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Implicit Agreement Examples

For example, when an employer allows a worker to continue working after the end of his or her service, he cannot later say that he does not want to pay the worker, since the working time has been pushed back beyond the agreed position. A court will probably consider that the employer should have sent the worker home or let him know that he was not being paid. When the employer allowed the worker to continue working beyond his or her position, an implicit contract, based on the employee`s expectation of pay, and the enrichment of the employer to the detriment of the employee, is created. The banking relationship approach focuses on unfavourable choice, the main consequence of the imperfection of information between lenders and borrowers; But there is also the problem of moral hazard. In general, there are two morality issues related to the capital market. First, borrowers may be lying about their financial situation and not paying off their debts in full. If the lender could not verify whether the borrower was lying, there could be no credit in the market, especially if the debt is not secured. Second, if, for example, a borrower makes a bad decision leading to bankruptcy, he does not bear the entire error, because part of the costs are borne by the bank that finances the project. As a result, the company will likely make riskier decisions if the investment is financed by a bank than if the investment is financed out of its own pocket. Economists show that these problems could be solved by an implied contract in which the borrower will have to bear certain costs if he has made the debt insolvent. The cost of the borrower`s default may be the cost of hiring lawyers and accountants to convince the lender of its emergency financial situation[13], exclusion from the capital market and future loans[14] or economic penalties if the borrower is a country. [15] However, since some of these costs will reduce the amount that will be recognized for the lender in the event of bankruptcy, the expected return is lower than that of moral risk problems.

As a result, the level of investment would also be lower, which would lead to loan rationing at the loan level. Local, regional and regional governments lead many implicit agreements through regulations. The relationship between an employer and an employee is generally implicit. Employers employ someone and expect them to perform duties in exchange for compensation. While companies sign a contract or papers to employees, the employment relationship can be separated from the company at any time, unless it is contrary to labour laws or discrimination. In a particular area, an implicit agreement usually gives way to an explicit contract when it has one. The law allows a party to recover compensation in some cases if the form of the contract does not exist, but it would be unfair to deny discharge to the complainant.