Implied Contracts – An Explainer (2020 Update)
Implied contracts can occur when a term needs to be implied so that parties to a contract can fulfil their obligations. Read more here.
You may think that for a contract to be enforced, there needs to be a written agreement covering all terms. However, this isn’t always the case. If the right conditions are met, the terms of a contract can be implied. An implied contract will be just as legally enforceable as the express terms of a contract. This article will look at what implied contracts are and where they can arise.
An implied contract is an agreement (or term of an agreement) that has been made that isn’t written or expressly stated. This usually takes the form of implied terms in already-formalised contracts, or assumptions made by a party (and acted on) that were facilitated by another. This can be for many reasons, such as that the terms were not clear, one or both parties operates on assumptions that have arisen from the contract, or that there was an intention to create an express contract at a later time.
It can be more difficult to prove the existence of an implied contract as there is no written evidence of an intention to perform these actions. However, if it is enforced, it will have the full effect of an express contract.
Implied in fact
Contracts implied in fact normally occur where there is already a written agreement and there’s a term (or terms) which are not expressly stated. For a Court to enforce an implied term, it needs to be proven that enforcing the term will give effect to the intentions of the parties when they made the contract.
For this to happen, enforcing the implied term must be:
- Reasonable and equitable
- Obvious in that it ‘goes without saying’
- Capable of clear expression
- Not contradictory of any other terms of the contract
Implied in law
Certain types of contracts can be implied in law where there is a general term that should be enforceable. This can include employment contracts, lease agreements and even commercial contracts. A good example of this is the implied duty of cooperation in bilateral contracts. It’s safe to assume that parties to a contract intend to cooperate and fulfil the contract. Further, it is fair to expect that both parties will try to fulfil the contract. If one party acts in a way that contradicts this, then the Court will find that they have breached the contract.
Implying certain terms of a contract is different to rectifying a contract. When the Courts rectify a contract, it involves a including a term which the parties did expressly agree upon, but did not include. When it comes to implying a term, the Courts must assess whether it was “caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it.” Implying terms in a contract usually arises out of a contract that already exists. Implying a term usually only becomes necessary whilst fulfilling the terms of the contract.
There have been many cases where a contract of employment has been held to have implied terms. One instance where this can happen is if a workplace policy contradicts the actions of an employer. A Court will look first at the employment contract. However, if the contract states that workplace policies be enforced, then compliance with the policy will be enforced.
Parties to employment contracts do not have an implied duty to act in good faith or cooperate. However, this does not mean that an employer or employee can enter a contract with the intention of breaching it.
However, there are contracts which are not open to interpretation. This is most notable in transfers for the sale of land. In this case, there’s no room for terms to be interpreted. If terms are not in writing, then the Court won’t enforce them.
Implied contracts although not common, can present an obstacle to parties to a contract. It’s always safer to have everything in writing so that there is no room for ambiguity. Meeting with a contract lawyer to ensure that every intended action under the contract is provided for in the written agreement can help you ensure that the terms of the contract are as clear as they can be.
Jackie is the Content Manager at Lawpath and manages the content team. She has a Law/Arts (Politics) degree from Macquarie University and is an admitted solicitor in the Supreme Court of NSW. She's interested in how technology can help shape the future legal landscape.