explicitly defined. Determining appropriate remedies for breaches of implied contracts can pose challenges for courts and parties involved in litigation.

• Equitable Considerations

Implied contracts are often rooted in principles of equity and fairness, which can introduce complexities in their enforcement. Courts must balance competing interests and considerations of fairness when applying the doctrine of implied contract, leading to nuanced outcomes.

Therefore, in addressing these challenges requires careful consideration of the facts and circumstances surrounding the alleged implied contract, as well as a thorough understanding of applicable legal principles and precedents. Parties seeking to rely on or challenge the existence of an implied contract should consult with legal professionals to navigate these complexities effectively.

CASE LAWS

1. In this landmark case of Wood v. Lucy, Lady Duff-Gordon[2]1917 case, the New York Court of Appeals held that an implied contract could be inferred from the parties’ course of dealing and conduct. The court ruled that the conduct of the parties indicated an intention to be bound by the terms of an agreement, even though the terms were not explicitly stated. This case is often cited for its influential reasoning on implied contracts and the obligation of good faith and fair dealing.
2. In the case of Sullivan v. O’Connor[3] 1925, the Massachusetts Supreme Judicial Court ruled that an implied contract could be inferred from the conduct and actions of the parties. The court held that if one party provides services or goods with the expectation of payment and the other party accepts the benefit of those services or goods, an implied contract may exist, obligating the recipient to compensate the provider.
3. Further, in the case of Williams v. Walker-Thomas Furniture Co.[4] 1965, the District of Columbia Court of Appeals ruled on the enforceability of implied contract terms. The court held that contractual terms could be implied to prevent unconscionable outcomes, such as unfair contract terms that disproportionately favored one party over the other.
4. In Union of India v. Raman Iron Foundry[5] 1974 case, the Supreme Court of India held that an implied contract could arise from the conduct and actions of the parties. The court ruled that if one party performs services or supplies goods with the expectation of payment and the other party accepts the benefit of those services or goods, an implied contract may exist, obligating the recipient to compensate the provider.

These cases represent just a few examples of how courts have applied the doctrine of implied contracts to resolve the disputes and enforce obligations between parties. The principles established in these cases continue to shape the development of contract law and guide the interpretation of implied contracts in various legal contexts.

CONCLUSION

In conclusion, the doctrine of implied contracts serves as a crucial mechanism within the contract law, allowing for the establishment of contractual relationships even in the absence of explicit agreements. By inferring the existence of agreements from the conduct, actions, or circumstances of the parties involved, implied contracts provide flexibility and fill gaps in contractual arrangements.

While implied contracts offer various advantages, including efficiency, flexibility, and the promotion of fairness and equity, they also present challenges such as ambiguity, subjectivity, and proof requirements. Parties must carefully consider these factors and seek legal guidance to mitigate risks associated with implied contracts effectively.

The doctrine of implied contracts serves as a fundamental mechanism within contract law, offering crucial flexibility and filling gaps in contractual arrangements. Implied contracts allow parties to establish binding agreements even when explicit terms are absent, promoting efficiency in negotiation and formation processes. Moreover, they play a pivotal role in safeguarding fairness and equity by preventing unjust enrichment and ensuring that parties fulfil their obligations.

Therefore, the doctrine of implied contracts plays a vital role in facilitating transactions, promoting fairness, and upholding the expectations of parties engaged in contractual relationships. Its application requires careful consideration of the parties’ intentions, conduct, and the surrounding circumstances, ensuring that equitable outcomes are achieved in accordance with legal principles and standards of fairness.

REFERENCES

1. AVATAR SINGH, CONTRACT AND SPECIFIC RELIEF, (Eastern Book Company 2022).
2. R.K. BANGIA, INDIAN CONTRACT ACT, (Allahabad Law Agency 2016).
3. Ritika Srivastava, The Doctrine of Implied Contracts, Legal Vidhiya, (Jan. 24, 2024),  https://legalvidhiya.com/the-doctrine-of-implied-contracts/.
4. Poonam Shekhawat, All you need to know about implied contracts in India, ipleaders,  (Nov. 23, 2021). https://blog.ipleaders.in/implied-contracts-in-india/#Definition_of_implied_contracts.
5. Megha Jain, Doctrine of Implied Contracts, The Legal Lock, (Nov. 28, 2022)  https://thelegallock.com/know-about-doctrine-of-implied-contract/#comments.   

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[1] The Indian Contract Act, 1872, § 9, No. 9, Acts of Parliament, 1872 (India).

[2] Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (1917).

[3] Sullivan v. O’Connor, 363 Mass. 579 (1973).

[4] Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965).

[5] Union of India v. Raman Iron Foundry, [1974] 3 S.C.R. 556.

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