This Article is written by Akash Singh Yadav of Dattopant Thengadi Law Institute, Veer Bahadur Singh Purvanchal University, Jaunpur Uttar Pradesh, an intern under Legal Vidhiya.
ABSTRACT
In law, implied contracts are important because they fill in the gaps when formal agreements aren’t present. They come about from people’s actions and situations and can give legal answers when there’s no official contract. There are two main types: implied-in-fact and implied-in-law contracts. This article explains how these contracts form and the rules that govern them. Implied contracts show up in many real-life situations, like when you get a service without agreeing on a price or when goods are delivered by mistake. They’re based on mutual agreement and make sure no one unfairly benefits. Implied contracts change with how people interact, keeping fairness and justice in business deals.
KEYWORDS
Implied Contracts, agreement, contract, Indian Contract Act, consideration, valid, legal obligation, compensation, unjust enrichment.
INTRODUCTION
In India, contract laws are established by the Indian Contract Act of 1872 (referred to as the ICA), which is based on common law principles. The legitimacy of implied contracts is acknowledged under common law, and this is upheld in India as well. Section 9 of the ICA recognizes implied contracts as valid and legal, stating that a commitment can be inferred when a proposal or acceptance is communicated through actions rather than words[1]. Implied contracts are significant because not all agreements can be written down, especially in everyday situations.
Although the Indian Contract Act, 1872, does not explicitly mention “implied contracts,” it is indirectly addressed in Section 9 of the same Act, which deals with implied assurances[2].
Section 9 of the Indian Contract Act can be understood as implying that an implied contract is a type of agreement where one party makes an offer and the other party accepts it through actions instead of verbal or written communication. The concept of implied contracts relates to a legal principle in contract law, suggesting that a contract can be inferred from the behavior, circumstances, or actions of the parties involved, without needing to be explicitly expressed in written or spoken words. Even when an agreement is not clearly stated, implied contracts are still recognized, provided there is a reasonable assumption of mutual consent between the parties.
However, because implied contracts are assessed based on conduct and actions, they raise several concerns. The aim of this research is to explore the legal issues surrounding implied contracts. This research will first delve into the concept and types of implied contracts, followed by challenges regarding the existence of such contracts.
WHAT IS AN IMPLIED CONTRACT?
An implied contract is a kind of agreement that isn’t directly stated or written down but still legally binding. It happens when people act in a way that suggests they agree to something or when certain situations make it clear there’s an agreement. Implied contracts aren’t as common as express contracts, which are usually written down or spoken agreements.[3]
In other words, an implied contract happens when people don’t directly say they agree to something but their actions or the situation show that they do. This creates a legal agreement that courts recognize. For example, if an employer hints or acts in a way that suggests certain conditions for continued employment, it can create an implied contract.[4]
The Indian Contract Act doesn’t directly mention “implied contract,” but it talks about implied promises in section 9. Section 9 suggests that implied contracts involve agreements where the offer and acceptance aren’t explicitly stated but are inferred from actions. So, in implied contracts, people agree to something without actually saying it, relying on actions instead. This understanding comes from interpreting section 9 of the Indian Contract Act.[5]
In the case of Montz v. Pilgrim Films Television Inc NBC[6], Larry Montz, a writer, sent TV show ideas to NBC, but they rejected them. Later, NBC produced a show called Ghost Hunters, which Montz believed was like one of his ideas. Montz sued NBC for copying his work, saying they had an agreement to pay him for his ideas.
At first, Montz lost the case, but another court later said there was an unwritten agreement between Montz and NBC when he sent his ideas. This meant NBC couldn’t use his ideas without paying him.[7]
THE ESSENTIAL ELEMENTS OF AN IMPLIED CONTRACT[8]
1. Mutual Agreement: Even if not explicitly stated, there must be a clear understanding between the parties involved that a contract exists. This understanding is often inferred from their actions or the circumstances surrounding their dealings.
2. Legal Obligation: The inferred agreement must create a legal obligation for the parties. This means that the actions or circumstances suggest that the parties intended to enter into a legally binding contract.
3. Avoiding Unjust Enrichment: The law recognizes implied contracts to prevent one party from unfairly benefiting at the expense of another. This is particularly relevant in cases of implied-in-law contracts.
4. Benefit and Detriment: Typically, one party receives a benefit while the other incurs a detriment, which further indicates the existence of a contractual relationship.
These elements collectively assist in identifying and validating an implied contract, ensuring that agreements based on actions or circumstances are acknowledged and can be enforced under the law.
DIFFERENT KINDS OF IMPLIED CONTRACTS?
Section 9 of the Indian Contract Act identifies two kinds of implied contracts: those arising from facts and those arising from the law.
Implied contracts by fact occur when the actions or conduct of the parties indicate agreement to the terms of the contract.
Implied contracts by law, on the other hand, occur when legal rules obligate both parties to a contract, even if there wasn’t explicit agreement, based on the circumstances.
IMPLIED CONTRACT IN FACT[9]
An implied-in-fact contract creates a duty between parties based on their actions and circumstances. If their behavior or situation suggests they had an understanding that created a duty, the law will assume there was an implied contract.
For example, let’s say your neighbor hires you to mow their lawn every Friday for the entire summer. You do this for the first three Fridays and get paid each time on Saturday morning. On the fourth Friday, you mow the lawn, but your neighbor doesn’t pay you when you go to their house on Saturday morning. Despite no written agreement, the law will likely determine that you and your neighbor have a contract. This is an implicit contract. Your neighbor must pay you since you’ve held up your end of the deal, there was an agreement based on past actions, and your neighbor benefited from your work.
Courts look at the history of actions between parties to decide if there’s a contract. If your neighbor consistently paid you for the previous three Fridays, it suggests an ongoing agreement or an implied-in-fact contract for continued services and payment.
In the case of Haji Mohd. Ishaq vs. Mohd. Iqbal and Mohd. Ali & Co[10]., the person who brought the case (the plaintiff) gave some things to the person being sued (the defendant) with the help of someone else in between. The defendant clearly agreed to take the things and paid some of the money owed to the plaintiff. Because of this, the defendant had a legal duty to pay the rest of the money owed. The Supreme Court decided that the defendant’s actions, like taking the things and not saying they didn’t want them after the plaintiff asked for payment many times, made a direct agreement. The defendant’s actions and accepting the things made this agreement, which is called an implied contract by how they acted[11].
IMPLIED CONTRACT IN LAW[12]
An implied-in-law contract is when the law creates a duty to perform a contract and enforces it, even if one party doesn’t agree, to prevent unfairness. In this type of contract, one party can get compensation for services provided, even if there was no attempt by either party to make an agreement.
For example, someone chokes on their meal in a restaurant, and a doctor nearby saves them by performing the Heimlich maneuver. Later, the doctor sends a bill for their medical services to the person they saved. Even if the person didn’t agree to pay the doctor, the law may still require them to pay. This is because if they didn’t, the doctor’s services would unfairly benefit them. The law steps in with an implied-in-law arrangement to make sure the person pays a fair amount for the services provided.
In the Upton-upon-Seven RDC vs. Powel[13] case, a fire occurred at the defendant’s house. The defendant called the Upton Fire Brigade for help, thinking they were entitled to it. The fire department put out the fire. Later, it was found that the defendant’s house wasn’t covered by the free services of the Upton Fire Brigade. Upton wanted to be paid for the services they provided. The court focused on the defendant asking for Upton’s help and Upton giving the help asked for. The court decided that because of this, the defendant impliedly agreed to pay for the services[14].
FEATURES OF THE DOCTRINE OF IMPLIED CONTRACT[15]:
1. Mutual Assent: Even though it’s not clearly stated, mutual agreement is very important. Courts look at how the parties behave to see if they both agree and intend to be legally bound by the contract.
2. Offer and Acceptance: Unlike in express contracts where offers and acceptances are usually spoken, in implied contracts, they’re understood from how the parties act or the situation they’re in. For example, if one party keeps providing a service and the other keeps accepting it without any issues, it implies there’s an offer and acceptance. The court looks at how the parties behave to figure out if they both agree on the contract.
3. Consideration: In implied contracts, consideration means both parties exchange something valuable, even if they don’t explicitly say what it is. This exchange can be services, goods, or benefits given by one party in return for the actions or promises of the other. In these contracts, consideration is often seen from the ongoing relationship and how both parties act. For instance, if someone keeps providing a service, the consideration might be the promise to pay for it, even if it’s not said out loud.
ADVANTAGES & DISADVANTAGES OF IMPLIED CONTRACTS
ADVANTAGES[16]
- Flexibility and Negotiation: Implied contracts let people talk and agree in a flexible way because they don’t have strict rules. This flexibility can help find solutions and adjust to changes easily.
- Oral and Personal Agreements: Implied contracts can make sure promises made by talking or in person are kept. This is helpful when making informal deals or personal plans where writing everything down isn’t possible.
- Remedies for Breach: If one person doesn’t do what they promised in an implied contract, the other person can take legal action. They can go to court for not keeping the agreement and ask for money to cover any losses.
DISADVANTAGES[17]
- Burden of Proof: Showing that there’s an implied contract in court can be tough. Since the agreement isn’t written down, proving it exists might be hard, especially if one person says it doesn’t.
- Ambiguity and Disputes: Because implied contracts don’t have clear rules written down, people might misunderstand each other and argue. Without clear terms, disagreements can happen, leading to legal fights.
- No Written Proof: Implied contracts aren’t written down, so it’s easier for someone to ignore or disagree with what was agreed upon. This can make it more likely for someone to break the contract and harder to make sure both sides follow through.
CASE LAWS[18]
In the case of K.P. Chowdhary vs. State Of Madhya Pradesh[19], the court held a strict view regarding implied contracts involving the government. They argued that allowing implied contracts between the government and others would undermine Article 299(1) of the Constitution, which outlines specific requirements for government contracts. However, the court also acknowledged that strict compliance with all conditions in Article 299(1) might not always be possible.
The court reasoned that if implied contracts were allowed, individuals could avoid the requirements of Article 299(1) by claiming an implied contract instead. They noted that many government officials regularly enter into various contracts with private parties, often without detailed documentation.
In this specific case, the court found that an implied contract arose from the appellant’s acceptance of auction conditions. They determined that such an implied contract was not covered by Article 299 of the Constitution, as it pertains to contracts that must be in writing, whereas implied contracts are not typically written agreements. Ultimately, the court ruled that Section 155(b) of the Madhya Pradesh Land Revenue Code applied to this implied contract, allowing for the recovery of the amount owed as arrears of land revenue.
In the case of Kadool Industries vs. State Of Tamil Nadu[20], the contract for the sale of gunny bags was implied, and the appellant’s turnover was calculated accordingly. Interestingly, it was the appellant who challenged the order of the Appellate Assistant Commissioner, which could have led to an inference against them. However, the Tribunal found that there was no implicit agreement. This decision was then challenged in the High Court, which found that there was indeed an implicit agreement to sell the gunny bags. The appellant has now appealed to us with special permission. The main issue is that the Tribunal has reached a conclusion based on the facts.
In the case of Narandas Sunderlal Rathi vs. Ghanshyam Lal and Others, the question of whether there was an implied contract remains unresolved. The learned Judge did not argue against the existence of an implied contract, but rather took the view that an implied contract could suffice. The key question is whether such an arrangement was implied. It appears to me that when parties enter into a business together, agreements are usually put in writing, and any omissions from the new by-law were likely intentional. If a verbal contract is all that’s needed, there’s no reason why an implied contract shouldn’t suffice.
In the case of Shaboo Majee and Others vs. Noraai Mollha, if someone asks another person to pay money for them or to act as their custodian and the other person agrees and pays, there is an implied contract for the person who requested the payment to repay or indemnify the one who paid on their behalf. This principle was affirmed in the case of Rambux Chittangeo v. Modoosoodhun Paul Chowdhry. However, there is no evidence to prove that the defendant in this case entered into such an implied contract.
In the case of Sheikh Meherulla vs. Sariatulla, although the bail bond itself is not on record, the defendant indicated an agreement to indemnify the complainant for the bail bond. The court believed there was an implied contract for the plaintiff to be reimbursed and ruled in favor of the plaintiff. However, the defendant argued that there was no such implied contract and even if there was, it couldn’t be enforced without proper documentation. The terms of the collateral bond, if available, would be crucial in determining the validity of the implied contract.
In Achhaibar Singh vs. Rajamti and Others[21], it was stated that a lender isn’t bound by a conditional contract, which might not be valid for future transfers of the property. However, the obligation to pay public charges arises after the mortgage, and any implied contract allows the borrower to sell the mortgaged property for their benefit. This right can be inherited by any successor in the mortgagee’s interest, not just the mortgage agent personally.
In Hanwant Rai vs. Chandi Prasad and Others[22], it was established that an implied covenant or contract concerning the title of the land is inherent with the land itself. Therefore, even if an express contract doesn’t mention it, the parties can still benefit from the implied contract outlined in Section 55, Sub-section 2 of the Transfer of Property Act. The absence of the implied contract in the agreement itself doesn’t affect its applicability.
CONCLUSION
In conclusion, implied contracts play a vital role in Indian contract law, allowing for agreements to be inferred from actions and circumstances rather than explicit verbal or written communication. Section 9 of the Indian Contract Act, 1872, indirectly addresses implied contracts by recognizing agreements where offers and acceptances are inferred from actions, creating legally binding commitments.
Implied contracts are categorized into two types: implied-in-fact contracts and implied-in-law contracts. Implied-in-fact contracts arise from the actions and conduct of the parties, indicating an understanding that creates legal obligations. On the other hand, implied-in-law contracts are enforced by the law to prevent unfairness, even without explicit agreement, ensuring compensation for services provided.
Key elements such as mutual agreement, legal obligation, avoidance of unjust enrichment, and consideration are essential in identifying and validating implied contracts. Despite their advantages in providing flexibility and enforcing remedies for breach, implied contracts also pose challenges such as the burden of proof and potential disputes due to ambiguity.
Case laws illustrate the application of implied contracts in various scenarios, emphasizing the importance of analyzing parties’ actions and circumstances to determine the existence of contractual obligations. While implied contracts may not always be explicitly documented, they hold significance in ensuring fairness and upholding legal obligations in contractual relationships.
REFERENCES
- https://corporatefinanceinstitute.com/resources/valuation/implied-contract/
- https://www.shiksha.com/online-courses/articles/implied-contract-definition-types-and-examples/
- https://www.ezylegal.in/blogs/what-is-section-9-of-the-indian-contract-act
- https://juro.com/learn/implied-contract#
- https://www.concord.app/blog/implied-contract/
- https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/
- https://www.legalserviceindia.com/legal/article-7526-implied-terms-in-a-contract.html
- https://tax2win.in/tax-glossary/implied-contract
[1] Indian Contract Act, 1872, § 9,No. 9, Acts of Parliament, 1872 (India).
[2] Ibid 1
[3] Corporate Finance Institute, https://corporatefinanceinstitute.com/resources/valuation/implied-contract/ (last visited April 20,2024)
[4] Chanchal Aggarwal, Implied Contract: Definition, Types, and Examples, SHIKSHA (April 12, 2024, 13:59), https://www.shiksha.com/online-courses/articles/implied-contract-definition-types-and-examples/
[5] Adv. Priyanka Sampathy, What is Section 9 of the Indian Contract Act? EZYLEGAL, (April 20, 2024, 11:50 PM), https://www.ezylegal.in/blogs/what-is-section-9-of-the-indian-contract-act
[6] Montz v. Pilgrim Films & Television, Inc. NBC, 649 F.3d 975 (2011) (en banc).
[7] Juro, https://juro.com/learn/implied-contract# (last visited April 20,2024)
[8] Ben Thomas, What is an Implied Contract, and Is It Legally Binding? CONCORD (April 21, 2024, 02:00 AM), https://www.concord.app/blog/implied-contract/
[9] Heena Kakkar, Law of Contract: Doctrine of Implied Contract, LEXLIFE INDIA, (April 21, 2024, 11:40 AM), https://lexlife.in/2020/05/11/law-of-contract-doctrine-of-implied-contract/
[10] Haji Mohd. Ishaq vs. Mohd. Iqbal and Mohd. Ali & Co, 1978, 2, SSC 493: AIR 1978 SC 798.
[11] Snehil Prakash, Implied Terms In A Contract, LEGAL SERVICE INDIA, (April 21, 2024, 06:00 PM), https://www.legalserviceindia.com/legal/article-7526-implied-terms-in-a-contract.html
[12] Ibid 9
[13] Upton-upon-Seven RDC vs. Powel, 1942 (1) All ER 220
[14] Ibid 11
[15] Ibid 9
[16] Tax2win, https://tax2win.in/tax-glossary/implied-contract (last visited April 22,2024)
[17] Ibid 16
[18] Ibid 9
[19] K.P. Chowdhary vs. State Of Madhya Pradesh, 1967 AIR 203, 1966 SCR (3) 919.
[20] Kadool Industries vs. State Of Tamil Nadu, 1975 SCC (1) 152
[21]Achhaibar Singh vs. Rajamti and Others, AIR 1929 ALL 483
[22]Hanwant Rai vs. Chandi Prasad and Others, AIR 1929 ALL 293
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