Law of Contract: Doctrine of Implied Contract

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An implied contract is created if two or more parties do not have a written contract but the law creates an obligation based on the conduct or circumstances of the parties in the interest of fairness. There are two types of contracts which are implied: contracts which are implied in reality and contracts which are implied in law. While putting all contracts in writing is always a good idea, creating an enforceable contract between parties does not always require a writing.

Evolution

Throughout the earlier part of the nineteenth century, the debate was dominated by a contract theory will and the judicial discussion affected. Contractual responsibility was seen as emerging from the individual’s will. This definition of contract was consistent with (and early cases seem sympathetic to) an emphasis on subjective intent: judges were to analyze the circumstances of a case to decide if individuals agreed to take positions of service.

“There was no contract in the absence of a” meeting of the minds.”This principle paid no particular attention to the potential conflict between a subjective intention and an objective expression of that intent.

The belief that contractual obligation has its origins in the individual will prevailed in the latter part of the nineteenth century, consistent with that time’s omnipresent individualism and the general introduction of notions of liberal political philosophy into law. Nevertheless, scholars of the late nineteenth century such as Holmes and Williston started to make it clear that the proper measure of contractual obligation was the formal expression of the will, the will being objective. Obligation should be added, they argued, not on the basis of the parties’ subjective intent but on the basis of a fair understanding of the language and actions of the parties. Bond compliance will still be seen as a neutral facilitation of intent, given this change, if the parties are thought of as choosing their language and conducting themselves as correct and acceptable indications of their purpose.”‘ Therefore, also in this objective form, the principle of the will of the contract was equated with that of the contract.

Lack of state regulation: the parties regulated themselves; better yet, each party regulated itself. Realists found it difficult to believe that the arrangement was private any longer in the context implied by this caricature. The Realists debunked the myth of state neutrality by arguing that the starting point of contract law is the State’s decision to interfere in a conflict. As Morris Cohen argued: contract compliance, the government doesn’t just allow two people to do what they find fun in their eyes. In fact, compliance places the mechanism of the law at one party’s disposal against the other. It is important when that is worthwhile and how it should be done from this point of view, the objectivist focus on intent as the basis of contractual duty was a clear relinquishment of liability, a refusal to discuss and examine the specific public policy concerns involved in decisions on when and how the courts could interfere in conflicts between the parties. At its most extreme, the Realist criticism presents the “publicness” of the contract as overshadowing its “privacy.” According to Cohen, “Contract law can be viewed as a subordinate branch of public law, as a set of rules according to which the State’s legislative power will be exercised as between the parties to a more or less voluntary transaction. Although controlling its excesses-was at work in ideologies such as manipulation and consideration. Problems of control-the control of the state over individuals, and the power of individuals over one another-were put into focus.

However, this profound challenge to the “privacy” of contract was followed by a continuing confidence in the capacity of the courts to recognize contracting parties’ agreements. For example, it was felt that the contract limited the terms on which the court would interfere if it wanted Pay heed to one faction over the other. Therefore, in the hands of the Realists, a sensitivity to the issue of power was mixed, by and wide, with an obvious lack of sensitivity to the problem of information and how control might be subtly exerted by understanding and constructing purpose. The Realist threat to the “privacy” of contract has been assimilated and defused in the decades since, a process helped by the Realist assault’s incomplete existence. So our central view of contract law is still one of the impartial private volition facilitators. We understand that contract law is concerned with the enforcement of social obligations at the periphery, that is to say the quasi-contract regulates circumstances where, even in the absence of an arrangement, the duty imposes that the doctrines of duress and fraud deprive the reprobate contracting party of benefits arbitrarily extorted.

Yet we conceive of the core arena as an unproblematic implementation of freely agreed obligations. They exclude limited and mandatory contracts completely from the corpus of contract practice, and establish special niches for them, as in labor law and regulation of utility. While we accept that contract law derives from public decisions about what agreements to implement, we maintain that the overriding public decision is to honor and execute private intent.

Thus, for better a concern with public taxation and private volition has characterized contract theory and the debate it has produced over a hundred years. In the remainder of this section, I discuss in far more depth how doctrine has been affected by public-private dichotomy in both the area of the implied contract as well as in the area of duress.

Implied In-Fact Contracts

An implied in-fact contract establishes an obligation between the parties depending on the circumstance facts. Whether the conduct of the parties or the circumstances implies that they had an arrangement or understanding that created an obligation, then the law would conclude that they had an in fact implied contract.

Assume, for starters, that your neighbor hires you to mow his lawn for the whole summer every Friday. During the first three summer weekends you mow your neighbor’s lawn and get paid every time on Saturday morning. The fourth Friday you mow the grass, and your landlord fails to pay you when you arrive in your neighbor’s house on Saturday morning. The law must deduce that, the law will conclude that you and your neighbor have a contract, even if you never put anything in writing. This is in essence an implicit contract. Your neighbor is obligated to pay you as you have done your part of the bargain, there has been agreement based on the prior actions of all parties and your neighbor has been enriched by your success.

Courts must consider the pattern of actions between the parties to decide if there is a contract. Since your neighbor has paid you for the three consecutive summer Saturday, it can be concluded that you have an agreement or an implicit in-fact contract to continue performing and getting paid for those services.

Implied At-Law Contract

An implied at-law contract, the law imposes a contract performance duty and will enforce a contract even against the will of an individual, if conditions are such that without this remedy one party will be disproportionately rewarded by the action of another party. In this case, one party is entitled to restitution for the services rendered, even though there has never been any effort on the part of either party to sign an agreement.

Somebody eats dinner in a restaurant, for instance, and chokes on his meal. A doctor is sitting at a nearby table and watching the individual choke. The physician runs over to execute the Heimlich maneuver and saves the life of the other person. He then sends out a medical bill for treatment given to the diner he rescued. The client is obliged to pay the doctor even if he has no intention of reaching an arrangement with him because otherwise the doctor’s services would disproportionately benefit him. The law will consider an implicit at-law arrangement to prevent this result and would allow the consumer to pay reasonable value for the services he has rendered.

Features of the Doctrine of Implied Contract:

 (1) The offer by one party and the acceptance by the other;

 (2) The consideration, in particular something of interest provided by each party; and

 (3) The mutuality of intent — in particular, a meeting of minds on the terms of the     Contract.

 However some of the terms are also deducted by the parties.

In comparison, an implied-at-law contract is a legal invention used by the courts to avoid an unjust enrichment of an individual at the detriment of another. In such cases, courts use the theory of quasi-contracting to ensure a just outcome. For example, a person who stands by passively while another confers a gain on him, realizing that the second person erroneously expects compensation, might be obliged to pay a reasonable sum for the value conferred. (Sect; 4, Comment b.)

The contracts implied-at-law are not subject to the Contract Disputes Act. As a result, a person can have a hard time convincing a contract appeals court or agency board to grant relief on quasi-contractual grounds. Nevertheless, such relief may in some cases be sought from the agency itself or from the General Accounting Office.

The most common example here is ratification of an illegal undertaking. An approved contracting official approves or ratifies, in a ratification, a contractual agreement that was illegal and thus unenforceable at the time it was made.

When an entity does not ratify an illegal agreement, or cannot ratify it, relief might still be available on a quantum meruit basis. Quantum meruit is an egalitarian doctrine according to which the equal value of the benefit conferred can be credited to a party which confers a benefit on another.

Four elements must be established in favor of a quantum meruit claim:

(1) The products or services would have been a legitimate procurement if appropriate procedures had been followed;

(2) The government must have provided and approved a benefit;

(3) The contractor or other performing party must have behaved in good faith; and

(4) The amount charged must reflect the fair value of the benefit received.

Of course, in practice it is always difficult to apply these abstract principles to the reality of individual cases. Furthermore, as such cases frequently entail such drastic consequences, with relief completely denied to apparently innocent individuals, the courts sometimes tend to somewhat bend the law. It is therefore especially important that any case in this field is judged on its own merits. The inclusion of Article 299 in government contracts very specifically forbids the legitimacy and enforceability of implied contracts. There are several situations in which the courts find that the arrangements specified do not apply in government contracts.

Case laws:

It was held by the Hon’ble Supreme Court in the case of

K.P. Chowdhary vs. State Of Madhya

The Court justified this strict view by saying that if implied contracts were permitted between the government and other persons, they would make Article 299(1) a dead letter for a person who had a contract with the government which was not performed in the manner provided for in Article 299 at all. However, the courts have recognized that it may not always be possible to insist on too strict compliance with all the conditions stipulated in Article 299.

The Court justified this strict view by saying that, if implied contracts were allowed between the government and other people, they would in turn make Article 299(1) a dead document, for then a person who had a contract with the government which was not performed at all in the manner provided for in Article 299(1) could escape by arguing that an implied contract is inferred from the facts and c However, the courts have also recognized that it may not always be possible to insist on too strict conformity with all the conditions laid down in Article 299. Daily, hundreds of government officials enter into a variety of contracts with private parties, often of a small nature.

this was a case of an implied contract resulting from the appellant’s accepting the conditions of auction and that such an implied contract was not hit by Article 299 of the Constitution as that applied plainly to contracts which are required to be reduced to writing and an implied contract in its very nature was not such a contract. Finally the Full Bench held that Section 155(b) of the Madhya Pradesh Land Revenue Code, 1959 applied to this case of implied contract and the amount could be recovered thereunder as arrears of land revenue

Kadool Industries vs. State Of Tamil Nadu

The contract for the selling of the gunny bags was inferred and the appellants’ turnover was calculated accordingly. Remarkably, it was the appellant who challenged the Appellate Assistant Commissioner’s order … an inference may have been made against it. The Tribunal found, under those cases, that there was no implicit arrangement either. The Tribunal’s decision has been challenged before the High Court. The … High Court found an implicit deal was in effect to sell the gunny bags. The Appellant is here with special leave before us. The point is that the Tribunal has reached a de facto conclusion.

Narandas Sunderlal Rathi vs. Ghanshyam Lal and Others

Whether there was an implicit contract then remains the issue. The learned Judge did not contend that there was no implied contract on that point, but he took the view that an implied contract where I see no reason why an implied contract would not be enough. The question is, was there any such arrangement implied? It seems to me that we must assume that when parties join a business words were put “in writing” and were probably omitted from the new by-law advisedly. When a verbal contract is all it takes, I see no reason why there should not be an implicit contract.

Shaboo Majee and Others vs. Noraai Mollha 

There is an implicit contract to repay the sum if a man asks another to pay him money. If he requests another to become a custodian for him, and that other becomes a custodian, and is … obliged to pay, the person on whose request he becomes a custodian is bound by an implied contract to indemnify him, and to reimburse him any sum he is obliged to pay as such. An action lies to-day in … Rambux Chittangeo v. Modoosoodhun Paul Chowdhry. There is nothing to prove that the defender concluded an implicit contract.

Sheikh Meherulla vs. Sariatulla

The Defendant had indicated a deal to indemnify the Complainant for bail bond. In the other hand, it’s pointed out that the bail bond is not on record itself. Yet I … is of the opinion that there was an implied contract to reimburse the Plaintiff and that the Plaintiff is entitled to succeed on such implied contract. In favor of the Law, it is argued that there was no … such implied contract, and further that it could not be legitimately applied even though there was an implied contract. On the terms of the collateral bond, a copy of which was made

Achhaibar Singh vs. Rajamti and Others

A lender is not in possession of a contract that is conditional and will not be binding on a future transferor of redemption equity. It is … unnecessary to question whether the case was properly decided on this point, since the obligation to pay public charges will occur following the mortgage. The implied contract that the borrower has the right to sell the property that he is mortgaging … benefit of the implied contract set out in section 65 can be exercised by any successor in the mortgagee’s interest. The clause would have no effect if it were only the mortgage agent in person.

Hanwant Rai vs. Chandi Prasad and Others

The implied Title Covenant and this Covenant shall be with the Land. If that is the case as far as an implied contract is concerned, it seems to follow that an express contract of this nature must also run … with land. In any case, the Kauleshar Rai vendors and their brothers are entitled to take advantage of the implied contract found in Section 55, Sub-section 2, Transfer of Property Act would apply. The fact that the implied contract is not put in the agreement itself will make no difference at all. Clear or implied contract.

Critical analysis

That type of agreement is regarded as a quasi-contract. A quasi-contract is where the statute imposes an obligation on parties where the parties did not necessarily agree to conclude a contract and made no commitment to execute it. However, because one party may be unjustly rewarded by the action of another party, the recipient of such acts must render restitution or pay fair value for the services rendered, even if there has never been any intention of entering into a contract.

Oral Contracts are enforceable and such contracts shall be enforceable in writing. Many states have law (known as the Fraud Statute) that defines which forms of contracts must be in writing. While these differ by state, most require that land sales contracts have to be in writing to respond for another’s debts that cannot be fulfilled within one year, that are above a certain dollar sum, or include certain sales of products.

While certain forms of contracts do not need to be enforceable in writing, it is still a good idea to have a written agreement if you are entering into a service or selling arrangement with anyone or something in which a conflict can arise.

Conclusion

As with express contracts, there is no interpretation of the term ‘implied contract’ under the Indian Contract Act. An implied contract, as the term itself suggests, is a contract that is inferred by the parties’ conduct and behavior. Words are not used, either written or spoken. Such a contract comes into force after the parties to the contract have decided their purpose. A Quasi-Contract will be an example of an implied contract. Quasi-contracts are “those relationships that mimic those created by contract.” It is based on the maximum equity that no individual can receive unequal benefits at the expense of the other, regardless of whether or not there is a contract.

Authors: Heena Kakkar from Faculty of Law, SGT University.

Editor: Akshat Mehta from Institute of Law, Nirma University.

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