This article is written by Arava Monisha of 3rd semester of Damodaram Sanjivayya National Law University, Visakhapatnam, Andhra Pradesh, an intern under Legal Vidhiya
ABSTRACT
The doctrine of implied contracts, a component within contract law, negotiates the complex space between explicit agreements and tacit understandings. Implied contracts originate from the actions and situations of the involved parties, providing legal solutions in cases where formal agreements might be lacking. This article delves into the “two primary categories of implied contracts implied-in-fact and implied-in-law (quasi-contracts)” and clarifies the legal principles guiding their establishment. With an emphasis on mutual agreement and the prevention of unjust enrichment, the doctrine of implied contracts materializes in various real-world scenarios, spanning service-based transactions to inadvertent deliveries. As a dynamic legal concept, it mirrors the adaptability of the law to the intricacies of human interactions, ensuring fairness and justice in contractual relationships.
Keywords:
Doctrine, Implied, Contracts, Negotiate, Quasi, Dynamic, Parties, Unjust, Agreement, Mutual, Fairness.
INTRODUCTION
“An implied contract arises when two or more parties lack a written agreement, yet legal obligations are established based on their conduct or situation to uphold fairness. Two distinct types of implied contracts exist: those implied in fact and those implied in law.”
Although documenting contracts is advisable, the formation of a legally binding agreement does not invariably demand a written record. In cases where parties fail to formalize their commitments through documented contracts, the law steps in to acknowledge and enforce obligations inferred from their conduct or circumstances. This doctrine highlights the legal system’s adaptability to the dynamic nature of human interactions, providing a mechanism to rectify situations where the absence of a clear agreement might lead to injustice. This article delves into the complexities of the doctrine of implied contracts, exploring its legal underpinnings, various types, and practical applications. By navigating this legal landscape, we gain insights into how the law adjusts to ensure fairness and equity in contractual relationships, even in the absence of explicitly outlined terms in written agreements.
IMPLIED CONTRACTS
While the ICA (Implied Contracts Act) does not explicitly provide a definition for the term “implied contract,” it falls within the scope of Section 9. This section specifically characterizes an “implied contract” as a contractual arrangement where the proposal and acceptance are inferred through means other than verbal expressions. Implied contracts commonly arise in social or business interactions, where an implicit understanding exists that compensation will follow services rendered or specific obligations will be fulfilled. The creation of an implied contract hinges significantly on the context and the relationship dynamics between the parties involved.
For example, envision a situation where an individual consistently visits a barbershop for a haircut. Upon receiving the service, it is anticipated that the customer will remit payment. In this scenario, despite the absence of a documented or explicitly stated agreement regarding payment, an implied fulfilment of contractual responsibilities takes shape through the actions of both parties[1]
In the legal case Montz v. Pilgrim Films Television Inc NBC, writer Larry Montz submitted several TV show ideas to NBC, all of which were rejected. However, a few years later, NBC produced a show titled Ghost Hunters, which Montz believed closely resembled one of his submitted ideas. Consequently, he filed a lawsuit against NBC, alleging copyright infringement and contending that an implied contract existed between them, warranting compensation for the use of his ideas.
Initially, Montz did not prevail in the case. Nevertheless, a subsequent court overturned the decision. This court determined that, even in the absence of a written contract, an implied contract arises when a writer submits work. This implies that the party receiving the work cannot utilize it without fairly compensating the creators.[2]
Implied In-Fact Contracts
“An implied in-fact contract” establishes a mutual obligation between parties based on factual circumstances. If the conduct or situation suggests an arrangement or understanding that creates a commitment, the law recognizes the existence of an implied in-fact contract.
Consider a scenario where your neighbour engages you to cut the grass in his yard every Friday during the summer. After mowing for the first three weekends and receiving payment each Saturday morning, your neighbour fails to pay you on the fourth Friday. Despite no written agreement, the law would infer an implicit contract, obligating your neighbour to compensate you for your services. The past behaviours of involved individuals indicate an agreement, and your neighbour benefits from your work. Courts assess the sequence of behaviours between parties to ascertain the existence of a contract. In this case, the consistent payment for your services over three consecutive Saturdays implies an ongoing implied in-fact contract for continued performance and compensation.[3]
n the legal matter of Haji Mohd. Ishaq vs. Mohd. Iqbal and Mohd. Ali & Co,[4] the plaintiff supplied certain goods to the defendant at the behest of an intermediary. The defendant unequivocally accepted the goods and made a partial payment to the plaintiff. Consequently, a legal obligation to pay the outstanding balance was recognized. The Supreme Court, in its judgment, determined that the defendant’s actions, including the acceptance of goods and the absence of any repudiation in response to numerous letters and telegrams from the plaintiff demanding payment, constituted a direct contract. This contractual arrangement, known in law as an implied contract by conduct, was established through the defendant’s behaviour and acceptance of the goods.[5]
Implied At-Law Contracts
In an “implied at-law contract”, The legal system mandates the obligation to fulfill a contract and compels adherence, even if it goes against an individual’s volition, when circumstances suggest that one party would be unfairly benefited without this remedy. This type of contract allows for restitution for services rendered, even in the absence of any effort by the parties to formalize an agreement.
For example, if someone chokes on a meal in a restaurant, and a nearby doctor performs the ‘Heimlich maneuver’ to save them, the doctor sends a medical bill for the life-saving intervention. The law recognizes an implied at-law arrangement to prevent unfair enrichment, obliging the individual to pay the doctor a reasonable amount for the services rendered, even without a formal agreement.[6]
In the case of Upton-upon-Seven RDC vs. Powel[7], a fire erupted at the defendant’s residence. Believing he was entitled to the complimentary services of the Upton Fire Brigade, the defendant called for their assistance. The brigade successfully extinguished the fire. Subsequently, it was revealed that the defendant’s house did not fall within the free services zone of Upton, leading Upton to seek compensation for the services rendered. The court, in its ruling, emphasized that the crux of the matter was the defendant’s desire for Upton’s services, his explicit request for such services, and Upton’s subsequent provision of those services in response to the request. As a result, the court concluded that the services were provided based on an implied promise to pay for them.[8]
LEGAL PRINCIPLE GOVERNING IMPLIED CONTRACTS
Mutual assent: It is a crucial element in implied contracts, despite its absence in explicit terms. Courts scrutinize the conduct of the parties to ascertain whether there is an implicit agreement and an intention to be legally obligated in a contractual relationship.
Offer and Acceptance: In implied contracts, the articulation of an offer and its acceptance may not be overtly verbalized, as is customary in express contracts. Instead, these elements are derived from the behaviour or circumstances of the parties involved. For instance, if one party consistently delivers a service and the other party consistently accepts and benefits from it without objection, the existence of an implied offer and acceptance is inferred. The court scrutinizes the conduct of the parties to infer a mutual understanding regarding the contractual relationship.
Consideration: Within the realm of implied contracts, consideration involves the exchange of something valuable between the parties, even if it is not expressly specified. This exchange may manifest as services, goods, or benefits provided by one party in return for the actions or commitments of the other party. In implied contracts, consideration is often deduced from the ongoing relationship and the reciprocal conduct of the parties. For example, if an individual consistently performs a service, the consideration may be the implicit commitment to remunerate for that service.[9]
CASE LAWS
K.P. Chowdhary vs. State Of Madhya Pradesh[10]
The court justified its stringent stance by arguing that allowing implied contracts between the government and other parties would render Article 299(1) ineffective. According to the court, if individuals could claim implied contracts with the government, it would undermine the requirement for contracts to be performed in the manner specified by Article 299(1). The court acknowledged, however, that there may be situations where strict adherence to all conditions in Article 299 is not always feasible.
The court defended its strict position by expressing concern that permitting implied contracts between the government and private individuals would undermine the purpose of Article 299(1). The fear was that individuals could evade the requirements of Article 299(1) by arguing that an implied contract, inferred from the circumstances, existed. Despite this strict stance, the court also recognized that there might be cases where it is not practical to insist on strict compliance with all conditions outlined in Article 299. It noted that numerous government officials routinely enter into various contracts with private parties, often of a minor nature.
In the specific case discussed, it was argued that the ‘implied contract’s’ resulted from the appellant accepting the auction conditions. The court held that such an implied contract did not fall under the purview of Article 299, as this article specifically pertains to contracts that must be in writing, and an implied contract, by its nature, does not require written documentation. Ultimately, the Full Bench concluded that Section 155(b) of the Madhya Pradesh Land Revenue Code, 1959 was applicable to this implied contract case, and the amount could be recovered as arrears of land revenue.[11]
Narandas Sunderlal Rathi vs. Ghanshyam Lal and Others
The central question is whether there existed an implied contract. The learned Judge did not dispute the presence of an implied contract but held the opinion that an implied contract should be adequate. The key issue is whether such an arrangement was implicitly understood. It is reasonable to assume that in business partnerships, verbal contracts may have intentionally omitted certain terms. If verbal contracts are acceptable, there is no apparent reason why an implied contract should not be recognized.[12]
Shaboo Majee and Others vs. Noraai Mollha
In situations where one person asks another for money, there is an implicit contract to repay the sum. Similarly, if someone requests another to act as a custodian and the latter complies, an implied contract is established. In such cases, the person making the request is obligated to indemnify and reimburse the custodian for any sums paid. The case of Rambux Chittangeo v. Modoosoodhun Paul Chowdhry supports this notion, establishing the existence of an implied contract.[13]
Sheikh Meherulla vs. Sariatulla
The Defendant expressed an intention to indemnify the Complainant for a bail bond, even though the bond itself is not on record. Despite this, the court believes there was an implied contract to reimburse the Plaintiff, and the Plaintiff is entitled to succeed on such an implied contract. The argument against such an implied contract suggests that it could not be legitimately applied, even if it existed. The terms of the collateral bond, a copy of which was produced, are relevant to this case.[14]
Achhaibar Singh vs. Rajamti and Others
In situations where the lender possesses a conditional contract, it may not be binding on a future transferor of redemption equity. The case in question need not be extensively debated, as the obligation to pay public charges arises following the mortgage. The implied contract allowing the borrower to sell the mortgaged property for the benefit of the mortgagee can be exercised by any successor in interest. It is emphasized that this clause would have no effect if only the mortgage agent in person were involved.[15]
CONCLUSION
Implied contracts, formed not through explicit words but through the actions, behaviour, or circumstances of the parties, advocate for the fulfilment of reasonable expectations arising from conduct, even in the absence of a clear agreement. This enriches contract law by addressing situations where parties may not have foreseen every detail or explicitly outlined their obligations. It establishes a versatile framework that ensures fairness and justice in contractual dealings, allowing the law to adapt to the subtleties of specific situations.
Nevertheless, the application of the doctrine of implied contracts necessitates careful consideration of specific facts and context in each case. Courts must navigate a delicate balance between the flexibility required in contract law and the preservation of the principle of freedom of contract. This equilibrium ensures that the law remains adaptable to evolving social norms and expectations while respecting individuals’ autonomy to define their contractual relationships.
In summary, the doctrine of implied contracts serves as a pivotal instrument in contract law, bridging gaps in explicit agreements and accommodating the dynamic nature of human interactions. It exemplifies the law’s commitment to fairness and equity, recognizing that parties may incur obligations through their actions and circumstances. As with any legal principle, its application demands a thoughtful examination of facts and context to achieve a just and equitable outcome.
[1] Legal Match Law Library, https://www.legalmatch.com/law-library/article/what-is-an-implied-contract.html (Accessed: 28 December 2023).
[2] Juro, https://juro.com/learn/implied-contract (Accessed: 28 December 2023).
[3] Lex life India, https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/ (Accessed: 28 December 2023).
[4] Haji Mohd. Ishaq vs. Mohd. Iqbal and Mohd. Ali & Co, 1978, 2, SSC 493: AIR 1978 SC 798.
[5] Law, Lawyers and Legal Resources, https://www.legalserviceindia.com/legal/article-7526-implied-terms-in-a-contract.html (Accessed: 28 December 2023).
[6] Lex life India, https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/ (Accessed: 28 December 2023).
[7] Upton-upon-Seven RDC vs. Powel in 1942 (1) All ER 220
[8] Law, Lawyers and Legal Resources, https://www.legalserviceindia.com/legal/article-7526-implied-terms-in-a-contract.html (Accessed: 28 December 2023).
[9] Lex life India, https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/ (Accessed: 28 December 2023).
[10] K.P. Chowdhary vs. State Of Madhya Pradesh, 1967 AIR 203, 1966 SCR (3) 919.
[11] Lex life India, https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/ (Accessed: 28 December 2023).
[12] Lex life India, https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/ (Accessed: 28 December 2023).
[13] Ibid.
[14] Lex life India, https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/ (Accessed: 28 December 2023).
[15] Ibid.
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