Paralegal Advanced Competency Exam (PACE) Practice Exam

Which of the following defines an implied contract?

1. A contract explicitly agreed upon by all parties

2. A contract created through oral discussions

3. A contract inferred by law based on actions

4. A formal written agreement signed by both parties

The correct answer is: A contract inferred by law based on actions

An implied contract is one that is not officially written or spoken but is instead established through the actions, behaviors, and circumstances of the parties involved. This type of contract arises from the premise that both parties have a mutual agreement based on their conduct, which suggests a promise or understanding, even without explicit terms being documented. For example, when a person visits a restaurant and orders a meal, a contract is implied that they will pay for the food. There is no formal written agreement, nor is there explicit verbal consent made before the meal is served. Instead, the mutual actions—ordering food and providing it in exchange for payment—create an understanding that both parties are bound by this contract. In contrast, the other choices do not reflect the nature of an implied contract. The first choice focuses on explicit agreements, which are clearly defined and openly stated by all parties. The second option references oral discussions that may not result in a binding agreement unless all elements of a contract are met. The fourth option describes a formal written agreement, which is not applicable in cases of implied contracts. Thus, the defining characteristic of an implied contract is accurately captured by the idea that it is inferred by law based on the actions of the parties involved.