This article is written by Poonam Shekhawat, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Aatima Bhatia (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Introduction

In India, the rules relating to contracts are covered under the Indian Contract Act, 1872 (hereinafter referred to as the ICA) the provisions of which are based on the common law rules. The common law rules have recognized the validity of implied contracts, and the same has been followed in India. So, Section 9 of the ICA recognizes implied contracts as valid and legal, as it states that when a proposal or acceptance is made in a manner other than in words, the promise is implied. Implied contracts are crucial as not all contracts can be formed in writing, especially in the performance of day-to-day activities. However, since implied contracts are assessed based on conduct and actions, it raises several issues. In this article, the author seeks to discuss the varied legal issues existing around implied contracts. The article will first discuss the concept and types of implied contracts, and then the issues with respect to the existence of the implied contracts, along with discussing the implied contracts with the government.

Definition of implied contracts 

The term “implied contract” is not defined under the ICA expressly, but Section 9 covers it in its purview. It defines “implied contract” as the type of contract in which the proposal and acceptance of a contract are implied in a manner other than words. For example, a passenger boarding a cab will not enter into a written contract but it is implied between the cab driver and the passenger that the cab driver will have to drive the person to his destination and the border will have to pay a certain amount of money as fare. Thus, there is an implied contract between them. There are two types of implied contracts: implied contracts in fact and implied contracts in law. 

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Implied contract in fact

An implied contract in fact is a contract in which the existence of a contract is assessed on the basis of the actions or conduct of the parties and the circumstances under which the contract is entered into. For instance, a person entering into a restaurant to eat will not enter into an express contract with the restaurant for them to serve food in return for money, but it is implied that the person has to pay for the food that he is being served by the restaurant. Thus, from the existing circumstances and the conduct of the parties, there exists an implied contract between them. There are no definite provisions under ICA determining these contracts and their existence needs to be determined pursuant to the parties conduct and the circumstances existing therein. 

Implied contract in law

Implied contracts in law are those in which one of the parties will be unjustly enriched in the absence of a contract. For instance, an individual had a heart attack in a restaurant, a doctor was present there at the time and saved his life. In this case, the doctor is entitled to payment owing to a contract because if the doctor is not paid for their services, the individual will be unjustly enriched. An implied contract in law is also known as a quasi-contract. Under ICA, these contracts include a claim for supplying necessaries to a person incompetent to contract (Section 68), reimbursing the payment of money which was paid by the claimant for the use of defendant (Section 69), the obligation of the beneficiary of the non-gratuitous act to pay the person who performed the act (Section 70), obligations of a finder of goods towards the true owner (Section 71), and responsibility of an individual to pay back the money or anything else which is delivered to such person by mistake or under coercion (Section 72). 

Assessing the existence of contractual elements in implied contracts

A contract becomes legally enforceable when it has certain elements that include an offer, acceptance, intention to form a contract, free consent, competency to contract, consideration and lawful object, as provided under the ICA. These elements are required to ensure that the contract has been formed on the meeting of minds, the parties are capable of entering into a contract, and that none of the parties is being taken undue advantage of. Also, the contract should not be illegal. The absence of either of these elements will render the contract non-enforceable. A party to a contract can only approach the Court for seeking remedies when the contract is enforceable and thus, the assessment of the existence of these elements is crucial. 

In express contracts, the existence of these elements can be assessed on the basis of the express words used by the parties or via documents existing in writing. However, in the case of implied contracts, each of these elements is to be assessed in lieu of the actions, the conduct of the parties and the surrounding circumstances. Since the existence of elements is to be deduced on this basis, it is likely that the parties/party did not actually intend to be bound by the contract but the court may find the existence of an implied contractual relationship. 

In express contracts, the intention is determined on the basis of the nature of the relationship between parties. The presumption in commercial contracts is that intention exists whereas, in a social or domestic relationship, the intention is presumed not to exist. However, this presumption is rebuttable, and if proven that intention exists, the contract will be held valid. These rules may not be applicable in the same manner in the case of an implied contract. Since the existence of elements is based on the actions and conduct of the parties and the circumstances surrounding the formation of the contract in question, these may not always reveal the fact directly. Each individual acts differently in different situations, so a person might have not intended to enter into a contract but if the circumstances suggest so, he has to be bound by it. 

Principles of unjust enrichment and quantum meruit

One of the principles behind the existence of quasi-contracts is unjust enrichment. As per this principle, no person shall be unjustly enriched at the expense of the other. This principle requires the beneficiary to make payments to the person who has conferred a benefit on him. In general, the contract rules provide that consideration is an important element for the formation of a contract and it shall be mutual.

If we consider the scenario discussed above where a doctor saves a person in a restaurant who suffered a heart attack, in this situation, the doctor will be reimbursed if he saves the person. What if the doctor is unable to save the person? Will the doctor still be entitled to reimbursement for their service? The present rules of “Quantum Meriut” provides that a person is entitled to compensation or reimbursement when the other person has received a benefit, but in this situation, the other person did not receive any benefit so the doctor will not be entitled to any reimbursement. However, if this would have been a normal situation wherein the patient is being taken to a hospital, the doctor is entitled to reimbursement irrespective of the fact the patient survives or not. Thus, the principles applied to implied contracts may or may not compensate an individual providing a service, especially in the case of quasi-contracts. 

Government contracts and implied contracts

In various areas of life, an individual avails services of the Government. Given the concept of the welfare state, the activities of the Government in the economic sense are expanding and it is dispensing various services in which an individual enters into a contract with the Government. Any contract is formed between an individual and a State/Central Government will be known as a government contract. In India, government contracts are only valid if they are written. An implied contract does not exist in the case of government contracts. Article 299 provides that the government contracts shall be expressed to be made by the President of the State Government, and shall be executed. In Bhikaraj Jaipuria v Union of India, the Supreme Court interpreted this provision to deduce that the words “expressed” and “executed” as used in this provision implies that there must be a written contract, and the contracts in any other form will not be valid. Thus, there exists no scope for any implied contract with the government, and a contract with the government is only valid if it complies with Article 299, i.e., it must be expressed reimbursement if he incurs a loss or has to spend more in reaching his destination from the location where the driver may have dropped him but the case is not entirely the same with a public service or a government-owned implied contracts that have not been addressed yet. The first issue is the different rules of assessing the existence of the elements of the contract, and due to these rules, express contracts and implied contracts are likely to be subject to different rules. Secondly, the principles of unjust enrichment and quantum meriut are also applicable to the implied contracts differently than those of the express contracts which may put a party to the contract in a non-beneficial position. Similarly, the non-applicability of the rule of the implied contract to the government contracts makes the other party suffer losses. Therefore, these legal issues need to be resolved to meet the needs of the parties to such contracts.  

References

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