Implied Contracts and How to Avoid Being Caught in One

How to Avoid Making a Contract Without Knowing It

How to Avoid Making an Implied Contract
How to Avoid Making an Implied Contract. Photography by Bobi/Getty Images

Business contracts can be tricky. You can find yourself in a contract without being aware of it. 

Your neighbor turns up on your property one day with a lawn mower and proceeds to mow your lawn. You go out and say, "Thanks!" The next week your neighbor turns up again and mows your lawn again. You thank him again and think nothing of it. The third week, your neighbor mows your lawn and  turns up at your door with a bill for three weeks of lawn mowing.

 

By your actions, you have created an implied contract. And you will probably have to pay him. 

What is an Implied Contract? 

An implied contract is an unwritten contract. It has the force of law because of the actions of the parties and the circumstances. There are two types of implied contracts:

Implied-in-Fact Contract
An implied-in-fact contract is an unwritten contract that the parties presumably intended to agree on, as can be inferred from their actions, conduct, and the circumstances. The "meeting of the minds" necessary for a valid contract is not written in this type of contract, but it can reasonably be inferred to have taken place.

Here's an example: if a vendor sends goods to a customer, and the customer takes the goods without paying and uses those goods to make products or re-sell for a profit, a contract to buy and sell those good might be inferred. The customer must pay for the goods because an implied contract has been created.

 

Implied-in-Law Contract
An implied-in-law contract is a quasi-contract, in which there is an obligation imposed by law because of some special relationship between the parties, or because one of the parties would otherwise unjustly benefit from the relationship.  

The best example is this: You are at a restaurant and you choke on a chicken bone.

A doctor at the next table performs the Heimlich maneuver and saves your life. Then she sends you a bill for her services. Yes, you'll probably have to pay. The law looks at fairness and whether you benefitted from the relationship (brief as it was. 

A verbal contract, in which there is nothing writing, might be considered an implied contract. If both parties act as if they had a contract, the existence of an implied contract can be inferred.  

Are Implied Contracts Legal? 

The term "legal" is usually discussed in terms of the contract being valid and also legally binding on both parties. Learn the six elements that make a contract valid and be aware of them in your dealings with others. 

Some contracts must be in writing to be heard in court, but otherwise, an implied contract that is valid (that meets all of the six elements) is perfectly "legal." 

 

How to Avoid Making an Implied Contract

Sometimes you can't avoid creating an implied contract. People being what they are, you can't tell the doctor "Don't give me the Heimlich because I'm not paying you." 

The best way to avoid implied contracts is to be aware that an implied contract might exist and being explicit about your actions when dealing with others in business and personal situations.

After the second time of mowing your lawn, you might ask your neighbor, "Hey! I really appreciate this. But you know I didn't ask you to do this.I'm not hiring you to mow my lawn." 

Avoiding Implied Contracts in Employment Situations

Implied-in-fact contracts come up occasionally in hiring situations. You don't want to imply that an employee has any kind of employment contract with you, because that opens up all sorts of issues. 

When making employment offers, make sure that you explain that the employment is "at-will."; That means, either party can cancel the relationship at any time. 

In writing, avoid the appearance of a contract. For example, don't say, "WHEN your probationary period is over." That sounds like a promise that the person will be able to stay for the entire probationary period and that he or she will have a permanent job.

Instead, say "IF you complete the probationary period." 

Have a talk with an employment attorney before you hire any employees, so you can learn the pitfalls and avoid them.