An implied agreement is a contract that the law finds in the parties' conduct rather than in anything they wrote or said. Nothing needs to be signed for it to exist, and often very little needs to be said. A client whose written contract has lapsed keeps sending work and paying for it. A supplier starts a job on the strength of a phone call and a "sounds good" email. A shopkeeper serves a customer who never asks the price. In each case the law may treat the parties as having made a binding agreement, with the terms inferred from the circumstances.
This article covers:
- The concept: what an implied agreement is and the two forms the law recognises.
- The elements: what a court must find before conduct becomes a binding contract.
- A worked example: how this plays out when a contract expires but the work continues.
- Implied terms: how additional terms can be read into a written contract.
- The misconceptions: the beliefs about informal dealing that cause the most trouble.
What an implied agreement is
An implied agreement, also called an implied contract, is a legally binding agreement inferred from behaviour, circumstances and commercial context rather than from express written or spoken terms. The law distinguishes two forms:
- Implied in fact: the parties' conduct shows a mutual intention to contract, even though they never stated it. The classic example is a supplier who keeps delivering and invoicing after a fixed-term contract ends while the customer keeps paying. Their conduct is consistent only with a continuing deal.
- Implied in law: the law imposes an obligation regardless of what the parties intended, usually to stop one party being unjustly enriched at the expense of another. A builder who does work under an agreement that turns out to be unenforceable can still recover a fair price for the benefit conferred, as the High Court recognised in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221. These obligations are sometimes called quasi-contractual or restitutionary.
Implied agreements should not be confused with express contracts made informally. An agreement struck over the phone, in a text or in an email chain is still an express contract; it is simply not a formal document. What makes a deal implied is that the agreement itself is inferred from conduct.
What a court looks for in conduct
The same elements that form any contract must be present before a court will find an implied agreement. The difference is that the evidence for them comes from what the parties did, not from what they signed.
The assessment is objective. Courts ask what a reasonable businessperson, looking at the dealings as a whole, would conclude the parties agreed, rather than what either party privately intended. The High Court confirmed in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 that the intention to create legal relations is assessed objectively and is not the subject of automatic presumptions, although in ordinary commercial dealings the natural inference is that the parties meant to be bound.
The elements, and how conduct can prove them:
- Offer and acceptance: a quote sent and work performed in response, or a continuing pattern of supply and payment, can amount to an offer and acceptance even where no words were exchanged. Australian courts regularly find offer and acceptance in conduct alone, as in Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61.
- Consideration: each side must give something of value. Payment, goods, services or a promise of any of these will do, and in most ongoing dealings it is obvious on the face of the invoices.
- Intention to create legal relations: in a commercial setting this is usually readily inferred. A business that supplies and a customer that pays are generally taken to intend a legal arrangement rather than a favour.
- Certainty: the essential terms must be clear enough to enforce, or there must be a workable way of determining them. Price, scope and timing are the usual flashpoints.
Where the facts do not support a contract at all, the law can still step in. A party who has conferred a benefit on another and received nothing may have a claim in restitution for the reasonable value of the work, a quantum meruit claim of the kind recognised in Pavey & Matthews.
A worked example: the retainer that ran out
Consider a small graphic design studio in Melbourne. It worked for a retailer under a 12-month service agreement covering monthly design work at a set hourly rate, with payment within 14 days of invoice. The agreement expired in June, but neither side mentioned it. Through to February the studio kept receiving briefs by email, delivering designs, invoicing monthly and being paid in full.
In February the retailer's marketing manager resigned and the new manager disputes the latest invoice, arguing that without a signed agreement the studio has no right to be paid. The studio's position is actually strong. Its continuing performance and the retailer's continuing acceptance and payment of invoices over eight months provide the offer, acceptance and consideration. The commercial context supplies the intention to be bound. Price and scope are certain enough because the course of dealing, the hourly rate and the invoicing pattern established them. A court would most likely find a binding implied agreement on the same terms as the expired one, so the retailer would have to pay.
The harder question would arise if the February work had been a new project of a type never done before, with no price discussed. Then the terms might be too uncertain to enforce as a contract, and the studio's fallback would be a restitution claim for the reasonable value of the work rather than the agreed rate. That is the practical difference between an enforceable implied agreement and a claim for a fair price, and it is why the terms of an informal arrangement matter as much as whether one exists.
Implied terms inside written contracts
Even where a written contract exists, the law can read additional terms into it. This matters because a business that assumes silence in its contract means freedom from obligations can be caught out.
At common law, a term will be implied into a contract only in narrow circumstances. The classic statement of the test remains BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, under which a term must:
- be reasonable and equitable;
- be necessary to give business efficacy to the contract, so the deal would not work sensibly without it;
- be so obvious that it goes without saying;
- be capable of clear expression; and
- not contradict any express term of the contract.
A well-established custom of a particular trade can also be implied into a contract, provided both parties were aware of it or ought to have been.
On top of the common law, statute implies terms that cannot be excluded. Under the Australian Consumer Law, which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), every supply of goods to a consumer carries a guarantee of acceptable quality (s 54) and every supply of services carries a guarantee that they will be rendered with due care and skill (s 60). Section 64 of the Australian Consumer Law makes any contractual term that tries to exclude, restrict or modify those guarantees void. A written contract cannot switch them off, and a court will not imply a term that conflicts with the express wording of the deal.
Australian courts have also recognised an implied duty of good faith in some kinds of commercial contracts, but it is not read into every agreement. Whether it applies depends on the terms of the contract and the surrounding circumstances, which is one reason precise drafting matters.
Misconceptions about implied agreements
Several beliefs about informal dealing are wrong in ways that can be expensive:
- "No signed document means no contract." Conduct can establish every element of a contract. The question is not whether a document exists, but whether the dealings, viewed objectively, show an offer, acceptance, consideration, intention and certainty.
- "A verbal or email deal is an implied agreement." It is not. It is an express contract made informally. The legal point is the same either way: whether the essentials of a contract are present.
- "If the contract is silent, we owe nothing extra." Terms can be implied to make the deal work, industry custom can fill gaps, and statutory guarantees such as the consumer guarantees apply regardless of what the contract says.
- "An implied agreement is weaker than a written one." It binds just as hard. The real difference is evidentiary. With a signed contract the terms are on paper; with an implied agreement they have to be reconstructed from conduct, invoices and communications, which is where disputes start.
When a lawyer helps
The value of legal advice in this area is usually in assessing the situation before it becomes a dispute. A commercial lawyer can review the trail of conduct, invoices, purchase orders and emails and advise whether a contract exists, on what terms, and how strong each party's position is. Where work has begun without signed terms, a lawyer can help draft a confirmation of the arrangement that records price, scope and key assumptions before expectations diverge. Where a claim needs to be made, a lawyer can advise whether the route is enforcement of an implied agreement or a restitution claim, and what evidence will be needed to prove it. Early advice tends to be far cheaper than reconstructing a deal after the parties have fallen out.
The question to ask before the next job starts
The misstep that costs businesses most in this area is not failing to sign something. It is starting work, or accepting work, before the price, scope and other essential terms are settled, and then assuming that the absence of a document protects whoever turns out to be disadvantaged. It protects no one. The same conduct that lets you enforce payment can also bind you to obligations you did not intend.
Before work starts without a signed agreement, ask yourself: if a court watched everything you do from here, what would a reasonable businessperson conclude you agreed, and on what terms? If the answer is not clear to you, it will not be clear to a court either, and that uncertainty is where the loss lands. A short written confirmation of the essentials, or a prompt renewal of lapsed terms, is usually all it takes to close the gap.