Key Takeaways

  • An implied contract is legally binding even when not written or spoken.
  • There are two types: implied-in-fact (based on conduct) and implied-in-law (quasi-contracts to prevent unjust enrichment).
  • A breach of implied contract occurs when one party fails to fulfill their implied obligations.
  • Courts evaluate context, conduct, prior dealings, and fairness when deciding breach claims.
  • Remedies can include compensatory damages, equitable relief, or restitution, depending on the circumstances.

What is a breach of implied contract? A cause of action for a breach of implied contract has the same attributes as does a cause of action for breach of contract, except that the guarantee is not expressed in words, but is implied from the promisor's conduct.

What Is an Implied Contract?

An implied contract is created when there is no written or verbal contract between parties, but the courts have determined that a contract exists based on the actions of the parties or on the circumstances. In many cases, it's best to make sure all agreements are finalized in writing to prove the formalities of a contract exists.

However, if the court determines that there is an implied contract, it can create various responsibilities and duties for the parties involved. Therefore, implied contracts allow for the existence of specific contracts, even if there is no formal verbal or written agreement between the parties. In other words, an implied contract is a substitute for both a formal written contract and a verbal agreement.

For example, an implied contract is created when someone purchases a product that comes with a mandatory warranty that is issued by law. Implied contracts have identical legal authority as express contracts. Also, both are entered into voluntarily and are agreed to by all parties involved. However, the presence of an implied contract is significantly more challenging to justify in court due to the nonexistence of a written agreement. Many jurisdictions request that certain types of contractual agreements, such as real estate, need to be agreed to explicitly as express contracts.

Implied-In-Fact

The two categories of implied contracts include:

  1. Implied-in-fact
  2. Implied-in-law

Implied-in-fact contracts are based on the situation and the requirements created between the parties. Also, one party tends to the agreement verbally and expresses an obligation to fulfill specific tasks, and provide assurance that they will be completed. Implied-in-fact contracts are also known as true contracts. The descriptive name of the contract identifies the situation: the facts presented generate an implied contract.

For example, John has an ATV with a snow plow attachment, and out of courtesy, he digs out his neighbor's driveway. When John's completed, the neighbor gratefully hands John $20. The next two times it snows and without being asked, John plows his neighbor's driveway. Once again the neighbor gives John $20, each time. However, the fourth time it snows, John plows the driveway but isn't given any money by the neighbor.

The next day John asks his neighbor for the $20 that is owed to him, but the neighbor refuses to pay him as he states that they never entered into a contract. The neighbor explains that he assumed John was just trying to be a good neighbor and wasn't looking to receive a payment.

If this particular situation were ever to go to court, the law would most likely be on John's side. The courts would ascertain that an implied-in-fact contract existed between John and his neighbor because John received three payments for his services, and the neighbor continued to have his driveway plowed without informing John that he wasn't going to pay him. Just because an express contract does not exist does not mean that a contractual relationship has not been created. The conduct and acts of the two parties may create an implied-in-fact contract.

Implied-In-Law

An implied-in-law contract is an obligation created by law on the behalf of justice or to ward off unjust enrichment. It operates as a valid contract for purposes of remedy only; the general rules of contract do not apply to contracts implied in law.

Implied-in-law contracts are sometimes referred to as quasi-contracts. A quasi-contract is created when two parties have no intention of forming a contract or agreement, but by law, they must be forced into one because one party will be unjustly enriched, and the other will need to pay restitution.

What Is a Breach of Implied Contract?

A legal complaint is created when one party to an implied contract breaches the agreement. A breach doesn't need to be defined in a verbal or written agreement. Instead, it can be any negligence of principal, law, or obligation. It is this very general legal definition of a breach that causes so much confusion between parties and creates an abundance of lawsuits stemming from a breach of implied agreements.

Legal Elements Required to Prove a Breach of Implied Contract

To prevail in a lawsuit for breach of implied contract, the plaintiff must typically prove the following elements:

  1. Existence of an Implied Agreement: The parties acted in a manner that implies mutual consent to a contractual relationship.
  2. Consideration: Each party must have provided something of value (goods, services, etc.).
  3. Breach: One party failed to fulfill their obligations as reasonably inferred from the agreement.
  4. Damages: The non-breaching party suffered harm due to the breach.

Courts examine the conduct of the parties, prior business interactions, industry norms, and reasonable expectations to determine if an implied contract existed and whether a breach occurred.

Common Examples of Breach of Implied Contract

Several real-world scenarios can give rise to a breach of implied contract, including:

  • Employment Settings: An employer implies continued employment based on verbal assurances or company policies, then terminates the employee without cause.
  • Repeated Services for Payment: A contractor performs services repeatedly and is paid each time, but payment stops without prior notice.
  • Supplier Relationships: A supplier consistently delivers goods without a formal agreement but is suddenly refused payment despite prior acceptance.

These situations often involve a “course of dealing” or a pattern of prior conduct that suggests mutual obligations, even in the absence of a written contract.

Legal Remedies for Breach of Implied Contract

If a court finds that a breach of implied contract occurred, several remedies may be available:

  • Compensatory Damages: Payment to restore the non-breaching party to the position they would have been in had the contract been fulfilled.
  • Restitution: Reimbursement for any unjust benefit received by the breaching party.
  • Specific Performance (rare): A court order requiring the breaching party to perform their obligations under the implied contract.
  • Quantum Meruit: Payment for the value of services rendered, even without a formal agreement.

These remedies aim to prevent unfair outcomes and ensure equity where an implied agreement has been reasonably established.

When Courts Refuse to Enforce Implied Contracts

Courts may refuse to recognize an implied contract in the following situations:

  • Statutory Requirements: Certain agreements, like those related to real estate, must be in writing under the Statute of Frauds.
  • Lack of Mutual Intent: If the conduct does not clearly indicate a mutual intent to form a contract.
  • Insufficient Evidence: If the party alleging the implied contract cannot show consistent or compelling conduct suggesting an agreement.

Judges will scrutinize whether the expectations were reasonable and based on mutual understanding rather than assumption.

Frequently Asked Questions

  1. What makes an implied contract legally binding?
    The conduct of the parties must show mutual intent to enter into a contractual relationship, supported by consideration and resulting obligations.
  2. Can you sue for breach of an implied contract?
    Yes. If one party fails to meet their implied obligations and damages result, the injured party can pursue legal action.
  3. How do courts determine if an implied contract exists?
    Courts evaluate actions, communication, past dealings, and industry norms to determine the presence of an implied-in-fact contract.
  4. Is a written contract stronger than an implied one?
    Generally, yes. Written contracts provide clear evidence of terms, making enforcement easier. However, implied contracts are still legally enforceable.
  5. Can implied contracts exist in employment?
    Yes. For example, implied contracts can arise from employee handbooks, performance reviews, or repeated verbal assurances about job security.

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