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Implied Contract


An implied contract is an agreement that exists based on the actions, behavior, or circumstances of the involved parties, rather than through explicitly written or verbal communication. In the financial context, implied contracts often arise in business relationships where both parties understand their roles and have a mutual agreement, even without formal documentation. While not as legally binding as written contracts, these agreements may still be recognized and enforced in a court of law if there is sufficient evidence of the understanding between the parties.


The phonetics of the keyword “Implied Contract” are as follows:Implied: /ɪmˈplaɪd/Contract: /kənˈtrækt/

Key Takeaways

  1. An Implied Contract is an agreement that is inferred from the conduct, actions, or circumstances of the parties involved, instead of being explicitly stated through written or spoken words.
  2. There are two types of Implied Contracts: Implied-in-Fact Contracts and Implied-in-Law Contracts. Implied-in-Fact Contracts are formed through the mutual understanding of the parties, while Implied-in-Law Contracts are imposed by a court to prevent unjust enrichment.
  3. Implied Contracts are legally binding, and therefore, enforceable in court. Both parties involved are expected to uphold their respective obligations under the agreement, and violations can lead to legal consequences and potential damages.


The business/finance term “Implied Contract” holds significant importance as it refers to a legally binding agreement created through the actions, behavior, or circumstances of the involved parties rather than through explicit written or verbal communication. These contracts serve as a fundamental aspect of dealing with various business transactions, ensuring that parties are bound by a certain set of obligations, even in the absence of explicit agreements. Implied contracts play a crucial role in providing legal protection, guaranteeing fair business practices, and maintaining a stable and trustworthy business environment, even when formal documentation is lacking. As such, understanding implied contracts is essential for businesses and individuals to avoid potential misunderstandings or disputes, and ensure smooth and successful business endeavors.


An implied contract plays a significant role in the world of finance and business by fostering a sense of trust and reliability between parties involved in a transaction or business agreement. Although not explicitly documented or confirmed by written or spoken terms, implied contracts are formed through the conduct, actions, or behavior of individuals who are assumed to have a mutual understanding of their respective rights and responsibilities. This type of agreement can manifest in various settings such as employer-employee relationships, customer purchases, and dealings among business partners. Implied contracts can govern transactions and solidify professional relationships, even if the exact terms remain undefined.

Implied contracts serve a vital purpose in the business landscape because they account for the nuances and complexities that may not be easily defined in a written agreement. By allowing parties to proceed with a tacit understanding, business practices can become more fluid, while also encouraging parties to maintain goodwill and uphold ethical behavior. As a result, an atmosphere of cooperation and cohesion is fostered, ensuring that the mutual interests of parties are considered and safeguarded. However, disputes may arise due to the nature of these agreements, which may necessitate the involvement of legal professionals. Even in such cases, the existence of an implied contract can strengthen one party’s legal position or aid in obtaining resolution.


1. Employment Agreements: When an employee begins to work for a company without signing a written employment contract, an implied contract can exist. The expectations of the employer regarding the employee’s duties, hours, salary and benefits, along with the employee’s understanding and acceptance of these terms, constitute an implied contract. Employers should be cautious about discussing salary or terms of employment with potential employees, as these conversations may be considered part of an implied contract if the person is hired.

2. Landlord-Tenant Relationships: A residential tenancy agreement doesn’t always need to be in writing. When a landlord allows a tenant to move into a property with the understanding that they will pay rent and adhere to certain living conditions (e.g., not damaging the property), an implied contract exists. The tenant is expected to pay the agreed-upon rent on time and abide by the rules set out by the landlord, and the landlord, in turn, has the responsibility to uphold their part of the agreement, such as providing a safe living environment.

3. Business Partnerships: Two individuals who collaborate on a project, share resources, split profits and losses, and make joint business decisions may have an implied partnership contract even if they never formally agreed in writing. In this case, both parties have the understanding that they are working together, and their actions create an implied contract. This can lead to legal complications if one party feels they are being treated unfairly or if there is a disagreement about the distribution of profits, responsibilities, or liabilities.

Frequently Asked Questions(FAQ)

What is an Implied Contract?

An implied contract is an unwritten agreement between two parties that is derived from the conduct, behavior, or actions of the parties involved, rather than explicitly stated in writing. It is understood by both parties but is not openly expressed or put into written documentation.

How is an Implied Contract formed?

An implied contract is created when two parties engage in a mutually beneficial relationship that is not documented in writing. The formation of an implied contract depends on the intention, conduct, and good faith of the parties involved, as well as the surrounding circumstances.

What are the types of Implied Contracts?

Implied contracts can be categorized into two types: Implied-In-Fact Contract and Implied-In-Law Contract.1. Implied-In-Fact Contract: The agreement arises from the actions, conduct, or circumstances of the parties involved, indicating that a mutual understanding exists.2. Implied-In-Law Contract: Also known as a quasi-contract, it is not based on the intent of the parties but is imposed by law to prevent unjust enrichment or other unfair outcomes.

Are Implied Contracts legally enforceable?

Yes, implied contracts are legally enforceable agreements, as long as they fulfill the essential requirements of a valid contract, such as offer and acceptance, consideration, capacity of parties, and legal purpose.

What are some common examples of Implied Contracts?

Common examples of implied contracts include:1. A customer sitting down at a restaurant implies they agree to pay for the meal they order.2. A doctor providing emergency medical assistance to a patient implies that the patient agrees to pay for the services received.3. An architect, who has consistently worked on a project for a client and received payment, implies a contract to continue working on the project and being paid for future work.

How can I prove the existence of an Implied Contract in legal disputes?

Proving the existence of an implied contract may require evidence of a course of conduct, correspondence, oral communication, or other credible evidence demonstrating the parties’ intentions to enter into a contractual relationship. The burden of proof lies on the party claiming the existence of an implied contract.

Related Finance Terms

  • Implied-in-fact contract
  • Quasi-contract
  • Contract law
  • Offer and acceptance
  • Breach of contract

Sources for More Information

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